New Clause 8 — Report on the additional rate of income tax

Finance Bill (Ways and Means) – in the House of Commons at 3:34 pm on 1st July 2013.

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Votes in this debate

  • Division number 37
    A majority of MPs voted against the production of a report on the impact of changing the additional rate of income tax.

‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the additional rate of income tax.

(2) This report shall review the impact upon Exchequer receipts of setting the additional rate to 50 per cent. in the tax year 2014-15.

(3) The report shall review what impact reducing the additional rate for 2013-14 will have on the amount of income tax currently paid by those with taxable incomes of—

(a) over £150,000 per year; and

(b) over £1,000,000 per year.

(4) The report shall review what impact reducing the additional rate for 2013-14 will have on the level of bonuses awarded in the financial sector in April 2013.’.—(Cathy Jamieson.)

Brought up, and read the First time.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 3:39 pm, 1st July 2013

I beg to move, That the clause be read a Second time.

The Government have previously declared that we are “all in this together”, and I want to develop that theme. I am sure the Exchequer Secretary will be listening intently. They have insisted that those with the broadest shoulders should bear the greatest burden, but in Work and Pensions questions earlier, we heard that some Opposition Members are somewhat sceptical about that claim. Although the Government have also consistently told us that their priority is to cut the deficit by what they describe as “fair and reasonable means”, in politics it is actions, not mere words, that show priorities. The same Government, in tough times and against the backdrop of falling living standards—borrowing up last year, growth continuing to flatline and drastic cuts being made to benefits for hard-working families—have decided to give millionaires a tax cut. [Interruption.] I hear Mr Stuart call out that that is nonsense. I am more than willing to take an intervention from him should he wish to justify the tax cut for millionaires.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

I am delighted to intervene on the hon. Lady. She will be aware that the art of taxation is to extract the maximum amount of money with the minimum amount of hissing. Is she aware of the principle that a lower tax rate can often lead to a higher tax take, and does she think it might apply in this case, thus meaning that millionaires pay more, not less?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

It will be no surprise to the hon. Gentleman that I do not agree with his point.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am aware of that point of principle and I will come to it in due course, because it is an issue to consider.

Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Before the hon. Lady comes to that principle, she will be aware that the 2012 Red Book confirmed that, according to the Government’s own figures, the change would cost £450 million. At the most basic level, whether we agree with that number or think it is too low, if there is £450 million going spare, it would be better to do something socially productive with it than to give it back to people who are already wealthy.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I thank the hon. Gentleman. He and I do not always agree on every matter that is discussed in the Chamber, but on this occasion I accept what he says.

We have heard disagreement on the Government Benches with the point that I was making, but the reality is that as of this April, 13,000 people earning more than £1 million a year are receiving a tax cut equivalent to £100,000. Another 254,000 people earning more than £150,000 a year are also seeing their income tax bills go down. At the same time, if we take into account the changes that the Tory-led Government have made to tax, tax credits and benefits, households in the UK will be an average of £891 a year worse off. That is the reality that people face. As I have said in a number of previous debates, that may not seem a lot of money to the millionaires who are getting a tax cut from the Government, or to those on the highest wages, but it is a lot of money for my constituents and, I am sure, for the constituents of other hon. Members. I see some heads nodding on the Government Benches. It is a huge amount for constituents throughout the country, who are being ruthlessly squeezed to pay for the Chancellor’s economic failure.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

It is indeed a lot of money for many of my constituents and my hon. Friend’s. Is she aware of the figures published by the Institute for Fiscal Studies showing that for a two-earner couple with children, the loss caused by the changes rises to £1,869.09?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Yes indeed. My hon. Friend makes an important point on which I will comment further in due course.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Let me answer my hon. Friend’s point because it is important to understand the impact that this Government’s policies are having on families across the country. He makes the important point that a couple with children in such circumstances will face difficulties, and in some instances must make choices about how they will pay for things that we or our children perhaps take for granted. Government Members have simply failed to recognise or respond to, or in many instances acknowledge, that point.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hope that the hon. Gentleman will acknowledge that point.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

Will the hon. Lady say whether Labour would reinstate the 50p tax rate if it were in government, and if that is the case, when would that be? Can she say how much money that move would raise for the Exchequer?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

The hon. Gentleman has probably heard many Opposition Members stand at the Dispatch Box and make our position absolutely clear: if we were in government just now, that is not what we would be doing. There is a whole range of other things—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I want to finish this point. If the hon. Gentleman can contain his excitement, I am sure he will have the opportunity to develop his arguments at some stage. It is important to recognise that the Government are doing many things that Labour simply would not do. We suggested a whole range of things that the Government could do to get growth back into the economy, and I will mention some of those today. It is important, however—[Interruption.] I hear the Minister from a sedentary position say, “Borrowing more”. Is that an admission that his Government are borrowing more than they set out to do, that they have not got the deficit down as planned, and that they have not brought growth back into the economy as they promised? I would be more than happy if the Minister wished to put something on the record at this point. [Interruption.] He does not, so I will give way to Mr Jones.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady said that if Labour was in power now it would reverse the decision and reinstate the 50p tax rate, but there will not be a general election for the next two years. If the Labour party is in government in two years’ time, would it then reverse that decision and reinstate the 50p tax rate—yes or no?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I find it astonishing that Government Members never seem to take any responsibility for what is going on under their watch. Under their watch, the deficit has not come down as much as they promised, borrowing is higher than planned, and the Government have failed to get growth back into the economy.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

The hon. Lady made some important and passionate points about the impact of being worse off every year by £800, which is a big amount of money for many of my constituents. Given that we have just broadly agreed public expenditure figures for the next Parliament, does she feel that if this is a point of principle it is beholden on her to answer the question posed by my hon. Friend Mr Jones about whether a Labour Government would stick to their principles in the next election?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I can say to the hon. Gentleman that yes, we would stick to principles of fairness and equality, and we would not seek to advantage those who already have the highest incomes at the expense of those on lower incomes. Once again, I repeat what a number of Labour Members have said: at this point we do not know in what shape the economy will be two years from now, and as a responsible Opposition we intend to look in detail at where spend would be best put in the years ahead.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I want to make progress but I will, of course, give way to the hon. Gentleman.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I am extremely grateful to the hon. Lady; she always covers these issues with great interest. Why is the shadow Chancellor able to commit to following our spending plans, yet will not give any indication of tax rates? Surely that is the second side of the coin.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I always listen with interest to what the hon. Gentleman has to say, and I know from his contributions in the House and in Public Bill Committees that from time to time he scrutinises the Government fairly thoroughly. There is a difference between saying that the overall spending limit put on by the Government will be our starting point, and accepting their approach in full, which is not what the shadow Chancellor has said, of course. He has made it clear that we would look at that overall spend and see how we could allot resources more fairly.

Despite the fact that the Government tried to make much of fairness in the spending review, let us look at the millionaires who will benefit from the tax cut. First, 643 bankers earn more than £1 million and the combined tax cut will be worth £34.6 million to them—[Interruption.] There is a lot of grumbling and other muttering from a sedentary position by Government Members. If they wish to speak, they will be able to do so later.

My constituents want to know how the Government can justify that tax cut for millionaires at a time when those on middle and low incomes are being squeezed so hard. I can understand why the public are angry and why they do not feel that the Government are acting fairly. They see many people on massive salaries that ordinary people can only dream of and working in the very same banks that were bailed out by the taxpayer now receiving a handout from the coalition. People do find that difficult to understand. That is why our amendment would require the Chancellor to consider the effect that the tax cut will have on the level of bonuses in the financial sector. That is what the taxpayer—ordinary people trying to make ends meet when their living standards are being reduced—wants to know.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

The hon. Lady makes a good point about the impact on bonuses. Does she welcome the recommendation from the Parliamentary Commission on Banking Standards, which the Prime Minister has accepted, which will change from very short-term bonuses to long-term ones? Would not that mitigate some of the very real concerns that she has mentioned?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am glad that the hon. Gentleman recognises the points that I have made. He will, of course, be aware of some of the discussion that took place in Committee on the Finance Bill and the Financial Services (Banking Reform) Bill. It is unfortunate that the Government chose not to accept our amendments to those Bills, and so far we have not seen legislation to enact the change that he mentions. I look forward with interest to further debates on that subject at a later date.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

The hon. Lady is making a powerful speech, but she has mentioned what makes the public angry. I think what makes the public angry is when they see members of a party opposing in principle, and expressing great moral outrage about, the bedroom tax—the spare room subsidy—or the 50p tax rate and then refusing to answer a straightforward question about whether they would reverse one or both of them. It is not good enough, and it is no wonder that the public think politicians are slippery and cannot be trusted.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

The hon. Gentleman started by trying to pay me some sort of compliment, saying that I was making a powerful speech, but I simply do not accept his assertion that what outrages the public is politicians standing up to make passionate speeches on their behalf. The points that I am making are the very ones that have been made by my constituents, by the constituents of my hon. Friends and—I am sure—by many of the hon. Gentleman’s own constituents.

It is not good enough for Government Members simply to sit there and say, “What is the Labour party going to do two years from now?” when they are taking no responsibility whatever for what they are doing at the moment. It is a responsible position for us as the Opposition to say, “We understand that there will be an overall spending limit; that will be our starting point, but that does not mean that we have committed to it as an end point, and it does not mean that we are committed to doing exactly what the Government would do.” I am sure that as we move forward, a number of initiatives will be developed and outlined in greater detail.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Does my hon. Friend agree that what is going to annoy many of our constituents is that they were told three years ago that all the measures put in place then were for a purpose, that the deficit would be brought down by the end of this Parliament and that we were all in it together, when that has simply not happened?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Once again, my hon. Friend is absolutely correct. When we heard the spending review announcements last week, many members of the public recognised that this was a spending review brought forward not because it was part of some grand plan by the Government or something that they were always going to do, but because of the Government’s own failures on the economy—their failure to get the deficit down as promised; their failure to deal with borrowing; and, indeed, their failure to get growth back into the economy.

Photo of Debbie Abrahams Debbie Abrahams Labour, Oldham East and Saddleworth

I congratulate my hon. Friend on her excellent speech. Further to confirm her point so that everybody gets it, did not the Chancellor promise not to introduce another spending review before the next election, and is not the failure of his economic policies the reason why we needed to have that spending review?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend is absolutely correct. Many members of the public will not look at the Chancellor’s spending review as a success—it is not—and they will recognise that this Government have, as we said at the outset, cut too far and too fast, so that we have had all the pain and none of the gain that the Government promised. [Interruption.] Conservative Members can sit and sigh, make all sorts of side interventions, look at the ceiling, look to their feet or whatever else, but the harsh reality is that the constituents we all meet on a day-to-day basis know that their living standards are dropping. They know that the money in their purse does not go as far at the end of the week, because prices are rising at a time when wages have stagnated at best, and are dropping at worst.

To return to the new clause, the bankers earning £1 million or more a year will benefit from the combined tax cut at a cost of at least £34.6 million. As I said earlier, we can understand why the public are angry and why they do not feel that this Government are acting fairly. Given some of today’s comments, I suspect that many of the people watching this debate will gain the impression that the Government are not listening to them, that they have no understanding of the issues they face and that, sadly, in many instances, if not all, they do not actually care.

Our new clause is a relatively mild-mannered amendment—one of the sort that we proposed regularly in the Finance Bill Committee, asking the Government to look at the impact of the policies that they are introducing. In this particular instance, the new clause asks the Chancellor to consider the effect that his tax cut will have on the level of bonuses in the financial sector. There 30 million taxpayers in the UK—30 million people who go out to work every day and have to pay their way—yet they realise that the Chancellor has decided to cut taxes for the richest among them. There is no getting away from that. That tells you everything you need to know, Mr Speaker, about this Tory-led coalition. Never mind the rhetoric of “We’re all in it together”, and never mind the risible attempts to paint themselves as the party of fairness as they tried to do in the spending review, because when it comes down to it, the Tories and the Liberal Democrats are effectively topping up bank bonuses with a further tax cut. That is the reality of what is happening.

Labour Members believe that there is a better way. We have consistently said that we would use a tax on those massive bonuses to fund a jobs guarantee for every young person who has been out of work for a year or more. We would do that because the trends in long-term employment remain extremely worrying.

Photo of Kwasi Kwarteng Kwasi Kwarteng Conservative, Spelthorne 4:00 pm, 1st July 2013

How much money does the hon. Lady expect to raise through a tax on bank bonuses, and how does she think it could be spent on the projects on which she wants to spend it?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

We have consistently said that we would seek to use the tax specifically to provide a jobs guarantee for every young person who has been out of work for a year or more. I am sure that the hon. Gentleman, and indeed most Members in all parts of the House, will have met—or received e-mails, letters or telephone calls from—young people who are absolutely desperate to be given that first start, to walk through the doorway, to show what they can do, to use their skills and to learn more. Sadly, as we have heard, the guarantees provided under the Work programme have not met expectations, so it is important for us to think about what we could do. In March this year—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I want to finish what I am saying. In March this year, 167,000 adults had been out of work for more than two years. The figure has increased by 97% since 2012, and by 216% since 2011. We believe that the way in which to get people back into work is to tax the very richest. I am sure that Members in all parts of the House would agree—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I want to finish what I am saying, and I want to make progress. I think that I have been reasonably generous with my time so far.

I am sure that Members in all parts of the House would agree that returning people to work is the best way of reducing the benefits bill and getting the economy moving again. However, the facts speak for themselves, showing that the Government prioritise those at the top and leave everyone else to struggle. Let me return to what my hon. Friend Andrew Gwynne said earlier.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

No; I really do want to put this on the record. As my hon. Friend said, a two-earner couple with children are losing an average of £1,869 while a millionaire receives a tax cut. Would the hon. Gentleman care to explain to a two-earner couple with children in his constituency why that is fair?

Photo of Kwasi Kwarteng Kwasi Kwarteng Conservative, Spelthorne

I am grateful to the hon. Lady for giving way. I did not catch the answer to my earlier question. How much money in a fiscal year does the hon. Lady expect to raise from the bank bonus tax?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I note that the hon. Gentleman showed no inclination to explain to that two-earner couple with children in his constituency why it is right for a millionaire to receive a tax cut at a time when they are set to lose a significant amount of money.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley and Eccles South

I wonder if my hon. Friend remembers two things. She may remember that, an hour before the beginning of the debate, we witnessed a lamentable performance by Ministers who failed to answer question after question about the Work programme, which is one of the worst and least successful programmes for the unemployed that we have seen for years; and I am sure that she remembers the future jobs fund, which was hugely successful in my constituency and returned hundreds of people to work. I think constantly about the people—nearly 1,000, including 195 young people—who have been unemployed for more than a year, and I fervently wish that we still had the future jobs fund, which was not only a successful programme but returned more than it cost.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend is right to mention the success of the future jobs fund. I still believe that, as we said at the time, the Government made a huge error in abolishing the future jobs fund. As I know from my own constituency, it gave young people an opportunity to get into the habit of going to work and learning skills, and gave the voluntary sector, the social economy, the third sector, call it what you like, an opportunity—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

No. I am going to finish what I am saying, because I want to make clear the extent to which people are losing out. The future jobs fund gave opportunities to many young people and it was short-sighted of the Government to scrap it. It seemed to me that the Government did so simply because it was brought in by the previous Government. However, following questions in the House and elsewhere, we know that the Work programme has not delivered for many young people in our constituencies.

I go back to the fact that individuals and families are losing out in our constituencies. Not only will a two-earner couple with children lose on average £1,869, while a millionaire gets a tax cut, but a single parent who works and has tried to do the right thing in getting into employment and holding down a job, as well as meeting their caring responsibilities, will lose £1,226. At the same time, the millionaire banker about whom we talked earlier will see his tax bill cut. Two earners without children who are a couple will lose £672.

Those are remarkable figures. As I said earlier, they sum up the coalition’s warped sense of priorities. They are looking after those at the top, while making everyone else pay the price for their economic failure.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I will in a moment.

No wonder that people think that there is one rule for the richest and another for the rest. No wonder people are questioning why the Government believe that the way to motivate people on low incomes is to pay them less, and the way to motivate people on high incomes is to pay them more. In these challenging economic times, surely we should focus on supporting those who need it most. New clause 8 asks the Government to look at the issue again. We are asking them to undertake a proper assessment of the impact of the cut, as well as an analysis of how much the Treasury would gain if the additional rate were returned to 50% in 2014-15. That is not an unreasonable request. I hope that, on this occasion, the Government will accept the new clause and report back in due course, although I suspect that that may not be the case.

I outlined earlier why the Opposition think that the Chancellor’s logic is rather odd. He claims to find tax avoidance morally repugnant and to want to crack down on it, but this tax cut simply rewards the wealthiest. He appears to justify it on the ground that the behavioural response to the 50p rate was more avoidance. There seems to be a rather strange logic here. Instead of cracking down on the avoidance, he is rewarding it. Surely those are not the values that we want in the Government: one rule for the richest and another for the rest of us.

It is not what the Government used to say, before their façade of fairness began to slip. The Prime Minister no less said:

“I have been very clear—we have all been very clear—that we have to do this in a way that is fair so that the broadest backs bear the biggest burden.

That is why we haven’t changed… the 50p tax rate.”

However, the Government are giving those with the broadest backs a tax cut, while people on lower incomes are shouldering the bigger burden. I heard Government Members supporting what the Prime Minister said. It is a pity that they now seem to have gone back on that.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

If the hon. Gentleman can contain himself for a few more moments, I would like to quote the Chancellor. I am sure he will want to hear what his own Chancellor said. Indeed, he may even have been at his party’s conference when the Chancellor said this:

“We could not even think of abolishing the 50p rate on the rich while at the same time I am asking many of our public sector workers to accept a pay freeze to protect their jobs. I think we can all agree that would be grossly unfair.”

Does the hon. Gentleman agree that would be grossly unfair?

Photo of Kwasi Kwarteng Kwasi Kwarteng Conservative, Spelthorne

The hon. Lady will know that I have always consistently argued for lower tax rates across the board, so that is my answer to her point. I am also perplexed as to why she will not give an answer to my earlier question about the amount of money she hoped to raise from a bankers bonus tax, given that that is such a key element of her party’s fiscal plans.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Once again, it is rather strange that the hon. Gentleman does not seek to give any comfort to his own constituents or give any explanation of his own policies. We have put forward the idea of the bankers bonus tax to get young people back into employment, and I also think the general public would like those bonuses to be less than they have been over the past few years.

I want to go back to the point the Chancellor made. He said at his party conference that he would not

“think of abolishing the 50p rate on the rich while at the same time…asking many of our public sector workers to accept a pay freeze”.

I do not often agree with the Chancellor, but I do think he was right then—and that he is absolutely wrong now.

In the interests of balance, however, I should also quote what is perhaps my favourite of these interventions. It was made by the Chief Secretary to the Treasury—the Lib Dem Chief Secretary. He summed things up quite neatly when he said:

“People who think that the priority for this Government should be reducing the tax burden on the very wealthiest are living in cloud cuckoo land.”

So in the words of the Government’s own Chief Secretary to the Treasury, this is a decision from cloud cuckoo land. I think that many members of the public would agree with that.

No doubt Government Members will protest and say that the higher rate was not raising any money—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

No, I want to move on. I have been very generous in taking interventions, and it is important that I now move on to make the many points I have not yet had the opportunity to put on the record.

As I have said, no doubt Government Members will protest and say that the higher rate was not raising any money due to tax avoidance, but the Institute for Fiscal Studies has said:

“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them—”

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I want at least to get to the end of that quote—that would be quite nice. I would like other Members to have the opportunity to contribute to the debate; indeed, I am sure the hon. Gentleman is gearing himself up for that as we speak.

Just in case anyone missed that IFS quote, let me make clear what it said:

“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”

I know that Government Members will from time to time quote the IFS and will, from time to time, doubt its figures. Just in case they do not accept what the IFS has said, let us look at what the Office for Budget Responsibility has said about this issue. It said that any decrease in tax avoidance from the reduced rate would be “highly uncertain”. A written answer from the Exchequer Secretary in the summer of 2012 stated that in 2010-11 70% of people earning over £250,000 were paying more than 40% in tax and 80% of people earning between £500,000 and £10 million were paying the 50p rate. Each and every one of those people is now in line for the tax cut.

As Government Members know, Her Majesty’s Revenue and Customs estimates of reduced levels of tax avoidance are based on only the first year’s yield, and there is real concern that the cut will incentivise people to bring forward their income. The first years of a new rate are no real basis for estimating the revenue raised by the 50p rate.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I will give way to the hon. Gentleman, whom I feel sure will explain to me what the Government intend to do about tax avoidance and how they will stop this issue emerging?

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

As it happens, I was going to say something different, which will not surprise the House particularly. I was going to say that history tells us that cutting taxes raises more money, and that is probably a better bet to working out what will happen than fishing around for convenient forecasts. In 1979 and 1988 tax rates were cut and revenue went up, and that is a pretty good basis for doing this again.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I look forward to the hon. Gentleman’s contribution in our future debates about the possibility of a mansion tax and a reduction to a 10p rate. I always listen with interest to what he has to say, but on this occasion I have to say to him that the first year of the new rate is not a real basis for estimating the revenue raised, or likely to be raised, by the 50p rate.

The Government should be tackling tax avoidance. We all want to see that, and we will be debating it more when we discuss later clauses.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I will give way to the hon. Gentleman, as I know he takes this issue very seriously.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

I wish to take the hon. Lady back to the impact of the bankers bonus tax on getting young people back to work, because I do not think she had the numbers to hand. May I just indulge you with some statistics, in order to help the Opposition, Mr Speaker? Last year, the bankers’ bonus total was £5.2 billion. There are 61,000 young people who have been out of work for more than a year. Much of that £5.2 billion would have been paid to taxpayers who are not UK-resident—they will work for a UK bank but not be resident here—but let us assume that it is all paid to UK residents. An increase in the rate from 45% to 50%, as the Opposition are proposing, would yield £260 million a year—the equivalent of £4,500 per young person out of work. Is the basis of her argument that £4,500 is enough to employ a young person who has been out of work for more than a year?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I thank the hon. Gentleman for his information; I gave way to him because I know he takes these issues seriously. As with a range of other issues, we would have to look—if the bankers bonus tax was brought in—at the circumstances at the time and how best to get young people into employment. Other hon. Members will have heard me speak about this issue before, but I can tell the House that we believe young people and those who have been out of work for two years ought to accept that there will be a compulsory jobs guarantee. From speaking to a number of small businesses and some of the larger ones, I know they believe that a range of things could be done to encourage them, as local companies and national companies, to take on young people and get them into employment.

Where the Government have done things that we think are helpful, for example, in relation to national insurance contributions, we have supported them. As has been said, we do not accept that the move away from the future jobs fund was the correct thing to do.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Does the hon. Lady not recognise the fatuousness of her argument that this money could somehow be ring-fenced for the less well-off, which has been exposed by my hon. Friend Richard Fuller? The same applies to the next set of amendments on the mansion tax and the 10p tax rate—the figures are not well-researched. The proposition might be attractive to the public at large, but the comparison is fatuous and has been ably exposed by my hon. Friend.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I do not think that my constituents in Kilmarnock and Loudoun who are out of work and desperate to get jobs—including the 400 or so people across East Ayrshire and into neighbouring Lanarkshire who lost their jobs as a result of the collapse of Scottish Coal, the people who lost their jobs when Diageo moved out of the town of Kilmarnock and closed the historic bottling plant, which bottled Johnnie Walker whisky, and all the people who are out of work as a result of the squeeze on small local businesses—would believe that it is fatuous to suggest that a tax cut for millionaires is the wrong priority when cuts have also been made to working tax credit and when other things could be done to support people into work.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley and Eccles South

I want to follow up on the points made by Richard Fuller about the future jobs fund and to hark back to an impact analysis of the fund done for the Department for Work and Pensions, which found that society gained £7,750 per participant through wages, increased tax receipts and reduced benefit payments. Participants were calculated to have gained £4,000 and employers to have gained £6,850, with the cost to the Exchequer calculated at £3,100 a job. The figures the hon. Gentleman cited would cover the cost. Even better, two years after the start of their time with the fund, those former jobseekers were much less likely to go back to being on benefits. Is that not something we should be re-exploring?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend has made her point extremely succinctly and has put on the record why we feel that the future jobs fund was not only important but a successful initiative. I say again to Government Members who think that the proposal has no impact on the lives of ordinary people that all those who went through the future jobs fund programmes and who worked on them say that the fund was a valuable way of getting young people back into work. People in my area would certainly have liked it to continue.

Let me come back to the points about the new clause. As I said, the Government should be tackling tax avoidance—we will debate that further later—but that does not mean that we should compensate the wealthiest at the expense of those on middle and low incomes. I would have hoped, in light of everything the Government proclaimed around the time of the spending review about fairness and ensuring that growth came back into the economy, that even at this stage they might have dropped the plan for a millionaire’s tax cut. That is a forlorn hope, however.

The decision to create that tax cut goes to the heart of the coalition’s political vision and beliefs—and by that I mean both sides of the coalition. We face a period of national upheaval at a time when resources are stretched. The Government criticise the Opposition when we take responsible decisions to think about the way forward while failing to explain their positions. At a time when resources are stretched, when people up and down the country are working harder and harder than ever before for less in their pockets and when public services are being cut so drastically, it is even more crucial that our Government should be a uniting force rather than a dividing one. In that context, I must ask again why on earth this is the time for a tax cut for the richest.

The Government try to talk a good game, but as I said at the outset, reality does not match their rhetoric. They do not seem to understand the need for a one-nation approach to politics and they are not able to encourage a sense of national mission, no matter how much they talk about being “all in it together”. This Government will go down in history as the most divisive.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

I am grateful to the hon. Lady, who is being most generous in giving way. She said earlier that this matter is about action, not words, and has just said that it is about reality, not rhetoric. She is making an impassioned speech, but will she explain why she did not vote against the 50p tax rate and why, in addition, she is not committed to reversing the measure? Why, after the faux outrage over the spare room subsidy, is she not committed to reversing that either? People outside will think that this has a stench of hypocrisy about it.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

The reality for my constituents and those of Labour Members is that they want to know why the Government made the change in the first place. They want to see action taken in the future, but there are two years until the general election—we will lay out how we intend to take things forward in good time for that—and I respectfully suggest to Government Members that we do not know exactly what sort of mess we will be left with. We see no responsibility taken by the Government for the situation that the economy is in at the moment and what has happened on their watch—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hear yet again that tired mantra from Conservative Members, as if, somehow, Labour created the global financial crisis—

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I see that we have all sprung to life now.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

We have been asked that question over and over again. Had we been asked it two years ago, and had we based our answers on the projections that we were given by the Government, that answer would be very different from the one we would have to give now. That might well be the case in two years’ time.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend speaks words of wisdom. I have repeatedly said today, and it has been said by others, that while we have accepted that, come 2015 if we are in government, we will have to take as a starting point the overall spending plans that have been laid out, that does not mean that we would have made the same choices or that we would make the same choices in the future.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

I would not expect my hon. Friend to set out our tax policies two years before a general election, but is it not important to emphasise that there is a question of priorities here? The issue is that the Government have chosen to clobber some of the lowest-paid workers in my constituency and in hers with a council tax increase caused by their changes to council tax benefit?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend speaks with great passion on behalf of his constituents and he is correct to identify the fact that we need, in difficult times, to talk the language of priorities. That is why on previous occasions—from the Dispatch Box and elsewhere—I have asked the Government why they believe that it is fair to give the tax cut to the richest and, on top of that, to give those very same people the winter fuel allowance even if they happen to be pensioner millionaires. To me, that does not seem to be fair and reasonable, and I am sure it does not to my hon. Friend either.

Even where a council tax freeze has been put in place, people are seeing local services that they rely on being cut to the bone. They are not able to access educational opportunities, leisure opportunities, support via social services, library services, the arts and culture. It is all very well having a freeze, but in a range of areas people feel that they are not necessarily getting the services in return.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

My hon. Friend is absolutely right, but the situation is even worse than that for 2.4 million low-paid families, who are losing some, if not all, of their council tax benefit. That is an in-work benefit, paid not just to people who are out of work. Those families will, for the first time, be getting a tax increase, because they will have to pay council tax.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:30 pm, 1st July 2013

Once again, my hon. Friend is absolutely right. He is a powerful advocate for his constituents and those on the lowest incomes. He is correct to identify the fact that, despite the rhetoric, the Government have, across the piece, consistently attacked the living standards of those in work and on low incomes. I need only refer again to tax credits, particularly for those working part-time hours. The Government seem to think it fairly straightforward for them simply to get additional hours of work, but we know that in many industries, it is not that easy; it is not possible to get the requisite number of hours. Many people who were, to use the Government’s mantra, doing the right thing—taking up employment, for however few hours and however low the wages, rather than doing nothing or sitting at home on benefits—found their working tax credits cuts. As my hon. Friend correctly says, that was compounded by changes to housing benefit, which mean that many of them are even worse off.

Let us look at the impact. I said that this Government will go down in history as a Government who divided; of the richest who are receiving a tax cut, 85% are estimated to be men, and about 70% of the revenue raised from direct tax and benefit changes will come from women. Some 52% of those benefiting are based in London and the south-east. I do not for a moment mean to suggest that there are not people there on extremely low incomes; of course there are, and many of my hon. Friends will no doubt wish to make that point. However, long-term unemployment, including in the north and Scotland, is on the rise.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

My hon. Friend is being incredibly generous in giving way. She is right to emphasise the impact on low-income families, but the tax changes are also hitting moderate and middle-income families. She will be aware that the measures involve lowering the higher rate tax threshold to £41,450. Why is it that those on the lowest incomes and middle incomes are being clobbered, whereas those on the highest incomes are getting a tax cut?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Once again, my hon. Friend makes an important point, particularly in relation to many middle-income earners. The issue of the lowering of the threshold at which the higher rate of tax is paid has perhaps not had as much air time as some other topics, or other cuts that the Government are making, but the reality is that it affects many who would not see themselves as particularly well off, who have worked hard over the years and been promoted in a company or in the public sector, and who are trying to do the right thing for their family, and are feeling the squeeze.

To go back to the point about who will suffer most as a result of the Government’s policies, I emphasise that I know that in many places in London and the south-east, employment is not at the level that it is elsewhere, and incomes are being squeezed, but it is interesting to note the geographic spread.

Perhaps we should not be surprised to see the Tories operating in this way. I recall, on first entering this place, attending a debate on cutting and abolishing child trust funds. I was surprised that the Government thought that was the correct thing to do at that stage. They were once again attacking those who were trying to do the right thing and support their children and families. Under their approach, it is women and families— the very people they say they want to protect—who consistently suffer. The rhetoric and the reality are two very different things. We should perhaps not have been surprised by the Government’s proposals. It is an age-old Tory mantra that the poor—those on the lowest incomes—are expected to work harder; otherwise, they will be made poorer. At the same time, the rich will work harder only if we make them richer. In this instance, there seems to be one rule for the very richest and another for everyone else. This is arguably the same old out-of-touch Tories—this time, sadly, aided and abetted by the Liberal Democrats.

I always like to try to end on a positive note, however, and I come back to the point that the new clause is a relatively mild-mannered proposal. It seeks nothing more than that the Government should use their good offices to gather the necessary information to make an assessment of the impact of the changes and to produce a report. That does not seem an unreasonable request. Indeed, when the Exchequer Secretary to the Treasury, Mr Gauke was in opposition, he regularly requested such reports and no doubt regularly tabled amendments and new clauses to that effect. He is nodding his head. I hope that he will remember those days, and remember why it is so important to have such reports and assessments. I hope that he will show that he is not only a listening Minister but a Minister who is prepared to act, and that he will accept new clause 8.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Cathy Jamieson has waxed lyrical at some considerable length about the iniquity of the Government’s seeking to reduce the higher rate of tax, but the question that kept occurring to me was this: if she and her colleagues felt so strongly about this, why were the Labour Government quite happy to keep a maximum higher rate of tax of 40% for their entire 13 years in office?

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I should just correct my hon. Friend: there was one month in that 13-year period when the rate was different. Does he agree, however, that it would be interesting, if the Minister were minded to accept the new clause, to see a full analysis of that 13-year period?

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

I was going to go on to say that the Labour Government lasted 13 years, and that it was only in the last month that, under Mr Brown, they felt so strongly that they had to impose a 50% rate.

This is an important point. For their first 10 years, that Labour Government were led by Tony Blair. When he and Lord Mandelson were planning for that Government, they made a conscious decision not to replicate the old-fashioned language of class warfare that we have heard so much of today. They made a conscious decision that, if the Labour party was ever to regain the trust of the British people and regain power after 18 years in opposition, it would have to reach out to the centre ground. One of the principle ways in which they did that was to commit themselves, before getting into government, to accepting the spending plans of the then Chancellor of the Exchequer, my right hon. and learned Friend Mr Clarke, now the Minister without Portfolio. They accepted his spending plans and made it absolutely clear that they would not raise the higher rate of tax during their term of office. That was a very sensible thing to do.

In truth, the only possible justification for raising the higher rate of tax above 40% is a political one. It is political because it appeals to the argument, which we have heard repeatedly today, that a right-wing, vicious, unpleasant Tory Government are only helping millionaires. At first sight that might seem quite an attractive argument for the Labour party to adopt in opposition, but if it is so attractive, why did the right hon. Tony Blair, when he was in opposition and planning for the greatest election landslide in Labour’s history, not follow it? He did not follow it because he realised that it was nonsense economically and, ultimately, nonsense politically.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

My hon. Friend is making the point, very cogently, that elections are won on the middle ground. The old Labour party, under Tony Blair, understood that. What we are seeing today, in this new clause, is the new Labour party moving to the left and seeking to introduce more taxes. When we turn over the page in the amendment paper, we see that its next new clause proposes yet another tax. Is not this just the start of a further leftward lurch by the Labour party to tax people more and waste public money?

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

I do not know why we are bothering to give the Labour party this friendly advice. Why are we trying to help it, when it is so obvious that its approach is increasingly to remain in its comfort zone on tax?

The speech we just heard was littered with the word “millionaire”. It is the old language of Denis Healey, going back to the 1970s, when they wanted to tax the rich until the pips squeak. It does not impress anybody, and one reason for that is that people think it is fundamentally hypocritical. The point has been made again and again: the Labour party is not making any commitment to reverse the changes. If Labour Front Benchers really felt so passionately about this matter, they could say now from the Dispatch Box that it is iniquitous and make an economic case against it.

Throughout the speech that we have just heard there was virtually a complete absence—a desert—of economic facts and justification on how much money would be raised. All we heard, constantly, was the mantra about millionaires getting richer. The truth is that the top 5% pay 25% of taxation. There is no evidence—Tony Blair understood this—that if we tax them more we will increase tax revenues for the Exchequer. All we would be doing is increasing avoidance. It is bad economically, bad politically and it does not make sense.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

My hon. Friend has hit the nail on the head. I am afraid that the impulse has been a political one. If there was any understanding of economics on the Labour Front Bench—perhaps there was in the brief glimpse in 1996 and 1997 to which he referred—those Front Benchers would understand the Laffer curve and its operation and that reducing headline tax rates will bring in rather more money. That was the case in the 1970s and 1980s, as was mentioned earlier in the debate, and I am sure that it will prove to be the case again when we look at the numbers in the year ahead.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

We are all familiar with the Laffer curve and the point made by my hon. Friend Jacob Rees-Mogg. When taxes were reduced in the late 1970s and the 1980s, revenue increased. There is no economic case whatsoever for having a 50% tax rate. The only case, and I think it is very poor, is a political one. What I am seeking to argue—I do not know why I am seeking to help the Labour party—is that it impresses nobody.

One good point was made in the many interventions we heard from the Opposition side, and from the Government side: why are the Government dragging more people into the higher rate of tax at all? That is a fair point, and it leads me to an argument I have made many times: if we want to improve tax revenues and get more fairness in the tax system, we should move as much as possible towards a flat rate of tax. We have the longest tax code in history. If a Chancellor of the Exchequer on Budget day takes with one hand and gives with the other, and if has his little schemes to help investment or job creation, all he is doing is creating perverse incentives. A much better way of creating a modern, progressive and successful tax system would be to have as flat a rate of tax as possible, as is being done increasingly around the world. It is ridiculous that a deputy head teacher of a primary school, for example, has to pay a higher rate of tax. I think that shows some of the problems the country is in economically.

I do not want to repeat all the old arguments about who got us into this mess, but perhaps I will be forgiven for saying that unfortunately we have to pay our way, and the Government are therefore between a rock and a hard place. It is absurd to be dragging more people into higher rates of tax; what we should be trying to do, across the House, is to flatten the tax base and make it much simpler, much more coherent and much more understandable, so that people know that there is, to all intents and purposes, a single rate of tax. It does not matter whether they earn £30,000, £300,000 or even £3 million a year—they will be paying 35% of it in income tax. If we had such a modern tax system, it would generate a huge surge in productivity. The only people who suffered would be the chartered accountants, thousands of whom might lose their jobs; I pity the chartered accountants. I want to try to generate a modern, progressive tax system where people know that as they work harder they can increase the money coming into their family. If we are going to have a sensible debate as opposed to one based on party politics, these are the sorts of arguments that we should making. It is sad that we do not have the courage to do so.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:45 pm, 1st July 2013

I am listening to the hon. Gentleman with interest. I wonder what he would say in response to the Institute for Fiscal Studies, which has pointed out that the rise in receipts may be due to wealthier people trying to avoid the 50p tax rate. It says:

“Receipts in April will have been boosted by high income individuals shifting income such as bonuses and special dividends from 2012-13 to 2013-14 in anticipation of the fall in the top rate of income tax from 50 per cent to 45 per cent.”

Is he suggesting that the right way to deal with people avoiding paying their tax is to reward them with a tax cut?

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

It is not a question of rewarding them. The truth is that the more complicated the tax system, the more it is the case that the only people who suffer are middle-income groups, often people in employment on pay-as-you-earn. The rich—the millionaires; let us talk about the group that the hon. Lady is always going on about—will always, through their expert accountants’ advice, seek to avoid paying tax, quite rightly, as it is perfectly legal and proper, and largely they will be successful. The people she is talking about—the millionaires—are precisely the sort of people who have income streams that are very mobile around the world. They are often foreign nationals. Does she honestly think that if we go on piling more and more tax on to these people they will just sit around doing nothing? Of course not; they will seek to avoid paying tax. It is a question not of rewarding avoidance but of accepting the facts of life. She might think it unfortunate—I do not—but we need these risk-takers, entrepreneurs and wealth creators in this country. Unfortunately we are in a highly competitive situation with other countries, particularly Ireland and other low-tax countries. Unless we attract these people here we will not create jobs and investment in the private sector.

We can go back to our comfort zone; we can lie in the warm bath of our own prejudices and dislike millionaires. We would probably all like to be millionaires. None of us are millionaires, unfortunately; we chose to go into public service and we are not going to become millionaires. We can have a pitch at millionaires and think that in doing so we are making ourselves popular with the rest of the population, but unfortunately they will not sit tight; they will simply leave and take that entrepreneurship and job creation away. That is what Tony Blair recognised and that is what we should recognise.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Perhaps the hon. Lady also recognises it, but I fear not.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley and Eccles South

I am surprised that the hon. Gentleman is not including the most obvious millionaires in this country. Does he really think that the risk-takers, the entrepreneurs and the wealth creators do not include football players, many of whom are earning multi-millions of pounds? Frankly, the notion that we need all these wealth creators—these people earning fantastic amounts in football—does not hold up.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

That is an absurd argument. I watched the Brazil match yesterday—did the hon. Lady? Millions of our constituents were watching it and enjoying it. I agree that these people are ludicrously overpaid, but they are men of 21 who have an amazing skill. What does it matter if they earn £1,000, £2,000, £3,000 or £100,000 a week or a month? It is none of our business; it does not matter. To claim that my argument is defeated because a few millionaires earn ridiculous sums of money and because there are footballers’ wives is such a ludicrous argument economically that it is barley worth answering.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

I am grateful to my hon. Friend for giving way; he is being most generous. I must correct him on one thing, if he meant income tax when he said that 25% was being paid by 5% of taxpayers. In fact, 40% of the Government’s largest single receipt—income tax—is paid by 5%, and that includes footballers, rock stars and entrepreneurs, all of whom left this country in the 1970s, leaving us all poorer. Barbara Keeley and other Opposition Members are lurching to the left and want to send them out of this country again. That would impoverish all of us, but most of all the low-income people in our constituencies who rely on receipts from such people.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

I am grateful to my hon. Friend for his generosity in giving way. He has highlighted the precise premise of the Opposition’s argument: they like talking about millionaires and football players because they realise that people perhaps do not like footballers and bankers earning lots of money. However, does my hon. Friend agree that, once they have started with bankers and footballers, they will then move on to judges, teachers and regional sales managers—the middle-income people who earn the money that produces the highest tax yield? Should we not all be aware of the danger in allowing Labour’s new tax policy to harm the middle classes and working people in this country?

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Of course. There should be a huge health warning on Labour’s proposal. British people should be warned that it is not footballers or bankers who will suffer, but middle England—people who work really hard to create small and successful companies, who are halfway up the corporate tree and who are near the top of the public sector. Moreover, it is those precise people in the public sector whom we need to incentivise to make efficiency savings, if we are to have a successful economy.

People should not swallow the lie that this is only about bankers and footballers. They can look after themselves in any country—they always have and they always will—and if there is a Labour Government, I predict that they will get richer and richer. We should forget them and concentrate on middle England.

Finally, if the Labour party wants to get back into power it should remember what Tony Blair did. He was its most successful leader ever, because he realised that politics had to be won on the centre ground. At the moment, Labour is going nowhere.

Photo of Chris Evans Chris Evans Labour, Islwyn

It is always a joy to follow Sir Edward Leigh. In a different life, when I worked for my predecessor, he was the Chairman of the Public Accounts Committee and I spent many a happy afternoon at the back of the room listening to him pontificating and taking on the tax dodgers and anyone else the National Audit Office thought was a little bit dodgy. I miss those days.

The more time I spend in this House and the more I listen to Government Members, the more I sense that all we do is talk about history and hark back to the past. Government Members like to talk about 13 years of Labour “misrule” and 18 golden years of Tory Government. The one conclusion that I have come to from studying economics at A-level and from listening to many hon. and right hon. Members speak in this House is that it is not possible to run the economy like a scientific discipline. It is not like that.

Hon. Members have mentioned the Laffer curve, which was meant to be the wonderful idea of its time. In 1980, a future US President—he was about to become vice-president at that time—said that trickle-down economics was voodoo economics. He was right then and he is right now. The hon. Member for Gainsborough gave the Labour party some advice and I want to do the same for his party. The Conservative party is still in the grip of an economic theory that failed.

I do not want to talk about history, even though I am an historian myself. I do not want to go back to the ’80s—there is no point in talking about that. It is a moot argument. I want to talk about the future, but in 1989 and 1990 we had the worst recession ever. That followed the recession in 1981, which, at the time, was the worst recession that we had had. Trickle-down economics is based on the mad belief that a tax cut for the very rich will somehow trickle down through society. It has never worked. Quite simply, that is common sense.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

I just want to make a simple point. Every time the tax rate for the richest was cut under the previous Conservative Government, the amount paid by the top 10% went up in cash terms and in relation to what was paid by the rest of the population. In other words, every time the tax rate was reduced, the amount that the rich paid went up and the percentage of the overall pot that they paid went up. How does the hon. Gentleman explain that trickle-down effect?

Photo of Chris Evans Chris Evans Labour, Islwyn

The tool that the previous Tory Government used, which this Tory Government are using as well, was value added tax. Indirect taxation has always gone up under a Tory Government. Value added tax went up from 12% to 15%, and then to 17.5%. It is now 20%. This Government have also given a tax cut to the highest earners in society. The problem with indirect taxation is that everybody has to pay it. That is why the tax take always goes up. Such taxation is regressive. It does not matter what people are earning; everybody has to pay it. People who are very rich and have means do not have to worry about it, but those who are struggling at the bottom, such as those who are struggling to get by on the state pension, have to pay it, whatever the rate is.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

I am very interested in what the hon. Gentleman is saying. Would he therefore approve of a permanent reduction in VAT, compensated for by an increase in income tax?

Photo of Chris Evans Chris Evans Labour, Islwyn

As I was saying, there is a problem with trying to impose a scientific discipline on something that has nothing to do with science. I do not believe in that kind of economics. We have to take stock of the situation that we find ourselves in. That might have been a way forward in the ’90s, given the economic situation that was faced then. However, we do not know what we should do until we are faced with the economic situation.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

It is almost impossible to have a debate when Opposition Members talk about the past but when questioned about what they would do just say, “We don’t know. We have no idea.” Presumably the hon. Gentleman will at least accept that if he is proposing a reduction in value added tax, given the state of the public finances, a future Labour Government would have to increase income tax. He must also accept that the yield on income tax comes from middle earning people up and down the country. That is what a future Labour Government would do.

Photo of Chris Evans Chris Evans Labour, Islwyn

The hon. Gentleman is not listening to what I am saying, if I may be so bold. I did not make any commitment to reducing VAT. I was harking back to the economic theory of the Laffer curve and supply-side economics, under which indirect taxation is used to cut taxes for those at the very top. When the top rate of tax is cut for people at the top, they have mobility and can spend the money in different countries. We have heard that already. That applies to footballers as well. However, when the tax rate is cut for middle earners, they tend to spend the money on the high street and stimulate the economy in that way.

I do not want anybody in this House to think that I have a problem with millionaires. Like the hon. Member for Gainsborough, I have a lot of friends who want to be millionaires. There is nothing wrong with aspiring to be something better. That is what the Labour party is about. I am sorry to hark back to his speech so much, but the hon. Member for Gainsborough said that that is what we understood in the mid-’90s. Human beings aspire to something better. There is nothing wrong with wanting to be a millionaire. My point is that if we could find the money to give a 5p tax cut to higher earners, why could we not do that for middle income earners? A

1p tax cut for people under the top rate of tax would have done more to stimulate the economy than a 5p tax cut for higher earners, because they will spend the money elsewhere.

I also sense that this is a moral argument. Whatever I believe about cutting tax for the very richest in society, a lot of the people I talked to when the top rate of tax was cut were very angry, especially constituents of mine. They said to me that it is the people who are riding in limousines who are getting the tax cut, not the ones who are driving white vans and keeping this country working. Those are the people who are feeling the pain. We should look at the level of anger.

If we look at a breakdown of the figures, taking into account all the changes to tax, tax credits and benefits that have been introduced since 2010, we see that households in the UK will be an average of £891 worse off this year, or £17 a week. A one-earner couple with children will be a staggering £3,995.65 worse off this year. For a multi-family household with children, it will be £1,723.88. It is all very well quoting statistics—I do it all the time, and everybody is guilty of it—but I am sure that every family affected aspire to something better for their children. Yet the message they are getting from the Government is that they should be worse off.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee 5:00 pm, 1st July 2013

The hon. Gentleman is being generous in giving way. I hope that he tells his constituents the truth about where the Government have concentrated their efforts to lower tax. The main effort has gone into lifting the tax threshold. Does he support the fact that, under this Government, people can earn up to £10,000 and not pay any income tax, because the Government are determined to try to make work pay?

Photo of Chris Evans Chris Evans Labour, Islwyn

Surprisingly, I find myself in agreement with the hon. Gentleman on his last comment—work does pay. At the end of the day, we can have any Government scheme we want to bring people out of poverty, but there is only one way out, and that is work. The only way out of the current difficulty is for people in work to pay their taxes. If there are even more cuts to the public sector, there will be even more people out of work and the welfare bill will go up, defeating the object of the exercise. It will lead to a high welfare bill, which will have to be paid for, and a low tax yield because of people being out of work.

I say to the hon. Gentleman that we have to wake up to the fact that the social benefits that we want to enjoy will come only from businesses being successful. We must do all we can to ensure that we have a fair, simple and transparent tax regime. How can we stimulate the economy when it seems that those in the middle are being squeezed?

The hon. Gentleman asks whether I talk to my constituents. I do, and those in social housing or council housing are concerned about the so-called bedroom tax. Some 80% of social tenants in Caerphilly county borough are in two or three-bedroom houses. That is not their fault, because no one-bedroom flats or houses are being built. After the war, when Aneurin Bevan invested in social housing, he invested in family homes so that people could bring up children and go to work.

We have heard from the Government, and from hon. Members today, about how much the cut in tax from 50p to 45p will raise. Everybody seems to be able to predict the future—every Government Member who has spoken today has done so, and even the Exchequer Secretary will be guilty of it. They seem to think that they are some sort of latter-day seer, guru or wise man who can see that in future, it will be wonderful under the Tories whereas it would be terrible under the Labour party. However, we do not know what is next. We might be lucky—we might find gas, or we might find oil off the Pembrokeshire coast or more oil in the North sea, which will stimulate the economy. On the other hand, we might have another financial crisis. We do not know. When we talk about what the tax cut will raise, we are basically licking our finger, putting it in the air and wondering which way the wind is going to blow. To get back to the new clause, it is important that we have a review of the tax cut.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley and Eccles South

One thing that is predictable is that the bedroom tax, which my hon. Friend mentioned, is going to lead to a hit of about £4 million in Salford, which will be one of the worst hit places in the country. That money will be taken out of pockets and shop tills in our local communities. It is now predicted that the arrears that will be run up as a result will also run into the millions. In fact, it looks like it may well get to the point where it is not worth having made the change, because those arrears will not be counteracted and because of the £4 million taken out of our local economy. That situation is becoming evident as the weeks go by, and we can predict what the result will be in a few months.

Photo of Chris Evans Chris Evans Labour, Islwyn

I thank my hon. Friend for that wise intervention. Welfare reform is a warm and nice thing to say, especially for those of a right-wing bent who want to take out the scroungers and make them pay. But when benefits start to be cut and people are kicked out of their houses, it is a serious concern—I do not want to be melodramatic—that we could see the return of the workhouse.

In constituencies such as mine and those of my hon. Friends, I am fearful that we will see homelessness on a wide scale. The Government may have thought it was a good idea at the time to cap benefits and introduce the bedroom tax, but when we have a huge homeless population and emergency schemes need to be introduced to sort that out, I am afraid that it will be the taxpayer who picks up the bill.

Does the squeeze on benefits motivate anybody to go to work? If someone has arrears or debt and is seeing more of their pay go down the drain, why would they go to work? The Government should be motivating people to go to work; they should be tackling worklessness. Instead of cutting welfare, they should be stepping in to stimulate people to go to work, and talking to those people individually.

We talk about economics all the time, but it is not a scientific discipline—it is about people and how they react to certain circumstances. If I found myself out of work, my needs would be different from those of someone with a lower educational attainment or problems with reading and writing. However, we should be able to say to that person, “What is stopping you from going to work? What are the barriers?” What can we provide to get people into work? Yes, that will cost money up front, but in the long term the country will win because of it.

Let me return to my point about putting a finger in the air and wondering which way the wind will blow. It has been estimated that 267,000 people who earn more than £150,000—including 13,000 people who earn more than £1 million—will receive an average tax cut of £100,000, according to figures from HMRC. In contrast, child benefit will be frozen for a third year, and tax credits and other working-age benefits will increase by just 1%, and these real-terms cuts will affect a shocking 9.7 million households. Can we understand that? My constituency has 56,000 electors, but 9.7 million households will be affected by this measure and each person will have an individual story and will have struggled.

The figure of 9.7 million in relation to benefits might conjure up an image of worklessness, but 7.3 million of those households—75% of all households claiming benefits—are in work. That is the crux of the problem we face. We talk about welfare reform and so-called scroungers, but the people suffering most are those we are trying to encourage—those who work hard and play by the rules but who are locked in an economic theory that has clearly failed. Some 2.4 million families will pay on average £138 more in council tax in 2013 as a result of cuts to council tax benefit. That is the ultimate failure of Government—six in 10 working people are claiming benefits. For all the talk of work paying, for many people work is not paying.

Let me return to what I said about the new clause. We need a report. I sat on the Finance Bill Committee with the Minister—I feel sorry for him, as I would for anybody who sat through that. Every day he felt as if he was batting off different reviews. However, this is such an important issue, and the coalition Government have made it such a cornerstone policy, that it needs to be reviewed. We have heard so much about it being wonderful, but we must test the theory: is it stimulating the economy, bringing money through and making work pay? We will not know unless we have a review. That is why it is so important.

I hope the Minister listens. I have a lot of time for him. As I have said, I was in Committee with him: he is sensible and takes a rational view of these matters—[Interruption.] That is the problem—we judge a man by his friends. This is such a cornerstone policy that I hope the Minister will give us some prospect of monitoring it.

I do not want to go into the history of the 1980s and tax cuts again, because I have touched on it already. But I am deeply concerned that we again face a Government who believe in an economic theory that ultimately failed the country. It was not just that we lost heavy industry in the valleys: I think of all the people in the 1980s who were motivated by the dream of starting a business or buying their own homes. By the end, their businesses went bust or they were forced into rented accommodation because they could no longer afford the mortgage. For all that Government’s lauding of their control of inflation, it was through the roof and interest rates hit 15%. We have heard recently from the Governor of the Bank of England that interest rates will go up next year, and I am deeply concerned that this Government will blindly follow the theory of supply-side economics, of Karl Popper and of leaving everything to the market.

Governments have responsibilities. They have a responsibility to create the environment for businesses to flourish and for people to achieve their dreams. I came into politics because I wanted people to aspire to something better, but the Government are giving the very rich a tax cut and everybody else is losing out—660,000 people will lose an average £728 a year under the bedroom tax. Why are the people at the bottom—the people we should be helping—feeling the pain?

I have said before many times that I do not want to knock the bankers. I worked in banking myself and I know how difficult the industry is. I have met my fair share of bankers and they are not all bad, and banking is the cornerstone of this economy, so I always tread carefully when we talk about bankers, but any industry has people who are guilty of criminal activity. In this case, the guilty have not been punished for their criminal activity. It is the Government’s failure that has allowed people to walk away.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

The hon. Gentleman may be right about that, but the acts that he is complaining about happened under the last Labour Government, and it is the laxity of their regulation that means that people are not facing criminal prosecutions now.

Photo of Chris Evans Chris Evans Labour, Islwyn

When Conservative Members were talking about the Laffer curve, Ronald Reagan came to mind. For some reason, when the hon. Gentleman stood up, Ronald Reagan came to mind again, as I recalled him saying to Jimmy Carter in the 1980 election campaign, “There you go again.” The person sitting tonight at their kitchen table, worrying about paying the rent, the mortgage, the gas bill or the electric bill, and watching this debate—although given the time they will probably be watching “Pointless”—[Interruption.] I walked into that one. They might be watching ITV instead—

Photo of Chris Evans Chris Evans Labour, Islwyn

I was just wondering what the man at the kitchen table was watching. I apologise, Mr Deputy Speaker. All we hear is the same old debate and the same charge that it is all the Labour Government’s fault, so let me challenge Richard Fuller.

This Government have been in power since May 2010, but can the hon. Gentleman provide one example of a criminal case of financial fraud relating to the banking crisis? I challenge him to intervene on that point. Can he give me one example? No. There has not been one, yet this Government have had three years. It might be said that the Labour Government should have acted on the problem. We had 18 months from the banking crisis through to the general election, yet Government Members have had three years. It is now four and a half years since the financial crisis started, but there is still no criminal case.

Photo of Mike Thornton Mike Thornton Liberal Democrat, Eastleigh 5:15 pm, 1st July 2013

The hon. Gentleman talks about banking fraud. The laws that would have been broken would have been laws under the Labour

Government, and most of us do not believe in retrospective legislation. I agree with him that most bankers are decent people, but there have been exceptions. Unfortunately, those people did not actually break laws; they simply took appalling decisions with other people’s money, which I agree is a disgrace. As far as I know, however, we have seen no accusations of banking fraud; I could be wrong, but that is my understanding.

Photo of Chris Evans Chris Evans Labour, Islwyn

I agree that we do not know, as there has been no investigation.

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds

To help the hon. Gentleman out here, if he had been in the Chamber this time last year, he would recall the Chancellor of the Exchequer saying in respect of LIBOR rigging that he had referred the facts in those cases to the Serious Fraud Office, which is, as we speak, still undertaking a review. Before the hon. Gentleman says, “Why haven’t the Government done anything?” let me remind him of the core principle under the British constitution of the independence of prosecutorial authorities from Ministers. Will he concede that?

Photo of Chris Evans Chris Evans Labour, Islwyn

Yes, but I should tell the hon. Gentleman that I was in the Treasury Committee when Bob Diamond came to give evidence about LIBOR and that I was in the Chamber when the Chancellor announced the investigation. I listened to it and it made me sad. It made me sad because I realised for the very first time that people do not trust anybody any more. That is the problem. It goes much deeper than economics, politics, banking or whatever. People simply do not trust others any more. [Interruption.] I know that I am digressing from the new clause, Mr Deputy Speaker, and that you are itching to stop me. I want to put it on the record, however, that I genuinely feel that people do not trust each other any more. That is the saddest thing of all about this issue. It does not matter whether we are talking about Conservatives or Labour, people just do not trust politicians, journalists, lawyers or others. This is a much deeper problem than anything else for our society.

That brings me to the issue of anger about what the family man or family woman will save from what is on the kitchen table tonight. When those people hear about the tax cuts for the rich, I am sure they will think of those bankers who may or may not have committed crimes, of the journalists who may or may not have committed crimes, and of the editors of national newspapers—people earning six-figure salaries—and they will believe that those are the people who will get rewarded. That may not be the case, but that is the perception, and as we all know as politicians, the perception is usually stronger than reality. What members of the public will think about this Government and about this place is that they are run by an elite who are more interested in helping out their friends in the City than anything else. That is the real tragedy of this issue.

I have sat here and heard all the arguments about the tax cuts. Yes, I have attacked what I believe is a failed economic theory, but the truth is that the Government won the election in May 2010. I do not like that personally, and I hope that we can turn that around in 2015. The Government have the right to put whatever they want into the Finance Bill, and we cannot change it, much as

I would have loved to table an amendment to abolish this tax cut. I cannot, and all we can do is bring about a review. This review is crucial because it will allow us to see how much this cut for millionaires is affecting the British economy.

This may be deemed an aside, Mr Deputy Speaker, and you may call me to order, but let me ask the Minister one more question. When the Treasury was considering the 5p tax cut, did it also consider a 1p tax cut for those whose earnings were below the threshold? If it did not consider that option, why did it not do so, and if it did, why did it rule it out?

You are clearly champing at the bit, Mr Deputy Speaker. Perhaps you want me to wind up my speech, and I shall try to do so. [Interruption.] Do not get too enthusiastic, please!

We need a review. We need to know the facts, because this is so important.

Photo of David Gauke David Gauke The Exchequer Secretary

We have heard a couple of rather lengthy speeches about a topic that is fairly familiar to those of us who have dealt with Finance Bills in the past. We discussed the reduction in the top rate of income tax at some length during the early, middle and late stages of last year’s Bill, and we have discussed it on a number of occasions during our earlier debates on this Bill. It is striking, however, that the number of Labour Back Benchers present during much of today’s debate so far has been three or perhaps four. Although we have heard some passionate and lengthy speeches, I am not sure that I need to make a lengthy speech in response, but there are a few basic points that are worth making.

The Government agree that the wealthiest should make the biggest contribution to deficit reduction, and it will be clear to anyone who looks at our record across the board that we have stuck to that principle. In the 2010 Budget, the higher rate of capital gains tax was increased. In the 2011 Budget, we tackled a major area of tax avoidance, namely disguised remuneration. The Labour party opposed that measure in Committee, but we tackled the problem none the less, and our action has resulted in considerable extra revenue, particularly from high earners.

The 2012 Budget, which contained the measure that has provided the subject matter of most of today’s debate—the cut in the 50p rate of income tax—also introduced a new rate of stamp duty for high-value homes, measures to clamp down on stamp duty land tax avoidance, and a cap on reliefs used in the tax system, which raised an amount considerably larger than the cost of the cut in the 50p rate. The 2012 autumn statement provided for action to reduce the cost to the Exchequer of pensions tax relief, and the 2013 Budget contained further measures to tackle offshore tax evasion by, in particular, high earners.

We clearly have a strong record in this respect. We have gained additional revenue not only from capital gains tax and stamp duty, but—as is shown by the distributional analysis—from the income tax paid by the top 1% of earners. That was mentioned by a number of my hon. Friends, including my hon. Friend Sir Edward Leigh, who pointed out that we are receiving more from the top 1% than the Labour party ever managed to.

It is interesting to note that the proportion of income tax contributed by the top 1% exceeded 25% in only one year during Labour’s time in office, namely 2009-10, which was a slightly strange year because a large amount of income was brought forward so that the tax could be paid at a rate of 40% rather than 50%. In that year, 26.5% of income tax was paid by the top 1%, but in the remaining years the proportion was 25% or lower. We estimate that in 2013-14, with the new lower rate of 45%, nearly 30%—to be precise, 29.8%—of income tax receipts will come from the top 1%. The problem with the 50p rate was that it was not very good at doing what a tax is supposed to do—raising revenue. That is the Labour party’s essential difficulty in advocating a 50p rate of income tax.

Photo of Bob Stewart Bob Stewart Conservative, Beckenham

I do not understand all the differentials, but is the Treasury model that we would get more tax income by reducing the rate than by leaving it at 50%?

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend brings me to the point that I wanted to move on to: the report that the Chancellor of the Exchequer commissioned in Budget 2011 to evaluate the Exchequer impact of the additional rate of income tax. The report was published alongside Budget 2012. It concluded that the underlying yield from the increase from 40% to 50% was much lower than originally forecast, owing to large behavioural effects—it was possibly only £1 billion and could in fact be negative. The 50% rate also risked damaging growth and the UK economy if it had remained permanent.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Chris Evans focused on our policies. The inconvenient truth for the Labour party is that it had the opportunity for 13 years to test the 50p rate to destruction, but we quickly saw the evidence of the Laffer curve, which shows that, as we lower tax rates, we can collect more revenue. The Government should be congratulated on finding alternative ways of trying to get the rich to pay their just deserts, if the Labour party wants them to do that. In fact the Government have collected more money from the rich by lowering the rate from 50p to 45p and by looking at other ways to collect that money.

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend is absolutely right. The point is not whether we should seek to get a significant contribution from the wealthiest; it is how we go about doing it. There is a real problem with a very high rate of income tax directed at the most mobile people, who have many more options in how they respond. Not surprisingly, the evidence that the HMRC evaluation discovered is that there is a significant behavioural response.

Cathy Jamieson said, “This is all tax avoidance and one should crack down on tax avoidance.” I agree: one does need to address tax avoidance, and we have more ambitious targets for HMRC than it has ever had before. We have made a number of changes to the law to address avoidance. I could go on at some length about the steps that we have taken, but the behavioural effect is not only about tax avoidance, it is also about behaviour that is entirely consistent with Parliament’s intentions. One might find people making bigger pension contributions, for which the House has determined tax relief should be available. One might find people retiring earlier or locating in other jurisdictions. All those things have an impact.

Therefore, there is a significant behavioural effect in this area, which brings me to the point that my hon. Friend Mr Newmark made: the 50p rate is not an effective way of raising revenue, which is why, in my opinion, the Labour party will not give a commitment to bringing the 50p rate back. It knows it is bad economics and does not raise revenue. It knows it sends a bad message about the UK as a location in which to do business. That is why Labour had a 40p rate for 4,722 of the 4,758 days that it was in office. There was a 50p top rate for just 36 days at the very fag end of the last Government, when they knew with a fair degree of confidence that they were going to lose office.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree 5:30 pm, 1st July 2013

I sympathise somewhat with the point of Chris Evans about his and his party’s desire to target bankers, but if we want to create an entrepreneurial society, we must realise that not all the big wealth creators are bankers; they are also people in manufacturing, hi-tech industry and so forth. If we want them to settle in the UK, we must make our tax environment attractive and competitive internationally.

Photo of David Gauke David Gauke The Exchequer Secretary

I entirely agree with my hon. Friend. The challenge for any sensible Government has got to be how to ensure both that the wealthiest pay a fair share and that we encourage a spirit and culture of entrepreneurialism. The 50p rate simply failed to deliver that.

Photo of Graham Stuart Graham Stuart Chair, Education Committee, Chair, Education Committee

My hon. Friend is giving a thoughtful economic analysis, but he perhaps misunderstands where the Opposition are coming from, because I do not think they are particularly interested in the economics. The fact is that their position is now so desperate that they have their 36% strategy, they are entirely paid for by the union movement, and their desire now is to lurch to the left. They do not care if they get less money; what they want to do is appeal to a core vote which they hope will be enough to return them to power because of the invidious and unfair electoral system we have. That is what is going on, which is why we waste our time when we talk about entrepreneurialism or the benefits to public services, because they are not really interested.

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend takes a sceptical view of the Opposition, and events may well turn out to justify it. I want to take a more charitable view, however—although perhaps it is, in fact, a different form of scepticism or cynicism. My view is that they are not really serious about the 50p rate at all; much though they talk about it, they will not, in truth, pursue this policy because they know it is so damaging and that it does not do anything to raise revenue. That is why, despite repeated questions earlier, the hon. Member for Kilmarnock and Loudoun, who does like to be straightforward with the House, refused to say whether Labour would support a 50p rate after the next general election. She makes the argument that Labour will have to delay and wait to see what the state of the economy is, but given that we know this does not raise any substantial amount of revenue, it cannot be dependent on the state of the public finances; instead, it is a matter of political calculation. I hope my hon. Friend is wrong and that the Opposition are trying to edge away from a position that they saw as populist but which, in truth, is economically incoherent.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am intrigued by the amount of advice being given to the Labour party by those on the Government Benches. Given that the Minister said he wanted to be in charitable mode, to return to the new clause, will he not concede that there is an argument for looking at the matter more thoroughly and having this review in order, as the Treasury Committee concluded in its report on the 2012 Budget, to discover what the actual impact of reducing the rate would be?

Photo of David Gauke David Gauke The Exchequer Secretary

I am not persuaded by that argument. I hoped the hon. Lady would take that opportunity to provide some clarity as to the Labour party’s position, but she did not do so. We do not need another review. We have evaluated the impact of the 50p rate. It was an economic failure. It failed to raise revenue. It in effect put up a “closed for business” sign over the UK economy. It was about politics, not economics.

I urge the Opposition to withdraw the new clause, and I hope they will also return to their approach of a few years ago. As my hon. Friend the Member for Gainsborough pointed out, when Tony Blair was in charge he was making pledges not to increase the top rate of income tax. That at least demonstrated a sense of where the UK needed to be and its place in the world, but that has, I am afraid, been long forgotten by the Labour party which just drifts ever leftwards.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Following the Minister’s example, I will be brief. We have had a useful debate containing some impassioned speeches, not least those from my hon. Friend Chris Evans and from Sir Edward Leigh, who, interestingly, sought to give advice to the Labour party. My hon. Friend gave an interesting critique of Laffer curve economics but related it, importantly, to what happens in the real world. He spoke with a great deal of passion and experience from his time working in the financial services sector. He was absolutely right to say that not everyone working in the banks was wrong, and many people working on the front line are trying to change things and to clear up the problems. These people did not adopt the principles that got the banks into such difficulty.

Earlier, I read out a couple of quotes from various hon. Members about cutting the top rate, but, to keep a balance across the coalition, let me cite one that I missed from the president of the Lib Dems. Tim Farron has said:

“Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”

That has been one of the threads running through this afternoon’s debate. [Interruption.]

Again, I hear Government Members muttering from a sedentary position about what the Labour party is going to do. I outlined this earlier, but I will state it again: we will, of course, set out our manifesto in due course, in time for the general election—that is absolutely the correct thing to do—but we will not make false promises. We will not make promises that we will not be able to keep. Let me remind the House of that quote from the Prime Minister:

“I have been very clear—we have all been very clear—that we have to do this in a way that is fair so that the broadest backs bear the biggest burden.

That is why we haven’t changed… the 50p tax rate.”

As I outlined, that particular pledge was not kept and those with the broadest backs do not appear to be carrying the biggest burden.

The Minister said that he wanted to be charitable and to understand why we tabled the new clause, and I know from Finance Bill Committees that he does at least reflect on things. He rarely gives in to temptation to resist the advice he is given to reject all amendments and new clauses, but he does at least give the appearance of reflecting. In this case, I cannot understand why he will not accept a mild-mannered proposal that simply seeks to have a review of the impact of this measure and to bring forward further information for the interest of hon. Members across the House. That is a reasonable and sensible thing to do, and I know that the Minister, certainly in opposition, has regularly argued for this type of review. We have heard nothing from him today to explain why, suddenly—[Interruption.] Given the side conversation that is going on, I am sure that the Minister never got any of those reviews into the legislation at that time, but I say to him that there is a first time for everything. He could, even at this late stage, decide it was the correct thing to do to allow the review to go ahead and ensure that the House had further information.

I do not want to repeat all the points made earlier, as that would not be helpful at this stage. However, I simply remind the House that it is not only Opposition Members who are claiming or suggesting that there are concerns about this measure. To go back to the IFS, it stated:

“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour”.

Much of the Government’s argument has been predicated on the notion that people will change their behaviour, but I have heard nothing from the Government that suggests to me that behaviour would be changed in such a way that there would suddenly be a huge influx of resource into the Treasury. The IFS went on to say:

“There is a lot of uncertainty, a lot of risk on this estimate.”

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am coming to a conclusion.

Let me finish by quoting the Office for Budget Responsibility, which stated:

“This is a judgement based on not even a full year’s data based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”

I have heard nothing from the Government that convinces me that we do not need to look at this issue in more detail. I am disappointed that they have not accepted the new clause and I therefore want to press it to a vote.

Question put, That the clause be read a Second time.

The House divided:

Ayes 229, Noes 290.

Division number 37 Finance Bill — Clause 1 — Report on Impact of Additional Rate of Income Tax for Income Over £150,000

A majority of MPs voted against the production of a report on the impact of changing the additional rate of income tax.

Aye: 229 MPs

No: 290 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 127 MPs

Absents: A-Z by last name

Question accordingly negatived.