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New Clause 9 — Lower rate of tax and mansion tax

Part of Finance Bill (Ways and Means) – in the House of Commons at 7:30 pm on 1st July 2013.

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Photo of David Gauke David Gauke The Exchequer Secretary 7:30 pm, 1st July 2013

New clause 9 proposes the introduction of an income tax rate of 10% on a band of income determined by the Exchequer yield of a mansion tax. Let me explain why the Government do not believe that the new clause is sensible

We are already helping people on low and middle incomes by means of the tax system. In May 2010, the coalition agreement set out our commitment to making the first £10,000 of income free from income tax by the end of the Parliament. In April we increased the personal allowance to £9,440—that was the largest ever cash increase—and it will rise again, by a further £560, to reach £10,000 in 2014-15, meeting this Government’s commitment a whole year early.

Opposition Members clearly think that it would be better to introduce a starting rate of income tax, but let us not forget that they introduced a 10% rate once before and then scrapped it, to the cost of many of the people further down the income scale whom they claim to want to help. We have replaced the 10% rate that they doubled with successive increases in the tax-free personal allowance which effectively provide a 0% band. Our changes in the personal allowance have already more than compensated those who lost out when the 10% rate was abolished. In fact, since April 2013, those who lost the most as a result of the last Government’s policy have paid no income tax at all.

According to the Institute for Fiscal Studies,

“the proposal for a new 10p starting rate of income tax, has no plausible economic justification. It would complicate the income tax system and achieve nothing that could not be better achieved in other ways.”

The IFS says:

“A far simpler and more sensible way of achieving these aims would be to spend the same amount of money on increasing the personal allowance...This would have virtually the same impact on individuals’ tax payments… be slightly more progressive, take some people out of income tax altogether and avoid the complexity involved in introducing a new income tax rate.”

Proposed subsection (2) of the new clause proposes the introduction of a mansion tax to pay for the proposed introduction of a 10% rate. That proposal has already been debated a number of times in the House, and the Government’s position is clear. The coalition parties have different views, but the view of my party is that a mansion tax is not the answer.

We expressed our concern in the Public Bill Committee, during a debate on the annual tax on enveloped dwellings. As we made clear then, a third of the properties in London that are worth over £2 million have been owned by the same people for more than 10 years. Many of those people, such as elderly owners whose properties had increased substantially in value during that period, would be faced with an average tax of £36,000 every year, and could be forced out of their homes. Moreover, families or other owners of high-value homes would not necessarily have the liquid income that would enable them to pay the tax. A mansion tax could hit asset-rich but potentially income-poor households.