‘(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) The report shall set out the impact upon Exchequer receipts of setting the additional rate at 50 per cent in the tax year 2015-16.
(3) The report shall set out the impact of reducing the additional rate for 2013-14 on the amount of income tax paid by—
(a) all people who are liable for the additional rate;
(b) those with taxable incomes of over £250,000 per year; and
(c) those with taxable incomes of over £1,000,000 per year.
(4) The report shall set out the impact of the reduction in the additional rate for 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.”—(Shabana Mahmood.)
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
It is a pleasure to start the Report stage of the Finance Bill, Mr Speaker. We had many good and long debates in the Bill Committee, and I am sure we will continue that trend over the next couple of days.
The new clause, which stands in my name and those of my right hon. and hon. Friends, would require the Chancellor of the Exchequer to publish within three months of the passing of this legislation a report on the additional rate of income tax—the top rate, which was 50p until last year, when it was cut by this Government to 45p. The report we envisage would set out the impact on Exchequer receipts of an additional rate, set at 50p, in the first year of the next Parliament. The Chancellor would also be required to set out the impact of reducing the additional rate for last year, 2013-14, and the amount of income tax paid by all additional rate payers, those with incomes over £250,000 a year and those with incomes over £1 million a year. Finally, the report would set out the impact of the reduction in the additional rate in 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.
Since the coalition Budget of 2012, we have had a number of debates on the Floor of the House and in Public Bill Committee on the Government’s decision to cut the additional rate from 50p to 45p. Indeed, the Minister has referred to such debates being an annual event during the passage of the Finance Bill. Why is it so important that we continue to press the Government on this one decision, made in 2012, after they have refused to listen to all and any attempts to get them to change course? It is because if there is one decision taken by the Government that tells us all we need to know about their priorities and who they stand for, this is it.
The Government who said, “We’re all in it together,” and the Chancellor who promised that he would not balance the books on the backs of the poor, saw fit to give, at a time when ordinary working people were seeing their living standards fall and when the combined impact of tax and benefits changes has left households on average more than £974 a year worse off, an absolutely huge tax cut to the wealthiest in our country. For millionaires, this tax cut is worth an average of £100,000—a vast sum, far out of reach for the majority of working people. So although this may appear to be simply an annual event and part of the House’s debates on the Finance Bill, it is much more than that. This Government made a bad choice—the wrong choice—when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it.
I am pleased that the right hon. Gentleman is here. I recall in the debate in Committee of the whole House that he argued for a further cut in the rate to 40p, citing in evidence the increase in revenues resulting from the cut, but as he should know—I am sure he does—that is a result of bonuses being deferred. I shall return to that point, but I think it tells us all we know about where the Government stand on fairness.
My hon. Friend talks about the amount that may be raised, but rather than having a regular debate across this Chamber about the 50p tax cut and the massive tax cut for millionaires, perhaps the Government could just accept the new clause and bring all the facts before the House?
My hon. Friend makes an excellent point. We do indeed have a regular debate about the facts and figures—I will come to the detailed data on the yield from the 50p rate later—but if the Government accepted our new clause, much of that debate could be put to bed, especially as Her Majesty’s Revenue and Customs now has much more data with which to produce an analysis that is less flawed than the one in 2012.
Our hon. Friend Ian Murray makes a good point. When the Government abolished the 50p rate, they made great play of studies they said they had done on the revenue raised. Would it not be perfectly acceptable for them to accept the amendment, so that we could see exactly the impact of their unfair tax changes, because they are clearly showing their colours in terms of supporting the wealthiest in our country?
I am grateful to my hon. Friend for that powerful point. As I said, I will explore the details in relation to data and the argument over the yield from the 50p rate, but he is right: we cannot continue to rely on a report produced when the rate had been in place for only one year. The Government should accept the new clause and produce a much more comprehensive analysis.
It was the Labour Government who introduced the 50p rate, which came into effect in 2010-11, a decision made after the financial crisis, as we sought to get the deficit down. When this Government came to power they did not say anything in the coalition agreement about abolishing the 50p rate, but in 2011 the Chancellor said that he would ask HMRC to look at the yields from the 50p rate, which was the warning signal that he was looking to cut it. In 2012, with HMRC’s report “The Exchequer effect of the 50 per cent additional rate of income tax” to back him up, the Chancellor cut the rate to 45p.
Why go through the process of looking at yield and getting HMRC to produce a report? Everyone knew that there were not enough data to come to an accurate view about yield because the rate had not been in place for long enough—a point about which I shall say more later. Well, the Chancellor knew that he needed cover for that deeply ideological decision so he was desperate to claim that a 50p rate raised very little money. If he could stand before the House and say that it raised hardly any money at all, never mind the uncertainty and the incompleteness of the data, he calculated that he could justify giving a tax cut to the richest in our country, knowing that on his watch ordinary people—those on middle and lower incomes—would pay the price for his economic plan, which has failed on the terms that he set for himself when he came to power in 2010.
There are 15,300 people in work in my constituency who earn less than the living wage. They have lost out, as have many others, by £1,600 a year since this Government came to power. To them, accepting the new clause would indicate that the Government recognise that tax changes should be to the benefit of everybody in our society, not just a few. Does my hon. Friend think the Government appreciate that, or can she think of another reason why they will not accept it?
I fear that on previous form the Government will not listen today and accept our new clause. Nothing that has been said in previous debates gives me any confidence that they understand the message that they have sent to my hon. Friend’s constituents, mine and those of Members across the House that a tax cut for the wealthiest is prioritised, while ordinary working people at the lower end of the income scale are worse off.
Does my hon. Friend share my worry that people will think the Government have something to hide, as they are unwilling both to let us see what a 50p rate would raise and to audit party manifestos? Rather than “We’re all in it together,” does it not sound like they are all at it together?
My hon. Friend makes a powerful point. What do the Government have to hide? The data that we seek would not be difficult for HMRC to provide. It has already conducted one analysis and it is not unfeasible for it to conduct a further analysis, this time based on more comprehensive data, which would clear up some of the issues once and for all.
The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.
Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.
Except that even the HMRC report acknowledges, as does the Institute for Fiscal Studies, that all the analysis and estimates are highly uncertain. The scale of behavioural change is primarily based on an assessment of taxable income elasticity. This is the extent to which taxable income changes when the tax rate changes. The IFS says that there is a margin of error. Staying within the margin of error, one could easily say that, depending on the taxable income elasticity, cutting the rate could cost the Exchequer £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain these projections are. The Government were and are well aware of this, so we can conclude that the decision was political and ideological, and was not rooted in certain and exact calculations and comprehensive data.
Let me deal with the point about comprehensive data because uncertainty is not the only thing that was wrong with the Government’s analysis. As I said in response to interventions, the HMRC report was based on only one year’s worth of data—the data relating to 2010-11—which is a significant weakness in itself. The report came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year 1 of the rate being in place further weakens the Government’s argument on the numbers, because we know that incomes were taken earlier to avoid the 50p rate when it came into effect, and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield.
The Government should, at the very least, update the analysis in the light of the more recent data for the years 2011-12 and 2012-13, because HMRC now has available to it records for the two years when the 50p rate was in place and it could update the report that was used for Budget 2012. That would give a much clearer picture to all of us who are relying on other figures and forecasts.
The Government say that the increased yield when the rate was cut to 45p is evidence that a lower rate of tax on that occasion resulted in a larger yield. However, they conveniently forget that just as people shifted income into 2009 and 2010 to avoid the 50p rate when it was introduced, once the Chancellor had said in his 2012 Budget that he would abolish that rate the following year, in 2013, people effectively decided to delay their bonuses and income until the new tax year 2013-14 in order to pay 45p rather than 50p. That is why our new clause requires the Government to consider the impact of the cut in the additional rate on the level of bonuses in particular. We know that income forestalling and deferment both occurred, and the Government cannot ignore the deferment of bonuses when they seek to argue that they made the right decision, and cite increased revenues in support of their argument.
Is it not the case that the very well paid people who got the benefit are a collection of tax swindlers swindling the rest of the taxpayers, and should not everybody in the House be attending to changing the law so that such tax swindling cannot happen in the future?
I am grateful to my right hon. Friend for his intervention. I was about to come to the topic of tax avoidance, which I hope will answer his question.
Another weakness in the Government’s argument is the proposition that behavioural change, or tax avoidance, means it is not worth while maintaining the rate at 50p. This must be the only example of tax avoidance resulting in a huge tax cut, rather than in Government crackdowns to tackle and fight tax avoidance, which they are normally so quick to say they are doing. The Chancellor is on record as saying that he considers tax avoidance to be “morally repugnant”, but in the case of the 50p rate he rewarded a particular form of avoidance with a tax cut. I wonder if that has ever happened for people on middle and lower incomes. I think not.
The message that this Government have sent out is that if people are sufficiently well off to pay for advisers who can tell them how to avoid paying the 50p rate, and are organised enough and can lobby the Government, they are up for a tax cut, but everyone else, sorry, is simply worse off.
Does my hon. Friend agree that the Government also send the message that a tax cut incentivises the wealthy to work harder, but that if everybody else is given benefits that does not work?
My hon. Friend is right.
The Government always tell us how proud they are of their record on tax avoidance, but how much effort did they put into thinking of ways in which they could protect revenue from the 50p rate? The Government have introduced the general anti-abuse rule, the so-called GAAR, which may have helped. They could have thought about a targeted anti-avoidance rule, a so-called TAAR. They could also have looked to HMRC to do more. I understand that no specific resources are allocated within HMRC to protect revenue from the 50p rate. A range of measures could have been taken to protect revenue. Before rushing to abolish the rate, the Government could and should have looked at protecting that revenue first. They were quick enough to publish an analysis saying that on their evidence it was not raising much money because of behavioural change, but their instinct was not to say, “Let’s look at how we might see off that behavioural change.” They did not commission a report or publish anything on that; they jumped straight to cutting it at the earliest opportunity: more evidence that this is an ideological and political choice made because they wanted to prioritise the tax cuts for the richest, while ordinary working people are worse off.
The hon. Lady accuses the Government of being ideological here. For the avoidance of doubt, were there to be yet another study that showed that the 50p rate failed to raise any substantial sums of money, would the Labour party still go ahead with an increase in the additional rate of income tax from 45p to 50p?
Let us see the report. The Minister has had many opportunities in Finance Bill debates where the Opposition have tabled amendments and new clauses calling for such a report. He has not produced one. I have no confidence that he will go away today and ask his officials at HMRC suddenly to produce a report. If he has such a report in mind, he should accept our new clause, and we can then have that debate. We have said that we will increase the rate to 50p. We believe that that can raise money and will be a good part of a much fairer deficit reduction policy.
The truth is that there was no justification for giving a huge tax cut to the richest in our country. We now know that bonuses are up by 83% for those in the financial sector, while ordinary working people are worse off now and will be worse off in 2015 compared with 2010. Wages will be 5.6% down at the end of this Parliament from what they were at the beginning.
The Government have not ruled out cutting the additional rate back down to 40p. We know that this is the ardent desire of many of their Back Benchers. Perhaps when the Minister replies he could tell the House whether the Government are planning any further cuts. They have ducked the opportunity on previous occasions to confirm that they will not go down from
45p to 40p. It will be good to hear from the Minister whether that is the case. The Government’s priorities are all wrong. Ordinary working people continue to struggle with their finances, and the link between the wealth of the nation and the money in people’s pockets and in their household budgets is broken. This Finance Bill does nothing to change the reality of the lives of millions in our country, yet Government Members want to cut taxes for the richest.
The Labour party now proposes a 50p rate for the additional rate. Is that a permanent measure or a temporary measure to deal with the deficit?
The hon. Gentleman has made that point in previous debates, and I repeat the answer that I gave then. We have said that we would increase the rate to 50p in the next Parliament as we get the deficit down. I could not be clearer than that.
It is the richest in our country who are benefiting the most from the recovery delivered by the Government. The return of economic growth has overwhelmingly benefited the top 1%, as shown by analysis of HMRC figures by the House of Commons Library, which covered the year when GDP growth returned and the top rate of income tax on earnings over £150,000 was reduced. The share of post-tax income of the top 1% of taxpayers—300,000 people—rose from 8.2% in 2012-13 to 9.8% in 2013-14. Yet during the same period, the bottom 90%— 27 million taxpayers—have seen their share of post-tax income fall.
This cut to the 50p rate cannot be justified when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the Office for Budget Responsibility to have powers to audit manifestos ahead of the next general election, because we believe that that scrutiny will add to public understanding about the choices that are being made—a call the Government only last week rejected—so too we think that a report as envisaged by the new clause would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them.
Let me deal first with an old canard from the Labour Benches that is simply untrue and unfair: the idea that Conservatives welcome tax cuts for the rich, but do not think that tax cuts are appropriate for anybody else. Government Members believe strongly that tax cuts work for everybody, and that is why the Government have given back a lot of tax revenue to people on low pay by taking them out of tax altogether. We have supported and welcomed that, and that is where the missing revenue that Labour worries about is concentrated.
The right hon. Gentleman says that the Government are taking many low-income people out of tax. But he must recognise that by raising value added tax, the least progressive of taxes, which everyone purchasing goods has to pay, regardless of their income, they are increasing the burden on the lowest paid.
VAT is not as regressive as the hon. Lady suggests, because I am pleased to say that important items, such as food and children’s clothes, are VAT exempt, which makes it a little less unpalatable. But I agree with her that all tax rises are bad news, but they are a necessity given the large deficit that we inherited, and when some important public services need financing. I also entirely agree with Labour that, given that we have a large deficit and need to spend money on important benefits and public services, we need to get that money from the rich and the better off. They are the people with money, and we have to find the best way to get the money off them.
If I am given a chance to develop my argument, I hope I will satisfy any independent-minded people on the Labour Benches that we already have the evidence. We have had a long-term experiment on this very subject, which satisfies some Conservative Members that the way to get more money off the rich is to set a rate that they are prepared to pay and will stay and pay. If the rate is set too high, they leave. If the rate is set too high, their clever lawyers and accountants find entirely legal ways to pay rather less tax than we would like.
Shabana Mahmood did not answer my intervention when I asked her to confirm that the Red Book has made it clear that after the cut in the rate, the amount that the better off and the rich paid went up—of course it did. That is the experience we would expect. The hon. Lady is left trying to say that there are special reasons. I will give her this point: it is probably best to judge these things over a longer period than a year or two. One can get odd variations, which is why I want to give the evidence to the House that it has clearly forgotten, which relates to the big reductions in top rate tax that were put through in the 1980s. The Conservative Government reduced the top rate of tax in two stages, from 83% to 60% and then from 60% to 40%, and the Labour Government kept that rate right up until they knew that they would lose office. They were wise to do so, because over those years the amount of cash paid by the rich went up, the real-terms amount of tax paid by the rich went up and the proportion of total income tax revenue paid by the rich went up. What is not to like about that treble win?
The right hon. Gentleman said earlier that if the top rate of tax was too high people would leave—I presume he meant that they would leave the country. How many rich people have returned to the country as a result of the top rate being reduced from 50p to 45p?
We will be able to answer that question in due course, because these are still early days, but there are encouraging signs that more revenue is coming in from the rich. We will know the results of the latest experiment later, but we know fully the results of the 1980s tax cuts. They were clear enough to convince not only all sensible Conservative MPs at the time, who were happy to vote for the tax cuts and kept them throughout their period in office, but, more importantly, the long-running Chancellor of the Exchequer who took office in 1997 and held it for a decade before becoming Prime Minister. He is not an easy man to convince to be nice to the rich. I think that he decided to run with that tax rate because he was entirely convinced that he would get more money out of the rich at 40% than he would at 83% or 60%.
Does not the evidence show that any increase in the tax paid by the rich is the result of their share of income rising at the same time as everyone else’s living standards are falling?
The main reason they pay more tax, of course, is that they generate and declare more income here, which is surely what we want them to do. If the Labour party is with me so far in wanting decent public services, and if it is with me in accepting that the money for those services has to come from the better-off, because by definition we do not want to tax the poor, then surely it is with me in wanting to have more rich people here to venture, save, put their money at risk and to make more money with their money so that there is more of it to tax. This country is now very dependent on income tax from the top group of earners, who produce 30% of income tax, and on the capital gains tax, stamp duty and other taxes that apply mainly to rich people with big assets. That is sustaining public services. It is very important that Members of this House, who might not like those people—clearly the Labour party dislikes them intensely—recognise that they are very useful members of society and that their revenue is crucial to being able to redistribute money across the country. If Labour Members wish to have more equality, they must think about the optimising rate. Surely it is best to try to find the rate that maximises revenue, rather than a penal rate that satisfies people’s sense of jealousy—or whatever it is—about those who have or make a lot of money.
The right hon. Gentleman is wrong about the Labour party disliking rich people intensely and should retract that statement. If he is not prepared to do so, perhaps he will explain why many people feel that his party dislikes ordinary families and poor families intensely, as highlighted by their policies.
That is simply not true. I am delighted to hear that the hon. Lady likes rich people—there are quite a few in her party, so let us hope she gets on well with them—but it is absolutely false to suggest that Conservatives have no interest in people who are out of tax altogether or who are on low incomes; we are desperately concerned that they should get better educational standards and have more opportunities so that they can get a job and then go on to get a better job. We wish them well, and we are very keen to work with all those in our constituencies so that they can take advantage of opportunities. We would like them to be on higher incomes. In the meantime, unlike the Government she supported, we have taken many more of those people out of tax altogether, because we think that those on an income of less than £10,000 a year should not have to pay tax. They will probably be receiving some benefit assistance.
Another point that the hon. Member for Birmingham, Ladywood did not respond to was the fact that the latest figures show that inequality rose under the Labour Government but has actually fallen a bit under the coalition, mainly because we have taken an awful lot of people at the lower end of the income scale out of tax. We have a very progressive system: the income tax system now exempts anybody on less than £10,000 and has a 47% rate, if we take national insurance as well on the highest incomes; and the benefit system rightly gives a lot of money to people at the low end of the scale and should not give any money to people at the top end.
The right hon. Gentleman has made a number of assertions in his last few sentences. I wonder whether he has seen the report published this week by the Joseph Rowntree Foundation, which states that the cuts in child benefit and tax credits
“have typically created losses double the amount of tax allowance gain for working couples, and nearly four times the amount for working lone parents.”
I wonder whether he has seen the latest HMRC report, which states that the Gini coefficient started to rise significantly in 2012-13.
The figures I have been using refer to the whole coalition period and show a reduction in inequality, which I hope the hon. Gentleman will welcome. I do not recognise his figures on the child tax changes. The overall effect of taking a lot of people out of tax has been a very positive impact on their net incomes, as we would hope.
If the right hon. Gentleman disputes whether an increase in the additional rate of tax would bring in more money, does he agree with the new clause’s call for a report? If it shows that the 50p tax rate brings in more money, will he and his Conservative colleagues advocate increasing it again?
I thought that I had dealt with that point. As far as I am concerned, it was proven conclusively in the ’80s that taking the rate down from 83% to 40% increased the revenue very substantially and on a sustainable basis. That was sufficient to persuade the official Labour party—perhaps not some Labour colleagues here today—not to increase the tax rate from 40% throughout its long years in government until the very end.
I do not think that the economic circumstances were as different as the hon. Gentleman thinks. In the early ’80s the Conservative Government inherited an economic crisis from Labour, just as this Government did. There was a lot of unemployment and a big task in getting people back to work and getting the economy growing again, rather like today. The Government at the time managed to do that, just as this Government are, so I do not accept his point.
However, I find the fact that Labour is going backwards on these issues rather perturbing. Why can the modern Labour party not understand the basic points that the Labour party that was victorious between 1997 and 2010 understood fully? Why can it not understand that it is possible to take the tax rate too high and get less revenue? The Treasury has now accepted the doctrine of the Laffer curve and understands that putting the tax rate above the optimising rate would surely be a very foolish thing to do. It knows that that applies to capital gains tax, as it clearly does to income tax. I submit that 50% was well above the optimum rate, because we collected rather less revenue than many people would have liked. I welcome the fact that the Government have started to put that right.
I do not think that we need the study that the Labour party is recommending today, and I advise it to think again about what it learnt in the ’80s and ’90s but appears now to have forgotten. It shows that the former Labour Chancellor was clearly not crowd-pleasing when he refused to increase the rate from 40%—he was clearly antagonising many of his Back-Bench colleagues by not doing so—so there must have been a good reason for it. I think that reason was a sensible one: it would have raised less revenue, rather than more. I urge the Government to reject new clause 14.
It is worth considering some of the context of our debate today on the Finance Bill. Almost 15 years ago, the then Labour Government introduced the national minimum wage. That historic measure increased the value of work for around 2 million people across the UK. At its heart was fairness and dignity for all at work. Yet today we are debating the impact of a substantial tax cut for 13,000 millionaires introduced by this Government. At a time when more than four out of five people surveyed in a recent Ipsos MORI poll said that they faced a cost of living crisis, the contrast cannot be overstated. It would be almost impossible to find so clear a contrast between the ambitions and motivations of two Governments. The bottom line in this debate is that the Government’s proposals in the Finance Bill do almost nothing to address the cost of living crisis.
My hon. Friend mentioned Ipsos MORI. If we look at public attitude surveys, we see that one of the reasons why there is a breakdown of trust in politics is the very approach that she is discussing. People on low incomes—indeed, those on middle incomes—are facing a cost of living crisis, while the wealthiest are getting a tax cut. That is why people switch off from politics; they see the double standards being pursued by the Government.
I could not agree more. I heard the speech of Mr Redwood, but it is clear that there are major divisions in our society. We should all be concerned about that. Tax breaks are given to those who do not need them—to millionaires; responsible millionaires will admit that the stance being adopted is divisive. We should protect those who are struggling the most as well as ordinary middle-income families in this cost of living crisis. I hope that the Government will take on board some of the points made about the social consequences of the tax inequalities that the Government are introducing and making worse.
Let us take my constituency of Bethnal Green and Bow as an example. Families there are significantly worse off than they have ever been. Child poverty is at 42% and there is still high unemployment. There are still major problems of worklessness and young people who are not in training or education. That is a major problem around the country: 870,000 young people remain unemployed.
Changes in taxes and benefits made since 2010 make one-parent families working to support children an average of £3,720 a year poorer. That staggering fall in living standards will affect the most vulnerable. The issue is not envy, but the fact that my constituents are struggling. They will rightly continue to ask why millionaires in the City are receiving a tax cut from the Government of about £100,000 a year. My constituents are working hard to make ends meet and their children are living in poverty. While they continue the battle to survive, they ask why the Chancellor is giving £3 billion a year in tax breaks to millionaires. How is that fair? How are we all in this together if that is the Government’s priority?
Given what the hon. Lady is saying, would she support a 50% rate on earnings above £100,000?
I am here to debate the new clause. I am focused on what the Government are doing. I support the new clause because it is not fair that £3 billion a year should be going to millionaires. On top of that, as my hon. Friend Shabana Mahmood mentioned, bonuses in the financial sector are up by 83%. My constituents are living between the City of London and Canary Wharf; they see the inequities and want a fair chance. They are not complaining about people earning a decent living, but they want the Government to be fair in how they tax.
The hon. Lady represents a seat next door to mine. We both have significant numbers of constituents living, as she would put it, in poverty—although poverty levels today are very different from those certainly in the first half of the last century and before—and significant numbers who are relatively well off. Does she not recognise that by reducing tax rates we are bringing more money into the Exchequer? She says that the issue is not about the politics of envy, but does she not recognise that higher rates of tax would bring less into the Exchequer to pay for the very services that our more poverty-stricken constituents so desperately need? She is undermining the very case she tries to make.
I have great respect for the hon. Gentleman, but I do not agree. My hon. Friend the Member for Birmingham, Ladywood set out the facts in her speech, so I will not reiterate them; others want to speak. The hon. Gentleman will know about the disparities all too well. The Government have a responsibility to make sure that the tax system is fair, and fairness is at the heart of a progressive tax system admired by people in other countries. The changes that the Government have introduced—prioritising tax breaks for those who least need them while ordinary families continue to struggle—are deeply disturbing and unfair.
We are hearing people say, “Tax them less and they will pay more.” Why does that not work all the way down the tax scales? We are seeing middle-income families being sucked into higher tax brackets to pay for the lifting of the less well paid out of tax altogether.
The Government have made a great deal of their efforts to support middle-income families, but frankly their words have been empty. They have prioritised those at the top. Will the Minister say whether his Government will rule out reducing tax further for high earners to 40%? I give him the opportunity to say so now. The revenue that the Government are forgoing could be used to support others—to get young people back to work, for instance.
I will not give way again as I am conscious that others wish to speak. I will conclude.
The Government’s so-called long-term plan should not be pursued at the expense of those in lower and middle-income families. That is why the new clause would rightly force the Chancellor to publish how much extra tax would be paid by high earners under the 50p rate. That would establish how much those earning more than £1 million per year would contribute. That would go a long way towards giving us the clarity we need.
Our vision is to work towards cutting taxes for the 24 million people on middle and lower incomes through the introduction of a 10p starting rate of tax. That is not only the way to a fairer system of taxation but the only way to nurture sustainable growth for all. After three years of flatlining, the growth that we are beginning to see is welcome, although it is still coming much slower than it is to countries such as the US and Germany.
Opposition Members have a vision for a broad-based recovery forged through the efforts of all people from all backgrounds. We must remember that average wages will have fallen by 5.6% by the end of this Parliament. How does that make our society one in which we are all in it together? I do not hear members of the Government or Government Back Benchers use that phrase any more. I challenge them to use it today if they still believe that it is not a joke as far as most people in this country are concerned. Only Labour’s plans for a fairer and more progressive taxation system will support the return of wages to a level seen before 2010.
In conclusion, I return to the basic premise of Labour’s argument. It is simply not acceptable or fair for millions of people to pay more in tax while millionaires pay less. Since 2010, tax rises and cuts to benefit have left average households worse off. Real-terms decreases in wages across this Parliament have made the financial plight of ordinary people across the UK tougher. People have become dependent on food banks as they have never been and there is rising homelessness in cities such as London. There is rising poverty—child poverty in particular—not only in my constituency, but up and down the country, but this Government still find the energy and will to reward the top 1% of earners while everyone else suffers.
The Government have pandered to the worst suggestions of their critics, namely that they are out of touch, have failed to spread any meaningful recovery to those who desperately need it and are out for the few and not for the many. For those reasons I support Labour’s proposals on the tax cut and support the new clause.
It is a pleasure to follow Rushanara Ali. I agree that we should be aiming for a tax system that is as fair as possible and accept that the timing of the top rate cut was not good for public relations or for feelings throughout the country. But let us examine the genesis of this situation.
Mr Deputy Speaker, I am sure you would call me out of order if I responded to that point.
Labour’s Chancellors were not slow to raise taxes—in fact, there is a long list of almost 100 taxes that they raised in 13 years—but strangely enough, they did not raise this one. Again, as the right hon. Member for Wokingham eloquently said, they knew that it was dubious that raising the top rate of income tax would lead to actual benefits. He mentioned the experiments of the 1980s in this country; François Hollande is conducting a live experiment right now across the channel and is getting very much the same results, with one prominent French citizen, Gérard Depardieu, moving all the way to Russia to avoid penal tax rates.
Shabana Mahmoodtalked about the need for analysis. I make two suggestions. First, I presume that during the 13 years of the previous Labour Government a great deal of analysis was carried out on whether raising the top rate was the right thing to do—as I said, they were not slow to look at new ways of raising money and clearly kept on rejecting it as an option. The Institute for Fiscal Studies has now studied Labour’s proposal to raise the top rate back to 50p and has said that it is of dubious benefit. In fact, I think the hon. Lady herself said that it could cost money and would not be drawn on whether that would make her change the policy.
We ought to take what the Labour party says with a pinch of salt. It cut taxes every single year for millionaires.
I will check Hansard to make sure that this is accurate, but I think the hon. Gentleman said that some of the figures were dubious. If he genuinely believes that, why does he not vote for the new clause so that we get figures that are not dubious? Perhaps we can then assess whether a 50p tax rate is correct. Indeed, while he is going on about tax rises, will he confirm to the House whether he thinks a VAT increase is a Tory tax bombshell?
I do not see VAT mentioned in the new clause. I was pointing out that, as the hon. Gentleman’s own Front Benchers say, the analysis of the benefits of the policy comes out as plus or minus zero: it could have a large cost or be a significant benefit. If we are in that sort of ballpark, we are clearly not talking about huge measures that will cut the deficit.
Under this Government, the wealthy have been paying a lot more every year in income tax than they ever did in any year under Labour. They are paying more in many other ways as well. The Labour Government thought it was okay for the wealthy to pay £250,000 in pension contributions and get full tax relief; the coalition Government have reduced that to £40,000, making £95,000 a year of tax benefits that the Labour Government were happy to give but this Government are not. Capital gains tax was at the derisory level of 18%, and is now 28%. The level the Labour Government charged on capital gains was lower than the rate of income tax, so hedge fund managers could be paying a lower rate of tax than the people who cleaned their offices, a truly shameful record.
If anyone is lucky enough to be spending £1 million a year, they will be paying £25,000 more in VAT. To answer a point made by Chi Onwurah earlier, people on low pay spend very little on standard rate VAT items. Once again, the right hon. Member for Wokingham mentioned this: most of the day-to-day living costs of most people—housing, energy, food and many other costs—do not carry standard rate VAT, so the wealthy are paying more there.
The thresholds for inheritance tax were going up under Labour but have been frozen under this Government through the efforts of the Liberal Democrats. We know that the party with which we are in coalition would like to return the level to £1 million, as it campaigned on that during the last election and I believe it will do so again next time. We are pleased that the threshold for inheritance tax has been frozen throughout our time in Government, because we feel it is the right thing to do at this time. We also saw industrial-scale tax avoidance under the previous Government, and many cases now arriving in court go back to the days when they were in power. The idea that this Government are not taxing the wealthy does not stand up to examination.
I am sure that Mr Field would agree.
Ian Swales is making an important and courageous speech from the Liberal Democrat Benches. It is one that many of us on the Conservative Benches could have made, and I thank him for putting some of the issues that have been raised today into perspective. There has been a lot of outrage on the Opposition Benches but it is important that the history of precisely what went on during the previous Labour Government is put on the record.
I thank the hon. Gentleman for that. I agree that it is important: the narrative that Labour taxes the rich until the pips squeak and that we do not does not stand up to examination.
May I add some grist to my hon. Friend’s mill by asking whether he agrees that it is astonishing that during 13 years in government the Labour party never found the time to impose VAT on the purchase of private jets? The coalition Government have introduced that.
My right hon. Friend’s remarks stand on the record. Perhaps what he has said can tell us something about the travel movements of a previous Business Secretary, whom I will come back to in a moment.
The new clause also refers to levels of bank bonuses. As I understand it, the Opposition want in future to tax bank bonuses at 100%, with 50% on the individual and 50% through the bank. What assessment have they done of what that policy will do to the level of bank bonuses? It seems like another example in which the headline comes first and the policy follows behind.
The Opposition had 13 years to deliver their vision for the country. If we look at all the various levels of tax that they presided over, they carried out the wish of the former Secretary of State for Business to whom I have just referred, the former right hon. Member for Hartlepool, who said that he was
“intensely relaxed about people getting filthy rich”.
Uncharacteristically, I will come to the aid of the former right hon. Member for Hartlepool, because his sentence went on to say—and it was the same sentence—
“providing they pay their fair share of tax”.
The right hon. Gentleman makes a fair point. Throughout the last Parliament, that fair share was deemed to be 40% on the top rate until the very last day. We should judge the Labour party on what it did, not on what it now says.
I will be fairly brief.
Under the last Government, I moved amendments like the new clause on virtually every Finance Bill. It has always made me anxious when Governments resist the requirement to provide information. That is all that is sought in the new clause. It simply looks to ensure that the House is properly informed about the impact of a differential tax rate. For the life of me, I could not understand why such amendments were resisted by the last Government, and I cannot understand why the new clause is being resisted now.
I want openness and transparency. I would prefer people to put their cards on the table in the run-up to the general election, so that the electorate know where everyone stands. It would be invaluable for all parties in the House to have the information that is requested in the new clause, so that they could test it and see whether the hypothesis that has been put forward by Mr Redwood and others is accurate. I do not believe that it is.
This debate goes much wider than the 50p rate of income tax. Members need to wake up to that. A few months ago, the Mayor of London ordered water cannon in case there are more demonstrations and riots. There is a deep feeling of unease and a building anger in our community about inequality. People do not usually mobilise and go out on the streets in the depths of a recession. Let us look at what has happened elsewhere: people get angry, mobilise and go out on the streets when they feel that the country is coming out of recession, but they are not sharing in the benefits from the sacrifices that have been made. We have asked people in this country to make immense sacrifices.
We should must look at the various reports that have come out. A few months ago the Oxfam report exposed the fact that for the first time more of the people who are in poverty are in work than out of work. More children are therefore growing up in poverty in working families than in non-working families. I think that that is a first in the history of this country. A survey by Save the Children showed that, as a result of poverty, a staggering number of parents are going without food so that their children can eat. It showed the number of children who have never had a winter coat because their parents are unable to afford one. All that is building up into a significant anger about the inequality in our society.
Taxation rates are therefore not just about the income that they raise; they are about tackling inequality. The right hon. Member for Wokingham said that this ha been happening over a long period. We now live in a society that is more unequal than it has been since Victorian times. It is true that for a short period in this recession, the Gini coefficient went down for two years. However, according to HMRC figures, it started rising again in 2012-13. I think that that will provoke anger in our community. Politicians need to be aware of that anger. Unless we do something about it, it will be difficult to contain.
That is why Governments need to be seen to be addressing the appalling inequality in our society. One way of doing that is to redistribute wealth, as Governments ought to do. The new clause does not talk about the vast maldistribution of wealth in our society. One publication from the Treasury revealed:
“The top 10% of earners in Britain have salaries which are equal to more than the bottom 40% of earners”.
That is absolutely staggering, and that is just about earnings: in some FTSE 100 companies, the chief executive and the directors earn 166 times the average wage of the workers.
Taxation is about addressing inequality. The new clause simply looks at one element of taxation and asks for an accurate report on whether it helps in the redistribution of wealth and in tackling inequality.
I will give the Labour party the benefit of the doubt. It has the national policy forum at the weekend, where there is the discussion and development of policy. That is the healthiest level of democracy we have had in the party for a number of years. I hope that it is bubbling up into a comprehensive programme that we can put before the electorate and that addresses the central issue of inequality. One way of doing that is to have accurate information before us, which is what the new clause seeks.
I will finish there because I know that other Members want to speak. I just warn the House that unless we address inequality, we will reap a whirlwind in our society. We saw riots only a few years ago. I think that the injustices in the distribution of wealth will provoke even greater conflict in our society unless it is addressed.
Ministers may laugh, but that is why they are afraid to make the information available. The benefits of rising prosperity and productivity are increasingly concentrated on a small group at the top.
At the same time, there is growing evidence that economic inequality is a drag on the economy. Business profits, literally, from being part of a better functioning and more equal society. Businesses can function only when people form a society that is structured around the principles of trust, responsibility and fairness.
I will not give way because other Members want to speak.
From the “The Spirit Level” by Wilkinson and Pickett through “Capital in the Twenty-First Century” by the current economic rock star Thomas Piketty to “The Entrepreneurial State” by Mariana Mazzucato, economists and social scientists are raising their voices against the claims from Government Members that inequality is good for growth. Recent analysis concluded that
“inequality is bad for both the magnitude and sustainability of growth”.
Before Government Members jump in, that is the view not of some left-leaning sociologist but of the International Monetary Fund.
Equally, President Obama’s chief economic adviser has said that reducing inequality is good for growth. In other words, we must not balance the efforts to reduce the deficit unfairly on the poor, as they are less likely to be in a position to reap the benefits of any growth that follows. None the less, that is exactly what the Government are seeking to do.
The new clause would make the impact of the Government’s policies absolutely clear. I know what the impact of their policies is from my Newcastle surgeries. One constituent who is on a low income uses his so-called second bedroom to store his wheelchair and oxygen bottles. The result is rent arrears and constant anxiety. The threat of eviction hangs over his head. He is only hanging on because he believes that the next Labour Government will abolish the hated bedroom tax. And yet, at the other end of the income scale, taxes are being cut. If the rest of the House does not join Labour in voting for the new clause, people will know what to think.
The next Labour Government will reverse the £3 billion tax cut for the top 1% of earners to ensure that the books are balanced in a fairer way. We will cut taxes for 24 million working people on middle and low incomes with a lower 10p starting rate of income tax. At the next election, the Labour party will put an alternative vision to this Government’s classic 1980s trickle-down economics to the British people. Our vision is to build a new kind of economy that works for communities and ordinary people, and that does not put a premium on social and economic inequality.
It is a great pleasure, as always, to follow my hon. Friend Chi Onwurah. New clause 14 is simple, and I cannot understand why the Government would not want to produce figures showing whether the 50p tax rate raises more or less money. When the Budget was announced, the Red Book stated that the tax cut would cost £3 billion. If politics is the art of the possible, it is also about priorities, and if we consider the priorities of this Government, we see clearly why that cut was unfair and should be reversed, and why the Government should accept new clause 14 and state why they think that lowering taxes for millionaires is the right thing to do.
We have already heard from my hon. Friend the Member for Newcastle upon Tyne Central about the bedroom tax—that was a priority introduced by this Government. The bedroom tax raises only 10%, if not less, of the £3 billion that the 50p tax rate cost. The use of food banks has exploded across the country in all our constituencies, which is a disgrace in a modern society, and people on welfare are waiting for their personal independence payment applications to be processed—at the current rate it will take perhaps 42 years. Tuition fees have trebled, which is hitting young people and aspiration in this country, and we have seen the NHS privatised, with money spent on a top-down reorganisation that nobody voted for. Those are the priorities that the Government have introduced, which is why it is important to get from them in black and white as part of the Finance Bill the implications of what a tax rate does, what it raises, what it does not raise, and how much other levels of tax could raise. It may be that some of the pernicious policies introduced by the Government could be reversed if they realised that they could raise more money from different levels of taxation.
I am afraid we do not have much time, but if there is time at the end I will take an intervention.
Many hon. Members have mentioned the wages crisis in this country, which is of course connected to taxation. We also have a cost of living crisis: people will be £1,600 a year worse off by 2015. We have a youth unemployment crisis, and we are in danger of writing off another generation of young people, as happened in the 1980s when all those wonderful top rate reductions in tax were being made; and we have the lowest rate of house building since the 1920s. All these are priorities that the Government could put to the top of their policy agenda instead of concentrating on a tax cut for the wealthiest.
On the back of all this, we have a Chancellor who has set golden rules for the economic cycle but who has failed on pretty much all of them, while taking £3 billion from the Treasury’s coffers with this tax cut. The UK has lost its triple A rating, and not only will the Government not balance the books by the end of this Parliament, but they will borrow £75 billion this year alone— £190 billion more than planned. They have missed their targets for the deficit and for debt, and they broke every fiscal rule that they set themselves. What is their answer to the conundrum? It is to cut the top rate of income tax for the very richest in the country. Everyone has seen an increase in VAT, which is the most regressive tax; and we have had the granny tax—the list is endless. If politics is about priorities, the Government should come forward with a report, as suggested in new clause 14, and say how much the tax would raise or not raise. We can then decide whether it was the right idea and priority to lower that tax, alongside the long list of this Government’s failures, including social policy failures.
I was interested to hear the intervention from Jonathan Edwards, who is no longer in his place. He wanted to talk about the 50p tax rate. I am very surprised that our Scottish nationalists have not mentioned it—they refuse to confirm whether or not an independent Scotland would back a 50p tax rate because the answer is no.
I am being told to wrap up, so I shall do so by saying that a tax cut for this country costs £3 billion, according to the Treasury’s figures. The Government are standing up for the wrong people, they have the wrong policies, and new clause 14 needs to be approved by the House.
I assure the hon. Gentleman that the Chair is not going to take a decision or be blamed for anybody.
I strongly support new clause 14. It would appear that the Treasury’s Orwellian motto is “Ignorance is strength”. It is not just that the Treasury will not have this study done, but it has not had it done and does not know the answer. The Government are clearly afraid of the answer; what have they got to hide? That is typical of the current Treasury position. On a number of occasions I have asked the Treasury what estimate it has made of the income that would come to it from the implementation of a Tobin tax or Robin Hood tax—a tax on financial transactions such as that being sensibly suggested by Mrs Merkel for the rest of Europe. The answer I get is that the Treasury has never made any such estimates. Having never made any estimate of the possible income—and apparently never estimating what it would cost the City of London—the Treasury nevertheless states that it would be fatal for the City to impose a tax of 0.05% on financial transactions, when every other business in the country pays a 20% tax on transactions known as VAT. It appears that the Treasury is into “Ignorance is strength”.
We constantly hear from those on the Tory Benches about the wonders of Mrs Thatcher and how we should follow her example, so I remind them that for nine of the 11 years that she was Prime Minister, the top rate of income tax was 60p in the pound. Apparently, people managed to pay it. Apparently the money came in, and even rich people did not need a greater incentive to turn up at work.
No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.
One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,
“recompense for loss, suffering or injury”.
Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.
Someone says most of it, but in the time available, I ought to turn to the new clause.
The new clause calls for the Chancellor to publish a report within three months of passing the Act to set out the impact of setting the additional rate at 50% for the tax year 2015-16. In addition, it asks for an assessment of the impact of reducing the additional rate to 45% for 2013-14 on the amount of income tax paid by those with a taxable income of more than £250,000 a year and those with a taxable income of more than £1 million a year, as well as on all those who are liable for the additional rate. It also proposes that the report set out the impact of reducing the additional rate on the level of bonuses awarded in April 2013 to employees in the financial sector. I hope that there will be no controversy when I say that, in order to be credible, any such analysis would need to take into account behavioural impacts, as did the HMRC report on the additional rate that was published at Budget 2012. It is clearly inadequate to look simply at theoretical income tax liabilities when increasing taxes.
Let me use this opportunity to assure hon. Members once more that the Government already consider the impact of any policy decisions taken. The HMRC report on the additional rate concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast, due to large behavioural effects.
I want to make this point, then I will give way.
Let me address the matter of behavioural effects. Shabana Mahmood conflated the issue of behavioural effects with tax avoidance, and seemed to suggest that the two were synonymous. That is simply not the case. What does the term “behavioural effects” include? If someone decides to retire earlier than they would otherwise do, that is a behavioural effect. If someone decides to leave the country and go to work elsewhere, that is a behavioural effect. If a multinational company, when deciding where to locate a new team, decides to go to another country rather than the UK, that too is a behavioural effect. If someone decides to put more money into their pension—making use of pension tax relief as Parliament has intended—that is also a behavioural effect.
In the eyes of the Opposition, all of that constitutes tax avoidance, and we have been asked why we do nothing about it. I do not know whether they are suggesting that we should take away people’s passports so that they cannot emigrate, or that we should somehow force companies to locate their staff here. Those decisions are behavioural effects over which we have no control, and we have to respond to the reality of the world as it is, rather than as some people might like it to be.
Does the Minister accept that the Office for National Statistics and the Office for Budget Responsibility have said that, after the Chancellor made his Budget announcement about the tax rate, people delayed and deferred bonuses and shuffled their cash around to avoid the system? Is this not actually about very rich people shuffling their money around in order to avoid tax? We need a simple system with a 50p rate, and we need to study it over a long time to determine its impact.
The important point here is that the HMRC analysis explicitly dealt with that issue. Yes, there will be instances in which sums are shifted from one year to another, just as happened when the previous Government announced the introduction of the 50p rate. People brought forward income at that point. The analysis took those behavioural changes into account and excluded them, and still concluded that the 50p rate was ineffective in raising money. Given that HMRC has already carried out that analysis and reached that conclusion, which is consistent with the academic research in this area, and given that the IFS has said that no substantial sums were involved, would the Opposition be determined to go ahead with a 50p rate even though the evidence suggested that it would not raise money? That seems to be their ideological position. It would be illogical and unfair to reintroduce a tax rate that was ineffective at raising revenue from high earners, that made ordinary taxpayers pay more and that risked damaging growth.
There is no evidence that HMRC’s original analysis was wrong. When the Opposition announced earlier this year that Labour would introduce a 50p rate, they claimed that a new £10 billion had emerged that had previously not been taken into account. That turned out not to be the case, however; they got that completely wrong. The data still point in the direction that HMRC’s conclusions are as I have suggested, and there is no reason to believe that the analysis was wrong. The fact is that the 50p rate is an ineffective way of raising money from the wealthiest.
Is the Minister as concerned as I am that Labour Members are not simply calling for a 50p rate? We have also heard calls for a 60p and a 70p rate. Are they not trying to set the tone for what has already been introduced in France—namely, a rate that is much higher than 50%?
I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.
The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend Mr Redwood made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend Ian Swales said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.
We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.
We have had a good debate on our new clause. As I expected, the tone of the Minister’s remarks suggests that he will not take the opportunity to support it, despite accepting the fact that the Institute for Fiscal Studies has joined us in saying that more research, data and analysis are necessary if we are to get a complete answer on the issues of data and yield relating to a 50p top rate of tax. I note that he did not answer my earlier question about that. If he wants to say to the country that his Government have cut the 50p rate with justification, he should not have shown himself to be afraid of such data. The Government should have agreed to the new clause, as its proposals would have settled the matter once and for all. I ask again, what does the Minister have to be afraid of? We will be pressing the new clause to a vote.
Let us get the figures clear. On the percentage of gross income that goes on taxes, for the bottom quintile it is 37.4% and for the top quintile it is 35%. The poorest pay more.