Clause 4

Part of Finance Bill – in a Public Bill Committee at 12:30 pm on 19th May 2009.

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Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 12:30 pm, 19th May 2009

My hon. Friend is absolutely right. It is a more stealthy way of raising yet more revenue from higher earners. I do not wish to trespass on the major debate we are to have on clause 6, but I think that he is quite right. He is also right that that will act as a boon and incentive to many in the tax planning industry for additional bands that should not be there.

I will introduce two sets of comments from observers on the associated payments, repayments and coding adjustments. The second is actually from the Institute  of Chartered Accountants but the first is from the Chartered Institute of Taxation, which, with regard to these proposals, states:

“We consider that a more appropriate method would have been to lower the threshold at which the 50% band is introduced or to set a rate between 40% and 50% for the band of income between £100,000 and £150,000.”

I am not in a position to endorse that, but I would be interested to hear the Minister’s response to the proposal. The CIT went on to state:

HMRC/HM Treasury (HMT) models could predict the level at which these would need to be set to yield the same revenue as the current proposals, yet with reduced administrative burdens for HMRC, tax agents and tax payers.”

What consideration has the Minister given to those suggestions?

The ICAEW made more or less the same point:

“A more straightforward option would be for personal allowances to be given in full, but for the rate of tax applying to be higher over, say, £100,000 of taxable income. This would have the benefit that PAYE would then be able to deal effectively with bonuses etc so that underpayments of tax would be less likely. Analysis will need to be done to identify an appropriate rate of tax and there will be winners and losers.”

What consideration has the Minister given to that proposal? He has explained the rationale in terms of his belief that those who have been and are earning more should be paying more, but can he explain the rationale behind the plethora of new marginal tax rates that he is creating? That seems to breach the principle that everyone is entitled to receive a certain amount of income on which they pay no tax, but it also seems to breach the undertaking that the Minister gave personally, along with the Government, not to make our tax code too complicated. That cumbersome and complicated schedule of marginal tax rates will surely lead to gross distortions in the system, so I would be grateful to hear what studies have been done of that change with people outside.