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My hon. Friend bumped into the Chancellor of the Exchequer's former spin doctor, Mr. Charles Whelan, who was there, in and around the bars and other places. Mr. Whelan gave two pieces of advice to anyone who would listen about how we ought to take on the Government at the next general election. He said that we should focus on only two issues: trustinterestingly enoughand the council tax. Obviously, one questions the commitment of Mr. Whelan and others to supporting the Prime Minister, given that he urged us to focus on those two issues.
We would like to have heard more than we heard in the Budgetwe still await thisabout how the Government will reform council tax or, better still, abolish it altogether. We are certainly not impressedI
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do not think that the country is eitherby the sticking-plaster solution in the Budget: the payment to pensioners of only £100, which does not address the pressures that many people, including those who are not pensioners, face from the increases in council tax throughout the country.
In the recent Budget debate, my hon. Friend the Member for Northavon (Mr. Webb) quoted figures issued by the Office for National Statistics that show how the tax burden by decile has changed since 199697. We should get the latest tax burden figures from the Government in the next couple of weeks, if they are not delayed or mislaid, as they often are. I expect that those figures will continue to show that under Labour the people who have been particularly hit are those in the lowest income deciles. They pay proportionally more of their income in tax than those in the top deciles, largely because of the increase in backdoor taxesindirect taxes and council taxover the past few years. The most notable backdoor tax increase has been in council tax, which alone accounts for 12.1 per cent. of the income of the lowest decile, compared with 1.5 per cent. of the income of the top decile. Even after council tax benefit, council tax accounts for almost £1 in every £10 of income of those on lowest incomes. If the Paymaster has not yet picked up on the fact that that is one of the public's biggest concerns and that council tax is the most unpopular tax in Britain, she will do so in a few weeks' time, when she gets out on the election trail for the European elections and any local government elections taking place in her area.
Simon Hughes (Southwark, North and Bermondsey) (LD): Before my hon. Friend leaves the subject of backdoor taxes, will he assist me and others in persuading the Government to get rid of another such tax, which came to light last week in an answer given to me by the Chancellor of the Exchequera tax on charities whose runners commit themselves to raise a certain sum of money in the marathon? That was not clear before last week, and it needs to be corrected and redressed.
Mr. Laws: My hon. Friend is right. As he has raised the point, I shall deal with it now. I have been assiduously pursuing the points that he asked me to pursue, because he was unable to be present at the beginning of our debate. I asked the Chief Secretary whether in future it would be necessary to pay VAT on the golden bonds that were used by a number of people running for charities in the London marathon. The answer that I think the Chief Secretary gave and that I hope the Paymaster General, who is mouthing at mefavourable things, I hopewill make clear, is that the Treasury would provide clarification and that there was a possibility that people using golden bonds would not have to pay VAT. My hon. Friend has received representations from London Marathon Ltd., which is, I believe, supportive
Let me finish my point and raise a related one to which I hope the right hon. Lady will respond. The chief executive of London Marathon Ltd. has written to my hon. Friend the Member for Southwark,
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North and Bermondsey (Simon Hughes) pointing out that the company is very supportive of VAT not being charged on golden bonds, but that it is concerned that if the solution pursued by the Treasury is to end the VAT-exempt status of the event, it could end up paying more VAT. Therefore, the company wants confirmation that any solution will not worsen its position.
Dawn Primarolo: The hon. Member for Southwark, North and Bermondsey (Simon Hughes) was not present at the beginning of the debate and might not be here at the end, so I shall answer the point now. Let me make it absolutely clear, because misleading information has been given, that charitable donations have always been and remain VAT-free. As for the golden bond, the London marathon organisers and director have made it clear in writing that they prefer to charge the VAT because that enables them to reclaim VAT on the significant costs of mounting the eventI understand that almost £800,000 has been reclaimed. We can have a sensible discussion about the matter, but let us not mislead: no change has been made to the tax rules. The hon. Gentleman, who is standing in another election, is trying to mislead and he should not do so.
Dawn Primarolo: I am more than happy to accept your guidance, Mr. Deputy Speaker, and to suggest that it might be sensible to base our discussion on the facts. Perhaps the hon. Gentleman would like to raise the matter with my hon. Friend the Economic Secretary, so that it can speedily be cleared up to everyone's advantage.
Mr. Laws: The Paymaster General's clarification was useful. No doubt my hon. Friend the Member for Southwark, North and Bermondsey will have heard her generous offer to take up the issue, and people outside will have heard that they no longer need to worry about paying VAT on golden bonds in futureat least, I think that that is what the right hon. Lady was saying.
I am conscious that time is limited, but I have one more issue to raise. We have already discussed the unfairness of the tax system and highlighted the absence of any measures in the Budget and the Finance Bill to address the unfairness of the local government tax system. Our other perpetual complaint about the tax system, especially under this Chancellor, is its complication and the rapid introduction of a series of ill-thought-out subsidies, often without any calculation of whether they will have any economic advantage. There are examples in every Budget under this Chancellor, and in this year's Budget we witnessed the fiasco of the zero per cent. corporation tax rate. The Chancellor had to introduce a new 19 per cent. tax rate this year to try to deal with the problem of lost revenue that resulted from many people incorporating.
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That fiasco was entirely foreseeable and, indeed, was foreseen by many people who gave evidence to the Treasury Committee a couple of years ago and by the Institute for Fiscal Studies. It was also widely discussed and debated in the House. A year or so ago, I attended an event in my constituency organised by local accountancy groups that were trying to encourage people to incorporate and pointed out the great advantages that the Government had opened up as a consequence of the zero per cent. tax rate. The tax accountants led, as one would expect, with an explanation of how the measure worked in practice and what their charges were. As a political representative, I was asked only one questionthat surely the loophole was too good to last and that once the Government realised they were losing revenue they would close it and people who had paid their money to accountancy firms would be no better off. I am afraid that I naively said that even this Government would not be so short-termist and short-sighted as to end the tax relief within 18 months, particularly before a general election.
That is the last time that I shall defend the Treasury's long-termism, as business men now ask me how the Government could change their mind so rapidly. Under the Bill, the Government will raise almost £1 billion over the next couple of years by withdrawing all the reliefs that had previously been introduced. It would have been far too embarrassing, however, for the Chancellor to have to announce in the Budget that he was withdrawing the zero per cent. tax rate. That would sound like an anti-business measure, so he presented it as a further reform to stop tax avoidance. The introduction of a new 19 per cent. rate will further complicate the system and, as a result, the tax accountants who were at that meeting will earn even more money from people going back to them for advice.
It is not for me to suggest how the Government can get out of the mess that they have got themselves into, but I shall make a constructive suggestion before concluding my speech. The Government will issue a discussion paper on the tax rates paid by incorporated and unincorporated smaller businesses later this year, and it will lead to changes in 2006. We do not want people to adjust to the latest change in the tax regime, only to be messed around again in 2006 when the Government change the whole system. The Government should aim to put off that penal increase in taxation. They should accept that the loss of tax revenue is their fault and was entirely predictable. They should not introduce changes in the tax system for small businesses in 2006 until they have thought them through.
It was fair to characterise the Budget as somewhat dull and the Finance Bill as long. What is not in the Bill concerns us, and should concern the Government too. There is nothing about the fairness and simplicity of the tax system, nothing to address the public expenditure issues facing the Government, and there is complacency about the major macro-economic challenges facing them.
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