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Julia Goldsworthy: I am not sure what income groups that would impact most heavily on. Other policy ideas have been floated in relation to the taxation of private equity, but although the Conservatives might have had a policy for a week or two, that has now taken the form of yet another review group.
On another point about behavioural change, we have been deliberately very conservative about the revenue that we think our changes will bring in. The example that we give is our aspiration to raise the inheritance tax threshold by changing the length of time that is required before people qualify as having made a lifetime gift that is exempt from inheritance tax. We have not included that costing in our proposals, because we are not clear about the dynamic impact that that would have or how long it would take to kick in.
The Chief Secretary to the TreasuryI welcome him to his postspoke at the outset about the amount of tax paid, rather than the proportion. We know that the poorest 20 per cent. of taxpayers pay more tax as a proportion of their income than the richest 20 per cent. My hon. Friend the Member for Northavon made that point. The Chief Secretary said that tax is complicated, but that complication is part of the problem. The unfairness is being generated in part by the fact that the complication is such that loopholes can be exploited. Those on middle incomes probably do not even know that those loopholes exist. They struggle with the basics of the tax system, because they are complicated enough. In fact, this country has the most complicated tax system in the world. It has even surpassed Indias tax system in terms of the number of pages of guidance.
The Chief Secretary spoke pejoratively of tax giveaways but, as has been said, the Liberal Democrats are trying to emphasise that there is a genuine need to look at the balance of where the burdens in the tax system lie. If he really thinks that tax giveaways are such a terrible thing, does he hope to persuade the new Chancellor to go back on the previous Chancellors pledge to reduce the basic rate of income tax by 2p in the pound? The Chief Secretary also spoke of concerns about annual holidays being under threat. Let us not forget that the current Prime Minister, when he was Chancellor, increased air passenger duty. That is more regressive, because it was retrospective as well. We are proposing a tax on flights, which encourages them to be used more efficiently, and also takes freight into account.
As a veteran of the Finance Billwith the exception of my hon. Friend the Member for Twickenham (Dr. Cable), I think that I am only person present who served on the previous two Finance Bill CommitteesI can say that we supported the Government on their anti-avoidance schemes and on sideways loss relief. I have fond memories of the debates on sideways loss relief, capital gains tax and stamp duty land tax avoidance measures. However, I hope that the Chief Secretary agrees that we need to go further.
The Liberal Democrats have been talking about the need to make the tax system fairer. The Prime Minister, during the 10 years that he was Chancellor, used similar language. In his last Budget, he said that he wanted
to reward work, to ensure working families are better off and to make the tax system fairer.[ Official Report, 21 March 2007; Vol. 458, c. 828.]
I cannot see the difference between a package of neutral proposals for a 4p cut in the rate of income tax and proposals for a 2p cut. Obviously, there is an issue about the amount, but the same groups of people would benefit. If a 2p cut benefits working families and makes the tax system fairer, surely a 4p cut would do exactly the samebut to twice the extent. We are trying to deal with issues such as inequalities of marketable wealth.
My hon. Friend the Member for Twickenham spoke in detail about issues such as inheritance tax, stamp duty land tax, and capital gains tax. There are real concerns in many areas. The avoidance of stamp duty land tax was mentioned. Not only does that have an impact on revenuesbecause special purpose vehicles are set up offshorebut it causes inflation in the housing market, particularly in London. Estate agents are talking about a secondary market at the very top end of the housing market in Londonthe very expensive endwhere house price inflation is increasing massively because the houses are being bought by offshore companies, with no account taken of capital gains tax or stamp duty. We must look at the wider knock-on effects.
Listening to the debate, I asked myself what my constituents would think. They know what their personal burden of taxation is and that their council tax is increasing. Individuals in my constituency and across the country are struggling to afford a property, and when they do manage to buy one, they know that, with house prices increasing as they are, there is a very good chance that they will become liable for inheritance tax. Fear of inheritance tax is a massive concern for them. In contrast, there are some individuals who, provided that they can pay for the advice, minimise their tax contributions in a way that we do not feel is fair and balanced. We believe that there is a real need to reconsider such issues, even in relation to non-doms.
We are more than happy to engage in a debate, but the Government need to give us the information that they are clearly holding and assessing first. That is what todays debate is all about. We do not think that there is anything wrong with the Government acknowledging the need to consider how balanced the tax system is. We have made our proposals. Unfortunately the Conservatives have not done the same. The Government have flattered us in the sincerest way by imitating our proposals from our last tax commission. I very much hope that the Chief Secretary will consider doing that again and look forward to seeing our proposals in next years Budget.
The Financial Secretary to the Treasury (Jane Kennedy):
It is customary on these occasions to say that we have had an interesting debate and heard some
interesting speeches, and I thank all those hon. Members who have spoken. The fairness of our taxation system is clearly an important topic. However, only one Liberal Democrat Back Bencher spoke in the debatethe hon. Member for Northavon (Steve Webb)and he is Front Bencher most of the time. We had 45 minutes from the hon. Member for Twickenham (Dr. Cable) in this debate, and those of us who were interested heard him speak for 45 minutes in the previous debate on corruption overseas. We have heard an hour and a half of talk from the hon. Gentlemana whole football game of noisebut silence when we asked about his partys tax proposals. That is amazing.
The hon. Member for Runnymede and Weybridge (Mr. Hammond) made a hugely enjoyable speech, even when he was tweaking the Governments tail. Up until the last two or three minutes, I very much enjoyed his well argued demolition of the Liberal Democrats proposals. I am grateful for his compliments, especially about our amendment, although he did make some criticisms, which I acknowledge. He regretted the lack of cool professional analysis from the Liberal Democrats, but I look forward to engaging with him in future when he brings forward the cool professional analysis that he demonstrated this evening.
We have increased the fairness of the tax system. The Liberal Democrats motion talks about tax loopholes, but one of the ways in which we have increased fairness has been through targeted action to close loopholes and to tackle avoidance of income tax, national insurance, inheritance tax, capital gains tax and stamp duty land tax. We have also increased fairness by incentivising work through the national minimum wage and the working tax credits. I noted the comments made about tax credits, but that debate is for another time. By providing more support for those who need it most, especially families and pensioners, we have helped those who are at the most vulnerable end of the income spectrum. The introduction of child tax credit and pension credit in particular has helped us to cut both child and pensioner poverty, which increased under the previous Government.
I know that the Liberal Democrats motion calls for the release of Office for National Statistics wealth inequality data since 2003, but it is HMRC, not the ONS, that is responsible for those data. Unfortunately, owing to data problems, the 2004 statistics were not released in October last year as scheduled; HMRC has subsequently been unable to obtain sound estimates and has therefore decided not to publish the data for 2004. That is clearly regrettable, but I am pleased to tell the House that the problem that affected the 2004 statistics has had no effect on statistics for later years and that the 2005 data will be published in October this year.
As a result of the economic success that the Government have deliveredlet me remind the House that we have ensured low inflation, low interest rates, high employment, high gross domestic product and high and stable growththere has been rising prosperity for all, as my right hon. Friend the Chief Secretary to the Treasury said. Household net wealth is higher than it has ever been. There are 1.8 million more home owners in Britain now than in 1997, and the average household is £1,000 a year better off because of our reforms to the tax and benefit systems.
The Government have delivered a successful economy and rising prosperity, and all of Britain will benefit from that.
The hon. Member for Runnymede and Weybridge said that thousands had been let down by the tax credit system. We will debate that in detail on other occasions, but it needs to be put on record that the tax credit system supports 20 million people, including 6 million families and 10 million children. Take-up among families with an income of less than £10,000 is now at 97 per cent.; that is higher than the take-up for any other income-related financial support for in-work families. He also said that the savings ratio had slumped from 10 per cent. to 2.1 per cent., but that is not without a sting in the tail for him: a lower savings ratio is not surprising in a world with a stable economy and low unemployment. That is not how things were under the previous Administration.
We have taken a number of steps to extend savings and asset ownership, particularly on the part of those in most need of support; for example, we introduced the child trust fund, and replaced tax-exempt special savings accounts and personal equity plans with individual savings accounts. We need to ensure that we maintain that position, and that requires us to strike the right balance between fairness and competitiveness. My right hon. Friend the Chief Secretary to the Treasury spoke about the increased mobility of labour in the modern, globalised economy.
As usual, we are left with very little time to deal with the detailed points raised in this short debate. The Opposition motion refers to non-domiciled people; it would be easy to get the impression from some hon. Members who have spoken this evening that the country is full of non-domiciled people, none of whom pay any tax. In fact, we are talking about a relatively small number of peopleabout 112,000 of them, as my right hon. Friend saidwho contribute about £3 billion in tax to the UK. None the less, as hon. Members will know, the rules on residence and domicile are under review. As Treasury Ministers have made clear on a number of occasions, and as I will reiterate tonight, any changes to the current system will need to be thoroughly thought through, and we will need carefully to balance the principles of ensuring fairness and promoting the UKs competitiveness. That is a balance that we have sought to strike throughout the tax system, and we will continue do so in future.
The hon. Member for Twickenham could not say that he would raise as much as a penny in extra taxes for his so-called reform of the residence and domicile rules. The motion suggests that the stamp duty land tax thresholds and inheritance tax nil-rate band should reflect house prices, but no previous Administration has ever linked tax thresholds to price movements of any one type of asset. The proposal could have perverse effects; for example, linking the inheritance tax nil-rate band to house prices could result in more estates paying the tax, if prices fell.
Tonight, we have heard a populist rallying call from the Liberal Democrats, aimed at tomorrows newspapers and the by-elections in which they are competing. They think that everyone hates the wealthy, or the filthy rich, as they chose to call them. They think that that is a way to get votes, but I have to tell them that it is not the way to get the taxes in. As my right
hon. Friend the Chief Secretary to the Treasury said, last Friday the title of this debate was Fair taxation of the super-rich. By this morning, it was Fair taxation of the wealthy. If this debate had been tabled for Thursday, by Tuesday it would have been Fair taxation of the middling. By Wednesday it would have been Fair taxation of the aint doing so well
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