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Session 2008 - 09
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Finance Bill

Finance Bill

The Committee consisted of the following Members:

Chairmen: Mr. Peter Atkinson, Mr. Jim Hood, †Sir Nicholas Winterton
Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
Barlow, Ms Celia (Hove) (Lab)
Binley, Mr. Brian (Northampton, South) (Con)
Blackman, Liz (Erewash) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Engel, Natascha (North-East Derbyshire) (Lab)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hoban, Mr. Mark (Fareham) (Con)
Hosie, Stewart (Dundee, East) (SNP)
Howell, John (Henley) (Con)
Jenkins, Mr. Brian (Tamworth) (Lab)
Joyce, Mr. Eric (Falkirk) (Lab)
Moffatt, Laura (Crawley) (Lab)
Pearson, Ian (Economic Secretary to the Treasury)
Pugh, Dr. John (Southport) (LD)
Robertson, John (Glasgow, North-West) (Lab)
Roy, Lindsay (Glenrothes) (Lab)
Seabeck, Alison (Plymouth, Devonport) (Lab)
Soulsby, Sir Peter (Leicester, South) (Lab)
Stuart, Mr. Graham (Beverley and Holderness) (Con)
Syms, Mr. Robert (Poole) (Con)
Timms, Mr. Stephen (Financial Secretary to the Treasury)
Todd, Mr. Mark (South Derbyshire) (Lab)
Liam Laurence Smyth, Committee Clerk
† attended the Committee

Public Bill Committee

Thursday 21 May 2009


[Sir Nicholas Winterton in the Chair]

Finance Bill

(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)

9 am
The Chairman: I welcome all Members to the Committee on this somewhat dull Thursday, after a fairly traumatic and difficult week for the House. The Speaker has appointed me as an additional Chairman—[Hon. Members: “Hear, hear!”] I am grateful to be able to help out in the unavoidable absence of both Mr. Hood and Mr. Atkinson, but I am happy to tell you that Mr. Atkinson will be back in the Chair this afternoon, so you will have to suffer me for only one hour and 25 minutes.
I remind Members that amendments may be tabled during the recess. Any amendments received in the Public Bill Office before 4.30 pm on Thursday 28 May will appear in print on Friday 29 May and will be unstarred and eligible for selection by the time the Committee resumes on Tuesday 2 June, after the brief Whitsun recess. I remind the Committee that when you adjourned earlier this week on Tuesday, you were, and therefore still are, debating clause 6. I think that the hon. Member for Hammersmith and Fulham had just completed what he had to say—
The Lord Commissioner of Her Majesty's Treasury (Mr. Bob Blizzard): The hon. Member for Taunton had also completed his comments.
Mr. Jeremy Browne (Taunton) (LD): I will make the speech again, if you would like, Sir Nicholas.
The Chairman: It is a great pleasure to hear the hon. Gentleman speak—one that I have had many times in the past, and I suspect that in the next hour and 25 minutes he might gift me again with his eloquence. Both the Conservative and Liberal Democrat Opposition Front Benchers have spoken.
Mr. David Gauke (South-West Hertfordshire) (Con): On a point of order, Sir Nicholas, I think that I speak on behalf of the whole Committee when I say what a great pleasure it is to have you here today. Would it be possible for you also to chair the final sitting of the Committee, as you did so well last year?
The Chairman: I am most grateful—as we come up to the selection of Speaker, such comments are welcome indeed. Unfortunately, the matter does not rest with me. I am merely a temporary and additional Chairman for this sitting. If there are further problems and I am asked to chair the Committee again, I shall readily accept. I am grateful to the Government Whip for bringing me entirely up to date, because I am clearly at a disadvantage, the Committee having sat twice already.

Clause 6

Additional rate, dividend additional rate, trust rates and pension tax rates
Question (19 May) again proposed, That the clause stand part of the Bill.
John Howell (Henley) (Con): Allow me to add my congratulations on your appointment as our additional Chairman, Sir Nicholas. Unfortunately, not having been here on Tuesday, you missed the magisterial way in which my hon. Friend the Member for Hammersmith and Fulham explained the whole of clause 6 in great detail, including a large measure of the economic thinking behind it. You missed the delights of Laffer curves and the precision of the calculations of tax rates and their impact on people.
Having reflected since Tuesday’s sitting, I think that, inevitably, it all comes back to the adequacy and quality of the modelling used to underpin the assumptions within the 50 per cent. tax rate. The adequacy of the modelling is a topical subject. The Government will be aware of the wish of the TaxPayers Alliance for more dynamic modelling. I have some problems with that not being comprehensive enough; nevertheless it shows that the idea of modelling is very much on the table. That was recognised by the Institute for Fiscal Studies. One of the other things that seemed obligatory on Tuesday was quoting the IFS, and I have one such quote today. I must put down my glasses because, in my efforts to be frugal these days, I print things with two sides on the same page, so as not to increase expenses. The Committee will therefore have to excuse me if I peer somewhat as I read. The IFS says that, in its initial reaction to the Budget, it seems that the Treasury has
“not accounted for consumer spending falling as a result of this change. If these effects are taken into account, the Government could lose up to £1.5 billion in indirect tax revenues, even if the Treasury is right”.
There is a lot of concern about the underlying modelling that took place to justify the 50 per cent. tax rate—if, indeed, it was done to justify it. Given that it goes to the credibility of the tax system, it is important that it is based not only on political will in the United Kingdom but on analysis.
Matters are made even worse by the abandonment and the absence of the fiscal rules. I did not believe in them very much and nor, it seems, did the Chancellor or the Prime Minister before him; nevertheless, they were at least useful in pointing to a direction in which the Government would go.
I shall not go through the issues that we spoke about on Tuesday in detail, but it is important to understand where the tipping point is in each of the Laffer curves, depending on the range of behaviours. We heard my hon. Friend the Member for Hammersmith and Fulham talk about data on average taxpayers being used to inform decisions about specialist groups, which again goes to the heart of the credibility of the underlying modelling that took place.
The Institute of Chartered Accountants expressed concern about such matters in its pre-Budget submission to the Government and in its post-Budget assessment, in which it called for a detailed economic analysis to be undertaken. It used the same words in its pre-Budget statement, and the fact that it used the same words suggests strongly that it is not happy with the economic analysis done.
We heard about the confusion in the Treasury Committee about the adequacy of the modelling for the 50 per cent. tax rate. My hon. Friend the Member for Northampton, South, who is not here today, quoted question 335 from the proceedings of that Committee. The Chancellor was talking about the £150,000 limit and the 50 per cent. tax rate and said:
“There is no science behind it, it is just simply my judgment that I thought that figure was an appropriate figure. It is the top 1%, as it happens, of earners in this country and I decided that that was the right level”.
Again, there is some confusion.
Mr. Gauke: Does my hon. Friend infer from that quotation that the figure of 50p was perhaps selected on political rather than economic grounds?
John Howell: That is a pertinent remark, and it is a pertinent conclusion to draw. In the morning sitting of the Treasury Committee, Mr. Williams, who is the director of personal tax and welfare reform at the Treasury, said that some modelling had taken place. There is therefore confusion about whether the modelling was scientific. Was the Chancellor criticising the modelling that had taken place, which he would have been aware had been described in a little detail in the earlier sitting? Did that modelling take place before he reached his decision on a 50 per cent. tax rate? Was that modelling to justify a decision that had already been taken, or was it modelling that was used to inform a decision before it was taken? We simply do not know the answer to that.
I should also like the Minister, in summing up, to comment on the points raised both by the IFS and the Institute of Chartered Accountants. The Committee would benefit from a much better explanation—perhaps an explanatory memorandum on modelling.
Mr. Mark Todd (South Derbyshire) (Lab): I listened with care to the hon. Gentleman, who clearly has concerns about the clause. Maybe he is going to depart from the fence on which his Front-Bench team has sat so far and call a vote on it. Would he like to tell us more about his practical thinking on this day, on this matter?
John Howell: I thank the hon. Gentleman for exposing the bear trap in front of me with such clarity. [Laughter.] I will not take insults, Sir Nicholas. Perhaps he feels that because I have not been here as long as other Members sitting here today I am going to walk straight into it. I am politically astute enough to realise that the bear trap is there and tiptoe around it, which is precisely what I am going to do. I am not going to depart at all from the comments that have been made by my hon. Friends on the Front Bench.
Mr. Peter Bone (Wellingborough) (Con): I will almost jump into the bear trap because, let us face it, our party has made it quite clear that it is the wrong measure and is against the interests of the nation. Does my hon. Friend agree with me that, because of the fine mess the Government have got us into, we cannot make any promises until we see what the books are like?
John Howell: My hon. Friend is completely right. It really is quite outrageous to expect us to make those sorts of promises.
Mr. Todd rose—
John Howell: Just let me finish my sentence. [Laughter.]
James Duddridge (Rochford and Southend, East) (Con): Make him a Minister.
John Howell: Him or me? We need a change of Government before there is any possibility of me becoming a Minister, and I look forward to it. Go on, I will give way now—I have forgotten where I was. [Laughter.]
Mr. Todd: It would be helpful if the hon. Gentleman described what this bear trap is. If it is a matter of principle and this is the wrong policy for the country, then surely his party should vote against it—as indeed should the party of the hon. Member for Taunton, who likewise declined to tell us how he intended to vote on the matter. If it is the case that the measure will not actually raise any money, then surely the point raised by the hon. Member for Wellingborough is irrelevant. It is not going to make the circumstance of our economy any better or worse, so his argument appears confused at the very least.
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