The
Chairman: Before the hon. Member for Henley replies to
that entertaining intervention, I remind the Committee that we are
debating the Government’s Finance Bill and not the alternative
Finance Bill of Her Majesty’s Opposition. If the hon. Member for
Henley would care to very briefly respond to the hon.
Gentleman’s intervention, I will use my discretion and allow him
to do
so.
John
Howell: I thank you, Sir Nicholas. We see the
Speaker’s wisdom in placing you as additional Chairman to the
Committee this morning.
The comments
from the hon. Member for South Derbyshire follow similar interventions
made on Tuesday, and he has the answer there. He is not going to get
anything new out of me on that point.
I had better
conclude because it is the last day before the Whitsun recess. This is
a serious matter, and in some ways I regret the levity with which we
have started. In response to the intervention that I made on Tuesday,
the Minister said that the extent of worsening in the global downturn
that had occurred between the pre-Budget report and the Budget was down
to political judgment. Of course political judgment needs to take
place—I do not deny that, that is what we are here
for—but it cannot be all political judgment. The concerns raised
by my hon. Friend the Member for Hammersmith and Fulham, by me in
commenting on the modelling, and by the various organisations that I
have mentioned today, illustrate the need for the Government to come
clean and detail the modelling that took place to make this decision
and the timing of it.
Mr.
Mark Field (Cities of London and Westminster) (Con)
rose—
The
Chairman: I call Mr. Mark Field, the hon.
Member for Cities of London and Westminster. The hon. Member for
Wellingborough need not worry, he is at the forefront of my
mind. 9.15
am Mr.
Mark Field: And of your eyeline, Sir Nicholas. Thank you
for allowing me to contribute briefly to what has been a wide-ranging
debate.
One of the
more interesting elements of the Minister’s introduction to the
clause was when he said that, “The higher band reflects the fact
that the wealthy have reaped benefits in past years from the growing
economy”. I understand that significant debate took place on
Tuesday afternoon about that sentence, not least with the hon. Member
for Taunton. It brings into play a worrying precedent: we could have
ever more retrospection and an element of or a desire for clawback
within the system. The hon. Member for Taunton was right, there are a
lot of people who have not necessarily reaped tremendous rewards; they
have found it difficult to get on to the housing ladder, despite
earning multiples of the national average salary. As the hon. Gentleman
is aware, in central London that is often the
case. People
in their late 20s and early 30s suddenly earning significant sums of
money will, before too long, get caught by the higher tax rate,
assuming that it stays at 50 per cent. for incomes of £150,000
or more. Those individuals have not reaped any great benefits from the
past, but will pay the price going forward. Therefore, it is worrying
that the Government’s justification is couched in those terms.
If that is the justification for a 50 per cent. band, it leaves the
door open for significant clawback of past
gains. To
avoid stepping into the bear trap in South Derbyshire or elsewhere, it
comes as little surprise that early opinion polls suggest that an
overwhelming majority supported the Government’s plans to impose
a higher tax band on those earning over £150,000. One should not
give too much credence to opinion polls, which are academic until the
tax comes into play. My party leadership has correctly identified the
blatant political gauntlet that has been thrown down and is designed to
embarrass us. After all, as many have said, the tax band stands to
raise negligible additional income. Even the most ambitious
thoughts—income compared to borrowings of £175
billion or more—suggest that the income will be fairly tiny.
Accordingly, my party is entirely justified in declining to play to the
Government’s line. The most urgent priority of any incoming
Conservative Government—assuming that happens in the next
year—will be to stabilise public finances.
As someone
who was a businessman before I entered Parliament, I want low tax. Low
tax is phenomenally important, particularly for the entrepreneurial
class. Equally, as I have frequently observed in debates and speeches
over the past couple of years and in an intervention in this debate,
there is an increasing sense of insecurity among an ever larger
proportion of the UK work force about the spoils of globalisation being
spread inequitably. In many ways, that is a particular danger for the
political class because the sense that the spoils of globalisation are
unequal no longer comes only from the folk on the traditional left,
increasingly, middle-class Tory-voting
people have those concerns, with some justification. They see property
prices rising astronomically and private education, something that they
may have taken for granted, now outside their reach, particularly if
they have several children. It is important for the whole political
class. I fear that that sense of unease will grow, especially among
middle-class professionals, or at least among those who are outside the
once gilded corridors of financial and associated
services. However,
the predictable truth of the imposition of clause 6 is that the
super-rich will not pay a penny more in tax. They are either
non-domiciled or in the privileged position of being able to
characterise much of their income as capital gains, which will be
subject to the unchanged 18 per cent. tax rate. My hon. Friend the
Member for Hammersmith and Fulham made that point extremely well. I was
an entrepreneur with a relatively small business that turned over about
£2 million at its height. There is an opportunity to have a lot
of what is effectively income as dividends, taxed through the capital
gains regime, or one can sell off a business at some point in the
future for the equivalent of an income stream, because that will be
charged at only 18 per cent. It seems that such additional revenue that
would be obtained through the provision will come only from modestly
successful small business people who, I fear, will then have even less
incentive, or indeed collateral, to expand their enterprises, as well
as from salaried workers who are unable to avoid the increase and who
frequently earn sums not wildly in excess of the £150,000
threshold. Their instinct to do the right thing on savings and pensions
would be blunted as their disposable income falls
significantly. My
party is right to express concerns. We understand the critical
importance to our national economic health of promoting small start-up
businesses. Competitive tax rates are essential to encourage
entrepreneurs, especially as we make our way out of this deepest of
recessions. Conservatives appreciate that raising tax now, even on the
wealthiest in our communities, risks prolonging the UK’s
economic
downturn. A
decade or so ago the decision of the then Labour Opposition to stick to
the Tories’ tax and spending plans was an explicit recognition
that our economic strategy in the mid-1990s was right for the nation.
That is in stark contrast to the situation today. Even in these
turbulent times the public should not be taken for fools. No one out
there believes that the Government's recklessness with the public
finances is worthy of
emulation. The
Financial Secretary will understand why the Conservatives wish to make
much of the mandate for change, as indeed the Liberal Democrats have.
In spite of its being a popular measure, there is no mandate to change
the tax rates. It is possible that we will have an election before 5
April next year, in which case this is somewhat academic. The Financial
Secretary did not make the same case when he was a young Back Bencher
in opposition from 1994. He was happy not to make that case about 22
Tory tax rises when there was an argument after the 1992 election and
we clearly did breach an election pledge on tax, because of the
terrible economic circumstances when we went into a double-digit
recession during the early 1990s. It was never put from the Labour
Benches at that time that there was an understanding that, given the
economic circumstances, the right thing for the nation, which it
eminently proved
to be in 1993 and 1994, was to put up taxes. Indeed, his Government,
particularly in their first and second terms, reaped the benefits of
that stable economy. It is difficult to look at the issue of the
mandate without saying that there is some force majeure that comes into
play. The
Financial Secretary to the Treasury (Mr. Stephen
Timms): The hon. Gentleman makes an interesting case. I
wonder whether he thinks there is a difference because the recession in
the early 1990s was home-grown, a consequence of Government policy,
whereas what we are seeing at the moment is the biggest global economic
downturn in 70 years.
Mr.
Field: The right hon. Gentleman makes a well-rehearsed
case. Elements of the recession in the early 1990s were worse than in
other parts of the world. It was a global recession as well, albeit
with a less globalised economy. China and India, for example, were
barely coming out of decades or centuries of relatively quiet economic
activity. In the past 15 years matters have been transformed. Our
argument has been—the proof is in the pudding according to the
International Monetary Fund and other independent global
forecasters—that in many ways we have a more serious situation
simply because we racked up huge debts during a time of plenty and were
not putting reserves aside. I accept that we are in a very different
stage. I
know that the Financial Secretary shares with me an interest in
international affairs. It is very evident that we are still at a
relatively early stage of this recession. Only six or seven months ago
there was a sense that we were going to be appallingly badly hit as a
result of our reliance on financial services. But one effect of the
rapid depreciation of the pound has been that we have perhaps got off
slightly more lightly than other countries, such as Germany, which only
six or seven months ago were seen to have a very stable financial
situation with no Government debt. But as the trade situation globally
has imploded, such countries’ massive reliance on international
trade has made them more vulnerable to what I would call the second
stage of this
downturn. Although
tactics have been involved, I suspect that my party has been slightly
more soft-pedal on this issue than my hon. Friends the Members for
Wellingborough and for Northampton, South would have liked. However,
there is a sense that we are all in this together. It will take time
for us to get out of the downturn and its effects. I will not make any
suggestions about how I think that the public finances will be
corrected, but clearly, a range of areas of public spending will have
to be seriously considered. Nobody denies that. I know that the retort
from the Labour Benches will be, “Which hospitals and schools
are you going to cut?” However, I suspect that that will land on
deaf ears in the electorate.
Even the
Government’s own figures, coupled with their ambitious growth
figures, leave little doubt that public spending rounds for some years
to come will be less generous than they have been over recent years. If
there is to be a slowdown or even cuts in public expenditure, it will
be the less well-off in our communities who suffer the most. There
must, therefore, be a sense that the burden of the overall downturn has
been applied across the board. For that reason, at least in the
immediate term, I suspect that it is unlikely that a Conservative
Government would be in a position to reduce the 50 per cent. tax band,
although we would hope to do so as quickly as possible, as we need to
encourage entrepreneurs.
My
last point is about the importance of the City of London. As a
representative of the City, I hope that we can get it back to a
strongly competitive state. As I mentioned last Tuesday, it is
important to recognise that the City is not made up only of big banks,
but provides a range of other financial services. Many of those have
thrived in recent months and continue to do so because they have
international competitive advantages compared with other parts of the
world.
Insurance is
a tremendously successful sector, and there are many lessons to be
learned from the appalling disasters that beset Lloyd’s only 20
years ago. The setting up of Equitas was an important model for the
ways in which we can get out of many of the problems with our banking
system. Lloyd’s now goes from strength to strength, which is a
great joy to us all.
However, we
are clearly reliant—perhaps in all honesty, slightly
over-reliant—on the financial services industry. A Faustian
bargain was made with our European partners when the big bang took
place in 1986. London was, is, and thankfully for some years to come
will remain, the great European financial centre. That Faustian bargain
probably meant that more industry went out to Germany, agriculture and
other advantages went out to France, although we had the financial
services.
My instinct
is that financial services will remain important. Even during these
recessionary times, 30 or 40 million people a year in India and China
are joining the middle classes. They are instinctively savers and
investors for the future, and will require financial services products
in order to save in an effective way. In the immediate and the medium
term, the overall cake for financial services will be smaller, and we
must do our best to ensure that London’s slice of it is at least
maintained if not enlarged. Nevertheless, this issue illustrates the
fact that we need to have a slightly more balanced economy. That is not
to say that we do not have strength in other areas—we have
tremendous success in a range of creative industries such as computer
games, where we are global leaders making a terrific amount of
money.
Let us be
honest—we still have a very successful manufacturing sector. It
is smaller, but it is high resolution and high value-added. In this
world where we expect high wages in the economy, we should thrive on
that and try to ensure that we get the best out of our research and
development. That might be in luxury products—we are going to
get big markets from China and India in the future, with 2.5 billion
people there.
The
Chairman: Order. I hesitate to intervene on the hon.
Gentleman who represents the City, but this is about the higher rate of
tax, not the general economy in this country and on what it depends. I
have been generous—as I always will be—to members of the
Committee, and particularly the hon. Gentleman. Perhaps he would return
to the clause stand part debate and the higher rate of
tax.
Mr.
Field: Sir Nicholas, you have not only been generous, you
have been over-generous. [Laughter.] I shall
criticise you with great praise, of course. This is perhaps a point at
which I shall bring my comments to a conclusion. I hope that the
Minister takes on board much of what we say. There are grave concerns
about what is being proposed. It appears to us ever more to be a
political rather than an economic measure, and that cannot be good for
this country.
The
Chairman: I call Mark
Todd.
Mr.
Todd: If I may give way to the hon. Gentleman first. He
has been
waiting.
| 
