The
Chairman: I called the Member to speak. I am sure that the
hon. Member can make the point in a speech, but
briefly. 9.30
am
Mr.
Todd: Briefly indeed. First, I thank you, Sir
Nicholas, for that gesture and express my enthusiasm for your
chairmanship, however brief it is. I recall the last session of last
year’s Finance Bill Committee and I can understand your
diffidence in not necessarily volunteering to take charge this
time. I
want to depart from my gentle probing of the Opposition on this subject
and state something of my own view, which is actually in sympathy with
some of the arguments expressed. My main reason for supporting this
measure is not that I believe it will deliver any substantial revenues.
The points made that the sums involved will be relatively small are
perfectly reasonable. I see it more in terms of conveying to our nation
the importance of equity in our response to this crisis and of stating
that those who are best off and best able to bear some burdens should
at least contribute some more towards the solutions that we must
find.
Mr.
Gauke: As always, the hon. Gentleman is making a
thoughtful point. He accepts some of the arguments that this will not
raise huge amounts of revenue and he justifies the increase on the
basis of equity. I understand the point he is making, but does that
argument justify breaking a manifesto pledge? The Government’s
justification is that we are in a financial mess which changes things,
but it does not change the argument over equity in the same way that it
does the argument over the public
finances.
Mr.
Todd: That is a fair challenge. My answer is that the
circumstances could not have been predicted in 2005—certainly
not by me—and I do not think informed economic observers thought
that we would face anything like these circumstances at the time of the
last election. I do not lightly set aside pledges made; but when faced
by facts and evidence one must adapt to the circumstances regardless.
The electorate will shortly have an opportunity to make a judgment on
the realism or otherwise of that argument.
Let me turn
to the measure itself. Although I do not think that it will produce
substantial revenue, we should ensure that it does no harm. I am
worried—I look forward to the Minister setting my mind at
rest—that in the haste of preparing this measure, little thought
was given to the relative advantages of the various means by which
people might choose to avoid paying. There is a variety of
ways—there have been references to informed newspaper pieces
about what to do if one is hit by this tax. Some have economic
benefits; others have none. Bearing it in mind that our purpose is not
substantially to raise money, we ought to be ensuring that those who
seek advice on how to evade the tax do so in a way that
is least harmful to our revenues and most beneficial to our economy at
large. We need to look at how to incentivise investment in small
businesses and we shall come later to clauses that will cover that and
the tool sets that are applied to venture capital trusts, enterprise
investment schemes and so on. Worthwhile thought is to be given to how
to ensure that those who are seeking to manage their tax affairs do so
in ways that help our economy and our Exchequer over time, rather than
simply losing that revenue and entrepreneurial spirit to our
country. I
will, of course, support the Government in this for the reason that I
gave, but more thought needs to be given to how we make this change
work. Fortunately, this is a change that will occur in 12
months’ time, and there is plenty of
opportunity— Mr.
Graham Stuart (Beverley and Holderness) (Con): The hon.
Gentleman said that he did not expect the measure to produce much in
the way of revenue. Without an effective dynamic model with cross-party
consensus on its effectiveness, we cannot know for sure what it will
do. The hon. Gentleman suggested that equity made it right. If it lost
the Exchequer money, would equity still trump effectiveness? At which
point would he draw the line? I respect the hon. Gentleman, as do many
on both sides of the House, for his integrity in dealing with these
issues, but on this point he seems to be doing a number of somersaults
in order to support the
Government.
Mr.
Todd: At times like this, I take references to integrity
with care because they are easily trumped. This is a delayed measure.
We are not implementing it this year. If we were, I would have been
rather more forceful in my criticism. We have some time to reflect on
exactly how to design this in a way that does least harm to our
revenues and does most benefit to our economy, or at least loses us
least, to balance the equity effect, which is important. The hon.
Member for Cities of London and Westminster was quite right here;
public perceptions are rather important in this. Most people recognise
that we face an unprecedented crisis, certainly unprecedented in most
people’s lifetimes. Equity is an important dimension. We should
respect that, but we need to make sure that in the design of this we
provide tools that are of value to our economy and our Exchequer over
time, because there are plenty of very expensive people who will be
working on this with great care to ensure that they advise their
clients properly.
Mr.
Bone: It is a great pleasure to serve under your
chairmanship again, Sir Nicholas. It is also a great pleasure to follow
the hon. Member for South Derbyshire. He made some good comments and
made the first real defence I have heard for the increase to 50p. Had I
spoken first, my worry would have been that the hon. Gentleman would
rise like a phoenix from the ashes quietly to intervene. It is rather
like the umpire’s finger going up in a cricket match and one
thinks, “Gosh, I am about to be bowled a bouncer here.”
So I am very pleased to have spoken after
him. We
need to look at the history of how this has come about and why there is
so much debate. Unfortunately, there is not enough debate from the
Government side. I would have liked to hear more from Government
Members on this issue. But here we are. Clearly Tony Blair made a
pledge that income tax rates would not go up. That was signed up to by
every Labour candidate. There has to be a very significant reason to
depart from that. The hon. Gentleman started to make a defence of it,
but I do not believe that it was a strong enough defence. I hope that
it will be put to a vote and that the Government Back Benchers who have
not spoken will call for a Division, because they clearly want to
support their manifesto’s original pledge and vote against the
rise to 50p. Nobody on their side, apart from the hon. Member for South
Derbyshire, has demurred from the
proposal. Mr.
Greg Hands (Hammersmith and Fulham) (Con): By the same
logic, the hon. Member for Taunton should fulfil his party’s
manifesto pledge by voting for the new 50p tax
rate.
Mr.
Bone: I know that the hon. Member for Taunton will vote
for the 50p tax rate—it never crossed my mind that he would not.
I was impressed with the contribution made by my hon. Friend the Member
for Cities of London and Westminster, and I agreed with almost
everything that he said. He was wrong on one point, however; there is
not a wafer of difference between myself and my right hon. Friend the
Member for Witney (Mr. Cameron) and my hon. Friend the
Member for Tatton (Mr. Osborne). I agree entirely with their
analysis; we should fix taxes for the many and not for the few as soon
as we are in power. Other than that one caveat, I agree entirely with
my hon. Friend the Member for Cities of London and
Westminster. The
hon. Member for South Derbyshire made the case that there was not much
economic merit to the matter under discussion. I warn the
Government—perhaps this will also help them in terms of the next
general election—that, in the past, when Governments have moved
away from their manifesto pledges on tax, disaster has befallen them.
That was true of John Major, for example. A Government should be for
all the people, including the middle classes. That was Tony
Blair’s great success—he realised that Governments need
everybody on board. To turn to a core vote dog-whistling strategy is
very dangerous for the country and for the Government. Whatever happens
at the next election, we want some Labour Members in Parliament to form
an Opposition; it would be very dangerous if we only had Conservative
Members.
On the policy
details, I am struggling with the figures in the Red Book. In table
1.2, entitled “Budget 2009 policy decisions”, on page 11,
I think that the 2010-11 figure is the only one that does not include
any assumption of the 45p tax rate, because that rate was already built
into the original forecast. If I am reading the 2010-11 figure
correctly, the increase to 50p in the pound will raise £1.13
billion. I think that that is what the Red Book tells us. As many
members of the Committee have said, that is not a significant amount of
money, and my hon. Friend the Member for Henley has pointed out that we
might lose money elsewhere in the tax programme. I agree with those
analyses. If the figure is £1.13 billion, may I suggest a
pain-free way in which the Government could get rid of the 50p tax rate
without impacting on public spending? In fact, my proposal would enable
the Government to increase public spending on schools and hospitals,
and it would not damage the domestic situation in any way.
This
year’s proposed contributions to the European Union are
£3 billion, and the latest estimate is that they will increase
to £6.5 billion next year, which is an increase of £3.5
billion. Tony Blair said that that would happen only if there was
reform to the common agricultural policy. That has not happened, so the
Government have an easy way of saying that they have found the money
and do not need to implement the 50p tax rate, and none of their Back
Benchers would have to vote against them in the Division that will
follow this debate. It would be a pain-free solution. Furthermore, it
would do the Government an enormous lot of good during the European
Union elections. I hope that my contribution has been helpful and
constructive for the
Government.
Mr.
Timms: I start with a warm welcome to you, Sir
Nicholas, our Chairman for the morning sitting. Clause 6 is necessary
to ensure that those with the very highest incomes contribute their
fair share towards the consolidation that is now
required. 9.45
am
Mr.
Gauke: I apologise for jumping in quite so early and am
grateful to the Minister for giving way. I noticed his first
words—“Clause 6 is necessary”. Is clause 6
necessary for the Government to fulfil their stated policy objective of
raising the top rate of income tax to 50p? The new rate is not coming
into effect until next year, so why is it necessary to have clause 6 in
this year’s Finance
Bill?
Mr.
Timms: It is here because it was important to set out in
the Budget how we should achieve the fiscal consolidation required.
That is the announcement that we made in the Budget, and the Bill is
rightly enacting the Budget decisions. If the hon. Gentleman is
suggesting that we should defer the measure until after the election,
my view is that we should not. We should be up front with the British
people in how we shall achieve the consolidation that everyone can now
see is
necessary.
Mr.
Gauke: I am grateful for the reply, but I ask again why
the new rate is necessary in the Bill? If the Government have stated
what their objective is, that is indication enough, is it not? When the
Government say that they will do something, they will do it, surely.
Why is putting the provision into legislation necessary? I do not see
anything in the Finance Bill to raise the level of national insurance
contributions, although I acknowledge that that is a different set-up.
The provision is here for political reasons, and for political reasons
only—there is no need for clause
6.
Mr.
Timms: It is not here for political reasons. It is here so
that the Government have a clearly credible consolidation strategy that
will achieve our objectives over the medium term, as we set out. If the
hon. Gentleman wishes to vote against the clause, he is perfectly
entitled to do so. Indeed, given what we have heard from the
Opposition, at one point I thought that they would vote against it,
although the implications appear to be that that is not the
case. Mr.
Mark Hoban (Fareham) (Con): Part of the problem, although
we talked about it in the context of the 50p rate, is that
the clause did not mention the 50p rate, but an “additional
rate”. We know from the PBR last year that
a 45p rate was to be introduced in 2011; in this year’s Budget
the Government said that a 50p rate would be introduced in 2010. Who
knows what the Budget decision will be next year, when the Chancellor
gives his final Budget? We are discussing a clause in which no rate is
defined or set, and we shall not know until next year whether the
Government are prepared to carry through their
commitment.
Mr.
Timms: We shall carry it through. The point that I want to
emphasise to the Committee is the importance of having a clear
strategy, which everyone can see, for fiscal consolidation over the
next few
years.
Mr.
Bone: Will the Minister give way on that
point?
Mr.
Timms: No. I shall make a little progress before I give
way again, but I shall look forward very much to the hon.
Gentleman’s intervention a little
later. The
hon. Member for Hammersmith and Fulham gave the Committee a long list
of objections to the clause, but his case is flawed by the fact that he
is not going to vote against clause stand part. If he is not persuaded
by his own arguments, I shall not detain the Committee long responding
to them. However, I shall respond briefly to some of the
arguments. First,
on the estimate of the revenue from the measure, the hon. Gentleman
asked some questions about elasticities and the figures used. The
behavioural estimates that underpin the figures in the Red Book are
based on taxable income elasticities—how much declared income
reduces, for whatever reason, for each percentage point decrease in
post-tax income. We have chosen to use a figure for taxable income
elasticity, as the hon. Gentleman acknowledged, of 0.35. We looked at
all the evidence available for the UK—including the IFS figure
of 0.46, as he said—most of which consists of studies looking at
the 1980s and the 1990s, and at the academic evidence available for a
range of other countries, the USA in
particular.
Mr.
Hands: The Financial Secretary seems to be arguing that
the IFS figure of 0.46 is outdated because it was derived from
behavioural observations from the 1980s. However, surely it is far more
likely that higher rate earners will be much more able to avoid tax
today than in the 1980s, due to greater international mobility, the
greater ability to conduct business from a different home country and
the greater ability of such people to tap into expertise in tax and
accounting. For all those reasons, he is surely making the wrong
assumption about behavioural changes in the last 20
years.
Mr.
Timms: The hon. Gentleman is absolutely right that the
judgment needs to be based on the present circumstances and not those
of previous decades. The Government have taken a number of policy
measures, for example those announced in the 2004 statement by my
predecessor, my right hon. Friend the Member for Bristol, South (Dawn
Primarolo)—
Mr.
Timms: The hon. Gentleman must let me respond to his point
before I give way again. That 2004 statement by my right hon. Friend
was about anti-avoidance measures and the regime requiring
anti-avoidance products
to be disclosed. All those measures are likely to have had a downward
impact on taxable income elasticity in the UK. Also, structural
differences between the tax systems in the US and the UK mean that it
is likely that taxable income elasticity is lower
here.
Laura
Moffatt (Crawley) (Lab): It is a pleasure to serve under
your chairmanship, Sir Nicholas.
We are having
an interesting debate about who might avoid paying tax. Will my right
hon. Friend restate to my constituents just what the money raised will
be used for in these very difficult times—extraordinary times,
globally?
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