Mr.
Timms: My hon. Friend is absolutely right to draw the
Committee’s attention to that fundamental point. What we need to
do is support families and households through this difficult time in
the economy—the degree of difficulty is unprecedented—to
maintain investment, in the way that we set out in the Budget. We must
do so to protect the economy, individuals and particularly employment,
which was the highest priority of all in the Budget, to get through the
downturn in the best possible shape—indeed to make the downturn
shorter and shallower than it would otherwise have
been—
Mr.
Bone: Will the Minister give
way?
Mr.
Timms: And to protect the nation’s interests in
that
way. Having
resisted the hon. Gentleman’s attempt to intervene earlier, I
feel that I owe it to him to give way now. In fact, it is a pleasure to
do
so.
Mr.
Bone: In my original attempt to intervene, I was
going to say that if the measure is not necessary, it should not be in
the Bill because that is bad drafting and that would be a real reason
for everyone on this Committee to vote against it.
My
intervention now is different. The measure is supposed to protect
employment. Unemployment in my constituency is 84 per cent. higher than
it was when John Major left office. How can the Minister possibly say
that anything the Labour Government do will protect employment in
Wellingborough?
Mr.
Timms: The record on unemployment is extremely clear, as
the hon. Gentleman knows. The steps that we have taken in the Budget
will be particularly effective in tackling the problem of unemployment.
Perhaps the most important step was the jobs guarantee, which will
ensure that, from next January, anybody under 25 who has been out of
work for 12 months will be guaranteed a job or training place. There is
funding for 100,000 new socially useful jobs, to allow that guarantee
to be discharged.
Mr.
Field: If I may, I want to assist the Minister to answer
the question put by the hon. Member for Crawley, who asked where all
the additional money would go. About £2.75
billion—perhaps as much as £3 billion—of the money
that is raised will go to pay off less than one tenth of the money that
this Government will have to borrow because of the mess and debt that
they have stacked up. That is the true answer. It will only make that
much difference; a tiny element of the borrowing will be paid off on
the debt interest.
Mr.
Timms: The measure will yield £6 billion over the
forecast period. Opposition Members may not feel that that is a large
sum, but £6 billion is an important element in our consolidation
of the strategy, which is needed and must be in place in the period
ahead.
Mr.
Hands: The Minister is most generous in giving way so
often. Can I take him back to the point about the modelling? Going back
to the dispute this week between the Treasury and the IFS about
different rates of tax avoidance, the Minister seems to be saying that
the assumption in the Treasury model is a rate of 0.35 for
those earning more than £150,000. Will he tell us what the
Treasury’s assumption is for the general
population?
Mr.
Timms: The measure will not apply to the general
population, but will apply to, as I have emphasised, the
highest-earning 1 per cent. of taxpayers.
Mr.
Hands: I should explain myself a little more clearly. I
talked about the matter at some length in my contribution on
Tuesday.
Mr.
Hoban: Not long
enough.
The
Economic Secretary to the Treasury (Ian Pearson): It
obviously was not
clear.
Mr.
Hands: It may have been unclear—or perhaps not
great in clarity. I think the point made by the IFS is that the 0.35
ratio is roughly the same rate that is used for the general population.
Why should higher earners be held to have exactly the same propensity
to avoid tax as the general population, when precisely the opposite
appears to be the
case?
Mr.
Timms: The figure that the IFS suggested, to which the
hon. Member for Hammersmith and Fulham referred to in his lengthy
contribution the other day, was 0.46, which is an elasticity, rather
than a rate. However, the IFS acknowledged in its report of
20 April that that is a tentative estimate. It also made it
clear that the estimate was subject to uncertainty about the extent to
which growth in top incomes was due to structural changes rather than
tax reductions. The assessment made by our experts is that 0.35 is the
right figure to
use.
Mr.
Stuart: I am extremely grateful to the Minister for giving
way; he has been astonishingly generous. Will he share with us what the
range of estimates is? The Treasury must have picked an elasticity
figure to go on, and I am interested to know what were the risk
factors, what were the lowest figures given in Treasury advice to
Ministers, what was the smallest elasticity attributed to that highly
mobile, high-earning group, and what was the greatest
elasticity—the greatest risk. Secondly, given the importance of
the matter, will the Minister share the advice that was given to allow
the general public to have a better understanding of the impact? Like
the hon. Member for Crawley, I am concerned about the impact on public
services, on which ordinary people in my constituency
depend.
Mr.
Timms: We produced not a range, but a figure for the
modelling to be carried out, and that figure was, as I have said, 0.35.
[Interruption.] I am grateful to Opposition
Members for their acknowledgment of my extreme generosity, but I must
make a little more progress before I give way again.
We are
talking about £6 billion being raised in the first three years
of the measure, which is an important contribution to consolidation. It
is right that that part of the consolidation comes from those most able
to pay, rather than hitting those on low or middle incomes. There is an
important dimension of fairness, and 98 per cent. of taxpayers will not
be affected by the
measure. On
the changes that we will make to national insurance contributions as
part of the consolidation, which was also mentioned in the debate, we
raised national insurance because it is broad based. The changes will
apply to employees, the self-employed and employers, spreading the
burden across the economy and across all sectors. It will protect those
who do not pay national insurance, including those who rely on savings
and those of state pension age.
Mr.
Gauke: I am grateful that the Minister is maintaining his
reputation for his generosity. When will we see some legislation
implementing the increases in national insurance contributions, on the
basis that his argument is that we need to show—to use his
phrase—a credible fiscal
consolidation?
Mr.
Timms: Separate legislation will be needed because that
measure cannot be set out in the Finance Bill. Those responsible for
the legislative programme will set out the details at the appropriate
time.
Mr.
Gauke: Will the right hon. Gentleman give
way?
Mr.
Timms: I am not in a position to make any announcements on
that subject today, but I will of course give way again to the hon.
Gentleman.
Mr.
Gauke: I am grateful for the Minister’s comment
about how that will be done at the appropriate time, but will it be in
this parliamentary Session? Given that he is so anxious to set out
legislation that demonstrates a credible approach to the fiscal crisis,
why have we got one measure now, but the national insurance
contributions stuff perhaps after the
elections? 10
am
Mr.
Timms: We have the income tax measure now because we have
the Finance Bill, in which it appropriately sits. I am sorry to
disappoint the hon. Gentleman, but as I have said, I am not able to
make an announcement on national insurance
legislation. We
have had an interesting debate. We have discussed the important subject
of the UK’s international competitiveness and carefully
considered the impacts both on individuals and on the UK economy. Our
conclusion is that with the 50 per cent. rate the UK will continue to
be a competitive place for business, with a tax burden that compares
well internationally. I referred on Tuesday to the international
benchmarking work that has been done on that subject. We have taken the
lead in announcing our future plans for fiscal consolidation, which is
part of the boldness to which the International Monetary Fund paid
tribute in its report yesterday. We have been absolutely right to do
that, and other countries are also considering ways of doing it, most
notably the
USA. I
enjoyed the comments made by hon. Member for Cities of London and
Westminster, but I say to him that the US budget has proposed taxes on
high-income Americans totalling some $637 billion over the next
10 years. I enjoyed attending the reception for the City of
London that he hosted on Tuesday evening in the House, and I remain
confident—he affirmed this as well—that the City and the
UK as a whole will continue to be strongly competitive in the years
ahead.
Mr.
Stuart: Does the right hon. Gentleman believe that high
earners in the UK are a more internationally mobile group than those in
the United States? Comparisons are often made between this country and
Sweden, which has a higher tax rate. Does he accept that if an economy
depends on internationally mobile people to a larger extent, greater
care has to be taken with the higher tax
levels?
Mr.
Timms: There certainly is a competitive world market for
talent; we need to factor that into our considerations, and we have
done so. On that basis, we are confident that the measure is the right
one. The 50p tax rate has a job to do. It will make an important
contribution to the medium-term fiscal consolidation of the
economy.
My hon.
Friend the Member for South Derbyshire was right to highlight the
concern about fairness. The question has been asked whether the measure
will be permanent or temporary. The fiscal consolidation that we need
will take some time, as the Red Book set out. All I can say to the
Committee about that is that we will, of course, keep all taxes under
review. The
hon. Member for Hammersmith and Fulham has also made some important
comments on the trust rate of tax and concerns about the effect of the
changes to the trust rate on vulnerable people and those on low
incomes; he also referred to dividend taxation. The trust rate of tax
will be increased in line with the higher rate of income tax of 50 per
cent. to prevent people from using trusts to benefit from the
difference between the trust rate of tax and the additional rate of
income tax. However, income paid to beneficiaries who receive income
from discretionary or accumulation trusts carries a credit at the trust
rate, which from 2010 will be 50 per cent., so those who do not pay
income tax of 50 per cent. will be able to set the tax credit against
their total chargeable income and claim back any surplus income tax, as
they can now. The standard rate band also taxes the first £1,000
of trust income from a discretionary trust at only 20 per cent., which
benefits a large number of small trusts, as many of them have income
under that
figure. The
hon. Gentleman mentioned in particular the special tax regime that
applies to vulnerable beneficiaries. Those rules, including the
definition of disability, were consulted on in detail during the trust
modernisation programme, which ran between 2003 and 2006. The special
tax regime is for trusts used by vulnerable people who are unable to
look after their financial affairs. More general support for disabled
people is provided
elsewhere in the tax and benefits system. I understand his point that
the definition of disability is a sensitive issue and that the
understanding of what constitutes disability is continually evolving.
Officials have recently discussed with groups such as the Disability
Benefits Consortium the definition of disability in relation
to
trusts. Mr.
Hands: That is an important point. The Minister has
confirmed that he has been in discussions with the DBC, but my
information is that it remains unsatisfied with the set of provisions.
Can he confirm that that is correct? What is his impression from the
discussions he has had with the DBC and the Low Income Tax Reform
Group?
Mr.
Timms: I can confirm that those discussions are continuing
and have not yet reached a conclusion. I have no doubt that those
groups will continue to press their case. The issue is not the rate of
tax ultimately paid, but whether it is necessary for reclaims to be
made against the higher rate of tax. That is an important question, so
those discussions will
continue. The
hon. Gentleman claimed that the additional dividend rate would
discourage investment in equities. The tax rate is to be 42.5 per
cent., which is 10 percentage points above the existing higher rate on
dividends, so matching the changes to the income tax main rate to keep
things as straightforward as possible. I put it to him that the changes
strike the right balance between raising revenue as fairly as possible
and encouraging wealth creation. No only are dividend rates lower than
the tax rates on other income, but they are reduced further by the
dividend tax credit available to almost all investors. The existing
credit will remain in place and at the same size—one ninth of
the value of the dividend—which encourages investment by
individuals and reflects the fact that tax has already been paid by the
company.
Mr.
Hands: May I come back to the intervention I wanted to
make earlier, which was about the Chancellor’s comments on the
justification for the 50p rate? In an interview with the Daily Mail
on 23 April he said that he would be calling on people with higher
earnings
“to contribute a
bit more while we resolve this
situation.” I
appreciate that it is difficult for the Minister to say when the
situation will be resolved, but can he at least tell us to which
situation the Chancellor was referring? Was he talking about the
financial crisis or the position of our public finances and the ongoing
budget
deficit?
Mr.
Timms: He was speaking about the need for a period of
consolidation. As I said a few moments ago, the consolidation will take
some time to be concluded, as we set out in the Red Book. Our
assessment in the Budget is that the public finances will be back in
balance by the later part of the coming
decade.
Mr.
Gauke: If the rate is to be increased to 50p until the
situation is resolved and the Minister anticipates that it will be
resolved around the later part of the decade—I do not know
whether he is referring to 2017 or 2018—when the Government
project they will have a balanced budget again, is he saying, without
making a commitment, that the broad intention would be to lower or
abolish the higher rate and return it to the current 40p rate? Is that
what the Government have in mind?
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