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Income Tax

Volume 554: debated on Wednesday 28 November 2012

I beg to move,

That this House notes that HM Revenue and Customs figures show that 8,000 people earning over £1 million will gain an average of £107,500 from the Government’s decision to cut the top rate of income tax from April 2013; further notes that figures from the Institute for Fiscal Studies show that the Government’s changes to tax allowances for pensioners will mean that 4.4 million existing pensioners will lose an average of £83 from 2013-14, while thousands of people turning 65 will lose £323; and calls on the Government to announce in the Autumn Statement that it will not go ahead with its proposal to cut the top rate of tax for the richest earners at a time when the economy is flatlining, millions of pensioners on middle and low incomes are paying more, and when wider tax and benefit changes being implemented in 2012-13 will result in families with children losing an average of £511.

In March this year the Chancellor of the Exchequer stood in this House to deliver his Budget. It was a revealing moment. Having previously said that we are all in it together and insisted that those with the broadest shoulders should bear the greatest burden, the Chancellor announced a tax cut worth, on average, £107,000 for those earning more than £1 million a year. It was the moment that the Government’s façade of fairness disappeared for good. In these tough times, against the backdrop of the biggest squeeze in living standards for a generation, and with the economy flatlining, the Chancellor prioritised millionaires above millions of working people. That is why we have called this debate: to question the priorities of the Government, to stand up for pensioners and families who are being hit hardest—

The hon. Lady said that she wants to prioritise ordinary people over millionaires, so would the Labour party, if it were to come into government in 2015, reintroduce the 50p rate?

We are hoping that Government Members will see sense and vote for the motion, and that the Chancellor will rethink his decision in next week’s autumn statement. It is not too late to reverse this change. I am not going to write the manifesto for 2015 now, but every single Labour MP will be voting against this tax change, which has not yet come into effect, so the Government can still think again.

Can the hon. Lady explain why only two Labour Members—the hon. Members for Newport West (Paul Flynn) and for Bolsover (Mr Skinner)—voted against the rise after the Budget statement in March?

We have already debated this; when we debated the Finance Bill, Labour MPs voted against the cut in the top rate from 50p to 45p, as the hon. Gentleman is aware.

Let us look at the facts. There are 30 million taxpayers in the UK—30 million people who go out to work each day and pay their tax—yet the Chancellor’s tax cut helps only the richest 300,000, of whom 8,000 take home more than £1 million a year. According to table 2.5 on page 30 of Her Majesty’s Revenue and Customs’ income tax liabilities statistics of April this year, their total income in 2012-13 is expected to be £18.4 billion, and they will pay £8.6 billion of tax on that income at the 50p rate. From next April, when the additional rate is lowered to 45p, they will pay £7.7 billion of tax on that income. This represents £860 million of lost revenue because of a tax cut for people earning over £1 million, and an average tax giveaway of £107,000 to each and every one of them—not just in one year but in each year to come.

Will not the hon. Lady be honest with this House and this country? This was a Trojan horse of a tax brought in at the very fag end of the Labour Government as part of a scorched-earth policy that has been shown to have cost the Exchequer almost £7 billion already—something else that the previous Government messed up and that this Government have to put right.

Order. In using the word “honest”, it should be taken as read that Members are always honest in the Chamber.

Thank you, Mr Speaker.

The increase in the top rate of tax from 40p to 50p was introduced to help to reduce the deficit because the last Labour Government thought that it was right that those with the broadest shoulders paid a little bit more towards achieving that. The fact that this Chancellor has reversed that and is reducing the top rate of tax shows that he thinks exactly the opposite—that his priorities are not with ordinary working people but with the richest 1%. [Interruption.]

I will—and if the hon. Member for Beverley and Holderness (Mr Stuart) has an intervention to make, then he can make it.

Does the hon. Lady accept the calculation by the Office for Budget Responsibility that this proposal would cost £100 million—yes or no?

Let us look at what Robert Chote, the chair of the OBR, says about the cut in the 50p rate:

“This is a judgement based on not even a full year’s data based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”

Indeed, we know that a series of larger-than-usual dividends were paid in the days and weeks just before the introduction of the 50p rate. For example, the Prime Minister’s friend Emma Harrison, who is the Government’s adviser on their welfare-to-work programme—we know how successful that has been—was paid on 1 April 2010, before the new tax year, which meant that her dividend was taxed at the old 40% rate, saving her £800,000.

That is why the Government’s claims about the yield of the 50p rate do not stand up. People have had the opportunity to anticipate the introduction of the new taxation rate by bringing their income forward, as they did when the rate was reduced. As the Office for Budget Responsibility and the Institute for Fiscal Studies said, it is difficult to produce a definitive estimate for the long-term yield of a tax that has been in place for only a short period, and it is fiscally irresponsible and wholly misleading to use figures from the first year to justify the policy.

I thank the hon. Lady for giving way again, but let me press her a bit more on this point. The OBR said that its calculation was a “reasonable and central estimate.” Does she disagree with that?

Robert Chote has said:

“This is a judgment based on not even a full year’s worth of data”

and the estimates are very uncertain. Another group of experts at the IFS stated that

“by giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”

If the Government think that lots of millionaires who were not paying the 50p rate of tax will start flooding to these shores to pay the 45p rate—well, we will see what happens when the numbers come out.

Let us talk about those millionaires. Today’s Daily Mail states that the number of millionaires slumped from 16,000 to 6,000 after the 50p rate of tax was introduced, and that revenues fell from £13.4 billion to £6.5 billion. Does that show that if the rate of tax is increased too much, it will have a negative impact on the public finances?

I thank the hon. Gentleman for at least highlighting that thousands of people with declared incomes of more than £1 million who were paying the 50p rate will get a tax cut next year. His figures show that in 2010-11 there were 6,000 people with declared incomes of more than £1 million, and 10,000 in 2011-12. A written answer that I received from the Exchequer Secretary to the Treasury on 19 June stated that 70% of people earning more than £250,000 were paying more than 40% in tax, and 80% of those earning more than £500,000 were paying the 50p rate. In the new year, each and every one will get a large tax cut.

If the Government honestly want people to pay their fair share of tax, they should spend more time and resources on tackling tax avoidance, not compensate the wealthiest by cutting the headline rate of tax. No wonder they have cut staff numbers at Her Majesty’s Revenue and Customs by 11%—they have just given up.

I am happy to debate the Government’s record on raising revenue through taxation. Last autumn, as a result of the slowing economy, projected income tax revenues across the board had to be written down by £51.2 billion by the Office for Budget Responsibility because of the weakness of the economy and the double-dip recession. Only last week, the Office for National Statistics released statistics showing that public borrowing in October was £2.7 billion higher than for the same month last year.

Over the first seven months of financial year 2012-13, the Government have borrowed around £5 billion more than for the same period last year. Why are we seeing that increase in borrowing? It is not as if the Government have not put up taxes for ordinary people or cut public services. The Chancellor’s flatlining economy has forced a 10% slump in corporation tax revenues, and VAT revenues are expected to be down by 2.5%. The Government can spend all the time they like defending a tax cut for millionaires, and Ministers as much time as they like in Cabinet arguing among themselves about why there has been no growth, but it is time they changed course and adopted a plan for jobs and growth.

Whether the rate is 45p or 50p, does the hon. Lady accept the principle that a low-tax economy is better for Britain and for businesses to do business in Britain?

The hon. Gentleman says, “Whether the rate is 45p or 50p”, but the difference between those figures is £3 billion that could be used to pay down the deficit, help families who are struggling with the rising cost of living or get rid of the granny tax that the Chancellor is introducing next year. The principle of having lower taxes is fine, but we have a deficit to reduce. I thought the Government believed we should be cutting that deficit instead of giving tax cuts. The Chancellor said that in his first Budget, but he has thought again since then and is giving a tax cut to the wealthiest while asking ordinary families to pay more. That is not what my constituents want, and I doubt it is what those of the hon. Gentleman want either.

Does my hon. Friend agree that, strangely, because the cut in the rate of tax was announced and then postponed, a number of people will doubtless try to do in reverse what they appear to have done when the tax was introduced? The Government will then say, “Ah, but in this year, not enough was raised through that tax.” It will almost become a self-fulfilling prophecy.

Exactly that point about income profiling and not being able to estimate the impact of the tax because it has not been in place long enough was made by the IFS and the OBR. It is a shocking indictment of the Government’s priorities that the Chancellor has chosen at this time to give a tax cut to the few at the top—a tax break for millionaires—while asking working people to pay more. They are the same, old, out-of-touch Tories, and not one of their accomplices—the Liberal Democrats—had the nerve to stand up to the Chancellor.

Studies show that those countries in the world that are happiest and have highest levels of contentment and well-being are the Scandinavian nations that have relatively high taxes and high minimum wages. Is it not strange for the Government to believe that we make the rich work harder by giving them more money but the poor work harder by taking money from them?

My hon. Friend makes an important point. The work of Wilkinson and Pickett in “The Spirit Level”, and other academic research, has shown exactly that. Some people will be a lot happier next year—the 8,000 millionaires who will have their taxes cut—but ordinary working people who see their taxes go up will be a lot worse off and, I expect, not very happy with either their finances or the Government who have inflicted that situation on them.

In the same Budget as the Chancellor’s giveaway to the richest, buried in the small print as a tax simplification, was the Chancellor’s granny tax. The freeze in the age-related allowance for the over-65s will see 4.4 million pensioners who pay income tax losing an average of £83 each per year. People who turn 65 next year will lose most of all—up to £322. Listening to the Chancellor was like watching Robin Hood in reverse. Most pensioners who will be hit by the granny tax live on incomes that put them in the bottom half of income tax distribution. Those with a small personal pension of £67 a week—£3,000 a year—will be in line to lose under this measure. How insulting to pensioners who have worked hard all their lives, who have not earned large salaries, but who have done the right thing and saved responsibly so they could provide for themselves in later life.

Does my hon. Friend recognise figures from Hansard that show that in the north-east some 4,000 taxpayers will benefit from the changes, but more than 278,000 will be worse off and they will mainly be pensioners? Does that not show all we need to know about the Conservative party?

My hon. Friend makes an important point. People on modest incomes such as pensioners will lose out, while those at the top get a little bit more—well, not a little bit more; they will get £107,000 more next year from the Government. How insulting for those pensioners to see their taxes go up on the same day that millionaires have their taxes cut. Families, pensioners and young people cannot escape the Chancellor’s austerity programme—only millionaires can do that.

Pensioners have already seen their winter fuel allowance cut and their pension indexed to a lower measure of inflation. The increase in the state pension age for women has been brought forward, and the rise in VAT has added £275 to the costs faced by an average pensioner couple. Services such as the national health service, social care and local transport have been cut, and the TUC estimates that a single pensioner will lose access to services worth 11% of his or her income. No wonder so many people have spoken out against what the Chancellor is doing.

Age UK has stated:

“We feel it is disappointing that the budget offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes who are already squeezed.”

The chief executive of Saga has said:

“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected”.

The National Pensioners Convention has said:

“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax…whilst those earning £150,000 or more will see their tax bills reduced…This is seen by many as the last straw…Pensioners feel they are being asked to bail out the super rich…and it’s simply not fair.”

The Opposition could not agree more. It is the same old out-of-touch Tories.

To add to that litany of taxes on pensioners, annuity rates are in freefall; one cardinal fact of the past two and a half years is the collapse in annuity rates for pensioners. On top of those other attacks on their income, pensioners now find that their annuity rates are collapsing.

I thank my hon. Friend, who is the shadow pensions Minister, for his intervention. I am sure he could add many other examples of pensioners being hard hit by the Government. The change in annuity rates is one example as the economy continues to flatline.

The rest of the taxpaying public look with disbelief on what the Government are doing, including the families with children, who are, on average, £450 a year worse off because of last year’s VAT rise, and another £511 a year worse off this year because of further cuts, freezes and reductions to benefits and tax credits; the couples with children who cannot increase their hours to the higher threshold introduced by the Government and who will have working tax credits withdrawn, which, in many cases will drop them below the poverty line; the families with incomes above £26,000, who are now losing all their child tax credit, contrary to the Prime Minister’s promises before the general election; and those on modest earnings with children at school, who will suffer cuts to services equivalent to 13% of their incomes.

The deterioration of the economic outlook on this Chancellor’s watch has led to the OBR revising projections on real disposable income per household down by £800 last year, by £1,100 this year and by £1,700 next year.

On tax credits, what does my hon. Friend think about a case I heard about two or three days ago, in which the application for tax credits was not even opened for three months?

Given the cuts to departmental budgets, it is not surprising that some applications are not being processed and that, as a result, families are missing out on the tax credits to which they entitled, pushing them further into hardship.

How will households throughout the country feel next year, when those earning more than £1 million get a tax cut of £107,000? What is the Government’s message to people who work hard and want to get on in life? We remember when the Conservatives liked to think of themselves as the party of aspiration. Baroness Thatcher liked to claim she stood up for people who wanted to work their way up, and yet, under this Government, people who get a pay rise or promotion lose their child benefit. Imagine that! A person who earns £49,000 a year and has three children will lose thousands of pounds in child benefit if they take a pay rise or promotion. What a terrible position to put people in.

The truth about the Government is this: pensioners pay more, low-paid parents pay more, and a family working hard to get on in life and provide for their children pay more, but millionaires pay less. That tells us everything we need to know about the Government and their values. For many, 2012 will be remembered as the year the Chancellor’s drastic cuts began to hit home, but for the richest, 2013 will be remembered as the year they received their tax give-away from this Robin-Hood-in-reverse Chancellor.

Last week, the Prime Minister compared the economic situation we face to war. It is true that we are facing a period of national upheaval, but that is why it is crucial that the Government are a uniting force, not a dividing one. Is this really the time for a tax cut for the richest? During the second world war, the public queued to get their copy of the Beveridge report, because it set out the beginnings of a welfare state in which everyone had a stake. In the period of reconstruction after the war, that spirit and sense of national mission led to the creation of the national health service.

The Government do not understand the need for one nation politics, or the need to take people with them and share the burden of sacrifice fairly. Instead, they will be remembered as a Government who divided. Indeed, of the richest who are receiving the tax give-away, 85% are men, but around 70% of the revenue raised from direct tax and benefit changes will come from women. Fifty-two per cent. of those benefiting from the millionaires’ tax give-away are based in London and the south-east, but long-term unemployment is rising in the north. The poor are expected to work harder, because otherwise they will be made poorer, but the rich will work harder only if they are made richer. There is one rule for the very richest and another for everybody else. It is the same old out-of-touch Tories.

When the Chancellor came to the House to deliver his 2011 Budget, he said that

“now would not be the right time to remove it when we are asking others in our society on much lower incomes to make sacrifices”.—[Official Report, 23 March 2011; Vol. 525, c. 957.]

He was right then, and he is wrong now. He revealed his true colours in this year’s Budget.

Does my hon. Friend recall the remarks of the parents whom she and I met at the Pen Green centre in Corby, who spoke about many local priorities, including vital local services such as our hospital? They did not believe the millionaires’ tax cut was the right priority for people in Corby and east Northamptonshire or for people throughout the country.

Although my hon. Friend has been in the House for a lot less time than many Government Members, he speaks more sense than they do, on behalf of his constituents in Corby and east Northamptonshire, who sent a clear message to the Prime Minister two weeks ago when they elected my hon. Friend and booted out the Conservatives. He is right to stand up for their interests. They do not want the tax cut for millionaires; they want help for ordinary families, for pensioners and for young people getting back to work. That is what people in Corby and the rest of the country want.

The Chancellor waved goodbye to the pretence of being on the side of working people in this year’s Budget. He waved goodbye to saying, “We’re all in this together,” and, “Those with the broadest shoulders should bear the greatest burden.” The Budget was the U-turn that revealed his true motives and told people for whom he stands. People will not forget that, when times were tough and they needed support, the Government cared only for those who needed it least. The Tories are back to doing what they do best. It is the same old out-of-touch Tories.

Order. Just before I call the Minister from the Treasury Bench, I remind the House that, on account of the time available and the number of hon. Members wishing to speak, I have imposed a limit of 10 minutes on each Back-Bench contribution.

I beg to move an amendment, to leave out from “House” to the end of the Question and add:

“notes that the previous administration maintained the top rate of income tax at 40 per cent for 13 years, only increasing it to 50 per cent in April 2010, one month before the Government was formed, and that this new rate was damaging to UK competitiveness; further notes that the independent Office for Budget Responsibility certified the Government’s central estimate that reducing the 50 per cent rate to 45 per cent would have a cost to the Exchequer of £100 million per year and that measures introduced at the last Budget increased taxes on the wealthy by some £500 million; recognises that in contrast to the previous administration that abolished the 10 per cent rate of tax which increased taxes on more than five million low earners, the Government is cutting income tax for 25 million low and middle earners while taking two million low-paid people out of income tax altogether through increasing the tax free personal allowance; recognises that every Budget under this Government has increased taxes on the rich, including a new stamp duty land tax rate for properties over £2 million, an annual charge on these properties, introducing a cap on previously unlimited income tax reliefs and an extension to the capital gains tax regime, clamping down on tax evasion and aggressive tax avoidance, and bringing in a General Anti-Abuse Rule; and welcomes the introduction of the Triple Lock, which led this year to the biggest ever cash rise in the state pension.”

The amendment is in my name and those of my right hon. and hon. Friends. After all the anger and bluster the House has just heard, may I bring to its attention a few pertinent facts? Hon. Members have been told that the 45p rate for high earners is too low, which ignores the fact that there was a top rate of 40p for all but 36 of the 4,758 days of the Labour Government. We have been told that the rich should pay more. That ignores the fact that other changes in the tax system introduced in the Budget will raise five times the amount of tax from the wealthiest than the 50p rate raised in practice. We have heard that moving to 45p is wrong, but the Opposition will not commit to reversing it after the next general election.

Will the Minister confirm a report that I read in, I believe, The Sunday Times, which stated that the number of property sales above the level of increased stamp duty has fallen since the Budget? When will he produce figures on whether such so-called additional taxes raise any additional money?

I note with interest that the hon. Lady appears to be arguing that an increase in tax can sometimes lead to a loss of revenue. She is right—that can sometimes happen. As it happens, the revenue on stamp duty land tax is holding up all right, but she makes an important point, one that I hope is understood more widely in her party. I am pleased that the Opposition are keeping open the option of not increasing the 45p rate of income tax. Although it is right that those with the broadest shoulders bear the greatest burden—I will set out how the Government are making that happen—it is also necessary to ensure that the UK is competitive in attracting wealth creators to locate and stay in this country. A Government that are serious about the UK winning the global race for growth should be very careful about pursuing a policy that places a huge “closed for business” sign over our economy. That is exactly what the 50p rate of income tax was—a “closed for business” sign. I hope that at the next general election there will be a consensus that we do not want to re-erect that sign over our economy.

The new growth guru in Europe is of course President Hollande of France, who is well known to the Opposition Front Bench. I wonder whether my hon. Friend thinks that the higher 75p rate of tax in France has helped entrepreneurs and business people to stay within France, or to flee to other shores, such as the low tax economy in Britain.

My hon. Friend raises an interesting point. Perhaps I should not be drawn too much into discussing the domestic policies of one of our close European allies, but it will be interesting to see the impact in France of a very high rate of income tax, and whether people will move out of that country and we see any additional revenue as a consequence.

I appeal to my hon. Friend not to be too harsh on the Opposition. Does he not understand that the Labour party now gets 90% of its funding from the trade union movement? If the trade unions insist that there should be a 50p tax rate—even if it does not raise money and undermines public services—it may feel obliged to put it in its manifesto regardless.

My hon. Friend displays an unusual degree of cynicism. I am still hopeful that Labour Members will share with us a desire for the UK to be a competitive environment for business that attracts high net worth and high-earning individuals to locate and pay tax in the UK, and that we can raise more revenue from them. Perhaps, however, my hon. Friend will turn out to be right and they will be driven more by their trade union paymasters.

Did the hon. Gentleman see the filmed interview with the treasurer of the Conservative party who demanded £250,000 for an invitation to dinner with the Prime Minister? Does not that give us an idea of the source of the Tory party’s funds?

I suspect, Mr Speaker, that you would not want us to be drawn into a lengthy debate about party funding. All I can say is that the Conservative party and this coalition Government will make decisions on tax policy on the basis of ensuring that we have a fair and competitive tax system, and that is exactly what we are doing.

Does the Minister agree that when data show that the top 1% of earners already pay 28% of all income tax, we want to encourage them to stay, and, indeed, attract other high earners to our economy?

My hon. Friend makes an important point. Our income tax receipts are dependent on high earners, and that will continue to be the case. We will continue to raise substantial sums from those high earners, but we must ensure that the UK is an attractive place for them to be located. At a time when labour mobility is perhaps greater than it has ever been before, particularly for such individuals, we have to recognise that the UK is competing for talented individuals and business investment, and that a 50p rate of income tax does not help us do that. That is the essence of the reason why we reduced the rate to 45p.

It may be helpful to provide some background to the policy we are debating. As the House will be aware, the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted that there would be behavioural change as a consequence of that. The shadow Chief Secretary referred to the figure of £3 billion, which she alleged was the cost of cutting the 50p rate to 45p. She got that figure by looking at the static cost—not including any behavioural change whatsoever. It is worth pointing out that when the previous Government announced the increase from 40p to 50p, they assumed a behavioural change that would mean that rather than raising £6 billion, approximately only £2.5 billion would be raised. That was the assumption made by the previous Government. Such a substantial behavioural impact is inevitably bad for the economy. Not only were we left with an economy in a disastrous state and a huge budget deficit resulting in public sector debt growing very rapidly, we were left with a tax system that was highly uncompetitive and drove away big contributors to tax revenue.

I thank the Minister for giving way again—he is very generous. Does my hon. Friend agree that having a high income does not guarantee friends, happiness or health but does guarantee choice, and that one of the major choices is where one is domiciled for tax?

My hon. Friend is right, and harks back to what I was saying a moment ago. We have to bear in mind that the ability of high-earning individuals to be mobile has increased over time. It is striking, for example, that the number of UK citizens moving to Switzerland in 2010 increased by 29%. That demonstrates the fact that individuals will respond to fiscal incentives. They will respond to one of the highest rates of personal tax in the developed world, which was the position that the UK was in.

Is not the Minister’s point thrown into sharp relief by the fact that millionaires were paying approximately £13.4 billion before that measure was introduced, and that that went down to £6.5 billion? Is it not dangerous for our public finances to start jacking up the rate and driving people out of the country, as the previous Government did?

My hon. Friend sets out some dramatic numbers. They are the correct numbers, although it would be right to say that an element of that had to do with forestalling and people moving their income around. However, Opposition Members should not take great comfort from that. They demonstrate the enormous amount of behavioural change as a consequence of high rates. That level of forestalling is striking. What is also striking is that when the previous Government made their estimate of what would happen with income, no allowance was made for forestalling whatsoever, which again demonstrates flaws with the methodology that was in place.

The hon. Gentleman makes an erudite argument, as always, and he sounds plausible, but can he not see that ordinary families, who are losing at least £500 per year, facing difficulties buying food and struggling with petrol costs, find it really hard to stomach why the Government are choosing to give £107,000 per year to people who are earning £1 million? It does not make sense to them. It does not make sense to us.

In the Office for Budget Responsibility assessment there is a tax cut of £100 million that goes to those who are paying the 50p rate.

In the same Budget package, however, there are measures to deal with stamp duty avoidance on properties over £2 million, a stamp duty increase on properties over £2 million, which is bringing in revenue, and caps on reliefs directed at high-earning individuals. So who is paying the stamp duty and not benefiting from the reliefs as before? They are high-earning individuals. They are paying for the cut in the 50p rate five times over as a consequence of the measures announced in the last Budget. That is the explanation to the hon. Lady’s constituents, and mine, of how the cut is being funded.

Will the Exchequer Secretary confirm that the expectations in the OBR’s assessment in March on income tax and VAT receipts are not being met?

The hon. Gentleman tempts me down that route, but we have an autumn statement next week on that matter, when we will hear the OBR numbers.

Obviously, my party does not agree with this measure and voted against it following the Budget statement, but, if the Treasury intends to pursue this line of argument, when will it drop the rate to 40p?

I admire the hon. Gentleman’s ambition. To be fair, he did not make this point, but, when Labour voted on this matter in the Finance Bill debates, effectively they would have got us to a 40p rate—but there we go. It was HMRC’s assessment that a reduction from 50p to 45p would be relatively inexpensive, and, given the damage the 50p rate was doing to our competitiveness, we believed it would be well worth doing. Of course, all taxes are under review, but the 45p rate remains in place.

I understand the Exchequer Secretary’s point. He calculates that the reduction in the top rate of tax has been, in his eyes, more than compensated for—five times over, he said—by the other taxes. How, then, will the reduction in the top rate of tax provide the incentive to those taxpayers he wants to domicile here? How will this fivefold increase in tax not send them rushing abroad? I thought that was precisely his point.

Very simply, different taxes have different elasticities. It is perfectly simple: people are more likely to respond to high direct rates of income tax than to stamp duty. Of course, the OBR took into account the behavioural impacts when it assessed how much revenue would be raised on, for example, stamp duty land tax. As Tony Blair sets out in his memoirs, which I was flicking through last night, direct rates of income tax are not a good way of raising income.

I thank my hon. Friend for giving way once more; he is being incredibly generous.

On the point about elasticity, is income tax not notorious for raising more revenue, the more it is cut? We saw that throughout the ’80s, when it fell from the sky-high levels of Labour to 60% and then 40%. Each time, the take increased. Is it not the case that, if we cut the rate of income tax, broadly we end up increasing the take?

It depends where we are on the Laffer curve, but, if we have the highest rate of income tax of any of the G20 economies, we are clearly in a vulnerable position. That was the position we inherited and why we were right to remove it.

I want to touch on the HMRC report laid before the House of Commons at the time of the Budget. It contained the assessment of the 50p rate. It showed that the additional rate was distortive, inefficient, and damaging to our international competitiveness, and that the previous Government greatly understated its impact on the behaviour of those affected. High earners were able to bring forward about £18 billion before the new rate came in, which the previous Government did not account for in their revenue projections. The 50p rate has failed: it has been criticised by business, damaged the UK economy and raised much less for the Exchequer than the last Government had hoped. In fact, it could have generated a net loss. The HMRC report estimates that it raised at most only £1 billion, and, when indirect taxes are taken into account, could have raised less than nothing.

The Government have decided not to stifle the economy further and to show that we are open for business, which is why we will reduce the rate to 45p from April next year. This move to 45p, based on the central estimate of the taxable income elasticity, will cost only £100 million—a small price to pay to regain some of the international competitiveness we lost as a result of the previous Government’s decisions. In fact, when indirect taxes are taken into account, this move could even result in a positive yield.

The 50p rate not only harmed our economy and contributed little to the Exchequer, but placed us in the unwanted position of having the highest statutory rate of income tax in the G20. Our decision to lower the rate will see us drop below Australia, Germany, Japan and Canada. In 2011-12, the top 1% of taxpayers paid about 25% of income tax revenues, and for over a decade our dependence on them has grown. Owing to this considerable economic contribution to the UK, each highly mobile earner who is driven out by internationally high tax rates hits the Exchequer and results in less revenue for public services.

Opposition Members might not care when internationally mobile individuals leave, but, given our dependence on high earners, we want them working in the UK, creating wealth and paying taxes, not moving abroad or retiring early. A competitive tax environment is unambiguously in the UK’s interests, and failing to act decisively as we did would be to ignore our long-term interests, as the 50p rate continued to drive high earners out of the country.

Has any assessment been made of how many people have become highly mobile and left, how many will leave and how many will come back?

The HMRC assessment set out the impacts that had already emerged. I highlighted the number of people moving to Switzerland and so on. The assessment of the behavioural impact was that about one third to half was a consequence of reduced economic activity—either people retiring or moving outside the UK. That is a considerable impact. It is not good for the UK economy, and the sooner we take steps to address it and set out plans to get rid of the 50p rate, the better.

Following on from the Exchequer Secretary’s last point, has the Treasury assessed the impact that the top rate of tax was having on dissuading foreign people from coming here?

That is also included in the HMRC assessment of the consequences for economic activity. My hon. Friend raises an important point, however: it is not just about people leaving the UK, but the fact that people would not be moving to the UK, thus damaging our reputation as a business centre. I am pleased to say that under this Government we now have a competitive top rate and corporate tax system. That is why, just this week, UBM and Seadrill announced they were moving to the UK—because it is a good place to do business, and our tax system plays a part in that.

We have taken measures to ensure that high earners make a fair contribution without resorting to punitive and populist measures that damage the economy. We have raised revenues from the most well-off in society in every Budget since we came to power, creating a fairer tax system—one where those with the broadest shoulders bear the greatest burden. That has included increases in capital gains tax and stamp duty. We have also taken a tough stance on avoidance and evasion. For example, we introduced the disguised remuneration legislation in the 2011 Budget, raising £750 million a year, mainly from higher and additional rate tax payers. That is seven and a half times the amount that was being raised by 50p as compared with 45p—and by the way, the Opposition voted against it.

In the 2012 Budget we set out policies on tackling tax avoidance. All our Budgets have included firm measures to close loopholes and strengthen HMRC’s ability to deal with tax avoidance.

If the Minister is trying to make a point about how tax loopholes are being closed, how can he possibly justify changing the controlled foreign company rules in 2013-14 to reduce the rate on multinationals with a finance company in a tax haven from the current 23% to just over 5%?

The CFC reforms are making the UK much more attractive for businesses headquartered here. The House will remember that in 2007 a number of businesses left the UK. Now some of them are returning, including UBM, which announced just two days ago that it was moving to the UK. Artificial diversion of profits is dealt with under the reformed CFC regime. The old CFC was past its sell-by date. It was unattractive and was driving businesses out of the UK. Indeed, there has been cross-party consensus on the need to reform the CFC legislation. Because of that, we are now seeing businesses moving to the UK, which I welcome.

We have taken steps to deal with tax avoidance. I would like briefly to touch on the issue of pensioners, as the shadow Chief Secretary raised it and it is touched on in the motion. The House should remember that we have seen a substantial increase in the state pension this year. Indeed, the increase has been £120 a year greater than it would have been had we stuck with the plans inherited from Labour. The abolition of the age-related allowances will not result in any cash losers. There are those who are affected by the withdrawal, but they will benefit from the largest ever cash increase in their personal allowance—a real-terms tax cut of £170. Since coming to power, we have taken steps to increase the personal allowance. That is the really big tax cut that dominated the last Budget and it is benefiting millions of people.

We have taken steps to cut fuel duty, with pump prices now 10p a litre lower than they would have been under the previous Government’s plans. We are supporting those on benefits by improving incentives to move into work and increase the number of hours they work. The introduction of universal credit will see the number of people losing more than 70% of their earnings when they move into 10 hours of work fall by 1.2 million. In addition, the single taper in universal credit will ensure that practically every household will face a marginal tax rate of less than 80% when they increase gross earnings, compared with 500,000 under the current system.

In all parts of this House we agree that those who can most afford to should contribute their fair share to the Exchequer, but those in opposition who insist that we should do that through a 50p rate that damaged our economy, sacrificed our international competitiveness and did not raise the revenues intended are making a big mistake. Those advocating a return to a 50p rate have to answer this question. Given that it will not raise any significant amount of revenue—it may even cost money—why do it? It is not about deficit reduction or economics, and it is not even about getting more from the wealthy, because there are better ways to do it; it is all about the politics. But at what cost? At a time when the UK must compete to prosper in a globalised world and when we have a choice to sink or swim, those who advocate a 50p rate are taking the easy choice—short-term populism triumphing over increased competitiveness; a traditional message of “bash the rich” prevailing over the need to attract and keep wealth creators in this country. This country’s route to success will not be through the lazy populism we have heard from Labour. Instead, we have taken steps to ensure that those with the most contribute the most, but also ensured that we have a tax system that enables us to compete on a global stage, creating a fairer tax system that still shows that the UK is open for business.

Order. There is a 10-minute limit on Back-Bench speeches. Please observe the convention of the maiden speech. Croeso, Stephen Doughty.

Diolch yn fawr, Mr Deputy Speaker. Thank you very much for giving me the liberty to make my maiden speech in this important debate today.

I can certainly say that at a time of great economic hardship and uncertainty for many hard-working families across my constituency of Cardiff South and Penarth, the actions of this Government—whether in giving tax cuts to millionaires, failing to invest in jobs or growth, or cutting front-line police officers—appear increasingly disconnected from the daily challenges that my constituents are facing. This Government often attempt to rewrite the history books to place blame for the current economic difficulties on the last Government, who in fact took crucial action at the 11th hour to prevent the collapse of our banks and financial system. What the recent crisis truly reveals is the global and interconnected nature of our financial and economic systems, and that the global is now truly the local.

I will return to those issues in due course, but I would be grateful for the House’s indulgence if I use this opportunity to follow one of the conventions of this House by paying tribute to my distinguished predecessor, the right honourable Alun Michael, who I am truly delighted to say is continuing his service to the people of south Wales as our newly elected police and crime commissioner. I cannot think of a more fitting role for a public servant who has dedicated a significant part of his life, both before entering Parliament and during his time here, to tackling crime, the causes of crime and reoffending, and in particular building a justice system that works for young offenders. Alun always had a much deeper understanding of the nature of our systems of law and order and, in particular, the words of another former Member of this House, the distinguished former Home Secretary and Prime Minister, the right honourable Sir Robert Peel, who argued that:

“The police are the public and the public are the police”.

I am confident that, as commissioner, Alun will be putting that vision of co-operation into practice.

Alun was well known for his influential career as a senior Minister at the Home Office, the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs, as Secretary of State for Wales, as the first First Minister of Wales, as an influential member of the Select Committees on Justice and on Home Affairs, and as a great parliamentarian, in this House and the National Assembly for Wales. However, I know that he would view with equal pride his work as a local councillor, magistrate and youth and community worker, making a difference at the grass roots for many young people experiencing complex and turbulent lives. My father Barry remembers with affection his time working with Alun in Llanrumney and St Mellons as part of the Army youth team in the late 1970s, and later in Ely. Both of them truly understood the importance of investing in, and engaging, with some of the hardest-to-reach young people in our society.

Alun, like me, is also a great lover of our natural environment and of the hills, mountains and coastlines of Wales. He was a strong supporter of our national parks, of right to roam legislation, of the Youth Hostels Association and of protecting our wildlife. I am sure that he will still be climbing the slopes of Pen y Fan for many years to come and that many a fox will raise a paw to thank him for escaping the cruelty of the hunt.

Alun also truly understood the diversity of the remarkable constituency that is Cardiff South and Penarth, whether in his hugely significant work with the people, Parliament and the Government of Somaliland—I wish the people there the very best in their local elections, which take place today—or in his ability to reach out to people of all faiths and of none to find common ground. He sets a truly high bar to follow. In Alun’s tradition, I am also proud to retain my constituency’s strong links with campaigning trade unions, such as the GMB, Unison and the Union of Shop, Distributive and Allied Workers, particularly as I have already made clear my strong opposition to this Government’s plans on regional pay and my support for equality in both life and the workplace, regardless of gender, ethnicity, sexual orientation or disability. I am also deeply proud to sit in this House not only as a member of the Labour party, but as a member of the Co-operative party, in our largest ever group of Members in this House. I pledge to play my part in pushing for an economy and society that needs more than ever the values of co-operation and mutualism.

In paying tribute to Alun, I am also particularly conscious of the honour afforded to me in serving a constituency that has been represented by only two Members of Parliament since the second world war. Hon. Members will no doubt be aware that Alun’s predecessor was the late right honourable Lord Callaghan, a remarkable figure in British politics of the 20th century, remaining the only MP to have held all four great offices of state. Lord Callaghan’s rise to the premiership is a story of inspiration. The son of a petty officer who had to rely on the Ministry of Pensions to pay his school fees and who left school at 17 to enter the civil service at the lowest level became our Prime Minister. “Gentleman Jim” or “Sunny Jim”, as he remains known by many, made an indelible impression on me as a child. When I was 10-years-old, my family and I were invited up for a tour of these remarkable buildings and of this House by the former Member for the Vale of Glamorgan, Mr John Smith. As we were shown around the other place, we encountered Lord Callaghan in one of the Lobbies, and were introduced. But rather than speaking only to my parents and ignoring my brother and me, Lord Callaghan spoke to us for some time, without a hint of being patronising, as an equal, and explained how he always believed that it was vital that politicians should listen to children and young people—a lesson as true today as it was then.

Like Alun and I, Lord Callaghan also understood that our values and responsibilities did not end at our borders. Early on, as a Member of this House, it is written that

“he emphasised the fact that Britain’s African colonies belonged to the Africans”,

but also

“that Britain had a responsibility to those countries it had colonised, and could not simply walk away and leave the countries to sink or swim on their own”.

I believe firmly that it is not only our moral responsibility but in our common interest to tackle poverty and injustice and to promote sustainable economic development wherever it is needed—from the streets of Tremorfa and Stanwell to Lilongwe and Lashkar Gah.

The late Lord Callaghan and I had one other thing in common. After constituency business on Fridays and Saturdays, there could only be one other priority: popping down to Ninian Park to watch the Bluebirds fly. For the record, I remain as deeply attached to the traditional blue of my football team as I am to the red of the Labour rose.

It was particularly fascinating to read the maiden speech of the late Lord Callaghan, delivered as it was in this House after the 1945 general election but while conflict remained in the Pacific region. He urged hon. Members to

“lift their eyes for a few moments from the European scene to what is happening in Asia at the present time.”—[Official Report, 20 August 1945; Vol. 351, c. 413.]

Now, 67 years later, we would do well to heed that call, albeit in a very different context. While the House will no doubt enjoy further vigorous and important debates on the future of the European Union, and on our place in it over the months and years to come, I would contend that many of the vital stories that will drive the direction of humanity in the present and in the time to come are now being written on far shores, whether in China, India, Brazil or, indeed, Africa.

The challenges that I attempt to answer on the doorsteps of Cardiff South and Penarth are more intimately connected to global events and global dynamics than ever before. We live in a world where energy or food price hikes are being driven in part by the flaws in global energy and commodity markets and where the changing patterns of demand by the billions of new global citizens in China or India might affect the price of a loaf of bread on Splott road.

We live in a world where false myths of confrontation between peoples and religions has, sadly, drawn young men—thankfully only a few—from the streets of Cardiff towards false visions of how to change the world through conflict, rather than towards the university, although their communities have stepped up to challenge that situation head on. It is a world where rapidly shifting patterns of competitive advantage challenge us daily on how to best educate and equip our young women and men to be able to secure a job and make a difference, as the old employers of the Bute docks are replaced by the internet design studio or the green technology company in St Mellons.

The people of Cardiff and Penarth have coped well with dramatic changes before, and flourished. From a sleepy village, we became the largest coal-exporting port in the world at the turn of the last century. Welsh anthracite fired the ships, built in the yards of the Clyde, that took British manufacturer to the far-flung reaches of the empire and beyond. The terraces of Splott expanded to serve the steelworks and industry flanking the busy port. Penarth was fondly known as the garden by the sea, with thousands of Victorians flocking to enjoy its beautiful views. In 1897, Marconi, the pioneer of global radio communication, sent the first wireless message over open sea, from Lavernock point near Sully across the Bristol channel to the island of Flat Holm.

People came from all over the world to our great Welsh capital, many working on those same ships and in those docks that were the lifeblood of our communities. They included Somalis from the former protectorate of British Somaliland, Yemenis and Irish, and, later still, Bengalis, Pakistanis, Ugandan Asians fleeing the horrors of Idi Amin, and many others. The prominence of the beautiful St. Augustine’s church is matched by the quiet reverence of the Alice Street mosque, one of Britain’s oldest. New estates were built in the east of the city, on the supposed lands of the infamous pirate Sir Henry Morgan, to support the families of the post-war generation. They underpin the strong communities that remain there today.

How have things changed? Thanks to the vision and energy of many local people, including my predecessor, Cardiff and Penarth are re-energising and re-visioning for our new world. Our sky and shoreline are now marked by few ship masts and furnace chimneys; instead, we see the hubs of energy and enterprise in the St Mellons business park, the wind turbine powering new green businesses in Rumney, the wave-lined roof of the new BBC Wales Drama Village, where we might just spot the Tardis or a “Holby City” ambulance, the transparency of our Senedd building where our colleagues in the National Assembly meet, and the imposing forms of the Millennium stadium and of the Cardiff City stadium, home to my beloved Bluebirds. Finally, sweeping round the corner of Penarth headland, we can see our beautiful historic Victorian pier being restored. Those are sights that mark new directions in our economy, democracy and society as well as connections to our past and our traditions.

In his maiden speech to the House, Alun Michael described our constituency as a

“microcosm from which the Government could learn many lessons.”—[Official Report, 2 July 1987; Vol. 118, c. 709.]

That sentiment remains as true today as it was 25 years ago. There is much to cherish, but there are huge challenges, too. We might have the Tardis and “Torchwood”, but we also have working families in Trowbridge struggling to get by, young people in Grangetown struggling to find a job, and older people such as those who attend the Moorland day centre in Splott, of which I am proud to be a trustee. We also have people who are finding it hard to get by in retirement, and hospital workers in Llandough fearing regional pay. This Government would do well to listen to the real experiences of the people living in my constituency. I strongly support the motion today, and I am confident that the people of Cardiff South and Penarth will join me in supporting it, too.

It is a real pleasure to follow a maiden speech, particularly that of the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I congratulate on his excellent speech. He has a hard act to follow, as he acknowledged, having had two illustrious predecessors: “Sunny” Jim Callaghan and Alun Michael, late of this House. We will all watch his career with interest to see whether the constituency can provide a trio of senior Cabinet Ministers in due course. I must warn him, however, that no one ever tells us before we come to this place how busy it is and how hard-worked we are. I hope that he will still find the time to go and see Cardiff City play, and to pursue his singing hobby, which I understand he is partial to.

Moving on to the matter of income tax, I believe that the right policy is one of fair taxes, not only in regard to the higher rates but across the piece. For me, that means taking the poorest out of tax altogether, as well as taking the middle classes out of the higher rate and not allowing them to be consumed by fiscal drag as they have been over the past decade. It also means avoiding punitive rates that drive people out of the United Kingdom altogether, and ensuring that multinationals pay their fair share of tax on their UK revenues. Putting all that together would create the system of fair taxes and tax justice that this country urgently requires.

Did Labour do any of those things when it was in office? It did not do much to take the poorest out of tax. Indeed, many of the comments from the Opposition today on our policy of increasing the personal rate to £10,000, which I hope to see, have been mealy-mouthed at best. They appear at times even to oppose it.

Does the hon. Gentleman accept that there are different ways of assisting those on lower wages? The Institute for Fiscal Studies has suggested that tax credits are more efficient than raising the tax threshold, which is very expensive. Furthermore, once people have fallen below the threshold and out of tax, they get no further help. It is at least arguable that the Government’s much-vaunted raising of the personal allowance will not help the poorest families, and that it will come at a very high price.

I prefer aspiration to the welfare dependency that Labour has offered over the past decade.

We have cut income tax for 25 million people in this country, and we are taking 2 million people out of tax altogether. I am proud that this Government have done that. We are increasing the personal allowance to £9,205 in April 2013, and I want to see it increased to £10,000 in due course. These are real achievements for the Government. It was wrong that the previous Government allowed so many people on middling incomes to get stuck in the 40p rate, where they should not have been. I hope that, as the public finances recover, we will be able to find more space to take middle-earning people out of the higher rate. They are not rich people; they are the people in the squeezed middle created by Labour when it was in power, and I hope that that situation will change over time.

The most important thing is to look at the effects of the punitive rates that Labour introduced. Let us face the facts. Today’s Daily Mail reports that about two thirds of Britain’s highest earners “deserted the UK” after the 50p top rate of tax was introduced. It found that in 2009-10 some 16,000 workers with an income of over a million quid paid tax, but that the number then dropped to 6,000 after the former Prime Minister brought in new tax rules.

I would like to congratulate my hon. Friend the Member for West Worcestershire (Harriett Baldwin) on asking the questions that drew forward these important figures. The tax paid by top earners fell from £13.4 billion to just £6.5 billion in 2010-11. That is the issue, is it not? If the rate is increased so much that it becomes punitive, people will leave the country, squirrel away their income, not declare their income, leave it in companies—personal service companies—or cash boxes where it is not subject to tax. When that happens, tax revenue is lost.

I will give way to the hon. Gentleman if he can tell me whether the Labour party, if it formed a Government, would scrap this Government’s move?

I thank the hon. Gentleman for giving way, although I am not sure that it is within his purview to specify what subject I should intervene upon. If what he says about the 50p tax rate is all true, why is it so popular with the electorate, as evidenced by poll after poll after poll?

I think the most important thing is to look at how we get the most money in. We have a massive deficit—a massive amount of debt caused by the Labour party when it was in government and overspent for years and years and years. It created a massive structural deficit in our public finances, shattered our public finances and maxed out on our country’s credit card, so we need to get the maximum amount of money in to repair that chaos, that mess, that economic mismanagement.

What we are doing today is ensuring that we say that the country is open for business, that we are interested in companies growing and doing really well and that we want to encourage aspiration, not envy. I think this is an important gulf that lies between the Government and the Opposition. As I say, the most important thing is how to get the most money in, and if we jack up the rate, as the Labour party did, we will not get more money; rather, people will leave the country and we will lose the wealth creators. That is why what Labour did with a little grenade just before it left office was so dangerous and so toxic. It did so through political opportunism, damaging the people of this country and damaging our economy—shame on it for doing so.

I thank the hon. Gentleman for giving way again. I am listening to his speech. Is the issue one of a failure of communication on the Government’s part? If everything he says is true, one would think that the public would support the Government’s tax cut for millionaires, yet every single poll shows that the 50p rate is popular.

On that basis, I am sure that the hon. Gentleman will jump up next to say that he is in favour of hanging, along with most of the British people. I do not see him or his Labour colleagues supporting that particular measure—or, indeed, a measure to leave the European Union, which is what most people in this country say they want when they are polled. I urge the hon. Gentleman to be cautious when it comes to these issues; he needs to be careful about what he wishes for.

I think that the Treasury is right to cut the 50p rate to a more sustainable level. We know it will cost £100 million, but we also know that five times that amount has been raised by taxes that are less elastic. This measure is right for the public finances and it is the right economic policy to encourage growth and prosperity in this country. It is also the case that if we cut the rate, we up the take; and I suspect the Treasury figures might turn out to be a little bit better—or perhaps it has been a little more cautious—than we think. I suspect that we might well end up with more money in the bank as a result of these measures.

Broadly, what the Government have done is right. It is important to remember that if we encourage millionaires to stay in Britain and to set up and run businesses here, they will do so far more effectively. It is important, too, for the Government to look at multinationals and ensure that they pay a fair share. We should also note that in the past decade, the Labour Government allowed multinationals to flout our tax law and not pay a fair share of tax. The reason we are talking about the super-rich—Apple, Amazon, Google and all the rest of these large combines—today is that the Labour Government let them completely off the hook. They were so determined to be the pro-business party that they did not collect the revenue from these companies that they should have done. They did not keep our tax law up to date for the internet age.

The Opposition may well want to talk about millionaires and the people who earn amounts that lead to the 50p rate, but it is wrong for them to do so while they completely let off the hook the really large businesses that have substantial revenues that they could and should pay in the UK but do not. Shame on them for that. Let us face the fact that the working nation under Labour saw income taxes rise by about 80%, whereas non-oil corporation tax revenues went up by just 6%. I do not think that is a record of which the Labour party should be proud; it is not a good record or a justifiable record, and people are very angry about the fact that Labour was completely asleep at the wheel on that score.

I think the Government took the right measure in dealing with tax avoidance by the super-rich. It is not just about the 50p income tax rate, as it is also about tackling tax avoidance. An important consultation on tax avoidance is taking place, along with the introduction of the general anti-abuse rule. It is important, too, that we are raising more money from less elastic taxes as a result of getting rid of the 50p rate. We have a package of measures, such as stamp duty land tax, cracking down on tax avoidance and introducing a cap on uncapped income tax reliefs. Reducing the 50p rate for millionaires is not the right way to approach these things; the right thing to do is to look at the inelastic taxes.

It is very revealing that we have seen interventions by Labour Members today attacking the measures on stamp duty land tax, implying that they are almost the wrong thing to do. It is important to go for the less elastic taxes and use the elastic taxes to encourage entrepreneurs, wealth creators and those who will create jobs and money. It is important, too, that the figures in the Office for Budget Responsibility report and from Her Majesty’s Custom and Excise show that the 50p rate raised next to nothing. Analysis showed that the 50p rate meant £16 billion to £18 billion of income was deliberately shifted into the tax year before it was introduced.

I have already given way.

Self-assessment receipts for 2011-12 are below the forecast by £3.6 billion and the increase from the 40p to the 50p rate raised only a third of the £3 billion that the Labour Government said it would raise. It is easy for Labour to say, “Ah, but eventually this money will pop up”—but not necessarily. The money could be kept in a personal service company, as so many Labour Members and, indeed, the former Labour Mayor of London have done, and lent to oneself with a beneficial loan, helping to avoid paying tax. People can take those sorts of measures, or they can capitalise their income and invest it in something else, meaning that the money never comes into charge. That is why super-high rates are unwise. It also means driving people abroad. That is exactly what happened: people were driven abroad by the Labour Government’s penal tax rates. Again, that is not the right thing to do. We need to look at how to repair our nation’s finances, not look at how to play politics with the politics of envy.

It is important to remember that the former Chancellor of the Exchequer said that the 50p rate was always meant to be temporary and that the Revenue has been very effective in cracking down on tax avoidance, which is where the really big numbers lie. The 50p rate does not raise a whole of lot of money and it discourages a whole load of people by sending out a negative message on the competitiveness of Britain, while the tax avoidance and evasion yield has jumped to a record £21 billion. It is important to crack down on all those tax avoiders and tax evaders, making sure that they pay a fair share.

Finally, I would like to quote what the OECD says about the effect of the 50p rate on our competitiveness and on our economy. Back in July 2010, it said:

“Consider reducing the top rate of PIT”—

personal income tax—

“which is substantially above the OECD average and likely adversely to affect work incentives and entrepreneurship, particularly of high skilled workers. Consideration should be given to reducing the top rate of personal income tax to close to 40 per cent”.

It is very telling that an international organisation is saying that a country’s tax system is going to drive people away, particularly the high skilled, highly able, highly job-creating, highly entrepreneurial people that a country most needs to have. The Government have been very brave in putting the economics before the politics in the last Budget. I commend them for what they have done and for taking the tough decisions that are right for our economy.

Order. The debate will finish at about 4 pm. So that as many speakers as possible can be accommodated, the time limit is being reduced to five minutes.

Let me make it clear that I am not against success. I believe that everyone should be rewarded with the fruit of their labours. However, it is becoming increasingly clear that the Government are in the grip of a failed economic theory—a theory which claims that tax cuts for those at the very top will somehow trickle down through society and that it is possible to go on cutting taxes and spending and that that will have absolutely no consequences.

I am someone who likes to look forward, but I think that in this instance we must look back to the last occasion on which we followed trickle-down economics. When the Thatcher Government followed that policy, they ran deficits in every year except 1988 and 1989. In 1990, we saw record business repossessions, unemployment above 3 million, record mortgage rates and record inflation, and I fear that we are going back there.

Let me tell hon. Members who say that the argument about cutting the top rate of tax is a “left versus right” argument that they are entirely wrong, because it is not a political argument. It is about something quite simple: mathematics. When we take £3 billion out of the economy, we will have to make up that shortfall somewhere, somehow. Judging by what I have heard from the Chancellor so far, I do not think that the Government are very long on detail.

The Chancellor and the Government talk about tax evasion, which has been mentioned today, including by the hon. Member for Dover (Charlie Elphicke), and they talk about going after all those people who avoid taxes. Well, I say this to the Chancellor: “Good luck to you.” Does he honestly believe that the last Government did not go after tax evaders? Does he honestly believe, when faced with people who have created byzantine systems to avoid the taxman, that it will suddenly be possible to close the loopholes? It is simply not going to happen.

People are working harder than they have ever worked before. Some are working 37 hours a week; some are doing two or three jobs just to make ends meet, and what do they see? They see food prices rising all the time. The worst effect is on their families; when they come home from work, they are too tired to involve themselves in their children’s lives. In my constituency, unemployment has risen by 429% in the past year. More people are struggling than ever before, and what do the Government do? They stand back and give tax cuts to the people who are riding in Bentleys and tax increases to those who drive vans for a living.

The hon. Gentleman is making a powerful speech, but if he is so committed to fairness in the tax system, can he tell me why, for 666 weeks under the Labour Government, the higher rate of tax was lower than it is now? How can he possibly stand up and make the case that he is making, given that his party, which was so recently in power, adopted a very different approach?

I congratulate the hon. Gentleman on his factual recall. Yes, the top rate of tax was lower, but—I do not know whether he is aware of this—we experienced something called the financial crash and the rules changed somewhat. That is the truth: things have changed. We live in a different world now, and that should be accepted. My argument, which I shall maintain throughout my speech, is that the people at the bottom are feeling the pain.

The increase in VAT is a tax on the low-paid, because everyone has to pay it; everyone has to buy goods. When I walk down Blackwood high street, I see that every retail business there has been affected by the VAT increase. VAT on food is zero-rated, but the haulier who delivers the food will pass on the increase in VAT on his petrol to the food shop, just as the increased price of cotton is passed on to the clothes shop. Not a single person has been helped. People in this country are suffering, and what do we see? We see a tax cut for those at the very top.

We hear much talk about rebalancing the economy. We are told that the economy is being built, but what this tax cut shows us is an economy that is being built not on people and products, but on perks and promises. That is the wrong message for us to be sending.

I am loth to interrupt the hon. Gentleman, who always speaks with such passion, but I wonder whether he is as angry with the Labour Front Benchers who put their names to the motion and who refuse to promise to restore the 50p tax rate and to cut VAT should they win the election in 2015, as he is with the Government. Surely he should be as cross with his Front Benchers as he is with ours.

I have a lot of admiration for the hon. Gentleman. We served on the Justice Committee together, and I admire the bit of mischief that he is trying to cause me. However, he will be aware that, as I have said before, we do not know what is around the corner. We will make judgments—I am sure that our Front Benchers will make judgments—when we win the next election; and we will win the next election.

I am also struck by the Government’s sheer stupidity. It is all very well to talk about polls and people feeling good about things. When people hear about welfare reform, they support it because it sounds wonderful—66% supported it in the polls—but let us consider housing benefit, for instance. It annoys me that because seven out of eight people who claim it are in work, they are being labelled scroungers. A cap on housing benefit will create ghettoes outside the major cities because people cannot afford to live there and it will make more and more people homeless.

The one thing that the Government need to learn is that someone, somewhere, will have to pick up the bill, whether it is the taxpayer or the hard-pressed charity. We do not live in a consequence-free society. It is not possible to go on cutting taxes and cutting spending without something going wrong. I am deeply concerned, because people out there are crying out for change and the Government are in the way. It is time that we started building a society and an economy in which hard work is rewarded and people can flourish once again.

It was a privilege to be present for the maiden speech of the hon. Member for Cardiff South and Penarth (Stephen Doughty), who spoke eloquently and passionately about his local area. The picture that he painted has made me eager to take the first possible opportunity to visit his constituency.

Let me begin with a small maths problem that I often pose to students in my constituency. If income tax rates were set at zero, how much income tax would the Chancellor raise? The students always get the answer right: it is zero. I then ask this question: if the Chancellor set the income tax rate at 100%, how much more income tax would he raise? Usually, someone will put his or her hand up and say, “He would raise a lot more.” I should welcome an intervention from any Opposition Member who has a view on how much income tax the Chancellor would raise if the rate was set at 100%.

Giving such an extreme and ridiculous example is unhelpful, as I think the hon. Lady is well aware. No Opposition Member is suggesting that the income tax rate should be 100%.

I seem to recall that in my lifetime—under the Government of, I think, the predecessor but one of the hon. Member for Cardiff South and Penarth—income tax was set at more than 90%. If it were set at 100%, we should have no income tax revenue, because no one would consider it worth while to work.

I then ask my students what would happen if we lowered the rate of income tax from 100% to 70%. Would we raise more or less revenue? Again, I should welcome interventions from Opposition Members. Everyone realises that we would raise more revenue, because if the rate was 70%, we would take home 30p in the pound. I notice that the new socialist Government across the channel recently introduced that income tax rate. We will see how that stacks up over time, but I expect that it will prove to be a deterrent to additional work, too.

The motion contains the seeds of its own mathematical inconsistency, because the Opposition are extrapolating a linear relationship between the income tax rate and the amount of income tax revenue raised. They are also extrapolating that those who can, in what is a global market, take their labour to any other country in the world will not take into account any difference in tax rates between the UK and other nations, yet all the evidence shows that that is not the case.

The Labour motion refers to 8,000 people paying income tax on income of £1 million or more. In 2009-10, which is the last tax year in which we had the 40p tax rate, some 16,000 people had an income of £1 million or more. Through raising the tax rate from 40p—a rate that was in place for all but one month of Labour’s entire 13 years in office—we can see that millionaires can do other things with their income. They can take their entire labour overseas, or they can decide to shelter their income or not to take a dividend that year, or they can use any of the other methods to ensure they do not pay that increase in income tax. There was a reduction of £7 billion in revenue after the income tax rate went up from 40p to 50p.

I think that I have already taken two interventions, and I have only a minute and a half, unfortunately.

The Government have reduced the number of ways in which people on high incomes can reduce their taxable earnings. The Opposition opposed measures to reduce the amount people could put into their pension fund from more than £250,000 to £50,000. I also voted for the abolition of disguised remuneration, which was quite rampant under the previous Government. That also serves to limit the ways in which people on high incomes can reduce the amount of income tax that they pay.

The relationship between the rate of income tax and the amount of revenue raised by the Chancellor is non-linear. Between 0% and 100% there is a curve, and we need to agree about the optimal point on it—the point where the Treasury can get the most revenue from those at the highest end of the income spectrum. I suspect that 45p will be a lot closer to that optimal rate than 50p was.

The Government are focusing on tax cuts for those who are on the lowest incomes, lifting them out of income tax, and ending this tax cull on millionaires.

First, I congratulate my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) on making such an extraordinarily good maiden speech. It was elegant, forceful, confident and amusing, and it had a global sweep, covering most of the current political agenda. I am sure that we will hear a great deal more from my hon. Friend, and I wish him well.

The basic reason why the 50p rate decision is so unfair is that the very rich caused the financial crash, yet those at the top of the banks have hardly suffered at all, while the rest of the population are having to fund the bail-out and are now paying the price in rising unemployment, shrinking incomes and reduced services. To cap it all, in those current circumstances of austerity, the Chancellor flagrantly and provocatively cut the 50p tax rate to give the 1% very richest in the country—those on more than £3,000 a week—an average £10,000 tax break, including giving 14,000 millionaires a gift of £40,000 each, which is an extra £800 a week.

The Exchequer Secretary gave two reasons for doing that, one of which was that not much money will be lost as a result, but Her Majesty’s Revenue and Customs report on the 50p rate reduction plainly states, in table A2, that the Treasury will forgo £3 billion as a result.

Does my right hon. Friend think the Government’s rush to judgment on the effect of the 50p rate decision will be as good as their rush to judgment on the value of the future jobs fund?

My hon. Friend makes her own point. It is very difficult to reach a final conclusion on this matter, because of forestalling and because this change is seen as temporary. The very rich will, therefore, ensure that most of their income is put forward until the rate is lowered.

I believe that second or third homes—and all other non-primary homes—should incur a higher rate of tax. I never supported the discount given for second homes, which has now been raised to a level nearly equal to that for first homes, and there is a case for the rate for empty homes being raised above that.

As I was saying, HMRC’s report shows that the loss will be £3 billion a year, as opposed to the sum that the Exchequer Secretary kept on talking about today: the £100 million that Treasury Ministers signed off originally, on the basis of arcane taxable income elasticity calculations, about which the Government’s own Office for Budget Responsibility said there was huge uncertainty.

A table given in Hansard on 25 April this year, at column 898, is also interesting. It shows that 80% of those earning more than £1 million paid more than 40% in tax. In other words, tens of thousands of people were—and are—paying the 50p tax rate. They were unable to dodge it. That is an important point, because it serves to destroy the Government’s argument that the 50p rate is a very inefficient method of raising tax revenue and that its abolition will have a negligible effect. I think it will have a very significant effect.

The Exchequer Secretary’s other argument in support of cutting the 50p rate was the old Thatcherite canard—which he stated repeatedly in his speech—that we should not tax the wealthy more because we depend on them for our future. That is the old trickle-down theory. However, we know that the opposite is, in fact, the case. Over the past 30 years, there has been a steady trickle-up effect. There has been a ballooning of inequality, with most middle England incomes having stagnated. That would not be so bad if the trickle-up effect made us more competitive.

The fact is that since 1987, when the top rate went down from 83% to 40%, we have not had a surplus on our current account in the balance of payments for the past 35 years. Our share of world trade was 6.5% in 1970, but it has dropped by two thirds to just 2.3% and our deficit on traded goods last year was £100 billion. That is a monument of uncompetitiveness.

Not only did the Chancellor originally impose £18 billion cuts on the poorest families in the country, but he is now proposing a further £10 billion of cuts to fill the gap left by his failed deficit-cutting policies. The housing benefit cuts that are coming in next April will remove thousands of families across the country from their homes because they simply will not be able to pay the rent. The disability living allowance cuts will leave thousands of disabled people housebound. Atos is cutting a swathe through thousands on incapacity benefit who simply cannot get a job. The poor are being punished for what they did not do, and the rich, who have a great deal to answer for, are almost getting off unscathed.

The second reason for keeping the 50p rate is that the very rich are in a far better position at this time to contribute to meeting Britain’s needs. According to The Sunday Times rich list published this April, the richest 1,000 people—a tiny group who make up 0.003% of the adult population—racked up gains in the past three years of austerity of £155 billion. If those gains were charged to capital gains tax, about £40 billion would be raised. Perhaps the real figure would be less and only £20 billion or £30 billion would be raised, but if it were well invested, it would be enough to kick-start the economy and begin to reduce the deficit in a way that we need to do—by real growth.

The third reason for keeping the 50p rate is the real anger building up across the country about what rich individuals and rich multinationals are getting away with on tax avoidance. I return to the Exchequer Secretary’s table, because it shows that 9% of those earning more than £10 million, which is more than £200,000 a week, paid tax at a lower rate than their cleaning ladies—

I am glad to join others in saying how pleasant it was to listen to the new hon. Member for Cardiff South and Penarth (Stephen Doughty). I am well familiar with various parts of his constituency from family visits. It is nice to welcome another Welsh Stephen to the Chamber; I just wish our accents were as mellifluous as the hon. Member for Islwyn (Chris Evans).

We are discussing an Opposition motion, so let us examine the Labour party’s record when in office. In 1997, Tony Blair said that there would be no increase in the basic rate or the top rate of income tax while he was Prime Minister. As the Exchequer Secretary was saying, the Labour Government were in office for 13 years—for just over 4,700 days—and it was only in the last 35 days that the top rate of tax was increased to 50%. To put it another way, only one of the 156 pay slips that higher rate taxpayers would have received in that period would have shown an increase in their taxation. That suggests that the Labour party had no record of action and no philosophical appetite when it was in government and had the opportunity to do these things for higher taxes on high earners.

On tax relief for high earners Labour also had a lamentable record compared with its rhetoric today. It increased the relief for higher rate taxpayers to set against their pension contributions; people could put £215,000 into their pension fund and get higher rate tax relief in 2006, but that had been raised to £255,000 by 2010. The capital gains tax rate that Labour inherited in 1997 from the previous Government was 40%, but that was reduced steadily to 18% by the time Labour left office. On the lowest paid in society, the 10p rate of income tax was introduced in 1999, with the then Chancellor saying it was a measure to help the low-paid. I agree with that, but unfortunately he scrapped it in 2007, to loud cheers from his Labour colleagues—I well remember witnessing it from the Opposition Benches—because that tax rise for the lowest paid was financing tax cuts for those on higher earnings. Such is the record of the Labour party when it was in office.

Does my hon. Friend agree that it is really unusual that under a Labour Government in power for so long the rich became richer and the poor became poorer?

My hon. Friend says it is unusual, but I would say that it should not be surprising, given what Tony Blair said would be the intention of his party while it was in office. Of course, that gives us another opportunity to remind ourselves of Lord Mandelson’s comment that new Labour was

“intensely relaxed about people getting filthy rich”.

Let us compare the Labour Government’s record with what the coalition has done. Liberal Democrat priorities in the coalition are twofold: tax cuts for the lowest paid and effective taxes on the wealthy. We have seen the £10,000 tax-free threshold go from the front page of our manifesto and election leaflets through to the coalition agreement and it is on course for delivery within this Parliament. We will have raised the tax threshold from £6,475 steadily towards £10,000 possibly within four years and certainly within five. In the previous decade under the Labour Government, the tax threshold was raised by just £2,090. Under the coalition, more than 20 million people will have a tax cut of up to £700 and 3 million will have been raised out of income tax altogether. That disproportionately helps people who work part time, who are disproportionately women, and is particularly effective in helping the young. Indeed, a young person on the minimum wage can now work full time without paying any income tax. That is a huge difference from the position we inherited.

I am listening very carefully to what the hon. Gentleman is saying. Would he support urging the Government to change how they will approach universal credit? Under the new rules, people will be assessed on their post-tax income and as a result for every £1,000 increase in tax allowance people on tax credit will receive only £70. Would he support an amendment or a change to that?

I think that universal credit will be seen in time as a major piece of welfare reform, sitting with what the 1945 Labour Government and 1906 Liberal Government did, and will have huge significance in simplifying the benefit system. Surely the hon. Lady, like me, will have visitors in her surgeries who fall between the stools of council tax benefit, housing benefit, jobseeker’s allowance, employment and support allowance, and all the others and who ask her to sort that out for them. The Government are making progress on that. There are intricacies to sort out—I grant her that—but the reforms are yet to be brought in and I hope that there is still time to ensure that the system, when it starts, genuinely helps the most vulnerable in society, which we certainly want to see.

The top priority for the Liberal Democrats in this coalition is the £10,000 tax-free threshold. That is now the flagship policy of the coalition and both parties should be pleased that it is being delivered, but we also want to see effective taxes on the wealthy. The Government have already raised the rate of income tax from the 18% we inherited to 28%. We have raised stamp duty on properties worth more than £2 million from 5% to 7%. That is an extra £40,000 of stamp duty that someone will pay when acquiring a property worth £2 million or more. We have also imposed a 15% surcharge stamp duty to discourage the tax avoidance that was rife under the previous Labour Government, when people used corporate vehicles to acquire personal property. We have effectively put measures in place to block that. Of course, I now want the Government to go further and to see whether in our next couple of Budgets we can get an effective mansion tax and annual wealth tax in place.

When the announcement was made in this year’s Budget that the 50p top rate would be reduced next year to 45p, the Chancellor ensured that other measures put in place would raise five times as much revenue as was predicted to be lost as a result. I am interested in having an effective top rate of income tax and 45% compares well with the international situation. In Germany, the top rate of tax is 47.5%, but it bites only after about £208,000 of income. In the US, the rate is roughly 42% in the states that have the highest rates of taxation, but it bites only at £240,000. In France—I am surprised that Opposition Members have not mentioned President Hollande more often—the top rate of tax is 41%, lower than the 45% that ours will be next year, whereas the 75% that he talks of introducing will be only on incomes of more than €1 million if it is introduced in 2013.

Rates and thresholds are effective only if taxes are collected, which is why I am pleased that the Treasury has set up an affluence unit to target people who have assets and income of more than £1 million and why we are introducing a general anti-abuse and anti-avoidance rule, for which I have called for many years. That action has been taken by this Government and was dismissed by the two Chancellors of the previous Government.

When Labour was in office, it made a virtue of low taxes on the wealthy and high earners. The coalition has slashed tax for the poor, has effective taxes in place on the wealthy and is cracking down on tax avoidance. I know which record I prefer.

I approach the debate from a different angle from some Opposition Members. I am sympathetic to the view that we ought to aim for a low-tax economy, which offers benefits. Only this week in Northern Ireland, we announced tax cuts for small businesses. Measures that we announced six months ago have had an impact in creating jobs. Fifty-two new businesses have started, and over 100 jobs have been created in return for a modest reduction in tax revenue. We are also seeking the devolution of corporation tax, so that we can introduce a lower corporation tax rate.

As I have pointed out to Members of the Northern Ireland Assembly, all of that means that there are certain things that we cannot do. We have to find efficiencies in public spending, and there are things on which we cannot spend money. The logic of the measure is accepted by Sinn Fein, which supports it, although some of its members are probably to the left of Labour Members.

However, I oppose the measure that the Government introduced to reduce the top rate of income tax for the best paid. I do not believe that the cost will be as low as the Government said. The Minister said that it will cost £100 million, but that figure is surrounded with lots of conditions and caveats, such as notions about how tax changes are sensitive to how people behave. As the Office for Budget Responsibility has pointed out, estimates of tax income elasticity vary from 0.35% to 0.48%, which is a difference of nearly 40%. Whatever the assumptions about behavioural consequences—whether people will move back to the United Kingdom or stop moving out; whether they will stop avoiding tax or keep using existing measures—given the cost of moving back or changing pension or retirement arrangements, it is unlikely that the impact will be as great as suggested.

Even if the measure were correct—the hon. Member for Dover (Charlie Elphicke) said that he was glad that the Government had divorced politics from economics in making that tax decision—we should not introduce it at a time when we are telling people across the United Kingdom that they have to tighten their belt, spend less and accept that they will have a lower income. We are saying that to pensioners, to lower-paid people and to people on middle incomes. We cannot send out a contradictory message that that is okay for people at the lower end of the income spectrum, but not for people at the higher end. If the Government really want to sell their message of austerity, that message must be clear so that people know that everyone will be equally affected. If a pensioner faces a £7 weekly decrease in their pension and a millionaire gains a £2,000 increase in their weekly income, people will not take the view that we are all in this together.

The politics of the measure is important. The Government might believe that low taxes can stimulate the economy because they will attract the rich to the UK, where they will create jobs, but it has been proven that other tax cuts costing an equal amount would provide a far greater stimulus to the economy. For the same price as reducing the top rate of income tax for the top 1%, we could reduce VAT on extensions on premises to provide jobs in small businesses in the building industry. There is much greater price elasticity in demand for that activity, as has been shown, so such a measure could provide a much greater stimulus.

The policy is wrong economically; it is wrong politically; and it is wrong on the basis on which the Government have tried to sell it. For that reason, I support the motion.

I start by congratulating my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty). He has two hard acts to follow, but he made a great start today and long may he continue.

On a point of clarification, the hon. Member for Beverley and Holderness (Mr Stuart), who is no longer here, said that my party had chosen the debate today because of the way it is funded—by the trade union movement. Can we be very clear? The funding that goes to the Labour party is dictated by rules and laws that were written mainly by the Conservatives and the arrangements are transparent and open to scrutiny. Let us also be clear that none of the people who donate to the Labour party has been in jail, unlike Michael Brown or Asil Nadir. Those two people were given back the money that they stole by the Conservatives and Liberal Democrats. Those two parties can have no credibility at all when they talk about paymasters.

I have been paying income tax since 1969—I know it is hard to believe, Mr Deputy Speaker, but I have—and I am quite happy to pay my share, but everybody else should be paying their share as well. It took a long time coming, but the hon. Member for Dover (Charlie Elphicke) said it—that this debate is about the politics of envy. It is not about the politics of envy; it is about the politics of fairness, and what is right and what is wrong.

The parties in government have a raft of policies based on the so-called politics of fairness. They believe it is fair to cut benefits, fair to sack 750,000 public servants, and fair to move people out of homes that they had lived in for decades just because the children have moved out. They think it is fair to sign sick and disabled people off the sick list if the incentivised company that they have employed says that that is the right thing to do. They think it is fair to make people work longer, pay more and receive less for their pension. They think it is fair to slash people’s living standards, fair to force young people to go to work for nothing on workfare schemes, and fair to treble the cost of going to university.

But now the Government also think it is fair to do other things. They think it is fair to tell 4.5 million pensioners that in a year’s time they will be losing £83 a year. People who have contributed all their lives will be paying more because of the Government’s failure. The Government think it is fair to tell thousands of people who are just turning 65 that, despite promises that reinstating the pensions link would be good for them, they will lose more than the amount of the pension rise—they will be losing more than £300 a year. They think it is fair to tell hard-working families struggling to bring up kids that from next year they will be more than £500 a year worse off.

Why do they think all that is fair? Because they want to give their pals a 100-grand backhander. There are 8,000 of them, so that is an £860 million giveaway to their friends, people who are raking in at least £1 million a year. This is the face of the modern Tory party and it is no different from the old one, except for the back-up by the yellow-livered Liberal Democrats. This is their way of looking after themselves, their pals in the City and the millionaires of this country. They want to give themselves a nice little six-figure Easter egg from the public purse, from a public worn out by cuts and austerity, and they are being supported every step of the way by the so-called nice guys, the Liberal Democrats.

Fairness? The Conservatives do not know the meaning of the word. This is not the politics of fairness and it is not the politics of envy. It is the politics of greed. It is the politics of a party intent on dismantling the consensus that has existed in this country since the end of the war. They are intent on slash and burn, and on feathering their own nests in the name of the people who bankroll them. This is the action of members of a party who do not care who they hurt, as long as it is not their kind.

The real sadness is that this is not new. It is the same kind of attack as they carried out in the 1930s when they destroyed communities throughout the country where people were living in desperation, despair and depression. It is the same kind of attack as in the 1980s when towns such as the one I lived in were wiped off the face of the earth, with debt, drugs and depression replacing years of hard work and people living in good quality communities. We saw crime going through the roof. We in the north-east of England became the car crime capital of the world. Burglary was commonplace, while the Tories were lighting cigars with £5 notes, swapping their Quattros for Porsches, and having battles to see who could spend the most on a bottle of Bolly.

They believe in a two-tier country, in two-tier government and in a two-tier, class-ridden ideology. It is the same old story with the same old Tories, backed by the Liberal Democrats. In this together? Not a chance!

We have certainly had an interesting debate. The planned cut in the 50p rate of tax is still what this Government will be remembered for. At a time when families with children are being hit by cuts to tax credits, when VAT has been hiked and when pensioners are being hit by the granny tax, the Government have chosen to spend almost £3 billion on a tax cut for the richest 1% of the population.

As many of my hon. Friends have stated passionately in different ways today, the tax cut will be worth a staggering £107,500 on average for 8,000 people earning more than £1 million a year. It is staggering for members of the public. The decision to go ahead with the cut is even more staggering when we consider the fragile state of the economy. With growth at just 0.6% since the comprehensive spending review, rather than the 4.6% the Chancellor predicted, the Government’s economic plan is clearly failing. Prioritising the tax cut in these circumstances shows just how out of touch the Government are.

The Prime Minister and the Chancellor used to agree with us on that point. Before their omnishambles Budget of 2012, they repeated at every opportunity the view that a tax cut for the richest would not be fair in such difficult economic circumstances. The Chancellor said in November 2009:

“I cannot even consider lifting”

the 50p rate

“while I’m asking others in the economy to bear a burden.”

The Prime Minister said in November 2011:

“I have been very clear and we have all been clear, we have to try to do this in a way that is fair so that the broadest backs bear the biggest burden. That is why we haven’t changed… the 50p tax rate.”

The Deputy Prime Minister said in September 2011:

“At a time when millions of people who play by the rules, work hard, pay their taxes and try to look after their families, it would be incomprehensible to them to have a government which actually says our priority is to lower the tax burden on the top 1% of people who aren’t in the same position of distress.”

It has not been said for some time, but I agree with Nick. This move is indeed incomprehensible to those who are feeling the squeeze. They do not understand why the Government want to spend £3 billion at this time on a give-away for the very richest.

Labour Members have expressed clearly today that they do not understand why the Government have done this either, and we heard some powerful contributions that showed the strength of feeling. I want to pay particular tribute to my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty), who gave a real tour de force in his maiden speech, which took us from the shores of Wales to the far-flung parts of Africa but all the time emphasised the impact the Government’s policies are having on the constituents he is so proud to represent. My hon. Friend the Member for Islwyn (Chris Evans) made a characteristically passionate speech that expressed the voice of ordinary people who are concerned about this policy.

We also heard from Government Members. The hon. Member for Dover (Charlie Elphicke) brought up the politics of envy, although my hon. Friend the Member for Blaydon (Mr Anderson), rebutting that claim passionately, stated that this is about the politics of fairness. The hon. Member for West Worcestershire (Harriett Baldwin) subjected us to a rather dubious maths lesson, and I fear that she highlighted the dubious “back of an envelope” approach that the Government seem to be taking to their tax calculations. I pay tribute to all Members who have contributed to the debate, but particularly Opposition Members, who forcefully made clear the feelings of constituents up and down the country who are concerned about the choices the Government are making.

New figures released today show that just 27% of the public agree that the Chancellor has proved since 2010 that we are all in this together. Indeed, the Government have not even persuaded their own supporters, only 51% of whom are on board. Just 23% of women feel that we are all in this together, which is hardly surprising, given that 85% of the top rate taxpayers who will benefit from the tax cut are men. It is abundantly clear from the impact of the tax cut that we are not all in this together. The Government are planning to raise £3 billion, almost exactly the cost of the 50p tax cut, through the granny tax. Millions of pensioners are set to lose an average of £83 in 2013-14, while those just turning 65 will lose more than three times that amount.

Families with children are set to lose an average of £511 as a result of the Government’s policies, and that comes on top of the damaging VAT rise, which will cost them up to £450 a year and a pensioner couple £275 a year. Working couples with children earning less than £17,000 on average will lose their working tax credits, worth up to £3,870, if they have not been able to increase their working hours. It is clear that families are paying a much higher price than the banks. I think it was my hon. Friend the Member for Leeds West (Rachel Reeves) who pointed out that the Government seem to believe that the poor will work harder if we cut their incomes, but that millionaires will work harder only if we cut their tax. It does not stack up.

Where will this extra work come from? Welfare bills are going up, not down, because there is simply no plan for jobs and growth. We heard yesterday that the Work programme is performing worse than if it did not exist. Only two in every 100 participants are getting jobs through the programme. That is in stark contrast to the future jobs fund, which the Department for Work and Pensions itself confirmed gave a net gain to the taxpayer of more than £7,000 per participant. This Government scrapped the fund, left nothing in its place and then gave us a double-dip recession. There is also increased borrowing and rising long-term unemployment, yet the Chancellor’s priority is still to spend £3 billion on a tax cut for the richest 1% of the country. It is the wrong priority at the wrong time.

Government Members have tried to argue today that the 50p rate was not working, yet the Office for Budget Responsibility has said that the Government’s projected figures on the yield are “highly uncertain”. We have discussed that at length today. The Institute for Fiscal Studies stressed:

“If the future of the 50p rate is to be determined on the basis of evidence about its impact, then Budget 2012 will be too soon to form a robust judgement.”

Despite the Prime Minister’s claims that the top rate of tax has not raised any money, the Treasury’s own figures show that higher-rate taxpayers have been paying the tax.

In next week’s autumn statement, the Chancellor has a chance to change direction. He can scrap the tax cut for millionaires and focus on getting the economy—which is putting more people on the dole and seeing borrowing going up, not down—off its knees. Now is not the time to give handouts to the top 1%; it is time to give a real hand up to the hard-working majority of the people of Britain.

It is a pleasure to respond to this debate, not least because of the maiden speech made with such distinction by the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I warmly welcome to the House. He spoke in a way that was assured and fluent and with a degree of geniality that I think will make him many friends throughout the House. I have one issue of contention with him. He outed himself as a fan of Cardiff City and, since they are locked in a promotion battle with my hometown club of Middlesbrough, that will be a point of disagreement between us during the weeks and months ahead.

Call me naive, but I had hoped that, during an Opposition day debate, we might have heard something—anything—about the Opposition’s policy, but sadly it was not to be. At the end of this debate, their economic policy is, if possible, even more obscure than it was at the beginning. There are four fundamental matters crucial to this debate that both shadow Ministers—the hon. Members for Leeds West (Rachel Reeves) and for Newcastle upon Tyne North (Catherine McKinnell)—failed to address.

The first could not be more basic. What do the Opposition believe to be the purpose of the 50p rate of income tax? Is it to raise revenue, to punish the rich, as the right hon. Member for Oldham West and Royton (Mr Meacher) has said, or to serve as a piece of rhetoric? We need to know, because if the Opposition are clear that its purpose is to raise money, will the hon. Member for Newcastle upon Tyne North say—she is welcome to intervene—whether they will drop their support for the 50p rate if the evidence continues to support our assessment and those of HMRC and the OBR that it raised very little indeed and would be likely to cost the public purse even more? Will she be clear—is the argument that the rate raises money the criterion for the Opposition’s support for it, or is it a price worth paying just to send a message that they want to soak the rich?

Secondly, do the Opposition accept, in the words of HMRC, that

“high tax rates in the UK make its tax system less competitive and make it a less attractive place to start, finance and grow a business”?

Do they accept HMRC’s assessment that high taxes are bad for the international standing of the country? I would be pleased to take an intervention from the hon. Lady. My hon. Friend the Member for The Wrekin (Mark Pritchard) asked the shadow Chief Secretary whether she subscribed to that view, and she could not answer. Is tax competitiveness important to the Opposition? We do not know. In their view, does it matter if the UK has the highest tax rate in the G20? Is that a concern or not? Does it make a difference to British competitiveness? The last time the hon. Member for Pontypridd (Owen Smith) was asked he said, “I don’t know.”

The third issue is whether the Opposition agree with the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who said that this measure should be only temporary. We have had no clarity on that from Opposition Front Benchers.

The fourth matter that the Opposition need to consider, given that they regard this tax as being so crucial—so totemic—that they wanted to call this debate about it, is whether they will send a clear message that they would restore it if they came to power. Again, we have silence. Let us bear in mind that we are now in the second half of the Parliament, and the time for posturing and procrastination is over. The time has come for the Opposition to tell the country what they would do in government—or do they simply not have the courage to face up to the need to be straight with the British people? I strongly suspect that this will be one of the last occasions when we debate the 50p tax rate as it gets shuffled off to the retirement home of meaningless gestures that the Opposition no longer have time and use for.

Labour is, to its core, the party of tax and spend, and, to be fair, it takes a very consistent view of both sides of the equation. With regard to spending, it is always a matter of “How much?” and not “To what end?”—of inputs, not outcomes; of the number in the headline on the press release, not what is achieved with the money. On taxation, too, for Labour it is all about the price tag—the headline rate, not the revenue actually raised, nor, indeed, the amount of tax that the wealthy actually pay. The top rate of tax paid by the rich in all but the last month of the previous Government was lower than what they pay now. The top 1% of earners now contribute over 27% of income tax revenue—far more than they did under Labour—and the effect of this year’s Budget is to take from the richest five times what they gave through the reduction of the 50% rate.

Of course, the tax system that we inherited from the previous Government was a mess—a typically socialist tangle of tripwires and loopholes which, as my hon. Friend the Exchequer Secretary made clear, we are taking action to close. Too much of the money made under the previous Government was in keeping with the ethos of the previous Government—short term, reckless and unsustainable; the boom before the bust. In future, if there is money to be made it will be done in the responsible way, through real enterprise and real innovation. As we seek to rebuild a productive economy on the ruins of Labour’s cardboard economy, this is the worst time to punish the producers, innovators and entrepreneurs on whom our future depends.

If the Government are doing so well on the economy, why has it shrunk over the past year, and why is Government borrowing now rising, not falling?

The hon. Lady will be aware that the record structural deficit in the G7 bequeathed by the previous Government has been paid down by a quarter.

As we seek to rebuild our productive economy, Labour Members know all about the power of the headline figure—that is why they have made such big play of the top rate of income tax. It is interesting that the shadow Minister was more familiar with the opinion polls than with the cost of this measure to the economy. If they think that it plays well to the gallery, then how do they think it plays to those who might or might not want to invest in this country, and who might create the new private sector jobs that a financially exhausted public sector can no longer pay for?

For our part, we want to create an economy in which those who prosper most are those who are best at creating wealth for all. That will require moderate tax rates, properly enforced, and the long, hard slog of tax reform and simplification. As in so much else, we have chosen the difficult path but the right one. Today’s debate provides further proof that Labour has made the opposite choice. As always, the politics are cheap but the consequences would cost our country dear.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

Question put forthwith (Standing Order No. 31(2)), That the proposed words be there added.

Question agreed to.

The Deputy Speaker declared the main Question, as amended, to be agreed to (Standing Order No. 31(2)).


That this House notes that the previous administration maintained the top rate of income tax at 40 per cent for 13 years, only increasing it to 50 per cent in April 2010, one month before the Government was formed, and that this new rate was damaging to UK competitiveness; further notes that the independent Office for Budget Responsibility certified the Government’s central estimate that reducing the 50 per cent rate to 45 per cent would have a cost to the Exchequer of £100 million per year and that measures introduced at the last Budget increased taxes on the wealthy by some £500 million; recognises that in contrast to the previous administration that abolished the 10 per cent rate of tax which increased taxes on more than five million low earners, the Government is cutting income tax for 25 million low and middle earners while taking two million low-paid people out of income tax altogether through increasing the tax free personal allowance; recognises that every Budget under this Government has increased taxes on the rich, including a new stamp duty land tax rate for properties over £2 million, an annual charge on these properties, introducing a cap on previously unlimited income tax reliefs and an extension to the capital gains tax regime, clamping down on tax evasion and aggressive tax avoidance, and bringing in a General Anti-Abuse Rule; and welcomes the introduction of the Triple Lock, which led this year to the biggest ever cash rise in the state pension.