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Taxation: Deficit Reduction

Volume 721: debated on Thursday 28 October 2010


Asked By

To ask Her Majesty’s Government how far they expect increased income tax and corporation tax revenues to contribute to the reduction of the deficit.

My Lords, the Office for Budget Responsibility’s Budget forecast shows that income tax receipts are forecast to be 10.2 per cent of GDP in this fiscal year and 11 per cent of GDP in 2015-16. The OBR has forecast corporation tax receipts to be 2.9 per cent of GDP this fiscal year and 3.2 per cent of GDP in 2015-16.

My Lords, I thank the Minister for that reply but I hope that I may translate his figures into actual cash. Will he confirm that the Red Book, which fully anticipated the cuts announced last week, states that, as compared with the Labour Government’s plans, there will be a reduction in income tax and corporation tax revenue each year until 2014, when the cost will be £5 billion, and that is on top of another £5 billion as a result of lower national insurance contributions from employers? That adds up over the period to no less than £40 billion. Will he also confirm that that £40 billion is additional to the direct Exchequer cost of extra unemployment payouts, forecast by the Office for Budget Responsibility to be higher in every year through to and including 2014, as compared with the Labour Government’s plans?

My Lords, as compared with the Labour Government’s plans, an awful lot of things have changed. The first is that we have a credible deficit reduction plan. We have yet to hear the Opposition’s plans on that. There will be a reduction in public spending of £81 billion by 2014-15, but, critically, we need growth, and so 77 per cent of the deficit reduction plan will come out of a reduction in spending. We absolutely want to keep the pain of increased taxation to a minimum. That is why it is absolutely critical and right that our taxation plans aim for lower revenue than do the Opposition, because that is what is required to get growth in the economy going.

My Lords, will my noble friend confirm—as I think the noble Lord, Lord Myners, did before the election—that the actual revenue from increasing the top marginal rate of tax to 50 per cent is very much less than was anticipated? Is that the case? Will he also confirm that the lesson of the 1980s, and of the experience of other countries around the world, is that if you want the rich to pay more in taxes, you do that by cutting rates, not increasing them?

I am very grateful to my noble friend. I completely agree with his sentiments. This is not a Government who believe in medium and long-term high marginal rates of taxation. We have to incentivise the private sector to go out and generate wealth in order to deal, among other things, with the rebalancing of the economy which is now so necessary.

My Lords, does the noble Lord really expect us to believe that engineering a wholesale reduction in demand in the economy is the way to prepare for growth? Will the noble Lord be candid and say whether he considers that the Government are more politically vulnerable on account of their failure to provide growth, or of their failure to provide fairness?

My Lords, I will cite the latest figure this week for quarterly growth in the economy. The naysayers said that growth in the last quarter would be 0.4 per cent, but it was 0.8 per cent, coming on top of 1.2 per cent in the previous quarter. With more than 300,000 new private sector jobs created in the second quarter, that is the way in which we will deal with the economic situation.

My Lords, I am sure that the whole House will welcome the announcement this week of an agreement between the UK and Switzerland to tax adequately for the first time bank accounts held in Switzerland by UK citizens. Will the Government press for these accounts to be taxed at 50 per cent, equivalent to what these people would be paying on their income if they were living here and their accounts were here?

I am grateful to my noble friend for drawing attention to the fact that the Government have made a very significant breakthrough in combining the need to get proper tax receipts for bank accounts held in Switzerland with the Swiss Government's understandable concern about banking secrecy. We will have to wait and see what the final details are, but it is a major breakthrough.

My Lords, will the Minister update us on the issue of anti-avoidance provisions, and in particular general anti-avoidance provisions? The June Budget book says that the Government will engage informally with interested parties. Does not engaging informally display a certain lack of seriousness? Will the noble Lord share with us who these interested parties might be? Are they the big law firms, the big accountancy firms, the non-dom community or the international banks?

We are consulting widely in the way that is described and we will come forward with proposals in due course. In the mean time, we have allocated an additional £900 million of expenditure to HMRC over the spending review period, which is expected to result in annual revenue increments of £7 billion by the end of that review period. We are taking action very quickly in this area—much more so than did the previous Government.

My Lords, will my noble friend choose his words a little more carefully at times? Is it not a fact that in every year through the period of this public expenditure survey, public expenditure will increase and not reduce?

My Lords, I will try to be very careful with my wording and simply agree absolutely with what my noble friend has said.

My Lords, the Minister is responsible for the efficiency of his department and he will know the calamitous position that Her Majesty's Revenue and Customs was in earlier this year with regard to the settlement of our fellow citizens’ taxation matters. How does the Government's proposed determination to tackle tax evasion and avoidance square with a determination to cut 13,000 posts in HMRC over the next few years?

My Lords, I have already explained to the House that we are targeting considerable extra resources where it matters in order to get in extra revenue. That is critical. The noble Lord talks about the calamitous position, but where did the calamitous position arise from? This is the result of an exercise to bring forward and modernise the reconciliation systems in our income tax system, which has been sorely needed for quite a few years.

My Lords, will the Minister comment on the fact that the latest growth figures are based primarily on the previous Government's policies rather than those of the current Government? Will he also comment on the widespread concern that the figures that the Government give for growth—for example, the per pupil figures in the education budget—are at times slightly deceptive? The Government take no account of the increase in pupil numbers, and therefore the amount being spent per pupil is actually being cut in real terms.

In answer to the first question, no. In answer to the second question, the independent Office for Budget Responsibility will be presenting its updated assessment of the numbers post the spending review on 29 November.