Finance Bill Speech – Top Rate of Income Taxation

It is a pleasure to serve under your chairmanship this afternoon, Mr Hoyle, and to contribute to the debate. I shall speak to amendments 7 and 76, in my name and that of the hon. Member for Foyle (Mark Durkan), relating to the cut in the additional rate of income tax, and consequential amendments. I intend to press amendment 76 to a Division at the appropriate time unless, of course, it is accepted by the Treasury.

Despite heavy lobbying over the past year to remove the 50p additional rate of tax, the switch to a lower rate of 45p was one of the more surprising announcements in the Budget last month. It had been assumed by many that the Government mantra of being “in it together” meant that it would be politically necessary to show that all parts of society were paying more tax and facing the same level of public service cuts. Many therefore assumed that the 50p rate would be with us for at least as long as the Government maintained their plan A for cutting the deficit. After all, pressing issues such as Barnett formula reform have been conveniently parked in the name of the war on the deficit.

For my party, the issue is a matter of principle, irrespective of the timing and the state of the wider economy. Those with the broadest shoulders should bear the burden of taxation. A progressive taxation system based on the Scandinavian model is part of our political DNA. Someone who earns at the additional rate of £3,000 of taxable income per week is clearly in that category. Only a handful of people who earn that kind of money reside in my constituency. We therefore support the maintenance of the current 50p additional rate.

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As I made clear in my speech on Second Reading on Monday, my opposition to this tax cut is on the record, as I voted against it during the Budget votes last month. The income tax rates for 2013-14 were one of the founding resolutions of the Budget, and offer very little scope for change today. My amendment 6, which would mean that the additional rate would be 50%, appears on the amendment paper but was not selected.

Hon. Members can therefore imagine my surprise that the official Opposition did not join my colleagues from a variety of smaller parties in opposing this measure on 26 March. That was the vote against a cut in the additional rate, but the Labour party unfortunately abstained, apart from two honourable exceptions. The hon. Member for Leeds West (Rachel Reeves) representing the official Opposition kindly allowed me to intervene on her during the debate on Monday. I asked her to confirm whether this was a deliberate or a tactical abstention. Her response was that the Opposition had voted against the whole Finance Bill and that was sufficient.

The hon. Lady’s answer would have been a semi-appropriate response, were it not for the fact that, if my memory serves me well, her party divided the House on resolution No. 8 on higher income benefit. Clearly, some resolutions were more important than others that evening.

Owen Smith: Just to clarify, as my hon. Friend the Member for Leeds West (Rachel Reeves) made plain, we had already voted against the whole Bill. There was a further reason for not supporting the hon. Gentleman’s amendment, which was that unfortunately it would have wiped out all the rates of taxation, not only the 50p rate.

Jonathan Edwards: I am sure the hon. Gentleman read the leaked e-mails from Labour insiders the following day, which were widely reported on the Guido Fawkes blog and which indicated that this was a major balls-up—excuse the pun.

2.15 pm

Mr Gauke: May I help the hon. Gentleman? The motion on which he voted against the Government related to the tax charges for 2013-14. With apologies to the hon. Member for Pontypridd (Owen Smith), it would not have wiped out all the tax rates for this year. It was specifically for next year. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) is right. It would not have had the impact that the hon. Member for Pontypridd suggested.

Jonathan Edwards: I am grateful for that clarification.

The idea that the Tories would offer a tax break to millionaires would surprise nobody in my constituency—in fact, they would expect it—but that Labour would abstain after announcing it would vote against it has led to a great deal of confusion. I have had a lot of fun on the doorstep in the past few weeks explaining that, while campaigning for the local authority elections. It is similar to the way the official Opposition announced the policy of a temporary cut in VAT last June, then two weeks later abstained on the Finance Bill when I and my colleagues proposed such a measure. A lack of consistency and clarity on economic matters explains

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why it is so easy for the Government to continue to pin the blame on the official Opposition for the UK’s economic mess in spite of the flawed and ideological cuts programme which is destroying the fabric of the economy.

Stephen Williams (Bristol West) (LD): Does the hon. Gentleman recall that 12 months ago there was a similar set of circumstances, when the Labour Opposition said on three occasions that they opposed the rise in VAT, continued to say that they were opposed to the rise in VAT, but on three occasions failed to vote against it?

Jonathan Edwards: I am grateful for that intervention. The hon. Gentleman is of course right. It is a matter of record, and it shows that when it comes to a vote in the House, the Labour party does not have a policy.

Charlie Elphicke (Dover) (Con): The issue was not invented there so the Opposition could not vote for it, whereas although I disagree wholeheartedly with the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), I credit him with being principled, and principled in his voting, rather than trying to have it both ways, like Labour.

Jonathan Edwards: I am grateful to the hon. Gentleman for confirming that we are more efficient than the official Opposition.

Chris Bryant: The hon. Gentleman knows that I am very fond of him, so may I give him a tip? It is not to believe what he reads in newspapers, not to believe what he reads by Guido Fawkes—most hon. Members would agree with that—and not to listen to Liberal Democrats, who will support and vote for the cut from 50p to 45p, but to focus his anger on the Government, who are introducing this change.

Jonathan Edwards: I am grateful for that intervention. I am coming to that. Unfortunately, the papers did not report Labour’s shameless record on some of these issues.

Monday’s Second Reading saw Members from both sides continuing to trade a barrage of figures to explain why the additional rate should be cut or remain as it is. I thought the contribution from the hon. Member for Pontypridd on Monday night was excellent in explaining the political and economic value of the 50p rate. It is clear that there is no agreement over the mechanics of the issue, and given that Labour’s agreement to the 50p rate in the first place was based on revenue-raising rather than principle, that is a very important fact.

The Treasury should therefore instigate a report on the income-shifting and avoidance measures used to lower the amount of tax paid under the additional rate, and on possible revenue from a 50% and a 45% rate, taking into consideration the outlying factors that always impact heavily on the first year of any tax innovation. Such a report would clarify the situation and allow the House to make a considered judgment one way or the other in the next Finance Bill. As always, the majority of people pay the tax that they should, but there are some who will always try to avoid as much as possible.

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The artificial shock of the Chancellor at the scale of tax avoidance suggests that he takes Members of this House for fools. Although I accept the argument for a relationship between a lower taxation rate and economic growth and perhaps larger revenues, I find that argument counter-intuitive for income tax rates on this occasion. The majority of those who seek to avoid paying income tax at 50% will, I suspect, also seek to avoid paying it at 45%—and, as the Government contend over the 50% rate, they will have the resources to avoid doing so.

My amendment 76, which would require a review, neatly coincides with the Opposition’s amendment, so I assume that when my amendment is pressed to a vote they will join us in the Lobby. After all, they have already signed up to my amendment 7, which, I shall explain for the benefit of the Committee, is consequential on the additional rate changes relating to dividend and trust payments, the transferring of retirement benefits to a non-additional rate tax payer and the notional tax credit attached to some capital payments. We look forward to dividing on amendment 76 at the appropriate time.

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