Treasury Questions
13th July 2010
During Treasury Question Time, David Gauke answers MPs' questions on subjects relating to VAT, National Insurance and Income Tax.
Value Added Tax (Wales)
Chris Bryant (Rhondda) (Lab): What assessment he has made of the likely effect of the proposed increase in the standard rate of value added tax on the retail sector in Wales. [7693]
The Exchequer Secretary to the Treasury (Mr David Gauke): A full impact assessment was published on Budget day. Although it focused on the compliance costs for all businesses, it had an emphasis on retailers, as it acknowledged that they were expected to incur higher compliance costs. However, having experienced two VAT changes in the previous two years, retailers should now be familiar with the necessary system and process changes.
Chris Bryant: I am sorry but that was a really complacent answer. Much of the retail sector in my constituency is very dependent on the business that comes in through the door from pensioners. There are 13,000 of them in the Rhondda, a growing number, and they are the people who will be very heavily hit by the VAT increase, because they will have less discretionary income to spend on gifts and the things that make life worth living. Will the hon. Gentleman look specifically at how the retail sector in more distant areas-outside the main city centres-can be supported?
Mr Gauke: The fact is that we had to raise VAT because there was no money left. I do not know whether the hon. Gentleman is proposing that we should have cut spending by even more, but I do not think that that would have a lot of support on his Benches or on ours. After all, our predecessors looked very closely at raising VAT and would have done so had the previous Prime Minister not vetoed it.
David T. C. Davies (Monmouth) (Con): What would the people of Wales make of the fact that the previous Government were going to raise VAT to 19%? Would they not surely conclude that this was going to happen under any Government elected in May 2010 because of the mess made by the last one?
Mr Gauke: The fact is that the deficit has to be reduced, and VAT is one of the few levers available to the Government to do that. Any sensible Government would consider it; and indeed, given the circumstances we are in, any Government would do it.
Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): When the Chancellor rose to give us his Budget a few weeks ago, he promised that he would give it to us straight. He somehow forgot to tell us that Britain's pensioners may face an £8 billion VAT bill over the course of this Parliament. Given that neither Government party has a mandate for introducing VAT increases, does the Minister agree that, at the very least, this House deserves a report on the impact of VAT on pensioners before the increase comes into effect?
Mr Gauke: We have provided more detail of the distributional impact of this VAT rise than the previous Government ever did or would have done had they increased VAT last December. The fact is that this Chancellor-like this Treasury team-has the courage
13 July 2010 : Column 778
of his convictions to do the right thing, unlike his predecessors, who neither pursued the policies they believed in nor had a leader they believed in.
National Insurance Contributions
David Rutley (Macclesfield) (Con): What representations he has received from employers in the north-west on relief from national insurance contributions for new businesses; and if he will make a statement. [7697]
The Exchequer Secretary to the Treasury (Mr David Gauke): The holiday on national insurance contributions will support enterprise and private sector job creation. Representations from employers have been supportive of reducing taxes on jobs, and 400,000 new businesses are expected to benefit from the holiday on employer national insurance contributions, including about 70,000 in the north-west.
David Rutley: It is clear that this important Budget proposal will help to generate much-needed jobs for small businesses. Does my hon. Friend agree that this is a much better way of supporting job creation in places such as Macclesfield and the north-west, and in other regions, than relying on the public sector, as the Labour party did?
Mr Gauke: My hon. Friend is right. We cannot rely on the public sector for growth, simply because we have run out of money.
Tony Lloyd (Manchester Central) (Lab): How many businesses-perhaps the Minister could name them given that there are so few-will do better because of the national insurance cut and will not suffer because of the VAT increase and the cutback in demand, which will be disastrous for businesses in the north-west?
Mr Gauke: The fact is that businesses would much rather we focus on dealing with the jobs tax, which our predecessors brought in. We recognise that we have to reduce the deficit and that tax has to play a role in that, but what we can do to create jobs in the private sector is reduce the burden from national insurance contributions. This particular policy, directed at areas where the public sector is largest and where we need a stronger private sector, has to be the way forward.
Income Tax
Malcolm Bruce (Gordon) (LD): What plans he has for future changes to income tax arrangements. [7698]
The Exchequer Secretary to the Treasury (Mr David Gauke): In the Budget, the Government announced a £1,000 increase in personal allowances for under-65s. We estimate that 23 million basic rate taxpayers will gain by up to £170 per year from this measure, and that 880,000 will be taken out of tax altogether. This is the first step towards our long-term objective to raise the personal allowance to £10,000.
Malcolm Bruce: I am very grateful to the Minister for that informative answer. Can he give a more precise timetable for when the £10,000 threshold will be released? Will it be before the end of this Parliament? In other words, can it be even earlier than the five years that would otherwise be required?
Mr Gauke: I cannot give a precise timetable, but as I said, that is our long-term objective. I know that the right hon. Gentleman has a long and distinguished record in campaigning for that policy. I am sure that he will be pleased with the steps that we have taken so far, and I hope that others will follow.
Thomas Docherty (Dunfermline and West Fife) (Lab): When Ministers are thinking about the future planning for local income tax, do they not understand the concern on the Opposition Benches and in the country that this afternoon the chief lobbyist for the banking industry has been introduced as a Member of the other place, meaning that the interests of the banking industry will come before those of low-income families?
Mr Gauke: I am not quite sure that I necessarily follow what the hon. Gentleman has said, but what I would say is that we announced the introduction of a bank levy in the Budget and we have taken a lot of poorer households out of income tax. That shows the Government's values.
Tax Avoidance
Jo Swinson (East Dunbartonshire) (LD): What assessment he has made of the level of tax avoidance during the period when the rate of capital gains tax was at 18%. [7699]
The Exchequer Secretary to the Treasury (Mr David Gauke): The Government estimate that prior to the emergency Budget, upwards of £1 billion of income tax revenues was forgone through income being turned into capital gains.
Jo Swinson: I thank the Minister for that reply, which shows that when the previous Labour Government reduced capital gains tax, they created an enormous loophole for tax avoidance for the wealthiest in our society. Does he have any further plans to clamp down on tax avoidance, to ensure that the wealthy pay their fair share?
Mr Gauke: There are measures contained in the Finance Bill, which we are currently debating, that will reduce tax avoidance. We take the issue seriously, but the hon. Lady puts her finger on one of the problems. There were a number of structural difficulties in the tax system as it was left to us, one of which was the wide disparity between income tax rates and capital gains tax rates, and we have been able to do something about that.
Mr Andrew Love (Edmonton) (Lab/Co-op): In introducing the Budget, the Chancellor justified the move to a 28% rate in the following terms:
Can the hon. Gentleman justify that?
Mr Gauke: Yes, and had the hon. Gentleman been in the Chamber at about quarter past 10 last night, he would have heard me doing so at some length. The fact is that for every 1% by which the gap between income tax and capital gains tax is reduced, we get an extra £60 million from income tax. However, there is also a countervailing pressure, which is that fewer transactions are entered into. The analysis based on studies done in America and elsewhere shows that 28% is about the level at which we maximise revenue.
Topical Questions
Duncan Hames (Chippenham) (LD): Does the recent experience of changes in VAT rates support the assumption of both the Treasury and the Institute for Fiscal Studies that there will be full pass-through of the proposed increase in VAT, or might we reasonably hope that large retailers will shoulder some of the burden?
The Exchequer Secretary to the Treasury (Mr David Gauke): The assessment set out in the Red Book is that it is likely that two thirds will be passed on immediately and most of the rest will be passed on over the course of the next 12 months. In some cases retailers may bear some of the increase themselves, and we will obviously be studying the matter very closely.
Mr David Davis (Haltemprice and Howden) (Con): When the Exchequer Secretary answered the hon. Member for Edmonton (Mr Love) earlier on capital gains tax, he quite properly justified the increase in CGT on the basis of a dynamic model of both income tax and CGT. Will he publish that model and its supporting evidence?
Mr Gauke: If I may help my right hon. Friend, at the time of the Budget we did publish our Budget policy costings, setting out the exact details. That information is available to him, and it was, indeed, touched on in last night's debate.
Chris Skidmore (Kingswood) (Con): I am sure that Ministers can understand the disappointment of my constituents when Cadbury's new owners stated their intention to move mass production abroad from the Summerdale plant near my constituency. In the light of this and of the dramatic decline in manufacturing employment over the past 13 years-down from 4.7 million jobs in 1997 to 2.6 million jobs now-what steps are they taking to support manufacturers in this country?
Mr Gauke: My hon. Friend is absolutely right to highlight the fact that we live in a globalised world and that businesses can choose where they locate their activity. That is why we are introducing substantial cuts in corporation tax, from 28% to 24%. I was delighted to read this morning that the previous Chancellor was an enthusiast for reducing corporation tax-although we did not see so much evidence of that when he was in power. The fact is that the Budget proposals will benefit all sectors of society, including manufacturing, and we will see £13 billion more investment over the next few years as a consequence of those measures.
Richard Harrington (Watford) (Con): In view of the importance of this issue to Opposition Members and their colleagues in the other place, can the Minister confirm that there are no plans for the Government to introduce VAT on the sale of hardback books?
Mr Gauke: I can assure my hon. Friend of that, and that newspapers-there was a very interesting one this morning-will not have VAT imposed on them either.
Mr John Leech (Manchester, Withington) (LD): The Chancellor took the difficult decision to increase VAT to deal with the dire economic legacy of the previous Labour Government. Will the Minister commit to reviewing the increase in VAT once this coalition Government have dealt with the deficit and got the economy back on its feet?
Mr Gauke: I can tell my hon. Friend that he is right; this decision was necessary and unavoidable. The intention is to get the public finances under control over the course of this Parliament. We will debate what we do at the end of that process nearer the time, when we will work out what we will do with the proceeds of growth.
Richard Fuller (Bedford) (Con): Average wages in my constituency are below the national average, so the rise in the income tax threshold announced in the Budget was most welcome. Can the Minister please give an assurance that he will maintain a focus on increasing the personal tax threshold, as the prospect of being taken out of tax altogether is far more appealing than the prospect that the previous Government offered, which was the non-stop filling in of forms to claim back just a fraction of the money that people had already earned?
Mr Gauke: I can confirm to my hon. Friend that it remains our long-term objective to raise the income tax threshold to £10,000, and we have made significant progress.
