Finance (No. 2) Bill — House of Commons, 2016-04-11
Topic: Macroeconomics
Rachel Jane Reeves (Labour, Centre-left): In 2010, the Chancellor promised us a new growth model based on higher savings, investment and exports. However, notwithstanding what we have just heard from the hon. Member for Somerton and Frome (David Warburton), those fundamentals, which underpin the economy and are the backdrop to the Bill, are not going as well as we might have hoped. Our national savings ratio has hit an all-time low of 3.3%. In the latest figures, investment has been revised down, with a staggering £87 billion wiped off forecast business investment since last November, and public investment is falling as well. Our export performance has deteriorated further, with the gap between the Chancellor’s 2020 target for a trillion pounds-worth of exports and the OBR’s expectations now widening to £357 billion. That is before we factor in the calamity that the Government have allowed to unfold in our steel industry or the enormous risks to our economy created by putting our membership of the European Union in question. Indeed, just a few weeks after the Budget statement, we have seen even more bad news about not only steel, but the manufacturing sector in general and the worst balance of payments figures that the country has seen since the second world war, with the deficit in the fourth quarter of 2015 reaching a staggering 7% All that has an impact on living standards. On top of the downward revisions that we saw in November, expected earnings have been revised down in the forecasts for every single year of this Parliament. Looking at the deterioration in expected earnings since the Budget just after the general election, the OBR forecasts that the average UK worker will be £823 a year worse off by the final year of this Parliament. Following the downward revisions, the total loss over the course of this Parliament is £2,000, the impact of which will be felt most by those on low and modest incomes. Indeed, because the national living wage is linked to average earnings, somebody on the minimum wage will be £600 a year worse off than when the Government originally announced it. In less than a year, the average worker will be £2,000 worse off over the course of this Parliament and somebody on the minimum wage will be £600 a year worse off compared with what the Government originally announced Against that background, one might think that a Chancellor who once proclaimed that we were "all in this together" would want to use the Budget and this Finance Bill to target help towards ordinary working families and the low-paid. Instead, we have a package of measures before us that disproportionately benefit the better-off, rather than those who most need support. Let me give three examples. First, fewer than one in five taxpayers will gain from the £2 billion cut in higher rate income tax in clause 2. Those who will gain will also receive the largest benefit from the expensive and poorly targeted increase in the personal allowance in clause 3. The 4.6 million lowest-earning workers in the country will receive no benefit at all from either change. At a time when the earnings of those on middle and low incomes are being squeezed and public finances remain extremely tight, raising the threshold at which people start paying the higher rate of income tax is the wrong priority Secondly, the cut in capital gains tax in clause 72 will cost taxpayers more than £2.7 billion over the next five years, but directly benefit only a tiny minority. Just 130,000 individuals will share the gains, the majority being higher rate taxpayers. Around half of capital gains tax is paid by just 5,000 individuals who will therefore receive a windfall and get the bulk of the advantage, so the benefits of this tax break will be pocketed by a relatively fortunate few. Again, that is not the right priority when the living standards of ordinary people are being squeezed and when our public finances are so stretched The Chancellor would no doubt protest that that is a price worth paying for the entrepreneurial energy that the capital gains tax cut will unleash, but the official documents reveal that the OBR has made no upward revisions to its forecasts for investment, productivity or growth as a result of the measure, which will cost £2.7 billion. Indeed, the most likely impact of the move will be to increase the incentive to avoid tax by converting income to capital gains. Perhaps the Chancellor has been taking advice from the Prime Minister, who seems to have enjoyed the benefit of some careful tax planning. But, again, I would argue that with squeezed family finances and tight public finances, this is neither fair nor fiscally responsible Thirdly, as part of his Budget the Chancellor has chosen to increase the amount any individual can contribute to a tax-free savings account to £20,000 a year, as the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) mentioned. I welcome action to make it easier for ordinary workers and families to save, but we have to ask whether this approach should be the priority when most of our constituents are lucky to earn £20,000 a year and have anything left to save at all. In my constituency, average earnings are just under £20,000 a year, and many people would struggle to put anything aside, let alone take advantage of a £20,000 individual savings account limit. In the latest year for which detailed data are available, the average ISA subscription was less than £4,000 in the year. Fewer than one in 10 people who contributed to an ISA were able to save the maximum amount of just over £15,000, with a disproportionate number of those who did so having incomes above £150,000 a year. The trends of recent years suggest that as the Government have focused on raising the annual limit for ISAs, the total amount of cash put into ISAs has increased sharply even as the total number of people contributing to an ISA has fallen. In other words, this is moving ISAs away from their original purpose as a platform to support broad-based saving and investment, and increasing their use as a way to minimise tax liabilities for those with large amounts of cash to move around. That is having the wrong effects and the wrong people are benefiting. I support ISAs and tax-free savings, but only if they are there to support those people who need to save. What we are seeing is a falling savings ratio, with the most wealthy people being incentivised to save. We need to help those people on more modest incomes to put something aside for their future This Finance Bill, like those before it under this Chancellor, contains a long list of clauses ostensibly aimed at reducing tax evasion and avoidance. Anything that genuinely advances that end is to be welcomed, but we will judge the Government’s achievements not on the number of clauses in their Bills, but on the real progress made towards closing the tax gap and ensuring that everyone pays their share. I urge the Government to do more, by supporting, not blocking, measures in the European Parliament that strive to meet that objective The truth is that HMRC’s own figures show that the tax gap fell by £4 billion over the last five years of a Labour Government but has risen by £1 billion under the current Chancellor. The consequences of this Government’s refusal to take the necessary action on UK Crown dependencies—[Interruption.] I am happy to take an intervention instead of having the Minister muttering from a sedentary position.