The policy on the higher tax rate is, in effect, an endorsement of tax avoidance, which worries me greatly. Some of us sat through the Finance Bill Committee and heard Government Back-Bench Members say how much they disapproved of tax avoidance, but throughout this episode we have heard people argue that because some people have taken steps to avoid tax, we should reduce it. That is highly unsatisfactory to the many people who, on pay-as-you-earn, have little ability to avoid tax. They are gobsmacked by all this.
If part of the problem was due to people forestalling, which is the technical term, in the first year of the new tax, perhaps—and this is a thought for the future too—we should have introduced it with immediate effect, as happens with some other taxes. For example, tobacco duty is generally increased on the day of a Budget, so that people do not rush out to fill their shopping bags—or whatever they do. Perhaps that would have been a way around it. I know it is not traditionally done with increases in tax rates, but if that is how people respond to these things, perhaps we should treat higher earners like we treat people we think will fill their bags with cheap booze or cigarettes, and forestall them, rather than letting them forestall the rest of us—because that is what they are doing to the communities in which they live. Unfortunately, in a year’s time, we are likely to hear Government Members saying “We told you so” even more. The reduction has been postponed for a year, but it will still happen, and a lot of people will no doubt do the same thing in reverse when it does.
It has become something of a mantra to say that no money was ever raised from the 50p rate of tax, but that is not true: £1 billion was raised, even in the year in which people were apparently forestalling. If we had let it run for somewhat longer, the situation could have been even more different. However, as the Institute for Fiscal Studies pointed out, to rush to judgment on this matter so quickly, because that suited the way in which the Government wanted to go, was not justified. We are, in effect, saying to people that it is all right to avoid tax.
I started to tell a little story earlier, and I hope that it will be seen to be relevant. I am fascinated by history, and particularly by housing, and—unusually, for me—I watched a television programme last night. It was entitled “The Secret History of Our Streets”, and last night’s episode was about Portland road, in London. It had been made long before the current debate on the Budget. A young, brash banker got up and said that the value of the property on that street had gone up even further since the taxpayers had bailed out the banks. Did we really think, he asked, that the banks were going to start lending to small businesses? No, they were going to give people like him an increase in income so that they could pay even more for those houses. He might have been one of those boastful types, but that was nevertheless an insight into the mindset of the kind of people in our
community who think that tax avoidance is absolutely legitimate. There is a great deal of wealth in this country, as that example showed, and many ordinary people find this whole debate offensive and difficult to swallow.
At the other end of the tax issue, we have the question of raising the tax-free allowances. The Government keep saying how kind they are being to people on low incomes, but we should remember that once those people have had their tax allowance raised, they will get no further advantage in subsequent years because they are already out of the income tax regime. Other people, however, have gained considerable advantages from the raising of the basic tax threshold. Many people on considerably higher earnings—although not necessarily paying higher rates of tax—have gained from the measure.
It has been easy—for the Liberal Democrats in particular, as this is one of their favourite lines—to say that raising the tax threshold is all about helping the very poorest. However, the very poorest were already outside the income tax regime, and people on considerably higher earnings—particularly two-earner families without children—have benefited substantially from the raising of the threshold. We must also take into account what people on the margins who have been taken out of tax have lost. When we look at the details, we see that as a result of the measure, they could lose tax credits and, in some cases, housing benefit. Their gain is therefore very much less than has been suggested.