We touched on this issue in the earlier debate. The right hon. Member for Wokingham (Mr Redwood), who is no longer in his place, told me that I probably did not mix with many very rich people, which I suspect is probably true. My whole life and the constituency I represent have not been chock-full of people living in millionaires’ row and having lots of money in their pockets. However, his points, which other hon. Members have mentioned, about whether the recent rate changes—from 40% to 50% and back to 45%—are a good test do not bear much weight. |It is quite clear, in such a short space of time that people, could rearrange their affairs in various ways first to forestall the income and then to ensure that the tax due in previous years was paid last year.
The Office for Budget Responsibility has said the same—that there has been an increase in payments, but that it was largely due to the fact that people could
arrange their income in such a way as also to arrange their tax. When my hon. Friend the Member for Edmonton (Mr Love) intervened on the right hon. Member for Wokingham to suggest that people had rearranged their finances to suit the current tax regime, he was told that that was not the case. However, the right hon. Gentleman then talked about how those with high incomes—the rich, in his words—have plenty of ability to rearrange their affairs, so he in fact made precisely our case.
The argument that because something was not done during a certain period, it is not a good idea does not bear scrutiny either. Such a line does not relate to the financial situation in which we found ourselves. We hear a lot about the need for deficit reduction, as we have throughout this Parliament, and we know that the rate of deficit reduction has been far lower than was originally promised and planned for. Many of the changes—to tax credits, to benefits, to local government funding—were justified as absolutely essential for reducing the deficit. Under the previous Government, the reason for introducing the 50p rate was largely about that as well. It was and it remains our belief that we need a better balance when we are trying to reduce the deficit.
We all accept that there is no great virtue in running a long-term deficit. The debate has been about not whether to do something about it but the pace and efficacy with which we do something about it. Within that, there are choices to be made. There is a balance to be struck between taxes and spending cuts, and the Government have chosen to place a lot of emphasis on spending cuts and far less on tax. The 50p tax rate could have been sustained throughout this Parliament as part of the process.
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However much coalition Members, particularly Liberal Democrats, wish to say that raising the tax threshold was all about helping the low paid, let us not forget that it had a substantial cost—already more than £10 billion in tax forgone to date—and that three quarters of the benefit has gone not to the lowest paid but to those on above-average earnings. The main beneficiaries are the not the low-paid people about whom everybody professes to care so much. At the same time as the Government reduced tax, many lower-paid people lost housing benefit payments and tax credits, so they were worse off than they had been.
Now, 17% of those in employment are below the tax bracket, and the Government are offering them nothing. If they got any benefit from the first rise in the tax threshold, they are getting no benefit from the further increases, which are costing the Government money. Every time the tax threshold is raised, it has a substantial cost, and the benefits go substantially to those who are better off. There is an unequal division, and if we wanted to spread the load, the 50p tax rate could have been part of that. We have to measure things over a longer period, rather than looking purely at a period of three or four years when people have been able to rearrange their tax affairs in a way that suits them.
The 50p tax rate was not the be-all and end-all of reducing the deficit or of tax policy, but many of my constituents cannot understand why reducing the rate was made such a priority. They are finding the cost of
living difficult, and they are suffering losses, including to local services. Many people end up having to pay more, because councils are making up for a loss of funding by charging for many services. That affects people, and they are puzzled about why a Government who said “We are all in this together” have made such a tax cut their top priority. It is not at all unreasonable to examine the impact of that and to be willing to listen to what people are saying about their cost of living.