I think the hon. Lady will find that good apprenticeships become very good jobs. I always said, as an employer in my former life, that I was keen to see people with something on their CV, because they had the best chance of having a job into the future.
For far too long, there has been fiscal drag in the inheritance tax system. The £325,000 threshold, which is doubled for a couple, has been in place since 6 April 2009. One reason for that drag is the increased value of the family home. I am therefore pleased that the family home has a place in the proposals. There will be a £100,000 rate from 2017-18, which will rise by 2020-21 to the full £175,000 that has been proposed.
I had concerns before the Budget about how the downsizing relief would work. I thought that it might just cover people moving to a smaller home, but I am pleased to see that it will be available to those who simply cease to own, perhaps because health problems mean that they have to go into long-term care. There is nothing in the Red Book about how long the relief will be in place. It may be perpetual, which would be good, but many of us are familiar with the seven-year rule that applies to many inheritance tax proposals
I am very much in favour of the simplification of the UK tax code. It is out of control and now runs to some 17,000 pages. When I was a councillor on a unitary authority, we managed to create 265 pages of local council legislation merely for the localisation of council tax, whereas the entire tax code of Hong Kong runs to only 235 pages.
The need for simplification leads me to ask why we do not just raise the threshold in general, rather than apply it to a house. There may be people who have chosen, for whatever reason, never to own a home. They may have decided that renting is for them, that it suits their lifestyle and that they can save money in their own way. Under the proposals, the home must pass down to children or grandchildren. There is a degree of discrimination against the childless in that. Such people may have family members who fulfil many of the functions of love and care that other people expect from their children.
Whenever I think about inheritance tax, I go back to the Burden sisters, who took their case to the European Court of Human Rights back in 2008. They were spinsters who faced being unable to pass assets between each other upon the death of one of them. They lived in the family home and, on the death of one of them, the other would have faced an inheritance tax bill that there was no money to pay.
I have come across other people who live in the family home that they received from their mothers and fathers, who have never married and who lead a prudent lifestyle. One man in particular has assets of approaching £500,000, but will face an inheritance tax bill because he has no spouse and no children or grandchildren. I have always maintained that it would be simpler for every person to have a nominated inheritance tax recipient, rather than it having to be a spouse or civil partner.
I welcome the increase in the employment allowance that is available to every employer to £3,000. The £2,000 level has been very welcome, and has encouraged and enabled many smaller employers to take the first step towards putting people on the payroll. The anti-avoidance measure that means that sole directors will not benefit from that is well made, because there has been use of that—dare I say it—loophole.
I will move on to the proposals on buy-to-let landlords. Obviously, the Conservative party has a strategy to ensure that as many people as possible in this country have the opportunity to own their own home. That is a fundamental part of what we stand for. People who have a stake in their home have a stake in society. We have Help to Buy, the right to buy, a mortgage market that often helps first-time buyers, and many housing providers have numerous shared-equity arrangements. It is clear that the buy-to-let market has had a distorting effect, and those with good credit have been able to get on to what seems to be a one-way bet. That bet continues while we have housing shortages and a growing population, and it is right to address that.
I have no fundamental objection to the restriction of tax relief, which will be phased down to basic rate relief only over four years from 2017. I am, however, concerned that we risk creating a new anomaly that goes against the concept of “wholly and exclusively” that underpins our whole tax system. If taxpayers enter into a transaction with no surplus cash arising at the other end, normally there would be no tax to pay. Under the proposals so far, however, a taxpayer could make no surplus or even a loss, and that would result in a tax bill. That seems to be an anomaly. I would rather address the problems of the buy-to-let market with an increased rate of rental tax for higher rate taxpayers, as a surplus to the current 40% rate, or even the 45% rate for what I call super-tax payers. We should either use that type of tax system to change and skew behaviour towards the public good, or we should implement greater regulation of buy-to-let mortgage providers. I worry about introducing a precedent of behavioural skewing into our tax system, and it is unusual to encourage behavioural change in that way through the restriction of a deductible expense.
The changes to dividend taxation are to be welcomed. We must look back to changes by Gordon Brown and the advance corporation tax system that caused the destruction of a proud and well-financed pensions system and turned it into one that today has extreme difficulties. I am sure we will get details of how that will work—perhaps I will work it through myself later today.
The corporation tax reduction is welcome. I am not sure that big or even smaller businesses were clamouring for it, but it is certainly simpler now we are down to 20% and do not have to change rates and amounts if there is a multitude of companies—a good simplification. The main driving force of the measure is that it offsets any additional cost to companies as they implement the welcome and increased national living wage.
We had a debate on tax credits yesterday—I would like to have taken part but I was elsewhere. It speaks volumes that the UK has 1% of the global population, 4% of its economic output, and 7% of global welfare spending. I have said this before on other platforms, and I will say it here in the House: we have created the most expensive system of keeping people in poverty that has ever been invented. We now have a tax credit bill that approaches £30 billion.
One feature I am grateful to see is the prior year income disregard going down to £2,500. Back in 2009, the income disregard on prior year income was £25,000. That meant that somebody’s income could be £6,420 in year 1, £31,420 in year 2, yet they would receive full and complete tax credits. That much-needed welfare was frankly going to the wrong place. There are other failures
with the tax credit system that I am confident universal credit will solve and replace. For example, the system has had no capital element. I have known of instances where people have more than £1 million in various assets but no great income, yet they are still claiming tax credits of upwards of £18,000 per year. Far from the dire pronouncements we heard during the previous Parliament that our proposals would somehow create a disaster for those on lower pay, what we have created is common sense, greater hope and a desire to get on. We are seeing an increasing number of people getting back to work and fewer workless families.
I very much welcome the increases in personal allowances, which were manifesto commitments, and the increase in the national living wage. There is now a better chance than ever to get a good job or a first-class apprenticeship. There will be 29 million people in this country with lower tax bills and 4 million out of tax altogether. That amounts to £5,000 extra to the low-paid over the Parliament. This is what counts. This is what matters. This is what we intend to deliver for this country: a country of opportunity where everybody gets on.
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