Finance Bill Debate – 2nd July
In a speech during a debate about the Finance Bill, I touched on tax simplification measures and the tax reform affecting pensioners:
“It is a pleasure to follow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I shall make a few brief remarks on various subjects in the Bill, starting with the granny tax, which I also spoke about on either Second Reading or during the Budget debate—we seem to have been debating it for a long time, particularly those of us who have done a few weeks in Committee on some of these topics.
I was one of those who heard the Budget, heard the Chancellor briefly mention what became known as the granny tax and did realise what it was likely to mean. I was not one of those, like the hon. Member for Leeds West (Rachel Reeves), who claimed that the Chancellor had hidden it in his speech; it was clearly there.
Those of us who, in our short time as Members, have argued that we need to simplify our tax regime face a problem when one way suggested by the Office of Tax Simplification is this very idea. To be fair to the OTS, it did not envisage its idea being introduced quite so quickly. I suspect that generally it would be quite keen to have its ideas legislated on in a matter of weeks, but on this one it intended there to be further consultation and deliberation. It was, nevertheless, one idea that it came up with as a way of removing one of the regime’s complexities, whereby an additional allowance has to be claimed, the policy justification for which was determined a long time ago. It is perfectly reasonable for the Government to revisit it and to wonder whether, of all the groups in society who need such extra help, pensioners earning more than the state pension are one of them.
Those people who have done the right thing and saved, and who now have a little private pension on top of their state pension, are generally the ones in whom we want to encourage pension-saving behaviour, but the basic personal allowance is rapidly heading towards the £10,000 target in the coalition agreement, and the benefit of that higher personal allowance has to be clawed back. We are seeing a complexity with a reducing benefit, and we are perfectly entitled to want to understand the policy justification for it when we spend the limited amount of money that we have. It is not, therefore, an unreasonable or illogical proposal for the Government to bring forward; there was a year’s notice, and there is a chance for consultation to consider its impact.”
Later on in the debate, I made further contributions, commenting on the granny tax, the 45p tax rate, my reasons for supporting it, tax avoidance, and wider tax simplification:
“I am sure that people who benefit from a tax cut will be pleased and those who lose out from a tax change will not be, so I guess I can agree with most of that, but it will be interesting to see in the Lobby later whether the hon. Gentleman votes for his party’s amendment, which would mean the House passing the Bill after abolishing the 45p rate completely and reducing it to a 40p rate.
It is all right saying, “Perhaps we can do that and perhaps the Government will do something different in future,” but we are legislating in Parliament, and if we were to vote for the amendment and remove the 45p rate, it would not actually exist, and I am not sure that those Members who would rather the provision read “50p” than “45p” could in all conscience vote for that. I clearly will not vote for the amendment, because it would be the wrong measure at this time; I will vote for there to be a 45p rate in next year’s tax regime.
When I debate these things, I could take a narrow constituency view. I suspect that very few of my constituents pay the 50p tax rate, as I have many pensioners who are not that well-off and will be adversely impacted by the granny tax, so from a political and personal view I could happily oppose the tax cut and the granny tax, too, but we have to get our economy into sensible working order”
Meg Hillier, (Hackney South and Shoreditch, Lab): “The hon. Gentleman talks about the over-65s, saying that this is all very fair and things will balance out over time. Does he not understand that someone over 65 is likely to be on a fixed income and £323 is therefore considerably more important, whereas if someone earns higher amounts and is taxed at 50%, 45%, 40% or anything in between, whatever it may be, they have the capacity to earn more? Once they retire, it is the fixed nature of their income that makes the Chancellor’s decision so invidious.”
Nigel Mills: I am grateful for the intervention, and of course understand that pensioners living off their savings have suffered terribly during the recession, starting with the raid on private pensions when Labour first came into office, all the way through to the terrible impact of the loss of interest income on savings. I totally accept that that is clearly an issue, but to return to the 45p or 50p rates we ought to be completely accurate. With the 2p national insurance charge, which comes in when someone normally starts paying NI, and which will remain, those rates are 52p or 47p. We should be careful on a matter of principle. I am not sure how many people out there would want to work if the money for more than half an hour of every hour that they worked was not for them but for the taxman. That is what that effective 52p rate does; it means that a person is probably not working for themselves for 31 minutes of every hour.
I am not sure that that is a real incentive for those who have a lot of money. They do not need to carry on working; they could retire to their yachts and sail around the Mediterranean. We want them to come back, invest in another business, have another go and employ some more people. We want that investment to come into the country. If a person is keeping less than half the money they earn, there is a real psychological impact. That is why it is right to bring the rate down.
We are having a long political debate about what was meant to be a temporary tax. The previous Government never had it in place when they were in power; it was set up as a political stunt for the election. It was not expected to raise significant amounts of money. It was there not for an economic purpose, but a political one. It was right for us to say that at a time when we need to get activity going and to attract investment into the country, we need to encourage those who have a choice whether they carry on working and generating wealth or not, to carry on working.
It is right for us to bring the tax rate down. I would have thought that it was better just to do it rather than wait a year, but there are many good economic reasons why we had to wait for that length of time. The fact is that if tax rates are too high, people get much more keen on avoiding tax.
When I was relatively new in my accountancy career, the then Chancellor in effect reduced the capital gains tax rate to 10% tax on the sale of a business asset. The place where I worked then had made lots of money advising people on how to reduce their capital gains tax liabilities when they retired from their businesses. When the rate went down at a stroke overnight from 40% to 10%, that meant that no one was interested in that kind of tax planning; they were perfectly happy to pay what they thought was a reasonable tax bill. But the reverse effect also applies—if the rates go up to a level that people are not happy to pay, they will start to use ingenious methods to avoid the taxes
Gloria de Piero (Ashfield, Lab): “The hon. Gentleman is speaking as though his party had always supported the abolition of the 50p tax. However, a couple of months before the Budget, the former Energy Secretary,
Chris Huhne, was saying that the 50p tax was here to stay. He told the BBC:
“I think we’ve won that argument.”
Nigel Mills: “I guess it is not for me to explain the right hon. Gentleman’s comments. He was clearly misinformed.
However, we have seen that drift towards tax avoidance. I was saying that there was an easy way to avoid paying UK tax—not to be working in the UK at all. People can choose whether to come here or stay here; no complicated avoidance is necessary if they are not here at all. We want to attract the most skilled and able here to earn their money.
My hon. Friend Charlie Elphicke was generous in not having a go at some of the high-profile individuals who have been caught avoiding their taxes. People earning very good livings in this country should pay the tax that Parliament tells them they have to pay—there is no excuse for using complicated routes through Isle of Man or Channel Islands trusts. If they are taking money from hard-working people who go to their concerts, comedy shows or football matches, it is outrageous for them to route it through the Isle of Man. I am not sure that I would choose to listen to their concerts or their jokes.
We should send a strong message that such behaviour is unacceptable. If those people are now feeling a little guilty and think that they have made a terrible error of judgment, it is quite simple—they can re-file their tax returns from recent years, declare all that income and pay tax on it. As Gary Barlow might think, “It only takes a minute” to do that—[Interruption.] We had to get some in. Then that money would be “Back for good”, wouldn’t it? It would certainly be one of our “Greatest day”s. I only “Pray” that he would do that—it would certainly be magic if he did. Those are all the Take That songs that I can remember, so I will not carry on.
The important point is that if we push tax rates up too high, revenues will start to go down and people will start engaging in the behaviour we want to crack down on. The Government are cracking down on it and doing everything they can, but there is a limit to how far ahead they can stay. New things will always come along. Fundamentally, we cannot stop people leaving the country.
Labour Members generally think that Conservative Members cite the Laffer curve; we have heard mention of calculations on fag packets and so on. The theory that revenue falls if tax rates are too high is a lot older than the Laffer curve. I had the pleasure of studying Mr Ibn Khaldun, a Muslim philosopher from the 14th century, who wrote an extensive commentary on what happens with tax rates. When they start low, they generate lots of economic activity. Gradually the Government like the idea of spending money, taxes go up and then the economy fails. If our debate was not programmed tonight, I could read out pages of those quotes, to prove that Mr Laffer’s theories are not new, but I shall resist. The theory is not new; it is an entirely understandable and accurate theory: if tax rates are too high, we end up losing revenue.
Another amendment under discussion would give a £250 tax cut to a public sector worker who had not had their £250 pay rise for the last two years. I am not convinced by that. It would be very generous; presumably, if they had had the pay rise, they would have to have paid tax on it, so they would not have had the full benefit of the £250. The idea is probably tempting, but I will not be able to vote for it.”
Beer Duty Escalator Debate – 2nd July
I highlighted the importance of exercising restraint with beer duty hikes in a question to one of my colleagues:
Nigel Mills: “Does my hon. Friend agree that one of the problems of getting the duty rate too high is that it gives a boost to the illicit trade, which now makes up about 10% of the off-sale market? The higher the duty is pushed, the higher the illicit sales go and so no duty at all is received.”
Gavin Williamson (South Staffordshire, Con): “The worst thing we could possibly see is the growth of the illicit trade and the Chancellor of the Exchequer getting none of the money whatsoever. We want to make sure that people are paying their taxes and their duty, but we do not want to tax people out of the market.”
Face Value Vouchers Debate – 3rd July
Back in May, the Government announced that it did not intend to levy the ‘pasty tax’ on baked goods as it had planned. I took the opportunity in the debate to ask for confirmation that the changes would not affect sausage rolls that are sold as fresh:
Nigel Mills: “My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.”
David Gauke, Exchequer Secretary (South West Hertfordshire, Con): “The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.”
I also asked a question about VAT on sports drinks and asked the Minister to confirm that the tax would not be levied upon an ordinary pint of milk:
Nigel Mills: “I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit closer nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?”
David Gauke, Exchequer Secretary (South West Hertfordshire, Con): “I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.”
I also contributed to a wider debate about VAT and Labour’s desire to reduce the rate of the tax, touching on the financial crisis, deficit reduction and Labour’s lack of a credible alternative:
Catherine McKinnell (Newcastle-upon-Tyne, Lab): “I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.”
Nigel Mills: “New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?”
Nigel Mills: “It is a pleasure to follow Sheila Gilmore. We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is
intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.”
Charlie Elphicke (Dover, Con): “Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?”
Nigel Mills: “My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Let me return to the various changes to VAT charging in new schedule 1, where, again, the Government have done exactly the right thing. They proposed some ideas, realised that they contained some mistakes and things that may be impossible to implement, and then changed them in order to get to a better policy. That is surely what we want Government consultations to end up with.
We do not want the Government to announce something, consult on it and then blindly drive on without listening to any of the criticisms and details of any mistakes in it.”
Diana Johnson (Kingston-upon-Hull North, Lab): “Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament and getting all the ducks lined up before coming before the House?”
Nigel Mills: “I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.
I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.
On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.
On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.
We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will
be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.
If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.
With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.”
Aviation – 4th July
I had the pleasure of serving on the Civil Aviation Bill Committee earlier this year. I took the opportunity in my speech during a debate about aviation policy to make several points about encouraging people to use regional airports, the possibility of a regional passenger duty, and high speed rail:
“It is a pleasure to serve under your chairmanship, Mr Dobbin. I congratulate my hon. Friend Mark Reckless on securing the debate. We have, I think, focused a little too much on the impact in the south-east and have not looked at the full national interest, although my hon. Friend tried to do so. I want to talk about the impact of aviation policy on the midlands.
One thing that pushes flight numbers in the south-east up to near capacity is passengers from the midlands needlessly driving down to use its airports—Gatwick in particular—to go on holiday, when there are perfectly sensible flights, probably to the same places, from midlands airports, which, in many cases, people drive straight past. Trying to find ways not of forcing but of encouraging such passengers to use the midlands airports rather than the London ones has to be a way of solving the problem. I agree with Graham Stringer that it is strange for a Conservative to want to regulate and to force people to do something, so I suggest that we do exactly the opposite. The problem is that once we start regulating an industry and a market, we end up with a problem and decide that the solution is to regulate a bit more or a bit differently, or to bolt something on, to try to force a change in the behaviour that the regulation created in the first place. I suspect that the answer in this case is to deregulate much more of the industry.
I am not at all convinced of the logic of forcing BAA to sell Gatwick, and now Stansted, only to end up still economically regulating both airports. Surely we only regulate a dominant player in the market, and it is hard to see how in one market there can be three. I would free everything up and let Gatwick and Stansted compete with Heathrow, to see what they could do. That would get us a much better short-term fix than any of the other options.
In the midlands, what can we do to encourage people to use the regional airports? An interesting report was produced by Birmingham airport, and we have all seen the adverts on the tube about not putting all our eggs in Heathrow’s basket. If we are talking about fast rail links between airports and London, we have a plan for that; it is called high-speed rail to Birmingham, and it will reduce the journey time from Birmingham airport to London to just over 40 minutes, which is not far off the aspiration that my hon. Friend Mr Syms mentioned for Stansted. I have driven to Stansted airport a few times, and it is an awful place to get to—a terrible location. I cannot see any real attraction in it. No offence to Dr Huppert, but it is not a solution for a national airport for the UK. Such a solution would be a complete disaster. If we want fast rail links into London, let us have high-speed rail, and then Birmingham airport can become London Birmingham airport, or some other such preposterous name.
More seriously, if we are trying to balance the economy away from the south-east, and out to the midlands and the north, aviation can play a role in encouraging airports in those areas to get more flights, including flights to the new emerging markets. The midlands is the centre of the UK’s manufacturing industry, so it would be good to have links between those local businesses and the major areas they serve. My constituency, for example, has about 550 employees at Rolls-Royce, who fly all over the work. If we are a Government looking at regional benefit rates and regional pay, why can we not consider regional air passenger duty? We have done it for Northern Ireland, so why not do it elsewhere and try to give the areas concerned a chance to build up their competitive airports, increase capacity, attract new routes, and generally grow the market outside London?
I do not pretend that the majority of people will not want to fly to London, and that that is not where the economic powerhouse will be, but we ought to consider the scope and capability that exists outside London as well, rather than just forcing people into the capital’s airports, which happen to be relatively cheap to fly to because they already have full capacity, in which they are protected, and because regulation keeps the prices down.
Finally, if we want our national hub to be truly national, we must ensure that regional airports to which the rail journey is too long have access to the hub. Otherwise, airlines will discontinue their routes to Belfast and Scotland, for example, because they can make more profit from routes to New York, and the hub will become purely a London and south-east one. That is not an attractive way of growing the economy all around the country.”