Harriett Baldwin welcomes measures in the Finance Bill to simplify the tax system and suggests further simplification by removing the child benefit taper and revising the tax-free childcare cut-off at £100,000 which is putting some women off working a full week.
Harriett Baldwin (West Worcestershire) (Con)
What an extraordinary experience that was. I have just listened for nearly 20 minutes to the hon. Member for Ealing North (James Murray) ranting on about tax hikes, but at the same time not proposing a single concrete economic policy. Indeed, Opposition Members have gone entirely AWOL. Where are they? There is no one on the Opposition Benches this afternoon. They are not going to oppose a single measure in this Finance Bill. I have scoured Wikipedia for any policy they might have come up with on taxation, and all I have found is that they are proposing an additional £28 billion in borrowing. That is simply more taxes for our children and grandchildren to pay in the future.
I have also spotted that the Opposition have two additional new taxes that they think would be a good idea. Those two taxes are the ones that were outlined by the shadow spokesman. The first is the non-dom taxation, which analysis shows would actually result in a net subtraction in tax revenue to the UK economy. Furthermore, they are proposing that we should be the only country in the world that taxes education, with a tax that would increase the cost to the state and again fail to pay for itself. So that was my scour of Wikipedia. I am now going to move on from discussing the Opposition rant to talk about the excellent points that the Financial Secretary to the Treasury, my hon. Friend the Member for Mid Worcestershire (Nigel Huddleston) has made.
Barbara Keeley
rose—
Harriett Baldwin
I will give way to the hon. Lady.
Barbara Keeley
I am standing in part to illustrate that I am here, because the hon. Lady just said that there was nobody on this side of the House. Well, here I am, and I have been intervening on both the opening speeches, so I hope she will take that back. Also, could she clarify what she was talking about when she mentioned a tax on education?
Harriett Baldwin
The hon. Lady is the honourable exception that proves my rule. She is indeed engaging thoroughly in the debate from the void that is the Opposition Benches this afternoon. The tax on education is her party’s Front-Bench policy to add VAT to school fees. She may not be aware of that policy, but it is not a good one and I recommend that she use her influence to get her Front Bench to drop it.
Let me turn to the excellent remarks made by the Financial Secretary to the Treasury. It is the view of the Treasury Committee that the tax system in the UK is far too complicated. We were concerned earlier this year, as we mentioned in our report, about the abolition of the Office for Tax Simplification, because we want to see the Treasury team look at more ways in which it can simplify the tax system. We also published a report on tax reliefs that identified more than 1,000 tax reliefs in our tax system, many of whose impacts or costs to the Exchequer the Treasury does not even know. They really should be thought of as expenditure lines, and they should be looked at a bit more carefully. Some of the steps announced in these measures, and indeed in last week’s National Insurance Contributions (Reduction in Rates) Bill, will do some good in that regard, and I want to highlight those.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
In relation to what the hon. Member was saying about national insurance, would she like to comment on the fact that, overall, the richest fifth of households will be £1,000 better off on average by 2027 whereas the lowest fifth are set to gain only £200. Does that make it the progressive autumn statement that has been claimed?
Harriett Baldwin
I can also attest to the fact that the hon. Lady is the second Labour Back Bencher in the Chamber. That brings the total to the two who are visible to me at this time on the Opposition Benches—[Interruption.] I think that the hon. Member for Mid Bedfordshire (Alistair Strathern) is also providing the shadow Parliamentary Private Secretary role. National insurance is indeed a terrible regressive tax as it stands and I wholeheartedly endorse any measures that reduce that burden and simplify things. The hon. Lady has pointed out that this is work in progress, but I think she should welcome the abolition of class 2 national insurance. That has simplified the national insurance system, and in the spring Budget we had the welcome simplification of the lifetime allowance charge. We also had a great simplification in childcare entitlement with the announcement of a much wider offer of free childcare. These simplifications have been broadly welcomed.
There are further welcome simplifications in this Finance Bill. The Financial Secretary to the Treasury was kind enough to write to me yesterday to summarise his principles for the simplification of the tax system. He wants tax rules that
“have a clear consistent rationale”.
He wants it to be
“easy for taxpayers to get their tax right”.
He wants taxpayers to be able to understand what they need to do “at key life cycle points”, and he wants a tax policy that
“does not…distort the decisions of taxpayers and result in poorly informed choices.”
In summary, the Government want
“the tax system to be simpler, fair and to support growth.”
The Financial Secretary’s letter, which we will be publishing on the Treasury Committee website this afternoon, also outlines further simplifications, which were in the remarks he made earlier. They include expanding the cash basis for small businesses, improving the design of Making Tax Digital, simplifying research and development tax credits, which we welcome, and simplifying capital allowances and making them more permanent. I will draw to the House’s attention to other measures for individuals that he did not highlight. There is an increase in
“the threshold for individuals with income taxed through Pay As You Earn to file a Self Assessment return to £150,000”.
That is important because more and more people would otherwise be caught by the freezing of the thresholds. From April 2024, that threshold will be abolished altogether. There are also simplifications for individual savings accounts in this Finance Bill, as well as measures to simplify customs processes. I think the Financial Secretary’s heart is in the right place on simplification, and there is no question but that R&D tax credits were being abused.
I draw the Financial Secretary’s attention to future opportunities for simplification while welcoming the fact that venture capital tax relief is being extended to 2035, as the Treasury Committee called for in our report. I would love to see the Financial Secretary focus on the unintended disincentives to taking on additional work and additional hours that exist throughout the tax system, at all sorts of income points. We have made huge strides on simplifying it for people on universal credit, making every extra hour of work pay, but once people get into the tax system, there are cliff edges and high marginal tax rates that deter them from working more. I will highlight two in particular.
First, the Treasury Committee is currently holding an inquiry on “Sexism in the City,” and we have had evidence on how we could improve some of those marginal tax rates. The child benefit taper was introduced 10 years ago with my wholehearted support. It was the right thing to do in 2013, but it is now time to look again at how it interacts with the free childcare offer. We should consider the opportunity for simplifying the tax system by getting rid of the taper altogether, as it is a terrible deterrent to the families who get caught.
A person with a lot of children, earning between £50,000 and £60,000, can have a marginal tax rate of over 100%. It has become far too complex, and it is deterring many women from taking on more work. With the childcare offer we now have, it is time to look again.
I also want to throw the evidence from our “Sexism in the City” inquiry into the mix. The City has the highest pay and, indeed, the highest pay gap in the country. Some of the best paid careers for women are in financial services, but we hear time and again that, because of the tax-free childcare cut-off at £100,000, some women are choosing to work less than a full week. The freezing of the thresholds is having side effects. As the Financial Secretary thinks ahead to next year’s fiscal events, I urge him to consider those two potential simplifications.