Tax: Changes

Question

15:10:00

Asked by

To ask His Majesty’s Government what assessment they have made of the loss of tax revenue from wealthy individuals leaving the country following recent tax changes.

My Lords, the OBR has certified that the non-dom reforms the Government have implemented will raise £33.8 billion in total revenue over the five-year forecast period. That figure accounts for some non-doms who are ineligible for the new regime choosing to leave the UK in response to these reforms. The Government will continue to work with stakeholders to ensure that the new regime is internationally competitive and focused on attracting the best talent and investment to the UK.

The ideologically driven decision to include overseas assets in IHT for both non-doms and former non-doms is described in the national press as Rachel Reeves’s biggest mistake. Despite what the OBR says, capital gains tax receipts have fallen by 10% and, as we heard on Friday, the national debt is ballooning. Does the Minister agree with me that, given that 30% of income tax receipts come from 1% of taxpayers and they are leaving in droves, it is a question not of whether this policy is reversed but of when? It is time to put country before party.

I do not agree with the substantive bulk of the noble Lord’s question. He mentions the capital gains tax figures. The latest outturn data for capital gains tax relates mainly to capital gains tax liabilities in the 2023-24 tax year, so pre-dates the announcement of non-dom reforms by the previous Government and this one. This Government’s tax reforms to the non-dom regime and to capital gains tax keep the UK an attractive place to live and to invest, while ensuring that everyone who is a long-term resident pays their taxes here, helping to fairly fund our public services. The UK’s main rate of capital gains tax is lower than in any other European G7 country, as is our corporate tax rate, and our new residence-based regime is simpler and more attractive to new arrivals than the non-dom regime it replaces.

Given the answer that my noble friend has just given, the best estimate I have seen is that the top 10% of taxpayers pay about 34% of their income in total tax while the bottom 10% pay 47% of their income in tax. Should we not be looking at the inequalities of the tax system a little quicker?

I agree with my noble friend that it is important to look at inequality right across the tax system and across our society. This Government are of course committed to reducing that through measures such as the minimum wage increases we have seen recently. Of course, successful businesses and entrepreneurs who create jobs and wealth are the engine of economic growth in our society. We will support them to succeed while ensuring that the wealthiest pay their fair share towards the public finances.

My Lords, are the Government trying to prove the truth of the law first articulated by the late lamented Lord Harris of High Cross that punitive taxes on the rich do not redistribute income but redistribute people, to the immense loss of the Treasury in this country?

No, we are not. The UK’s main rate of capital gains tax is lower than in any other European G7 country, as is our corporation tax rate. Our new residence-based regime is simpler and more attractive to new arrivals than the non-dom regime it replaces—the regime put in place by the party the noble Lord supported for 14 years.

My Lords, my eldest granddaughter is a British subject and an American citizen. She lives in the UK and has started to earn some money, only to find that she cannot avail herself of something like an ISA because it would be taxed from day one in the US and vice versa. This is one of anomaly after anomaly and Catch-22 after Catch-22 that the UK Government have refused to address. Does the Minister understand that, with non-dom status gone, this is becoming a major problem and driving out people who are tax resident in more than one country?

I absolutely understand the point the noble Baroness is making, but I do not necessarily agree that it is driving out the people she describes. I completely understand her point, but I am not sure I agree with the conclusions she is reaching.

My Lords, the richest fifth pay 30% of their gross household income in direct taxes; the poorest fifth pay 16%. The richest fifth pay 11% of disposable household income in indirect taxes; the poorest fifth pay 27%. Altogether, the poorest pay a higher proportion of income in taxes than the richest. The Government can promote tax justice and stimulate the economy by cutting taxes for the poorest and eliminating the tax perks of the richest. How quickly can we expect action from the Government?

As my noble friend will know, the UK’s approach to wealth through taxes on capital gains and inheritance generates substantial revenue for the Government and is on a par with other G7 countries. The OECD has said that capital gains and well-designed inheritance taxes can act as a more efficient and less administratively costly way of addressing wealth inequality than wealth taxes. Of course we want to ensure that we increase the incomes of the poorest people in society, which we have done, for example, through increases in the minimum wage.

My Lords, can the Minister confirm whether his Government agree with another of the OBR’s assessments, which anticipates that the Employment Rights Bill will have a net negative economic impact?

The noble Baroness will know that the OBR has not included an assessment of that Bill in its latest forecast, because it has not yet progressed through Parliament.

My Lords, does the Financial Secretary agree with the Chancellor of the Exchequer who said that “it is not fair that people live in this country for very long periods of their lives benefit from our public services and yet operate under different tax rules from everyone else”.—[Official Report, Commons, 8/7/15; col. 325.] Does he agree with that statement? Was that not in fact the statement of George Osborne, the Tory Chancellor of the Exchequer? If that is the case, is there not a lot of hypocrisy and cant being shoved at this from the other side?

I agree with much of what my noble friend says. The previous Government resisted taking action in this way for many years, but then did a screeching U-turn and implemented a series of reforms. Their reforms raised £21 billion in revenue. Our reforms will raise an additional £12 billion in revenue.

My Lords, do the Government remember the distinction made by the previous Conservative Government between people who were from somewhere and people who might be from anywhere? It was made with the clear intention of saying that people who liked going abroad were somehow not fully loyal to England; they were more European or something else. Given that distinction, which the previous Conservative Government and their Prime Minister made, is it not now a little hypocritical to say we need to defend those who might easily move away to Dubai, Thailand or Monaco, rather than the interests of people who are committed to this country?

I remember the “citizens of nowhere” comment that the noble Lord refers to. I think that, like much of what the previous Government did, it was not an encouraging thing to say. But let us remember that it is not for me to justify what the previous Government did. This Government are committed to addressing unfairness in the tax system so that everyone who makes their home in the UK pays their taxes here. I think that is absolutely the right principle from which we should proceed. Both the previous Government and this Government increased taxes on non-doms because it is necessary to raise revenue to repair the public finances and fund our public services. That is the fairest way of raising the necessary revenue while ensuring the UK remains an attractive place to live and invest.

My Lords, last Friday there was an important debate here about the serious threat that the current and increasing level of national debt poses for the UK. The Chancellor has failed to give herself enough headroom, and her fiscal rules are flawed. Hence, every reduction in tax receipts ought to be met by further spending cuts or by an increase in taxes elsewhere. Now we hear that tax revenue from wealthy people, such as non-doms, is going down sharply as many flee the country because of the Government’s policies. There is a clear tipping point. Will the Government reverse their non-dom policies? If not, which taxes will they increase to compensate for the loss of revenue?

No is the answer. The noble Baroness says that taxes should rise or spending should be cut. I ask her the same question: she says repeatedly that we are raising the wrong taxes, but she never says which taxes we should be raising. She says repeatedly that we should cut spending, but she never says what we should cut spending on. The OBR’s March forecast shows that the Government meet our fiscal rules with the same headroom as at the time of the Budget, thanks to decisive action to reduce spending and to grow the economy. Average borrowing over the next five years will be 2.6% of GDP, compared with 5.6% of GDP over the previous 14 years. There is now a significant fiscal consolidation during the course of this Parliament, taking borrowing as a share of GDP from 4.5% to 2.1%, achieving the biggest current budget surplus in over 20 years.

My Lords, that concludes Oral Questions for today.

My Lords—

Order!

I was going to give your Lordships the opportunity to rise and leave or enter the Chamber, but not while I am on my feet.