Clause 1
Finance Bill
10:45 am
Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)
I beg to move amendment No. 1, in clause 1, page 1, line 7, leave out ‘20%’ and insert ‘16%’.
As this is my first contribution, and the first by my party, may I start by saying what a pleasure it is to serve under your chairmanship, Sir Nicholas, and how much I look forward to doing so in the many weeks ahead? The purpose of amendment No. 1 is to cut the basic rate of income tax in the United Kingdom from the 20p that the Government propose to 16p, which would be the lowest basic rate of income tax in the country since 1916. Without going too far off the beaten track and incurring your wrath Sir Nicholas, it would perhaps be helpful for the Committee if I set out the context for the amendment. The Government propose to reduce the basic rate from 22p to 20p in the pound, largely—although not exclusively—paid for by doubling the 10p rate. Of course, that has caused considerable controversy and financial difficulty for many millions of people across the United Kingdom.
This is not quite the right moment to discuss the 10p rate—it has been discussed exhaustively, but I think we could still manage to get a bit more mileage out of it. The 10p rate, and the whole issue of income tax, has proved extremely controversial. It will continue to be controversial, because the compensation package that was outlined by the Chancellor to the Chairman of the Treasury Select Committee last week, failed lamentably to achieve the objectives shared by many Members in the House. We should compensate those groups who are net losers as a result of two policies happening simultaneously—a cut in the basic rate from 22p to 20p, and the doubling of the 10p rate. Many questions hang over us, and it is the Committee’s duty to examine and scrutinise them, including issues about who will be compensated, how that compensation will be backdated and matters of that sort.
As a party, we are trying to make a wider point with the amendment. It is not that the overall tax burden as a result of the change should be increased or decreased—this is a revenue-neutral proposal although, as the hon. Member for Runnymede and Weybridge said a moment ago, we can propose only reductions, not increases, so I must sketch in the remainder of the detail. The purpose of the proposal is not to decrease or increase the tax burden in the UK but to shift the emphasis of taxation, to a greater extent than at present, on to behaviour that is damaging to the environment, on to income groups who could bear a greater burden of taxation, and away from people who pay the basic rate of income tax, and thus away from income.
The effect is twofold. One effect is to discourage environmentally polluting activity, and the other is to reward work and enterprise. There is also a redistributive component to the proposal, which would not completely compensate those who have lost out as a result of the doubling of the 10p rate and the 2p reduction in the basic rate, but would leave far fewer than 5 million losers. The net losers are people whose saving from the reduction in the basic rate is not sufficient to offset the doubling of the 10p rate. If the saving were not 2p in the pound but 6p, as we propose, that would compensate far more people than the arrangements proposed by the Government.