Clause 1
Finance Bill
10:30 am
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
First, may I say what a great pleasure it is to serve under your chairmanship in this year’s Finance Bill Committee, Mr. Atkinson.
Clause 1 sets out the main rates for income tax, as the Financial Secretary stated. It would be fair to say that the issue of rates is not as prominent this year as it has been. As the Minister said, the Government have preserved the two-tier structure for income tax. The two-tier structure was announced in the Budget of 2007 by the then Chancellor, the current Prime Minister, and is one that will last, it would appear, for two years, and for two years only. The reason why the issue of rates was so prominent last year—I was one of those lucky enough to serve on the Finance Bill Committee—was that the two-tier structure that we see in the clause was established, with a basic rate of 20 per cent. and a higher rate of 40 per cent. That was the first year of the structure, because before that we had the 10p rate. Next year it appears that we shall have an additional 50p rate.
Turning to how we got to where we are with the clause, it was the consequence of the Budget announcement of 2007. In his very last sentence, the then Chancellor announced that he was reducing the basic rate of income tax from 22p to 20p. Earlier in his speech he had announced the abolition of the 10p rate, but he had not made it clear that there would be—even taking into account the reduction to 20p—a substantial number of losers.
The Minister has referred to the structure of income tax and the fact that there would be no losers in 2010-2011. But when the new structure was announced in 2007, it quickly became apparent that 5.3 million households would lose out as a consequence of the abolition of the 10p rate. That number was quickly produced by the Institute for Fiscal Studies soon after that Budget. I served on the Treasury Committee and I remember that that number was broadly confirmed by Treasury officials. When the same figure was put to the then Chancellor the day after, he denied that figure and said—for various technical reasons that I do not intend to go into—that the figure was incorrect. By the time we got to our proceedings last year, it was clear that the figure of 5.3 million households losing out was correct. By that point, Ministers had confirmed the figure in written answers, after it was pursued by the right hon. Member for Birkenhead (Mr. Field), although he pointed out that getting those answers was somewhat difficult and it was not possible to obtain answers about how many individuals would lose out.
I have stated the figures now because the Government have their structure of 20p and 40p in clause 1, but the issue of the losers from the abolition of the 10p rate has not gone away. It is true that during our proceedings last year the Government introduced a compensation package that cost £2.7 billion and raised personal allowances. One could be cynical and say that it was during the Crewe and Nantwich by-election last year. If that was the reason, the package was singularly ineffective. None the less, it confirmed that the increase in personal allowances, which was described as temporary this time last year, would not be withdrawn in the PBR last autumn.
There is still uncertainty as to whether there are a substantial number of losers, and I draw the Committee’s attention to EDM 1279, which has been tabled by the right hon. Member for Birkenhead, who suggests that up to 3.8 million individual taxpayers continue to lose out as a consequence of the new structure. The EDM has been signed by 60 Members—predominantly Labour Members. I could be wrong, but I do not believe that any members of the Committee have signed it, and I suspect that Labour members of the Committee are relieved that they did not sign it because, had they done so, they might not have had the honour of being selected for this Committee. It was EDM 1279, but I fear it is too late now.
The EDM calls for compensation, and we appreciate the fiscal mess that the Government are in. If there is to be a compensation package, the question of affordability will have to be considered. Can the Minister confirm whether that number of up to 3.8 million taxpayers is correct? If it is not, what is the correct number? The question is about the number of individual taxpayers. That is an important point because the Government have always given the number of losers in households. It would still be helpful if the Minister could provide the households number to the Committee, but the point made in a number of instances by the right hon. Member for Birkenhead is that a household may consist of two earners. The example that he often gives is that the man may well benefit from the reduction of 2p in the basic rate of income tax, bringing us to the 20p that we have today, but the woman may be earning less and she may well be losing out as a consequence of the abolition of the 10p rate. Collectively as a household they may well be benefiting, but she as an individual may well be losing. That is why it is interesting to pursue the question of individuals as well as households. That information would therefore be very helpful and it remains astonishing that a Labour Prime Minister, in an attempt to pull a political stunt, was prepared to double income tax for low earners.
The other reason why the issue of rates, which we are debating in clause 1, is perhaps not as prominent as it was last year is that those of us who served last year will recall that the hon. Member for Taunton, on behalf of the Liberal Democrats, tabled a motion to reduce the rate of income tax from 20p to 16p. That, I understand, is no longer the Liberal Democrat position, although we look forward to the hon. Member for Taunton setting out his reasons in due course. I suspect that we will address this when we look at the issue of personal allowances, but I wonder whether the arguments used this time last year on 20p or 16p proved to be so persuasive that the Liberal Democrats changed their course. No doubt we will find out.
The other point I make, with regard to the main rates, is that I do not wish to touch on the various issues relating to the 50p rate which the Government intend to introduce next year. That is for later clauses and my hon. Friend the Member for Hammersmith and Fulham will be setting out our views on those issues. However, I note that in 1997, 2001 and 2005 the Labour party manifestos on which the Government were elected promised not to raise the basic and higher rates of income tax. That, of course, is a pledge that is going to be broken—to the extent that a manifesto pledge in those areas is worth anything from this Government. One can question whether it is even worth asking that question, but I am interested to know from the Financial Secretary whether his party intends to provide a pledge not to raise the standard rate of income tax. Clearly, the Labour party intends to breach its manifesto pledge on the higher rate of income tax, but will it repeat its pledge on the basic rate of income tax and, if it does, will he explain why people should take that in any way seriously?
Save for those brief remarks, Mr. Atkinson, we would be grateful to hear the Minister’s answer, but we are proposing no amendments to clause 1.