Clause 1
Finance Bill
10:45 am
Jeremy Browne (Taunton, Liberal Democrat)
Mr. Atkinson, this is my first opportunity to echo the comments made by others in saying how much I am looking forward to serving under your chairmanship, and that of Mr. Hood, during the course of our deliberations.
I have only a few, brief comments to make on what is, after all, a very short clause. However, it is worth putting the clause in the context just given by the hon. Member for South-West Hertfordshire. Of course, the discussion that we had a year ago about this clause focused primarily on the 5 million-plus people in the UK who were losing income as a result of the Government doubling the 10p rate of income tax for those on particularly low earnings. Of course, the Government’s attempts to try and rectify that situation and convince Labour Back Benchers, in particular, and people right across the country that they had not intended to inflict such financial penalties on people on low earnings, meant that there was little opportunity to scrutinise quite serious changes to our system of income tax. The Government did not introduce those proposals in the normal way through a Budget and a Finance Bill so the opportunities for scrutiny were compromised. That is regrettable. Approximately a million people are still net losers as a result of the changes that the Government introduced, even with the compensation that was meant to rectify that issue.
The hon. Member for South-West Hertfordshire reminded us that, at this stage in our deliberations last year, I tabled an amendment to reduce the 20p rate to 16p. It remains Liberal Democrat policy to try to reduce the income tax burden on those on very low earnings. Our preference now is to try to do that through thresholds, rather than the rate itself. But the total amount that we wish to redirect to low earners remains the same. More detail will obviously be made available, possibly in next year’s Finance Bill. We live in times of rapid political change so who knows what will happen?
The other two points that I wish to make are slightly more central to the clause. First, I find it extraordinary that the first clause of this rather substantial piece of legislation contains a word that is misleading. It states:
“the higher rate is 40%”.
It is not the higher rate as anyone understands it in the wider world. As I understand it, compensation and tax credits make marginal rates for those on low incomes variable. Then there is a 20 per cent. rate and the 40 per cent. rate—this is without national insurance. There was then going to be a 45 per cent. rate and there are a whole range of tapers which mean that at some point people are paying marginal rates on their income of 61 per cent. Then it drops off and there is a 50p rate. By no reckoning is 40p the higher rate. It is roughly in the middle. I query whether the Bill is accurate in the impression that it seeks to create when even on line 8 people are invited to believe that 40 per cent. is the highest rate of income tax one can pay, unless one says that it is the higher rather than the highest rate, but I would regard that as splitting hairs.
My final point is about simplicity. In his final Budget as Chancellor, the Prime Minister gave as a reason for having two rates the fact that everyone would know where they stood. It was nice and clear cut. There is merit in greater simplicity, as we have discussed before. Indeed, I am told that “Tolley’s Tax Guide” has increased from 4,555 pages in 1997 to 9,841 pages in 2006. So it has doubled in length in a decade. That is an unreasonably large amount of guidance and legislation to get through in order to understand the tax liabilities in this country. Therefore, greater simplicity is valued by nearly everybody except, perhaps, accountants who benefit from a lack of simplicity.
The Government made a merit of having a more simple structure of income tax, but have then complicated it at every turn to try to target assistance or, indeed, penalties at particular groups in society. We now have a higher rate that is not the higher rate, a system that is meant to be simple that is not simple and large numbers of people on low incomes who have been heavily penalised as a result of the Government’s changes. So it is not a happy start to a long period of reflection and deliberation on other clauses that are probably even less attractive to the general public than this first one.