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Clause 3 — Abolition of starting and savings rates and creation of starting rate for savings

Part of Orders of the Day – in the House of Commons at 9:30 pm on 28th April 2008.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee) 9:30 pm, 28th April 2008

I find this an extremely unhappy debate. It follows a period in which we have seen several Budgets dominated rather more by politics than by any great economic common sense or sense of social justice. In a way, two of them have been conflated. The Budget that introduced the 10p rate was, in my opinion, based on a mistake, and the Budget that has tried to remove it has made a mistake as well. Listening to today's debate, I find myself uncertain about how the House as a whole—if there is, temporarily, a majority in the House that wants to repair the damage—will emerge from this, and what exactly is supposed to result from the Government's package to restore the position.

I always opposed the introduction of the 10p rate, and I therefore do not think that we should argue for its reintroduction. It was introduced in 1999 because the Government had got themselves into a political commitment to reduce the starting rate of tax to 10p in the pound. That was a mere electoral slogan, produced to give the impression to people paying the standard rate that they would all start paying the 10p rate, because then, as now, the Government—particularly the present Prime Minister—constantly ran scared of the Conservatives' reputation for tax-cutting. Although the present Prime Minister was not going to cut taxes, he gave the impression that the 10p rate would be the new starting rate and introduced it, which caused unnecessary complication to the tax system and did not benefit anything like the number of people that some Labour speeches had given the impression it would.

I always worried about how some Government would manage to get rid of the 10p rate. I assumed that sooner or later a Labour Government would get rid of it—just as a Conservative Government would: we do not want too many income tax rates, because it over-complicates the system—but I thought that it would be difficult to get rid of it, because it would not be possible to raise taxation on precisely the group who have been hit now. I must admit that the only solution that occurred to me was that over the years it might be possible to fix, and not raise, the ceiling for the 10p rate and let the threshold creep up over time, so that one day, mirabile dictu, it would vanish; but it might have taken a very long time to do it in that way.

What I never expected was that the very Chancellor of the Exchequer who had introduced the 10p rate would, many years later when faced with another political imperative, abolish it in the most clumsy and insensitive fashion by trying to bury it in a Budget dominated—he hoped—by other headlines, and smartly increase the effective tax rate on some of the lowest earners in the country. That brings me to last year's Budget, which was the cause of our problems.

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Alix Cull
Posted on 29 Apr 2008 7:43 pm (Report this annotation)

I question the amount of savings that are allowed to disabled people before their Benefits are reduced. As far as I am aware this has not been changed for a very long time, and gives disabled people, especially those unable to work, any possible chance of climbing out of the poverty trap. It is yet another catch 22 which these vulnerable people face.