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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

The country's problems, and, as my hon. Friend correctly points out, the present Government's problems.

The Chancellor wished to go out on a grand note. As we now know, he was contemplating a possible general election in the autumn after he had established his leadership. Given his alarm about our party—which I am glad to say I think we currently justify, although there have been times in the past when his permanent fear of the Conservative party as an Opposition has been a little exaggerated—he was worried last year, and decided to pull off the master coup of cutting the standard rate of income tax, stealing all the Tory clothes and running away with them, as he saw it, with considerable enthusiasm.

The trouble was that because of the state of the public finances, the Chancellor could not conceivably afford to cut the standard rate. It was not sensible to do so when he was presiding over deteriorating public finances and a borrowing requirement that he was not even capable of forecasting correctly, let alone financing in any responsible way. So he did not find all the money from the 10p rate; he found some from business. He presented as a tax-cutting Budget what of course turned out to be a tax-raising Budget. That was a frequent performance of the present Prime Minister when he was Chancellor of the Exchequer. Too much of the money was raised by abolishing the 10p rate, so there was an extraordinary transfer of money from some of the poorest earners in the country to quite a lot of the better-off.

The reason was obvious; the better-off were thought to be more valuable voters in any forthcoming electoral conflict. The low paid, if they vote at all, tend to be safe Labour voters, and anyway they might not notice. Looking back, I can think of no other reason why part of the Budget proposed that the change would not come into effect for 12 months. It was not even legislated for at the time. The only reason for that was, as we all know, that the groups about whom we are talking do not follow the details of Budgets; 90 per cent. of the public do not follow the details of the Budget. People catch up with the Budget when they see the change on their pay slip. They sometimes turn up to their MP's surgery and ask why their tax has gone up because they never grasped the news that they were the victims. That is what has happened. Unfortunately for the Prime Minister, this Bill has come in a year later.

In this House, a lot of people noticed the measure last year. It took about 24 hours for them to do so because it had not been clearly flagged up. The then Chancellor had tried to bury it, but the debates erupted and the issue got into the press. People began to talk about not a tax cut, but a tax con, one of the popular phrases that rapidly got into the political debate. But none of us at that time came up with a proposal, apart from Mr. Field. There was a very simple problem. I have looked up my own speech to make sure and I did state that as someone of pensionable age and reasonably well off, I had benefited considerably from the Budget. I was suitably grateful; it was very nice of the then Chancellor to put me and one or two of my hon. Friends in a rather better position. I did ask why this was at the expense of some of the lowest earning people in the country, as that did not seem to be very sensible. But none of us had a remedy.

If my analysis is right—that the real problem was that the then Chancellor was cutting the standard rate when he could not afford to do so—the logical explanation would be not to cut the standard rate by quite so much. But in this Chamber we appreciate that all of us, including me, did not have the nerve to get up and say "You should not cut the standard rate until you can afford to do so. Why don't you put it back again?" We ruled that out, but now comes the uncertainty.

The right hon. Member for Birkenhead, not for the first time, has achieved an absolute triumph by mobilising what was, I suspect, a much more considerable body of support in his own party than the ones who had the nerve to sign the relevant motion to make the Government do something about it. But he is plainly extremely unclear exactly how the measures will be delivered and, let us be clear, he is talking about a considerable amount of public expenditure.

We keep talking about how much it would cost to put back the 10p band. I have no idea what sum the right hon. Member for Birkenhead is visualising will be spent on compensating all these people. I will not be so churlish as to ask how this will be paid for, because it could not be paid for at the time of the 2007 Budget. The Treasury sometimes finds itself hit on the head with public expenditure that it cannot afford so the next pre-Budget report or Budget will presumably contain some means of raising the revenue.

Meanwhile, the difficulty is that all the mechanisms that we have identified are extremely complicated and unsatisfactory. I regard the winter fuel payment as an electoral bribe paid to most pensioners. The money is taken from the right-hand pocket and put in the left-hand pocket at Christmas with a clear message; pretend this is for your fuel bills and spend it wisely. Many Members of this House receive it, as do most Members of the House of Lords, who regard it as a tax rebate. If it is given to everybody between the ages of 60 and 65, those of us who, sadly, have just crept past the age of 65 will be very indignant because most of those people will not be on a 10p marginal rate and quite a lot will be young pensioners, many with full-time occupations and good incomes. It is not very satisfactory.

The tax credit system is a most unsatisfactory way to proceed. The errors are too great. It greatly benefits some low-earning people, but it also causes great hardship to many low-earning people because of the errors that are made and the pain of recovering overpayments. So, how on earth will we target effectively the people we have in mind? I will vote for the amendment because it puts in concrete form the only thing that matters: that the Government, having agreed to do this, have to come back and produce something that delivers the goods.

I listened to the Chief Secretary last week, and I can well understand why she has ducked out of the debate today, because last week she did not have the first idea how this undertaking would be honoured. I understand the difficulty: Prime Ministers have a habit of making sweeping promises and then turning around to the Treasury and saying, "Carry on sergeant-major; now deliver what I have promised a majority of the House of Commons we are going to do." So I wish the Financial Secretary well, when she rises to speak.

I share some of the suspicions that have been raised, however. I read the Chancellor's tax letter to the Select Committee Chairman. The recipient, John McFall, is present; I see that he is nodding, and I am sure he agrees that the letter does not cast a great deal of clarity on exactly where we are now going to go. I am also worried that weasel words are already getting in, in the context of what the right hon. Member for Birkenhead has just related to us or has ever said on the subject. In particular, although the letter talks about the pensioners—those over 60—being, perhaps,

"helped through the mechanism that already exists to pay the Winter Fuel Allowance" and says

"all the changes will be backdated to the start of this financial year", when it goes on to talk about the other categories of people affected, there is no suggestion of anything being backdated to the start of the financial year. Therefore, the idea that people will be compensated in full, or even on average, did not even get as far as the Chancellor's letter. As one of the Liberal Members rightly pointed out, all Members are meeting people, so we can all cite people who are—sometimes in the most elaborate, but unfortunate combination of circumstances— hit by this. People come to us and say, "My income has gone down," and they will all have to wait for some period of time before any changes are even announced that will address that, and only the people between the ages of 60 and 65 appear to have got any undertaking of a backdate even by the time the Chancellor wrote this letter.

We are now all facing up to the fact that, even since the 2007 Budget, things have got much worse for the people we are concerned about. Since the announcement but before the change came into effect, while earnings have not been moving significantly, utility bills and council tax have increased and food bills are rising very rapidly, so everybody's discretionary income is being squeezed and the current situation of the people concerned is worse than we could have contemplated when this measure was first announced. Therefore, the sums— comparatively small, though they might sound to us—that they complain about when they come to see us are a big blow to those people's budgets at a difficult time.

We need an amendment to hold the Government to what the right hon. Member for Birkenhead thinks they have committed themselves to, but we cannot just take that on trust. The fact that it is almost impossible to conceive of an easy mechanism for achieving this means that we must make sure that the whole thing does not slip away and get lost so that by the time we reach the pre-Budget report in November we are again having obscure arguments with Treasury Ministers who are trying to persuade us that, really, when we look at this carefully, quite a lot of what they said happened.

This is an appalling episode. Some long nights of work are required in the Treasury to sort out how to compensate most of these people and, equally importantly, how to make sure they are helped fairly quickly this year to deal with the consequences now. If we just let this go today simply on the basis of the assurances we have been told about, and when we find that those assurances are almost impossible to understand—we cannot get hold of them and do not know what the mechanisms will be—it would be a great folly.

I therefore urge the right hon. Member for Birkenhead to vote for the amendment, which just ties the Government down to introducing specific things. The House has risen as a body and said to the Government, "This is not a fair way of paying for the point you wanted to make in the Budget at the time." We must ensure that they come back with a fairer way or a system of compensating those who are about to suffer. I do not envy the Financial Secretary to the Treasury—I see her poised to get up, so I shall allow her to do so in a moment—as she has one of the more ridiculous and impossible briefs to present to us. I hope that she can assure us at least that she will use her best endeavours, and perhaps she will allow the amendment to hold her to things and make her deliver something concrete.

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