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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 9:45 pm on 28th April 2008.

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Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury 9:45 pm, 28th April 2008

I am sorry if Mr. Clarke thinks that I am a sorry substitute for my right hon. Friend the Chief Secretary, but it is normal for the Financial Secretary to respond to such amendments.

The two amendments that have been tabled are intended to allow the tax rates announced at the Budget to stand only until the beginning of January, when the Chancellor would be required to make a statement, for approval by the House, about measures taken to mitigate the impact of the removal of the 10p rate. The amendments are unnecessary and would effectively freeze clause 3 if they were accepted. They are, in the time-honoured phrase, wrecking amendments.

The result of these amendments would be to change fundamentally clause 3 and would mean that Budget resolution 4, which enables HMRC to collect tax between the start of the tax year and Royal Assent to the Finance Bill, would fall. We would be left in the position in which HMRC would have no legal power to collect any tax on the first £2,320 of taxable income from the start of the tax year. Most employers, because they would require changes to their payroll systems, would also be unable to deduct the correct amounts from their employees.

Alongside those administrative issues, the amendments proposed would impose huge burdens on all taxpayers to finance these changes. I am sure that the Opposition did not set out to achieve that. I had hoped that they would use this amendment to discuss the wider issues in relation to the removal of the 10p rate.

It may be useful if I remind the House of our record in tackling poverty and helping the low paid since 1997, through a comprehensive programme of reform to the tax and benefits system. It would not be right to allow to go unchallenged the idea that all poor households were hurt by the removal of the 10p rate. In discussing those in poor households who are beneficiaries of this Budget, I do not seek to dismiss the concern about the proposed change, but our work to tackle poverty has focused on getting as many people back into work as possible, as we believe that work is the best route out of poverty. We are committed to making work pay through improving financial incentives to work.

The new deal has focused on creating programmes to help certain sectors find and maintain jobs. Employment is now at record levels, at 74.7 per cent. with over 29 million people in work—a rise of more than 2.9 million since 1997. Alongside this, in 1999, the Government guaranteed the lowest paid a minimum income for the first time. Since its inception, the national minimum wage has risen by 59 per cent., while median earnings have risen 37 per cent. That has brought to an end the long-term trend of wages at the bottom of the income distribution growing far more slowly than average earnings. That reform is very precious to me, as I used to work as trade union organiser for the then National Union of Public Employees and campaigned on the issue throughout the 1980s, when it was not universally supported by the Labour movement. I am proud of that achievement.

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