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

Orders of the Day – in the House of Commons at 7:45 pm on 28 April 2008.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 7:45, 28 April 2008

I beg to move amendment No. 18, in page 2, line 21, at beginning insert 'Save as provided in subsection (6A),'.

Photo of Frank Cook Frank Cook Labour, Stockton North

With this it will be convenient to discuss the following: Amendment No. 19, line 22, at end insert—

'(6A) The amendments made by this section shall cease to have effect at midnight on 5th January 2009 unless the condition set out in subsection (6B) has been satisfied.

(6B) The condition referred to in subsection (6A) is that the Chancellor of the Exchequer shall have laid before the House of Commons a statement setting out the measures taken to mitigate the effect of the amendments made by this section and by section 1 (when taken together) on those for whom such effect is a net increase in income tax payable and the House of Commons shall, by resolution, have approved such statement.'.

Clause 3 stand part.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Clause 3 has dominated debate on the Finance Bill. The policy changes that it contains have unravelled, and they have unravelled for the same reason that the Government are unravelling; they are incoherent, inconsistent and driven by short-term political expediency rather than a long-term strategy. The problems that the clause has created are the Prime Minister's problems. He announced these measures in his last Budget, measures that he knew—even when taken together with all the other measures that he announced—would have the effect of making 5.3 million low-earning households worse off. So why did he do it? Various theories have been advanced, the most generous—and, I have to say, the least probable—of which is that he did not appreciate the effect the measure would have on the poorest.

I bow to no one in my enthusiasm for identifying flaws in the Prime Minister but stupidity and innumeracy are not two that even I would suggest. Was it, as I have previously suggested, a move designed to establish his credentials ahead of a Labour leadership election and a honeymoon general election as the successor to Blair, able to reach out to middle England? Or, as my right hon. and learned Friend Mr. Howard suggested in the debate last Monday, was this entire elaborate strategy—announced in the way it was, with the abolition of the 10p rate concealed in the Budget small print and the reduction in the basic rate trumpeted in the final paragraph—nothing more than a tactical manoeuvre to try to wrong-foot the Leader of the Opposition in his reply? Whatever the motive, it was a cynical and short-term one, abandoning a long-term Labour party objective and a 1997 manifesto commitment.

Photo of Lembit Öpik Lembit Öpik Shadow Minister (Housing), Department for Communities and Local Government

Regardless of what the Government's motives were in changing the policy, the absolute wage rates in my constituency have decreased by 4 per cent. in the last 12 months—and they started off at 25 per cent. below the national average—so this change is having a practical negative effect in my constituency. It is reducing the average standard of living in Montgomeryshire and in many other constituencies, too.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Gentleman makes a good point. This tax change, which has had a negative impact on 5.3 million of the poorest households, comes at a time when earnings are stagnant and prices are soaring, leaving the average family squeezed in a vice-like grip. This measure is all the Government can offer them; at a time when those households need a hand up, all the Government offer them is a tax increase.

Photo of Julian Brazier Julian Brazier Shadow Minister (Transport)

My hon. Friend is being too generous to the Prime Minister. The clear reason for this measure is that the only category of the poor that count in the eyes of the current Administration are those who are part of the client state. The point is that this measure is heavily hitting people who are not in receipt of benefits.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My hon. Friend is right in that the people who will be worst hit will be those who are working. I accept his criticism; I have clearly been too generous to the Prime Minister, and I promise my hon. Friend that I will try to do better in future.

Photo of Kate Hoey Kate Hoey Labour, Vauxhall

I rise to ask a question in a spirit of genuine openness. This time last year, my right hon. Friend Mr. Field moved an amendment, which eight of my colleagues and many Liberal Democrat Members—and, I think, one Conservative—voted for. Why did the hon. Gentleman not vote for this last year, when we had the opportunity that was led by eight of my colleagues—and myself, I have to say?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I will answer that question genuinely—as, in fact, I answered the same question last Monday. We flagged this tax on the poorest within an hour of the then Chancellor sitting down at the end of his 2007 Budget speech. The amendment in question sought to impose an ongoing restriction on Governments, Chancellors and the Treasury in dealing with income tax changes. We felt that that was not the best way to deal with the problem. This specific issue is in this year's Finance Bill, and we are addressing it by tabling amendments that will deal with the problem before the House today.

Photo of Jim Devine Jim Devine Labour, Livingston

If the Conservatives were in power today, would they reintroduce the 10p rate?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

We have not said that we would introduce the 10p rate, and it is clear that the Labour Members whose position was critical in forcing the Government's climbdown were not necessarily seeking to reinstate the 10p rate. [Interruption.] The hon. Gentleman says, "Ah", but perhaps he would care to ask Mr. Field, who is sitting not 3 m along the Bench from him. Those Labour Members were seeking to get the Government to go away and look at this package again, and make sure that those on the lowest incomes who lose out from the proposals were compensated. That is also our objective tonight.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

No, I shall make a little progress now, if I may. [Interruption.] Well, let me tell the hon. Lady what the Labour party manifesto of 1997 said. It said:

"Our long-term objective is a lower starting rate of income tax of ten pence in the pound."

When the then Chancellor introduced it in 1999, he described it as a measure

"that will make work pay and help people, especially those who are low-paid, to keep more of the money that they earn" and he went on to say:

"When we make promises, we keep them".

I was therefore surprised to see in what can only be described as the "slippery letter" of the Chancellor to the Select Committee Chairman issued last Wednesday, that the 10p rate championed by Labour in 1997 as a long-term objective is now described as having been

"introduced in 1999 as a transitional measure."

My hon. Friend Peter Bottomley also noticed that change of tone, and asked the House of Commons Library to check whether there had ever been any reference to the 10p rate being transitional prior to the 2007 Budget. The Library's answer was clear:

"No. It does not appear to have been described that way."

Therefore, it is not any longer a "long-term objective", and not any more a step

"that will make work pay and help keep more of the money that they earn", but now, after the Government have abolished it, it was apparently a mere transitional measure. This is not so much a question of,

"When we make promises, we keep them", but more a question of, "When we make promises, we'll spin and we'll twist and we'll duck and we'll weave to cover our tracks as we break them."

In fact, the statement that the rate was introduced in 1999 as a transitional measure is, to put it bluntly, a terminological inexactitude. If it had been uttered in this Chamber, rather than in a letter, the Chancellor would have been forced to withdraw it. It is a rewriting of history that would make Stalin blush; a long-term policy objective has been airbrushed out to become a mere footnote—a transitional measure of no lasting importance.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow 8:15, 28 April 2008

My hon. Friend is giving a forensic analysis of the machinations that the then Chancellor, now the Prime Minister, has had to go through to get this proposal through the House. Is my hon. Friend aware that earlier this afternoon, in response to some penetrating questions from a Labour Member, the permanent secretary was forced to admit that the Treasury was, as long ago as the Budget of last year, completely clear about and aware of who would be losers under the abolition of the 10p rate?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I was not aware that that admission had occurred this afternoon, but I am not surprised by what my hon. Friend says and I can tell him this: 5.3 million low-income households know to their cost that the Prime Minister does not keep his promises, and that he was prepared to betray them for his own short-term political interests.

Photo of Lyn Brown Lyn Brown PPS (Rt Hon John Denham, Secretary of State), Department for Innovation, Universities and Skills

I am very grateful to the hon. Gentleman for giving way. About 40 per cent. of my constituents earn less than £19,000 a year. That means they will lose out from the 10p rate. However, the vast majority of them will gain substantially because of the way in which the moneys have been redistributed through working family tax credits, child care tax credits and housing benefit. [Interruption.] No, not clients of the state; people who work hard for the state, and who receive only the minimum wage in return for their labour.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

From what the hon. Lady says, it appears that she represents a constituency where earnings are below the national average. The figures, from the independent Institute for Fiscal Studies, are clear: 5.3 million households will, after taking into account all the other factors in the Budget package, be worse off. That is the group of people we are addressing today. Also, in addition to those 5.3 million people, there are millions more people—including some of her constituents —who have benefited from this package and who are equally disgusted that a Prime Minister, especially one who poses as the protector of the poor, could so cynically betray those who have placed their trust in him.

What is the Prime Minister's response? As recently as a week last Friday, he was insisting that there was no problem and that no one would be worse off, despite the independent evidence mounting all around him, the threats of resignation from some within his own Government, the comments of his own senior Ministers, the figures produced by the Institute for Fiscal Studies and the rising tide of public anger reflected in the views and mood of his Back Benchers.

Instead of listening and responding as the furore mounted, the Prime Minister and the Chancellor dug in with their few remaining loyalists in the bunker. The Prime Minister said that there was no problem and that no one would be worse off, the Chancellor said that he could not reopen the Budget and the Secretary of State for Children, Schools and Families told The Daily Telegraph that the tax rise on the poor was part of the process of

"taking forward the fairness agenda."

The Minister for the Cabinet Office dismissed the fate of the 5 million or so losers as a "matter of regret".

Senior Downing street sources were briefing like mad to The Guardian on Saturday 19 April, saying:

"The idea that someone is going to stand up...and pull a rabbit out a hat is just not possible".

On 20 April, The Sunday Telegraph reported having been told:

"We are not doing anything. We are not going to change our policy".

The Exchequer Secretary was slapped down when she dared to suggest—with some prescience, as it now seems—that there might be some movement, and the Chief Secretary's Parliamentary Private Secretary, Ms Smith, got a blast of transatlantic vitriol when she sought to express her constituents' concerns.

The position was clear: the Prime Minister out of touch—and, indeed, out of the country at the critical time—was on top of it. He said:

"I am satisfied that once people understand the scale of the good things that we've been able to do in reforming the tax system ...then whatever questions people have about these changes can be answered".

Everybody else—Members who were reading their e-mails, opening their postbags, doing their surgeries and talking to their constituents during the recess—were all, apparently, hopelessly out of touch. Alternatively, in the view of those in the bunker, the others were perhaps just too stupid to understand what the great genius in Downing street had achieved.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Is not the real sin of this the Government's failure to admit that people were worse off? How does my hon. Friend think the Prime Minister would explain things to a pensioner involved in the Royal National Lifeboat Institution who, at the opening of a new lifeboat in my constituency, pointed out that she would be £2.50 a week worse off because of the proposals? The thing that really made her angry was that the Government in general, and Ministers on the Treasury Bench in particular, pretended that that was untrue. She objected to being told that she was a liar.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Once again, this is a case of the Prime Minister treating people as if they were fools. He knew exactly what he was doing, as did we, and, in the end, as did Labour Members. The Government only last Wednesday came kicking and screaming, dragged to admit the truth.

Every parent explains to their children that the only way to deal with a bully is to stand up to him. This Prime Minister is a bully, make no mistake—one need only ask the hon. Members for Sheffield, Hillsborough or for Hyndburn (Mr. Pope) about that. To their credit, a significant number of Labour Back Benchers rallied behind the initiative of the right hon. Member for Birkenhead in demanding compensatory measures for those who were to lose out, before the measures were implemented. I am not talking about a scrapping of the plan to double the l0p rate, but a revisiting of the wider package to restore the £700 million or so that was going to be taken from the pockets of those on the lowest incomes. They stood up to the Prime Minister and, true to form, he bottled it.

The Prime Minister offered no apology, no explanation and no recognition of the enormity of the policy that he had pursued, defended and sought to justify. The protestation that everything was cast in stone, that nothing could be revisited and that it was all in the long-term best interest of the country was forgotten in an instant. Faced with defeat, he ran up the white flag. He did so not because he had been persuaded of the argument or because he acknowledged that he was wrong, but simply to avoid a humiliation on the Floor of the House tonight. His was a tactical manoeuvre, and the right hon. Member for Birkenhead promptly claimed a victory—a victory it certainly was. The Prime Minister was humiliated. He was forced to climb down on a key proposal in the Budget that he had introduced a year earlier and in respect of which he had refused to countenance any form of compromise.

However, the top-level message that the demands of the rebels would be met, is not supported by the wording of that "slippery letter" from the Chancellor to the Chairman of the Select Committee, which is full of prevarication and procrastination. It talks about

"taking forward work to look at how we can help families without children" and

"actively looking at ways to help these groups".

It also mentions putting

"in hard work to see if those households who have lost out.. .can be helped through the mechanism that already exists" and focusing

"on potential changes to the tax credits system to allow the average losses from the removal of the 10p starting rate ... to be off-set" .

It also spoke of reporting

"on what changes could be made to the minimum wage regime ."

The right hon. Member for Birkenhead sent an e-mail to those Back Benchers who had supported his amendment, telling them that the Prime Minister had committed to compensation in full for all those who lost out and that compensation would be backdated to the beginning of this tax year. We know what it said because Jeremy Paxman helpfully read it out on "Newsnight" to the Chief Secretary, who then pointedly refused to confirm that all those affected would be compensated, that they would be compensated in full or that compensation would be backdated.

The following morning on the "Today" programme, the right hon. Member for Birkenhead, in magnanimous mood, put the Chief Secretary's prevarication down to a lack of briefing on the deal. I find that unlikely, given her usual diligence and attention to detail and given the fact that this was the life-critical issue for her Government at that point in time. We note with interest that she has decided this evening that discretion is a more attractive option than valour.

Photo of Linda Gilroy Linda Gilroy Labour, Plymouth, Sutton

On prevarication, will the hon. Gentleman remind the House whether his party has finally arrived at a decision about whether it will restore the 10p tax rate?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

We have already dealt with that one; the hon. Lady was obviously thinking about something else at the time.

The hon. Members for Norwich, North (Dr. Gibson) and for Merthyr Tydfil and Rhymney (Mr. Havard) both popped up on our television screens expressing the slightly heretical thought that perhaps the right hon. Member for Birkenhead had been a little too hasty in accepting the Prime Minister's vague assurances. They have clearly both noticed, as have Conservative Members, that when shaking on a deal with the Prime Minister, it is a sensible precaution to make sure one has got all one's fingers back in one's possession before counting the deal as done.

There is no doubt that the combined determination of the Opposition and a core of courageous Labour Back Benchers scored a great victory last week and exposed the Prime Minister, once again, as weak and indecisive. Nothing will detract from that achievement, but now it is our job, as the Opposition, to ensure that what has been promised is delivered. Today, the Prime Minister has not exactly reassured those of a nervous disposition, saying at lunchtime:

"We have sorted out the problems that existed which were the under-65s and we are sorting out the low-paid by looking at what we can do to help them".

I must have blinked, because I missed the announcement on how precisely the under-65s are to be helped. For the Prime Minister's information, "looking at" how to help someone is not the same as "sorting out the problem".

Photo of Jim Devine Jim Devine Labour, Livingston

Will the hon. Gentleman give way?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 8:30, 28 April 2008

No, I am going to make some progress. The hon. Gentleman has already had one go.

Let us remember that this is the Prime Minister who was going to restore trust in politics. Well, promising anything to buy off a rebellion four days before an election and then failing to deliver on those promises is not the way to restore trust in politics in this country. Nor is it the way for the Prime Minister to dig himself out of the hole he has dug himself into.

So the amendment that we have tabled is designed to underpin the deal that was done last week, not to undermine it. It should be as acceptable to those who are convinced of the Prime Minister's sincerity as to those who doubt it, and as acceptable to those who wish to live in hope as to those who prefer to learn from experience.

The amendment would introduce a sunset provision for the changes made by clause 3—principally, the abolition of the 10p rate. It would give the Government the rest of this year to take action and come back to Parliament and report on the measures that they have taken to mitigate the effects of this clause on those who will pay more income tax as a result of the combined effects of clauses 3 and 1—the clause reducing the basic rate of tax. When they had done so, it would require a simple resolution of the House that it is satisfied with the statement made to lift the threat of the sunset provision.

The amendment is deliberately not prescriptive. It does not seek to tell the Government how they must address this problem; whom they must compensate and to what extent, or by what means. The requirement for approval of the statement by a resolution of the House is intended to ensure that the package the Government deliver addresses the reasonable concerns that have been expressed in the House.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

The logic of the hon. Gentleman's position is that it would be satisfactory to get rid of the 10p rate, provided that the House was satisfied with a complex compensation package. Surely it is a crazy idea to get rid of the 10p rate and try to compensate various groups through ever more complex means, only to end up spending public money on other groups who did not lose but cannot be separated from those who did. The whole idea is nonsense, and it would be far better simply to retain the 10p rate— [ Interruption. ]

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

As I have just been reminded, the Liberal Democrats' policy was to get rid of the 10p rate, so the hon. Gentleman might be a little off message.

In practice, because of the arithmetic in the current Parliament, the only way the Government could fail to secure such a resolution would be to fail to secure the support of the 46 Labour Members who signed the amendment tabled by the right hon. Member for Birkenhead and those other Labour Members of like mind who had not quite summoned up the courage of their convictions by last Wednesday. If the Government deliver those Members what they promised them, or at least a package that they accept as being a fair and reasonable solution in all the circumstances, they will get their motion, whatever the Opposition parties do. But the provisions of the amendment would be the House's insurance policy against the Government who, with the rebellion off and the elections behind them, could renege on the commitment they have made.

Such an insurance policy is necessary, because the Government's body language, within hours of the deal apparently being done, signalled evasiveness. There was no clarity as to whether everyone would be compensated. There was no confirmation that they would be fully compensated. There was no commitment on backdating— except for 60 to 64-year-olds who will receive a winter fuel payment, where backdating is irrelevant in any case, as the qualifying date is in September. There was a shabby attempt to shuffle part of the burden on to employers by a political interference with the rate of the minimum wage. Perhaps the Financial Secretary will provide some specific and concrete assurances in the course of this debate. If so, that will be yet another change of direction, albeit a welcome one. In the absence of such details and concrete assurances, the House must have its insurance policy.

This is a problem of the Prime Minister's own making, quite literally. It was his Budget; his betrayal of 5 million households on low earnings; his refusal to listen to the advice and counsel of his own party supporters; his arrogance and intransigence in rejecting the possibility that he could be wrong; and his weakness and indecision in first squaring up to the rebels, and then climbing down. He has a track record now. Over the last decade or so, we have seen many offerings from the Prime Minister that do not quite match the fine rhetoric with which they were presented. We have all learned—and it takes a conscious effort now to remember that this was not the case before 1997—not to take what we hear in the Budget speech at face value, but to wait until we have trawled through the mountains of small print and press releases before passing judgement. Now the Prime Minister has to live with the consequences of that track record and recognise that many in the House will have been alarmed by the gap between the right hon. Member for Birkenhead's version of the deal and the Chief Secretary's comments on "Newsnight" last Wednesday. They will have been alarmed that they might have sold the pass too quickly, without a clear Government commitment on the extent of the compensation, the amount and how it will be backdated. I hope that they will support amendments Nos. 18 and 19 in the spirit in which they have been tabled—as an insurance policy to guarantee that the Government act in good faith.

Without such a guarantee, my hon. Friends and I cannot support clause 3. The Labour Members who displayed such courage last week, and who have now retreated from that position, will carry a tremendous weight on their shoulders if the end result is a package that delivers less than the right hon. Member for Birkenhead has led us to believe that it will.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Let's get this show on the road.

We all remember 21 March 2007, the final Budget delivered by the longest serving Chancellor of the Exchequer in the past 100 years. Labour Members behind him waved their Order Papers and celebrated the fact that they would finally be rescued from the torment of Tony Blair's leadership, to go instead into a sunlit upland of socialism with a leader who both connected with their base and understood, uniquely, and even better than his predecessor, the instincts of middle England—a leader who would return them for a fourth term in this Parliament. They all went off excitedly to the Tea Room to discuss the triumph that was inevitably theirs.

The leader of the largest Opposition party in the House got to his feet and said, "At last, we have been given a tax cut." He completely failed to notice that the trade-off was that millions of the poorest people in this country, far from getting a tax cut, would see their taxes rise substantially.

The one eminent figure in that debate—the one party leader—who spoke most clearly on the subject was the then Liberal Democrat leader, my right hon. and learned Friend Sir Menzies Campbell, who pointed out precisely the point that has concerned so many Labour MPs in the past few weeks. It just goes to show that there is nothing like an opinion poll or two to concentrate the minds of Labour Members of Parliament. The warning was there and had they stayed to listen to the speeches made by the Liberal Democrats, they would have known that their constituents would be the main losers from that Budget.

Photo of Lyn Brown Lyn Brown PPS (Rt Hon John Denham, Secretary of State), Department for Innovation, Universities and Skills

Does the hon. Gentleman not accept that the number of people who will lose through the cutting of the 10 per cent. band has been over-hyped? Does he accept that some of the poorest people in this country are those who are on low wages but fall outside the benefit banding? The cut from 22p to 20p helps that most vulnerable group.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I do not accept that argument. If the hon. Lady had been present for our extended debate this time last week—she was not, and I appreciate that she has been brought in as the one person on the Labour Benches who is willing to defend this policy, apart from the Parliamentary Private Secretary, Ms Smith, who does so under duress—she would know that the Labour Chairman of the Treasury Committee made the point that more than 5 million taxpayers would be net losers as a result of measures in the Budget and that the 2p cut in the basic rate would not be sufficient to offset the doubling of the 10p rate. We must not make the mistake of ever talking about the abolition of the 10p rate as, for our constituents, the rate has doubled.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Is it not obvious that Lyn Brown is wrong? If she were right, the Government would not have been panicked into making the decisions that they have made.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

The right hon. Gentleman attributes a degree of rational and strategic thinking to the Government that probably does them an exaggerated service.

Photo of Stephen Dorrell Stephen Dorrell Conservative, Charnwood

Is it not remarkable that Lyn Brown should say that the figures are inaccurate, as they come from the Government themselves at column 1267 on 18 October last year?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Indeed; the Institute for Fiscal Studies and the Treasury's own answers have both confirmed figures in the region of 5.3 million losers. I do not think that that is a matter of debate; what we are discussing is how those people can be assisted and how the Government got into this mess in the first place.

Photo of Jo Swinson Jo Swinson Liberal Democrat, East Dunbartonshire

Does my hon. Friend agree that it was entirely unjustified of the Government and, indeed, of the vast majority of Labour Back Benchers completely to ignore and deny the impact of the doubling of the 10p tax rate on the incomes of the low-paid, when the hardship that the measure would cause was crystal clear a year ago?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I very much agree. It does not seem difficult to work out that for people who pay 10p in the pound as a marginal tax rate, a doubling to 20p would end up costing them more in tax than if the measure had been left in place, but it obviously took 13 months for that finally to become clear to Labour Back Benchers, which is highly regrettable.

The Prime Minister is a man of massively diminished authority. Last week, he was pacing around the White House pleading with the hon. Member for Sheffield, Hillsborough, who is appropriately dressed in black for this occasion, urging her not to resign from her post as PPS and further humiliate him. Last week, one can only imagine the atmosphere in his private meeting with Mr. Field, who has a long track record of making keen observations about his qualities or otherwise. Who can forget the observation:

"Allowing Gordon Brown into No 10 would be like letting Mrs. Rochester out of the attic"?

The right hon. Gentleman went on to say:

"He has no empathy with people."

[Hon. Members: "More."] There are many choice observations by the right hon. Gentleman on the subject. He told ePolitix website a year or so ago:

"One of the reasons I favour a leadership contest is that once you're in a contest a person's full qualities can be judged in a way that they never are in normal circumstances...A contest would enable us to judge people's competence not just as Chancellor of the Exchequer but as Prime Minister, which is a totally different position."

That has been shown to be very much the truth, so I can only imagine how the Prime Minister responded to that intimate and cosy chat when a gun was held to his head by the right hon. Gentleman, who threatened to humiliate him.

I imagine that the atmosphere was less than perfect, but that does not justify the euphoria in the Labour ranks. Perhaps something happened in that conversation, and the right hon. Gentleman may tell us what it was when he gets to his feet. I read the letter from the Chancellor of the Exchequer to the Chairman of the Treasury Committee, and I could not understand why Labour MPs were in such a buoyant and euphoric mood last Wednesday afternoon. There are many questions—and many of them have been touched on by Mr. Hammond—that remain unanswered, and I shall go through some of them.

First, what is going to be backdated in this package of proposals? As I understand it, the specific measures aimed at trying to assist pensioners between the ages of 60 and 64 will be backdated, but there is dispute—and it remains unresolved—as to whether other people will receive backdated compensation. Indeed, the right hon. Member for Birkenhead said that the Chief Secretary was "badly briefed" on the backdating of the compensation package. I wonder whether the right hon. Lady, even though she is not speaking for the Government in this debate, has had time to swot up. It is extraordinary that she should have to be briefed at all on these matters, as one would think that she was at the centre of trying to decide the Government's taxation policy.

Secondly, even if those measures are backdated for everybody, there is the issue of cash flow. There are many people on low and low-to-middle incomes, and if they receive money in November that is backdated six months, it will not pay today's supermarket, gas or council tax bill, and those are the problems that the Government have not identified or addressed.

Photo of Annette Brooke Annette Brooke Shadow Spokesperson (Children, Schools and Families), Shadow Minister (Education)

I should like to take the example of one of my constituents, who is £30 worse off, and is already facing mortgage arrears. Just what are people such as my constituent going to do?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

My hon. Friend makes an excellent point, which no Treasury Minister has so far adequately addressed, but we await with interest to see whether a rabbit will be pulled out of a hat. We were told to watch this space. We are still watching, but the picture is yet to become fully clear.

Photo of Susan Kramer Susan Kramer Cabinet Office, Shadow Secretary of State, Liberal Democrat Spokesperson (Cabinet Office)

Has my hon. Friend seen in any of the Government responses a solution for my constituent, a young, single, working mother, who has vowed never again to claim tax credits because of the cycle of overpayment and clawback, who now sees that there is no way out from paying a higher tax rate on her very meagre income, and who may not work again?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

My hon. Friend makes a valid and related point about the fiasco and complication that is the tax credit system. One of the issues that the Government will have to address is that they are replacing a simple mechanism to reduce the tax burden on people on low incomes with a series of far more complex and complicated alternatives. Many of those people may not be adequately compensated, but some will be theoretically compensated, because I will bet the House that the Treasury will budget so that the take-up is not 100 per cent. for those who are eligible to be compensated as a result of the 10p rate being doubled.

Photo of Frank Field Frank Field Labour, Birkenhead

Do the Liberal Democrats propose to reintroduce the 10p rate, and if so, where will they find the £7 billion?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

It is our intention to reduce the tax burden on people who earn the lowest salaries, and we will do that in a number of ways. We propose to reduce the basic rate of income tax, and I would like to see us bring forward measures for the next general election that will also raise thresholds in a progressive way. Tax-cutting can be extremely progressive if the taxes cut are for those on the lowest incomes, who at the moment pay tax to the Government even if they are on the minimum wage and then become eligible to try to claim large parts of it back in the form of various credits and other rewards from the Treasury, which is extremely bureaucratic and inefficient, and many people fall through the net. Our objective is to try to make it both simpler and fairer.

Photo of Frank Field Frank Field Labour, Birkenhead

The hon. Gentleman is making a good speech, but there was a simple question to answer so that the country would know where the Liberal Democrats stand. It is clear that, while the Liberal Democrats might want to introduce all sorts of things to make our tax system fairer, there is no commitment to reintroduce the 10p rate. The message goes out from the debate that none of the major parties is proposing its reintroduction, so we are looking at compensation packages.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Let me make this clearer. The Liberal Democrats' objective is to ease the tax burden on people with very low incomes who cannot afford it at present. The Government propose to double the 10p rate to 20p for those people, going completely in the wrong direction. We could choose to use the 10p mechanism to assist those people, or it could be done some other way. A millionaire pays less as a result of the 10p rate decision, so I appreciate that it is not a very focused tax reduction for people on low and low-to-middle incomes, but it is a hell of a lot better than what the Government are proposing, which is that that tax burden should be doubled for those people.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have given way twice, so I will try again. It is nice to have a question and answer session on Lib Dem policies, but we are meant to win a general election first. I will give way for a final time.

Photo of Frank Field Frank Field Labour, Birkenhead

So although there are all sorts of measures that the Liberal Democrats may introduce, reintroducing the 10p rate is not on the cards—yes or no?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have explained so many times. We will vote against the clause this evening, and I hope that, if the right hon. Gentleman shares our instincts to help some of the lowest income households, he will join us. I see that many, many Labour Members have come here, I hope for the same purpose.

Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I have been enjoying my hon. Friend's vivisection of those on the Treasury Bench. I brought up this matter in the Treasury Committee, particularly with regard to pensioners in my constituency, because they have the double whammy of not only losing out on tax but facing increased costs against which they can do nothing. Is not the fairest way to deal with those pensioners and others who lose out in that way to raise tax allowances, so a policy that we may well contemplate might be the raising of tax allowances, combined with a lowering of the basic rate, which would achieve as good, if not better an objective than simply putting back the 10p rate?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am grateful to my hon. Friend, who has made an extremely attractive proposition. We already know the parameters of the debate at the next general election: the Labour party is committed to its tax and spend proposals and the Conservative party is committed to matching them entirely. The Liberal Democrats belong to the only party with the freedom of manoeuvre to consider exactly the sort of progressive and attractive tax policies mentioned by my hon. Friend. However, let us not get too diverted.

We have talked about some of the unanswered questions, such as who will get the backdated proposals and those about the issue of cash flow, and we have not yet heard an answer, although we hope that we will later. Furthermore, we have not heard about how long the compensation packages will last. Will they apply for one year only, as some Government measures do? For the people affected, losing the 10p rate is not just for Christmas, but for life.

Not only low earners are involved. Many in the London media commentating classes make the mistake of thinking that anybody who earns £14,000 to £17,000 a year is a low earner. For many constituents of mine, that is a typical wage. People who work as hotel receptionists or on farms or who have secretarial jobs do not regard themselves as low earners or as people who need to be beneficiaries of the largesse of the state. They want to get on with paying a reasonable proportion of their salaries in tax to fund public services, but they also want to be able to provide for themselves and their households. The issue affects millions of people—including, but not exclusively, the poorest.

Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I thank the hon. Gentleman for giving way; he is being very generous. He has been talking a lot about Liberal Democrat policy and what might happen at a general election in two years' time, but my constituents are struggling now. The reason for the concern on the Labour Benches and elsewhere was that all our constituents are struggling now. No one is going to reinstate the 10p band at a cost of £7 billion; we are looking for mitigating procedures that cost about £700 million. Will the hon. Gentleman support the Conservative amendment, which seeks a guarantee that Mr. Field got the guarantee that he thought he got, and that as much as possible is done as quickly as possible for the people who are struggling today?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Yes, is my answer to that. [Interruption.] Well, I have never claimed anything else. People were asking what the Liberal Democrats were going to propose at a general election in two years' time, and I was doing my best to say that our instincts are that people with low earnings should be assisted and pay a lower proportion of their wages in tax than they currently do.

The Government have not addressed a fourth point to our satisfaction. They have all this talk about compensating people who are "average" losers, which seems an entirely nebulous concept. If one person has no money and another is a millionaire, their average wealth is £500,000, but that figure does not reflect the circumstances of either person. The Government talk about "average" losers, but some people may be overcompensated and end up with more money as a result of the package than if the 10p rate had been kept in place. Other people will not be adequately compensated. We need to hear further details about precisely how the compensation will work.

Furthermore, we need to know how the mechanisms will work—full stop. We seem to have a new concept for compensating pensioners called the summer fuel allowance, which will run from April until September or October and make sure that pensioners stay warm enough in July and August. That seems a strange and blunt instrument. The minimum wage is talked about as a way of addressing problems, but that is not necessarily entirely in the Government's hands to deliver. The Low Pay Commission has a say, and the burden is borne by employers and not by the Government in the form of the taxpayer.

On face value, the package of proposals put before us as a result of the lively meeting between Mr. Field and the Prime Minister leaves far too many questions unanswered to be satisfactory to any self-respecting Labour MP.

Photo of David Howarth David Howarth Shadow Solicitor General, Ministry of Justice

Another problem with using the minimum wage is that it will not help two obvious groups of people: first, those whose overall pay is low because they are part-time, even though their hourly rate is greater than the minimum wage; and, secondly, self-employed people such as jobbing builders and low-paid freelancers of various sorts—window cleaners, for example—who will not be benefited by an increase in the minimum wage.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

My hon. Friend is right in both regards. The hundreds of thousands of people who fall into those categories will not be satisfied with the proposals that have been put forward, despite the fact that so many Labour MPs instantly leapt at them as the solution to all their woes.

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

The hon. Gentleman is making a good case against the Government. Does he accept, first, that movement of the minimum wage would not have an impact until 2009 in any event; secondly, that it is an unwarranted interference with the Low Pay Commission by the Government; and, thirdly, that it is an attempt to make industry pay for the Government's cock-up?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will make this short by saying that I agree with all three points that the hon. Gentleman makes.

Photo of Susan Kramer Susan Kramer Cabinet Office, Shadow Secretary of State, Liberal Democrat Spokesperson (Cabinet Office)

Is my hon. Friend aware that the proposal will not help many people in London, because firms have gradually been encouraged to move to the London living wage of just in excess of £7? A movement in the minimum wage does nothing for those people, who are in effect living close to the poverty line because of London prices.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

My hon. Friend makes an excellent point. The national minimum wage has less effect in London, where wages and the economy as a whole are geared at a higher level because the cost of living is greater. Raising the minimum wage by, for example, 50p will therefore have a less profound impact in this part of the country than it would elsewhere.

Many questions remain unanswered. The truth is that Labour MPs have been fooled twice on the 10p rate. They were fooled on 21 March 2007, when they waved their Order Papers and decided that the Prime Minister was somebody they could place their faith in to lead their party, and they were fooled again last Wednesday when the Prime Minister wobbled in the face of their threats and they thought that they had achieved a victory, which has turned out to be built entirely on sand.

Two claims were made about the Prime Minister prior to his taking office, one of which was that he cared deeply about the poor. We now discover that his main obsessions are positioning and political manoeuvring. He is making fumbling attempts to appeal to middle England, which he does not understand. Let us have no doubt about this. After all, what was the motivation for cutting the basic rate from 22p to 20p, paid for in large part by doubling the 10p rate? It was so that the Prime Minister could say to the Daily Mail and to other representatives, as he saw it, of middle England, "Don't believe for a moment that Tony Blair leaving as leader of the Labour party means that new Labour is dead as a concept. I am still able to carry new Labour—the election-winning coalition that has got us through the last three general elections and can still be held together with me as leader of the Labour party. My demonstration of that is that I am able to trump the Conservative party on the basic rate of tax." That was the motivation—it had nothing to do with the poor.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Will the hon. Gentleman carefully consider what he has just said and retract it in the interests of accuracy? He is repeating what Mr. Hammond said a few days ago—that the cost of reducing the standard rate from 22p to 20p was being met largely by the impact of the reduction of the 10p rate on the less well-off. That is not the case. The cost of reducing the standard rate is £7,000 million or thereabouts; the cost, and the impact on the 5.3 million people affected, is £600 million or thereabouts, which is less than 10 per cent. of that.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am grateful for the hon. Gentleman's intervention, but it is based on an inaccuracy. It is not often that I stand up for those on the Conservative Front Bench, but their analysis is right. The people who are net losers from the doubling of the 10p rate—

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Listen, and I will explain. Compensating only the people who are net losers because of the doubling of the 10p rate would cost about £700 million—the figure mentioned by the hon. Gentleman. The total increase in revenue from doubling the 10p rate is far greater than that because someone who is earning £100,000, £150,000 or £200,000 a year will also be affected by the 10p rate. We are talking about two separate measures. The 2p reduction in the basic rate was paid for in large part—I did not say entirely—by the doubling of the 10p rate. A lot of people are net beneficiaries of that change because the 2p reduction in the basic rate more than compensates them for the doubling of the 10p band, which is quite narrow. However, some people on lower incomes—those who are, depending on their circumstances, earning up to £18,000—are net losers. The hon. Gentleman is confusing two separate points.

I will, however, meet the hon. Gentleman halfway on this point. I find it galling to listen to the Conservatives professing great concern about the poorest in our society. We remember, in March 2007, the current Prime Minister's final Budget as Chancellor of the Exchequer, and the misplaced euphoria of the Labour MPs who thought that this was a man capable of winning a general election. We remember the heightened excitement in the autumn of last year, when there was a possibility that a general election would take place and when it still seemed plausible that the Prime Minister could deliver a victory for the Labour party. The Conservatives had their conference at that time, and the shadow Chancellor made a speech that was extremely well received by large parts of the media.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am being generous to the hon. Gentleman—to some extent his speech changed the political dynamic. Many people felt that it had a significant effect on the Prime Minister.

The shadow Chancellor identified in his speech what the priorities for the Conservatives would be, were they able to cut taxes. We have to cast our mind back and ask ourselves who the beneficiaries of the Conservative tax-cutting package were. Were they the people I mentioned a while ago—those on typical wages, such as people working on farms, hotel receptionists or secretarial staff? No, they were completely overlooked. Were they pensioners on modest incomes between the ages of 60 and 64? No, they were completely overlooked. Were they people on low wages under the age of 25 without children? No, they were completely overlooked, as well. The people whom the Conservative party thought had the most acute needs in our society, and were therefore most deserving of an easing of their tax burden, were people who lived in houses worth somewhere in the region of £1 million, who had entirely paid off the mortgage on their house. I regarded that as an extraordinary prioritisation, although I do not doubt that it was effective in preventing the Prime Minister from calling a general election.

Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

I am grateful to the hon. Gentleman for giving way, and for talking about my conference speech. One of the consequences of that speech was the introduction by the Labour Government of clause 8, which increases the inheritance tax allowance available to married families. I presume that since the hon. Gentleman has mounted such a vitriolic attack on helping people with inheritance tax bills, his party will vote against clause 8.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am not launching a vitriolic attack on anything. I think that there is a place for inheritance tax, as does the hon. Gentleman, because he does not want to abolish it altogether. At the moment, because of rising house prices the threshold at which people start to pay inheritance tax is too low. The point of dispute is whether it should be raised as high as the hon. Gentleman is proposing, or whether there are people who need that assistance more. I would argue that my constituents and others who earn £11,000, £12,000, £13,000 or £14,000 a year are more deserving of Government assistance than those who live in houses worth £1 million who have paid off their mortgages entirely. We shall have to agree to differ on that.

Photo of Mark Lazarowicz Mark Lazarowicz PPS (David Cairns, Minister of State), Scotland Office

In the interests of clarity, do the hon. Gentleman's colleagues who represent London constituencies agree with his views on inheritance tax and the limit at which it should come into effect? Do they agree—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. It is an interesting little diversion, inheritance tax, but we should return to the subject of the amendment before the Committee.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have not checked with all my hon. Friends, but I am sure that they agree with me on the matter. Given that our position is logical, consistent and principled, it would be odd if a lot of logical, consistent and principled people did not agree with it. However, I shall move on, as instructed.

There were two myths about the Prime Minister before he took office and was exposed. The first was that he put the needs of the poor at the top of his agenda. That has been proved emphatically not to be the case. He is far more interested in political positioning and manoeuvring, especially if he is trying to outmanoeuvre the Conservative party, even if some of the poorest people in our society constitute the collateral damage.

The second myth about the Prime Minister was that he was the master strategist, a chess player who thought several moves ahead. That claim now appears laughable. Indeed, the Secretary of State for Justice, who was the Prime Minister's campaign manager when he stood in the uncontested election for leader of the Labour party, now apologises for the Prime Minister's errors. He said—in a way that I suspect has led to another icy meeting behind the scenes—that the Government's "best brains" had not managed to work out that there would be more than 5 million losers as a result of doubling the 10p rate. The best brains are clearly not good enough to help those on the lowest incomes.

At the weekend, Lord Levy told us that Tony Blair is alleged to have said that the Prime Minister did not have the necessary skills to win a general election and that he lacked the personality and the strategic skills necessary to be in No. 10—

The Chairman:

Order. The hon. Gentleman has been dilating considerably beyond the terms of the amendment. He has been speaking for more than half an hour in a debate, for which the time, I understand, is likely to be limited. Perhaps he will now conclude.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am sorry, but I was distracted in part by a wide range of interventions.

The point I was seeking to make about the motivation behind the doubling of the 10p rate was that we have a Prime Minister who lacks the necessary moral compass and strategic skills to have a policy that is consistently able to help—

The Chairman:

Order. I thought that I had encouraged the hon. Gentleman to desist from that line of debate. We must come back to the substance of the amendment.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will conclude, Sir Alan, by saying that Labour Members have an opportunity to show this evening that they have not been fooled by the concessions that were made on Wednesday, which will not achieve what the Government claim: that millions of people on low to middle incomes who have been adversely affected by the doubling of the 10p rate will be compensated. Those hon. Members who have expressed their concerns through early-day motions, media interviews and other forums need to put their money where their mouth is and vote accordingly.

Hon. Members:

Sir Alan.

The Chairman:

"Chairman" will do.

Photo of Frank Field Frank Field Labour, Birkenhead

Chairman Haselhurst, thank you for calling me.

It has already been an extraordinary debate in that the public have learned something that they did not know before today—that no party proposes the reintroduction of the 10p tax rate. The debate is about the way in which we compensate those on low incomes who have lost out through the abolition of the 10p rate. It does not help matters for hon. Members to get up and declare that they were always against or always in favour of the 10p rate. We are dealing with the reality that the amendments do not try to overturn the Budget but are massively concerned about how it protects the poorest who lose out.

The second issue that we have to decide tonight is whether we accept the line that the Conservative Opposition are following in their amendments, which is that they are greatly concerned about the circumstances of our poorest constituents. Again, it does not help very much that, as I remind the Committee, when we debated whether we should bring forward a package of amendments to last year's Budget that would have given the Government a whole year to work out how it might work, only one Conservative Member supported the lead amendment. Since then he has been expelled from the Conservative party—he is Bob Spink. We are assured, as Mr. Gummer will no doubt confirm, that there is great rejoicing in heaven over one sinner who repents. There are 192 of them repenting tonight, so clearly there will be a great big party up there at the results of this conversion.

Given the length of the debate already, it would be helpful if I outlined what I thought the agreement was that was made by the Prime Minister and the Chancellor. It would also help if that could be confirmed by my right hon. Friend the Financial Secretary when she speaks. We all know that if we are not to be beguiled by the Tory Opposition, we have a right to take the measure back into our hands when the Bill comes back on Report.

Photo of Jeremy Corbyn Jeremy Corbyn Labour, Islington North

I commend my right hon. Friend for his work on the matter. Despite whatever is said this evening, does he feel that the reintroduction of the 10p rate would be a better and fairer way of ensuring that the lowest paid pay less in tax than a complicated form of compensation through a multiplicity of means?

Photo of Frank Field Frank Field Labour, Birkenhead

No doubt, but I still long to see a simplified tax system that abolishes all allowances other than the personal allowances and that gets the standard rate way below 15 per cent. and heading to 10 per cent. for us all. That would send out the most powerful message; indeed, I offer that proposal to the Opposition, who like to say that they will be radical. If they start sniffing at that one, I am sure that those on the Treasury Bench will become more interested in it.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

In asking that of those on his Front Bench, will the right hon. Gentleman also ensure that the Financial Secretary accepts that she was wrong to give the impression in an earlier debate that there were not significant numbers of people who were affected by the measures? She specifically said that she did not accept the figures that were presented by our party. However, the Government now admit that the right hon. Gentleman and the Opposition were right, and have had to change their views.

Photo of Frank Field Frank Field Labour, Birkenhead

I thought it was quite clear to us all that the Government now accept that there are significant numbers of losers. Because the Treasury Committee is starting an important inquiry on this point, it would help us all, when we think of the evidence that we wish to give that Committee, if the Government at some stage—perhaps not tonight, but soon after this evening's debate—brought us up to date on how many losers they expect. What is the age of those losers? Where are the losers in the totality of the income distribution? How many of those losers are in households in which the other member gains from the cut from 22 to 20 per cent., so that the household is better off, although that individual loses?

Before any of us thinks that that is a satisfactory way of advancing, I would remind my colleagues that we are committed to individual taxation. To be told that husbands might gain from the measure but wives lose is not much comfort, either to the wives or to those of us on the Labour Benches.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Does my right hon. Friend agree that the suggested method of reimbursement for sizeable groups using the working tax credit is seriously flawed, given that fewer than one in four households without children that are entitled to the working tax credit actually claim it? That has to be taken into account.

Photo of Frank Field Frank Field Labour, Birkenhead

I shall come to that point in a moment.

Photo of Paul Holmes Paul Holmes Liberal Democrat, Chesterfield 9:15, 28 April 2008

Before the right hon. Gentleman tries to pin the Government down on their vague promises, will he give his opinion on how we got into this appalling state? He mentioned that the proposals were put forward by the then Chancellor just over a year ago; 13 months later, the Prime Minister has said several things within the space of a week. First, he said that nobody would lose out, then he said that some people would lose out, but that the Budget was too complicated to unravel. Then he said that people would lose out and that the Government would try to unravel it, but that it would take six months to work out what to do. Is that the result of staggering incompetence or of outright cynicism and their belief that they could treat the poor as badly as they liked and those people would still vote Labour?

Photo of Frank Field Frank Field Labour, Birkenhead

That is a very good question, which the hon. Gentleman should ask the Prime Minister. Much as I would like to be answering from the Dispatch Box, I am not; I am speaking from the Back Benches.

I want to get on to what I understood the agreement to be about. The first and most important point was that the Government wished to devise a package of compensation that was as comprehensive as possible. There may be doubts about the numbers, but I did not doubt for a moment that once the Government adopted a new position, there would be compensation. My understanding was that they were not going to take a mean-minded approach that excluded people, and that there would be efforts to make the package as comprehensive as possible. They were going to consider two ways in which to achieve that: through tax credits or using the Revenue.

I agree with my hon. Friend David Taylor that there are real difficulties with using the tax credit structure as a means of achieving that objective. The Government were to look at the Revenue and national insurance systems to see how packages of compensation could be paid, and the compensation package was to be made up of several factors. There is clearly a definable group of people who will be affected—those aged over 60 but under 65. In the Budget, the Government have substantially increased personal allowances for those aged 65 and over, which covers that group for losses owing to the abolition of the 10p rate. Some of the funds in relation to the reduction of the rate from 22p to 20p will also be used.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

Does my right hon. Friend agree that that 60 to 65 group concerns women pensioners in particular, especially those who have made provision for private pensions, which is a minority of women? Does he agree that those who have made provision for their retirement will feel particularly aggrieved about losing it?

Photo of Frank Field Frank Field Labour, Birkenhead

I agree totally. They are one of the many groups whom we should wish to salute, rather than kneecap, when we pass measures in this place. The Government are considering compensating that very group, which my hon. Friend has mentioned on a number of occasions. One mechanism for paying that group might be the one that is used to pay the winter fuel allowance. That is not to say that it would be a winter or summer fuel allowance, but that such a mechanism might be one of a number of ways in which the Government could reach and compensate groups that have suffered.

Photo of Joan Walley Joan Walley Labour, Stoke-on-Trent North

Does my right hon. Friend agree that another group that we need to ensure is represented to the Treasury Select Committee is people in manufacturing areas and heartland constituencies who have taken early retirement? Many of them are ex-miners from our former coalfields, and they are particularly concerned about how they will be identified and how their tax increase of about £240 per annum will be compensated in full and backdated.

Photo of Frank Field Frank Field Labour, Birkenhead

I agree totally. That leads neatly to my third point. My understanding is that there will be an effort to seek out people who are aged under 60 but in work, and to find means by which to compensate them. That brings me back to the point made by my hon. Friend the Member for North-West Leicestershire that there are different ways of doing that. Once again, however, let us not kid ourselves that this is going to be an easy exercise; but when we say that, let us also remember that no party is advocating the reintroduction of the 10p rate. We are in difficult terrain and I, for one, do not doubt the Government's wish that the final package—it may be produced in stages—should be as comprehensive as possible.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

I am grateful to the right hon. Gentleman, who is hugely respected on these issues. On the issue of 60 to 64-year-old women, will he tell the Committee his understanding of what he was promised? In principle, that is the simplest group to deal with, so if it has lost, say, £200 in round figures, is it sufficient for the right hon. Gentleman if the winter fuel payment or whatever it is called is £200, or should it be the average loss of the group? What is he expecting?

Photo of Frank Field Frank Field Labour, Birkenhead

I am about to come on to that very point, as I think we need to grow up on that aspect of what we can realistically expect from the Government.

The fourth part of the package was—

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am grateful to the right hon. Gentleman for giving way; my point is directly pertinent to what he was saying. Will he tell the Committee more about what he was promised in respect of time scale? A few minutes ago, he said that his hon. Friends would have an opportunity to revert to the matter on Report, the implication being that that would happen if the Government failed to deliver. Does that mean that the right hon. Gentleman has a commitment that the concrete proposals will be available before the House considers the Bill on Report?

Photo of Frank Field Frank Field Labour, Birkenhead

If only hon. Members would let me conclude, Sir Alan, I could answer all these questions.

The fourth part—not necessarily a central part—of the package is that the Government will look further into the minimum wage. That does not necessarily mean, as many people have interpreted it, changing the rates. Mr. Taylor talked about imposing costs on employers, but I suspect that all hon. Members who are avid readers of the reports from the minimum wage commission will know that a number of recommendations were made, including lowering the age at which the adult rate should start. Recommendations have already been made, which the Government have not accepted in the past, so it is not true to say that somehow the Government are going to go in with their boots to the minimum wage commission and make it set rates or change its attitudes. The Government may be just a little humble, read the reports and act on them.

Photo of Linda Gilroy Linda Gilroy Labour, Plymouth, Sutton

Does my right hon. Friend agree that that could well address the concerns of some students in constituencies such as mine? They work part time for the minimum wage at the moment, so their needs would be addressed if the age level were raised.

Photo of Frank Field Frank Field Labour, Birkenhead

I am always pleased to give way to my hon. Friend, who reminds me that people might benefit from more than one part of the package. Some will benefit if, as we hope, there is movement on the minimum wage, while others might benefit from revenue changes or tax credits if that route is followed.

Photo of Frank Field Frank Field Labour, Birkenhead

No. I am sorry, but I am anxious for others to contribute to the debate.

The fifth part of the package was about the payments. I have always understood—I apologise if I have misled anyone—that a Government starting from scratch and trying to affect 5.3 million people would not be able to strike an overall deal on the basis of 5.3 million personalised deals; whatever is done will be done to groups and to averages. Jo Swinson, who is no longer in her place, spoke earlier, but what she said about the extent of the losses was not true, unless there are more weeks to the month in Scotland than we have south of the border.

If hon. Members look at the evidence given to the Treasury Select Committee, they will see that the distribution of losses is narrow and that many losses are of about £2 a week. Therefore, I was under no illusion that—starting from scratch—there could be a personalised losses service. Average payments would be made to groups. Some would gain marginally and others would marginally lose, but for most people it would be practically the sum that they lost. That is what the agreement would be about.

As important as that, I understood that all the different components of the package, when they were announced—they may be announced at different times during the year, as the Government are able to do so—would be backdated to 1 April this year. Those are the six points that I thought were in the package and that I believe will be in the package.

My concluding comments are to tell the Committee that I have no intention of voting for the Tory amendment. I am not beguiled by it; I am not fooled by it. Although I am pleased about the Tories' new position in defending our poorer constituents, the move to ensure that the Government developed their policy—let us euphemistically put it like that—came from this side of the House. We should remain in possession of this package.

I know that the Financial Secretary to the Treasury, my very right hon. Friend Jane Kennedy—who was the first person from the other side of the river to stand up publicly and fight Militant and who was not scared at all of some of the worst fights that we have had to face in our region and beyond—does not need any threatening from our side.

My final comment is not a threat. I want to say that any Minister, however good, needs as much force as they can have behind them when they are dealing with officials. We on this side would hope to have quite a lot of the information available before we reach consideration on Report. We will have the Select Committee reporting by then. We should have the outlines of how the Government are going to develop that. My right hon. Friend can be as tough as possible with her officials and say that we have another chance to return to our amendment, although I do not expect someone as tough as her to be overcome by any resistance in the Treasury. Should she be, we will be behind her and moving that amendment on Report.

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

It is a pleasure to follow Mr. Field, for whom I have a very high regard.

The problem of the abolition of the 10p band was brought home to me with devastating clarity at my constituency surgery just last Friday. How is a single childless disabled man, unable to work and under the age of 60, on an income of less than £8,000 per annum whose tax has gone up from just £4 to nearly £10 a week—from £200 to £500 a year—to be compensated immediately? That is why I support the remark made by the right hon. Gentleman that we need answers now for those of our constituents.

I was pleased to hear a Labour Member moot the possibility that perhaps it would be right to go back to the 10p band. One need only have read yesterday's edition of The Sunday Times to be aware that under the present Government the richest people in the country have become astoundingly richer, and to feel that it must be possible to find the money from some of our richest people to compensate people such as my constituent, on a pitiful wage.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee) 9:30, 28 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.


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.

Submitted by Alix Cull

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

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.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs 9:45, 28 April 2008

Before the Minister rises, I wish to make a brief contribution about one of the groups that is losing out from this package—people in the 60 to 64 age bracket. My contribution is inspired, first, by the fact that this group has been in contact with me and with many other hon. Members in largish numbers, and, secondly, by what Mr. Field said. There is a sense that the House is being asked to accept a pig in a poke for this group and that what those constituents want, above all, is certainty. I do not believe that that certainty has so far been provided.

I raise the issue of women in the 60 to 64 bracket, in particular, because one of them contacted me having heard the Prime Minister give an interview in which he said that people should not worry because pensioners have been compensated. This lady said, "Last time I looked I was a pensioner, but I am losing out by more than £200 a year". That is because women in that age bracket, although pensioners, do not qualify for the pensioner tax allowance. Such people have contacted me and other hon. Members in large numbers.

The first question is: what compensation can such people expect to receive? Amendment No. 19 refers to the compensation package and suggests that the 10p rate is reversed unless we are happy with the compensation package. I am not convinced that we will get the very precise answers that women in the 60 to 64 age group want—I shall shut up and sit down shortly so that the Minister can tell us her response.

When I intervened on the right hon. Member for Birkenhead, I asked what these people will get. What can they expect, supposing that they have lost up to £200 net of other changes? If I understood him rightly, he said that they could expect average compensation. If the group, on average, has lost £100, I take his understanding of what he has been promised to mean that the people involved will get £100. If, for the sake of argument, there were 300,000 losers in this age group, half would still gain and half would lose. Clearly people would lose less than they would otherwise have done, but there would still be a significant number of losers. The first point is, thus, that women who have read in the press that the Government will compensate them might discover, at some point, that the Government will not compensate them in full—they may compensate people in part at some point.

The second question is: when will such people be compensated? This group ought to be the most straightforward of all to deal with, because if the winter fuel payment mechanism is used, that is probably one of the simplest things that could be done. If we have to wait until the pre-Budget statement, which is traditionally made in November, and then, presumably, for legislation, because we will need to define, in a new way, a very specific group, people will not get their money until 2009. The reason the winter fuel payment has a September cut-off date is that it takes three months to give everybody the money. Let us assume that the pre-Budget statement is made in November, and legislation is made over Christmas and the new year. If we add three months on top of that, it could be well over a year before those women receive partial compensation. That is not what they will have perceived they were going to receive.

Photo of Frank Field Frank Field Labour, Birkenhead

Two things are now clear from this debate. The first is that no party is proposing the re-introduction of the 10p rate. The second is that nobody yet has any ideas about how to compensate people. A judgment must be made as to whether we believe that the Government, in good faith, will strive to find as many of the people involved as possible. Nothing on tonight's Order Paper gives the pensioners that the hon. Gentleman is talking about any more reassurance than we have heard from those on the Treasury Bench or from me.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

I agree with the right hon. Gentleman on his second point; it is a question whether we believe in the good faith of the Government. Given that the root of this problem was an attempt to deceive people and to portray something in one way that came across in another, the worry is that the presentation of this compensation package is already being spun. I simply do not have confidence that the Government will act in good faith in this regard. On his first point, I suspect that we will divide later on whether the clause should stand part of the Bill. The Liberal Democrats will clearly and unambiguously vote against the Government's measure.

Mr. Clarke made a point that I wish to reiterate. Let us suppose that the package costs around £1 billion—because we cannot identify the losers and just give them back their losses—and we end up paying, for example, men in the 60 to 64 bracket who may not have lost out in the first place. Where would that £1 billion come from? Would it come from another tax, thus creating a whole new set of losers? Can we be confident that the compensation package really will compensate people, or will it just create a new set of unjustified losers? The right hon. Member for Birkenhead would be the first to acknowledge that that money will have to come from somewhere. Someone will have to pay the bill for this incompetence and we may find that it is other vulnerable people, unless it is achieved through a progressive mechanism. This Government are not known for using progressive mechanisms.

Those who heard the news last week may have hoped that they would be compensated. It would be a cruel deception if, having found out only this month that they have lost out, the compensation was not paid until next year and did not even then compensate them for their losses. That is why the compensation package, as so far outlined, is wholly inadequate.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

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.

Photo of Jim Devine Jim Devine Labour, Livingston

My right hon. Friend will remember the mid-1980s, when public sector workers—domestics who had worked in the national health service for five, 10 or 15 years—were sacked and told to bid for their jobs. They bid £2, £1.50, £1.20, £1—and then, "Sold to the lowest bidder!" The Conservative party called it efficiency savings. We called it exploitation of low-paid workers, particularly women.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I am grateful to my hon. Friend for those comments, and I agree entirely. He will remember who was in power at that time.

On working tax credits—I can see the pained expression on your face, Sir Alan. [ Interruption. ] It is not a pained expression. That is good. Working tax credits have benefited 6 million families, with the average working family now £60 a week better off in real terms since tax credits were introduced in 1999. Some 3 million of Britain's 7 million families with children will receive more in tax credits and child benefits than they pay in income tax. That will effectively wipe out their tax liability altogether. For those without children, the average award in 2005-06 was more than £1,900 a year. That is why I encourage all those who come into contact with people on low incomes, particularly single people, to tell them that they should consider whether they would be eligible for working tax credits.

Over the past 10 years, the Government have also focused on long-term support for all pensioners to provide security in old age.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

If the hon. Gentleman will allow me to make a little progress, I will be happy to give way later. I am coming to the 10p tax rate in a moment. If he will contain himself, a number of assertions were made and it is right and proper that I should respond to them.

All pensioner households are now, as has been said, supported by winter fuel payments. Nearly 60 per cent. of all pensioners will not pay any income tax at all in 2008-09. Pension credit has guaranteed a minimum net income of £119 for a single person. While the Conservatives talk about tackling poverty with pretend concern, we have tackled it. It might be of interest to the House to learn that, way back, Mr. Cameron made a very revealing comment. He said:

"I long for a chancellor who stands up and introduces a Budget which abolishes all of Brown's endless reliefs and credits—and uses the money to cut tax rates at the same time. 'My Budget has no title', the peroration would go, 'it's your money, spend it as you choose.' Am I alone?"

We now know that he is not alone, as my right hon. Friend Mr. Field would agree with a lot of those statements, but we would not. We do not accept that that is the way to help the poorest families in this country.

As the next stage in the process, the package announced in the 2007 Budget changed the tax and benefits system to offer further support for work, families and pensioners. The changes removed the 10p starting rate of tax, reduced the basic rate of tax to 20p, increased the allowances for pensioners aged 65 and over, increased working tax credits to help low-income households and increased child tax credits to provide additional support to families with children. As a result of the changes, child poverty will affect 200,000 fewer than otherwise and households with children in the poorest fifth are, on average, £340 a year better off. Some 600,000 fewer pensioners will pay income tax.

In the 2008 Budget, the Government were able to go even further, with additional increases in child tax credit and child benefit that remove another 250,000 children from poverty. We will provide additional support to pensioners through the winter fuel allowance.

I know that Sir Robert Smith wanted to intervene. Perhaps he would like to do so now.

Photo of Robert Smith Robert Smith Shadow Deputy Leader of the House of Commons

Some time ago, when I attempted to intervene, the Financial Secretary was making the point that under the Government's system it is crucial to encourage people where possible to take up the means-tested benefits, such as tax credits and pension credits. However, it is sometimes difficult to persuade someone to apply after they have been through the nightmare of the seesaw between reclaims, overpayments and underpayments. As others have said, if the Government are going to rely on that encouragement as the safety net and think that it will solve the problem, that is quite a dangerous presumption.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

The tax credit system, as a result of changes made as long ago as 2005, is vastly improved, and I continue work, as does Her Majesty's Revenue and Customs, to improve customer experience of the service. The hon. Gentleman will know, because he will have heard me say so on previous occasions, of the changes that we are working to introduce that will help claimants, particularly those who have had problems in the past. We know who they are, and we can work with them to make their experience better.

Photo of Joan Walley Joan Walley Labour, Stoke-on-Trent North 10:00, 28 April 2008

In the few minutes that remain, will my right hon. Friend give us assurances on the proposals from my right hon. Friend Mr. Field?

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I am going to turn to the points that have been made.

The 10p starting rate of tax to be removed in clause 3 was introduced in 1999 as part of long-term reforms, and was part of the initial process to help support low-income households. However, with the measures that have been introduced since 1999, particularly the introduction of the national minimum wage and the subsequent introduction of tax credits, we can now better target our resources on low incomes.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I want to respond to the points made in the debate, but I shall give way to Mr. Gummer.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

In our discussions over the past 10 days, the Minister told my hon. Friend Mr. Soames that she did not accept his figures for people who would lose out as a result of the changes. Will she now give confidence to the House by admitting that he was right, and she should have accepted those figures, which the Government now accept are correct?

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

It was not clear at the time exactly what the figures were to which the hon. Member for Mid-Sussex was referring. I have dug out the answer I gave in the House in October to my right hon. Friend the Member for Birkenhead. It set out in detail those people who would benefit from the changes and those people who would lose: it set out the numbers, and the amounts per week anticipated for changes in income. That is quite clear, and I have never sought to deny it, so I do not know what the right hon. Member for Suffolk, Coastal is referring to.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

In that case, why did the Minister not make sure that the Prime Minister had those figures when he said that nobody would suffer in that way?

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I am trying to make progress, to reach the point where I can reply to the genuine concerns expressed by Labour Members.

Removing the 10p rate has enabled us to introduce further measures that reduce child poverty and remove pensioners from tax, but we have also produced a tax system with only two main tax rates applying to the same income as the two main rates of national insurance. This is now one of the simplest personal tax systems in the developed world. Having set out the benefits of the changes that we have made, I acknowledge that, as a consequence of redirecting resources as I have described, some households have less income as a result, and that those households are often on a low income. I regret that that is an effect of those changes, which is why we would have looked to help such households in the future anyway, and we intend to do that very thing in the next days and weeks.

I am grateful to my right hon. Friend the Member for Birkenhead for his kind comments, particularly his thoughtful and constructive contribution to tonight's debate. He has rightly put Ministers on their mettle, and he will want to see that progress has been made, as will other right hon. and hon. Friends. I can assure him and others listening that that work is being taken forward with great seriousness, and we are looking to respond to the concerns that have been expressed.

Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

Will the Minister answer a specific point? Mr. Field said that he received an assurance from the Prime Minister and the Chancellor in private that compensation for all the groups affected would be backdated. The Chief Secretary and the Chancellor have been unable to give that commitment in public, but can she now do so?

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I do not wish to be drawn on the outcome of this further work. I say that advisedly, not intending in any way cynically to avoid the question that is being put, but it is only right and proper to undertake the work of reviewing what can be done properly and seriously, and to ensure that the Government can bring forward their commitment to do more, in particular for low-paid workers without children and pensioners under 65.

Photo of Frank Field Frank Field Labour, Birkenhead

When my right hon. Friend reports back on the debate, I am sure that she will report that Labour Members attach huge importance to the fact that all groups will be compensated back to 1 April, and that is an issue that we hope we will not have to return to on Report, but if need be we will.

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

As I have said, my right hon. Friend made a thoughtful and constructive response to the debate. I am grateful to him for the way in which he has contributed, and we will be working with him and others to take the work forwards. The Chancellor made a commitment in his letter that there are households that we want to do more to help. It would not be appropriate for the Government to commit at this stage to the detail of what measures we may consider before the report is delivered. However, I have taken note of the concerns that have been raised on the issue today and I will ensure that they are considered as part of the progress.

The results of the reforms are already there to see. As I have said, this is a wrecking amendment that would have the most serious consequences—

Photo of Jane Kennedy Jane Kennedy Financial Secretary, HM Treasury

I am sorry not to give way to the hon. Gentleman, but I really want to conclude.

We know that there is still more to do for the future. The measures in the Finance Bill, including the removal of the 10p rate and the review that is now under way are part of that continuing process. I ask the House to reject the amendment and I commend the clause to the House.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

As Mr. Field said, we have had some clarification in the debate, but unfortunately none of it has come from the Financial Secretary, who has treated us to a history lesson and not much else. My right hon. and learned Friend Mr. Clarke commented on the right hon. Gentleman's achievement in that the Government have agreed to do something. The problem for the House and the right hon. Gentleman is that no one is clear what that something is. The right hon. Gentleman, in his e-mail to his fellow Members who signed the amendment last Wednesday, said that the deal involved everyone being compensated in full and would be backdated to 6 April.

Photo of Frank Field Frank Field Labour, Birkenhead

Let us be quite straight about this. The Government have changed their position and they are starting to work. Had the hon. Gentleman and his colleagues supported the Labour amendment last year that we should work for the whole year on a programme of compensation, we would not be having this debate now.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am sorry that the right hon. Gentleman keeps raising the issue of his amendment last year, because it was not specific to the problem. It was an attempt to impose an ongoing constraint on the Treasury and future Chancellors of the Exchequer for all time.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

If the right hon. Gentleman will just allow me to make the point that his clarification tonight makes it clear that that package is not what has been promised to him, let alone what has been delivered. Although he was clear tonight that he has been promised backdating to 6 April for all this compensation package, the Financial Secretary, by contrast, was unable to confirm the Government's commitment to that aspect of the package.

Photo of Frank Field Frank Field Labour, Birkenhead

The amendment last year was about the House instructing the Government to bring forward a package of compensation to take effect with these tax changes in this Budget. That is what the Opposition did not vote on.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

As I recall the amendment, it required the Government to bring forward a package of compensation measures whenever they made proposals that negatively affected the tax position of the lowest quintile—and to do so not just once, but every time.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

If the right hon. Gentleman will allow me, I shall address some of his other points. As I understand his comments this evening, he has said that the average loss for the group of people losing as a result of the measures is £2 per week, but the maximum loss is £256 per year. However, as I understand his comments this evening, the commitment that he thinks he has achieved from the Government now is to compensate only at the average loss of £2 per week. So there will still be people out there who have lost as much as £152 a year as a result of the measures, even if the Government deliver on the possibility of compensating them all at the average rate.

The right hon. Gentleman hoped that quite a lot of the information would be available by Report, but nothing that we have heard from those on the Government Front Bench gives us any confidence that we will have a clear picture of the total package of compensation by that time. He has urged Labour Members not to be beguiled by the Conservative amendment, which the Financial Secretary has referred to as a wrecking amendment. I say to her and the right hon. Gentleman that it is not a question of being beguiled and that it is not a wrecking amendment.

The amendment should appeal as much to those who have confidence in the Prime Minister as it does to those who do not. It is an insurance policy for the House. It is a mechanism that would allow the House a guaranteed way of coming back to this issue if it is not resolved satisfactorily. The amendment would require the Government to tell the House what they have done, and they will not be in a position to do that by Report. I suggest to the House that it needs this insurance policy to ensure that the deal that the right hon. Gentleman, to his great credit, sought to do with the Prime Minister is delivered on by the Prime Minister and is not reneged on by the Government once this week's elections are out of the way and the immediate inconvenience of a Labour Back-Bench rebellion is off the books.

We need to hold the Government to account and it is the job of the Opposition to put in place the mechanism for holding them to account. That is what the amendment does, and I urge my right hon. and hon. Friends to vote for it this evening.

Question put, That the amendment be made:—

The Committee divided: Ayes 264, Noes 307.

Division number 156 Orders of the Day — Clause 3 — Abolition of starting and savings rates and creation of starting rate for savings

Aye: 263 MPs

No: 306 MPs

Aye: A-Z by last name


No: A-Z by last name


Abstained: 1 MP

Abstained: A-Z by last name

Question accordingly negatived.

Motion made, and Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 304, Noes 262.

Division number 157 Orders of the Day — Clause 3 — Abolition of starting and savings rates and creation of starting rate for savings

Aye: 304 MPs

No: 262 MPs

Aye: A-Z by last name


No: A-Z by last name


Question accordingly agreed to.

Clause 3 ordered to stand part of the Bill.

To report progress and ask leave to sit again.— [Alison Seabeck.]

Committee report progress; to sit again tomorrow.

Photo of Steve Pound Steve Pound PPS (Rt Hon Stephen Timms, Minister of State), Department for Work and Pensions

On a point of order, Mr. Deputy Speaker. Many London Members will have been greatly disturbed to see in our local papers last Friday an advertisement placed by the Electoral Commission in connection with Thursday's mayoral elections. The advertisement shows a facsimile of a ballot paper, and suggests that the voter's mark be placed against candidate No. 6, who happens to be Mr. Johnson. May I ask whether Mr. Speaker has received a request from the Justice Ministry to make a statement to the House to clear up this extremely disturbing business?

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

I am not aware at the moment of any request for a Government statement to be made. Naturally, there will be concern throughout the House—divided, no doubt, between hope and despair—as a result of the news that the hon. Gentleman has imparted.