Parliamentary Commissions of Inquiry – in the House of Commons at 4:45 pm on 7 July 2009.
'(1) The rates charged by virtue of section 1 shall not have effect until such date as may be appointed by order made by the Treasury.
(2) No such order may be made until the Chancellor of the Exchequer lays before Parliament a statement that, in his opinion, measures have been taken to ensure that no person is worse off by reason of the person's income not being sufficient to secure that the effect of the abolition of the 10p starting rate has been entirely offset by the reduction of the basic rate, which took effect in the tax year 2008-09.
(3) The power to make an order under subsection (1) shall be exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons.'.— (Mr. Frank Field.)
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Amendment 2, in clause 1, page 1, line 8, at end insert—
'(3) This section is subject to section [Implementation of section 1].'.
Amendment 37, in clause 3, page 2, line 10, leave out '£6,475' and insert '£10,000'.
Amendment 40, in clause 6, page 3, line 7, at end insert—
'(3A) At the end of section 646(8) of ITTOIA 2005 (adjustments between settlor and trustees etc.), insert—
"(9) A settlor of a settlement in respect of which he is liable to pay income tax under section 624 or 629 is entitled to receive credit for any income tax paid by the trustees of such a settlement in calculating his income tax liability and to be repaid any excess of that credit over that liability.
(10) A settlor who receives a credit under subsection (9) above is to that extent not entitled to recover any tax from the trustees under subsection (1) above."
(3B) The amendment made by subsection (3A) shall be deemed to have effect from
I have been in the House for 30 years, and have moved many motions on new clauses and many amendments. I have always taken real pleasure in doing so, but I cannot say that I take much pleasure in moving this new clause, or from the feeling that we are somehow on course for a collision with the Government over the treatment of many people in our society who earn low wages.
Political parties, whatever part of the House they occupy, are broad coalitions, containing people of diverse views, but they also have core values which keep them together. There is clearly a huge divergence of views on the Labour Benches among Members who have been in the House for some time and those who have arrived more recently, and among those who think of themselves as traditional or old Labour, those who think of themselves as new Labour, and those who simply think of themselves as Labour. However, the golden thread that links us is that, when push comes to shove, we are all on the side of the poor.
The Government have taken a number of measures of which Labour Members, and, I hope, those in other parties, can be proud. They have tried to move life chances towards those who generally have least, and, if need be, away from those who find it easiest to make it to the top. Therefore, there was in the beginning puzzlement, which turned to anger, that in the 2007 Budget the Government announced the abolition of the 10p starting rate of tax accompanied by a 2p reduction in the standard rate of tax. Since coming to this House I have been an advocate for cutting taxation and particularly the direct rate of tax, the headline rate with which the people whom I represent are massively concerned. It determines whether they take a job, whether they work longer hours and so on.
I was staggered, as were other hon. Members, that that 2p reduction in the standard rate of tax was largely—although not totally—paid for by the abolition of the 10p starting rate. The cost of the 2p reduction was about £9.5 billion; the extra revenue from abolishing the 10p starting rate was about £8.5 billion. We found ourselves for the first time that I can recall advocating a measure that increased the tax burden on the lower paid and made it easier for people such as me, other Members and millions of people outside the House of Commons. It flew in the face of our understanding of what Labour is about: being on the side of the poor.
It is true that it took a little time for Treasury Ministers to recognise that there was not just an issue here, but that it was something that cut to the quick most of us who have devoted our lives to public service. We were anxious to see measures that would offset, as far as humanly possible, the additional tax burden that we had placed on the people taking home the smallest wage packets. The Government, to their credit, have introduced a number of such measures. They have changed benefit rates and protected those over retirement age who would have lost out by increasing the tax allowances, so that the sums they would lose would be met. I note that others may wish to raise the fact that those who retired before 65 would not receive the same protection as older people, such as me.
Is my right hon. Friend certain about what he is saying about pensioners? I think there is a popular misconception along the lines he is describing. My understanding from pensioner constituents is that a pensioner must have an income of over £22,000 to gain from the measure and that anyone with an income below that amount will be worse off.
I will very happily stand corrected and I hope that my hon. Friend catches your eye later, Mr. Deputy Speaker.
My right hon. Friend is right to refer to pensioners such as himself. Male pensioners who retire at 65 get the allowance but women pensioners who retire at 60 do not. Does he agree that they have missed out?
They certainly have. I repeat that I hope my hon. Friend Mark Fisher catches your eye, Mr. Deputy Speaker, to develop his point.
There have been benefit changes on top of tax allowance changes for us pensioners. There have been two welcome and major initiatives in the Budget, presented to us as mitigating the effects of the abolition of the 10p rate.
The first major point is that since the announcement of the abolition of the 10p rate, there have not been specific tax changes relating solely to those who have lost out from the abolition. In the initial statement the new Chancellor announced a £2.7 billion package which increased tax allowances by about £600. That applied to all of us, however. We in this House benefited from that; we benefited from the 2p increase as did those on the 10p rate, and there was also a more recent increase in tax allowances across the board, which we again benefited from, as well as the people who lost the 10p rate. Therefore, the relative tax burden that the abolition of the 10p rate placed on the poorest earners in our country has not been rectified.
My hon. Friend Mr. Pope and I wrote to the Chancellor three months ago to say that that is still a big issue. We did so not simply for our consciences' sake, as conscience is magnified because by next May or June we will have to face the electorate, and there are quite a lot of low-paid workers out there who might not be writing us letters any longer—they may have given up on that effort—but who still feel aggrieved that we made the move in the first place, and some of whom also know that they remain worse off in money terms compared with 2007 despite the increases in personal tax allowances.
So although I welcome all the moves that the Government have made, I am also puzzled. Labour Members' grievance with the Government was that, with the new disadvantages we had placed on the poorest earners in our society, there were no specific measures aimed at rectifying this change that we had brought about. This was not an act of nature; we did it. I cannot be the only MP who has received letters from constituents saying, "Please persevere. I understand why the Government are finding billions and billions of pounds to bail out the banks. I accept that it may well be necessary to do that, but we have needs as well." Their grievance is that although we could find all that money for the banking system, it appears that in this Budget and previous Budgets we have found general changes that benefit all of us but we have not specifically managed to rectify the increase in the tax burden that our Government have brought about for those who earn the lowest wages in our society.
When my hon. Friend the Member for Hyndburn and I first went to see the Chancellor days after he was appointed to that office, he was as courteous as ever and asked, "Well, how would you solve the issue?" This was before the Government found £2.7 billion to make the general increase of £600 in tax allowances. We suggested that the best move would be to increase tax allowances across the board to ensure as far as humanly possible that there were no losers, but that that increase should then be clawed back from all of us who had been the gainers from the 2p rate by increasing national insurance. My hon. Friend and I left that proposal with the Chancellor.
The next part of this saga took place on the morning that the Government announced they would increase tax allowances for all of us. The Chancellor phoned me and said, "There will be a statement this afternoon. I can't tell you what's in it, but I hope you will like it". As I am on the same political side, when I came to the House I wanted to say as much as possible in favour of the measure, but I cannot describe the depth of my despair as I heard the Chancellor saying there was going to be a universal increase but there would be no clawback. It is true that I welcomed that package. Who was I to stand up when the Chancellor had found £2.6 billion and spit on his feast and say this is not what is actually required, especially as I hoped that we might at a later stage get him to tailor that measure to help the lowest paid and claw the necessary sums back off the rest of us, and in so doing help to balance the books?
Was not one of the strange features of the Chancellor's compensation package that, although it had the advantage of simplicity, the majority of the £2.7 billion was given to taxpayers who had not lost as a result of the doubling of the 10p rate?
I agree entirely. We benefited by the 2p rate reduction—I say "we" because those of us in this Chamber benefited.
Is the hon. Gentleman going to declare his earnings at the higher rate now?
My earnings are those of a Member of Parliament. To be fair to the Government, I understood that the threshold was adjusted when people went to the top rate, so basic rate taxpayers, including some people on good salaries, did benefit substantially but anybody who earned over the higher rate threshold did not benefit, because the two measures cancelled each other out.
The hon. Gentleman is perfectly right, and the figures, if they are to be trusted, show that 2 per cent. of people did not benefit in this way. When I said "we", I was trying, perhaps too crudely, to identify us with our constituents for once, given the yawning gap that has become apparent in the recent past.
The substantive point remains that although moves have been made to compensate those whose tax burden increased—that was not the rich or the very rich, but the poor; it was those who earn least in our society yet still turn out to work—the Government prefer to add in all the changes that they make in order to work out who still has not been compensated fully for the abolition of the 10p rate.
So let us assume, for the moment, that we have given up trying to obtain a targeted package to meet the increase in the tax burden of those with the smallest wage packets and we have gone down the Government line of, "Well, it was to help them as well, and in these difficult times we are not that interested in maintaining tax equity. People got more money." Let us examine what the figures show.
Were the increases in the tax allowances—the £600 and then the £130—really meant to help those who lost out in the abolition of the 10p rate? The following figures come from the Treasury. By 2010-11—not today, but then; these figures presumably take into account some other changes that might be made—500,000 households will still be losers from this abolition, within those households there will be about 1.3 million individual losers, and the average sum that they will lose will be between £2 and £3 a week. I hope that most of us would think that £2 or £3 a week is a substantial sum for us, but it is huge for people whose earnings are low. I am humbled when constituents come to my surgery to tell me that they are on £11,000 a year, they have two children they are bringing up brilliantly and they are being messed around by tax credits, yet they still survive. If this House ever wants to know how to manage the national accounts, it could look to Birkenhead, where quite a few people could teach us a thing or two.
Those Treasury figures on the losers still assume a 100 per cent. take-up rate for tax credits. Fortunately, because many of the losers who have children are so desperate, they will have claimed tax credits—whether or not they wish to do so and whether or not they think that to do so is noble—because that extra money to balance the books is jolly helpful. Many of the losers in those figures will thus be people who do not have children, and we know that the take-up rate among that group is about 20 per cent. The Government's calculation assumes that the take-up rate is 100 per cent., but even with such a rate 500,000 households will still be losing out in the financial year 2011-12, those households will contain about 1.3 million individuals who are losing out and, on average, those individuals will, even years ahead, still be losing between £2 and £3 a week.
I thoroughly endorse what the right hon. Gentleman says, for all the reasons that he has given. He mentions the year ahead. Does he agree that if we take into account the real figure for public net debt, which is now £3 trillion—not the £1 trillion the Government say—the increases in taxation that are due as a result, together with the necessary reductions in public expenditure, will have a devastating impact on the less well-off and will make their situation intolerable? In other words, we really will have two nations.
I do not dispute that point, and the hon. Gentleman may be able to make his case later in the debate.
I am listening with great interest to my right hon. Friend, and I wish to take issue later with some of his figures. He mentioned 1.3 million individuals —is that an estimate of the number of people in the 500,000 households that the Government have confirmed will remain losers from the effects of these various changes?
I confess that I do not know the answer. I am merely reciting the IFS figures. Today it said that 500,000 households would lose, and 1.3 million individuals. I assume that most of those individuals will be in those households. If our constituents were asked whether they believed the Treasury or the IFS, they would probably side with the IFS.
Actually, we had a call from the IFS to ask us where the 1.3 million figure came from, so this may be a circular argument. It may be that 1.3 million is an estimate of the number of individuals in the 500,000 households. There is no dispute that 500,000 households will be—modestly, I would argue—less well-off as a result of the series of changes that have been made over the last couple of years. I was not sure where the 1.3 million figure came from, and my right hon. Friend appears to be saying that he is not sure either.
Well, I am sure, because it comes from the IFS. When I was broadcasting with representatives of the IFS today, they said that that was their estimate.
Does the right hon. Gentleman accept that these relatively small amounts of money are in fact large amounts of money, not only in the areas where deprivation is traditionally widespread but in constituencies such as mine? Rural areas can have large numbers of very poorly paid people with large families, to whom these are significant sums. I agree with him that there is nothing as humbling as meeting at one's surgery people who make do with very small amounts of money and have come to talk to their Member of Parliament about £1, £2 or £3 less a week in circumstances that should never have arisen.
I am sure that those sentiments are reflected on both sides of the House. The disappointment that I feel can be summed up as follows. I am not trying to decry the moves that the Government have made to try to rectify the unnecessary burden that we have placed on some of the poorest households in this country—a burden that would be unforgivable if it were a Tory Government doing it, and is even worse because it is our Government. Of course there are real problems now with the Government finances. I am even more of a hawk on this issue than those on the Treasury Bench, because I think there will be real problems in the short term in trying to float the gilts that we will need to float to reach the medium term, unless both Front-Bench teams show far greater resolution about the need to bring public expenditure into line with tax revenue. I want us to lead that debate because the sorts of reforms that I wanted to see and that we did not see in the last 12 years or so, when we had huge amounts of money to spend, might well be brought about when we have to think about what the Government's priorities are and how we can ensure that our resources are concentrated on them.
I am not trying to downplay the real difficulty that the Government have in balancing the books and getting us to the medium term so that some of these changes in public expenditure and taxation can come into effect. The sums that we talking about to bring justice to the group of people who earn the least are modest compared with the size of the deficit that has been revised, in a major way, three times since last November. I cannot believe that there would be any risk to the currency or any risk of encouraging a gilts strike if the Government were to make modest new claims on debt to meet the honour that we owe this group of our constituents.
I said at the beginning of my speech that for 30 years I have spoken always with pleasure, jumping up to make a suggestion and thinking that it would somehow be accepted. I know, however, from the conversations that other Members have had with the Government that the Government have dug in on this point. They are playing for very high stakes tonight. I hope that when those on the Treasury Bench contribute to the debate they will say more than we have heard from the unofficial sources during the day. If all we are offered, yet again, is warm words, my thinking is that we should press the new clause to a Division.
I want to hear those redistributive noises from those on the Front Bench, and I am looking forward to hearing what they have to say. My right hon. Friend knows that the only caveat to my support for his new clause is that the 10p rate had a secondary redistributive effect on the number of people post-60 who chose to redistribute their leisure for their working time. How would he answer the allegation that that was a downside of the 10p rate, notwithstanding those that it was there to help?
I have been bending over backwards not to suggest this is a very easy thing that fits into nice little boxes. There are clearly what my grandmother would have called swings and roundabouts, and I accept my hon. Friend's point, but I nevertheless believe that the main thrust of the argument that Labour Members have made remains.
If we win the Division on the new clause, we can proceed to approve the rest of the Budget but before the tax changes come in the Government have to give us more than warm words—they have to give us some reassurances about the moves that they intend to make. Some of us have been told that that is pushing the nuclear button, and that if we win the Government will not be able to raise revenue after 6 o'clock tonight and that tomorrow morning the currency will collapse—with all the horrors that would stem from that. It would be ludicrously irresponsible if the Government did not have a plan 2 ready. If the new clause is carried tonight, surely they will jump up and say, "Clause 1 and the tax-raising powers in the Budget are a matter of confidence and we are going to make you pass it this evening. We will not go into the night leaving this on the statute book." Of course, they would get it more easily if they showed a little more humility than has perhaps been shown so far, by saying that they will also make moves to rectify the injustice of the 10p changes. There are those of us who feel in our bones that we have caused this injustice, that it is up to us to put it right, and that this is our last opportunity to do so before we face the electorate, and the Government underestimate our resolve if they think we should just let it go.
We all act for a multiplicity of reasons. Dr. Johnson said that the realisation that one is to be hanged in the morning "concentrates the mind wonderfully", and we know that, come next May, we will have to face our executioners. They will decide whether we come freely back to this House, and that should concentrate minds of those on the Treasury Bench about our resolve.
I talked earlier about the golden thread that knits together all Labour Members—new, old or ordinary. That thread is the belief that we come to this place to protect and advance the interests of those who get least from life. The 10p proposal is a denial of all that we came into public life to achieve, and this is our last chance to rectify the situation before the general election.
It is a pleasure to follow Mr. Field, who spoke in his typically understated fashion but with great passion and strength of conviction. Everyone in the House will have listened to him very carefully.
Before I talk about new clause 1, I want to make brief mention of two other amendments in the group. Amendment 40 in my name is a fairly technical proposal about settlor-interested trusts, and I shall not detain the House long with it. The nature of the trust and the interest that the settlor has in it mean that both the trust and the settlor are liable to pay income tax on the trust's income. The trust pays the tax at the higher rate, which is currently 40 per cent. but which will rise to 50 per cent. if the Government's plans go through. In contrast, the settlor pays at his highest marginal rate—that is, the 20 or 40 per cent. that obtains at the moment, or the 50 per cent. that the Government propose.
However, the problem is that there appears to be double taxation of that income. HMRC provides a credit to the settlor for the total tax paid by the trustees. That offsets exactly the tax due for higher rate taxpayers but, where the offset is not exact because the settlor is a basic rate taxpayer or has unused allowance, the settlor is obliged to pay any excess over to the trust.
Before the trust regime was changed in 2006, the credit that I have described was provided as of right. Following the Finance Act 2006, it is now a concession and there is no obligation on HMRC to continue to provide it in the future. Therefore, the relief could be withdrawn at any time, and the first part of amendment 40 would ensure that it remained available. I do not think that the Government ever intended to create this uncertainty in the first place and the first part of the amendment would put the legislation on a proper footing by making sure that the concession had the force of statute.
The second part of amendment 40 clarifies that, if a credit is given, a settlor cannot also claim tax liability from the trustees. At present, that can happen when trustees have still to pay the income tax due on trust income when the settlor files an income tax return. In those circumstances, there is nothing to credit from, so the settlor has to pay up and then claim back the sum directly back from the trust. It is difficult to explain how the trust eventually resolves its liabilities and I shall not go into fine detail now, but I believe that the amendment would solve that problem too.
Although amendment 40 addresses a gap in the trust law that is three-years-old, the changes proposed in clause 6 to the trust's rate of tax have made the issue more pressing. The trust rate paid by the trustees and the marginal rate paid by the settlor are likely to differ when the Bill comes into effect next year. Most settlors will not earn enough income to pay income tax at the additional rate, so the onus will be on the trustees to make the settlor repay the difference under the current legislation. It is therefore all the more important to ensure that a settlor can rely upon HMRC's concession in order to meet these payments. That is best achieved by providing a statutory basis for the concession.
As a matter of interest, on amendment 40 to which the hon. Gentleman has just been speaking, can he give an indication of how many such settlors and trustees he thinks there are in Birkenhead?
I am not sure that I or Mr. Field know, or that the Treasury could tell us. Perhaps in his usual perceptive way Rob Marris is making a point about the incongruity of the amendment being tabled in this group. That is down to the selection made by Mr. Speaker, not by me. I am not totally unaware of the incongruity of the selection.
Did the hon. Gentleman notice that as Birkenhead was mentioned, the gods showed their displeasure at the fact that we had to have this debate?
The right hon. Gentleman has not only tabled the new clause, but has managed to bring the weather on tap at the right time to provide a backdrop to the debate.
Amendment 37 raises the personal allowance to £10,000. I understand the attraction of that. It would take more people out of taxation. We are not averse to that concept. Indeed, our proposals earlier this year to increase the age-related allowance for pensioners by £2,000 demonstrates an interest in this area, but I am concerned about the potential cost, which I am sure Mr. Browne will discuss at length. It sounds a potentially expensive way of providing relief to taxpayers.
The people who would benefit most from the hon. Gentleman's amendment are those who pay the highest rate of tax, not those who pay the lowest rate. People at the highest rate of tax, who pay 40 per cent. at present, will benefit significantly. If the Government introduce their planned 50 per cent. tax rate, those 50 per cent. taxpayers will receive the most benefit. I look forward to the hon. Gentleman's arguments in support of the amendment.
New clause 1 is the most important clause that we will discuss on Report. The genesis of today's debate lies in the 2007 Budget, where the cut in the basic rate of tax from 22p to 20p was funded through the abolition of the 10p rate. It is worth remembering the words of the then Chancellor, which explain why it took so long for people to recognise the issue to which that gave rise. In the Budget speech he said:
"Having put in place more focused ways of incentivising work and directly supporting children and pensioners at a cost of £3 billion a year, I can now return income tax to just two rates by removing the 10p band on non-savings income."—[ Hansard, 21 March 2007; Vol. 458, c. 826.]
I suspect that when that was greeted with cheers from the Labour Benches, people assumed that, in effect, the zero per cent. rate would be extended up to the threshold for the 20p rate, rather than the tax being doubled from 10p to 20p. That is why many people were uncertain what the change meant in practice. In the Treasury Committee's inquiry on the 2007 Budget, the Treasury official responsible for this area of policy was pressed and said that from the Treasury's own statistics 5.3 million households would have lost out from the changes made in the 2007 Budget. However, the Prime Minister, when he was Chancellor, was quizzed by the Treasury Committee and denied that there would be any losers from the change.
Does my hon. Friend think that one of the things that people find very difficult to understand is how the Government can find so much money to subsidise banks to pay colossal salaries to the people at the top of those loss-making publicly owned banks, but cannot find the money to compensate people on very low incomes?
Many people ask themselves that question. We have provided significant taxpayer subsidies to those banks, but people then see another situation, such as the one under discussion, whereby the Government refuse to move and pay compensation to people who have lost out as a consequence of the 10p rate. That juxtaposition is very telling and forms part of the continuing anger about the 10p rate.
Does the hon. Gentleman share the puzzlement of many of us, whereby one reason given for the abolition of the 10p rate was simplification of the tax system—the move to the two rates? He just quoted the then Chancellor on that point, but in that very Budget a 10 per cent. rate was retained for certain low savings income, and in this year's Finance Bill there is incredible complexity in terms of higher rate taxpayers. So, we now have—off the top of my head—about six rates of income tax, not the supposedly simple two rates.
The hon. Gentleman makes an important point. Part of the challenge was for the Government to justify why they moved from the previous three-rate income tax system to the two-rate system, and simplification seemed a convenient explanation at the time. [ Interruption. ] The hon. Member for Taunton asks, "Who spotted this?" May I remind him not only that his party identified it, but that we did? In a press release on Budget day 2007, we said:
"In his"— the then Chancellor's—
"stealthiest taxes yet, he has paid for his 2p cut in income tax by abolishing the 10p rate".
I therefore want to lay that myth to rest for the hon. Gentleman and save him having to repeat it again during his remarks.
Let me remind the House of the losers from the 2007 Budget. There were some 2.2 million single, childless working people who did not get the working tax credit because they earned more than £12,500 a year but less than £18,000, or because they worked fewer than 30 hours a week or because they were too young. They lost on average £125 a year per family. There were 1.2 million two-earner, childless couples who might not have qualified for working tax credits, who failed to take it up or who lost out from the Budget's other changes. Their maximum loss was £464 a year.
There were 7.7 million two-earner couples with children, and they lost twice through the income tax and national insurance charges but gained only once from the child tax credit and working tax credit reforms. There were people who did not work and lost out because of tax on their benefits. There were 4 million one-earner, childless couples, earning in a range of £17,000 to £18,500, who lost out because they were not compensated.
There were, as Mark Fisher said, 300,000 women, aged between 60 and 64 years old, who did not get tax credits but were too young to be compensated by the rise in the pensioner tax allowance. Indeed, in the days after the 2007 Budget, the first letter that I received from a constituent complaining about the measure was written by a lady who fell into that category. She clearly had read well the small print of the Budget and identified that she was in the group that would lose out.
The average loss per family is about £145. They can be characterised as families who are on low incomes but who fall outside the tax credits safety net; as early retirees; and as people on incapacity benefit. They were caught out by the complexity of a tax and benefit system that the Government created; they were people who lost out from the measure; and they were some of the most vulnerable in society. It was, to reverse a phrase so beloved of the Prime Minister, a tax rise for the many and not the few.
Despite the warnings on Budget day, and despite the evidence that was given to the Treasury Committee at the time, it is fair to say that the issue was a slow-burner. The scale of the losses came into focus only as the implementation date got closer, and, understandably and rightly, people were angry that the Government had not been clear about the scale. That triggered a significant wave of anger across the country that was reflected in the views expressed on both sides of the House. That is why the Chancellor came to the House on
"will mean that 22 million people on low and middle incomes will gain an additional £120 this year. It will mean that 4.2 million households will receive as much, or more than, they originally lost. The remaining 1.1 million households will see their loss at least halved. In other words, 80 per cent. of households are fully compensated, with the remaining 20 per cent. compensated by at least half."—[ Hansard, 13 May 2008; Vol. 475, c. 1202.]
The hon. Gentleman is giving us an interesting historical discourse on the events of the past couple of years. However, the House is interested to know about the measures that his party favours to raise the incomes of the 500,000 households that we are discussing.
That obligation rests with the Minister— he is in government—not the Opposition. We look to him to bring forward proposals to deal with the issue. The Government created the problem, and they need to solve it. They need to live up to the promise that they made in the House.
Let me move on—
I do not need to move on quickly, because the onus lies with the Government, not the Opposition, to solve the problem now. The Government have had plenty of time to think about the issue, and they should not be looking to us for ideas to get them out of their hole.
May I help the hon. Gentleman—and, indeed, the Government? One of the ways in which we could bridge the financial gap is through much more effective measures to deal with tax avoidance. Would the official Opposition be interested in that?
The issue is not about finding the money to pay for the compensation, but about finding a way to compensate people who have lost out as a consequence of what has happened.
After the Chancellor's statement, a number of people were still losing out as a result of the measure. In its report on the 10p rate, the Treasury Committee said:
"There is a pressing need for the Government to seriously examine ways in which these remaining households can be compensated...The Government should set out proposals to achieve this by the time of the 2008 Pre-Budget Report."
The fact that that group of people were still not fully compensated caused continued anxiety across the House about how the issue was to be resolved.
Does the hon. Gentleman share my view that one of the things making it impossible for the Government to find a solution is the fact that they are in denial? They do not recognise that they have caused a problem and say that they cannot identify the people who are losing out. I look forward to hearing from Treasury Ministers; I hope that we hear them say this evening, "Yes, we admit that there is a problem and that there are losers. These are the people, and this is how we will solve the situation."
The challenge is that the Government already recognise that there is a problem. I noticed earlier that Jane Kennedy was in her seat. Let me remind the House about what she said last year, when she was the Financial Secretary, in response to an intervention from the right hon. Member for Birkenhead; She recognised that there was a continuing problem and said:
"I want to reassure him that we will return to this issue in the pre-Budget report, as the Chancellor has said, not only in front of the Select Committee but elsewhere. He will bring forward concrete proposals, and they will be implementable as soon as possible."—[ Hansard, 1 July 2008; Vol. 478, c. 741.]
I thought that a very clear commitment, and I think that the right hon. Gentleman and a number of other Labour Members did too. It was on the basis of the right hon. Lady's reassurance that David Taylor withdrew his new clause at the time.
So a year ago, a clear commitment was given by the then Financial Secretary—and by the Chancellor elsewhere—to compensate the 1.1 million households that had not been fully compensated. The clear message was that that would happen in the pre-Budget report. The pre-Budget report, of course, has come and gone without the package having been put in place, and that is why we are debating it today. There was an exchange of views between the Financial Secretary and the right hon. Member for Birkenhead about the number of people who had lost out through the scrapping of the 10p rate. The IFS estimates that 0.9 million people are still worse off by more than £1 a week as a consequence.
We are here to press the Government to come forward with proposals that will compensate those who were not fully compensated as a result of the proposals announced in May last year. The Government cannot cast aside lightly, and without any consequence, the commitments made in last year's debate and by the Chancellor. Having started this process in 2007, having denied that there were losers despite the evidence, having made a concession under pressure last year, and having defused a revolt on Report of the Finance Bill in 2008 by committing to act in the pre-Budget report and yet failing to do so, it is time for the Government to be held to account by Parliament.
This is not a partisan issue—it is about the House asserting itself and forcing the Executive to live up to the promises that they made to this legislature last year. It is time for the Government to redeem the promise that they made. They have had time to reflect on how to compensate the people who were not fully compensated last year, and to bring forward measures to help those people; in failing to do so, they have broken their promise to the House. We now have the chance, by supporting new clause 1, to force the Government to keep to their promise not only to Members of this House but to the people who have lost out as a consequence of the scrapping of the 10p rate.
It is a pleasure to follow Mr. Hoban. I, too, want to concentrate my remarks on new clause 1.
The problem has been well described by my right hon. Friend Mr. Field. Members in all parts of the House regardless of party, and, more particularly, the millions of people who have been disadvantaged by these changes, owe a great debt to my right hon. Friend. Together, he and my hon. Friend Mr. Pope identified the problem initially, persuaded us very early on that it existed, and have campaigned on it consistently over the past two years. Everybody who cares about this issue is greatly in their debt. I hope that that view is shared even on the Treasury Bench, as well as across the House.
This debate goes right to the heart of what Parliament is about. The essence of what we do is to raise grievances and, in return for the right to do so, vote supply to the Government. I think that not only Labour Members but Members in all parts of the House want the Bill to go through: the Budget has many good things in it, and we want to vote supply to the Government. However, we want to raise what is a serious grievance for many of the poorest people in our society.
It is right that my right hon. Friend has identified that grievance and articulated it so well. The people who are most disadvantaged by these changes are, as he said, people on the most modest incomes. They come to all our surgeries and talk about it—sometimes not even in terms of pounds, almost pennies, but those sums make the difference between a dignified life and a life that lacks dignity because they cannot participate in society. They are not glamorous sums, which is possibly why the press and other media have been less interested in this grievance than in many others. These changes do not catch the headlines, but they mean a great deal to people who come to our surgeries £50, £100 or £120 a year worse off as a result.
It is right that this grievance should not only be identified but put right tonight. We will want to vote supply to the Government, but we want them to recognise that grievance, and to recognise that they have caused the problem and it is up to them to put it right. As my right hon. Friend said, doing so would not involve a huge sum; it is perfectly within the grasp of the Government to rectify their mistake.
Why has there not been a greater outcry? Possibly because, as I said, the losses for any one individual are very small. Ironically, that makes it even more important that they should be addressed. It is also because many people, particularly pensioners, have difficulty in working out exactly how their pension works and what their financial position is. Many of my constituents have said, "I sense that I am worse off under this. I am told that I will be, and I have been to the citizens advice bureau and they have identified that fact, but I do not fully understand it."
As my hon. Friend Rob Marris said, the tax system is so complicated at various times and in various ways that, as we all recognise, the people who come to our advice surgeries do not fully understand the minutiae of it. They do not realise that they are worse off, or exactly what is causing it. That is why we are particularly in debt to my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Hyndburn. They have identified the problem, with the help of the IFS, and articulated it.
This debate is about poverty. That is not a fashionable subject, and I regret that the Government whom I have been proud to support over the past 12 years have not often talked about poverty. They have talked about the future, entrepreneurship and the great expansion of our economy, but there are still large pockets of poverty in all our constituencies, in rural areas and in city areas such as mine. That poverty is made worse by the 10p change, and it has been intensified.
I think it is unfair to say that the Government have not talked about poverty, but by and large it has been about child poverty or pensioner poverty. They have fallen down in not talking about people who do not fall into either of those categories because they do not have a family and are not pensioners. Those people are the worst off because they do not have extra benefits, and they will be particularly hard-hit by the measure in question.
I take my hon. Friend's admonition. Of course Ministers have discussed poverty, but when the story of this Government comes to be written, I do not believe it will say that they have crusaded and pioneered to eliminate poverty generally in our society. Some 12 years on, we still have a residue of poverty.
Pursuant to the remark by my hon. Friend Lynne Jones, one thing that causes me great concern is the difficulty of separating out low-earning adult poverty from child or pensioner poverty. Many low-earning adults live in families that have children, and indeed there is evidence that one driver of child poverty is there being adults in the house who are very low earners. Although progress may have been made on specific aspects of poverty, it is critical that we tackle it across the board, including for single earners, as we are seeking to do today.
I entirely agree with my hon. Friend, and of course I would want to make the exception, which was implicit in her remarks, that those who earn low wages and are in poverty have been helped remarkably well by this Government. The Prime Minister, when he was Chancellor, introduced tax credits and transformed the lives of many of my constituents who were on poverty wages. It gave them a decent lifestyle. When the people on the end of poor administration of tax credits are examined, the system gets a bad reputation, but it has been a life-changing and life-improving experience for the vast majority of those who receive tax credits. It has tackled implicit poverty among many of our constituents.
Poverty does exist. It is a low-level condition but a very painful one, and it is Parliament's responsibility to try to put it right, not to make it worse. The 10p change undoubtedly made it worse for many people. Tonight is the time when the Government have to face up to that and recognise that they have got this slightly wrong and can put it right. We owe it to the people affected to correct it, and we owe it to my right hon. Friend the Member for Birkenhead, for his crusade, to put it right tonight. I hope that we will.
I want to limit my comments to new clause 1, which Mr. Field tabled, and amendment 37, which I tabled. The common theme that links them is the desire of my party and others to help people on low incomes have a higher standard of living and be more self-reliant and less dependent on the state.
Let me begin with the 10p rate. Members who have perhaps followed matters in less detail than those of us who served on the Committee must cast their minds back to
May I point out that some of us were less ecstatic than the hon. Gentleman suggests? I well remember making a speech on that day, pointing out that the measure disadvantaged the poorest. I was not particularly in favour of introducing the 10p tax band; I wanted to raise the threshold, which would have been a much better way of helping the poorest people.
I am grateful for that intervention for two reasons. First, amendment 37 does precisely what the hon. Lady said, so I look forward to her supporting it. Secondly, she leads me neatly on to the comments of the leader of the Conservative party. In response to the rabbit that the then Chancellor pulled out of a hat, he said:
"Well, the Chancellor has finally given us a tax cut."—[ Hansard, 21 March 2007; Vol. 458, c.829.]
Sadly, perhaps not for the first time, he was mistaken. We had not the abolition of the 10p rate—the term often used to describe the change—but the doubling of it. That left more than 5 million people worse off than they were before the change was made.
It was argued at the time that simplification was the motive for the change, but as Rob Marris rightly pointed out, the system has not become simpler. Indeed, since that Budget, the income tax system has become, if anything, more complicated.
What happened after that Budget? We finally got the now Prime Minister to accept that there were more than 5 million losers as a result of the change. Initially, he refused to accept that there were losers, and when we got beyond that stage, there was willingness to acknowledge that there were losers but unwillingness to consider compensating them. It seems extraordinary now, but we were told that the size of the budget deficit made it impossible to afford to compensate them. I think it was probably a combination of not wanting to spend the extra money and stubbornness—an unwillingness to believe that the Government had been caught out in an error of such magnitude.
The decision was then taken in an emergency Budget—that is what it was, in all but name—to borrow some additional money to try to buy off the right hon. Member for Birkenhead and other Labour Members who had suddenly realised, to their horror, that far from being a masterstroke, the measure not only further impoverished some of the poorest in their constituencies, but was likely to be electorally disastrous. This afternoon, we are joined by Mr. Timpson, who offered a vivid illustration of the perils that the Labour party faced if it pretended that the measure was anything other than unpopular.
I slightly disagree with Mark Fisher, when he asked whether people were always aware of the impact of such changes on their income. I was struck by the fact that members of the London-based media, for want of a better expression, were slow to pick up on how damaging the change was, probably because they are invariably paid far more than those in the losing category. However, my constituents were alert to the downsides. I have been stopped in the supermarkets and in the street more about that issue than about any other in the four and a bit years that I have been a Member of Parliament. They said, "I hope when you're up in the House of Commons you're holding the Government to account on doubling the 10p rate because I'm losing out as a consequence."
It is also inaccurate to suggest that the measure damages only those on low incomes. Sometimes debate in the House is caricatured as being about us, on our MP incomes, benevolently trying to help people in circumstances of extreme poverty. Some people on very low incomes lost out as a result of the Government's doubling the 10p rate, but many of my constituents, who are on incomes of £13,000, £14,000, £15,000 and £16,000—regarded not as low, but as typical wages for people who work in agriculture, catering or hospitality in Somerset—were also losing out, even when the effect of reducing the basic rate by 2p was taken into account.
Does the hon. Gentleman recall that at the time, the effect of abolishing the 10p tax rate on some of the poorest members of our society could be seen most graphically in the payslips that they brought to show us, on which they could see that £2 or £3 was being taken from them every week? They were fully aware of the impact, and that made it even more extraordinary that the Government did not realise that there were many losers as a result of the measure.
That is true. Of course, the measure was not implemented straight away—it was a ticking time bomb, which the then Chancellor oddly chose to put under his own premiership, waiting to blow up when he assumed the post of Prime Minister. Nevertheless, the hon. Gentleman is right that people noticed. It is also interesting to note that the different categories of people who lost out noticed. I, too, received many letters from women aged between 60 and 64, who identified themselves as losing out as a result of the change. Members of another category wrote in smaller numbers. People under 25 on low incomes with no children also lost out. Some brought it to my attention because they had noticed the difference in their payslips. There was generally a keen awareness of the change.
The Labour party does not do well in my constituency. No one would say that it was an area with a strong Labour tradition, but many people approached me who had not voted Labour, and perhaps would never consider doing that, but were still shocked that a Labour Government had chosen to implement a policy that seemed so precisely to target and disadvantage those on the lowest incomes. They thought, as the right hon. Member for Birkenhead said, that the sole purpose of the Labour party was to help people in those circumstances. They wondered, if it did not do that, what the point of it was.
Does the hon. Gentleman agree that there was a keen awareness on the part of not only our constituents, but the Government? Sir Nick Macpherson, the permanent secretary at the Treasury, gave evidence to the Public Accounts Committee at the time, in which he clearly said that a thorough and detailed distributional analysis was done. They knew exactly what the effects would be.
I do not doubt that. There are serious questions about the Prime Minister's judgment, but none about his ability to add up. I think that a cold political calculation was made: people on low incomes have a lower propensity to vote and, if they do, a high propensity to vote Labour, so there was no need to give them any incentives. The now Prime Minister was concerned about people in so-called middle England. He feared that Tony Blair's appeal to those people was greater than his, as Prime Minister-in-waiting.
The change from a 22p basic rate to a 20p basic rate was therefore meant to send a clear signal to the media and others that the then Chancellor could connect with middle England and, what is more, that he could continue to outflank the Conservative party on the right by achieving a 20p basic rate, which had been an aspiration of Lady Thatcher and others, but which had not been achieved when the Conservatives were in government. He was going to deliver that, even though the collateral damage was inflicted on people on low incomes. Because their votes were taken for granted by the Labour party, however, there was no need to worry about them.
I am grateful to the hon. Gentleman, who is making a remarkably balanced speech and making a lot of sense. Will he share with the House his party's view of increasing personal allowances, but balancing that by increasing the higher rates of tax, so that we properly target the vulnerable and poorer people in society, which is the right thing to do?
I am grateful to the hon. Gentleman as well. I am building up an unlikely coalition behind amendment 37, which is precisely what I seek to achieve. I will get to that very amendment in a moment and speak to it in slightly greater detail. The situation that I have outlined was the one that the Government faced, and the calculation made was essentially a political calculation.
I am listening to the hon. Gentleman with great interest. I agree with a lot of what he is saying, but I do not believe for one moment that, in celebrating the cut down to 20p, any Labour Member thought that the poorest in society would be worse off. However, I have not been able to decide whether the move was a Government cock-up or a Government policy. What are the hon. Gentleman's views on that?
My view, for what it is worth, is that the Treasury and Treasury Ministers knew perfectly well and were quite cynical in their calculations, for the reasons that I have just given. However, I think that quite a lot of Labour MPs suspended their judgment and only later came to realise the full and awful consequences of what the then Chancellor had announced. Those consequences were awful for two reasons: first, they fundamentally undermined what those hon. Members had come into politics for, which was to try to help people on lower earnings; and secondly, those hon. Members realised that it would be devastating for them electorally when the electorate woke up to those consequences.
Would there not also be support for that view if one took into account the parallel occasion, when the then Chancellor spoke to the CBI and announced the removal of one of the most important green proposals—the proposal to insist that people report on their carbon reductions—in order to send out a signal that he was on the side of business? This is all part of a sad pattern of attempts to get headlines in the Daily Mail.
That is an interesting point. I will not be tempted too far off the beaten track, Mr. Deputy Speaker, but when people come—very soon—to write the history of new Labour, the 10p tax rate will be the watershed moment, when the Labour party tried to triangulate its way to the right of the Conservative party, in an attempt to crowd it out and leave it no room to have any electoral appeal. However, that was dependent on the left, as it were, not minding about all the efforts to woo middle England, which sometimes meant neglecting Labour's core vote, and on other occasions meant actually punishing it. The 10p tax rate was the moment when the elastic stretched too far. The interesting point about that decision was that it was announced in the final Budget speech by the then Chancellor. That speech was meant to set up his premiership and begin a new era of new Labour, but as we now realise, it did precisely the opposite: it signalled the end of new Labour and the start of the desperate circumstances that the party of government has been in ever since.
The new Chancellor of the Exchequer was left in a difficult situation. We all have sympathy for him, just as we have sympathy for the team of Ministers who have to stand up in this debate and justify the position in which the Prime Minister has put them, because it is hard to unravel the proposal without just reverting to the previous situation. Indeed, with the Prime Minister having announced that the 10p rate was an interim proposal and is now in the distant past, the Government are unable to move back to the situation that existed before. What they have tried to do, therefore, is address the concerns raised by the right hon. Member for Birkenhead and others by spending a lot of public money—more public money, interestingly, than it would have cost to revert to the previous situation—targeting those who were losers as a result of the 10p rate.
However, the problem is that it is hard to do that precisely. What the Government came up with, in their emergency mini-Budget, was a £2.7 billion package, which, extraordinarily, gave money to people earning £20,000, £25,000 or £30,000 a year. Indeed, somebody earning £35,000 a year would have gained from the emergency proposals, whereas somebody on a much lower income would still have been a net loser as a result of those changes. The Government found that £2.7 billion out of nowhere and then blew the vast majority of it on people who were not net losers as a result of the change from 22p to 20p in the basic rate, coupled with the doubling of the 10p rate. That was the most extraordinary act of extravagance, but it was very badly targeted. The proposal was simple to implement, which was its one merit, but it otherwise failed in its objectives.
Where does that leave us now? It leaves us in an interesting position, questioning the Prime Minister's judgment and the party of government's overall strategy and direction; it also leaves us doubting Labour's ability or desire to help the poorest in our society. Indeed, one interesting thread that runs right through the Bill is the number of measures that it contains that are disadvantageous to people who, in other circumstances, might have thought that the Labour party was on their side. It is interesting, for example, that the group targeted for gambling taxes are the people who play bingo, that there is extra duty on a pint of beer and that people at the lowest end of the income scale have not been compensated for the changes that we are discussing in relation to new clause 1. It is hardly surprising, when one looks at those measures, that so many people across the country are concluding that the Labour party, despite its historical record of commitment to them, no longer appears to be particularly interested in helping them in future.
That brings me neatly on to amendment 37, which is the sort of enlightened, progressive measure that people may have thought the Labour party would have championed in the past, but which they have long since given up hoping it will support in future. However, amendment 37 has been put forward by the progressive voice of British politics, which is me and the Liberal Democrats. It is a straightforward measure of the kind that would find favour with the right hon. Member for Birkenhead, who spoke about the need to cut taxes for people on low earnings, which is precisely what we seek to do.
Amendment 37 would raise the personal allowance—the segment of one's income on which one pays no income tax at all—from the current figure of £6,475 in a financial year to £10,000. That would effectively implement a cut in income tax of £705 for anybody earning more than £10,000 a year, but it would also take out of tax altogether 4 million people whose income is above the current threshold but below £10,000. I do not pretend that amendment 37 is a cheap measure. It would cost billions of pounds to implement, which is why my party has identified a range of different ways of funding it. I could go into those at length, but as I talked about them in Committee, perhaps I will not detain the House today.
Before I conclude, however, let me talk about the motive, which is the important feature. In supporting new clause 1 and tabling amendment 37, my party is trying to do two things. The first is to help people on low incomes to stand on their own feet and be less reliant on the state. We realise that everyone needs assistance, and that people on low incomes need it most, but it is perverse to take money away from people in taxes and then reimburse them through some complicated mechanism elsewhere in the system. Our desire is for people to have an incentive to work because they get to keep more of their income, and to be more self-reliant than they would otherwise have been. We feel that that goes with the grain of human nature and that it is good for people in those circumstances. In the present recessionary environment, it is particularly desirable for people to have greater incentives to work and for those at the bottom end of the income scale to be able to keep a bigger share of their earnings.
Is there not a problem with the new proposal, in that it would not reimburse the people who lost out as a result of the abolition of the 10p tax rate, because it is not targeted in that way? The only way to reimburse those people is to reinstate the 10p tax rate. An advantage of the 10p rate was that people would go from paying no tax to paying 10p in the pound to paying 20p in the pound. The problem with this proposal is that they would go from paying no tax to paying 20p on the marginal rate.
The hon. Gentleman is right to say that, under my proposal, people would go from paying no income tax at all to paying a marginal rate of 20p in one leap. However, he is wrong to say that the people who lost out as a result of the doubling of the 10p rate would still lose out under my proposal. That is because the threshold that I am suggesting is higher than the top of the threshold for the 10p rate would have been. Of course, there would be extra costs involved, because many other people would benefit from my proposal. I went through the funding implications at some length in Committee.
The measure that I am proposing in amendment 37 is strongly compatible with new clause 1, and it has a similar objective. I said earlier that there were two aspects to our objective. The first is to incentivise people to work and to be self-reliant. The second is to create a fairer society. At the moment, many people on low incomes pay a very large proportion of their income in tax, partly because some of their consumer preferences are highly taxed. However, it is undesirable to levy income tax on people who are earning less than the minimum wage, only to try to reimburse them through an elaborate system of compensation. That is inefficient, and it reduces their ability to be self-reliant and their incentive to work. For all those reasons, we are keen to support new clause 1 and I urge hon. Members to support amendment 37.
I strongly support new clause 1 because it deals with an issue about which I have been concerned. I want to make some remarks about a particular group of people—namely, women between the ages of 60 and 64. I very much welcomed the introduction of the 10p starting rate of tax because it seemed an extremely progressive move. It represented a good stepping-stone on the way to paying the full rate of tax, and provided a welcome tax reduction for a large number of people on low incomes. It also seemed to provide a real incentive for people to go out to work, because they would not lose all their money to tax. Given that it was so successful, it is a great shame it was not retained as a proper part of the tax system.
The decision to scrap the 10p rate did two things. First, it caused real practical difficulties, because people's tax went up. For people in a certain band, it doubled. Secondly, for the group of women I have mentioned, it produced a massive grievance. It is that second point that I want to deal with. The sense of grievance is as much a problem for them as the practical one of paying more tax, and it has persisted even though the Government have taken steps to deal with some of the practical issues.
I had exactly the same experience as Mr. Hoban, in that women came to see me with letters telling them that their tax was going to double. In some cases, their husbands came to see me and said that their wives were worried because their tax was going to double. They asked me whether I could look into the matter. Those women had worked hard all their working lives, sometimes starting out paying the married women's stamp. They had brought up their children and they had done everything right. Their real grievance was that, having retired, they found that part of what they thought was going to be their retirement income was going to be eaten up by the extra tax.
I recognise that single working people on low incomes also have a problem, but it is much harder for people on fixed incomes. People who have been retired for a while, or who are about to retire and are trying to plan for the rest of their lives, do not have so many options. It is hard for them to come out of retirement and go back to work. They do not have the same options for increasing their income. It is also harder now because work is harder to find. If people see that their family income is going to go down, they will try to increase their work by taking on extra shifts or doing something else to get the family income up to the level they need. However, that is obviously much harder for those who are retired and on a fixed income.
A figure of 300,000 has been cited as the number of women in that position. I am sure that it would have been much higher, but women have had a real problem getting any substantial income in retirement at all. That has been well documented by Lord Turner and others. For women in this position, the problem is, in a sense, a result of their success. They have worked hard to make the necessary provisions and arrangements, and now find they are being hit precisely because they have been careful to ensure that they have an adequate income in their retirement, which is liable for income tax.
I do not know whether the hon. Member for Fareham wrote to the Chancellor, but I did. I have to say that the consequences of my doing so were even worse than the problem I had in the first place. The letter that came back said, in terms, "Yes, we recognise that the tax will double. However, please tell your women pensioners that they don't have to worry, because their husbands will get an increased allowance." That is because their husbands are mostly older than they are, and they will get a higher personal tax allowance once they reach 65.
That response intensified the sense of grievance. If there is one thing worse than telling a woman she is being discriminated against because she is a woman, it is telling her that everything will be all right because she will be able to depend on her husband to look after her in her old age. That was about the worst idea the Chancellor ever had. I cannot even remember whether I sent those letters out—I was so appalled at the idea of having to tell my women constituents that they were going to have to depend on their husbands in their retirement. That was not a sensible thing to say at all. Those women are very independent-minded. They have spent all their working lives working and providing for themselves and their families, and they often took life much more seriously than their husbands did.
I fully recognise that real progress has been made on a practical front. I also strongly suspect that, while a lot of thought was given to tackling poverty, the impact of the abolition of the 10p rate on women pensioners simply was not properly thought through. The House has spent a long time arguing for the position of women pensioners. A number of women Labour Members have argued that the position of women pensioners must be properly respected and that some thought should be given to ensuring that proper arrangements are in place for women to have a reasonable income in their retirement. I suspect that the matter was not thought through too carefully. None the less, while some of the practical issues have been resolved for this group of women, the sense of grievance is still there.
Although I have a great deal of sympathy with and am grateful to my right hon. Friend Mr. Field for introducing the new clause, I will not vote for it tonight. I wanted to raise this issue and discuss it because it has not been properly debated so far. Furthermore, I do not think that my constituents would thank me for the unforeseen difficulties that the Budget would face if the new clause were passed. We have to look at the practical side, as well as at the issue of what happens to women pensioners.
I hope that Treasury Ministers will look again at this issue; we are talking about only a small group of people, although I wish it were bigger. Given how much women work and provide for their retirement, more of them should have a pension income sufficient to be liable for tax. It is only because of the position women have faced—earning part-time wages, lack of access to occupational pensions and difficulties in securing private pensions—that more of them are not in that category.
No, which is exactly why I have explained my position on this amending provision and pressed Treasury Ministers on the issue of women. I have also explained why, if I am asked whether my constituents would thank me for causing the problems that would occur if the Budget did not go through, I do not think they would. [Interruption.] No, it is not unbelievable. As Mr. Bone knows perfectly well, Members frequently table probing amendments so that they can flag issues up and get them debated. Plenty of Members do that. I am standing here to explain why I signed up to the new clause and why I am going to vote in the way I have indicated.
I have listened to what my hon. Friend has said. Will she explain what she thinks would happen if the new clause were accepted this evening?
I think we can hear about that from Ministers.
I was going to ask them later.
I am very clear that if we start delaying the arrangements for tax and other payments, the consequences could well be problematic. If I asked my constituents whether they wanted the country run properly or not, I suspect that they would side with what I am doing.
A number of Members, including my hon. Friend Lynne Jones, have said that this is all about poverty. For some, that is absolutely true—it is about the poorest in our society—but the people who have lobbied me most on this issue, particularly the women in the age category I mentioned, suggest that it is not just about the depth of poverty. A number of those women were not in the poorest groups; they were on modest and reasonable incomes. I am thinking in particular of a woman whose door I knocked on some time ago. What grieved her most was that although she could afford to pay tax, she had worked really hard all her life and budgeted for a certain income in her retirement, yet suddenly saw it being hit. She will be hit because although the tax threshold has been raised, she has not been fully compensated.
Will the hon. Lady write to that very constituent to tell her that she had an opportunity to right that wrong this evening but decided not to, or will she send her a copy of the new clause signed by herself and say that the constituent can be reassured that the issue was raised through her MP in the House of Commons?
I will be completely honest and send her a copy of what I have said, so she can see for herself. If she disagrees with my judgment, that is fine; it is her decision. The hon. Gentleman is completely wrong if he thinks that simply voting for the new clause and seeing it through would produce all the consequences he has talked about. There are ways of dealing with the problems of the group I am most concerned about—looking at differences in tax rates for income from pensions, for example—and other ways of ensuring that retired women pensioners on fixed incomes get the same tax advantages as their husbands, who might be older and also retired. We do not want this false position whereby women retire earlier, only to find that they are clobbered at a time when they cannot vary their earnings and are stuck with it.
What most concerned my constituent was the fact that she was being discriminated against because she was a woman pensioner and had to pay an increased tax rate, even though she had retired at the proper age. I ask my right hon. Friends on the Treasury Bench to deal with that point. My right hon. Friend the Member for Birkenhead has spoken about the generality, and many Members have spoken about different groups in poverty. Will Ministers focus on women aged 60 to 64 who have retired, striven hard to provide a pension and made arrangements to secure a decent income, only to find that they are affected by the higher tax rate? As I have said, they have a profound and abiding sense of grievance at being hit by that tax increase in their retirement.
It is said, "For whom the bell tolls"—well, there is no question but that the bell tolls for new Labour on this proposal. The Government have turned the values of new Labour and old Labour upside down by what they have done. To those who think that the vote by the Conservative party has an element of cynicism about it— [Interruption.] No, not at all. To those people I say that one of our greatest Prime Ministers, Disraeli, wrote a tale of two nations in the book "Sybil", which set out for its time the way in which Governments, as in our own time, create divisions in society by arrangements of this kind. The Government's proposals are totally unacceptable.
Many people in our constituencies are deeply affected by those proposals. People in rural areas, for example, suffer from increasing poverty; dairy farmers in my constituency are similarly affected. Small businesses and individuals are going bankrupt under the burdens they are suffering under the present economic recession. It has been suggested today that the number of unemployed might be as many as 3.2 million next year. That is the reality of the direction in which the economy is going, as taken by this Government.
While the Government bail out the bankers, the poor are battered by the proposals on the Government's agenda. There are broken promises, and it is down to Parliament to deal with them.
Mark Fisher said that it was time to put Parliament first. Let me add to what he said: it is time to put people and Parliament first. That is what we must do, and that is what the proposal from our Conservative side of the debating Chamber must deliver tonight. The good and honest Members on the Labour Benches have evaluated the meaning of Labour for their own people, and we will do the same for our people. We have constituents who are equally poor and who need to be protected, and I believe profoundly that we have a duty to support them tonight.
In an intervention earlier, I referred to the big landscape against the background of the actual figures of debt. The Government continually insist on a figure of £1 trillion, but according to the Office for National Statistics, and as I have said since
It is essential that we vote tonight, and show the less well-off in our constituencies that we are prepared to protect them. The other day, my right hon. Friend the Leader of the Opposition talked about the potential for riots. When the scale of a problem presented by proposals such as this causes such a reaction among the people who will be affected, we can be in no doubt that there will be serious trouble by the middle of next year. It is therefore essential for us to introduce remedial measures to ensure that the poor are not affected by the Government's proposals.
The landscape of the total debt figure is so huge, and the impact that it will have on the man in the street at the lower end of the income scale is such, that we must do all in our power to ensure that we protect people. By voting as we will this evening, we will guarantee that protection.
I support new clause 1, which bears my name. If my right hon. Friend Mr. Field presses his motion to a vote, I will support it, because I believe that this is our last opportunity to say clearly to the Government that what they did initially was wrong. We then thought that they had accepted that it was wrong, because they made some changes which we welcomed. However, 1.3 million people—according to figures from the Library and the Institute for Fiscal Studies, which I believe to be correct—are still waiting for help. If the new clause is not accepted tonight, there is no chance that anything will be done to help them before either the next Budget or the next general election.
Given that we have a Treasury team and many civil servants and highly paid officials and consultants working on Treasury matters, it is sad that during the period between the previous changes and the current Budget, they could not come up with a solution to compensate 1.3 million people for their loss. Admittedly that number is very small as a proportion of the overall population, but it nevertheless represents some—although not all, as my right hon. Friend said—of the poorest paid people in the country. We would have loved to table an amendment or new clause tonight that did come up with a solution, but the nature of debates such as this makes that impossible.
Notices have been delivered, and the Government Whips have told us how terrible it would be if the new clause happened to be passed. I find that strange. We have been told that the new clause is dangerous: that it would restrict the Government from collecting any income tax for 2009-10, with an estimated cost of £140 billion. We have been told that the services on which the public depend will be put at risk. Do we really believe that if this measure were passed, the Government could not go off and do what they did when the banks were collapsing? The Chancellor was up all night—all weekend—sorting things out and finding a solution. Are we really saying that that could not be done if this measure were passed this evening?
There was such a situation in the United Kingdom earlier this year, when a budget was not passed in the Scottish Parliament. The Opposition worked out quickly what needed to be done, and a week later the budget was passed unanimously with, I believe, one exception. Of course action can be taken to cause a budget to be passed in exactly the way in which the hon. Lady has described.
The hon. Gentleman is right. The problem is that whenever we say that we want something to be changed and we know that that is the right thing to do, a reason is given for it not to be done which makes many of those who have supported the measure in question change their minds and decide not to vote for it. They can all examine their consciences, and it is perfectly right for them to do so.
I accept that the position could possibly be put right within 24 hours, but will my hon. Friend accept just for one moment that, if the Government are right, within those 24 hours an enormous amount of damage could be done to the economy and, consequently, an inordinate amount of damage could be done to the very people whom she and I seek to protect?
I am not an economist, and I am sometimes quite glad that I am not, but I see things in a common-sense way. I find it incredible that we should not pass a measure asking the Government to find a solution to the problems of the 1.3 million people who have been so badly hit. The Government have had months and months in which to sort those problems out. It is not up to the official Opposition, the Liberal Democrats, the Scottish National party or my right hon. Friend the Member for Birkenhead to come up with a solution. The Government could have come up with a solution, but they chose not to. They thought that the problem had gone away, but the fact that we are not all still receiving hundreds of letters about the issue does not mean that it has gone away. Most of my constituents who have suffered have almost given up, believing that the Government will not listen.
A woman wrote to me saying:
"I am 58, female, single and childless. I am currently on a low income and, sadly, may remain in this situation—employment possibilities for people of my age being what they are... I do not wish to be well-off but aspire to living independently and with dignity, which will mean continuing to earn whatever I can for as long as I possibly can. Believing in personal responsibility, I have managed to save some money to provide a meagre supplement to what will be an insufficient pension... I am one of those who will fall foul of this iniquitous new measure" on the 10 per cent. tax band.
"I cannot believe that this has been brought in by a Labour government and particularly by our current PM. For the whole of my life I have voted Labour... I am so astonished at this measure ... I cannot express strongly enough my outrage towards my Labour government that such an attack should be made on low earners like me, young or old."
I have received a number of similar letters, and I am sure that all Members were being visited by their constituents months ago. However, people have become fed up with going on and on about the issue, because they feel that the Government are not listening. Tonight's debate gives us all an opportunity to say that the problem must be solved, and could be solved.
I hope that if my right hon. Friend the Member for Birkenhead presses his motion to a Division and the new clause is accepted, the Government will sit up all night and, indeed, for the next 24 hours. We have until
I can say little more than my right hon. Friend Mr. Field or my hon. Friend Kate Hoey. I rise with considerable sadness and with a quizzical outlook. I want to hear some answers from Treasury Ministers to some fairly obvious questions. Two and a half years ago, the 2p reduction was made to the basic rate, and the 10p rate was removed as a means of funding that.
I do not understand why it is so difficult to track down the real losers. If there are 1.3 million losers, I would have thought that the finest minds in the Treasury working night and day would have been able to identify who they were and what the impact on them has been. What numbers have been crunched and what decisions have been made to try to do what the Government set out to do when they realised their mistake? Why did they not go further on earlier occasions to deal with a running sore, something from which we cannot hide? We have made some of the poorest people poorer. That is unacceptable, but it is something that we can rectify even at this late stage.
I intervened on Mr. Hoban to say that if only we had spent more hours dealing with tax avoidance and fewer hours making the poorest poorer, some Labour Members would feel that our time here had been well spent. Even at this late stage Ministers must realise that they must do something. They face the possibility of a large rebellion tonight; that has been coming for the last two and a half years. There have been various skirmishes but tonight it is for real. It is a question of poverty and of trying to make the case for those who have been made worse off by a change that was not thought through.
At the time some of us thought that it was a pure gimmick. There was a debate to be had about whether the 10p rate was the most appropriate way to try to help the very poorest in our society. Part of the problem that I have is that we do not know who these 1.3 million people are. They are not a group; they are individuals—I will not go into the question of there being no such thing as society. However, this is not one homogenous group. There is a need for measures to deal with these different people even at this late stage. I am looking for Ministers to come clean on this. What measures have they explored to try to help those who have been hit? Those people have written to all of us, which makes it so much more difficult. We cannot say it is those who are 16 to 18, or 18 to 21, or single pensioners—women largely—aged from 60 to 65. Many of those are in that group but they are not the totality. There are others. My hon. Friend Lynne Jones mentioned couples with no children who are in this group and feel particularly hard done by because they have struggled to stay in work and to earn a decent living. They saw the 10p rate as a good way of rewarding them.
Does my hon. Friend agree that there has been some talk in the past 48 hours that if this new clause is passed tonight, the following morning the Government will not be able to collect taxes, the markets will crash and government will grind to a halt? Does he not agree that these are tales to frighten children and that people should decide to vote tonight on the merits of the arguments and not on implicit threats from Treasury Ministers?
I always think it is better to win the debate through argument than through other ways—for example, people instructing us it is better to vote one way rather than another. I am looking to Ministers to go through the arguments presented by my right hon. Friend the Member for Birkenhead and to say that the situation is not as he described it. So far that has not happened. There has not been a willingness to engage and to find an alternative way we could take this forward, other than some of the measures introduced in both the pre-Budget report and the previous Budget.
We are at a difficult stage now. We need to recognise that the hurt among core Labour supporters remains. Some of us will find it very difficult not to want to go back to where we were, which was to recognise that these are the people whom we cannot afford to be made worse off. That is what Ministers need to do and that is what I look to my right hon. Friend the Financial Secretary to do now.
We have had a very good debate. At Budget 2007, the Government announced the abolition of the 10p rate and changes to personal tax and tax credits. Most households were compensated by other parts of the package, but my right hon. Friend Mr. Field and others argued forcefully and successfully that more needed to be done. The Government accepted that and on
On Report of last year's Finance Bill, which made the changes that were announced, my predecessor, my right hon. Friend Jane Kennedy, was asked by our right hon. Friend the Member for Birkenhead and others about further commitments. She argued that we had substantially reduced the number of losing households but she acknowledged that there were still, at that time, just over 1 million households losing out, and that we needed to do more to help. Mr. Hoban suggested that we then did nothing. That is simply untrue.
In the PBR, the Government announced further support. We rolled forward the increase to the personal allowance announced in May, increasing it by a further £130 above inflation. Those changes now fully compensate over 90 per cent. of the 5.3 million households who would otherwise have been paying more, reducing the number to around 500,000 households in 2011-12. The maximum individual loss is now £92 a year, or £1.77 per week, if there is no offsetting tax credit gain. The average loss for a household is now less than £1 a week. I agree with those who have said that even a loss of that size is significant for some of the people we are talking about, but it is important to make it clear that we are not talking about average losses of £2 or £3 as has been suggested. [ Interruption. ] May I make some progress because I know that the House is anxious to conclude the debate?
It is not the case that all these losing households are low-income households. Relatively few are in the lowest income decile, because many in that group do not pay income tax, and we have taken an additional 800,000 people out of income tax altogether through the steps we have taken. Of the 500,000 households that remain, some 100,000 are in the highest income decile. For example, if a household comprises a City banker and a second earner who lost out from the abolition of the 10p rate, that household is included in the 500,000. There are 100,000 of the 500,000 in that category. The new clause would prevent the Government from collecting any income tax until well-off households like that were made even better off. I cannot believe that that is the intention, but that would be the effect of the new clause. At the 2008 PBR, we acknowledged that, although the number of losing households had been reduced by 90 per cent., there would still be some who lost out. Although public concern has not been completely eradicated, it has certainly been substantially allayed by the changes we have made.
There has been some discussion of the impact of the new clause, and I want to comment on that. Income tax is an annual tax that needs to confirmed annually in each Finance Bill. If the new clause were carried, without some rather desperate measures we would be unable to collect income tax this year, and income tax already collected would have to be repaid. The chaos does not bear thinking about.
Let me comment on the position of the Conservative party. The Conservatives did not object to the abolition of the 10p rate, and the 10p rate has not been mentioned in any Conservative amendment to the Bill. They have not previously supported amendments on this topic moved by my right hon. Friend the Member for Birkenhead—presumably, in the past, because of concerns in respect of fiscal responsibility. They have not today suggested any mechanism for compensating losing households, despite my giving the hon. Member for Fareham the opportunity to do so. Yet now they are set to abandon fiscal responsibility and follow their leader, who signed the amendment, through the Division Lobby to block the collection of income tax. Lest anyone thought the Conservative Opposition were fit to form a Government, their disgraceful position today shows that they are not.
I want to make a little progress for now, and say the following to my right hon. Friend the Member for Birkenhead, for whom I have great respect. I agree with my hon. Friend Mark Fisher that my right hon. Friend and those who have worked with him have achieved a very substantial amount through their pursuit of this matter over the past couple of years. The terms of this new clause are, however, impossible for the Government to comply with. We could only do so by announcing large sums of extra spending—£2.6 billion this year if this was to be done by increasing the personal allowance further—and the imperative of fiscal consolidation rules that out. Alternatively, we could come up with some very complex means-testing arrangement, which would reduce the cost somewhat but also introduce unmanageable new processes. With the best will in the world, that would take a considerable period of time, and in the meantime we would be unable to collect income tax.
That is not to say that there is nothing we can do. I and my colleagues would be very happy to discuss any ideas my right hon. Friend or others might want us to consider before the pre-Budget report, and to see if we can help further. My hon. Friend Ms Keeble and others highlighted concerns about women who retired at 60 after a lifetime of work and who will now pay more tax than they had expected until the age of 65, and there are also other concerns about the particular circumstances that some people face. We will be happy to look at those, too.
Will my right hon. Friend not only look at the practical consequences to do with the money these women have lost and the fact that that comes out of pension income and not earned income, but address these women's real sense of grievance that they were discriminated against and told, "Not to worry, dear; your husband's got a higher tax allowance"?
Absolutely—and that should certainly not have been said to anybody. There is a sense of grievance, although it is substantially allayed by the changes we have made. I will certainly be happy to look at those points over the next few months, however.
Will the Financial Secretary briefly explain what would happen if new clause 1 were carried this evening? Is he saying that if it were carried, the Government's tax-raising powers would end?
Well, the power to collect income tax ahead of Royal Assent is founded on the Provisional Collection of Taxes Act 1968, section 1 of which provides that a resolution under the Act has statutory effect for a specified period. One of the things that brings that specified period to an end is rejection of the provisions of the Bill reflected in the resolution, so we would not have until
I moved a not dissimilar measure in the equivalent debate in July 2008, and I offered a formula to the Minister at the time. I did not press it to a Division because I was assured that strenuous efforts would be made to remedy the remaining problems. There appear to be 500,000 families and an average of £50 each, which amounts to £25 million. Can the finest minds in the Treasury not fashion a method of compensating for that £25 million that does not involve a factor of hundreds of millions of pounds in excess? I cannot believe that that can be true.
Actually, it is true, and we have taken strenuous measures. I think my hon. Friend is suggesting some very complicated means-testing system that would require, for example, a very large number of people to fill in self-assessment forms who do not currently have to do so, and who would not know until the end of the year what their income tax was. I want to underline the fact that I am very happy to look at suggestions that Members and others may want to raise between now and the PBR. Blocking income tax is not the answer, however, and I ask my right hon. Friend the Member for Birkenhead to withdraw the new clause.
The hon. Member for Taunton described amendment 37 as progressive. He also had the good grace to acknowledge that it would cost a fair amount of money: £18.5 billion actually, so it is completely unaffordable. I do not think the House will be attracted to it, despite the oratory that he employed to urge his move upon us.
Amendment 40 provides for the adjustments that have to be made between settlors and trustees of a trust. It seeks to set out a mechanism for payment of tax by settlors, and addresses settlor-interested trusts and certain trust income of children that is treated as income of the settlor of the trust. I say to the hon. Member for Fareham that these changes are not necessary, however, as what they seek to achieve is already allowed by the rules. If he needs me to provide any further detail on that, I will be very happy to do so.
New clause 1 and amendment 37 challenge the Government's response to helping families now and to compensating those who lost out from the abolition of the 10p income tax rate. I pay tribute to my right hon. Friend for leading a lengthy campaign on this issue, which has been effective and successful. He was right to raise it, and he has brought about significant changes. My case is that our response has been fair, straightforward and effective, and that it substantially deals with the concern raised. I understand that there are continuing concerns, and we are happy to continue to look at them, but halting the collection of income tax is not the answer.
There is clearly something wrong with our procedures when Members who wish to reform a Budget constructively have to resort to tabling a new clause that, according to my right hon. Friend, will blow the House and everything else asunder if we press it to a vote. It is very significant, however, that he did not say in response to the intervention of my hon. Friend Mr. Godsiff what would happen if we passed the new clause. We all know perfectly well that we are not rejecting the Budget. We are not rejecting these powers; we are putting a temporary hold on them. Let us suppose, however, that my right hon. Friend is right about the outcome. We know perfectly well what any rational, sensible Government with a real wish to live would do. They would immediately come back and say that they would have a vote of confidence now and insist that it is passed, and one would hope that, with a little humility, they might come back with the measures we are all asking for.
This debate has been quite a simple one, although it has taken a long time. When I opened it, I said that although there were different views among those on this side of the House—those of old Labour, new Labour and just Labour—the great golden thread that linked us all and sent us here in public life was the desire to protect the poorest. We might have disagreed about everything else, but that was sacred to us. This 10p measure that the Government introduced has tried to break that golden thread.
Of course, the Government have taken some measures, but they have not taken a single measure that specifically helped those who lost out by the abolition of the 10p rate. The Government have taken other measures that have benefited taxpayers generally, including those who were losers from the abolition of the 10p rate, but they have taken no specific tax measure to compensate that group. Tonight is our last opportunity to say to the Government that they need to renew their faith and our faith in the tradition that sent us here, so that when we go into that general election—
I am trying to decide how to vote should my right hon. Friend press this matter to a Division. The only practical way of dealing with this situation is by a general increase in the threshold above which people pay tax—that would, however, also help other people—because targeting those losers specifically would be enormously complex, and I am not in favour of such complexity. In such an approach, the money could then be clawed back at the higher level. Is that what he is proposing? We need to have a practical measure to deal with this problem that will not cost billions.
I am grateful for that intervention, because it allows me to point out that the Minister keeps saying that the Government are open to suggestions, but we have been making suggestions ever since they got us into this mess by abolishing the 10p rate. The most obvious way to bring justice without having to eat humble pie and reintroduce the 10p rate would be to raise tax allowances by the amount that made sure that there were no losers earning less than £18,000 and claw back that increase from the rest of us by adjusting national insurance. Such a measure would be targeted and effective, and it could be done this year. The trouble is that when such suggestions are made, they are not ones that the Government favour and so they reject them. That is fair enough, but they cannot then keep saying that they are open to suggestions.
I suspect that my right hon. Friend is correct about the proposal that my hon. Friend Lynne Jones just made. Why then did he not table it as his new clause?
As I have been explaining, I cannot do that. The House of Commons has this absurd procedure whereby either we let things through or we table proposals such as this just to hold the Government back for a moment, so that they have to think again. We are then accused of trying to press the nuclear button. The constructive thing that we cannot do in Budget debates is propose how the Government might get out of the big hole that they have dug and fallen into. As we now have a reforming Speaker, I hope that that is one of the areas in which we will bring about change, but that is for the future. Today's debate is about whether we demand additional measures to help those who earn the smallest wage packets in our country; it is about whether we rectify the attack that the abolition of the 10p rate made on their standard of living. The Minister has mustered all his skill from the Front Bench. He has given us reassurance, but he has not given us any actual proposals. As a result, I shall press new clause 1 to a Division.