Finance (No. 3) Bill

Part of Industrial Relations (Voting Procedures) – in the House of Commons at 8:20 pm on 26th April 2011.

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Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West 8:20 pm, 26th April 2011

After the sound and fury of the Budget debate, every year we follow it up with a Finance Bill with its technical clauses, amendments to previous Finance Acts and anti-avoidance measures, that does not grab people’s attention in the way that the Budget does. All this will be considered when we reach the Committee stage, which I am sure will drag on for many sittings, as those who have served on it before—some of us have done that on many more occasions than others—will know from past experience. However, the Bill proposes many far-reaching and fundamental changes to the taxation system, paving the way for further reform, as the right hon. Member for

Croydon North (Malcolm Wicks) said, in what was quite a thoughtful speech. I want to dwell on three of the Bill’s provisions: those dealing with income tax and national insurance—which we just heard about—environmental taxes, and taxation of the banks.

Clause 3 raises the income tax threshold to £7,475 this month, April 2011. That raising of the income tax threshold was the cornerstone of the coalition agreement between the Liberal Democrats and the Conservatives, and implements the Liberal Democrats’ No. 1 manifesto commitment from the 2010 general election. The benefit of that commitment being implemented in government will be felt by wage and salary earners up and down the country in their payslips at the end of this month. Some 900,000 people will be raised out of the income tax bracket altogether, while those still in the basic rate bracket will see a tax cut of up to £200. The Budget also announced next year’s rise in the threshold—which will no doubt be implemented by next year’s Finance Bill—in April 2012, lifting a further 1.1 million people out of tax. This Finance Bill and this Budget help the poor and reward work.

I look forward to the review of the operation of income tax and national insurance which was announced in the Budget, which the right hon. Gentleman also spoke about. National insurance was introduced in 1911. This year is the centenary, which would be a good point for that review to announce its ending, at least for employees. Although I agree with quite a lot of what the right hon. Gentleman said, there was a touch of Victorian values in some of what he said about the contributory principle, which is what the founders of national insurance—he mentioned Churchill and Lloyd George—wrestled with. They were very much products of the Victorian era, but the right hon. Gentleman’s own party forebears—Aneurin Bevan in particular—rejected the contributory principle when founding the national health service, insisting that it should be based on broad taxation, not individual contributions into an insurance fund.

The right hon. Gentleman made many thoughtful points that will have to be considered in the review of national insurance, but the contributory principle has failed. He mentioned women and the fact that people sometimes find that they have not accrued the pension rights that they might reasonably have expected. He talked about citizenship, and that is where a citizen’s pension will be relevant. I hope that this Government will introduce one. However, it would be right to recognise the contributory principle for unemployment benefit, which he did not mention. I would not want someone in short-term unemployment to have to undergo a means test to claim unemployment benefit. One benefit of the contributory principle at the moment is that people who are unemployed for up to six months do not have to undergo a means test to claim a benefit to which their national insurance records prove they are entitled.

We will therefore need to retain some contributory benefits in the existing national insurance scheme for employees to which the right hon. Gentleman referred. None the less, the scope of the changes in the Finance Bill and the Budget to our income tax and—if we get them—our national insurance regimes represent the biggest shift in our direct taxation system for many decades. The reforms in the 1980s, particularly to income tax, tended to favour the better-off; the reforms of this coalition Government will help the low-paid.

The second area in the Bill to which I want to refer contains the provisions dealing with environmental taxes. Clause 25 raises landfill tax from £56 to £64 next year, giving local authorities a further incentive to achieve a step change in recycling. My local authority—Bristol city council, which is controlled by the Liberal Democrats—has shown a steady increase in the rate of recycling. We now have the best record of any city authority in the country, recycling close to 50% of our recyclable domestic waste, and we are aiming for 90% over the next few years. In the Easter recess, the Chief Secretary to the Treasury and I visited the plant being built at Avonmouth, just outside my constituency, by New Earth Solutions, which will screen the residual waste that people have not recycled from their doorsteps in order to extract the remaining recyclable materials. Landfill tax is a well-established tax that is achieving its aim, but we know that we have some way to go in many parts of the country.

A new tax in the Bill that several people have mentioned is the setting of a carbon floor price, at £16 a tonne this year, which it is proposed should rise to £30 a tonne by the end of the decade. There will obviously need to be much debate and thought about how the carbon floor price will operate, but it is an essential reform if we are to incentivise a switch to a low-carbon economy and make renewable sources of electricity generation competitive with carbon-intensive forms of electricity generation. There is an important debate to be had about how that affects nuclear power, and I am meeting Greenpeace later this week to discuss its concerns. I am also working with party colleagues to develop Liberal Democrat ideas on how the carbon floor price and carbon taxes can operate, in order to inform the debate as it unfolds.

A third aspect of the Bill that I want to mention briefly is the introduction of something that has been talked about for some time over the past year—the bank levy; it is almost hard to believe that a statutory basis for it did not exist until now. The detailed provisions governing how it will operate are in schedule 19, which I am still trying to plough my way through and understand. [ Interruption. ] Judging from their facial expressions, I am sure that Opposition Front Benchers are trying to get their heads round it as well. I am sure that they will be well advised by colleagues outside the Chamber.

The operation of the bank levy is incredibly important, but its introduction is incredibly important as well. The shadow Chief Secretary to the Treasury referred earlier—as does the Opposition amendment to the motion—to the bonus tax that the previous Government introduced. This bank levy will raise more money year on year than that bonus tax. It is also renewable every year, unlike the windfall tax, which could be levied only once, in the unique circumstances of 2009. Such a levy on the balance sheets of banks is the first component of something that many people, including myself, have campaigned for—a Robin Hood tax. I hope that the Government will now move towards adopting the second component of such a tax plan—a financial activities tax—in order further to bring about reform in this area. That would require European Union co-operation, and I hope that the Government are seeking to achieve that co-operation among our fellow member states.

The Bill contains 91 operational clauses and 26 schedules. It is a particularly fat Bill, although not actually a record-breaker. As is the nature of Finance Bills, probably not much of it will endure in the memory. Several elements of it will stand the test of time, however. The reform of income tax, the reform of national insurance promised in the Budget, the lifting of the low-paid out of taxation and the further reforms to environmental taxes will be an enduring legacy of the coalition Government.