Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Basic rate limit and personal allowance

Part of Finance (No. 3) Bill – in the House of Commons at 5:45 pm on 19th November 2018.

Alert me about debates like this

Photo of Vincent Cable Vincent Cable Leader of the Liberal Democrats 5:45 pm, 19th November 2018

I wish to say a few words about amendment 18, which would remove clause 5. I spoke on this at length on Second Reading, so I do not need to say a great deal.

The difficulty with clause 5 is that it combines two very different measures, the first being to lift the low earners threshold. As Julian Knight reminded us a few minutes ago, this was a policy that I and my colleagues pursued in government, and it is not something I at all disagree with. The second, however, is a much more substantial measure to lift the tax threshold for middle earners. I do not pretend for a moment that people at the higher rate threshold are rich people—at the bottom end, they are paid less than Members of Parliament—but we need to get beyond the headlines and look at the actual numbers.

The lower threshold is to be lifted by £650, and 20% of that is £130, so the people solely on standard rate tax will get £130 in their pocket as a result of this measure. Of course, that is welcome. It is about a 2% increase, which is roughly in line with inflation, and is unquestionably a good thing. For the high earners threshold, however, we are talking about much bigger sums of money—a £3,650 increase in the threshold. Multiplied by 20%, and we are talking about £730, but of course high earners also benefit from the standard rate threshold increase. Add the two together and we have got £860. This measure, which is badged as a measure to help low earners, helps low earners to take home £130 a year and high earners £860 a year. On no conceivable measure could that be described as some enlightened policy for helping the low paid.

Having said that, I should add that there are things that the Government could have done as part of the policy of reducing fiscal drag. I fully understand the need at the margin to stop people being dragged into higher tax rates, and something could have been done to offset that. The Chancellor himself has acknowledged that there are extremely expensive and lavish tax reliefs on pension contributions for upper earners, which cost the country about £25 billion a year. I think that if he had chosen to offset the upper-rate threshold measure by some reduction in pension tax relief for the high paid, such that it neutralised it, many of us would have thought that that was quite a reasonable way of making progress, but he did not, despite the urgent need for revenue.

In an ideal world we would be looking at tax cuts for everyone, but we are not in an ideal world. There are issues of priorities. As several Conservative Members have reminded us—former Chancellors, among others—we are living in a world of severe fiscal restrictions, despite the proclamation of the end of austerity. There are other purposes for which the money could have been better used. We are talking about £2.8 billion in the first year, tapering to about £1.7 billion a year, of which roughly half is for the upper rate threshold. We can all think of many, many ways of spending that money, but for me the priority would have been fully restoring the cuts in universal credit that were made two years ago. The Government have partly done that, but with the additional sum of £1.3 billion, the Chancellor could have returned universal credit to the levels at which it was placed two years ago, in the Osborne Budget. The money could also have been used to end the benefits freeze a year early. The continuation of that freeze means that the poorest 30% in the population are being dragged down as a result of the Budget, but ending the freeze a year early could have offset that. Obviously there are many other purposes for which the money could have been used, but those would have been my priorities.

This measure, politically, was obviously intended to enable the Chancellor to proclaim that the end of austerity is not just about public spending, but about cutting taxes. There is nothing wrong with that general proposition, but the problem is that it is dishonest: that is not what is actually happening. The revenue line in the Red Book shows clearly that as a result of revenue measures, council tax will rise by £6 billion over the next five years—that it will rise by considerably more than income tax is being cut. What, essentially, is happening is that as a result of the reduction, or the freezing, of spending on support for local councils, the councils are making up their revenue through council tax increases to the maximum extent allowed. The Government, according to their own numbers, believe that council tax revenue will rise by £6 billion to about £40 billion. That, as I have said, more than cancels out the income tax cuts, most of which in any case accrue to higher-rate earners. So this is not a tax-cutting Budget at all. It is, indirectly, a tax-raising Budget, and I hope that that will be pointed out to members of the Government when they use such rhetoric in future.

I simply wish to move my amendment, and we will seek to oppose clause 5 stand part.