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Basic rate limit and personal allowance

Part of Finance (No. 3) Bill – in the House of Commons at 7:15 pm on 19th November 2018.

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Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 7:15 pm, 19th November 2018

Well, I am not here to debate UN reports of any description and whether the Government agree with them, other than to make the point that this particular report is rather disproportionate, given the remarks that I made earlier about what has happened to absolute poverty and children of workless households and so on.

The Budget reported on the remarkable achievements of this Government and the British people in cleaning up the aftermath of the recession, with eight straight years of economic growth, over 3.3 million more people in work, regular wages growing at their fastest pace in almost a decade, an economy back on its feet again and austerity coming to an end. It is thanks to the hard work of the British people and this Government’s careful management of the public finances that the Chancellor could set out a series of measures in the Budget to help families and businesses right across Britain. The clauses in this group legislate for some of those measures by cutting taxes, making it easier for first-time buyers to purchase a home and cheaper to switch to greener transport, and making the tax system for businesses and charities simpler and fairer.

At the heart of this Government’s strategy on living standards is the principle that hard-working people should keep more of their money and that the best way to help families is to cut taxes, not raise them. Our record speaks for itself. When we came into office, the personal allowance was £6,475 and the higher rate threshold was £43,875. Last year, the Chancellor increased the two thresholds, and now this Government have gone all the way to £12,500 and £50,000 respectively, meeting our manifesto commitment. Clause 5 of the Bill delivers on that promise one year early, meaning that a typical basic rate taxpayer will pay £130 less in income tax in 2019-20 than this year, and meeting our manifesto commitment at the earliest affordable opportunity.

These changes mean that compared with 2015, we have cut taxes for 32 million people, over 1.7 million people will pay no income tax at all and nearly 1 million fewer people will pay the higher rate of income tax. As well as raising the thresholds a year early, clause 5 sets out how we will maintain our low-tax policy for the rest of this Parliament. We will keep the personal allowance and higher rate threshold at the same levels in 2020-21, meaning a tax cut in that year as well, with 32.3 million individuals paying less tax in 2020-21 compared with 2015-16.

Once the personal allowance reaches £12,500 next year, current legislation means that it will be linked to increases in the national minimum wage. That was intended to ensure that someone working 30 hours a week on the national minimum wage would not pay income tax, but in fact, increasing the personal allowance to £12,500 means that someone on the national minimum wage will already pay no income tax next year and will pay no income tax in every year of the forecast period. Clause 5 restores the link with indexation by the consumer prices index, meaning that the value of these allowances is not eroded by price increases over time and the value of the personal allowance continues to be higher than if we maintained the national minimum wage link.

Amendment 6 attempts to prevent that change. Making the personal allowance equal to the relevant national minimum wage for 2019-20 would mean that the personal allowance was actually lower than £12,500 in every year of the forecast period. I know that the SNP like to raise taxes—indeed, they have done so by exercising their newly devolved tax powers in Scotland—but I have no idea why they would wish to increase the tax burden in that way. To be fair, I am sure that that was not the intention behind the amendment, so I urge the Committee to resist it.

New clauses 1 and 19 would require the Government to publish a distributional analysis of the Opposition’s income tax policy and of a £250 increase to the personal allowance. That is unnecessary. This Government are more transparent than any other, publishing a detailed distributional analysis at Budget 2018. We do not need further analysis to know that the Opposition’s proposals would be an inefficient, economically distortive way to try to raise revenue by raising taxes for over 1.5 million people.

The impact of the Opposition’s income tax policy is immediately obvious to anyone with even a rudimentary grasp of economics. Soaring tax rates and lower thresholds would raise taxes on millions of people, harming wealth creation and making the UK a less competitive country. The Labour party’s draconian plans would drive away investment and erode our ability to raise revenue to fund our vital public services. Their plans would also destroy jobs, as every Labour Government in history have done—[Interruption.] I know that the hon. Member for Bootle will remind me of Ramsay MacDonald in 1924, but it was a minority Labour Government, and rather a long time ago.

Further analysis of increasing the personal allowance by £250 is also unnecessary. The Government could increase the personal allowance to £12,500 a year earlier than planned only because of our careful management of the public finances. Raising the personal allowance by a further £250 would cost an estimated £1.5 billion, in addition to the £2.8 billion that we are already spending in 2019-20 on lowering the burden of taxation on more than 32 million people. We do not need further analysis of a policy that is unaffordable in the context of our balanced fiscal approach. I therefore hope that Members will not press the new clauses to a vote.

New clauses 2 and 18 would require the Government to provide analysis of the impact of clause 5 on a range of different protected characteristics and health impacts. As I have stated, the Government have been completely transparent. We published a detailed distributional analysis at Budget 2018, which shows that the poorest households have gained the most as a percentage of net income since this Chancellor and Prime Minister took office. The Government carefully consider the impact of their decisions on those sharing protected characteristics, in line with our legal obligations and our strong commitment to promoting fairness.

As well as cutting income tax, the Bill takes further steps to help with the cost of living, making it easier to get on the property ladder. The last Finance Act permanently abolished stamp duty land tax for many first-time buyers. From its introduction until June 2018, the relief has been claimed on 121,500 property transactions, with an average saving of £2,300 per transaction. The changes made by clause 41 will allow those paying SDLT in stages, such as through shared ownership schemes, to claim first-time buyers’ relief. Previously, only those who elected to pay their SDLT on the whole market value of the property could do so.

The tax system should back hard-working people to switch to all-electric and plug-in hybrid cars, paving the way for an economy fit for the future. Clause 8 delivers on that. Clause 9 will ensure that police officers, firefighters and ambulance crews are not unintentionally subject to a tax charge on the private use of their emergency vehicles.

New clause 8 would require HMRC to publish a report into the geographical effects of clause 9, but clause 9 will be applied in the same way across the United Kingdom, so there is no need for that.

I want to leave a minute for the hon. Member for Aberdeen North to speak, so I will conclude. The clauses that we have debated today deliver on this Government’s commitment to cut red tape, to deliver effective tax relief and to cut taxes for over 32 million hard-working people—a commitment to cut taxes that stands in stark contrast to the reckless hikes proposed by the Labour party. Their plans are laid bare by their proposed amendments to the Bill, which place an ocean of true blue water between our drive to get tax down and theirs to let it rip. Of course, Labour will say, as they have in this debate, that only the wealthy will pay and that the ordinary taxpayer will be left alone, but their plans will see 1.5 million people clobbered, including headteachers, consultants in our health service and the great creators of enterprise and wealth from whom we all benefit.

We know the age-old truth, that Labour will not stop there. Their recklessness would consume far more than they profess. Just like their predecessors, they will not stop with the so-called privileged few. In time, they will widen the net, broaden the base and drag more and more into punitive taxation to feed the habit of the wanton and the insatiable. Labour’s true message to the millions of hard-working people up and down our United Kingdom is that in the end, they will come not just for the better off; they will come for you. We will continue to stand up for hard-working families up and down our country, with plans that work and an economy that delivers. I commend these clauses to the Committee.