Clause 1 - Income tax charge for tax year 2021-22

Finance (No. 2) Bill – in the House of Commons at 5:47 pm on 19th April 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

With this, it will be convenient to discuss the following:

Clauses 2 to 4 stand part.

Amendment 2, in clause 5, page 2, line 16, leave out “2022-23”.

This amendment would mean that the freezing of tax thresholds at 2021-22 levels did not apply until 2023-24.

Amendment 3, page 2, line 18, leave out “2022-23”.

See the explanatory statement for Amendment 2.

Amendment 4, page 2, line 25, leave out “2022-23”.

See the explanatory statement for Amendment 2.

Clause 5 stand part.

Clauses 24 and 25 stand part.

Amendment 93, in clause 26, page 19, line 3, at end insert—

“, or for the presence of antibodies to SARS-CoV-2”.

This amendment would extend the income tax exemption for payments to employees in respect of the cost of obtaining antigen coronavirus tests to cover antibody coronavirus tests too.

Clause 26 stand part.

Clause 28 stand part.

Amendment 92, in clause 31, page 20, line 13, at end insert—

“, where the person who received the payment is not a qualifying person by virtue of Paragraph 5 of the direction given by the Treasury under section 76 of the Coronavirus Act 2020”.

This amendment would ensure that the one-off £500 payment to certain working households in receipt of tax credits could only be recovered where it is found that the individual was not entitled to the payment because they were knowingly concerned in underlying fraud either in relation to their tax credit award or the one-off payment.

Amendment 15, page 20, line 13, at end insert—

“(4) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of the provisions of this section, which must cover the impact of the provisions on—

(a) households at different levels of income,

(b) people with protected characteristics (within the meaning of the Equality Act 2010),

(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,

(d) equality in different parts of the United Kingdom and different regions of England, and

(e) child poverty.”

Clauses 31 to 33 stand part.

Clause 40 stand part.

Clause 86 stand part.

New clause 7—Assessment of revenue effects of supplementary income tax rate—

“(none) The Chancellor of the Exchequer must, no later than 31 October 2021, lay before the House of Commons an assessment of the effects on tax revenues of introducing a supplementary rate of income tax, charged at a rate of 55%, above a threshold of £200,000.”

This new clause would require the Government to publish an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000.

New clause 8—Equalities impact assessment and distributional analysis of tax thresholds—

The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of existing income tax thresholds and a distributional analysis of—

(a) the effect of reducing the income tax threshold for the additional rate to £80,000, and

(b) the effect of introducing a supplementary rate of income tax, charged at a rate of 50%, above a threshold of £125,000.”

New clause 10—Review of changes to coronavirus support payments etc—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to coronavirus support payments etc by sections 31, 32 and 33 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity,

(d) GDP growth, and

(e) poverty.

(3) A review under this section must consider the following scenarios—

(a) the coronavirus job retention scheme and the self-employment income support scheme are continued until 30th September 2021, and

(b) the coronavirus job retention scheme and self- employment income support scheme are continued until 31st December 2021.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a report comparing the effect of (a) the coronavirus job retention scheme and the self-employment income support scheme being continued until 30 September 2021, and (b) the coronavirus job retention scheme and self-employment income support scheme being continued until 31 December 2021 on various economic indicators

New clause 11—Review of changes relating to cycles and cyclist’s safety equipment—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 25 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity,

(d) GDP growth,

(e) poverty, and

(f) carbon emissions.

(3) A review under this section must consider the following scenarios—

(a) the cost of a cycle is made an allowable expense on self-assessment tax return forms, and

(b) the cost of a cycle is not an allowable expense on self-assessment tax return forms.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a report comparing the impact of the impact of (a) making the cost of a cycle an allowable expense on self-assessment tax return forms and (b) not doing so on various economic indicators.

New clause 12—Review of impact of section 40 on equalities—

“(1) The Chancellor of the Exchequer must conduct an equality impact assessment of section 40 and lay this before the House of Commons within six months of Royal Assent.

(2) This assessment must consider the expected impact of section 40 on individuals and groups with protected characteristics under the Equality Act 2010.”

This new clause would require the Chancellor of the Exchequer to review the impact of Clause 40 on equalities.

New clause 22—Review of impact of section 40—

“(1) The Chancellor of the Exchequer must review the impact of section 40 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) the regional distribution of capital gains in the UK, and

(b) projected receipts.

(3) A review under this section must consider the following scenarios—

(a) capital gains tax rates are changed so as to be equal to those of income tax, and

(b) capital gains tax rates remain at the level in this Act.”

This new clause seeks a report on the impact of equalising capital gains tax and income tax on (a)the regional distribution of capital gains in the UK, and (b) projected receipts.

New clause 23—Equality impact analysis—

“(1) The Chancellor of the Exchequer must review the equality impact of sections 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider—

(a) the impact of those sections on households at different levels of income,

(b) the impact of those sections on people with protected characteristics (within the meaning of the Equality Act 2010),

(c) the impact of those sections on the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and

(d) the impact of those sections on equality in different parts of the United Kingdom and different regions of England.

(3) A review under this section must give a separate analysis in relation to the following matters—

(a) income tax,

(b) employment income,

(c) coronavirus support payments,

(d) pension schemes,

(e) investments, and

(f) inheritance tax.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a regional basis.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 5:48 pm, 19th April 2021

The Government have delivered an unparalleled package of support during the covid-19 pandemic, providing over £352 billion for public services, workers and businesses. This response has been fair and balanced, with the poorest households benefiting the most from the Government’s interventions. It is now necessary to take steps to ensure the sustainability of the public finances and continue to fund our excellent public services. Our approach to fixing the public finances will therefore also be fair and balanced. The fairest way to put the public finances on a more sustainable footing is to ask all taxpayers to play their part, as well as asking those people able to contribute more to do so. That is why, in these parts of the Bill, the Government are legislating for freezes to the personal allowance, higher rate thresholds, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax. The Government are also making sensible changes to the tax treatment of coronavirus support payments and exemption-related adjustments to account for the impact of the pandemic.

Given the number of speakers and amendments, I will try to keep my remarks relatively brief. Before I turn to the changes announced at Budget, let me touch on clauses 1 to 4. These are legislated for every year and are essential for the Government to be able to collect the right amount of income tax for the tax year 2021-22.

I come now to the clauses that legislate to maintain thresholds. These clauses are an essential part of a fair and responsible fiscal approach to fixing the public finances. Clause 5 maintains the income tax personal allowance and the basic rate limit at their 2021-22 levels from April 2022 until April 2026. This is a universal, progressive and fair measure being taken to fund public services and rebuild the public finances, and it ensures that the highest-earning households will contribute more. Indeed, the top 20% of highest-income households will contribute 15 times that of the bottom 20% of lowest-income households.

I shall now respond to amendments 2 to 4 and new clause 7, which relates to clause 5. Amendments 2, 3 and 4 seek to delay the decision to maintain the income tax personal allowance and higher rate threshold until April 2023. The Office for Budget Responsibility forecast that UK GDP will reach its pre-virus peak by the second quarter of 2022. The Bank of England forecast that it will happen at the beginning of 2022. In the light of those estimates, it is reasonable and fair for the Government to uphold the start of this policy from April 2022. Nobody’s take-home pay will be less as a result of this decision. For most taxpayers, any real-terms loss will be very small in 2022-23. I therefore urge John McDonnell not to press the amendments to a vote.

New clauses 12 and 23 would require the Government to publish equalities impact assessments for all the measures in this debate, and new clause 8 would require the Government to publish an equalities assessment of existing income tax thresholds. New clause 8 would also require the Government to publish distributional analysis on two changes that do not constitute Government policy—namely, reducing the additional rate threshold to £80,000 and introducing a supplementary 50% rate of income tax for income above £125,000.

The Treasury carefully considers the equality impacts of the individual measures announced at fiscal events on those who share protected characteristics, in line with both its legal obligations under the public sector equality duty and its strong commitment to issues of equality. The Treasury already publishes comprehensive assessments of income tax threshold changes. Alongside the Budget, the Government have published detailed distributional analysis of the decision to maintain income tax thresholds, both at a household and on an individual basis. The new clauses therefore do little to provide meaningful additional analysis further to the Government’s existing comprehensive publications, and I therefore urge Members not to press them to a vote.

Clause 28 makes changes to maintain the pensions lifetime allowance at £1,073,100 until April 2026. This will limit the pensions tax relief available to those with the largest pension pots and supports the Government’s objective of a system of pensions tax relief that is fair, affordable and sustainable. Clause 40 maintains the capital gains tax annual exempt amount at its 2020-21 level of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years 2021-22 up to and including 2025-26. Maintaining the annual exempt amount at a 2020-21 level is a responsible decision, consistent with the decisions that the Government have taken to maintain the value of the other main allowances over the same period.

Clause 86 maintains inheritance tax thresholds at their 2020-21 levels until April 2026. This means that the nil rate band will remain at £325,000 and that the residence nil rate band will remain at £175,000. The tapering of the residence nil rate band will continue to start when the net value of an estate is more than £2 million. Maintaining these thresholds is forecast to contribute almost £1 billion over the next five years to help to rebuild the public finances, but this approach still ensures that more than 94% of estates will not be liable for inheritance tax in each of the next five years. Taken together, this Government’s approach to thresholds across the tax system is clear evidence of a fair and consistent fiscal strategy to repair the public finances while continuing to invest in public services.

Clauses 24 to 26 make minor adjustments to exemptions to account for the impact the coronavirus pandemic has had on businesses and workers. Let me also address one proposal relating to clauses 25 and 26. New clause 11 would commission a review of the changes relating to the employer-provided cycles exemption. I am happy to reassure the Committee that the terms of that exemption have not changed and only a minor time-limited easement is introduced by this Bill. It is not therefore necessary to review the changes. Clauses 31 to 33 relate to the Government’s package of support payments for individuals and businesses during the pandemic. Clause 31 makes changes to ensure that the one-off £500 payment to eligible working tax credit claimants announced at Budget 2021 is not subject to income tax. This will ensure that the recipients of the tax credit benefit in full and that the payment meets its objective of providing additional support to low-income working households.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

Has the Minister had any discussion with the Low Incomes Tax Reform Group, which has indicated to me some of its concerns about how Her Majesty’s Revenue and Customs required claims from individuals? It is a delicate matter, but there is problem there. Has he had an opportunity to discuss it with the LITRG?

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

The hon. Gentleman will be pleased to know that I maintain a strong dialogue, through officials, and from time to time in person, with the LITRG and I have no doubt that the input it has given has been carefully considered in this regard. If he would care to write to me with his specific concern, I would be happy to pick that up as well.

It is right that HMRC has powers to tackle fraud and abuse of the self-employment income support scheme and that the Government provide legal clarity that SEISS grants are liable for income tax in the year of receipt. Clauses 31 and 32 will allow payments made in support of individuals and businesses by the Government to meet their objectives as far as is possible. Opposition amendments 15 and 92 are already comprehensively addressed by existing policy, and I ask that Members do not press them to a vote. Clause 33 makes changes to ensure that the repayments of business rates relief are deductible for corporation tax and income tax purposes. This ensures that any repayments of support are dealt with appropriately.

Taken together, these measures will help the Government to continue to support individuals and businesses through the coronavirus pandemic, and they will also begin to put the public finances on a sustainable footing as we continue to move out of the pandemic. I therefore ask that clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 stand part of the Bill.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

I rise to speak to the provisions standing in my name and those of the Leader of the Opposition and my right hon. and hon. Friends. On behalf of the Opposition, I will begin our detailed scrutiny of this Bill today by considering the impact it will have most immediately and most widely on people across the UK through its cuts to the money that families, in all their many forms, have in their pockets.

The opening clauses, 1 to 5, focus on income tax, with clause 5 freezing the personal allowance from 2022-23 through to 2025-26. That is no small change; the effect of the clause will be to make half of all people in the UK pay more tax from next year, and that is not the only measure the Government are taking that raids their pockets. We know that this Bill will make families pay more through the income tax changes next year, but it also does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now, it supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need help most, and of course it comes as the Government are choosing, in this year of all years, to take money from the pockets of NHS workers.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Brexit)

Does the shadow Minister accept that the total take in income tax from individuals across the United Kingdom as a result of that one measure in one year will be £10 billion, and the total take over the next five years will increase by 25%? On the basis of the tax paid now, 25% more income tax will be paid collectively by individuals as a result of simply freezing thresholds.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 6:00 pm, 19th April 2021

I thank the hon. Member for setting out some of the figures about the impacts of the Bill. I can add to that by saying that if we take the freezes to the personal allowances, along with the cuts to NHS workers’ pay, the council tax hike and the cut to universal credit, the real scale of the impact of the Government’s decisions becomes clear. A newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. It is plain wrong to hit families across the country in that way, but that sense of injustice is made all the more acute by the fact that that increase of costs to families comes years before any rise in corporation tax. At the same time, through the Bill the Government are letting tech giants stop paying tax altogether.

Last week, we voted against the Bill on Second Reading. Our reasoned amendment made it clear that key to the decision was its effect on family finances, through what it does and what it does nothing to stop. Today, we have the chance to stop the measure in the Bill that will make every income tax payer in the country pay more next year. We will seek a vote on clause 5, and I urge Conservative Members to join us in knocking this attack on families out of the Bill. By doing so, we would allow the Government to come back in their next Finance Bill with a fairer approach—one that does not put a misguided tax break for big business ahead of the money that families have in their pockets.

The other clauses that are being debated concern a range of other matters. Clauses 24 to 26 relate to the impact of covid on those benefiting from enterprise management incentives, cycle-to-work schemes and employer-provided coronavirus tests. Meanwhile, clause 31 exempts those receiving tax credits from paying income tax on the one-off covid-19 support scheme payment. Clause 32 clarifies the tax treatment of payments made under the self-employed income support scheme. Clause 33 provides for a relief where businesses repay covid support payments that are no longer required. Finally, clause 28 freezes the standard lifetime allowances for pensions immediately until 2025-26, while clause 40 does the same for the capital gains tax annual exempt amount and clause 86 does the same for inheritance tax thresholds.

Through our new clause 23, we ask that all the measures being considered today are considered for their effects on the finances of different households across the UK. We want to see a fair, progressive tax system in this country, so we want the Government to be transparent about the effect that their changes will have on people’s lives. The question of how changes affect the people of this country should always be the Government’s overriding concern when introducing changes to the tax system.

That is why our new clause would require that the Government analyse, review and be transparent about how their changes will affect households at different levels of income. It would further require Ministers to set out how the changes would affect people on the basis of age, disability, race, sex and other protected characteristics, and how they would affect people living in different nations and regions of the UK. There is significant evidence that women, those from black, Asian and ethnic minority communities, young people and disabled people have been disproportionately affected throughout the pandemic. The Budget report itself says:

“The economic impact of restrictions has not been felt equally. Staff in the hardest hit, largely consumer-facing sectors, such as hospitality, are more likely to be young, female, from an ethnic minority, and lower paid.”

It is therefore indefensible that not one of many supporting documents to last month’s Budget statement, nor the Bill, was an equality impact assessment.

Our new clause gives the Government a chance to right that wrong, but while that analysis is vital in setting out how different people will be affected by the Government’s choices, we know already that the biggest and most immediate impact of the changes in the Bill—and of the Government’s wider policy choices, on which the Bill is silent—will be to take money from the pockets of people across the country this month, this autumn and next year.

Photo of Andrew Griffith Andrew Griffith Conservative, Arundel and South Downs

We hear from the hon. Gentleman that his party seeks to strike out the single largest intervention that will help the recovery, in the form of the super-deduction, which businesses have already told me is mobilising incremental investment. I would be fascinated to hear his view of new clause 7, which was put forward by many of his recent colleagues, including many of those who were on the Front Bench, to increase the rate of income tax to 55%. What does he think of that?

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

The hon. Gentleman spoke about the super-deduction, but as that will be picked up in the next debate, I will focus now on the changes that are the subject of this debate.

Although we know that the Government will be making changes that affect different communities differently, the crucial point is that we know already what impact the Government’s policies will have this month, this autumn and next year. This month, households will feel the hit as the Government force local authorities to raise council tax in the middle of a pandemic, having broken their promise to give councils whatever was needed to help support people through the covid crisis.

This autumn, some of those families who need help will see the Government cut £20 a week off their universal credit, hitting them just as other covid support schemes are due to be winding down. This hit will come just when the Office for Budget Responsibility has predicted that unemployment will peak at 6.5%—2.2 million people—and this cut takes out-of-work support to its lowest level since the 1990s.

Next year, more than 30 million people in this country, including those earning only just enough to pay tax at all, will be forced to pay more as the freeze to income tax and personal allowances kick in. It tells us all we need to know about this Chancellor’s priorities that families will feel the impact of the Government’s choices years before businesses face an increase in corporation tax and at the very same time that some of the biggest firms in this country are offered a tax break that the Chancellor himself has boasted represents the biggest tax cut in modern British history.

We on the Labour Benches believe that our country needs a fair progressive tax system. We want to see greater investment in jobs, growth and addressing the long-term challenges that we face. We want to see families protected, not forced by this Government to shoulder the burden while tech giants see their tax bills reduced to nil. It is not just the Opposition who oppose the Government’s approach. Major international economic bodies such as the International Monetary Fund and the OECD agree that these tax rises on families are wrong. The hit to household finance is not only unfair but economically illiterate. Taking money out of people’s pockets now means that they will not spend it in small businesses or in local high streets, damaging the prospect of a recovery.

We will be voting for the Government to be clear and transparent about the effects of the measures in this Bill on all the different families and households across this country. While Conservative Members may not want to support all of our points, I would not be surprised if some did not feel deeply uncomfortable at the prospect of making families pay more through this Bill. We therefore hope to offer them a chance to join us in rejecting clause 5, halting this Bill’s plans to make all income tax payers pay more from next year and forcing the Government to think again about the fairer tax system our country needs.

Photo of Andrew Jones Andrew Jones Chair, European Statutory Instruments Committee, Chair, European Statutory Instruments Committee

I am aware that time is short, so I will keep my remarks brief.

All of us will have been dealing with constituents facing real financial challenges over the past year. The past months have been unprecedented in their impact on family finances. People have lost jobs, been on furlough, and faced great uncertainty. It has been genuinely hard. Yet some sectors have done very well and seen growth, so the economic impact of the pandemic has fallen very unevenly. The economic consequences have also landed very quickly, but the response from the Treasury was equally quick. We are now facing the next stages of the crisis. Over the months ahead, we will be getting the economy moving again as quickly as possible, safely, so that we can get people back into work, and considering how the Government will pay for all the extra costs they have incurred.

As my right hon. Friend the Financial Secretary to the Treasury said, economists have predicted that the economy will have fully restarted by April next year. I think that that is right, based on my own business experience and on conversations with businesses in my constituency and beyond. It therefore makes sense to start the recovery of the public finances then, and that is what some of the measures in this Bill do. The question for me, though, is how to do this fairly and without choking off the recovery.

Let me focus on one measure: personal allowances. The increases that we have seen in personal allowances over the past decade have been a key ingredient in helping some of the least well-off in our society. The allowance has nearly doubled and is one of the most generous in the world. It has been part of the broader initiative, which has been a hallmark of the past 10 years, about making work pay. It is with some caution that we should consider changes, but I will be backing these changes and urge Members to reject the Opposition amendment on this measure. It is worth remembering that nobody’s take-home pay will be less than it is now, and that this is a measure that builds over time, as will the pace of the recovery. I note that Mr McFadden, who is not in his place, commented that it is a fairer way to raise revenue than some others, and I agree with his analysis.

The crisis support packages have been necessary and welcome, but they come with a huge cost. There is no compassion in letting debts build up for future generations to pay off. There is no stability for Governments in failing to tackle deficits.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Brexit)

While I think we all accept that the current level of debt cannot continue, does the hon. Gentleman accept that, first, by taking £10 billion from consumers in the next year as a result of these tax allowance freezes and, secondly, because we do not know what will happen to unemployment once the furlough scheme finishes, there is a risk that the freezes this year will impact on the short-term recovery of the economy? Are they not therefore inappropriate, and ought not the Government to wait to see what happens?

Photo of Andrew Jones Andrew Jones Chair, European Statutory Instruments Committee, Chair, European Statutory Instruments Committee

The right hon. Gentleman makes a good point, as he always does. I have considered that point, and I know that the Government have also considered it, but this is about striking a balance between encouraging the recovery and choking it off. Part of that recovery is ensuring that we have sound public finances. We have had two supposed once-in-a-century events in just over 10 years, and the lesson we should draw is that financial responsibility allows Governments to respond to crises at scale. That is what we have just seen here, and that has helped the finances of families across our nation when they needed it most.

That is also why the economic recovery, with its focus on growth and investment and on households and Government, cannot be put off. The personal allowance measure in the Bill should proceed. We should not listen to the Labour party because, quite frankly, its Members have voted against all the personal allowance increases in Budget measures over the past 10 years. We need to get the focus that we have had on saving lives back on to recovering livelihoods.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

I will speak to new clause 10. This UK Government said they would be led by data, not dates, and the Chancellor has stood in the Chamber on several occasions and said he will do whatever it takes to ensure recovery, yet in this Finance Bill he has seen fit to put an arbitrary date on ending the furlough scheme. The Labour shadow Chancellor has been critical of the Government’s previous dithering on extending the job retention scheme, so I hope her colleagues will support the SNP’s new clause, which will protect jobs and workers across the UK.

New clause 10 would introduce a reporting requirement to compare the effect of continuing the coronavirus job retention scheme and the self-employment income support scheme until both 30 September 2021 and 31 December 2021. Reports would be required on the specific impacts of continuing to both dates on business investment, employment, productivity, GDP growth, and poverty. SNP Members believe that the furlough and self-employment support schemes should be continued for as long as our economy requires them. It is economic recklessness to confidently predict the end of a pandemic that has thrown us curveballs time and again. Any winding down of support schemes should be linked to the numbers of covid cases in the population, with proper care taken to make sure that no badly hit areas are left behind.

We have seen the potential of new variants such as the Kent and South African variants, with the Indian variant causing the country to be added to the red list and prompting the Prime Minister to cancel his travel plans just this week. On the variants and support for people who need tests, I welcome the change to exempt coronavirus tests from income tax, but SNP amendment 93 would seek to extend the income tax exemption for payments to employees in respect of the cost of obtaining antigen coronavirus tests to cover specific antibody coronavirus tests, too. There is a wider argument for broadening the provision to future proof the Bill for future pandemics and other such incidents, so I hope Ministers will give the proposal some consideration.

Businesses have found themselves in a position of having to make payments on VAT deferred last year in the first week of the crisis while we are still in lockdown in the second peak of the crisis, and now the biggest lifeline supporting our economy is being pulled away without any due consideration for the impact on jobs.

Not only does the SNP want to see a continuation of the job retention scheme and the self-employment income support scheme; we want to see those gaps filled that the Chancellor knows fine well about. SEISS grants will be extended to September and extended to cover 600,000 more self-employed people, which we welcome, but this still leaves behind the 2.4 million people who have received zero support from this Government. They should never have been left behind.

People on precarious contracts are in many cases those who can least afford to be without support. I have recently been contacted by constituents who are entitled to the fourth and fifth rounds of the SEISS but have been asked to wait, with no money in the bank. I urge Ministers to accelerate this entitlement, to help those struggling to get by. Repeatedly and knowingly leaving large chunks of the population with little or no support is an unacceptable dereliction of duty from this UK Tory Government in the worst crisis our generation has seen, and I am sure that history will not remember them kindly for it.

We have also tabled amendment 92 to clause 31, because we agree that people should not be taxed on the £500 payment. Incidentally, this also shows, in respect of the money the Scottish Government wanted to provide to thank health and care workers, that it is possible to do these kinds of things when the UK Government decide that they want to help and make exemptions. We share the concerns of the Low Incomes Tax Reform Group that the rules on this are not yet clear enough, and I urge Ministers to provide that clarity and reassurance. This payment is made automatically by HMRC, but the provision talks of a clawback where someone who is not entitled to it receives it. It is unclear exactly how this will work. Our amendment would ensure that the one-off £500 payment to certain working households in receipt of tax credits could be recovered only where it was found that the individual was not entitled to the payment because they were knowingly concerned in underlying fraud, in relation either to their tax credit award or to the one-off payment.

I do not want to be relentlessly negative in my criticisms of the Bill, and it is true that there are some details which are to be welcomed. For example, I welcome the fact that the UK Government will adopt the Scottish Government’s policy of increasing the higher rate threshold to ensure that nobody pays more than they would next year. In such uncertain times, any small piece of certainty we can give people is a comfort. The UK Government should follow the Scottish Government’s lead and take the extra measure of freezing income tax rates and bands over the next five years.

Scotland has the most progressive income tax system in the UK, with more than half of taxpayers paying less than they would if they lived elsewhere in the UK. By asking those who earn the most to pay a little bit more, Scotland has been able to invest more in public services and deliver a range of benefits such as free prescriptions, free university tuition and concessionary bus travel. I am proud to be part of a party that in Government has put public services first and ensured that those who can least afford it pay less tax.

In contrast, this UK Tory Government are peering down the barrel of a return to austerity. We are looking at a freezing of the personal allowance, which is a tax cut by stealth. The lowest earners will be the hardest hit by this policy, and at the same time the Chancellor is handing super deduction tax breaks to big business. So much has changed in the last year, but the things that have stayed the same offer little comfort. This is the same old Tories returning to form and making brazen spending cuts on the back of the poorest and the most vulnerable.

I have said on many occasions that Finance Bills get a bad rep. They are not boring technical things; instead, they are an opportunity to take steps towards the type of society we want. A green recovery and the chance to do things differently are at the heart of our approach and our amendments. The SNP’s new clause 11 would require a report comparing the impact of making the cost of a bicycle an allowable expense on self-assessment tax returns, on business investment, employment, productivity, GDP growth, poverty and carbon emissions.

This policy proposal makes perfect sense, as it encourages active travel and reduces carbon emissions. It comes from the Cycle to Work Alliance’s report on future-proofing the cycle to work scheme, “Unlocking Access for All Workers”. This is the type of policy that sends a clear message: if someone wants to take steps to reduce their carbon footprint and improve their health, their Government should support them all the way. Currently the Government provide support only for employees and not for self-employed people. The new clause would rectify that anomaly and make it fair for everybody. HMRC could include the cost of a bike as an allowable expense on self-assessment forms, to ensure that all workers could participate, regardless of their employment status. In Scotland we have seen a manifesto commitment from the SNP to provide free bikes for school pupils who cannot afford them, and to provide grants to others. This will give every child the opportunity to engage in active travel. The new clause asks the UK Government to do their bit by making the cost of a bike an allowable tax expense.

Finally, our new clauses 12 and 22 seek to get more evidence on the impact of changes to capital gains tax. There is very little done to drill into the impact of decisions made through the Finance Bill. Again, evidence sessions beforehand might be useful, but assessing the effectiveness afterwards—particularly the impact in different parts of these islands and on the people who live here—is vital. These assessments are not an add-on or a nice-to-have; they are essential. If the UK Government truly believe their measures to be fair, they should have no fear of that evidence.

Photo of Flick Drummond Flick Drummond Conservative, Meon Valley 6:15 pm, 19th April 2021

Like all Conservative Governments, this is one who believe that people should be encouraged to create wealth and invest it wisely without undue interference from the state, bureaucracy or taxation for taxation’s sake. The fundamentals of our economy were strong nationally and in the Meon Valley as we headed into the coronavirus pandemic, and I am confident enough that we are well set to emerge from it and carry on with good growth. Although it is not the topic of this segment of the debate, I must welcome the announcement in the Budget of the Solent freeport, which will bring jobs and investment to the whole region, which includes my constituency.

I want to speak to clauses 5 and 28. The pandemic has created a major challenge for state finances, and I recognise that the Treasury must cover the cost of the measures it has taken to support jobs and society. The two long-running strands of policy covered in these clauses are the reform of personal income tax allowances and the lifetime allowance in pension fund accrual.

The commitment to a £12,500 personal allowance featured in the Conservative party’s 2015 election manifesto, and I am pleased that we are achieving it a year early. Since 2010, the personal allowance has grown more quickly than average earnings, and a huge number of workers have benefited. In announcing a freeze between now and 2026, we will see some of that eroded—around £8 billion of income flowing back into the Treasury by 2025-26—and I hope that Ministers will ensure that we direct the benefits of recovery at the groups on the lowest incomes, whom we have done so much to help in government already. Needless to say, I will not be supporting the Opposition amendment to clause 5.

Another area where I hope Ministers can keep an open mind is simplification of our pensions system in the future, but today I would like to concentrate on the lifetime allowance in clause 28. As many other Members will have seen in their postbag, this has been affecting doctors in the NHS, senior teachers and others in the public sector who have taken or considered early retirement to avoid breaching the cap. As well as creating a situation where the Treasury does not see some of its forecast tax take coming in, it means that in some cases, people have gone back to work as contractors or locums, sometimes filling gaps that have been created by this policy on pensions.

The intention behind the lifetime allowance when it was introduced in 2006 was to simplify a large number of regimes. However, freezing it at just over £1 million without the tie to the consumer prices index means that we are seeing some complex reworkings of remuneration schemes, and we will see more unintended consequences as growing numbers of people look to find ways to avoid the cap. The British Medical Association’s survey of GPs indicated that almost half of doctors would consider early retirement to protect their earnings after retirement. While the Budget forecast states that by 2025-26 there will be an additional £300 million of revenue, it does not account for other costs that the policy could contribute to.

Pension policy generally encourages people to forego current consumption, so that they can enjoy a higher standard of living later in life. However, the trade-off here is different, and we risk public services having to cope without staff or pay for them because they are contractors or locums if we carry on eroding the value of the lifetime allowance. I hope the Treasury will look creatively at how we can balance ensuring that people on higher incomes pay their rightful share of tax with the need to ensure that skilled and experienced workers continue to contribute to the wider public good throughout their working lives.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

Clause 31 relates to the decision to cut the £20 a week uplift in universal credit and working tax credit in six months. I want to focus my brief remarks on that decision, highlighted by my hon. Friend James Murray, because it will be key in the impact analyses in new clause 23 and amendment 15. A Work and Pensions Committee report in February drew attention to the Joseph Rowntree Foundation’s finding that withdrawing the temporary increase

“will risk sweeping 700,000 more people, including 300,000 more children, into poverty”,

and that

“500,000 more people could end up in deep poverty (more than 50% below the poverty line).”

It goes on to explain that

“people who were already more likely to be in poverty were most affected by the economic storm caused by COVID-19: workers in low-wage sectors or part-time jobs, people living in areas with higher rates of deprivation, families with children, disabled people, or those from BAME backgrounds…around 60% of the families who lose out being in the bottom 30% of the income distribution.”

It goes on to say that

“60% of all single parent families in the UK will experience this overnight cut to their incomes” when the £20 a week is removed.

Under the Government’s plans, the cut will happen just as unemployment is forecast to peak. The last time anything like this happened in such circumstances was 90 years ago under the national Government of Ramsay MacDonald. It will devastate the finances of a large number of struggling families. Ministers will find it extremely hard to justify, so I particularly welcome today’s reported call by more than 100 Conservative MPs to make the £20 a week uplift permanent.

The Resolution Foundation’s “Living Standards Outlook 2021” in January said that rising unemployment and removing the £20 uplift would push 800,000 adults and 400,000 children into relative poverty—the biggest annual poverty rise since the 1980s. A Northern Ireland woman told the Joseph Rowntree Foundation:

“The £20 uplift to Universal Credit has meant I have just about managed to keep my head just above water. I’m living day to day trying to pay my bills and keep my house warm for my child. Taking this away now or in six months means I will be drowning in debt.”

A London woman said:

“We’ve relied heavily on food banks…That £20 is often the difference between light and heat or no light and heat. If you don’t have gas, you can’t cook.”

A Leeds man said:

“I am aware of the extra—if it wasn’t for that I don’t know how I would survive. Living on Universal Credit is hard;
it’s extremely hard. It is literally living day to day and working out where my next food is coming from.”

Twenty pounds a week should not be taken away from people like that just as unemployment peaks. Iain Porter of Joseph Rowntree told the Select Committee that the current benefit level without the £20 uplift is

“at the lowest level since around 1990 in real terms”,

and that as a proportion of average earnings, it is the lowest ever. Inflicting that just as unemployment is peaking is indefensible.

The principal policy manager at Citizens Advice told the Select Committee:

“At the very least, if the uplift is not made permanent, we think it needs to be in place for at least 12 months while we go through the tricky part of recovery from this crisis.”

I hope Ministers will reflect and, having done so, decide after all not to make this cut in September.

Photo of Huw Merriman Huw Merriman Chair, Transport Committee, Chair, Transport Committee

Thank you very much indeed for allowing me to contribute to this afternoon’s proceedings, Dame Rosie. I want to talk about clause 5, on the freezing of personal allowance for four years from 2021-22, the resulting amendments, which would push the freeze back by a year, and the general position across the proceedings this afternoon with regard to allowances and the freezing or otherwise of them.

In the six years that I have been a Member of Parliament, it has been a matter of great pride that we have reduced the personal tax allowance. It was half the level that it is now, since it was raised to £12,500. That is the highest basic personal tax allowance across all G20 countries and means that a typical taxpayer is saving £1,200 in tax. More importantly, it has really sent out the message that work pays. It is no coincidence that, as well as the increase in personal allowance and the introduction of the national living wage levels that we have, we have seen record levels of employment and record lows in unemployment. It is a great success story. The covid pandemic has put all that at risk, though,which is why I find myself in the bizarre position of supporting the personal allowances freeze and intending to vote against any amendment tabled by those on the left to delay that freeze for a year. Ultimately, if we do not do something about our finances, we will do the country a great disservice and end up costing individual taxpayers—or non-taxpayers —even more by mismanaging our national debt.

To be clear, our national debt now stands at £2 trillion —a position never seen outside the two world wars, and the equivalent of £30,000 for every man, woman and child in the UK. That is the highest debt to GDP ratio since 1962. Some on my side of my party think that does not matter, because rates are low and we can just keep on borrowing at those levels; indeed, their opinion is shared by some on the other side of the House. We have to be incredibly careful, though, because we are very vulnerable to surprise rises in interest rates and inflation. In a recent analysis of manufacturers in our supply chains, 47% said that they expected the cost of materials to rise this year. That could lead to inflationary pressures. A rise of 1 percentage point across all interest rates would add £25 billion to the servicing of our debt. That is what concerns me the most, because ultimately that debt has to be paid back. It already exceeds the amount we spend on schools, and if it increases we will spend less on schools, less on our hospitals, and we could end up with taxes rising even higher. The freezes introduced by the Government have been recognised by the Institute for Fiscal Studies as a sound way to deliver without causing so much hurt to the wider economy and to the individuals who have an unwelcome freeze put upon them.

For those of us on the Government Benches who have always been proud as we reduced the tax take and increased personal allowances, and saw increased employment and economic growth, this goes against the flow, but the most important thing for me and the reason I came into politics is to make sure the Government run the economy well, so that everyone benefits and we achieve stable economic output, which allows our public services to expand as well. If we do not do something along the lines that the Chancellor has set out and make these brave calls, which are absolutely necessary although of course they are not popular, we will not only put at risk the national interest but lose our party’s reputation for economic management.

I support the Government’s measures. I hope that, given time, they work and we can get back to where we were in past years. I hope also that those who have tabled amendments that perhaps owe more to politics than to a desire to manage the economy properly will reflect and withdraw them.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 6:30 pm, 19th April 2021

With the greatest respect for the previous speaker, I think there is a view across the House and in all parties that we need to manage the economy effectively in the interests of everybody. That means addressing the debt to GDP ratio—of course it does—but the question always arises, “Who bears the burden? Who carries the heaviest burden?” I believe that the Bill shifts too much of the burden on to those who are the least able to bear it. That is where we disagree, and it is an honest disagreement.

I will speak to oppose clause 5 standing part and to support amendment 2, and consequential amendments 3 and 4, which stand in my name and those of a number of my colleagues. Some of this is about confidence in politics, which at the moment is receiving a bit of a drubbing.

In the last general election, the Conservative manifesto pledged:

“We promise not to raise the rates of income tax…This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.”

Clause 5 breaches that pledge; incomes are not protected. More of people’s incomes will be hit by income tax. It is especially harsh on the millions of public sector workers who have faced from this Government: first, a pay freeze; a 5% rise in council tax; and now a stealth rise in their income tax. These people are low earners who struggle to make ends meet as it is. Low earners are heavily indebted. Some have been furloughed, losing 20% of their income for a year. Now they are being hit by a stealth rise in income tax that was not pledged at the last election and that any fair reading of the Conservative manifesto would have thought was completely ruled out.

The Labour party also stood on a manifesto that said there would be no rise in income tax for 90% of earners, and has recently said that now is not the time for tax rises. I hope that Members across the whole House will stand by their commitments at the last general election and oppose clause 5. This would allow the threshold to rise with inflation, as legislated for way back under the last Labour Government in the Income Tax Act 2007.

Low pay is endemic in our society. In 2015, the then Chancellor, George Osborne, promised a £9 minimum wage by 2020. It is 2021 and the minimum wage is still below that level. Let us look at an example. We know that half of all care workers earn less than the real living wage and the majority of children are living in working households. What does that say about low wages? The last thing any Government should be doing is raising taxes on low-paid workers, especially when that Government have broken their promises on raising wages and have failed to reach the target they set for the minimum wage.

Some Members may recall the Rooker-Wise amendment; it was a long time ago—44 years ago. That amendment overturned a similar proposal from the Callaghan Government. With many low-paid workers not getting a pay rise and facing mounting household debts, we should not be taking more of their income in tax. With high street retail needing an urgent stimulus, there cannot be a worse policy than removing demand from the economy at this time. That demand is really created by the people—these are the people who will spend, not hoard.

If the House is not minded to leave out clause 5, perhaps the Government can compromise and accept amendments 2, 3 and 4 in my name and those of other hon. and right hon. Members. These amendments would ensure that the stealth tax on working people was delayed until 2023-24—the same year that the corporation tax rise kicks in. Low-paid workers should not be hit with an extra year of tax that the corporations are not hit with.

Another point that I hope the Government will consider incorporating into the Bill before Report stage is the case for equalising capital gains tax rates with income tax rates. Ahead of the Budget, I was heavily briefed that this was being considered by the Chancellor. It is manifestly unfair that income derived from wealth is taxed at a lower level than income derived from work. I hope that the Government will look at this issue ahead of Report stage. I urge the Government to consider accepting amendments 2, 3 and 4 at a bare minimum—better still, leave out clause 5 altogether. Do not force the lowest paid in our economy to shoulder what could be the heaviest burden.

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport)

I wish to speak to clause 5 relating to the changes in personal income tax allowances and to clause 28 relating to the freezing of the lifetime allowance on pension pots.

There is no doubt that the last year has made unprecedented demands on the public purse, and it is right that the Government should be prepared to take difficult decisions on taxation as we move forward, as we all very much hope, out of the pandemic and into the changed world beyond. However, the Government made clear commitments in their 2019 manifesto that they would not raise income tax on working families and they have broken that commitment in this Bill. The freezing of the personal allowance and the higher tax bands means that more working people will pay tax and at higher rates than they would otherwise have expected.

Clearly the Government are banking on a consumer-led recovery and this tax burden on working families will reduce the amount of discretionary spend available to households, limiting their ability to spend on consumer goods. As housing costs increase to their highest ever levels, household budgets will continue to be squeezed, and piling additional tax charges on top will create an enormous burden for those who are already struggling to make ends meet. It is a particular insult to those in our NHS, who have sacrificed so much to keep us all safe this year and have been told to expect only a 1% pay increase for their trouble. Our nurses will have to give back more of that 1% in tax than previously despite all that they have already given. This is particularly galling when compared with the Government’s decision to delay a corporation tax increase. The Government have chosen to tax hard-pressed frontline workers first and large, profitable corporations later. Only those companies that have remained profitable throughout the pandemic would be paying corporation tax next year, which is why an immediate increase in corporation tax could have captured the windfalls or excess profits of those who found their revenues increased as a result of the unusual trading conditions of the last year. This would have been a far more equitable route to raising income than putting the burden on hard-working families.

On clause 28, I urge the Chancellor to carefully consider the impact on NHS pensions of freezing the lifetime pension allowance. I have heard a few stories from constituents about how this measure interacts with their final salary scheme. While a figure of a little over £1 million would rightly strike most as more than sufficient as a tax-free pension pot, senior doctors in the NHS are finding it extremely difficult to assess whether or not their overtime will result in their yearly calculation of their lifetime allowance being tipped over the threshold and result in a current tax bill. The British Medical Association estimates that the number of GPs taking early retirement has tripled over the past decade and puts this down partly to the uncertainty about their tax bills.

It is worth noting that when the lifetime allowance was first introduced in 2006, it was set at £1.5 million, rising to £1.8 million in the financial year 2010-11. Since the Conservatives came to power, it has reduced every year to the current level of only just above £1 million. Like the freezing of the personal allowance, this has the impact of catching more ordinary people in the taxation net, and again we see that the Chancellor wants to raise money off the back of hard-working NHS frontline workers while protecting profitable corporations.

This issue has been a problem for doctors for the last few years, so the Government have no excuse for not knowing that the freezing of the pension lifetime allowance would make the situation worse. Have the Government carried out an impact assessment of the measure on NHS retention of senior staff? I am extremely concerned, at this time when our senior NHS staff are exhausted and facing a huge backlog of elective surgery, that skilled staff should not feel compelled to take early retirement because of an unintended and avoidable tax consequence.

The Finance Bill seeks to tax hard-working families and penalise those who have been working so hard to keep us all safe this year, and the Liberal Democrats cannot support these measures.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

I want to offer my support to the shadow Minister, my hon. Friend James Murray, who put his case very fairly. I want to illustrate what that means in my constituency of Reading East and perhaps develop some of the points he made.

I particularly want to raise the growth in the use of food banks, which has been very significant across the country, and our area is typical in so many ways, as indeed it is in many instances. The growth in the use of food banks illustrates why the Budget was such a complete failure, because the Government failed to offer real help to many families. In particular they offered very little to those in the greatest need, as we heard from the shadow Minister, and very little to those who are self-employed and have recently set up a small business. Indeed, the3million campaign group rightly pointed out that, although a small number will benefit from some measures offering further support for recently set-up small businesses, most will not, and that has been widely recognised in my constituency.

Before going into the detail of local food banks, I want to thank all the volunteers at our local council in Reading and many others, both businesses and individuals, who have helped support food banks by generously giving their time and putting the community and others first at what is a very difficult time for so many people. I have tried to keep in touch with the pressures by going to help myself and to receive regular briefings from food banks and other charities, and I want to describe to colleagues what this is like.

As many people know, Reading is a town in the south of England. It is relatively well-off; we are lucky to be in an area with quite a high level of employment and many advanced industries, such as IT. It is fairly safe to say that lots of people have fairly good jobs, but many people are under great pressure. I have helped in a number of food banks, and I want to draw the attention of the House to one in particular. It is in the suburb of Woodley, a typical suburb on the edge of a large town, full of relatively well-off families. I had to deliver food parcels; behind the front door of neat houses in suburban areas was real poverty caused by the pandemic. Families are under real pressure and the gratitude that people have when they receive food parcels is quite overwhelming. I want to make that point, because it is important that people across the House understand what the pandemic is like for ordinary people around the country. Indeed, this is just one example. There are people in far greater need who need greater help.

I wanted to make that point and express my own gratitude to those who help in the voluntary sector, and to remind people what clause 5 and the other clauses are really about. They are about families struggling in trying and difficult circumstances through no fault of their own. I know that the Minister is a very decent man, and I urge him to rethink and lobby his colleagues, particularly the Chancellor, who, I am afraid, has a bit of a habit of dashing in with some very warm words but could perhaps look further at some of the detail. Families need that help at this difficult time.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

We are having some difficulty hearing Seema Malhotra, I am afraid. Do you want to try again, Seema?

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

I think what we should probably do is go to our next speaker and come back to Seema. We will go now to Sir John Redwood.

Photo of John Redwood John Redwood Conservative, Wokingham

Dame Rosie, I have declared my business interests in the register.

Of course, I am not going to vote against this Budget and I wish the Government well with it, but I would like them to pause a little, think through where we are and recognise that they may need to revisit some of these decisions in the months ahead. My worry is that they are being too tough in their tax measures and too tough on people’s incomes at a time when we need to build confidence and recovery, and they are doing so at a time when it is really impossible for their expert advisers and other economic forecasters to give them a clear steer of what the public finances will look like in two years’ time, let alone in three or four years’ time.

The Government seem to think that their experts can define a given amount of money that will be a shortfall in order to hit their longer-term Government targets, and therefore say that we need to make these tax changes for the next few years in order to fill the alleged black hole. It may be that they are trying to fill a hole that does not exist. It may be that we will have a much better recovery than the forecasters are thinking. It may be that the economy responds much better over the next two or three years or, indeed, over the next two or three months, as the relaxations kick in.

We can see the difficulty that the official forecasters have if we look at the numbers they gave us as recently as November 2020. Then, the OBR, forecasting the budget deficit—the amount of extra borrowing—for the year 2020-21, said that it would be £394 billion, an enormous amount. Bear in mind that it was having to forecast for only four months, as two thirds of the year had already gone. When we got the 11-month figures, up to February, recently, we discovered that they had come in at just £278 billion and so, subject to what happened in March, it may be that the OBR was the best part of £100 billion out on the deficit for the year in question when it tried to forecast, already knowing quite a lot of what had happened. It was, of course, massively too pessimistic. It is great news that we will have borrowed so much less than we feared, although clearly we are still borrowing far too much on an unsustainable basis, which is why we need to promote a strong recovery to get the deficit down.

I therefore say to the Government: let us show a little humility. The experts and advisers are not able to give us anything like accurate figures—I can sympathise with them, because extreme things have happened in response to the pandemic—so are we sure that we need to make these moves over the next three or four years?

There is also a case for showing a bit of humility and thinking ahead about whether we might need to show a bit more flexibility because the Government themselves have rightly said, now that we are out of the European Union and the economic world has been stood on its head, that they want to set out a new framework for guiding the economy. I encourage them to do that, and I hope it is a framework that promotes growth and considers real issues such as the increase in the number of jobs, the rise in real incomes and the productivity growth that can be achieved.

We need to get away from the Maastricht criteria, which have governed our policy for many years and still seem to be behind the architecture of this Bill. We seem to be driven by the need to get state debt falling as a percentage of our national output by the end of the period that we are talking about today for the tax changes. State debt is now a pretty useless figure to try to target in the way that the Maastricht criteria did. We now live in this age of monetary experimentation, where great banks such as the Bank of England, as well as the European Central Bank, have bought in very large quantities of state debt—indeed, they still are doing so. Surely, where that happens in a single sovereign country with its own central bank, owned on behalf of the taxpayers by the state, we should treat the debt that we have bought back in rather differently from the debt on which we owe money by way of interest to people outside—some our own citizens, some foreigners—who have been financing the Government. That makes state debt a very difficult number to use to guide the economy. Of course, the future system must have some control over the build-up of actual interest charges that we have to pay to third parties, but it should concentrate much more on promoting growth.

May we therefore have just a few words from the Government, accepting that these numbers are very difficult and that the current forecasts are likely to be very wrong? No one can say exactly how wrong they are going to be, because so many things will happen over the next two or three years and nobody has been through a bounce back of the kind of pace that is possible from such a big hole in our economy, created by necessary health measures to cure the pandemic.

We need a policy that is very supportive of more jobs, of higher incomes and of encouraging investment, enterprise, saving and, above all, self-employment and more small business activity. My worry is that the Government are being a bit mean with people and with small businesses in the name of controlling state debt at a time when we have no idea what the state debt will be in two or three years’ time, and when the state debt number is now very different because of the purchase of state debt by the state itself.

I would hope that the Government recognise that we may need to revisit all this, and I would want them to be on the side of people keeping more of the money they earn and, above all, of a much better deal for small business and the self-employed, where I think they are too tough.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

We are having one or two technical issues, so we will go straight to Richard Burgon.

Photo of Richard Burgon Richard Burgon Labour, Leeds East

I wish to speak to my new clause 7, which would require the Government to publish an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000.

The coronavirus crisis has not only shone a spotlight on the deep inequalities in our society and their deadly consequences, but deepened them. Deep inequalities scar our nation. As we come out of this pandemic, if we are to learn the lessons and build a more equal, less divided and more inclusive society, then we need to address decades of failing tax policy. Ensuring higher taxes on those on the very highest incomes has an important role to play in building that fairer society. Since Thatcher, the Tory mantra has been that low taxes on the rich benefit everyone, but years of keeping taxes low for the very rich did not in fact boost economic growth; instead, it allowed inequality to run completely out of control. That has been proven by new research by the London School of Economics and King’s College London showing that reducing taxes on the rich leads to higher income inequality that has an insignificant effect, in any positive fashion, on economic growth or unemployment.

In short, trickle-down economics has been a lie. Now is the time to acknowledge that and address it by creating a fairer tax system. My amendment calling for a new 55% income tax rate would target those on very high incomes of over £200,000 per year—the richest part of the top 1%, or about 300,000 people. The current highest income tax rate is just 45% for those earning above £150,000—not much more than for those earning £50,000. Yet 40 years ago the average top income tax rate for the wealthy OECD member countries was 62%. The top income tax was 60% even under Margaret Thatcher, so perhaps even the Thatcherites on the Government Benches will consider offering their support for the amendment. This increase would affect less than 1% of the population—about 200,000 people, according to HMRC.

There has been huge suffering in our society over the past year, yet the very wealthiest in our society—the billionaires and the super-rich—have exploited this crisis to further line their pockets. We cannot go on layering inequality on top of inequality. Now is the time to act. Publishing an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000 would be an important stepping-stone towards building a fairer and better society. That is why I would like to press my new clause 7 to a vote.

Photo of Bell Ribeiro-Addy Bell Ribeiro-Addy Labour, Streatham

I speak in support of amendment 15 and new clause 8 in my name, and amendments and new clauses in the names of my right hon. Friend John McDonnell and my hon. Friend Richard Burgon.

My amendment 15 is tabled with the aim of highlighting the importance of the so-called £20 uplift for tax credit recipients from the covid-19 support scheme, and the damage that the Government’s decision to not continue this beyond September will cause. In March 2020, the Chancellor announced a temporary uplift of £20 per week to universal credit via the standard allowance of the working tax credit basic element for the 2020-21 financial year. A one-off payment is being made to tax credit recipients to cover a six-month period from April to September 2021 to continue this support.

As Members will know, payments from the covid-19 support scheme for working households receiving tax credits are being introduced under the Coronavirus Act 2020. Clause 31 introduces an exemption from income tax for payments made to tax credit recipients. My amendment 15 would require the Government to publish an equalities impact assessment of the provisions of clause 31, which must cover the impact of the provisions on households at different levels of income, people’s protected characteristics, equality in different parts of the United Kingdom and regions of England, and child poverty. That is because while the £20 per week top-up will temporarily be retained, helping some 6.5 million families for a further six months, this does not allay the fears that families will have going into next winter. Rather, it is clear to almost everyone—Action for Children, Child Poverty Action Group, Save the Children, the Joseph Rowntree Foundation, the trade union movement and so on—apart from the Government that the £20 increase and the associated tax relief, as per clause 31, should be made permanent and paid to all claimants, given that poverty levels were already too high pre-pandemic. Extending the £20 uplift is vital because struggling families cannot keep afloat without it, but that will be as true in six months as it is now.

Action for Children estimates that 2.5 million families with children currently on universal credit and working tax credit will miss out on a combined total of £1.3 billion across the next financial year. Statistics from March show that just over half of all children in poverty were in families with the youngest child under the age of five and 47% of children in poverty were in families with three or more children. According to those figures, the number of children living in relative poverty after housing costs rose from 4.1 million in 2018-19 to 4.3 million in 2019-20. That amounts to 31% of all children in the UK. In comparison, 3.6 million children were in poverty just 11 years ago. Deprived families have fallen deeper into poverty, with 2.9 million children considered to be in deep poverty.

What an indictment of this Government’s economic record. Years of austerity, welfare cuts, benefit changes and cuts to public services have disproportionately affected children, women, disabled people, and black, Asian and minority ethnic communities, a fact repeatedly outlined by many civil society organisations. On top of that, experts have warned that child poverty will rise even further after the pandemic. What has the Government’s response been? An offensive and factually redundant report on race and ethnicity that

“repackages racist tropes and stereotypes into fact, twisting data and misapplying statistics and studies”.

Those are not my words, but the shocked comments of a United Nations working group.

It is therefore no surprise that the Bill falls short on tackling poverty and inequality. This is why it is crucial that we make sure we have a fair and equal recovery coming out of the pandemic, with those with the broadest shoulders paying their fair share. Progressive and fair taxation, as evoked by new clause 7 in the name of my hon. Friend the Member for Leeds East and new clause 8 in my name, is crucial to that fairness. These progressive tax new clauses are about encouraging a discussion on the kind of society we want to be in. My new clause 8 would require the Government to publish an assessment of

“the effect of reducing the income tax threshold for the additional rate to £80,000”.

This is a reference to commitments in the 2019 Labour party manifesto to reduce the 45p additional rate threshold to £80,000, covering the top 5% of income tax payers, raising billions but not increasing further the burdens on the majority of people. With the International Monetary Fund now arguing for increases in taxation for those who have made huge profits from the pandemic, this is yet another area in which the Labour party manifesto has been shown to have been leading the way politically. Fair taxation is one of the building blocks of communities, in part because it supports investment in the public infrastructure and services on which we all rely. Progressive taxation means, plain and simple, that those with more means contribute relatively more.

Last October, IFS research revealed that the wealth gap between poor and rich families in the UK has been exacerbated by the pandemic, and that owing to their higher incomes and higher spending habits richer households have invariably become richer during the pandemic. The top fifth of earners saved money at a faster rate than before lockdown after their outgoings reduced by 41%. Truly progressive taxation that ensures the rich pay their fair share is crucial for the delivery of equalities and women’s rights in particular, as women tend to rely more on public services that are funded by taxes. Because of women’s and men’s different income and spending patterns, regressive taxes tend to hit women the hardest.

Similarly, given that deep economic inequalities persist between white and black, Asian and minority ethnic people and their households, we have to ensure that our tax system is not a driver of racial injustice. Unfortunately, the pay gap between white and black and Asian communities is entrenched in the UK approach to tax, which on the whole favours higher earners. To tackle this inequality in our society we need to look at addressing the fact that, as previous research has shown, top earners are overwhelmingly white and male and more likely to be based in London and the south-east. We need to address those inequalities sooner rather than later.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment) 7:00 pm, 19th April 2021

In my limited remarks, I want to support the arguments made by my hon. Friend James Murray, and to speak in support of Labour’s new clause 23, to which I have added my name, seeking an equality impact assessment of the measures in the Bill that affect family incomes. This includes the impact of specified sections of the legislation on households at different levels of income, on people with protected characteristics, and across the regions and nations of the UK.

About 700,000 people have lost their jobs since February last year, and many more families have seen a drop in their household income. Over 39,000 are now on universal credit in Hounslow alone, and we have seen a huge rise in the use of food banks. There is no doubt about the importance of financial inclusion at this time. The Financial Inclusion Commission, on which I sit, has highlighted how there are now millions more people facing economic hardship as a result of the covid-19 pandemic. However, the UK entered the crisis with half its population financially vulnerable: 12 million categorised as financially struggling or generally on low incomes, and 13 million as financially squeezed. Covid has laid bare existing weaknesses, vulnerabilities and structural inequalities, and StepChange research shows that 10% of people say they will certainly or probably be unable to pay for essentials in the next 12 months.

We know child poverty, already extremely high, is rising, so it is inexplicable, when the Government themselves have said in the Budget report that the

“economic impact of restrictions has not been felt equally”,

that they have not themselves published an impact assessment. It should not be for the Opposition to table this vital amendment. It seems that instead of taking action to boost our community recoveries, the Conservatives are choosing to reward families up and down the country for their sacrifices with council tax hikes, the freeze to the personal allowance from next April a whole year before corporation tax rises kick in, a real-terms pay cut for key workers and cuts to universal credit later this year, a move now even opposed 100 Tory MPs.

Even when the Chancellor has done the right thing, such as extending furlough, as Labour called for, these moves need to be underpinned by a strong social security system that provides support when people need it. People need to be protected from financial exclusion and families need a clear route out of financial difficulty when they are struggling. The Chancellor could also look at how Sadiq Khan is working to promote financial inclusion through partnership with the financial sector, social enterprises and credit unions, and at his plans for a new team dedicated to economic fairness.

But instead of economic fairness, what we know is coming is the £20-a-week cut to universal credit for millions of families within six months, just when the OBR predicts that unemployment will peak. It is a cut that takes out-of-work support to its lowest levels since the 1990s. That is why Labour has also called for urgent social security measures, including converting universal credit advances to grants instead of loans, ending the five-week wait, suspending the benefits cap and uprating legacy benefits to match the increase in universal credit. About 2.2 million people on legacy benefits have been deprived of the uplift, and given that three quarters of those claimants are disabled and on employment and support allowance, this has created a two-tier social security system that has left many struggling to cope. Evidence from the Disability Benefits Consortium found that 67% of disabled claimants have had to go without some essential items at points during the pandemic.

Minority ethnic communities have been hardest hit by both the health and economic crisis. The Resolution Foundation found that, at the end of last year, unemployment among young black graduates had risen to 34%, up from 22% before the pandemic, and almost three times that of young white graduates during the same period. StepChange research also shows that those from an ethnic minority are twice as likely, compared with the GB average, to say that they have experienced hardship, borrowed to make ends meet or have run down savings.

In conclusion, the Chancellor is hitting families up and down the country, with a quadruple hammer blow of council tax rises, cuts to universal credit, real pay cuts for key workers and the freeze to the personal allowance. If the Chancellor wants to work for a fairer Britain and build a more inclusive and financially inclusive economy, he needs to know who his policies are helping and who they are not. That is why we need an impact assessment, as called for in new clause 23, and the Government should support it today.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Labour, Salford and Eccles

I speak to oppose clause 5 stand part, and in support of amendments 2, 3 and 4 in the name of my right hon. Friend John McDonnell and others, as well as amendments in the name of my hon. Friend Bell Ribeiro-Addy and amendments from the Labour Front Bench.

The Chancellor committed to doing whatever is necessary to support people and businesses through the coronavirus pandemic. I want to believe him, but the £20 a week covid uplift to universal credit will be cut just at the time when the OBR has predicted that unemployment will peak. There has been no uplift at all, as we have heard, in covid support for those on legacy benefits or affected by the benefit cap. At the same time, an equivalent cut in working tax credit for households that have not yet made the move to universal credit will be imposed.

Further councils, whose budgets have been decimated over recent years, will be forced to increase council tax by up to 5%, pressuring household budgets even further, so the Bill is already sorely deficient in honouring the Chancellor’s original promise. However, in clause 5—the proposal to freeze the personal tax allowance—the promise is sadly contradicted entirely. The reality of the clause is that, if there is wage inflation over the next five years, someone earning just under the threshold now, for example, who then receives an inflationary pay increase for 2022-23 will start to pay tax.

As the Resolution Foundation has found, the poorest fifth of households are twice as likely to have seen their debts rise rather than fall during the crisis, so taking some of those lowest earners beyond the personal allowance threshold as their wages might slightly increase with inflation could result in their financial devastation. I therefore supported calls to remove clause 5, or at the very least for the Government to compromise and delay the changes.

I will also briefly mention clause 32 on self-employment income support. I do not disagree with the sentiment of the clause but, as the Government know, the support still does not go far enough. More than 2 million remain excluded from any Government support at all and, as I have repeatedly told this House, some have sadly taken their own lives as a result. I once again urge the Government to provide an immediate emergency grant to those affected, install new monthly arrangements while restrictions remain in place in complete parity with the extension of the coronavirus job retention scheme and the self-employment income support scheme, and remove the hard edges to eligibility criteria. Finally, they should backdate payments for a full and final settlement to deliver parity and fairness for those excluded from meaningful support.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

It is a pleasure to serve under your chairmanship, Ms McDonagh. I very much welcomed the Minister’s response when I asked him about the Low Incomes Tax Reform Group. I will send him all the information that I am concerned about, which I hope he will be able to answer.

Clause 31 ensures that the one-off £500 payment for certain working households receiving tax credit is not taxable, which is welcome. The problem arises when a person receives a payment that they were not entitled to under the rules. As the payment is made automatically by HMRC without requiring a claim from the individual, if HMRC mistakenly makes a payment to someone who is not entitled to one under the direction and it is not subsequently repaid, it appears that the tax credit claimant will automatically be subject to a tax charge under the Finance Act 2020. That triggers notification requirements for the individual, assessing powers for HMRC and potential penalties.

I would like to understand whether consideration has been, or will be, given to ensuring that HMRC will set the bar high in terms of what constitutes fraud, and whether it will be limited to those people who fall under section 35 of the Tax Credits Act 2002, in relation to their underlying tax credit award. Over the last period, you, Ms McDonagh, I and everyone in this House has seen young families on the brink of financial collapse—in particular, in my office, due to the inconsistencies of the working tax credit as between those who are self-employed and those whose annual pay packs are constant.

Briefly on clause 32, I highlight the fact that taxpayers who have made amendments to their self-assessment tax returns on or after 3 March 2021 may have to pay back some or all of the grants that they have claimed. There is a real concern, which I share, that unrepresented taxpayers may not be aware of their obligations to notify HMRC and, accordingly, may face penalties, inadvertently and perhaps without right. Minister, how will we ensure that HMRC will take steps to ensure that taxpayers become aware of any obligation to repay in time to avoid such penalties? In particular, it is unsatisfactory that taxpayers who have made amendments on or after 3 March 2021 but prior to the date of the claim appear to be obliged to pay back some or all of the grant immediately upon receipt. Some may be unaware that they have to do so, but they face harsh penalties, which were originally aimed at fraudulent claims or for failing to do this on a timely basis. So I am concerned that innocent participants in this process may find themselves in difficult times.

At this time, we are often telling people to be patient with our schemes to give us time to put them together and to be understanding as we iron out the kinks. We are in unprecedented times, but we need to get it right for all taxpayers. I am concerned that this Bill does not give the ordinary person the benefit of the doubt enough in the matters I have referred to. It does not allow them time to understand the obligations and know what the next steps to take are. In this House, we must legislate to ensure that the ordinary taxpayer knows where they stand, what direction to take next and the advice that is necessary, which they need to have available, too. There needs to be greater clarity on those matters in the Bill.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 7:15 pm, 19th April 2021

It has been a good debate and I thank all Members who have taken part. Let me pick up some of the key themes that were described, one of which is the impact on taxpayers of the measures the Government have taken to address and fix concerns about the public finances.

James Murray raised this issue. As he will be aware from wider conversation and scrutiny, the Bill places a burden of £40 a year on the average basic rate taxpayer and no increment in take home pay. We think that a balanced and fair approach is one that is widely based and progressive. As I indicated, the top 20% of tax-paying households pay 15 times that of the bottom 20%. He was asked by my hon. Friend Andrew Griffith whether he supported new clause 7, which would raise tax to 55%, and his was an eloquent silence in response. I would be interested to hear in the next debate whether he does support new clause 7’s bid to raise the top rate of income tax to 55%, but I will come to that later.

Alison Thewliss raised the question of antibody tests. As she will be aware, antigen tests, which are subject to the relief in the Bill, are connected to employment, whereas antibody tests are not, which is why the relief does not extend to them. It is, however, fully open to the Scottish Government, who have capacity to raise tax revenue themselves, to fund antibody tests if they so choose. She has raised the issue and we can assess whether the Scottish Government wish to follow her lead in funding those tests.

John McDonnell described the tax measures in the Bill as a stealth tax rise. It is an interesting version of a stealth tax rise that is announced in a Budget statement at the Dispatch Box in the House of Commons. He was right when he said earlier that there was an honest disagreement here, and that is what there is. The Government’s view is that there should be a progressive, broad-based approach to fixing the public finances that begins at an appropriate time once the recovery is under way, and that remains the case.

Sarah Olney declaimed the delay in the corporate tax rise. I remind her, since everyone is widely quoting the Resolution Foundation, that it said that the Government

“rightly sought to boost the recovery before turning to fixing the public finances”— and it was right. She was opposed to the measures relating to the freeze on pensions in the Bill and appealed to the experience of ordinary people. Since the amount in question is over £1 million and the average financial savings in this country are something under £7,000, and since the lifetime allowance is itself seven times the median pension pot, I think that she is not using a definition of ordinary people that will be shared by Members of this House.

My right hon. Friend John Redwood talked about the uncertainty involved, and he is right. We are coming out of a pandemic. There is a degree of uncertainty in the economic situation. That is why the Government have delayed, in the way that the Resolution Foundation has applauded, raising tax on corporations in order to start to restore the public finances. That is why it is right that we have taken a fair and balanced approach to this topic.

Richard Burgon spoke in support of his 55% tax rate—not a view shared by the Labour Front Bench. I remind him that HMRC ran a study of the 50% tax rate a few years ago and discovered that it was inefficient, raised far less than had been expected and was distorting tax behaviour. That is not a good recipe.

Bell Ribeiro-Addy was concerned about the progressivity of these measures, but, as she will see if she looks closely, both the UK tax system at the moment and the changes themselves are highly progressive.

Jim Shannon raised the question about the risk of fraud in schemes. Of course, he is right to note that. He had some concerns about reclaims in the self-employment income support scheme. All I would say is that the scheme is well understood. It is very widely publicised. Guidance has been available on the internet and in many independent bodies for many months. If people have claimed income support through that scheme for which they are in fact not eligible, it is appropriate to reclaim the sum overpaid. That is the principle that we seek to apply elsewhere in the tax system because it, too, is a fair and equitable one.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 4 ordered to stand part of the Bill.