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Clause 2 - Personal allowance for 2013-14 for those born after 5 April 1948

Finance (No. 2) Bill – in a Public Bill Committee at 9:00 am on 23rd April 2013.

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Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 9:00 am, 23rd April 2013

I beg to move amendment 7, in clause 2, page 2, line 6, at end add—

‘(3) The Chancellor of the Exchequer shall review the impact of this measure on anyone who reached the age of 65 on or after April 2013, and place a copy in the Library of the House of Commons within six months of Royal Assent.’.

Photo of David Crausby David Crausby Labour, Bolton North East

With this it will be convenient to discuss the following:

Amendment 8, in clause 2, page 2, line 6, at end add—

‘(3) The Chancellor shall review the overall impact of the Government’s overall budgetary measures on the living standards of basic rate taxpayers and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.

Clause stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I welcome you and the Clerks, Mr Crausby. It is a pleasure to serve for the first time under your chairmanship. I thank the Clerks in advance for the support that they will undoubtedly provide to me, my colleagues and all Committee members throughout the proceedings. I welcome members from all parties, including those who have served on the Committee previously, but particularly Members who are new to the Committee and newer Members of the House, including my hon. Friend the Member for Middlesbrough and the hon. Member for Eastleigh.

This Finance Bill is not the longest ever. It is 615 pages, which is just short of the 703 that we considered in 2012. The Institute of Chartered Accountants in England and Wales has pointed out in its written evidence on the Budget to the Treasury Committee that a Bill of this length and complexity is hard for Parliament to scrutinise effectively, but scrutinise it we will, particularly what we see as a lack of the bold action that this country needs radically to change the course of the stagnating economy under whose weight we are all struggling. On Budget day, what we really saw was a bit of tinkering around the edges. We hope that the amendments we have tabled will force the Government to rethink their strategy and take the necessary bold action that we—and, more important, people up and down the country—are calling for.

Clause 2 sets the income tax personal allowance for 2013-14 at £9,440. That figure, which was first announced in the autumn statement 2012, is an increase on the £9,205 announced in Budget 2012. The figure for 2012-13 had been £8,105. I am sure that all members of the Committee will have noted that it is not just the level of personal allowance in the clause that has changed from previous years, but the wording used. The key phrase

“personal allowance for those aged under 65” used in previous Finance Bills has been substituted with the new phrase,

“personal allowance for those born after 5 April 1948”.

Amendment 7 deals with the consequences of that change for anyone who will turn 65 during or after this month and amendment 8 considers the overall impact  of the Government’s changes to tax and benefits, including the increase in the personal allowance on people’s incomes. Before we test the Committee’s opinion on those amendments, we will discuss the clause and whether it should stand part of the Bill.

The clause deals with the personal allowance which all taxpayers are entitled to set against their income for tax purposes. As we know—at least, until the beginning of this tax year—individuals aged 65 or over were entitled to receive an additional age-related allowance, commonly referred to as the ARA, with a further allowance made for those aged 75 or over.

Since the Rooker-Wise amendment to the Finance Act 1977 broke through with cross-party agreement, all income tax allowances had been required to increase in line with the retail prices index unless Parliament determined otherwise, to ensure that all changes in these important allowances were subject to parliamentary scrutiny and could not be subjected to tax increases by the back door. The age-related allowance does not apply to the richest pensioners and it has been progressively withdrawn for older people whose incomes exceed a given limit; £25,400 was the figure in 2012-13, for example.

However, as we are all aware, in Budget 2012 it was announced that from 2013-14—in other words, from earlier this month—the availability of the age-related income tax personal allowance would be restricted. The allowance of £10,500 for people aged 65 and over was frozen, the allowance of £10,660 for those aged 75 and over was also frozen and people turning 65 on or after 6 April 2013—those born after 5 April 1948—are not entitled to any age-related allowance. That decision has led to the different wording in the personal allowance clause of the Bill that we now consider, with the usual line on personal allowance for “those aged under 65” changed to

“those born after 5 April 1948”.

In other words, the general personal allowance now applies to all people who have turned, or will turn, 65 on or after 6 April this year.

Amendment 7 calls on the Government to consider properly the impact of that change to the personal allowance system on this particular group of people. We singled out this group because that is what the Government did in their changes. However, before we consider how those turning 65 years old from this month will be affected by the fact that they will be entitled to receive only the personal allowance, it might be helpful to reflect briefly on the reasons for the existence of the age-related allowance, the allowance that the clause will now no longer afford to anyone over the age of 65.

The Office for Tax Simplification’s interim review of pensioners’ taxation published ahead of 2012 noted that age-related allowances, in one form or another, had been introduced to reflect the potentially higher cost of living of older people. Indeed, that is why the then Chancellor of the Exchequer, Winston Churchill, introduced old age relief in 1925. The OTS review of pensioners’ taxation went on to state:

“Older people can struggle to meet living costs. They are often on a fixed income once they have retired, or perhaps on a declining income in real terms where flat annuities have been purchased to maximise income on retirement.”

The age-related allowances came into existence to reflect the fact that many pensioners enjoyed a modest income in retirement because they had savings and relied on those savings. In bringing in the age-related allowance, Winston Churchill explained that he had considered that the savings of old people on a small scale were virtually earned income.

The age-related allowance and its predecessors were introduced because the majority of pensioners are on a fixed income and are, therefore, particularly vulnerable to rises in the cost of living.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead 9:15 am, 23rd April 2013

Does my hon. Friend remember that, for many years, evidence has shown that pensioners over the age of 80 often experience much higher levels of poverty than others? That is another reason why the age-related allowance was introduced.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I agree with my hon. Friend, and I thank him for his intervention. What he said is very much the point that I am trying to make, as well as the problem that Winston Churchill clearly recognised back in 1925. It was deemed at that stage that people over the age of 65 and moving into retirement had less control over their income and less ability to react to changes in prices and inflationary costs.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee

Does the hon. Lady believe that Winston Churchill had a proper appreciation back in the 1920s of the welcome increase in longevity and the impact that that has on the debate?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I note that the hon. Gentleman is passing doubt on the wisdom and insight of Winston Churchill but, given that he raised an important issue, it is true that people are living longer and, thus, such a problem is more acute now for many pensioners than it was in 1925. People over the age of 65 are often living longer and having to live on ever-depleting income and resources.

Photo of David Gauke David Gauke The Exchequer Secretary

Does the hon. Lady recognise that the poorest 15% of pensioners do not benefit from age-related allowances? To be clear, does she believe that, as a matter of principle, those under the age of 65 should have a lower personal allowance than those over the age of 65?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I recognise very much the difficulty faced by the poorest pensioners. Did the Government consider that when they reduced the winter fuel allowance and increased VAT, which has hit pensioners as hard as any group in society? One of the particular issues raised by pensioners throughout the country is not necessarily a matter of principle, but the way in which the Government have gone about making such a change in policy.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

One of the major problems faced by many older people who have savings, and who are perhaps most likely to pay tax, is that the Government’s economic policies mean that the income they derive from those savings has declined considerably in recent years.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Indeed, and we have all seen the rise in the cost of living, with rising fuel bills and rising prices in the shops. For the same amount of money, the petrol in our cars will take us less far than it used to. Pensioners, more than anybody, are feeling that squeeze on their household incomes. We are hearing increasing numbers of stories about pensioners choosing between heating and eating, which not only is detrimental to their health but can mean the difference between life and death for many older people.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I have been listening to what the hon. Lady is saying. Obviously, I am very cost conscious, and I appreciate that the new new policy of the old new old Labour party is now not only to borrow more but to spend more. It has finally come out with the fact that it wants to spend more, which is great, because I like honesty in politics and in a debate. I am glad that the Labour leadership has come out and said that it wants to spend more money. However, I am curious: is there any cost associated with the hon. Lady’s amendment, and what might it be?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The hon. Gentleman has got himself terribly confused about not only the Government’s policies but the alternative proposed by the Opposition. Amendment 7 is intended to allow us to assess the impact of the changes in relation to pensioners. Rather than accusing the Labour Opposition of spending more and borrowing more, he should look at the Government’s economic performance. They are borrowing £245 billion more than they planned. Beyond that, their spending choices include handing a tax cut to top rate taxpayers while taking money from pensioners’ extremely modest incomes, which are in the region of £10,000 to £25,000. I seriously question the hon. Gentleman’s clearly vitriolic attitude. People are clearly going to lose out by an average of £300 a year as a result of this measure.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I try not to be vitriolic; I like to think of myself as charm personified. The hon. Lady has accused the Government of spending more and borrowing more, as the evidence is. However, in her policies, she is actually calling for more spending and even more borrowing. I suggest that she take the plank out of her own eye before taking the speck out of the Government’s eye. Once again, however, I would like her to answer the question, which she neatly sidestepped. There is a cost associated with the amendments. Can she tell us what it will be over the next year, two years or three years?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I think that the hon. Gentleman has not actually read amendment 7, which would provide for the Government to review the impact of this policy change on pensioners. He is also terribly confused about the Government’s economic policy, which is clearly not reducing spending. The Government are spending more on the benefits bill and borrowing more to pay for the failure of their economic plans.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee

Clearly, the amendments do not touch directly on the question of cost. However, in the hon. Lady’s introductory remarks, she alluded to the fact that Her Majesty’s official Opposition might not allow the whole clause to go forward, in which case there would be a cost implication. My hon. Friend the  Member for Braintree is therefore entirely right, and it is entirely spurious to pray in aid the fact that the amendments do not directly throw out the measure, because only a few minutes ago it was said that Her Majesty’s official Opposition might not let the clause stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Might I suggest that the hon. Gentleman read the clause that we are discussing on the increase in personal allowances, which is actually a net cost to the Treasury, rather than a net gain? Our amendment requests that the Government thoroughly review the impact of the changes on pensioners who are impacted by the measures. There is no spending commitment in asking for a review of the impact on particularly vulnerable groups in society. We would hope that if hon. Members are genuine in their stated desire to reduce the deficit and ensure that those with the broadest shoulders bear the greatest burden, they will want to measure the impact on particularly vulnerable members of society and welcome our approach of calling for that today.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady and her party are dancing on a pinhead in their approach. They seem to want the measure to be reviewed, but her argument seems to be that they want it to be stopped and reversed. I would be grateful if she told me whether the Labour party, if it was in government now or indeed in 2015, would reverse the measure or not—yes or no?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We have made it clear from the start—perhaps Government Members have not been listening—that we would make very different choices in going about reducing the deficit. We all agree that the deficit needs to be reduced, that changes need to be made and that the books need to be balanced. The Chancellor’s plan to balance the books by 2015, with borrowing falling as a proportion of gross domestic product, has clearly gone through the roof—

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Sorry, fallen through the floor. Borrowing has gone through the roof; the plan has gone through the floor. Our choices would not impact on the most vulnerable—they would certainly not hand a tax cut to top-rate taxpayers, particularly the 13,000 millionaires—and would have our economy back on track much quicker than this Chancellor is doing.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

The amendment clearly states that the review would be

“within six months of Royal Assent.”

For the benefit of Government Members, Royal Assent means when the Queen approves the Bill and it goes on to the statute book, and the review would be within six months of that.

Sheryll Murray (South East Cornwall) (Con) rose—

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend for his intervention. Perhaps the hon. Lady wishes to reply to him.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

I do not know whether the hon. Lady knows, but Members do not respond to an intervention in another Member’s speech. She said that her party would do things very differently if her party were in government. Will she enlighten us on the measures that she would introduce as an alternative?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I would happily provide Labour’s alternative plan for the economy at great length this morning, but you are already looking slightly uneasy, Mr Crausby.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

You would quite rightly rule that out of order, Mr Crausby.

Photo of David Gauke David Gauke The Exchequer Secretary

Perhaps I can narrow that. The hon. Lady has said that her party would make different choices. May I seek clarification on one of them? To return to my previous question, does she believe as a matter of principle that those under 65 should have a lower personal allowance than those over that age?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 9:30 am, 23rd April 2013

For many years, it has been an established principle that people over the age of 65 need more help with the pressure from costs and more protection from changes in their living standards. That principle is rightly raised by a number of charities and by pensioners who visit me in my surgery. I challenge the Minister to tell the Committee that no pensioner has been to see him to discuss their concerns about the way the Government have gone about making this change, because it adds financial pressure to older people on very modest incomes. We are not talking about high earners but people on very modest incomes who are without doubt suffering from the current squeeze in spending that everyone is feeling. Pensioners who come to see me are aggrieved not only because they feel that they are being taxed to pay for a tax cut for the top earners—those earning more than £150,000 and especially 13,000 millionaires—but because of the way it has been introduced under the auspices of a simplification measure when all the evidence shows that is not the case.

Photo of Fiona O'Donnell Fiona O'Donnell Labour, East Lothian

My hon. Friend is making an excellent contribution to the debate, despite the actions of the bully boys on the Government Benches. [Interruption.] Mock outrage and cheers. This is not just about the manner in which the Government have introduced the proposals, but about the impact they will have on demand in economies such as mine where there are a large number of retired people. That was money they used to spend on the high streets of my constituency. What assessment have the Government made of that impact?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes a powerful point, and it is one that the Government do not seem to grasp. When people’s money is taken out of their pockets,  they have less to spend and the economy stagnates, and here we are in stagnation. Furthermore, I cannot let things go without commenting on the fact that there is a predominance of male participants in the Finance Bill Committee. I am pleased that the hon. Member for South East Cornwall is on the Government Benches, but we all wish that the Government had a stronger voice and stronger ear from female Members of the House, because they would not make so many catastrophic errors in policy terms.

Photo of Rory Stewart Rory Stewart Conservative, Penrith and The Border

I am very interested in the hon. Lady’s statement that when money is taken out of people’s pockets, the economy stagnates. She seems to be pushing towards some form of Keynesian analysis of our economic problems. Will she elaborate on her views and explain exactly how the spending package is not working?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the hon. Gentleman for his intervention, the substance of which would be an interesting discussion to have right now. It is also a discussion that Government Members, especially those on the Front Bench, would benefit from hearing. However, I see Mr Crausby shifting in his seat—[Hon. Members: Sleep?] I said seat, and I put that on the record for Hansard. Unfortunately, we are debating the particular measures in front of us today and an analysis of Keynesian economics would be ruled out of order.

Photo of Mike Thornton Mike Thornton Liberal Democrat, Eastleigh

I appreciate the hon. Lady’s concern for pensioners who are less well off. Does she welcome the fact that under this Government, under Liberal Democrat direction of course, the personal allowance has been increased for everybody, which helps people who are less well off? Does she also accept that we are considering a more directed form of help? My brother who is retiring as a GP and my father who was a long-term civil servant, and who worked in the House some of the time, are not in need of the age-related personal allowance. Is it not fairer, therefore, to ensure that there is money for those who need it rather than for pensioners who are significantly better off than the average?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The hon. Gentleman makes some interesting points, the first of which is that the personal allowance benefits all those people who are not well off. That is simply not true. It only benefits those who are fortunate enough to earn sufficient to actually pay into the tax system in the first place. Many of those at the lowest end of the income scale do not benefit at all from the personal allowance, but they suffer from the changes the Government have made to tax credits and benefits, and in particular from the VAT increase, which is having an impact on every household and on pensioners to the tune of around £275 a year.

The age-related allowance has always been very much targeted at those on modest incomes of up to £25,000, which is not a huge amount in today’s society, considering the astronomical cost of food and fuel and bills. If the hon. Member for Eastleigh is still concerned about the benefit to people on higher incomes, perhaps he should have a word with his colleagues and ask them to stop  supporting the Government’s policies, which reward the highest earners rather than protecting the most vulnerable in society.

Photo of Paul Uppal Paul Uppal Conservative, Wolverhampton South West

It is a pleasure to serve under your stewardship, Mr Crausby. In a genuinely non-bullying, non-vitriolic manner, I note that the hon. Lady accused the Government of not listening. She made the point that the amendments look at the impact assessment. Have the Opposition actually made an impact assessment of their amendments? The hon. Lady has not costed them yet, and I am looking forward to her at some point coming up with a figure of how much they will actually cost.

I represent an urban west midlands seat, where I hold a weekly surgery. Something that comes up again and again for many of my constituents, who are in this age group, is the generational deficit. If we do not live prudently and within our means as a Government it is the younger generation, the children of those constituents, who will have to pay. Have the Opposition done an impact assessment on the people who will have to pay the bill?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate the hon. Gentleman’s intervention, and I take it very much in the spirit in which it was intended. The point he makes is right; we need to live within our means. We need to get the deficit down, we need to reduce the country’s borrowing and we need to balance the books. We have a very reasoned plan to achieve that. The Chancellor has pursued austerity at any cost, and the cost is that his plan is failing completely, as we can see. I do not think any Member on the Government Benches can claim that the Chancellor’s deficit reduction plan is an outstanding success. The International Monetary Fund is questioning the Chancellor’s approach, and the main credit rating agencies are downgrading the UK’s credit status. I do not know what additional evidence is needed to show the Chancellor and Government Members that the plan is simply not working.

While I agree in principle with what the hon. Gentleman says, we fundamentally disagree on how it can be achieved. We proposed alternatives at every stage, and set out what we would now be doing differently. The key difference is that we would not spend £3 billion on giving a tax cut to top-rate earners while taking money out of the pockets of some of our most vulnerable pensioners, who will end up choosing between heating and eating. Ultimately that comes at great cost to society, not only in social terms but also in economic terms.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

It is stunning that Government Members seem to treat the fact that the Government are borrowing £245 billion more than they planned as some sort of trifling sum, and think that they are therefore living within their means as a Government. That £245 billion of additional borrowing is no trifling sum. If we were actually to have a plan for growth, of course we would initially have to borrow more but because of the growth, we would get more back afterwards.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

There is no doubt about it. Recovery will take a damn sight longer the way we are going at the moment, which is having a massive differential impact in different parts of the country. The amendment is apposite, because we need a differential approach for the differential impact in different parts of the country; the whole of the country is not the south-east of England.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend for that impassioned contribution to a wide-ranging discussion. May I be so bold, however, as to bring us back to pensioners?

Photo of Steven Baker Steven Baker Conservative, Wycombe

Before the hon. Lady brings us back to pensioners, it seems pretty clear from what she said that the Opposition do not welcome the increase in the personal allowance, so will they be voting against clause stand part? If so, will a future Labour Government reduce the personal allowance? With all that in mind, where are the amendments to bring back the 10p tax rate?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am pleased that the hon. Gentleman has recognised yet another policy Opposition proposal that will ensure that those who can most bear it pay the highest share to balance the country’s books, as the Chancellor promised in 2010, but which he has spectacularly failed to do.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady is being generous in giving way. On the basis that 34,289 people in her constituency will benefit from a tax cut under the Government changes to the personal allowance and that 3,242 people in her constituency will have been lifted out of income tax altogether by the Government, can she tell us whether her party will support the measures proposed?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We have put forward clear and reasonable amendments to the Finance Bill. As we made clear from the start, backed up by evidence from the Institute for Fiscal Studies, the changes to the personal allowance, which we do not oppose, are a small drop in the ocean, although welcome I am sure to many households up and down the country. The changes, however, are far outweighed by the impact on the most vulnerable households of the overall changes to tax credits and benefits, and the mummy tax and now the granny tax; households will on average be £891 a year or £17 a week worse off in the 2013-14 financial year. The Office for Budget Responsibility report on the Budget made it clear that households will be worse off in 2015 than they were in 2010. That is on this Government’s watch and under this Chancellor’s proposals: households are worse off under the Tories.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

If my hon. Friend has her iPhone to hand, she will see some shocking statistics from the ONS. It said that the deficit in the 2012-13 financial year, which has just finished, was essentially the same as the deficit in the year before: £120.6 billion on removing the statistical distortions, compared with £120.9 billion. That is a deficit reduction of only £300 million. At that rate, it will take more than 400 years to eradicate the deficit; we would not balance the books until 2415. Does that cast any light on the Government strategy?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It does not come as a surprise, to be honest, because we see the impact of the Government’s measures up and down the country. I hope that such empirical evidence will shed some light for Government Members and show that they need radical change.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Given the news that has just been imparted to us by my hon. Friend the Member for Nottingham East, what is all the suffering for? If that is how successful the strategy has been, perhaps my hon. Friend the Member for Newcastle upon Tyne North will speculate as to what the suffering is for.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 9:45 am, 23rd April 2013

My hon. Friend’s point is not only valuable, but poignant, because people throughout the country are feeling the squeeze. They are choosing between heating and eating, and many families are not taking holidays this year and are getting rid of their cars. They are making household choices that they would not be making if we had an economy that was functioning for the ordinary people in this country, rather than for top-rate taxpayers, who are the last people who need a leg up from this Chancellor at the moment.

Photo of Rory Stewart Rory Stewart Conservative, Penrith and The Border

The hon. Member for Gateshead said in an intervention that it would be necessary to borrow more. Will the hon. Lady confirm that that is the Opposition’s policy?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is interesting that Government Members are obsessed with the Labour party’s policies, yet reluctant to reflect even for a moment on their own. Ultimately, the fact is that they are in government and have the power to make a difference to the economy, but they are, quite frankly, doing the opposite.

My hon. Friend the Member for Gateshead made a valuable intervention in which he set out that the Government’s policies are counter-productive. They are hitting vulnerable people with tax and benefit changes, while paying more for the price of unemployment. Government Members seem to have amnesia about last week’s catastrophic unemployment figures, which showed a devastating increase in unemployment, particularly in regions such as that of my hon. Friend and other members of the Committee, where we have seen a staggering increase of 12,000 in the number of unemployed. The price of that failure is borne out in the catastrophic borrowing figures that have been confirmed today. The hon. Member for Penrith and The Border asks whether the Labour party would be borrowing more, but we would be borrowing less because we would not be pursuing the catastrophic economic policies that the Government are ploughing on with.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

Does the hon. Lady admit that she is also suffering from amnesia about the debt and the dire economic situation with which her Government left the country? Rather than accusing Government Members of having amnesia, will she apologise for the state in which she left us?

Photo of David Crausby David Crausby Labour, Bolton North East

Order. We have done well up until now by staying within the scope of the clause, but we are starting to drift away. Will hon. Members keep their remarks to clause 2 and the two amendments to it?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mr Crausby, for bringing the Committee back into order.

I will make one quick comment in response to the hon. Lady’s intervention. We all acknowledge that we suffered an international banking crisis in 2008. Economies throughout the world suffered the consequences of that, but Labour introduced measures in government that took this country back into growth. Since the present Chancellor took over in 2010, there has been 0.8% growth and a double-dip recession, all of which can be put firmly at the door of No. 11. This Government and their Members need to stop blaming everybody else for the economic mess that they have got the country into.

It is certainly the case that pensioners have not been immune to the Government’s austerity measures, with the winter fuel allowance cuts, pensions indexed to a lower measure of inflation, the unfair acceleration of raising women’s state pension age and, as I mentioned earlier, the VAT increase, which it is estimated has cost the average pensioner £275 a year.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady paints a very dark picture of the effect of the Government’s policies on older people. Will she not accept, however, that the triple-lock guarantee for the state pension, the three-year council tax freeze and the fact that fuel duty is 13p a litre less than it would have been had her party been in government are all policies that are designed to support older people on fixed incomes?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate the hon. Gentleman’s compliment by suggesting that I have successfully portrayed exactly what the policy means for people up and down the country: a very dark picture. I also appreciate what he says but, frankly, the measures he mentioned do not outweigh the overall impact of the Government’s tax and benefit changes. He does not need to take that from me; he can take it from the Institute for Fiscal Studies or the OBR, which shows that people will be worse off in 2015, under his party’s Government, than they were in 2010.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Lady cites the Institute for Fiscal Studies, but my hon. Friend the Member for Nuneaton is absolutely right about the Government’s policy with regard to pensioners. It is clear from analysis by the IFS that pensioner households lose out least under the consolidation measures that the Government have undertaken. Does she accept that point?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is interesting that the Minister focuses on who loses out the least, thereby seemingly acknowledging that everybody is losing out, yet some people are actually gaining. The millionaires are not losing out under the Government’s policies; they are gaining £107,000.

Photo of David Gauke David Gauke The Exchequer Secretary

The IFS distributional analysis is clear that the wealthiest are bearing the greatest burden in the consolidation, not just in cash terms, but proportionally.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We know that the reality is very different for people up and down the country. The Government do not need to convince us on this issue; they need to convince members of the public and pensioners who are feeling the squeeze from the VAT increase.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Would my hon. Friend like to hear the experience of people in Scotland? We have had a council tax freeze for some five or more years, with the effect that many pensioners are seeing fantastic increases in the cost of things such as payments for care services, so the council tax freeze actually has an extremely regressive effect.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend for making, as ever, an insightful intervention, which I hope that the Government will take on board.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

If the hon. Lady does not want to agree with the IFS, will she agree with the Fabian Society? It has published a report stating it is better for older people to pay tax at the same rate as younger people on similar incomes, and that older people are no longer always poor and so should

“share the pain of deficit reduction”.

It also stated:

“All policies that appear to give special advantages to older people as a category should be reviewed”.

I would not agree with the Fabian Society, but does she?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

As ever, the hon. Gentleman is in fact adding weight to our position of calling for a review of the policy’s impact.

Photo of David Gauke David Gauke The Exchequer Secretary

That is a very helpful observation, because we now know—I must admit that I had not appreciated this—that the purpose of amendment 7 is to bring about a review. Such a review could take account of the Fabian Society’s submission that benefits for pensioners should perhaps be reduced and taxes increased. I am grateful to the hon. Lady for clarifying the purpose of her amendment.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I do not know whether we can read such a level of detail into amendment 7, which asks the Government to undertake a thorough and honest review of the impact of their measure on a particularly vulnerable group: pensioners.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

The hon. Lady knows this, but I can admit to the Committee that I am a great admirer of the hon. Member for Kilmarnock and Loudoun.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Sorry, I mean the hon. Member for Newcastle upon Tyne North—[ Interruption. ] I am about to be led into a very dangerous place.

The hon. Member for Newcastle upon Tyne North is being unnecessarily modest, because she has given us many examples of what the Opposition would do if they were in government. However, she and her colleagues have the ability to table amendments that would actually change the Government’s proposals, as they did during our consideration of the previous Budget, and with some success. On this occasion, rather than tabling amendments calling for reviews, why do not the Opposition say whether they would amend the Government’s proposals in respect of pensioners, which will save £1.2 billion by 2016-17? Do they support raising the personal allowance—yes or no?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the hon. Gentleman for his kind words, although the Cathy/Catherine issue raised its head again, and I also thank him for the great faith he puts in us and his desire to see us change Government policy. We would love to have that power but, as the Minister would confirm, Mr Crausby would rule out of order any amendments we tabled that would raise revenue or change the Budget’s fiscal position. That is why we have used a power within our means to call on the Government to review their policy, particularly in this case, and to highlight the detrimental impact of the Government’s measures on members of society.

I will continue to explore the imminent impact of the measures on pensioners using not just my own thoughts and words, but the evidence of Citizens Advice to the Treasury Committee about Budget 2012, which stated that the change to the personal and age-related allowance system

“has to be considered in terms of the cumulative impact.”

Government Members seem to fail to grasp its point that

“Fuel prices continue to rise, and that is a key worry; 43% of the people who come to us are worried that they will not be able to meet their fuel bills. We have examples of people coming into our bureaux who do not heat their homes because they are worried about not being able to afford it... This group of people very often have to rely on their savings in order to live in their retirement, and they are getting very low interest on them.”

The key point about the Government’s change is that the older people on whom it impacts have little opportunity to make up the loss, which came from nowhere. The people affected were taken by surprise, and they now have no means of recompensing their plans for retirement. We have an age-related allowance precisely to act as a buffer against real-terms falls in income, about which most pensioners can do very little because they rely on their savings.

Most people across the country are simply powerless to act in the face of squeezed living standards, rising costs and falling income at every turn. Of course, because of historically low interest rates, savings are being squeezed even further, which means that people with small pensions—those who have made sacrifices throughout their lives to put money aside for their retirement—are being penalised. As the pensions expert, Dr Ros Altmann, said:

“Amid all the talk of tax cuts...the main tax-raising measure” in the 2012 Budget

“consisted of a stealth tax…on older people who did actually work and save hard for their future.”

Meanwhile, Gransnet warned that

“this tax change offers no incentive to save”.

The National Association of Pension Funds stated that the change would

“come as a blow to millions of pensioners who have paid into the tax system throughout their working lives. Pensioners with modest amounts of pension savings stand to be the biggest losers.”

I note that no Government Members wish to intervene. They may argue with me, but I am quoting spokespeople for the pensioners who are affected by the changes.

Pensioners are being penalised for doing the right thing through the Government’s changes to the age-related allowance. People born after 5 April 1948 will no longer  be entitled to that allowance, as set out in clause 2, and we have a good understanding of how many older people will be affected by the changes. Last year’s tax information and impact note on the change states:

“There will be no cash losers from this measure”,

but it goes on to make it clear that in

“2013-14, 4.41 million people will be worse off in real terms with an average loss of £83”,

and of course the loss will be significantly higher for many others. The Daily Telegraph recently estimated that many people could find themselves £479 worse off as a consequence, or £511 worse off if they are aged over 75, so the cost to a couple could be nearly £1,000.

It might be helpful to consider just how many people will be affected by the change, region by region. Opposition Members represent the far corners of the United Kingdom and it is right to recognise the geographical spread of the impact. I am sure that Government Members share that concern. We know from parliamentary answers that Ministers have been unable to identify how many people will be affected by the changes resulting from the granny tax by constituency, or even by local authority area, but despite the Government’s attempts to abolish regions and to deny their existence, they can produce figures showing, region by region, the number of people over 65 who pay income tax. The Library sensibly suggests that those figures

“can be used as a proxy to estimate the number of people in each region affected by the freeze in the age-related personal allowance”.

The Government were unable to provide the figures, but the Library helpfully did so.

Of the 4.41 million people left worse off by the change, 170,000 live in my region of the north-east. Some 480,000 live in the north-west, 340,000 live in Yorkshire and Humber, 320,000 live in the east midlands, 450,000 live in east England and 410,000 live in London. Some 710,000 live in the south-east—that ought to make Government Members nervous—460,000 live in the south-west, 240,000 live in Wales, 370,000 live in Scotland and 90,000 live in Northern Ireland. Several million older people are being given serious food for thought, and I am sure that they will not forget the impact of the change in a hurry.

The strength of feeling and anger throughout the country is clear from a recent e-petition on the Government’s website demanding a reversal of the changes to the age-related allowance. It comfortably attracted more than the requisite 100,000 signatures required to trigger the possibility of it being the subject of a Back-Bench debate. I understand that that debate has been tabled for next week, after it was secured by my hon. Friend the Member for Luton North (Kelvin Hopkins), and I am sure that the Exchequer Secretary looks forward to responding to it, as he does to this debate today.

The e-petition was launched by Arthur Streatfield, a pensioner from Bath. Dot Gibson, the general secretary of the National Pensioners Convention, backed it and said:

“Since the Budget announcement...we have been inundated by pensioners like Arthur who are outraged that the Chancellor is giving a tax cut to those earning over £150,000 whilst pensioners on little more than £11,000 are having their tax allowance frozen. There has been a lot of nonsense about pensioners having been cushioned from the austerity measures, but they’ve already seen cuts to their winter fuel allowance, a reduction of their state  pension increase because it’s now linked to the lower Consumer Price Index rather than the Retail Price Index, rationing of care services in the community”— my hon. Friend the Member for Edinburgh East mentioned that problem—

“closure of day care centres, changes to disability benefits and caps on housing support…The Chancellor’s decision to freeze the age related tax allowance is really the last straw for pensioners who feel they are being asked to pay for the mistakes of the bankers and politicians.”

The Opposition agree, which was why we voted against the changes during our consideration of last year’s Finance Bill. This is absolutely the wrong priority at the wrong time. In the current economic climate, the Government should be prioritising ordinary families, ordinary pensioners and the young and long-term unemployed, not millionaires.

The critical group of people about whom we need to be seriously concerned, as is reflected by amendment 7, is those who are reaching their 65th birthday this year. That group of about 360,000 people will be as much as £322 a year worse off by being excluded from the age-related allowance. That is bad enough in itself, but they have had incredibly little notice of the change. People close to retirement have had little chance to plan, and that is completely unacceptable. Indeed, as late as the time of the 2011 autumn statement, the Chancellor made a categorical commitment:

“As announced in the June Budget 2010, the Government has reviewed how the CPI can be used for the indexation of taxes and duties while protecting revenues. Consistent with this, the default indexation assumption for direct taxes will be the CPI from April 2012. To ensure employers and older people do not lose out, for the duration of this Parliament the annual increases in the employer NICs threshold, and the age related allowance and other thresholds for older people, will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

Let me repeat the most relevant sections of that statement:

“To ensure...older people do not lose out, for the duration of this Parliament the annual increases in the...age related allowance....will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

And when was that statement made? Just four months before the 2012 Budget, at which the Chancellor decided not to over-index the age-related allowance from 2013-14. He did not even increase it by RPI; he permanently froze it for those born before 6 April 1948 and scrapped it altogether for people born after that date. The short notice given for that change was strongly criticised.

Dressed up as a simplification measure, the granny tax was justified by the Chancellor on the back of the Office of Tax Simplification’s interim review of pensioners’ taxation, but he forgot to mention that the review clearly stated:

“We would stress…that the OTS has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations.”

Indeed, in his evidence on the 2012 Budget to the Treasury Committee, the director of the Office of Tax Simplification, John Whiting, said:

“I was surprised that it was taken forward so quickly…The context is that we undertook to do a two-stage review of pensioner taxation. The first would document the problems and codify all the problems…Stage two was to go ahead and look at them and try to work out what might be the best way forward.”

Paul Johnson, the director of the Institute for Fiscal Studies, also gave evidence to that Committee, saying:

“I think there are problems in the way that this was announced, particularly coming in so quickly without giving people much of a chance to plan. To get a sense of the scale here, the group most affected will be those who are retiring next year because they will not gain the expected benefit of it immediately. We think the maximum loss, which is quite significant for that group, might be up to £300 a year.”

That figure has since been revised up to £322. He continued,

“If you are on a relatively modest income, that is quite significant.”

The Institute of Chartered Accountants in England and Wales remarked:

“It is a surprise that the Government should go ahead now with the definite plans to freeze/abolish these allowances, without the more detailed consideration which is planned in the second stage of the OTS project.”

Age UK raised concerns that the short notice of the change gave people

“very little time to adjust their financial retirement plans.”

I refer again to Dr Ros Altmann, who commented:

“It is true that the age-related allowances are very complicated…but the OTS also said that if the age allowance was abolished, the Government would need to find ways to compensate older people for this lost income. It did not do so.”

Of course, we all know why the Chancellor did not bother to wait for the final OTS report, through which he could properly have understood the impact of his changes on pensioners, particularly those who turn 65 this month. He needed what he thought was a soft target for a tax grab to help to fund his indefensible tax cut for millionaires. The measure is dressed up as tax simplification, but it will actually increase revenue to the Government by £360 million in 2013-14, rising to £1.25 billion in 2016-17.

Like so many of this Government’s decisions, the change is completely arbitrary. We have a situation in which somebody who celebrated a 65th birthday on 5 April this year could find that their neighbour down the road with their birthday a week later could well be £323 worse off than them this year and for the remainder of their retirement. That was why the Opposition voted against the proposal during proceedings on last year’s Finance Bill.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West 10:00 am, 23rd April 2013

Since I came into the room I have listened to a lot of hyperbole from the Opposition, but at last we have some facts and arithmetic. I had to do the calculations on my clunky calculator. The hon. Lady said that pensioners would be worse off by £322. To know whether someone would be worse off when a tax threshold changes, we need to work out the rate of tax. She implies an income of £1,600, yet if the pensioner allowance was to go up with inflation, it could not possibly go up by that amount.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The figure was produced by the Institute for Fiscal Studies. I would seriously question the hon. Gentleman’s desire to jump up and advertise the fact that he seems to forget the drastic impact that the rate of inflation is having on pensioners and their savings. That is another bone of contention for many pensioners who face increasing costs of living and the depletion of their savings as a result of the ongoing  economic stagnation, which is very much borne out by the ongoing rise in inflation and interest rates. So I am—[ Interruption. ] Pardon?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Going back to my concluding remarks, people who turn 65 in this calendar year but did not have the ability to determine that they were born before 5 April, as a consequence of their parents’ lack of foresight when giving birth to them, will be entitled only to the personal allowance covered by clause 2.

We have also tabled amendment 8, some of the detail of which we have already discussed. We are keen to ensure that the Government come clean to the House and the public about the overall impact of their budgetary measures on living standards for basic rate taxpayers, and that they put a copy of their report in the House of Commons Library. Let me be clear: the Opposition do not believe that the increase in personal allowance is a bad thing. [Hon. Members: “Ah.”] Hon. Members say, “Ah”, but perhaps they were not listening from the start. Taking people on the lowest incomes out of tax altogether and reducing the level of income tax paid by those on low and middle incomes is a positive move. That is why Labour is advocating the reintroduction of the 10p tax to assist further those on low and middle incomes.

What surely matters is not just the level of income tax paid, but the money that ordinary people have in their pocket to spend at the end of the week, and the money they have available, both to support themselves and their families and to have a decent standard of living. As my hon. Friend the Member for Gateshead rightly said, it is important they have some money to spend in the local economy. As we all know—at least those on the Opposition Benches do—times are extremely tough for millions of ordinary people and families up and down the country. Living standards are coming under increasing pressure, with average earnings rising at their lowest rate since the end of 2009 and, more worryingly, the squeeze on annual incomes is estimated to continue for years to come. Recent figures from the Office for Budget Responsibility and from the Resolution Foundation show that the problem will not go away any time soon.

The analysis suggests that the median pay for employees, which stood at £24,800 in 2009, will fall to £21,600 by 2015. After taking inflation into account, that is a drop of 13%, leading the Resolution Foundation’s James Plunkett to comment on Budget day:

“Prior to today’s new OBR data, the projection for 2017 stood at £21,800. Today’s gloomier projections therefore see the ‘wage gap’ (the difference from the pre-recession peak) increasing from £3,000 in 2017 to £3,200.”

At the same time as living standards are squeezed, people see the public services that they rely on being threatened or closed. The effect is greater in areas facing the greatest need. As I said, unemployment is up again, with youth and long-term unemployment reaching extremely worrying levels. We have an epidemic of underemployment and insecure working arrangements,  such as so-called zero-hour contracts, which are flourishing in many parts. In short, ordinary people are being asked to pay the price for the Chancellor’s failing economic plan.

While the Government trumpet the increases in personal allowance, the Opposition believe that they need to come clean with the general public about the extent to which they are giving with one hand and taking much more away with the other. Much of the increase in personal allowance for basic rate taxpayers will be clawed back by the further reduction in the starting point for the 40% tax rate. Earnings over £31,865 are now liable to be taxed at 40%, which is a fall from last year’s threshold of £32,010. For many, that is going in the wrong direction. The change is expected to drag a further 400,000 people on earnings that are not astronomical into the 40% bracket. That fiscal drag is on top of the increase we have already seen under this Chancellor in the number of 40% taxpayers, from 3 million to nearly 4 million. That is some feat, given the economic stagnation and the wage freezes or cuts since the coalition came to power. While people are earning less, more and more are being dragged into the 40% bracket.

If we consider the supposedly progressive nature of the personal allowance increase, we see that it is not really progressive at all. It is estimated that 3 million households will see no benefit from this year’s increase in the personal allowance to £9,440, as well as from the promised increase to £10,000 next year, because their income is simply too low to be taxed at all. Rather than reduce the income inequality between those at the bottom and those at the top it may simply serve to increase the gap between those at the bottom and those in the middle, resulting in low-income households falling further behind relative to the middle.

Raising the personal allowance cuts taxes for everyone, since everyone benefits from a higher tax threshold. That point was raised by the Minister for Universities and Science, the right hon. Member for Havant (Mr Willetts), back in 2005, when he commented:

“Increasing the threshold cuts the tax bill for everybody. It takes some people out of income tax, but it is worth most to people who are still paying income tax and get the full benefit of the higher threshold.

When I asked the Treasury last year how much it would cost to raise the personal tax allowance to £10,000, it estimated the cost at £30 billion. Of this, only about £2 billion was spent on people who are taken out of tax altogether and it is worth least to people on low incomes who don’t get the full value of the policy…My conclusion is that we should both reform our tax system and help poor people. But these are different problems requiring different solutions.”

That was a very interesting commentary by the right hon. Gentleman and one that I hope hon. Members in the Government parties take on board.

Photo of Jon Ashworth Jon Ashworth Opposition Whip (Commons) 10:15 am, 23rd April 2013

Has my hon. Friend had a chance to discuss the matter further with the Universities Minister? In that same article, which was on his website only a couple of months ago, he said:

“If we really wanted to cut the taxes poor people pay we would be looking at indirect taxation.”

That sounds like an endorsement of our policies.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Indeed. It is useful to draw on the opinion of hon. Members, often learned, on our Benches, but also on some of the wisdom found on the Government Benches. Perhaps some of those voices should get a better hearing, particularly from the Chancellor, who seems to have his head well and truly buried in the sand.

The Low Incomes Tax Reform Group neatly summarised the issue:

“Increasing the basic personal allowance to £9,440 in 2013/14 and again to £10,000 in 2014/15 is worthwhile in the sense that it takes more people on low incomes out of tax altogether. But the benefit of the increases will be distributed in a way that is generally more advantageous to higher earners than to low earners.

Because an increase in after-tax income is clawed back by reduced entitlement to means-tested benefits, most benefit recipients will see only a fraction of any saving in tax. Overall, the household incomes of taxpayers on low incomes are more likely to decrease as a result of cuts in tax credits and benefits, despite any reduction in the tax they might have to pay. Meanwhile, in 2014/15 higher rate taxpayers will gain substantially more than basic rate taxpayers from the increase in the personal allowance to £10,000.”

Opposition Members appreciate that level of honesty. It would be helpful if Government Members could join us in supporting the amendment calling for a proper review of the overall impact of all the Government’s tax and benefit changes. If the Government are genuinely committed to what they set out in 2010, to ensure that those with the broadest shoulders carry the greatest burden and that we are all in this together and the good news keeps coming, which it clearly does not, they should be committed to an honest review of the impact of their tax and benefit changes, on not just millionaires but everybody in this country, and the people who rely on the Government to give them a fair deal.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Does my hon. Friend share my surprise that the Government did not support that proposal when it was put to them at an earlier stage in the Bill’s proceedings? If they have now reflected that they could take that opportunity, would my hon. Friend welcome an affirmative statement from the Minister that he will look at the issue?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I would. We call for that today because we all want the same thing. We want our economy to move back into growth. We want to protect the most vulnerable in society and enable them to live decent lives. Where possible, we want them to have a life in work, but we want to support those who are unable to work. We need an honest analysis of the impact of the measures on the most vulnerable groups that need the most support, to ensure that children do not live in poverty; to ensure that people get the education, skills and training that they need; and to ensure that people have a roof over their head, food on the table and money to buy fuel. It is a hot day today, but we have been through one of the harshest, longest winters that I can remember, and I shudder to think how people across the country must dread the winter’s fuel bills landing on their doormats.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

My hon. Friend is making a strong and convincing case for the review. Is it not all the more important given the wider economic context and the Government’s  no-change approach on the economy? As the Financial Times stated last week, we now face the spectre of stagflation. The economy is stagnating and inflation is expected to rise to more than 3% in the coming months, which will further squeeze incomes and living standards. Does my hon. Friend agree that that is all the more reason to carry out an honest appraisal of the effects that the proposals will have on families across the country?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend has uttered the dreaded word that we all fear will be a prospect for the country.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We know the reality of the cold economic data for constituents in our surgeries and for those we meet every day who struggle to make ends meet. The Government’s reports on the Budget make it clear that the situation will get worse. I would have thought that the Government would be committed to undertaking a review of the overall impact, rather than focusing on one measure or another and giving only half the story to the British public, who know from their own lives that the reality is very different.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

My hon. Friend is basically talking about society becoming more unequal. Three years ago, David Cameron said that

“more unequal countries do worse according to every quality of life indicator.”

What does my hon. Friend think his assessment would be now?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

That is a powerful intervention. We can rely on quotes from the Prime Minister and the Chancellor to indicate what they have promised to deliver for the country, but the reality of what they are delivering is very different. It is time they came clean and reviewed not individual measures but the overall impact of the tax and benefit changes on ordinary people up and down the country.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

May I bring another quote to my hon. Friend’s attention? A fundamental problem is the complete lack of coherence in the Government, which is why we need a review to look at the wide range of differing approaches. Last week, the Cabinet Secretary, Sir Jeremy Heywood, told a group of senior bankers that there was a “diversity of views” among the Cabinet and that

“the four most senior members of the Cabinet all champion different projects and policies”,

which stoked fears that the coalition might have lost focus. Is not the nub of the problem that four different Cabinet Ministers are leading us in four different directions? Which one does my hon. Friend think Treasury Front-Bench Members are following?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I do not know which one they are following, but I know that we are not being led anywhere except down the garden path into declining  economic growth, double-dip recession and a double-downgraded credit rating. Ordinary people are paying the price for economic failure and coalition disarray.

Photo of Rory Stewart Rory Stewart Conservative, Penrith and The Border

I am a little confused. Will the hon. Lady please help me to understand whether she likes the idea of taking the poorest people out of income tax entirely? Is that something the Labour party sees the point of and endorses? Can the Labour party see that it has psychological and motivational benefits as well as financial ones? Does the hon. Lady defend the concept of trying to lift people out of tax?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am disappointed that the hon. Gentleman is confused, because he seems to be paying close attention to the debate. It may be a reflection of the confusion emanating from the coalition and its lack of cohesive policy and leadership on jobs and growth, which this ultimately comes down to.

I want to advocate a policy for jobs and growth, but obviously within the confines of the clause that we are debating. To explain it in basic terms, we support the increase in the personal allowance, as we have made clear—I said that at the very start—but we doubt the Government’s sincerity in relation to the overall impact of tax and benefit changes. There is an increase in the personal allowance, which will take some people on low incomes out of tax, but many people who pay no tax are still suffering from the increase in VAT, the decrease in support for working tax credits and child tax credits, and the granny tax, which we have already discussed.

Overall, the Government’s tax and benefits changes will have a detrimental impact on the poorest households, as the IFS research has shown. We are therefore calling on the Government to have a proper review of the impact of the personal allowance change. They have briefed Members that it is a good measure that benefits everybody. Although it will impact more on those with higher incomes, in reality, as the IFS and the OBR have clearly said, the Government’s changes to tax and benefits in the round will impact hardest on the most vulnerable. The Government’s promise that those with the broadest shoulders would bear the greatest burden is not borne out in the round.

Of course, we would be happy for the Government to make their case that that is not true, but they would need to conduct such a review to establish that point.

Photo of Paul Uppal Paul Uppal Conservative, Wolverhampton South West 10:30 am, 23rd April 2013

On the point about the broadest shoulders carrying the most significant weight, I would be interested to hear what the hon. Lady’s perspective about that was when her party were in power. Venture capitalists were then paying tax at a rate of 10%. Did she feel comfortable with that, given that the proportion of tax they paid was less than that of the cleaners working in their offices?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

As my hon. Friend the Member for Leyton and Wanstead pointed out, when we have a more equal society, we have better social cohesion and  fewer social issues, so I acknowledge the issues raised by him and the hon. Member for Wolverhampton South West.

The hon. Gentleman refers to an historical Labour Government. We are obviously debating the policies of this Government and asking for a review of how they impact on particular members and groups in society. We are now in a very different economic climate, which is one of austerity and deficit reduction. The challenge is to get our borrowing down—the Chancellor is completely failing to do that at the moment—to reduce the deficit and get the economy back into growth. The Government seem to have no focus whatever on that, because nothing or very little in this Budget will stimulate growth. It is a no change Budget that is about the Chancellor avoiding last year’s omnishambles. He is focusing on saving his own political skin, rather than saving this country and taking it back into growth.

Photo of Fiona O'Donnell Fiona O'Donnell Labour, East Lothian

Does my hon. Friend agree that the problem is not just the absence of growth, but the fact that four different Departments are pulling in different directions in their vision for growth, as has been confirmed by Sir Jeremy Heywood, the most senior civil servant in the UK?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I was concerned to read about the report of Jeremy Heywood’s meeting with senior bankers, because it confirmed for me—this is clear to anybody—that this Government have no clear strategy and direction for taking this country back to the economic growth that we so badly need. The amendment provides an opportunity to reflect on the people who are paying the price for that. There are decisions at the top of Government and arguments in Cabinet between coalition Members about what we need to focus on first, but ordinary people are paying the price for economic failure. Although we urge the Government to get a grip and take measures that will stimulate growth, we do not want them to take their eye off the people who are paying the price for a downgraded Chancellor’s plan.

Photo of Paul Uppal Paul Uppal Conservative, Wolverhampton South West

On growth—I am probably veering away from the amendmentOpposition Members used various quotes in many of their interventions. I shall not use a quote. The hon. Member for Leyton and Wanstead mentioned the Prime Minister, whom I was fortunate enough to accompany on his trip to India. Committee members may be aware that Jaguar Land Rover is investing more than £500 million in Wolverhampton, adjacent to my constituency. I met Ratan Tata and he said to me—this is not a quote, but a face-to-face conversation—“We want to invest in the UK, because we like the economic backdrop of what’s going on in the UK.” Rather than use quotes, do not Committee members think that that face-to-face testimony is a powerful argument in favour of what the Government are doing in that respect? That is not a quote; it is a real conversation.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate what the hon. Gentleman says, but he kids himself slightly that that is not a quote. I should be interested to know what conversations he had about obstacles to India’s investing in jobs and growth in this country, particularly the Government’s shambolic immigration policy.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

That is way off the mark, so I will bring it back in order, Mr Crausby.

An analysis of the figures published by the IFS, taking into account all the changes to tax credits and benefits that have been introduced since 2010, shows that households in the UK will, on average, be a staggering £891—or £17 a week—worse off in this financial year alone. For many hon. Members, that sum might not mean much, but to people struggling week to week to make the small amount of money that they have last, to ensure that they have enough food to feed themselves and their children, £891 is a staggering amount of money to lose from their economy, when their costs are creeping up week in, week out.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Picking up on the point made by the hon. Member for Wolverhampton South West, does my hon. Friend agree that if face-to-face discussion is important to find out what people think, the Government would do well to have a review and to ensure that, as part of it, some of those who are feeling the strain of those cuts in their household budgets were able directly to put those points to Ministers?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes a powerful point. That is not to make light of the contribution from the hon. Member for Wolverhampton South West. He is right: it is vital that the Prime Minister, and everybody down from him in this Government, have face-to-face discussions, not just with world leaders and major investors, but with ordinary people who feel the impact of this Government’s policies. I hope that the Government welcome the opportunity to undertake the review and have such face-to-face discussions. The real-terms cuts, as we have said, including to tax child benefit, the mummy tax, the tax credits, and the hike in VAT—we should not underestimate its impact on ordinary people buying their weekly shop—will affect 9.7 million households, of which 7.3 million, or 75%, are working households.

I am keen for Government Members to outline exactly what this means for the average low and middle-income person or family in their constituency. Perhaps the Minister will outline how some of his constituents will be impacted by the changes.

Photo of David Gauke David Gauke The Exchequer Secretary

Given that the hon. Lady has listed the impact of a whole range of Government measures that were introduced in an effort to reduce the horrendous deficit that we inherited, including the VAT increase and tax credits, does she oppose them and would she reverse them?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We have made it clear along the way when the Government have proposed a policy that we oppose. We have supported some measures, but considered that the Government should have given more thought to them, and some measures we have opposed because they had been given the wrong priority at the wrong time.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

If the hon. Lady opposes some measures and would not implement them, will she tell us what she would do instead?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mr Crausby.

If coalition Members paid attention to debates, they would know that we have set out on many occasions what we would do differently, which measures we oppose and which measures we support. They seem not to attend Treasury debates these days. I do not know whether that is because they have lost faith in their downgraded Chancellor or if they have been asked by the Whips to keep quiet. Either way, had hon. Members attended the Treasury debates, they would have heard the alternative proposals that we put forward.

I return to the impact on real people in real places in our constituencies and want to bring home the overall changes made by the Government in their tax and benefit proposals. We are asking for an honest review of the overall impact of the tax and benefit changes. We are not asking the Government to change their policies, but to come clean to the British public about what their overall tax and benefit changes will mean. I know that the constituents of all members of the Committee would welcome such a review. It might show that they are doing better as a result of the Government’s policies than they were previously. I suspect not, but that level of transparency is something that the Government have always trumpeted, so I should have thought that they would take up the opportunity to push the boat out.

Photo of Teresa Pearce Teresa Pearce Labour, Erith and Thamesmead

Does my hon. Friend agree that the reason it is particularly important for the group of pensioners whom we are discussing to have their policy reviewed is that they are the people who worked hard, saved hard and did the right thing? Such pensioners have already been adversely affected by two areas of policy, one of which is low interest rates while the other is the decimation of their annuities because of the quantitative easing policy. It is important to consider those who have, perhaps not intentionally, been hit by two policies, and to make sure that they are not hit a third time by the policy under discussion.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am grateful to my hon. Friend for her intervention. We call on the review to consider the impact on all vulnerable groups in society. The IFS study provided a useful insight with such clarity into the impact of the overall tax and benefit changes that the Government’s own analysis fails to provide. Its post-Budget briefing from last month described the average annual loss by household type in the 2013-14 financial year from all tax, tax credit and benefit changes introduced in 2010—when this Government took office. A single person in work will be £438 worse off; an average single parent in work will lose £1,226; a one-earner family with no children will lose £1,630; a two-earner couple with no children will be £672 worse off; a two-earner couple with children will lose an average of £1,869; a single pensioner will be £246 worse off and that a pensioner couple will lose £479. Most staggering of all, a one-earner family with children will lose an average of £4,000 overall as a result of the Government’s tax and benefit changes. Those figures are not mine but were produced by the Institute for Fiscal Studies. Given the Government’s expressed commitment to marriage, to married couples and to supporting couples with children,  to hit one-earner families with children by that amount will cause many of the constituents of coalition Members to question whether the Government are acting in their best interests.

Photo of Andy McDonald Andy McDonald Labour, Middlesbrough 10:45 am, 23rd April 2013

My hon. Friend is setting out an excellent case with those figures. It was suggested earlier today that there might be some psychological leap or benefit for someone in work who sees the personal allowance rise. However, if people are poorer, they are poorer; if their disposable income is reduced by the other changes, any psychological benefit brought about by their personal tax allowance is completely and utterly extinguished. There is no joy in the hearts of those going out to work when they look at their disposable income and see it ever reducing. Does she agree?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Inevitably, some people will see the increase in their pay packet between this month and last month—perhaps £10—and it is a welcome boost no doubt for many working people up and down the country. Ultimately, however, they are not daft; they realise that at the end of the financial year they will be worse off and that they will not be able to afford what they used to be able to afford, that they will have to cut down on going out, buying clothes or buying things for their children and that they will have to forgo a holiday this year. All that will impact not only on the household affected but on the local economy, with shops shutting and local businesses going bust. We are in this cycle of economic stagnation, which the Chancellor seems unable to kick into reverse. By undertaking the review on the impact of the tax and benefit changes overall, clever Treasury accounting tricks might have given people a welcome boost for one week in their pay packet but, ultimately, it does not change the reality for households who are facing such losses or for the stagnating economy, and that is borne out by the figures confirmed every quarter—we are just not growing.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

My hon. Friend is making an important point about the squeeze on living standards. Does she agree that the squeeze should be seen as a spiralling squeeze? The reality for many people, when they see real cuts in their income, is that they must cut back, for example, on their car, so that they cannot travel to a supermarket to get the cheaper deals on food; or on their internet, so that they cannot find cheaper deals for their gas and electricity. We end up forcing people into more and more expensive patterns of behaviour. I do not expect that many Government Members have ever had to experience such choices, but every week I meet constituents in my surgery who face those choices. Is that not what we face: a squeezed middle and a squashed bottom?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We see not only a squeezed middle but a desperate bottom, forced to go to payday lenders. We see increasing numbers of people having to resort to paying extortionate interest rates just so that they can make it to the end of the month, to pay the rent and to keep their heads above water. The Government should take on board the overall impact of their policies on such people, as well as on those at the top.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

At the outset of the debate on the clause, I said that the hon. Lady and her party were dancing on a pinhead on this, and that is still the case. They are giving a commentary on what is happening as seen through their red-tinted spectacles, but that commentary indicates that, if their assumptions were correct, they would not need the review that they are asking for. If so, can she suggest some of the policies that her party might pursue to arrest the decline that she talks about, or perhaps she will leave it to the press, who seem to be doing a good job of that at the moment?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We might be dancing on a pinhead, as the hon. Gentleman suggests, but the Chancellor is going around with a sledgehammer in terms of household budgets across the country. I find the attitude of Government Back Benchers odd, because they seem to suggest that it is not within their grasp or power to do anything about the economic mess we are in. We are asking his Government to undertake a review of the impact of their policies on people across the country, and I fail to understand why he thinks that is such a strange thing to do.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Sometimes I get the impression that Conservative Members think of poverty as though it is an abstract concept and that the poor make a philosophical decision every day not to try to be wealthy. The reality is that the whole range of Government policies acts differentially in different communities and different parts of the country. Unfortunately, where there are clusters of people who are engaged in the process of being poor, just beyond them are many more who are just above the threshold and are in real danger of dipping below that threshold at any time. We have to do something to increase the living standards of ordinary people, which would be good for the economy.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It will be good for the economy, but it will also be good for the future of our country. The Child Poverty Action Group gave some shocking estimations of the number of children who will be pushed into poverty by this Government’s Budget and tax and spending choices. Increasing child poverty is a ticking time bomb, and we might end up with no way out of the current economic mess because we are setting out our stall for the future. We need to give households support to ensure that children do not grow up in poverty but instead grow up in a warm, safe environment with parents who can cope, pay the bills, get them to school, buy their school uniform and do not have to go cap in hand for every bit of help. That has to be good for our country and the future of our country, and I hope that Government Members support a review to ensure that the Government’s policies impact not on the neediest and most vulnerable but on those who can most take the burden. Ultimately, that is what the Government promised in black and white in 2010.

Photo of Andy McDonald Andy McDonald Labour, Middlesbrough

My hon. Friend makes an excellent point. Does she share my sense of disgust and horror that in this day and age, 40% of the children in my constituency are living in poverty while we are giving a tax cut to millionaires? Does she not find that absolutely revolting? Is it not about time that Government Members started to wake up to the fact that those children are  deserving of their attention? A review of the impact of their financial policies is much overdue, and the amendment is welcome.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend speaks from a sincere place, because the statistics in his constituency are particularly concerning. That is something that no Government, and no Member of the House, should wilfully ignore.

Another worrying thing is that we have not even seen the worst of the changes—we are only in April. There is time to work out whether the policies will be as disastrous as many fear, and there is time to undertake a review to ensure that the Government’s tax and spending policies are fair and properly thought through. The purpose of the amendment is to consider that in the round. Some of the changes to local government spending are significant and will alter the landscape for many vulnerable people who rely on local authority services. There are also the changes to council tax and council tax benefit: 660,000 people will lose an average of £728 per year as a result of the bedroom tax. Let us not forget that one third of the households hit by the bedroom tax policy are families with children and two thirds include someone with a disability.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

For clarification, does the hon. Lady not know the difference between a tax and a benefit? A benefit is something that the Government give from the taxes they collect; a tax is something that people physically pay. Will she clarify that it is not a bedroom tax at all because it is not something that someone physically pays out of their income?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is for the hon. Lady and her Government to clarify and spell out for people up and down this country who are affected by the change how they view it and how they see it. It looks like a tax, it smells like a tax and it feels like a tax. Government Members may say that it is not a tax, but that is how people see it.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee

I am glad my hon. Friend put a correction on the record. It is simply not a tax. I am concerned that Hansard properly records these debates so that they are fully understood in the future. Could I suggest, Mr Crausby, that when the bedroom tax is mentioned Hansard should record “spare room subsidy (mistakenly known as a bedroom tax, erroneously called that by the Opposition)”?

Photo of David Crausby David Crausby Labour, Bolton North East

Order. I think that will be a matter for Hansard.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is a very dangerous precedent to start censoring the words of Members of the House. That is a deeply concerning suggestion from the hon. Gentleman.

It does not matter what the Government try to brand the bedroom tax as; it does not change the reality of what it is. Hon. Members can get vexed about the terminology, but ultimately it is money that people once received that they now have to pay out of their weekly income. That is the point we are making today. The impact of the tax and benefit changes needs to be  considered in the round. This is £14, £16 or £13 that someone has to find out of their weekly budget and it is devastating for many of those affected.

Photo of David Gauke David Gauke The Exchequer Secretary

Just as a matter of logic, if a Government were to increase housing benefits would the Opposition describe that as a tax cut?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am heartened by the Minister’s indication that the Government may be looking to provide some support for those on the lowest incomes who require support with their housing. There is not much hope that the housing measures in the Budget will provide much help to those who are desperate to find housing up and down the country.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I wonder whether my hon. Friend would mull over the case of a constituent who came to my surgery on Friday. He is in his mid-40s, has three children who are living with his estranged wife and who stay with him at the weekend. He is unemployed but has had 15 interviews in the past two months, sadly all unsuccessful. He will lose access to his children as they will no longer be able to stay at the weekend because of what he called, without any prompting from me, “the bedroom tax”. If the people of this country are calling it the bedroom tax, it is the bedroom tax.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend shares one of the many stories that have come to us about the impact of this tax. I have similar heart-breaking stories from constituents who have come to see me; they called it the bedroom tax, not me. I have seen posters out there not produced by the Labour party calling it the bedroom tax.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 11:00 am, 23rd April 2013

It would be good to be able to claim total responsibility for a phrase that clearly irritates the Government so much, but my recollection is that it was coined by a lot of the housing organisations who, nearly two years ago, predicted exactly what was going to happen. What really matters is that when my constituent is getting £12 a week taken off £71.70 a week it is a real cut in her income.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

That is a point I am coming to. I have been into social housing, not in my constituency but in other parts of the country, where to be helpful to the tenants there are large posters saying “Are you affected by the bedroom tax?” and listing the criteria for people who will be affected. It is not us calling it the bedroom tax; it is the people who are affected by it who are calling it that.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

I object slightly to the intervention that the hon. Lady received a few minutes ago from her side, because I too represent a constituency with very serious areas of deprivation. These communities were not impoverished on 7 May 2010; they have been in an area of despair for many decades, which is the fault of successive Governments for not dealing with it. However, the previous Government were in power for 13 years. We are now trying to address the incomes of the working poor. May I direct her again to the intervention made  by my hon. Friend the Member for Penrith and The Border? In principle, do the Opposition support raising the personal allowance for the working poor? Will she answer the question put by my hon. Friend the Minister about whether they will vote in favour of the measure to raise the personal allowance for the working poor?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I am surprised by the hon. Gentleman’s intervention, which suggests that the Government’s policies are not having a devastating impact on communities such as that of my hon. Friend the Member for Middlesbrough. The data show that significant levels of unemployment and child poverty were very much a legacy of former Conservative Governments who devastated industry in regions such as his. There were many areas of vast improvement, but the Government are taking this country backwards in terms of industrial policy, growth and jobs. We need only look at the unemployment figures; they are increasing. It is shocking that Government Members are indignant at the assertion that their Government are increasing unemployment when quite clearly they are. They are also increasing child poverty.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

May I answer the hon. Member for Ipswich first? I have not finished answering his intervention and his question as to whether we support the increase in the personal allowance. Perhaps he has not been listening; we have said very clearly, and I have said a number of times, that we are not objecting to the increase in the personal allowance. We support it as a measure that will help some low and middle income families. However, the purpose of our amendment is to ensure that we have a more holistic view of the changes. The raising of the personal allowance is not the panacea that the Chancellor and the Prime Minister would like the country to see it as. It will not help families who are worse off overall under this Government; the Office for Budget Responsibility has predicted that they will be worse off in 2015 than they were in 2010 when the Government came into power. If the Government genuinely want to improve the lives of those the IFS shows are affected by their policies, they would welcome a review of not just the one policy that they can trumpet might make a bit of difference, but the overall impact of all their polices on the most vulnerable.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I acknowledge the hon. Lady’s point about the unemployment figures, especially on youth unemployment. The other side of that coin, however, is obviously the employment figures. Will she at least acknowledge that today we have more men and women in work than ever before? That is something that should be applauded.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I and all my colleagues will always applaud any increase in employment and the life-changing reality that can bring to somebody who finds work. However, Members on the Government Benches cannot focus on just one aspect of an economic indicator and expect the country to believe that the policy is working. The economic data show the opposite;  unemployment figures are going up and productivity figures are down. That shows that many of the so-called jobs created are not necessarily real jobs that increase the productivity of our economy.

My hon. Friend the Member for Edinburgh East gave a clear example on Second Reading, which virtually no Government Members attended, that some of the jobs advertised have no fixed salary, and are zero-hours contracts based entirely on commission, so we have to be careful about applauding jobs that do not resolve the economic difficulties for many people. There is also chronic underemployment: people want or need more hours, but they have to accept fewer hours to stay in work. Those people need housing benefit, working tax credits and other in-work support just to keep in work. That is why the Government’s benefits bill is going up, not down. The Government need to get real and get a grasp on why their economic strategy is failing catastrophically; the review would be a stepping stone to enable that to take place.

Photo of Rory Stewart Rory Stewart Conservative, Penrith and The Border

The hon. Lady is generous in giving way. Perhaps she would like to reflect on why my hon. Friend the Member for Ipswich and I find it so confusing to listen to this debate. Her desire is to focus on the amendment while consistently minimising and denigrating the significant and bold reform introduced by the Government, but her party refused to introduce such a proposal while they were in power for 13 years. That is the fundamental reason why we find it hard to understand why two hours have been consumed on this debate and why she is so reluctant to endorse positively such a constructive measure.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I appreciate what the hon. Gentleman says, but I am surprised that that is how he interprets the argument we put forward. That seems to be indicative of the heads in sand approach taken by the Government to the economic steering of the country.

We have said that we support the increase in the personal allowance; we know that people up and down the country will benefit as it will make a difference to their wage packets. However, we are clear that that is not the solution to the difficulties faced by many people in terms of living standards being squeezed, making ends meet, ensuring that their children do not live in poverty and getting into work. One can point to policies being implemented that on the surface will benefit X number of taxpayers, but if the overall impact of everything else done behind the smoke and mirrors makes everybody worse off, it is time for the Government to come clean about that.

The Government may be serious about ensuring that those who have the most bear the greatest burden for reducing the deficit. We all acknowledge that it needs to be reduced, but the only way to do that is to get people into jobs, to get businesses creating jobs, to get confidence in the economy and to get growth back into the economy. The Government are trumpeting one policy, which is the increase in the personal allowance, while on the other hand taking away all of the in-work support and, indeed, out-of-work support as well.

As I have said, 75% of households affected by the overall change in tax and benefits are in work and those people are struggling to make ends meet, to feed their  children and to feed themselves. The Government need to get real about the overall impact of their policies on working people and on the most vulnerable, who are unable to work either through disability or unemployment, which we have also discussed. The Government seem to be completely in denial about the unemployment figures, which are blighting communities up and down the country.

Photo of Paul Uppal Paul Uppal Conservative, Wolverhampton South West

As I have highlighted before, I represent a constituency in Wolverhampton, which has a long and proud industrial history. However, nearly a quarter of the residents of Wolverhampton have almost no formal qualifications or skills. The truth is that in the constituencies that the hon. Lady and other Opposition Members represent there is a low skills base, and that is a real issue in terms of getting people out of poverty.

The other point I want to make is about the comments made by three other Opposition Members—I would appreciate your guidance on this issue, Mr Crausby—about Government Members not understanding poverty and being detached from it. I am two generations away from my paternal grandmother, who would sometimes go 72 hours without eating. I was born in a two-up, two-down, and I will take no lectures from Opposition Members about what real poverty is. I am a Government Member because I believe in helping people out of poverty, and that is giving them opportunity and aspiration.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the hon. Gentleman for his intervention, which I take in the spirit in which it was clearly intended; he is very sincere. I agree that there is a skills deficit and that we need to invest in skills in the parts of the country that have suffered most from some of the deindustrialisation of the 1980s. However, we also need to grasp some of the economic opportunities that we have as a country. I speak for my own region when I talk about the huge potential we have in the green economy, including windmill production in some of the old shipbuilding yards. That is just one tiny example of a huge array of economic opportunities that are available. We must ensure that the skilled people who worked in industries such as shipbuilding are captured and able to come back, so that we not only retain those skills but “skill up” young people to become the engineers and technicians of the future.

However, I am surprised that the hon. Gentleman takes such an aggressive approach in objecting to what we are asking for, which is a review of the impact of the Government’s tax and benefit changes on people. We are asking for an overall review not only of the poorest, those who are not in the tax system, and those who are on benefits, but of everyone, including people in work.

I wholeheartedly agree with the hon. Gentleman that we need to be a country of aspiration, where people aspire to work, to get on, to better themselves and to do better for their families; that is what this country is built on and that is where our future lies. However, we are baffled by this Government’s approach, which does not seem to take into consideration the fact that their policies are actually having the opposite effect. That is what the request for the review is intended to address. Although the Government say they aspire to those things and they want to help people to get on, they are actually hitting the working people of this country the hardest. The Government are also doing nothing to  create jobs for those who are unemployed and cannot get into work. The poor growth figures, the impact on household budgets and the reality of families struggling to make ends meet all bear that out. The Government should welcome an opportunity to take stock of their policies and to assess how those policies are working and impacting on real people up and down the country. They should take the opportunity to vote for our amendment today.

To conclude, one thing we cannot forget, and people throughout the country will not forget, is that the Government implemented tax and benefit changes that impacted overall on the poorest households in the country, and at the same time handed out a tax cut to top rate earners—the people who need it least. Worst of all, 13,000 millionaires received an average tax cut of £107,000. That staggering amount of money might be a drop in the ocean for them, but could have been used for very different purposes. Many people throughout the country believe it should have been.

During the Committee of the whole House, I said that it was ever more worrying that research shows that 94% of the Government’s cuts will directly hit women—94%. Of those on incomes of more than £150,000 who will benefit from the cut in the top rate of tax, 85% are men. That brings me back to my initial point: there are no women in the Treasury. It beggars belief that Ministers could have been privy to that knowledge if they had carried out their own assessment of the impact of the benefit changes on ordinary people, but decided to press ahead with the tax cut for millionaires.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I will gladly give way to the only female Member on the Government Benches in this Committee.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

Does the hon. Lady not share my view that it does not matter what gender someone is, and that ability to do the job should be first and foremost? I believe that I operate equally with my male colleagues here. It disappoints me that the hon. Lady seems to think more in terms of ticking boxes than of ability to do the job. Would she like to comment on that?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I would, because it is deeply worrying that the hon. Lady believes that neither she nor any of her female colleagues are up to doing the job of a Treasury Minister.

Of course, for most people, the analysis of the changes to tax and benefits will come too late. By the time we realise the true impact of the Government’s measures, many families and households will have been pushed into poverty and we will have to pick up the pieces when we take over the reins of government in 2015. We are asking now for a review, so that measures can be put in place to ensure that the Government are fully informed of the impact of their tax and benefit changes overall and that members of the public are aware of the Government’s priorities. That is what amendment 8 is calling for. It is perfectly reasonable and asks for a  review, which the Government should welcome. I call on my hon. Friends to support the amendment and for Government Members to do the same.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

It is a pleasure, Mr Crausby, to speak in this debate under your chairmanship.

When considering the effect of a Government’s Budget, it is important to consider the overall effects of the measures. It is tempting, particularly for the Liberal Democrats—this is probably the one thing they have to boast about in the coalition—to think that raising tax allowance is in itself enough to help the low paid. A Government may wish to emphasise that their purpose in doing that is primarily to help the low paid, because that sounds good. It is a good soundbite and it makes them sound caring. But any Government must consider the overall effect of their policies. Looking at the measures in the round—

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

Is my hon. Friend, like me, rather bemused that we have heard so little from Liberal Democrat Committee members so far? They made a great point of supporting the rise in the personal allowance—my hon. Friend the Member for Newcastle upon Tyne North was clear about our support for it as well—but we have heard little from them about the rest of it. Does my hon. Friend the Member for Edinburgh East wonder, as I do, whether they will vote for our amendment on a review of the wider impact of their Government’s policies?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I rather suspect from my previous experience in Committees that that is unlikely. Indeed, the nearest the Liberal Democrats came to supporting us—in my experience; I think there have been other instances in other Committees—was when we were debating the Welfare Reform Bill at great length and we came to some difficult amendments. I might be wrong in saying that those applied to the bedroom tax. I do not want to mislead the Committee; I have not looked it up in Hansard. However, there was certainly a clause about which the Liberal Democrat Members were clearly having some personal angst, and they were mysteriously absent when we came to vote on that amendment. Both of them, who had been fairly assiduous attenders hitherto, found a way not to have to commit themselves.

I will give another important example of how we are making a lot of choices about how to help different groups, and we must be clear about the trade-offs. The Resolution Foundation recently considered again the question whether tax allowances are the best way to help the least well off or whether there are other ways. In particular, it considered the raising of tax allowances and all the discussion about raising them even further. The foundation carried out an interesting calculation of the inter-relationship between raising tax allowances and the people who will be on universal benefit, which should be in force for at least some people in the financial year 2013-14. The number of people affected by universal credit in this financial year, assuming that it does start, might be much smaller than we have been told.

The Resolution Foundation considered the option of Government deciding to give people on universal credit a higher income disregard. It looked at universal credit in particular, as it is supposed to be coming into force, but I maintain that the same argument applies to tax credits. The income disregard is the amount of income that is not taken into account in how universal credit and tax credits taper off as earnings increase. The level of income disregard is important.

The Resolution Foundation calculates that about 4 million working people currently receive tax credits and would receive universal credit in due course, of whom 3 million pay some tax. It concluded that if the Treasury spent as much on raising the disregard as it will in 2013-14 on raising the tax allowance, those households would gain about £25 a week rather than the £1.80 that they will gain, as a result of the inter-relationship of benefits and tax allowances, from the rise in tax allowance.

No doubt someone will say, “Ah! Are you saying that the tax allowance should not have been raised?” The issue must be that as responsible politicians, we must consider those options and consider whom we want to help most, not simply pretend that raising tax allowances is the best or the only way—

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.