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

Part of Finance (No. 2) Bill – in a Public Bill Committee at 4:15 pm on 23rd April 2013.

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Photo of David Gauke David Gauke The Exchequer Secretary 4:15 pm, 23rd April 2013

It is a great pleasure to welcome you back to the Chair this afternoon, Mr Crausby. Some time ago, the hon. Member for East Lothian said that this was a Budget in which there was not much to discuss, but I congratulate the Committee on finding plenty to discuss on clause 2.

To be helpful to the Committee, the clause supports our aim to create a fairer tax system by rewarding the efforts of those who want to work hard and progress. We believe that raising the tax-free personal allowance is the most effective way to support those on low and middle incomes because it enables them to keep more of the money that they earn, a point made eloquently by a number of my hon. Friends.

The clause will increase the income tax personal allowance by £1,335, the largest ever cash increase, from £8,105 in 2012-13 to £9,440 in 2013-14. As my hon. Friend the Member for Braintree pointed out, that will lift an additional 1.1 million individuals out of income tax altogether and give 24 million taxpayers an average real-terms gain of more than £200 a year. For the typical basic rate taxpayer, that will mean an extra £267 of cash in their pocket in 2013-14, which is an extra £5 per week since the start of the new tax year.

The clause represents the next step towards meeting our long-term objective of increasing the personal allowance to £10,000. In the Budget, the Chancellor announced that that commitment will be met a year ahead of schedule: in 2014-15, the personal allowance will rise by a further £560 to reach the £10,000 target. Altogether, the increases introduced by the Government will take 2.7 million individuals out of income tax from April 2014, and benefit 20 million basic rate taxpayers by more than £500 a year in real terms; in cash terms, that is a gain of more than £700 since 2010. This is a policy that supports hard-working individuals on low incomes and has ensured that those on the national minimum wage have seen their income tax bills cut in half under this Government. Such individuals may now work more than 29 hours a week without paying income tax.

To turn to the two Opposition amendments, a number of my hon. Friends have commented that the Labour party seems to be relying somewhat heavily on amendments that call for reviews. I had a quick look at the amendment paper and the Opposition have tabled 10 amendments, every single one of them calling for a review, a report or an impact assessment. It is striking to hear a number of  speeches saying that the policies pursued by the Government are terrible, failing, catastrophic and so on, but that Labour’s answer is to boldly go forward with a review or a number of reviews. No doubt we can look forward to debating the prospect of further reviews over the course of the Finance Bill proceedings.

Amendment 8 calls for a report on the cost of living for basic rate taxpayers. The Government recognise that households face considerable pressures with the cost of living, which is why, within the constraints we have, we are taking measures to support households. Increasing the personal allowance is a key part of that, although I was struck by one of the criticisms made by the hon. Member for Newcastle upon Tyne North—that this is somehow going to help the wealthiest. Of course, in clause 3 we have taken steps that reduce the basic rate limit, ensuring that the benefits of the increase are shared fairly. Predominantly, the benefit will fall to those who are basic rate taxpayers.

As my hon. Friend the Member for Braintree pointed out, it is worth noting that in 2010 individuals could earn only £6,475 before they began to pay income tax. I would be interested to hear whether the Labour party has any sense of regret or embarrassment that the personal allowance was quite as low as it was when it left office after 13 years. I would certainly happily take an intervention on that. As I have outlined, we have taken steps to increase the personal allowance to £10,000 from next year, which is an increase of £3,525 and means that the personal allowance will have risen by more than 50% in just four years.