Report stage in the Commons
- Quote
- I beg to move, That the clause be read a Second time.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Mr. SpeakerCrossbench- Quote
- With this it will be convenient to discuss the following: Government new clause 12—Basic rate limit. New clause 1A—Interim statements to Parliament— ‘On any occasion when the Chancellor of the Exchequer or a Treasury Minister announces to Parliament any change or intended future change to— (a) income tax rates, (b) income tax thresholds, or (c) income tax personal allowances, other than in the course of a statement to Parliament presenting a Budget or Pre-Budget Report, the Treasury must publish a current forecast of— (a) public sector net borrowing, (b) growth rate of gross domestic product, and (c) consumer price inflation, for the current fiscal year and each of the subsequent four fiscal years, updated to take account of that announcement.’. New clause 4—Income tax rates— ‘(1) The amendments made by the provisions of this Act specified in subsection (2) shall cease to have effect at midnight on 5 January 2009 unless the conditions set out in subsection (3) have been satisfied. (2) The provisions referred to in subsection (1) are— (a) section 3(2) and (3), and (b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate). (3) The conditions referred to in subsection (1) are that— (a) the Chancellor of the Exchequer shall have laid before the House of Commons a statement setting out the measures taken, or intended to be taken, to mitigate the effect of the amendments made by the provisions of this Act specified in subsection (4), when taken together, on those for whom such effect is a net increase in income tax payable, and (b) the House of Commons shall by resolution have approved such statement. (4) The provisions referred to in subsection (3) are— (a) sections 1, 3(2) and 3(3), (b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate), and (c) any other provision of this Act the effect of which is to change the bands of income on which income tax is charged.’. New clause 6—Harmonisation of income tax and national insurance contributions— ‘(1) If for any tax year— (a) the personal allowance under section 35 of the ITA 2007 (c. 3) is set at an amount which is not equal to the amount of the primary threshold under section 5 of the Social Security Contributions and Benefits Act 1992 (c. 4), or (b) the sum of the personal allowance and the basic rate limit under sections 35 and 10(2) of the ITA 2007 (c. 3) is set at an amount which is not equal to the upper earnings limit under section 5 of the Social Security Contributions and Benefits Act 1992 (c. 4), the Treasury shall within one month of the passing of the Act which sets the personal allowance or basic rate limit lay before Parliament a report explaining the matters set out in subsection (2). (2) Those matters are— (a) why the amounts have diverged for the year, and the expected future path of the amounts in relation to each other; and (b) the estimated cost to— (i) employers, and (ii) HMRC, of operating a system of divergent thresholds and the savings that are expected to result from a convergence of those thresholds.’. New clause 10—Personal allowances— ‘(1) The Treasury must by regulations made by statutory instrument vary section 35 of ITA 2007 (personal allowances for those aged under 65) so as to achieve the outcome specified in subsections (2) and (3). (2) For the tax year 2008-09 50 per cent. of income in excess of £6,400 (up to a maximum of £600) shall be added to the personal allowance, subject to subsection (3). (3) That addition shall be withdrawn at the rate of £10 for every £100 of income in excess of £7,600, so that— (a) a taxpayer with an income of £7,600 receives an addition to the personal allowance of £120, and (b) a taxpayer with an income of £13,600 receives no such addition. (4) Regulations under this section may make such transitional or incidental provision as the Treasury thinks fit. (5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.’. New clause 13—Independent review of income taxation— ‘(1) The Chancellor of the Exchequer must appoint a person to review the operation of the provisions of the ITA 2007 and sections 1 to 3 (income tax) of this Act. (2) That person must, within 12 months of the coming into force of this Act, carry out and report on a review of those provisions and, where he does so, must send a report on the outcome of his review to the Chancellor of the Exchequer as soon as reasonably practicable after completing the review. (3) That person must, upon the amendment by future legislation of any provision contained in ITA 2007, carry out and report on a review under this section within 12 months of that amendment coming into force. (4) A report received by the Chancellor of the Exchequer under subsection (2) must be laid before the House of Commons.’. New clause 20—Personal allowances (No. 2)— ‘(1) The Treasury must by regulations made by statutory instrument vary section 35 of ITA 2007 (personal allowances for those aged under 65) so as to achieve the outcome specified in subsections (2) and (3). (2) For the tax year 2008-09 50 per cent. of income in excess of £6,400 (up to a maximum of £600) shall be added to the personal allowance, subject to subsection (3). (3) That addition shall be withdrawn at the rate of £10 for every £100 of income in excess of £7,600, so that— (a) a taxpayer with an income of £7,600 receives an addition to the personal allowance of £600, and (b) a taxpayer with an income of £13,600 receives no such addition. (4) Regulations under this section may make such transitional or incidental provision as the Treasury thinks fit. (5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.’. Amendment No. 102, in clause 1, page 1, line 8, at end add ‘, unless subsection (3) applies. (3) If this subsection applies— (a) the starting 10%, (b) the basic rate is 22%, and (c) the higher rate is 40%. (4) Subsection (3) applies in the case of any person who has notified the Commissioners for Her Majesty’s Revenue and Customs that he wishes his income to be charged at the rates specified in that subsection and not at the rates specified in subsection (2).’. Amendment No. 103, in clause 3, page 2, line 18, leave out subsections (2) and (3). Amendment No. 104, page 2, line 22, leave out subsection (5). Amendment No. 105, page 2, line 26, leave out ‘the starting rate and’. Amendment No. 6, page 2, line 27, at end insert— ‘(8) The Chancellor of the Exchequer shall, within six months of the coming into force of this section, lay before the House of Commons a report containing an assessment of the combined impact of— (a) the increase in personal allowances, and (b) the abolition of the starting rate of income tax, on individuals with a gross income under £13,000 per annum.’. Amendment No. 106, in schedule 1, page 101, line 15, after ‘(2)’, insert ‘Unless section 1(3) of FA 2008 applies,’. Amendment No. 107, page 101, line 17, at end insert— ‘(3A) After subsection (2) insert— “(2A) If section 1(3) of FA 2008 applies, income tax is charged— (a) at the starting rate on an individual’s income up to the starting rate limit, and (b) at the basic rate on an individual’s income above the starting rate and up to the basic rate limit.”’. Government amendment No. 5 Amendment No. 108, page 101, line 24, at end insert— ‘(8) The starting rate limit is £2,150.’. Amendment No. 109, page 101, line 25, leave out sub-paragraph (6).
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Jane KennedyLabour- Quote
- Government new clauses 11 and 12 and Government amendment No. 5 put into effect the Chancellor’s statement to the House on 13 May. Raising the personal allowance by £600 to £6,035 is worth £120 for a basic rate taxpayer, equivalent to the average household loss from the Budget 2007 reforms. Around 2 million basic rate taxpayers will benefit from the change. The number of households that lose from the Budget 2007 reforms will be reduced from 5.3 million to 1.1 million, and the amounts for those who still see a loss will be at least halved. The Treasury Select Committee published its report on Saturday 28 June. We will respond in detail to that report in due course, but let me just quote from the Committee’s press release. The Committee welcomed the compensation for “those who have lost out through the abolition of the starting rate of income tax through raising the personal allowance for basic rate taxpayers, but concludes that there remains a pressing need for the Government to seriously examine ways in which the 1.1 million households who will continue to lose can be fully compensated.” As I have the opportunity of speaking twice on such occasions, it has been my practice in Committee to move the Government’s amendment or new clause briefly and then listen to the detail of the debate, so that I may address directly the points that colleagues raise.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Lembit Öpik (Montgomeryshire) (LD)Liberal Democrat- Quote
- Before the Minister concludes for now, may I ask her the question that my constituents in Montgomeryshire have asked me? Why have the Government abolished a tax arrangement that they introduced? Why was it their judgment to introduce it in the first place, only to abolish it now? I do not understand what changed.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- There are very sound reasons why the 10p rate was removed in the Budget 2007. Those have been debated on many occasions in the House. I will come to many of the benefits that flow from those changes later in this debate.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Mr. Frank Field (Birkenhead) (Lab)Crossbench- Quote
- I am sure that those of us on the Government Benches much appreciate the approach that my right hon. Friend will adopt of listening to the debate and then replying. I hope that when she replies, she will be able to say something about how she thinks the Government will probably respond to the Treasury Committee’s recommendation on how that smaller group who benefit only partially from new clause 11—many have benefited, most totally, but some only partially—may be fully compensated before the year is out.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I have listened very carefully and had conversations with my right hon. Friend and many others who have spoken to me about this issue, and I am sure that they will wish to participate in today’s debate. I want to reassure him that we will return to this issue in the pre-Budget report, as the Chancellor has said, not only in front of the Select Committee but elsewhere. He will bring forward concrete proposals, and they will be implementable as soon as possible. I want to give my right hon. Friend that reassurance right up front at the beginning of this debate.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Rob Marris (Wolverhampton, South-West) (Lab)Labour- Quote
- Will my right hon. Friend say a little more about this while she is setting the scene? She quoted from the Treasury Select Committee’s press release and mentioned a figure of 1.1 million households. I believe that that represents 20 per cent. of the figure of 5.3 million households that was put forward last year by the Institute for Fiscal Studies. Treasury officials appearing before the Treasury Select Committee last year said that they broadly accepted that figure. Will the Minister tell the House whether the Treasury has looked again at that figure? Many hon. Members, especially on this side of the House, are rather suspicious because, while we wish to see no losers at all, we think that the figure of 1.1 million households is awfully high.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I stand by the figures that we have discussed. I have no reason to believe that the 1.1 million figure is not accurate. It is certainly the figure that we continue to work to.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Julia Goldsworthy (Falmouth and Camborne) (LD)Liberal Democrat- Quote
- The Minister has just said that the Chancellor will return to this issue in the pre-Budget report. Will he also take into consideration the other issues, besides the changes to the 10p rate, that are affecting the losers? I was contacted today by a constituent who feels that she has been hit by a double whammy, because she will also lose out as a result of the switch from housing benefit to housing allowance. Can the Minister give me an assurance that all these cross-cutting issues will be looked into when the Chancellor returns to this matter in the pre-Budget report?
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- At the beginning of the debate, I said that my making a short introduction would enable Back-Bench colleagues to make a longer contribution, to which I could respond in more detail at the end of the debate. I would hope to give the hon. Lady the reassurances that she is asking for, and I can assure the House that this work is ongoing. It is not a matter that Ministers have set aside. It is a serious matter, and I acknowledge the way in which amendments on the issue—many of which will be debated today—have been put forward.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Mr. John Redwood (Wokingham) (Con)Conservative- Quote
- It might speed the debate up if the Minister could clarify this point. Is she now saying that the Chancellor will come forward with proposals in due course to ensure that there will be no losers, or is she saying that a lesser number of losers than 1.1 million would be acceptable?
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- What I have said is that we intend to consider this matter very seriously. We have made it very clear that we will return to the issue in the pre-Budget report, which is the proper time for such a matter to be discussed in further detail in the House. That is our intention. At this point, I would like to hear the detail of the debate, and to respond in detail in due course.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Mr. Philip Hammond (Runnymede and Weybridge) (Con)Conservative- Quote
- I have been in this House for 11 years, but I do not think that I have ever seen a Minister so anxious to sit down and hear what her colleagues had to say. She seems remarkably reluctant to pin her colours to the mast at this stage. The hon. Member for Wolverhampton, South-West (Rob Marris) suggested that the Minister was in listening mode, and I am delighted to hear that. Let us see whether we can make some progress on that basis. The first group of amendments that we are debating today addresses what has become the central issue in the fiasco of the 2008 Budget and Finance Bill, as it has unravelled on what I think it is fair to call a scale that is unprecedented in modern parliamentary history. No one inside or outside the Chamber really believes that the changes introduced by the Government in new clauses 11 and 12 are some kind of well thought through, counter-cyclical response to the economic slow-down. They were announced on 13 May as an attempt—to use the language of the Treasury Committee—to pull a rabbit out of the hat ahead of the Crewe and Nantwich by-election and to undo the damage that the Prime Minister did in the 2007 Budget by putting short-term political calculation ahead of long-term political principle. Behind the spin, this is simply the final act—at least, it is for this year’s performance—of what, depending on one’s point of view, is either a tragedy or a farce of epic proportions, which has been delivered at epic cost, both financial and political. The Financial Secretary did not provide any context, so let me remind the House of the history of the 10p tax rate, its birth and its death, on which these new clauses are intended to buy the silence of Labour Back Benchers. The 10p tax band first reared its head in the 1997 Labour party manifesto as a long-term objective towards lowering the starting rate of income tax to 10p in the pound. When it was introduced in 1999, the then Chancellor, our current Prime Minister, described it as something that will “make work pay and help people, especially those who are low-paid, to keep more of the money that they earn” As I have reminded the House before, the Prime Minister’s final flourish on delivering that 1997 manifesto pledge for the 1999 Budget was this: “When we make promises, we keep them”. That is grand and principled stuff, but by May this year, the current Chancellor was not describing the 10p tax rate as some long-term objective and deeply held principle of taxation, or as a manifesto commitment the delivering of which was a moral obligation for the Labour party. No, by spring this year, the promise to be kept had been downgraded to something “introduced in 1999 as a transitional measure”. So it is not so much a case of making promises and keeping them; it is more a case of ducking and weaving, twisting and spinning rather than of admitting that the promises were being broken.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
Mr. Andrew Love (Edmonton) (Lab/Co-op)Labour- Quote
- The hon. Gentleman is speaking very warmly about the 10p tax rate, so will his party give a commitment to reintroduce the 10p rate, should it ever become the Government?
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- I note the tone in the hon. Gentleman’s final phrase, but I do not know where he has been over the past couple of months. He knows very well that the answer to that question is no. We have said that we accept the abolition of the 10p rate and the simplification of the tax system. That is supportable, but the Government have to ensure that it is delivered in a way that is not carried on the backs of the poorest taxpayers in our society. I would have thought that the hon. Gentleman would have been keen to promote that principle. What I am speaking warmly of is the principle that when parties make manifesto commitments—we could all think of a few of them—it is generally good for the health of the body politic if they deliver on them. To be fair to the Prime Minister—I like to be fair to him—he could scarcely have paid a higher political price than he has for his cynical calculation over the income tax changes, creating 5.3 million losers among some of the lowest paid in our society. The Financial Secretary told us that there were very sound reasons for abolishing the 10p rate. The very sound reason that I can determine is that it was in order to fund the 2p cut in the basic rate of income tax that was announced with a flourish at the end of the 2007 Budget speech—a speech that was constructed and intended to be the launch pad for the then Chancellor’s bid for the Labour leadership and thus the office of Prime Minister. He thought that, by giving a demonstration of Blair-like ability to appeal to middle English voters, he would appeal to his party as an election winner in the mode of his predecessor. The price that was to be paid by the poorest in our society in the form of a deferred increase was buried in the small print. The plan was to hold the election in the autumn and worry about the mess that fell into place the following spring after the election was safely out of the way. The rest, as they say, is history.
- Time
- 15:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I can see the temptation to make a party point or two in these circumstances, but is there not one view that unites Members in all parts of the House? We are genuinely puzzled over why some of those on the lowest incomes should face this tax increase, and we cannot believe that the Government really intended it. Is it not rather a pity that the Financial Secretary did not repeat the assurance that all 1.1 million people would be guaranteed not to be worse off by whatever means the Government come up with in the autumn? Is that not a concern that we can all share?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- That is true. There was speculation at the beginning of this fiasco as to whether it was a simple error—a failure to understand the distributional consequences of the measure—but I well remember saying in the Committee of the whole House that, while I deferred to no one in my enthusiasm for criticising the Prime Minister, I had never suggested that he was either stupid or innumerate. Subsequently, in evidence to the Treasury Committee, officials have made very clear that a full distributional analysis was undertaken, that the measures announced in the 2007 Budget were announced—as the phrase goes—with eyes wide open, and that the Prime Minister knew exactly what he was doing. What his game plan was at the time, when he was faced with the Labour party leadership and a possible election in the autumn, is anyone’s guess, as I have said. Members will form their own views on what his ultimate intentions were.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- The hon. Gentleman is in typically generous mood this afternoon as he assesses the Government’s dilemma. May I ask what advice he might give them? The right hon. Member for Wokingham (Mr. Redwood) has suggested that the House is united in the view that the poorest paid should not lose out as a result of the Budget changes. Does the hon. Gentleman believe that next year the Government should increase personal allowances above the level of indexation and pay for the increase by clawing it back, perhaps through national insurance increases for those of us who benefited from the 2p cut in the standard rate?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- Various suggestions are being bandied about. I do not consider it my responsibility to be prescriptive about the solution that the Government should adopt. They dug the hole, and they can jolly well get themselves out of it. We have a responsibility to ensure that the Government stick to the promise that they made to the right hon. Gentleman in the Committee of the whole House and present proposals at the time of the pre-Budget report—as the Financial Secretary to the Treasury has already suggested that they will—to deal with the issue in terms that fulfil that promise. That is the obligation that we must enforce, and that, I think, is the mood throughout the House.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. FieldCrossbench
- Quote
- Let us consider the worst possible scenario. It is an unlikely prospect, but let us suppose that the Government stumbled again, and in the November statement did not come up with a package that met the requirements of Labour Members. The hon. Gentleman is presumably aware that if enough of us tabled a motion, the Opposition would have time to debate it and to censure the Government. While I do not propose that he should help the Government to dig themselves out of a hole, he might suggest that he would be ready to ensure that they do not get out of the hole without fulfilling the commitment made to the very poorest workers.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- The idea of a censure motion is interesting, and I am grateful to the right hon. Gentleman for advancing it. I do not know whether he has had time to read new clause 4 in detail, but it presents our solution to the immediate challenge to Parliament. It lays down a marker that holds the Financial Secretary to her commitment to revisit the matter in the pre-Budget report, and requires the Chancellor to return at the time of the report with a comprehensive solution. He has plenty of time: he has the rest of the summer in which to work it out with his armies of civil servants. The important proposal in new clause 4 is for the House ultimately to decide whether his solution constitutes a satisfactory and acceptable delivery on the promise made to the right hon. Member for Birkenhead a couple of months ago.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. LoveLabour
- Quote
- Will the hon. Gentleman give way?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- I will give way once more, but then I must make some progress.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. LoveLabour
- Quote
- I thank the hon. Gentleman for giving way. According to the Treasury Committee report, the Chancellor will be faced with two choices: either to focus directly on the 1.1 million families at relatively low cost but with a huge increase in the complexity of the tax system, or to take a step that is much less complex but which will cost the public purse a great deal more. Which of those two options does the hon. Gentleman think the Chancellor should choose?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- The first part of the hon. Gentleman’s question was a useful contribution, but the latter part was not, because this is not my hole—I did not dig it—and, as I will now outline, there are many ways in which the problem could be tackled, including through the suggestions of the hon. Members for Birmingham, Selly Oak (Lynne Jones) and for North-West Leicestershire. The Institute for Fiscal Studies suggests that some of the remaining losers could be compensated by raising the personal allowance still further or by extending working tax credits to those working 16 hours a week at the age of 21 and over. If the Government want to claw back some of the gain they have delivered this year through new clause 11, they could use a variant on the taper, which the hon. Member for North-West Leicestershire has proposed, although, as the hon. Member for Edmonton (Mr. Love) rightly says, that would be at the cost of making the tax system more complex and expensive to operate, when the original intention was to make it simpler. As we know, in Her Majesty’s Revenue and Customs, with complexity goes a tendency to make errors, which is bad for the integrity of the tax system as a whole. The IFS says that if the Government chose to freeze the personal allowances at the level introduced by new clause 11 instead of indexing them in accordance with the law under the Income and Corporation Taxes Act 1988, that would be equivalent to a real cut of around £200 and would thus claw back about a third of the gain received by each basic rate taxpayer, leaving about 8.3 million families worse off next year than they are this year. There are many different solutions, but we do not have the resources that the Treasury has and I do not pretend to have answers to the dilemma in which the Government find themselves. However, what unites Members in all parts of the House is a belief that something must be done, both this year for the 1.1 million families who are still worse off, and in future years for those who have been compensated by the increase in personal allowance but do not yet know if they will get the increase next year along with the additional winter fuel payments. We are united on that, because it is morally unacceptable to fund a tax cut on the backs of the poorest, and because the Government promised that they would do such a thing—and rebuilding political trust in this country, which is a priority for my party, requires that Governments get into the habit of keeping the promises they make. A variety of mechanisms have been suggested, and I commend the Labour Back Benchers who have sought to engage in this debate and remind the Prime Minister of his commitment. Precisely because there are many ways in which the Government can deliver on their promise, I and some of my party colleagues have tabled new clause 4, which I call the insurance policy clause. It is a variant on an amendment that we tabled in the Committee of the whole House and it should appeal alike to those who expect the best from the Chancellor and those who fear the worst, because it introduces a sunset provision for the changes to the starting rate unless the Chancellor has by the end of this year laid before the House of Commons a report setting out what he has done, and what he intends to do, to compensate those who are still losers when all the measures are taken together, following the introduction of the measures that the Government are introducing today. Our proposal is deliberately not prescriptive. There is no requirement that the Chancellor must take one approach or another. There is no attempt to force him to give his answer today; we accept that he will do so at the time of the pre-Budget report. It will be for the House then to decide whether it is satisfied with the actions he has taken, or proposes to take, as set out in the report that he will be required to make. Given the parliamentary arithmetic—unless the rate of by-elections increases a little between now and the end of the year—that will mean in practice that he must satisfy the 50 or 60 Labour Back Benchers who have been most concerned about, and active on, this issue that he has in this autumn’s pre-Budget report delivered on the commitment to compensate all the losers. All those who believe that a solution for the future has to be found and announced in the pre-Budget report, as well as those who doubt the Chancellor’s commitment or ability to deliver and those who do not, should be able to coalesce around this insurance policy clause. If the Chancellor can satisfy the House by the end of the year that he has delivered, in his pre-Budget report, a lasting and satisfactory solution that adequately compensates those who have lost out, he will have no difficulty in obtaining his resolution and thus overriding the sunset provision. But if he should be tempted to turn his back on this issue, or if the Prime Minister should be tempted to renege on his earlier commitments, the sunset clause will provide a mechanism for a parliamentary check to keep them both honest.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Mr. Mark Field (Cities of London and Westminster) (Con)Conservative- Quote
- Does my hon. Friend agree that one of the difficulties for the Government even of the converged thresholds initiative, which we entirely agreed with, was that it was not going to be revenue-neutral at that stage? Perhaps he will explore the subject with the Minister to try to ensure that so far as hard-pressed middle-earning taxpayers will pay for the result of that convergence, they will at least have some of the disadvantage brought back because the confusion to which he has alluded will be sorted out.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- I know that my hon. Friend served with distinction on the Committee that considered the National Insurance Contributions Bill. He is well versed in these issues. The Financial Secretary will have heard his comments and, I hope, will feel able to respond to them in her substantive speech. Let me move on to new clause 1A. There is a theme among these amendments and new clauses of seeking to strengthen Parliament’s control over the process. New clause 1A seeks to strengthen Parliament’s knowledge and oversight of the Treasury’s projections in a situation where the state of the public finances is deteriorating rapidly. Traditionally, the Chancellor gives to Parliament statements of the Treasury’s forecast of economic growth and public borrowing twice a year—at the pre-Budget report in November and at the Budget in March. In normal times, that is just about sufficient. However, when the public finances are deteriorating rapidly and economic growth projections are being downgraded regularly, that is simply not good enough. Parliament is being kept in the dark. At the time of the pre-Budget report last year, the Chancellor said that the Government would borrow £36 billion and that growth this year would be 2 to 2.5 per cent. In the Budget, just four months later, he said that he would borrow £43 billion—£7 billion more—and downgraded his growth forecast to 1.75 to 2.25 per cent. Since then, the continuing effects of the credit crunch and the oil price shock, all of which Britain is ill-prepared to absorb, have led every commentator, including the Bank of England, sharply to downgrade their expectations of economic growth. With a downgrading of the growth forecast invariably comes a downgrading of tax receipts and, all other things being equal, an increase in the expected level of borrowing. I concede that the territory is complicated. The Government benefit from higher tax receipts from North sea oil and gas—I am sure that we will hear something about that as Report stage unfolds. So long as unemployment does not begin to rise rapidly, the automatic stabiliser of increased welfare spending will not necessarily manifest itself. The Government have now stated that they will borrow an extra £2.7 billion for the 10p compensation package. The picture is complicated and it is simply not good enough, when the Government are led by a Prime Minister who claims to want to reinforce the accountability of the Executive to Parliament and to build a new relationship between citizen and Government, for them to keep both Parliament and the population in the dark. All leading City commentators and the Bank of England have downgraded their economic forecasts. We know that the Treasury will have revised its forecast, but that revision remains locked away in the Chancellor’s safe. Parliament is left in ignorance, as are the people. They are left ignorant of the scale of the slow-down in the economy that is expected by the Government and of the size of the increase in public borrowing that that will entail. New clause 1A enshrines the principle that when income tax changes are made in-year—an unusual situation that implies very unusual circumstances—the Government should publish an updated report on economic growth and public borrowing so that Parliament, as well as the nation, has an authoritative view of the bigger picture when approving the changes that it is asked to make to income tax. The established principle is that tax changes are announced only in Budgets and pre-Budget reports and that growth and borrowing are forecast at the same time. If tax changes are made at other times, the updated forecasts should be set out alongside them for the sake of transparency and completeness. I shall conclude by referring briefly to new clause 10 and amendments Nos. 102 to 109, tabled by the hon. Members for North-West Leicestershire and for Birmingham, Selly Oak. As I have said before, we believe that it is the Government’s responsibility to deliver on their promises to compensate all those who have lost out from the abolition of the 10p rate of tax. As I said earlier, the Prime Minister, when he introduced the 10p band, claimed: “When we make promises, we keep them”. Last May, he faced a Back-Bench rebellion and made another promise—he promised the right hon. Member for Birkenhead that he would compensate all the losers in full. So it is disconcerting that this morning’s edition of The Sun should report that he had “slammed the door on help for 1.1 million low-paid workers hit by the Government’s 10p tax fiasco.” The headline says that there will be “Not a Penny More” aid the for 10p tax rebels, so the hon. Members for North-West Leicestershire and for Birmingham, Selly Oak deserve praise for maintaining the pressure. There are advantages and disadvantages to the solutions that each proposes, but they are a contribution to the debate—in stark contrast to the reported slamming of the door by the Prime Minister. Our view is that this is the Government’s problem, and that it was created by the Prime Minister’s machinations last year. It is for them to clean up their own mess, by coming forward with detailed proposals to help the remaining 1.1 million losers and explaining how they will continue support into the future—but compensate the Government must if they are to deliver on the promise that they made. They must make those proposals known to Parliament, and not only in private to their Back Benchers. That is why we believe that new clause 4 is the best way forward: it is a sunset provision that gives the Government the latitude to explore an optimum solution to delivering compensation, but one that will give Parliament the final say as to whether the proposals are adequate. I sincerely hope that hon. Members of all parties who are determined to ensure that the Government deliver on the promise given to the right hon. Member for Birkenhead will support new clause 4 in the Lobby tonight. May I give you notice, Mr. Speaker, that with your leave I shall be seeking a separate Division on new clause 4?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
David Taylor (North-West Leicestershire) (Lab/Co-op)Labour- Quote
- Thank you, Mr. Speaker, for calling me to speak and for selecting new clauses 10 and 20 for debate this evening. I am grateful to my 20 colleagues who are the new clauses’ co-signatories. Many others who have not signed have said that they will support the new clauses in the Lobby at the end of this part of the debate if I exercise my right to move them formally, should that be appropriate. I shall speak mainly to new clause 20, which supersedes and replaces new clause 10, which has a slight textual error. New clause 20(3)(a) specifies an addition to the personal allowance of £600, rather than the £120 that was incorrectly printed in new clause 10. The new clauses are otherwise identical, but new clause 20 is the framework for my address to the House this evening. The level of taxation is a crucial and sensitive performance indicator for any Government. There are many myths about the differences between parties, and they are persistent. At least one of those myths was laid to rest in 1997, when the incoming Labour Government famously committed to—and delivered on—public expenditure levels that were unchanged from those of the previous Conservative Government. It is perhaps a measure of the Opposition’s esteem for this Government that they have committed—if they were to return to power in, say, 2015, or some later date—to stick to our public expenditure levels for a two-year period. That is an echo of what we did 11 years ago, and I welcome it. However, some myths persist, and one was exposed very effectively by a well-known commentator on these matters, Andrew Dilnot, at the time of most recent conferences of the three main parties. He said that the electorate would see the “customary but bizarre spectacle” of the two parties—the main Opposition party and the Labour party—emphasising the differences between us on public expenditure and taxation, even though they were quite minor. In an important section of his article, he went on to state: “Even when you take borrowing into account by looking at total spending rather than just taxation, during every year that Mrs. Thatcher was in power, except the last two when the economy was in an unsustainable boom, her government spent more of national income than Mr. Blair’s did.” The crucial sentence followed, and I hope that Members will hang on to it and perhaps wake up at 3 o’clock tomorrow morning and say, “Is that really right?” It reads: “Her Government averaged public spending of 45.4 per cent. of national income” between May 1979 and when she fell, in Paris or elsewhere, in November 1990. The Government of Mr. Blair, our own former Prime Minister, in the 10-year period between May 1997 and when he stepped down last June, averaged 39.7 per cent., which is almost 6 per cent. less public expenditure as a proportion of gross domestic product. That should lay to rest the myth—it is patently false—that modern Labour Governments are reckless high spenders and excessive taxers. That is a myth and the figures give the lie to it.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- Given what the hon. Gentleman has just told us, why does he think that the then Chancellor thought it necessary to introduce the fiscal rules that he introduced, and why do the Government seem to set such store by them?
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- The then Chancellor was a very wise and creative politician who had sound reasons for taking his actions. They were proved to be wise, at least for quite a lengthy period. Although there is a bit of a myth about Labour having high-taxing Governments and the Conservatives being abstemious in that regard, the level of taxation, especially for the low-paid, is hugely important to Labour Members. That is why the abolition of the 10p tax rate in the 2007 Budget had such resonance on our Benches. It was because of its impact, which I shall discuss in a moment. The most effective Labour Prime Minister of the 20th century was indisputably Harold Wilson, who famously said—I think that it was at the October 1962 Labour party conference: “This party is a moral crusade or it is nothing.” The last Prime Minister quoted those words on the death of Harold Wilson. Amen to them, because many Labour Members felt moved to join our party in a crusade to combat poverty, tackle inequality and root out injustice. We can be proud of a legion of successes and advances, but when it became clear that the unintended consequences of the 2007 Budget would adversely affect 5.3 million people on low pay, while leaving 21 million people better or no worse off, we were alarmed that poverty, inequality and injustice were being worsened by the decisions that had been taken. That was a triple whammy, and we urged the Chancellor of the Exchequer—by then it was the new Chancellor—to eliminate it. We did not want those three problems of poverty, inequality and injustice to become entrenched, perpetuated or institutionalised to any extent. That was how the debate started about how to get out of the situation. It was not a problem such as would feature in the children’s comics, where with one bound we could be free. An awful lot of time, trouble and evaluation of options was involved. My early contribution to try to assist the Government drew on my background as a tax accountant. I designed and promoted a fairly simple framework based on an additional tax allowance of £1,200, but with tapering. It would have compensated those who had lost out, and only them, with the amount that they had lost through the abolition of the 10p rate, and only that amount. The people who were affected at that stage, before the 13 May announcement, were typically those on an income starting at about £5,200. The peak loss occurred among people with an income of about £7,600, for whom the loss was about £240, and it tapered off because of all the tuppences that they were receiving from a lower rate at a capped level of about £19,600. So there was a triangle with, at its centre, £7,600. Those people who earned about that amount were, before the 13 May statement, losing about £240.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
Mr. David Hamilton (Midlothian) (Lab)Labour- Quote
- I am not one of the 21 signatories to my hon. Friend’s new clause, but I will be supporting him in the Lobby tonight. Can he expose the myth that we have taken money from the poor to give to the poorer? It has been suggested that the people who will pay are those on £13,000 to £18,000.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I can. There are always myths in the area of taxation and accountants grow fat exposing them or sometimes exploiting them. The fact is that the official reason for the abolition of the 10p rate was at least in part that it would fund the reduction of the standard rate from 22p to 20p. The actual losses of 5.3 million people, as I shall go on to explain in a moment, aggregated to about £700 million in that regard. In no way did the savings generated for the Government by the abolition of the 10p rate for the lower band of income earners fund the tuppence reduction for salaries that went off into infinity from about £19,600. I think that I intervened on the hon. Member for Runnymede and Weybridge (Mr. Hammond) in the Budget debate to make that point. They made a small contribution to that reduction, but it would be unfair to say that it was a case of the poor subsidising the rich. I therefore devised a fairly simple framework to compensate people with the exact amount that they had lost. They typically had income taxed at only 10 per cent. under the old system, between £5,200 and £7,600. The maximum loss was £240 per annum. I incorporated my framework into early-day motion 1477. In a rare success, I got a letter published in The Guardian on 7 May, six days before the Chancellor announced the details of his scheme. One part of it reads: “An HMRC software developer can code it up rapidly. No changes needed to WFA, tax credits or minimum wage.” They were options at the time, and I am pleased that they were abandoned because they were not a great idea. The letter continued: “And the tax rate stays at 20%. It has the benefit of (relative) simplicity, it is retrospective”— that was always a requirement of the campaign for compensation— “and it will fully and accurately reimburse all those (and only those) who otherwise lose up to £240 per year. Total cost around £650m - much less than the political damage that we are incurring. Come on, Gordon, announce something like the above as the chosen scheme so that our party can start to put this damaging distraction behind us.” It is disappointing that two months on we still have this distraction, and I hope that this debate will at last lay this one to rest. The scheme that I suggested was similar to that which exists for pensioners. They have a higher tax allowance that is tapered off and disappears. It starts to taper off at about £21,000 and disappears totally by about twice that sum. I urged my right hon. Friend the Chancellor not to pursue the winter fuel allowance, national minimum wage and tax credit route for the under-65s. It was an imprecise, uncertain and lengthy way of doing it. This is a tax problem. It was a problem injected into the taxation system and it needed a solution within the tax system. It did not need solutions that were incomplete, delayed or inaccurate. I was pleased to be present in the Chamber on 13 May when the Chancellor announced an extra tax allowance, albeit not my £1,200, which would have been the basis for reimbursement of full losses. The Chancellor decided to reimburse average losses, so obviously the tax allowance he inserted was not £1,200 but £600. That reimbursed the average loss of £120, but it was not tapered and allowed for the fact that it was not applied to those who pay income tax at the 40 per cent. rate—as all of us in the Chamber do. New clauses 11 and 12 are designed to implement the Chancellor’s statement of 13 May. The package was broadly welcomed on the Labour Benches at the time, but the difficulty was that it gave £120—£600 extra allowance at 20 per cent.—to 22 million people, of whom a good 14 million or more were not adversely affected by the abolition of the 10p rate. They had not received a hit of any kind, but 5.3 million—that famous figure—had been affected.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- The hon. Gentleman is being very coherent and I understand his argument, but is he proposing that 18 million people should have clawed back from them some of the benefit of the personal allowance awarded to them under new clause 11? Given the squeeze on incomes and the soaring prices that families face, does he think that that is an appropriate measure at this point in time?
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I was just coming to that point, so I shall make it now. New clause 20, to which I am speaking, sits on top of the Chancellor’s existing arrangements. I did not want to interfere with the thrust of those arrangements, because 14 million or more of the 22 million people in question will have already factored into their personal budgets the fact that they will receive £120 during this tax year—£60 in September and £10 in each of the following six months. As the Chancellor said on 13 May, that was designed in part to compensate people for higher fuel bills and so on. My new clause 20 sits on top of those provisions, and I shall vote for new clauses 11 and 12 before turning to my proposal.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I am grateful to the hon. Gentleman, who is genuinely trying to find a solution to the problem. Does he have a figure for the additional costs that his idea would impose on the Treasury?
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I shall be pleased to answer that question, and will do so almost immediately. The abolition of the 10 per cent. rate adversely affected 5.3 million people, and the Chancellor’s statement on 13 May more than fully compensated 4.2 million of them—in fact some of them had not quite suffered a hit of £120—but 1.1 million people remained, and my new clause 20 is designed to compensate that group. What will it cost? It is a matter of relatively straightforward and simple arithmetic. The maximum uncompensated loss at present, which went from £0 to £240 to £0—from £7,200 and so on—has been reduced by £120, so the uncompensated loss runs from £0 to £120 to £0 again. The average uncompensated loss, which my new clause will address, is around the £60 mark as far as we can tell: thus, 1.1 million people at £60 is £66 million. That is not an enormous sum; it is the kind of amount that the Chancellor might find down the back of the metaphorical settee when announcing his Budget. It really is a trivial sum. It is about 100th of 1 per cent. of his total tax take, not a major hit on the level of taxation. At only £66 million it is very good value, and I am sure that the Chancellor and his representative on the Treasury Bench must be tempted to snatch my hand off at this point.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
Mrs. Betty Williams (Conwy) (Lab)Labour- Quote
- My hon. Friend is making a powerful case for new clause 20. I appreciate that he is not a prophet or the son of a prophet, but I am sure that he has given great attention to the case that he is making. Does he believe that new clause 20 will cover all the losers whom Members of Parliament across the country have been trying to help in the past few months?
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I do, and the new loser bands—the bands for those who have residual uncompensated losses—apply to those with an income from around £6,400. The bands still run up to £7,600, and now, because of the £120, they taper out at £13,600. That is the umbrella of income under which people still have uncompensated losses. We are talking about a maximum of £120, which is still at that £7,600 point. The figure involved is 1.1 million people; we are not talking about dribs and drabs. Typically, constituencies represented by Labour Members of Parliament have 2,000 or perhaps even 2,500—in some cases there are 3,000—such individuals or families. To Members of Parliament, £120 a year may not seem a substantial sum, but to families who are up against it, with high and rising core prices, even an addition of £10 to their monthly income can be helpful, crucial or valued. There was a choice, the Chancellor went for the simple and expensive option, and I am effectively adding to new clauses 11 and 12 my own humble attempt to refine the announcement in a way that would deal with those 1.1 million people. My scheme would build on the announcement, and it is, I hope, simple, accurate and inexpensive: £66 million seems to me to be good value if it gets rid of a political, financial and fiscal problem. There are plenty of sticks lying around for the electorate to beat us with, but let us at least put one of them on to the bonfire. My purpose in tabling new clause 20 was not to seek a method of beating the Government in the Lobby. I have not been the most persistent loyalist in recent years; I have had my concerns about a range of Government policies, and I have expressed my unhappiness through the votes that I have cast on a variety of topics. However, on this issue, my purpose was to ensure that the matters were debated and that an option was aired for the Chancellor to consider when he analysed the background to his pre-Budget report. I am not wedded to the scheme; it is just a suggestion. The Treasury Committee received from the Institute for Fiscal Studies and others a range of ideas, and equally they might work. They have their costs, weaknesses and strengths. I believe that my suggestion would work, and I commend it to the House. I reserve the right to press the new clause to a Division if necessary, but when the Minister responds, I want to hear an absolute copper-bottomed, concrete-rooted guarantee that the Government, and the Treasury team in particular, are focused on those 1.1 million people. There are perhaps 2,500 such people in the Minister’s constituency, and they are important.
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
Kelvin Hopkins (Luton, North) (Lab)Independent- Quote
- Just before my hon. Friend finishes, does he accept that the Government would do well to look at the whole income tax system for the future and to take an opportunity—certainly in the next Budget—to make the system more progressive, more redistributive and more graduated in the middle range, with higher taxes on the rich and distinctly lower taxes on the poor?
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- My hon. Friend and I are both regulars at Treasury questions, and we often express such sentiments and point to the fact that if tax evasion and avoidance in the UK economy were more effectively tackled, it would produce a stream of revenue that would resolve some of our problems in respect of council housing, free accommodation for those in social care and so on. However, Mr, Deputy Speaker, I sense that you want me to return to the track and not to be seduced by the pretty scene that my hon. Friend paints for me.
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
Mr. Paul Truswell (Pudsey) (Lab)Labour- Quote
- At the risk of briefly seducing my hon. Friend further, I should say that many older people who have contacted me believing that they have lost out because of the withdrawal of the 10p tax rate are actually losing out because their tax code is wrong and they do not receive their full age-related benefit. Is that not the other side of the coin, and a matter that we need to pursue to ensure that people are taxed properly?
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- About six weeks ago, I was sitting in the front room of a retired miner who had a relatively low retirement income. I would guess that he was about 70 or 71 years old, and he was certain—he had rung me up in high dudgeon, so I dashed the two miles from my office to where he was—that the Chancellor’s abolition of the 10p tax rate had left him with a higher tax burden. However, he was wrong, and I pointed out why. His British Coal superannuation scheme had been slow to implement the much higher personal allowance that the 2007 Budget had provided for from 6 April 2008 precisely to cater for the abolition of the 10p rate, among other things. So my hon. Friend is right: more people felt that they had been adversely affected than had actually been in practice. There has been more concern, hostility and disapproval among not only those who have lost out themselves, but those who have observed our party for a generation and more and believe that what we did at that time did not sit easily with the objectives for which we have fought and will continue to fight. I have about two more sentences to say. My requirements are that we should have a copper-bottomed guarantee that the Treasury team will focus on the 1.1 million people still affected, that those people will get full and precise compensation—£66 million is trivial in Treasury terms—and that that compensation will be delivered as rapidly as is humanly possible, ideally within the 2008-09 tax year. Let us hear what the response will be when we get to the pre-Budget report, but the guarantee has to be copper-bottomed, otherwise we will be in the position highlighted by my right hon. Friend the Member for Birkenhead (Mr. Field). After a successful party conference that has boosted our morale and narrowed the gap with the Conservative party, and after we have gone from minus 18 to plus 3, or something like it, we will want to take advantage of the situation and soar into the stratosphere. We will not want to be encumbered by having the Chancellor come back to the Dispatch Box having hatched a deal for the 1.1 million people that is not adequate. I want to hear from the Minister words that will satisfy me; otherwise, I shall press new clause 20 to a Division.
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
Mr. Jeremy Browne (Taunton) (LD)Liberal Democrat- Quote
- In a manifestly sincere and decent speech, the hon. Member for North-West Leicestershire (David Taylor) said that one has to read to the end of the Treasury Committee report before finding out whodunnit. I can reveal to anybody who does not wish to read the entirety of the report that we all know who committed the crime on this occasion: the Prime Minister. The writing of the history of the Brown premiership may be quite imminent. I am not given to betting—not least because it is a good way to lose money—but I see that the shortest odds on the Prime Minister’s time of departure are for the final quarter of this year and that the second shortest odds are for the third quarter of this year, the quarter that started today. The end may be fairly imminent. When the history of the Brown premiership comes to be written, people will offer many explanations on how he came to be such a disappointment in the post. They will say, for example, that he should have called the election in November and that that was a great missed opportunity. They will say that the lost tax discs were indicative of a wider malaise in the Government and that the visit to Iraq during the Conservative party conference made it hard for the Prime Minister to sustain the position that the era of spin had come to an end. All kinds of explanations will be offered on why he failed to live up to expectations, but the one that will last longest in the public mind—because it is not to do with Westminster political to-ing and fro-ing, but with the everyday lives of millions of people—will be the fiasco of the doubling of the 10p tax rate. Let us look back, as the hon. Member for Runnymede and Weybridge (Mr. Hammond) did, to the announcement that the Prime Minister made in his final Budget speech as Chancellor of the Exchequer. As the Treasury Committee rightly says, there are huge dangers in seeking to pull rabbits from hats, but that is precisely what the then Chancellor sought to do. It was a manifestly political move—about his positioning, his inheritance and his wanting to be perceived as the rightful heir to Blair, a mantle that he was keen to claim from the right hon. Member for Witney (Mr. Cameron). Labour Back Benchers cheered with great fury. I have been a Member of Parliament for only three years, so I have not had the opportunity and privilege of witnessing many Budget speeches. The Budget speech that I am talking about was significant, because it was the final one of an extremely long-standing Chancellor who had served in office for a decade. We remember that the Labour Back Benches resembled a football stadium after a winning goal had been scored in the last minute. There was a sense of euphoria that their man had come up with such a brilliant scheme—that he had out-manoeuvred the Conservative party and made it inevitable that he would become the Labour leader and Prime Minister and that Labour would go on to win the next general election.
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- In the midst of this diatribe, does the hon. Gentleman have any thoughts on the new clauses before us?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I have plenty of thoughts, and I will unveil them all. I should compliment the right hon. Gentleman. The Conservative party is in a very optimistic mood about its prospects at the moment, and I see that one Conservative website is asking its readers to pick the dream first Conservative Cabinet. One has to be careful about schadenfreude—
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I will reveal on some other occasion what the website said about the right hon. Member for Wokingham (Mr. Redwood), but it was extremely positive. What I am saying is relevant, Mr. Deputy Speaker, because the motivation for doubling the 10p tax rate was entirely party political. It had nothing to do with alleviating poverty. Anyone could see with only a moment’s examination of the policy that it was going to be disadvantageous to millions of the poorest citizens in the country. With respect, if my analysis is somewhat party political and partisan, it is because that was the Chancellor’s precise motivation when he introduced the policy. Labour Back Benchers cheering euphorically and waving their Order Papers was phase 1 of the Labour party response. Phase 2 was the rebellious phase, when the right hon. Member for Birkenhead (Mr. Field) marched the Government to the top of the hill, in effect taking on the role of Prime Minister and deciding Government tax policy from the Labour Back Benches. It was an extraordinary act of revenge on his long-term nemesis that was interesting to watch and enjoy from these Benches. That rebellion was extremely successful. We then had a mid-term mini-Budget in which what the Treasury Committee describes as “probably the least bad option” was brought forward by the Chancellor despite protestations that he would not do so.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. David HamiltonLabour
- Quote
- Will the hon. Gentleman get to the point? What is the Liberal position?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am getting to the point, but the Labour party could learn much from the process because it is instructive on the way in which a political party that has lost its moorings and is trying to position itself in a way that is advantageous to Opposition parties can end up—[Interruption.]
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am grateful, Mr. Deputy Speaker. The second phase was the extremely successful rebellion that the right hon. Member for Birkenhead led. We must give him great credit for being the architect of much Government fiscal policy. The third phase was the climbdown, with the right hon. Gentleman rightly apologising for some of the more personal elements of his comments about the Prime Minister. He also expressed his great gratitude because the problem had been resolved and put to bed, and the Chancellor of the Exchequer had found a solution. Of course, there was a problem with the solution: the Chancellor was spending £2.7 billion that he did not have—£2 billion of which was going to people who were already net beneficiaries of the tax changes. Nevertheless, there was a sense that peace had broken out on the Labour Back Benches and that the issue had been resolved.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
Mr. Siôn Simon (Birmingham, Erdington) (Lab)Labour- Quote
- I am sure that the hon. Gentleman told the Tories five minutes ago that one had to be careful about schadenfreude, yet he seems to have had it injected into his arteries. Will he please get on with the business of telling us how high the Liberals would raise the tax?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am doing precisely that. However, as I have already said, the motivation for the measures was not helping poor people. Those who believe that our constituents on low to middle earnings welcomed the doubling of the tax rate delude themselves. The motivation was to ensure that Labour’s poll ratings went into the stratosphere. Judging by the effect of the policy, as well as other mistakes that the Prime Minister has made, on Labour’s poll ratings, it did not have its intended consequences. However, that does not mean that improving poll ratings was not the motivation.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- The hon. Gentleman is not a betting man but we are. What odds would he give on his touching on one of the amendments before he finishes speaking?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- They are extremely high. I tabled one new clause and one amendment. They are excellent and I recommend them to hon. Members, but they would not be necessary if the Prime Minister had not sought to wrong-foot the leader of the Conservative party and achieve the Thatcherite dream by pulling a rabbit out of a hat and doubling the 10p tax rate, which adversely affected the income of 5.3 million households. That is a reasonable point, although I can understand that Labour Members do not want to dwell on it.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. SimonLabour
- Quote
- rose—
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I will give way again to the hon. Gentleman so that he can tell me which of the 5.3 million households have written to him, expressing gratitude for the previous Chancellor’s policy changes.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. SimonLabour
- Quote
- The hon. Gentleman has made it clear that he distrusts the motivation of the Prime Minister when he was Chancellor for reducing the basic rate of income tax to 20p. He must have said that a hundred times. Will he please now tell us how high the Liberals would have raised the basic rate and what they would do about everything else?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- We had a long discussion in Committee on precisely that point and I can repeat it for those who were not present, although the hon. Gentleman was. Our party policy is for a basic rate of 16p in the pound. We believe that people on low incomes are paying too high a proportion of their income in taxation. We do not agree with the Conservative party policy position—that the Conservatives will match whatever level of tax the Labour Government set. That is not right or responsible, so we are in favour of lower marginal rates of tax for people on low and middle incomes. I will revert to some of the other proposals shortly. Let me complete the phases of the Labour rebellion. We began with the joyous response, then we had phase 1 and we moved to the third phase, which was the climbdown. Now we are in the fourth phase, which is rebellion rising up again. That must be a source of great dismay to the Financial Secretary and the Prime Minister, because I suspect that they thought that the issue had been quietly put to one side. Eighty per cent. of those who were losers—roughly speaking, about four out of five of the losers from the doubling of the 10p rate—had been bought off. What is more, millions and millions of people who were net beneficiaries had been given even more money, although they will all have to repay it eventually. Indeed, we will all have to repay it eventually, because borrowing is, after all, only deferred taxation. In the short term, however, people have more money in their pockets. I assume that the calculation that the Chancellor and the Prime Minister made was that if they could buy off 80 per cent. of the losers, the remaining 20 per cent. would fall by the wayside and not many people would notice. By definition, they were the poorest 1.1 million people, and in many cases probably do not have the loudest voices or the best opportunities to make their grievances known. That was the political calculation. Of course, I acknowledge—others have made this point, including the hon. Member for North-West Leicestershire—that there is always a difficulty on these occasions over whether to go for the simple, easy-to-understand, less well focused and therefore possibly more expensive option or the complex but more targeted option. What the hon. Gentleman has proposed, aligned with what the Government propose, means that they are jointly going for the option that is both expensive and complex. That is probably quite a messy solution, although if they cover all their bases—that would be the result of the hon. Gentleman’s amendment—they can ensure that everybody is fully compensated. The obvious question is why we got ourselves into this mess in the first place, and that is what I have been trying to help the House understand in the past 10 minutes.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- The odds on the hon. Gentleman reaching his amendment before he sits down are changing as the hours go by. One useful thing that our constituents would like to know is whether, given that the Government have increased allowances, he would advocate clawing that back next year or making it part of the tax threshold.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- That is precisely what I am waiting with bated breath to hear the Financial Secretary announce—[Interruption.] I do not always agree with the Conservative spokesman, but the woes and ills of the Labour party are not my No. 1 priority, either. To be honest, one would think that there were enough people in the Labour party wondering where it all went wrong without the need for anybody else to supplement that process. My concern is with the 5.3 million people in this country whom the then Chancellor and now Prime Minister sought, as a deliberate act, to make poorer, even though they were the poorest people in the country. He did that so that he could claim that he was a better heir to Blair than the leader of the Conservative party, make a connection with middle English, despite the fact that he is not English himself, and be an exciting and reforming Prime Minister who could win a fourth term for Labour and reach the promised land of a 20p basic rate, which Margaret Thatcher never achieved.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- rose—
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- That was the motivation, so Labour Members can talk about the politics and I will talk about the 5.3 million, which I will do after I have taken this intervention.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I may have had too long a slot earlier, but is the hon. Gentleman familiar with the internet slang term ROFL, which stands for “rolling on the floor laughing”? That is what those watching this who take an interest in politics must have been doing when he said that he was not really interested in the woes of the Labour party, because he has spent 18 minutes trying to stir the pot in a party political way.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- It was not me who started it; it was the Prime Minister, with such an appallingly ill-judged electioneering Budget. Anyone who thought that his judgment was sound—[Interruption.] I give credit to the right hon. Member for Birkenhead, who was one of the, I think, eight Labour MPs who did not sign the Prime Minister’s nomination papers—
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- Five.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Only five—well there we go. The right hon. Gentleman’s judgment has been immaculate throughout. He realised not only that 5.3 million people would lose out as a result of this process, but that the architect of the policy was not fit to be leader of the Labour party or the country. However, I cannot see anyone else who made such sound judgments.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- rose—
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am having difficulty getting to the nub of my argument, so perhaps the hon. Gentleman will allow me to make a little more progress—[Interruption.] I have been very generous and taken many interventions from Labour MPs who are suffering from a collective guilt complex. As a result of this deliberate political calculation, 5.3 million people lost out. The Government’s response was initially one of denial, and the Prime Minister told the Treasury Select Committee that no one would lose out. However, there now appears to be an acceptance, including by the Prime Minister, that more than 5 million people will lose out as a result of the changes that he announced. There was then a long and protracted process while the Government tried to decide what to do and the right hon. Member for Birkenhead held a gun to their head. Then the announcement was made that the Government were going to borrow £2.7 billion, £2 billion of which would be given to people who were net gainers in any case. And we are now in a position of having 1.1 million people who are still losers. What can we learn from that process? I have tabled a new clause and an amendment. The new clause seeks to ensure that, when changes are made to the levels of income tax, a proper assessment is made of the impact of the changes. One of the biggest lessons from this hopeless process must be that sleight of hand—the rabbits being pulled out of a hat—will be consigned to history, and that there will be greater transparency in the setting of taxation. Members of the Treasury Select Committee and Members who wish to participate in debates in the Chamber should be able to have the information clearly and concisely set out on who will be the winners and who will be the losers. We should not have to rely on organisations such as the Institute for Fiscal Studies. It is an excellent organisation, but there is no reason why it should have the job of telling Members of Parliament the implications of Government policy for people on low and middle incomes. Amendment No. 6 would require the Chancellor to report within six months on the impact of the 10p compensation mechanism on people earning less than £13,000 a year. Labour Back Benchers have expressed support for the principle behind the amendment, which is to ensure that this issue does not disappear into the long grass of politics. We do not want a situation in which everyone vents their fury and expresses their reservations here, after which the Government push their measures through using their natural majority and everyone forgets about the 1.1 million people who are still losers as a result of this change. The Liberal Democrats are keen to guard against that, and I would urge Members on both sides of the House to support amendment No. 6. The hon. Member for North-West Leicestershire estimated that between 2,500 and 3,000 people in a typical constituency remained losers, and the amendment would ensure that their interests would not be forgotten when the political debate rolled on to new territory.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- The hon. Gentleman claims not to have been making a load of partisan points. I shall take his claim at face value; hon. Members can make up their own minds. He has finally got round to talking about his amendment and about new clause 13, both of which deal with transparency—an attractive proposition—and with generating reports and information, which is potentially attractive. He claims to be very concerned about the position of the 1.1 million people. Will he therefore tell us why he did not put his name to new clause 20?
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I shall deal with both those issues. The hon. Gentleman suggested that I was seeking to be unduly party political and partisan. I was not. I was seeking to explain the Prime Minister’s motivation for introducing this policy. His motivation was unduly party political and partisan, and it is very difficult for me to explain that without appearing to touch on the same ground myself. It remains crucial to understanding this fiasco that one also understands what motivated the then Chancellor to introduce the policy in the first place. I can tell all those Members for whom the scales have not yet fallen from their eyes that it was not a concern for the poorest people in this country. If that had been his motivation, he would have rejected the policy instantly. It was done because he wanted to position himself in a way that was politically advantageous over the Conservative party in particular, and to a lesser extent, over other Opposition parties. That was the motivation and that is what has led to the woeful state of affairs within the governing party at the moment. The Liberal Democrats have made it abundantly clear—after all, we have not suffered from a lack of debate on this subject and the Finance Bill, which has been discussed for months—that our priority for taxation is to reduce the burden on people on low and low-to-middle incomes who, we feel, are paying too much. Why has this become such a salient political issue at this time? It is because food prices, council tax bills and petrol prices are rising and the sort of people who might not have felt the pinch quite so badly when the then Chancellor announced this policy—the economy was then still growing at a reasonable rate—are now feeling that pinch very acutely indeed. That is why, when the history of the Brown premiership comes to be written, this issue will be seen to symbolise the entire failure of this Prime Minister and this Government.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. SimonLabour
- Quote
- rose—
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I fear that it will be the final chapter in a rather sorry story for the Labour party.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
Lynne Jones (Birmingham, Selly Oak) (Lab)Labour- Quote
- I would like to make it clear to the House that I have never in my life waved my Order Paper—and certainly not on Budget day 2007. To me, the abolition of the 10p rate would have been acceptable only had it been replaced with a zero tax band for the same amount of income, and I commented to that effect on the day. The majority of the British people have an innate sense of fairness. Whether they vote Labour or not, they see the Labour party as the party of fairness and they look to a Labour Government to implement their policies, including fair policies on taxation. People were so outraged when they learned that some of the poorest people were going to lose out as a result of the abolition of the 10p tax rate because it offended that innate sense of fairness. That sentiment applied not just to the people who were to be worse off, but was shared by many of their friends and neighbours and others who knew about their situation. That is why I supported the amendments proposed by my right hon. Friend the Member for Birkenhead (Mr. Field) in 2007 and why I wrote to the Government expressing my concerns. My amendments Nos. 102 to 106 would enable someone who had lost out from the abolition of the 10p rate to opt to be taxed at that previous rate. I have to admit that I did not think up that idea myself; it was based on ideas submitted in a letter to the Financial Times on 8 May by Mr. John Curran. At that time, I felt that it was worth while to put that option to the Chancellor for consideration. It was certainly not intended as a permanent solution, but as a stop-gap that would have precisely targeted all the losers, so it would have been much more cost-effective than the Government’s eventual announcement. I have to say that I wrote to the Chancellor on 9 May; obviously, my letter had not reached him by 13 May, when he announced that the Government’s proposed solution was to raise the tax threshold. Despite that alteration, we found that 20 per cent. of the losers were still waiting to be compensated, so I decided to table my amendments and to support the new clauses proposed by my hon. Friend the Member for North-West Leicestershire (David Taylor) to flag up the fact that it was unfinished business. We cannot continue with the situation in which 1.1 million families are still losing out from the measure, so I, too, seek cast-iron assurances that the Government will fix that. I wrote again to the Chancellor, and last night received a letter from my right hon. Friend the Financial Secretary. I accept her explanation that it would be difficult for people to identify whether they would gain from my proposals if their terms were combined with the Government’s raising of the tax threshold. I will not, therefore, press my amendments, but it is right to debate the matter and for Labour Members who feel as I do to express their concerns and to look to the Government to provide solutions. At the end of his speech, my hon. Friend the Member for North-West Leicestershire had an exchange with my hon. Friend the Member for Luton, North (Kelvin Hopkins) on the need to overhaul the tax system to make it fairer. I believe that far too many people on low incomes pay tax, and I find it unacceptable that people on less than half average earnings pay income tax. If we want a fairer tax system, we must raise substantially the threshold at which people start paying tax. I accept that that would have ramifications higher up the income scale, so a smooth clawback from high earners, in as simple a way as possible, would be necessary. Like my hon. Friend the Member for Luton, North, I would look to a Labour Government to implement a fair tax system, which takes as many people as possible out of tax altogether, and which is progressive up the income scale. That would require at least one further rate of income tax—as long as rounded figures such as 20, 30 or 40 per cent. were maintained—and I would also advocate a 50p rate for those earning more than, say, £100,000 a year. In that way, we could respond to the express view of many people in society that a Labour Government should implement fair taxation.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I urge the Government to think again, and more promptly than their timetable suggests. I do so because many of our constituents are worried sick about the state of their family budgets. Food prices are rising rapidly, and the combination of tax increases and price increases is putting enormous pressure on family energy budgets, especially to meet the fuel bills for motor cars, which many people need to get to work or to the shops, especially in rural areas. At this juncture, the last thing that such people need is extra pressure on their respective budgets from the kind of tax increase that we are discussing. The Government would be well advised to think again about their timetable, and to consider whether they can go further to respond to this very serious and good debate—with perhaps one exception from the Liberal Democrat Benches—and to make people feel a bit easier about their future and their family budgets. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has asked the two crucial questions. The first question is: what will be done next year? Is the package for one year only? Surely when people are worried about whether their income will stretch, they need some earlier indication of what might happen in the following year. The second question is more urgent and important today: what will be offered to the 1.1 million people, who, as the Government admit, along with their critics, are losing out from the mishandled package of tax changes? Can there be some statement to reassure them? I was disappointed that the Minister did not choose to inform the debate more at the beginning. Paradoxically, that has required her to listen to rather more critical comments—and I suspect there may be further such comments if other Members catch your eye, Mr. Deputy Speaker—before beginning to allay some of the fears that have been expressed. When I offered her an opportunity to reaffirm the promise that I thought the Prime Minister had made to the right hon. Member for Birkenhead (Mr. Field) that all the losers would be compensated, it was with regret that I heard that she could not do so. There seemed to be some backsliding.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. SimonLabour
- Quote
- The right hon. Gentleman has spoken of proposals to find a way out of the problem that have been made by Members across the House. He has mentioned some of the interesting and innovative ideas that have emerged from those on the Labour Back Benches, and the contributions from his own Front-Bench spokesman. Have I misunderstood something, or have the Liberal Democrats—notwithstanding the extraordinary 20-minute diatribe that we heard earlier—not tabled any amendments with any proposals that have anything to do with helping out of their difficulties any of the people about whom they keep claiming to be so concerned?
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- The hon. Gentleman has made an effective partisan point in his own way. That is also my understanding of the position. However, this is a serious debate, and I do not think we expected the Liberal Democrats to come up with a means of solving the problem for our constituents. We heard a long diversionary diatribe that might have been appropriate in a grand Second Reading debate or as part of heated exchanges, but now, on Report, we are trying to find a working solution, and there are solutions on offer. We naturally look to the Minister for leadership, because she has access to the figures and because she and her colleagues were the architects of the circumstances that caused this particular problem. I urge her again to recognise just how much people are hurting out there. Anyone who has been involved in recent political campaigns anywhere in the country will know that the dominant issue on the doorsteps is people’s fear of going to the supermarket because the price of food has gone up again, their fear of filling up the car because the price of petrol has gone up again, and their fear of receiving energy bills because the price of energy is going up again. Their wages, for good reasons, are not going up by enough to compensate for that. We all know that there will have to be a real squeeze on people, but it perplexes us that the squeeze is to be more intense on those on the lowest incomes because of this tax proposal. Let me say again to the Minister that we need some kind of offset to tackle that particular twist of the knife. As every Member in the House knows, I am a passionate tax-cutter: I always want lower taxes. However, I am keen for the disproportionate benefit of that tax reduction to be felt lower down the income scale, particularly at a time when there is a real fear of the family bills because of the sudden surge of price increases, and a worry that there may be job losses and worse to come as the credit crunch and the squeeze intensify.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Kelvin HopkinsIndependent
- Quote
- I recently looked at our history. Between the 1920s Labour Government and the 1980s Conservative Government there was a rise of 73 per cent. in the number of people living in poverty. That was partly as a result of changes in tax policy at that time, and partly as a result of the decision to break the link between earnings and pensions. Therefore, I must admit that I feel some scepticism when I hear Conservatives talking of their concern about poverty.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I do not recognise the hon. Gentleman’s figures, but I do know that poverty has been rising recently under this Government, so he should be extremely careful about what he says. People are more interested in today and tomorrow than the dim and distant past. I remember that the Conservative Administrations to whom he refers made sharp reductions in income tax across the piece, thereby benefiting those on lower incomes as well as those on higher incomes, and we were very pleased to do that. Today, I am, however, explaining my personal position in today’s circumstances, and I think it is reflected by my Front-Bench colleagues, in that we feel that the squeeze is too intense and that it is not right for it to be intensified by tax measures. I remember when the Budget we are discussing was delivered. The big reduction in income taxes for the rest of the people—the reduction in the standard rate—came at the very end like a rabbit from a hat. My right hon. Friend the Leader of the Opposition had to rise to respond not having had the benefit of any pre-briefing of what the Chancellor was going to do. In the meantime, the shadow Chancellor, myself and one or two other Conservative Members—including, I suspect, the shadow Chief Secretary—had a quick look at the figures and realised what was going on, and the shadow Chancellor immediately left the Chamber to tell the nation it was not a tax cut but a tax con. That was his phrase, and it summed up the situation extremely well. I was the next Conservative Member after the Leader of the Opposition to speak in the debate, and I explained why we felt this was a misjudgment and that quite a lot of people would lose from the proposal.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I am enjoying the right hon. Gentleman’s partisan speech, but, on a point of accuracy, the Conservative party leader welcomed the policy and the first Member of this House who raised the concerns we are discussing was a Liberal Democrat.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- The hon. Gentleman is quite wrong. The Leader of the Opposition made a careful and sensible speech for someone who had not had a chance to read the Budget. Everybody else who spoke in the debate had had a chance to read bits of it, and as we well know it is necessary to read the Budget as well as to hear it in order to understand what is going on. For understandable reasons, the then Chancellor was much prouder of the tax reductions than he was of the tax increases, and that needed to be filleted out from the documentation. I am just explaining what happened at the time. The Government have had a long time to consider the sensible criticisms that were made at the time of the Budget and subsequently. By now, Ministers must have done an awful lot of homework and figure-work on this problem; they must have been worrying away for weeks, if not months, on the 1.1 million. Therefore, I urge the Financial Secretary to share a bit more of her thinking with us in order to allay the fears among her own Back Benchers and to deal with the sensible criticisms voiced by the Opposition. Above all, she needs to say to the 1.1 million people not just that the Government wish to be on their side, but that they will take a practical measure to try to assuage some of their grief.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- I shall be brief, which I think will be found merciful. Let me first, however, comment on the great Liberal lion that roared and roared this afternoon. I thought that at any moment there would be some great proposals to help the lowest paid—such as we would have hoped for and expected from Lloyd George—but what happened? A dribble came out about bookkeeping arrangements and offering transparency. They are not unimportant considerations, but this debate is about how we can help the poorest workers in our society, and on that matter the Liberal Democrats spokesman managed, under great prompting from Labour Members, to devote two minutes of his time and had no proposals on the amendment paper that offered any hope. I rise to speak in favour of new clause 20. I come to praise the Government, but also, as gently as possible, to leave a warning with my right hon. Friend the Financial Secretary. I do not intend to rewrite the history, as some have been trying to do, of the events leading up to the Government’s additional Budget measures to compensate most of those who lost out from the abolition of the 10p rate. All I wish to say to the Government is that although many of the leadership thought that I was running some sort of campaign, I do not think that we sent out even two e-mails on the issue. Labour Back Benchers responded instinctively on this issue. There was real anger felt that, for whatever reason—through oversight or by design—the burden of the Budget should fall on the very poorest. It was that anger that led to the Government’s statement. We should all remember that when the negotiations were going on, we all thought that the Government would say nothing until November. The Government brought forward what we intended to be only part of the measures of compensation. All of us were content at that stage—I certainly was—that we would not see anything until November. The Chancellor of the Exchequer sent my right hon. Friend the Member for West Dunbartonshire (John McFall) off with his Committee to inquire into the matter and bring back proposals. The Chancellor would then come to the House with a set of measures to compensate those who had lost out. Let us remember the lead-up to this debate: none of us expected the Government to do anything until November. The Government have given details of many of their plans that will come into force in September. We do not think that they go far enough, but we should praise the Government for what they have done.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. SimonLabour
- Quote
- Is my right hon. Friend saying that the serious changes that will affect the lives of millions of our poor constituents have come about through a spontaneous outpouring of pressure and concern from Labour Back Benchers? The right hon. Member for Witney (Mr. Cameron) and the hon. Member for Tatton (Mr. Osborne), and the Liberal Democrat Front Benchers, gave the impression that they were foremost in bringing this important matter to public attention. Is it actually because of pressure by Labour Back Benchers that our poor constituents will be looked after in this way?
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. FieldCrossbench
- Quote
- It is indeed. A year ago amendments were tabled to the Budget by Labour Members, and a considerable number voted for them, but the Conservatives sat on their hands.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- I have great respect for the right hon. Gentleman, and he deserves credit for keeping this issue before the House and forcing the Government’s hand, but he is a little disingenuous when he says that we did not expect the Government to act until the pre-Budget report and how wonderful it was that they suddenly decided to act in May. They acted in May because their opinion poll ratings were falling through the floor and they were losing a by-election.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. FieldCrossbench
- Quote
- We can all impute motives to others, but the record says that, when we discussed with the Government what they might do, we all expected no statement until November. The statement is not complete as it is, and we are pressing the Government further today, but I merely record the events. There was an anger that I have not seen on our Benches before and a willingness to ensure that the Government brought forward measures to compensate the poor. There was no campaign on this side—only a couple of e-mails—but Labour Members felt intensely strongly about the issue. We have two options before us tonight. We are waiting for my right hon. Friend the Financial Secretary to say what the Government intend to do and whether she will give us the promise that we require. If she cannot go the whole hog tonight and we are not satisfied, we have new clause 20. We will also have the pre-Budget statement itself. If enough of us feel at that stage that the Government have not fulfilled the promise that we thought that they were making to our poorest constituents, a motion will be tabled. I cannot believe that if those on the Labour Benches again make their views known, the Opposition will not try to exploit that by giving us time to debate the subject. However, that motion will be debated in our name and we will not follow what the Opposition ask us to do in the Lobby.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- In a sense, the right hon. Gentleman has answered the question I was going to put to him. Why does he not support new clause 4? I hope that his reason is not solely that it is tabled in my name and those of my right hon. and hon. Friends. I spoke quite deliberately about it in terms of giving Parliament the last say and I drew attention to the fact that according to current parliamentary arithmetic that essentially means giving the group of 50 or 60 Labour Back Benchers who have been most active on the matter the final say over whether the measures announced in the pre-Budget report are acceptable or not.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. FieldCrossbench
- Quote
- The hon. Gentleman knows the unwritten rules of the House and how they operate. The last say will be with those on the Labour Benches, through new clause 20 or when the pre-Budget statement comes back. Other people might wish to assist us in achieving that objective but all I say to my right hon. Friend the Financial Secretary is that during my 30 years in the House I have never experienced a group of Back Benchers instinctively reacting in the way that we did. If we do not get satisfaction tonight with new clause 20, we will return to the subject in November. We are not prepared for the year to pass by without the Government’s bringing forward measures that, as my hon. Friend the Member for North-West Leicestershire (David Taylor) has laid out, fully compensate every low-paid worker who loses out from the abolition of the 10p rate.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
John McFall (West Dunbartonshire) (Lab/Co-op)Crossbench- Quote
- I am pleased to be speaking on behalf of the Treasury Committee. On Second Reading, I said that the Committee would undertake an inquiry arising from the controversy over the removal of the starting rate of income tax. The result is the report that was published on Saturday, which, I am glad to see, has been welcomed in the House and outside. It is a complex document, reflecting the complexity of the subject. It includes more than 70 pages of the report and recommendations and more than 170 pages of evidence, both oral and written. I had best refer Members to the summary, which documents the five main subjects that we considered. The first was low-income households and the abolition of the starting rate. We said that the losers were those with a small taxable income for whom the loss of a small amount of money was significant when managing a budget at a time of rising prices, particularly rapidly rising energy and food prices. Secondly, we considered the options for 2008-09 and the changes made on 13 May. The problems arose from a removal based in the tax system, and our main recommendation is that the solution should be required to be in the tax system. Thirdly, we looked at the broader context and the poverty targets, to which I shall return later. Fourthly, a big lesson for the Government is the need to get the process right. They need to learn the lessons from the budgetary process and to use the pre-Budget report as it should be used. They should not turn the pre-Budget report into an early Budget. Finally, we considered the way forward, which concerned no reforms other than those to the tax system. The 15 May announcement on increased personal allowances is, the Committee says, a welcome step to a simpler tax system with fewer of the low-paid paying income tax. The Treasury should resist introducing further complications to the system. Every effort should be made to avoid returning those who have been taken out of the tax system by the 13 May changes back into the system. I want to concentrate on three brief points. The first is the relationship between tax and poverty priorities. The second is the use of the tax system for further compensation measures. The third is the provision of information by the Treasury and the role of the pre-Budget report. On the relationship between tax and poverty priorities, our report’s detailed analysis makes it clear that the losers from the removal of the 10p band do not equate to the very poorest in society. However, we also highlighted the danger that the household analysis may assume income-sharing in households that does not take place. The Government must pay heed to that. Also, the tax system needs to be considered alongside the welfare system. The system as a whole is not working as well it should, as is shown by the rise in child poverty in 2006. That figure rose by 100,000 to a total, before the deduction of housing costs, of 2.9 million children in poverty. Moreover, there was a sharp rise in pensioner poverty in 2006-07: before housing costs were deducted, that total rose by 300,000. Those figures reversed the tremendous improvements that this Government have made in both areas since 1997, and it is important that we get the Government to return to achieving success in the broader context when it comes to poverty. The Committee received powerful evidence that successes in combating poverty have concentrated on the non-working poor. Many people still find that work is not a pathway out of poverty. In-work poverty is an important problem, as we highlight in our report. The Government must solve the running sore of the abolition of the 10p tax rate, not least so that they can concentrate on more effectively on their long-term priorities in respect of poverty. The Committee made one recommendation that did not get as much attention at the weekend as others did. We proposed that a poverty commission should be established to help with the focus on poverty. The Pensions Commission, chaired by Lord Turner, achieved a lot. It was an independent, non-political body and its recommendations to the Government were listened to. I feel that a poverty commission could be a similar organisation: it would comprise independent and non-political people, and would provide an important way of keeping the Government on target. After all, this is the only Government to have set out an ambitious agenda to eliminate child poverty by 2020. If the Government are to achieve their ambitions by 2010, they will have to meet stretching targets: indeed, to do so, they would have to reduce child poverty by 300,000 every year over the next four years. That is ambitious, but they must not give up on that aim. It is important that they continue to concentrate on it, and so I hope that they will take that recommendation very seriously. Our second recommendation has to do with the use of the tax system for further compensation measures. The Committee report identifies further developments of the tax credits and benefits system that may be needed, in the medium term and beyond, to tackle poverty. However, we are clear that the only way to reach all those who have lost out as a result of the removal of the starting rate—and to compensate all losers in low-income households—is through the tax system. The Government should not meddle with tax credits or anything else, as compensation should be provided through the tax system. We identify a range of options through the tax system: none is perfect, but we give the Government an option menu. I concur with my right hon. Friend the Member for Birkenhead (Mr. Field): this subject was discussed on Second Reading, and if the Government had waited, that might have allowed them to find a more measured way to tackle the problem. However, we have to deal with reality, and my message to the Government is that any solution must be achieved through the tax system, in a measured and considered way. We do not identify a preferred solution, as the Treasury is best placed to do that. However, the key point that we make is that the changes announced on 13 May and implemented by the proposals before the House are the start of the process, not the end. It is very important that the Government take that on board. My final point has to do with information and the use of the PBR. We seek to identify lessons from the 10p tax saga for future Budget policy making, and draw two main conclusions. First, the Government must be clearer and more open about the distributional effects of their policies, and we recommend that a household impact assessment accompany each Budget and PBR. If such an assessment had been compiled when Budget 2007 was produced, the Treasury Committee would have had time to study it at our leisure. We would have identified both winners and losers, and we would have known where we were going. Any future changes must delineate the winners and losers, as otherwise we will return to opaqueness and confusion.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
Mr. Philip Dunne (Ludlow) (Con)Conservative- Quote
- I am very grateful to the right hon. Gentleman for giving way to me, and my intervention will be brief. He is making a key point. His suggestion would help this Chamber to debate these matters, and if such an arrangement had been in place earlier, it would also have helped Ministers when they were making the original decision. The Treasury’s permanent secretary told us that the full distribution analysis was available to Ministers when the decision was made in 2007. If so, why has it not been published subsequently, so that we could all see it?
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- John McFallCrossbench
- Quote
- There was a lot of conflicting evidence. I well remember the director of the budgetary process coming before the Committee. He was asked how many losers there would be. Was the total 5.3 million? We asked him that question many times, and at last he responded by saying that that might be the ballpark figure. It was all conjecture, but we want certainty. The Government must bear that in mind in future. The Committee’s report also emphasises the benefits of proper consultation about personal tax measures. We return to a theme that we have identified before—that the Government can and must use the PBR more as a tool for consultation. The outcome would have been better if that approach had been adopted in respect of capital gains tax, inheritance tax and the non-doms—and I could list more examples. The Government should not use the PBR as an early Budget. They should not spring surprises on us: instead, they should use the PBR for consultation purposes, as it was intended. Then, people will not be surprised or disappointed by the content of the Budget when it is announced, because the appropriate the consultation will have taken place. That is an extremely important lesson for the Government to learn. I hope that the Government will learn the lessons set out in the report, and that our experience of what happened with the abolition of the 10p tax rate will not be repeated.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I think that I was right to say at the start of the debate that it would focus on the genuine concern on this side of the Chamber about the 1.1 million households that are net losers as a direct result of the abolition of the starting rate of income tax—
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- Will the Financial Secretary give way?
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- No. I shall deal with the opportunism that I have heard from the Opposition parties in a moment. I was grateful to my hon. Friend the Member for North-West Leicestershire (David Taylor) for the terms in which he spoke, and I shall use the same tone in my comments. The uncharitable might argue that those on the Treasury Bench had afforded Opposition parties the opportunity to make hay with this subject. The amendments that they have tabled are all about producing reports, and my right hon. Friend the Member for Birkenhead (Mr. Field) was right to draw attention to the speech made for the Liberal Democrats by the hon. Member for Taunton (Mr. Browne). If he had heard the speech in favour of the ten-minute Bill earlier this afternoon, my right hon. Friend would have heard much more interesting and entertaining proposals about transparency than the hon. Gentleman managed.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HammondConservative
- Quote
- The right hon. Lady has implied that the concern on the Conservative Benches was somehow less genuine that that felt among her own Back Benchers. I want to place it on record that this is not a partisan issue, and that hon. Members of all parties feel that it is wrong to decrease the tax burden on middle-income families by increasing the burden on the poorest. The only people who we know were prepared to press ahead with the measure in the knowledge of its distributional impact were Ministers on the Treasury Bench. We now know that they had full knowledge of the effect that the change would have on the poorest families in our society.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I note the hon. Gentleman’s comments, and he has made his point forcefully. That was a long intervention, and I heard what he had to say. I am sure that all other hon. Members in the Chamber, as well as people listening outside, will have heard him too. However, my hon. Friend the Member for North-West Leicestershire drew to the House’s attention the often misstated position in terms of the proportion of public spending that we are accused of engaging in, compared to the Governments of the 1980s led by Mrs. Thatcher. He said that public spending by her Governments amounted to more than 40 per cent. of gross domestic product. I hope that he will accept that that caused the failures that led to unemployment. Someone wanting a case study in the politics of economic failure would do well to examine the experience of those days. I say to my right hon. Friend the Member for West Dunbartonshire (John McFall) that we welcome his report and will respond fully to it in due course. I heard his comments today, and particularly the emphasis that he placed on the need to get the process right. I was asked a number of questions about why the 10p rate was abolished and why it was introduced in the first place. Members of the House and the public would do well to read my right hon. Friend’s report in detail, because it goes into the history of why the 10p tax rate was introduced in the first place, and refers to the Taylor report of 1998. It is well worth reading.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- My right hon. Friend gives us a general assurance, but we are asking for a specific assurance. When the Chancellor gives us his pre-Budget report, will he address specifically the 1.1 million households with losses that are not made good by the present measures, which I hope we will all support?
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I have been asked whether the proposals will be concrete, whether they will be cast-iron and, by my hon. Friend the Member for North-West Leicestershire, whether they will be copper-bottomed. I cannot find a form of words that will provide a stronger way of saying this. I shall mention some of the things that we have considered, but we intend to make proposals that will do precisely what my right hon. Friend the Member for Birkenhead is looking for. [Hon. Members: “When?”] In the pre-Budget report. I cannot give my right hon. Friend more detail than that at the moment, because that would pre-empt the work that we are continuing to do, but I can assure him that that is our aim.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- John McFallCrossbench
- Quote
- May I take the Minister back to what the Treasury Committee’s report said? We identified the fact that 1.1 million people were affected and said that the Government must make every effort to look for them and compensate them. Will she accept that proposal, so that we will not be disappointed in the autumn?
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I do not know how much more clearly I can say it to my right hon. Friend: that is exactly what we are working to do. I have answered the questions. Will they be concrete proposals? Yes. Will they be implementable and bring assistance as soon as possible? Yes. I shall deal quickly with various Opposition new clauses and amendments that would require reports. A similar amendment was tabled in Committee of the whole House. I shall then turn to the detail of the amendments tabled by my hon. Friends the Members for North-West Leicestershire and for Birmingham, Selly Oak (Lynne Jones), and explain why I hope they will not press them. The result of new clause 4 would be that Her Majesty’s Revenue and Customs would have no legal power to collect any tax on the first £2,320 of taxable income. That would impose a huge burden, and it would cost all taxpayers £6.7 billion to finance the change. As we are now more than three months into this tax year, HMRC would have to repay the tax deducted and then ask employers to collect it again after Royal Assent, on the basis of clause 3 of the Bill. I hope that the hon. Member for Runnymede and Weybridge (Mr. Hammond) will accept this point in the spirit in which I make it: we have already produced a detailed memorandum for the Treasury Committee’s inquiry into Budget measures and low-income households. It outlined the impact that the announcement of 13 May would have. At the time of that announcement, it was made clear that we would set out plans for future years in the 2008 pre-Budget report in the autumn. At that stage, the Chancellor will report back to the House. I see absolutely no merit in requiring him to report back again in January. However, the hon. Gentleman has already indicated that he intends to press new clause 4 to a Division, so I obviously cannot persuade him from his view.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- May I explain my logic? What the Minister is saying is entirely consistent with our pressing the new clause. If she can satisfy her Back Benchers in particular with the announcement that the Chancellor will make in his pre-Budget report, she will have nothing to fear from new clause 4. For those of us who are of a cynical disposition, it is an insurance policy for the House.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I knew that I would not persuade the hon. Gentleman. I do not believe that the new clause is necessary.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- Will the Minister give way?
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I would like to turn to the question of a report on national insurance contributions and the alignment of the primary threshold of national insurance and the personal allowance, but I shall give way briefly to the hon. Gentleman.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am very grateful. I was particularly keen to intervene because the point that the hon. Member for Runnymede and Weybridge (Mr. Hammond) has just made is entirely legitimate, and applies equally to amendment No. 6. If the assurances that the Minister is giving Labour Back Benchers are to be taken at face value—there is no reason to assume that they should not—she has no reason to oppose new clause 4, tabled by the Conservatives, or amendment No. 6, tabled by the Liberal Democrats. The only reason for her to oppose them would be if, for some reason, there were good reason to believe that her offers should not be taken at face value.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I have already explained why making a report in January is not necessary, as we shall make one in the pre-Budget report. As for the report suggested in the hon. Gentleman’s amendment No. 6, it is true that the changes that we are proposing mean that the primary threshold and the personal allowance will no longer be aligned. However, we should see that in the context of the progress that we have made in aligning tax and NICs whenever possible. We have simplified the structure of employers’ national insurance, replacing multiple rates with a single rate and abolishing the entry fee. With just two main rates of income tax and two rates of national insurance in this tax year, the UK’s personal tax system is already one of the simplest in any developed country.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- Will my right hon. Friend give way?
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I have something to say about my hon. Friend’s amendment.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I will wait, in that case.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I should tell the House that I believe that new clause 6, tabled by the hon. Member for Runnymede and Weybridge, is technically flawed. [Hon. Members: “Why?”] I can tell hon. Members why. Subsection (1)(b) states that the basic rate limit is set out in section 10(2) of the Income Tax Act 2007, but in fact it is in section 10(5). Also, the new clause does not recognise that with tax calculated annually and national insurance weekly, it would be rare for the two to be exactly aligned. Requiring a report every time they were not aligned is unnecessary. I hope that the hon. Gentleman will accept that. Turning to the substance of the debate, we have focused on what needs to be done to address the problem described by my right hon. and hon. Friends. Amendments Nos. 102 to 109 envisage two parallel tax systems. One would have three rates of tax—10 per cent., 22 per cent. and 40 per cent.—and the other would have two rates of tax—20 per cent. and 40 per cent. What I am saying formed the substance of the letter that I sent to my hon. Friend, but it is of value to explain why the amendments would not work, although we have considered them. Individuals could choose to be taxed under one or the other system at any time during the tax year. They could change their mind at any time over an unspecified period. We have estimated that the amendments would cost about £1.8 billion. I am afraid that the proposal would prove to be unworkable for individuals, for employers and for HMRC. Two parallel tax systems would require employers and HMRC to set up a new system over and above the one currently in place. That in itself is doable, and if it were the right thing to do, it might be necessary to do it, but, most importantly, I am not convinced that individuals who have lost out from the changes would find such a tax system beneficial. Two different systems would be confusing and impossible to understand for some taxpayers and hon. Members will acknowledge that those in the lowest income groups would find it particularly difficult to judge which system would benefit them. HMRC would simply not be in a position to give advice on such decisions. I very much appreciate the manner in which my hon. Friend the Member for North-West Leicestershire spoke to new clause 20. The one thing on which I agreed with the hon. Member for Taunton was his description of my hon. Friend’s speech. My hon. Friend spoke with humour but passionately about what is clearly a serious issue not just for him for many of my right hon. and hon. Friends. New clause 20 is superficially attractive. We have had an opportunity to talk through some of the detail. My right hon. Friend the Chancellor made it clear in his evidence to the Treasury Committee that we had looked at what could be done through tapering, but we had to reject it for this year. For instance, I am advised that the new clause would affect 7.1 million taxpayers. I want to explain why that is the case. It would require a further 5.6 million people, most on low incomes, to complete a self-assessment tax return. There are 7.1 million people with incomes between £6,400 and £13,600 who would benefit from the extra personal allowance proposed by my hon. Friend the Member for North-West Leicestershire. The average gain for those on lower incomes would be around £60, with an overall cost of some £450 million, because the number of people who would benefit goes so much wider. That is the advice that I am given.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- We cannot hear.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I beg the hon. Gentleman’s pardon. There is a much wider group, therefore, than the 1.1 million remaining losers from the personal tax reform package, and that would mean an increase of at least about 5.6 million in the number of people who had to complete self-assessment tax returns. We have considered the taper, and for those reasons, we believe that a taper is not the right way to deliver, in the swift way in which we wish to deliver it, the help that we want to give to address the problem described. Her Majesty’s Treasury estimates that the new clause still means that about 200,000 households would not be fully compensated. The point about pensioners illustrates the point. People aged 65 or over should benefit from significantly increased personal allowances. Low and middle-income pensioners can have an income of at least £9,030 before they pay tax. However, if individuals are concerned, as has been described this afternoon, that their tax code is not correct, they should obviously contact HMRC, which will seek to correct it as soon as possible.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
Stewart Hosie (Dundee, East) (SNP)Scottish National Party- Quote
- The Minister cannot seriously be suggesting that the need to fill in tax returns is the reason why this will not work. She expects 750,000 people who pay tax on their savings to fill in a tax return to claim back on average £80 from HMRC. If she argues that it is all right for people with low savings income to fill in a tax return, she cannot also be saying that the need to fill in a tax return is the reason why we cannot use a taper in this case.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I am acknowledging that there are difficulties. The number of people who would be drawn into self-assessment is large. They would be precisely the people who would find it difficult to judge which of the two tax rates they would benefit from. Equally, they would find it unnecessarily complex to fill in a self- assessment return, perhaps because they work in more than one job. We considered it, but we decided that it was not the best way to help those people.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Philip HammondConservative
- Quote
- I sense that the right hon. Lady is close to concluding. Can she tell the House what is the cost of issuing new notices of coding in respect of all employees as a consequence of new clauses 11 and 12 if the House is minded to pass them tonight?
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I hope that the House will be minded to pass them. We have said that the overall cost of the proposals is £2.7 billion. We have been completely open. I cannot give the hon. Gentleman the exact detail that he asks for. I do not believe that it affects the proposal that we are putting forward. I hope that the House will support the Government new clauses.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- This could be my penultimate intervention. May I bring my right hon. Friend the Minister back to what she said to the Chairman of the Treasury Committee when he asked whether the Treasury would move every sinew to ensure that all 1.1 million would be compensated as rapidly as possible within the taxation system, ideally within the current tax year? Her answer, briefly, was yes. Will she underline that that is what she meant to say, and that she persists with it now?
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I made it clear that we were conscious of the fact that 1.1 million people—
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
Mr. David Gauke (South-West Hertfordshire) (Con)Independent- Quote
- Households.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- Yes, households. They have not been fully compensated—to use the phrase—as a result of the changes that we proposed in May. I am conscious of the welcome that those proposals have had from the House. I cannot say more at this point about the detail of what we intend to do, but I hope that my hon. Friend will accept that we are focused on this point. We are not complacent. We appreciate that there is work to do to help those individuals. That is what we are working to do. We will introduce proposals in the pre-Budget report.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- Several hon. Friends are obviously hoping to offer help at this point.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- May I add to that point? Am I right in thinking that when my right hon. Friend says that the Treasury is focused, she means that it is focused on introducing a package that fully compensates those who are not yet fully compensated?
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- Yes. I feel as if we are getting close to the most philosophical considerations in this debate. I have repeatedly described exactly the commitment that we have given to deal with the problems that we face. My right hon. Friend the Chancellor has made it clear that neither he nor we are complacent. He made it clear in his statement to the House on 13 May that he would return to the issue in the pre-Budget report. I can again state that to the House. Yes, there will be concrete proposals. Yes, they will address the point. Yes, they will be targeted. Yes, they will be implementable as soon as possible. The amendments and new clauses that my hon. Friends have introduced—I do not want to sound patronising—are well intentioned, but I believe that there are serious problems with them, and that they should not be pressed at this stage. We should be given the time to bring forward our proposals in the pre-Budget report in the proper way.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I am grateful to my right hon. Friend for giving way to me again. There are Whips all round the Chamber, who do not routinely see me as a paid-up member of the deferential patsy tendency from which ministerial aspirants are traditionally selected. However, I can tell my right hon. Friend that with a huge amount of trust and good will, which I hope will be repaid in the pre-Budget report, and after great agonising, I shall not at this stage move—[Hon. Members: “Ah!”]. It is all very well people saying that, but I shall not be moving new clause 20, and I underline that point to my right hon. Friend.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I am extremely grateful to my hon. Friend. I take his point, and we accept seriously the trust with which he has charged us. The new clauses in the name of the Chancellor that we have debated this afternoon will bring great relief to the vast majority of households—more than 4 million—who ended up paying more tax as a result of the abolition of the 10p tax band. Overall, the Budgets of 2007 and 2008 made proposals that take 600,000 pensioners and 600,000 other taxpayers out of tax altogether. Our proposals have been widely welcomed, and I hope that our new clauses and our amendment will be supported this evening. Question put and agreed to. Clause read a Second time, and added to the Bill. New Clause 12 Basic rate limit ‘(1) In section 10 of ITA 2007 (income charged at main rates: individuals), for subsection (5) substitute— “(5) The basic rate limit is £34,800.” (2) The amendment made by subsection (1) has effect for the tax year 2008-09 and subsequent tax years. (3) But until 7 September 2008 for the purpose of ascertaining the amounts deductible or repayable under PAYE regulations it may be assumed that the figure specified in section 10(5) of ITA 2007 for the tax year 2008-09 is £36,000.’.—[Jane Kennedy.] Brought up, read the First and Second time, and added to the Bill. New Clause 4 Income tax rates ‘(1) The amendments made by the provisions of this Act specified in subsection (2) shall cease to have effect at midnight on 5 January 2009 unless the conditions set out in subsection (3) have been satisfied. (2) The provisions referred to in subsection (1) are— (a) section 3(2) and (3), and (b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate). (3) The conditions referred to in subsection (1) are that— (a) the Chancellor of the Exchequer shall have laid before the House of Commons a statement setting out the measures taken, or intended to be taken, to mitigate the effect of the amendments made by the provisions of this Act specified in subsection (4), when taken together, on those for whom such effect is a net increase in income tax payable, and (b) the House of Commons shall by resolution have approved such statement. (4) The provisions referred to in subsection (3) are— (a) sections 1, 3(2) and 3(3), (b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate), and (c) any other provision of this Act the effect of which is to change the bands of income on which income tax is charged.’.—[Mr. Philip Hammond.] Brought up, and read the First time. Question put, That the clause be read a Second time:— The House proceeded to a Division.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
Mr. Deputy Speaker (Sir Alan Haselhurst)Conservative- Quote
- I ask the Serjeant at Arms to investigate the delay in the No Lobby.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I beg to move, That the clause be read a Second time.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Deputy SpeakerConservative
- Quote
- With this it will be convenient to discuss the following: New clause 5—Coming into force of Part 7 ‘The provisions contained in Part 7 of this Act shall not come into force until— (a) the Treasury has prepared and laid before the House of Commons a report setting out the safeguards available to taxpayers and third parties in respect of HMRC’s powers contained in Part 7 of this Act; and (b) the House of Commons has by resolution approved the report.’. New clause 19—Taxpayers’ charter ‘(1) The provisions of Part 7 of this Act shall not come into force until the condition set out in subsection (2) has been satisfied. (2) The condition referred to in subsection (1) is that the Treasury has, by regulations made by statutory instrument, provided for the introduction, by no later than the passing of the Finance Act 2009, of a Taxpayers’ Charter. (3) Regulations under subsection (2) must— (a) specify the statutory rights of the taxpayer, including providing for a right to appeal against an action or decision of HMRC, and (b) specify the statutory duties of the taxpayer, including— (i) notice periods to which the taxpayer must adhere, (ii) documents to which the taxpayer must allow access, and (iii) penalties which may be levied on the taxpayer for failure to comply. (4) Regulations under subsection (2) may not be made unless a draft of the instrument containing them has been laid before and approved by the House of Commons.’. Amendment No. 8, in clause 112, page 72, line 36, at end insert— ‘(10) This section shall not come into force until— (a) the Treasury has laid before the House of Commons a review of the ability of HMRC to secure electronic documentation provided by a person to HMRC for the purposes of checking the tax position of that person, and (b) the House of Commons has by resolution approved that review.’. Government amendments Nos. 24 to 28 Amendment No. 36, in schedule 36, page 382, line 37, leave out ‘solely’ and insert ‘in whole or in part’. Amendment No. 37, page 383, line 23, leave out ‘solely’ and insert ‘in whole or in part’. Amendment No. 38, page 383, leave out line 29 and insert— ‘(b) if sub-paragraph 2(b) applies or the occupier does not agree a time and sub-paragraph (2) is satisfied, at any reasonable time.’. Amendment No. 39, page 383, line 31, leave out ‘7’ and insert ‘14’. Amendment No. 34, page 388, leave out lines 22 to 24. Amendment No. 35, page 388, leave out lines 32 to 34. Amendment No. 4, in schedule 39, page 413, line 21, leave out paragraph 12.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- First, I shall discuss new clauses 5 and 19. New clause 5 is technically deficient. It is not clear how it is intended to work in conjunction with the provisions that are to be brought in by separate order. The intention is to delay the whole of part 7 until the report has been written and endorsed by Parliament, but that does not sit easily across these measures; the same applies to new clause 19. I want to say a little about part 7, which contains a number of administrative provisions, the majority of which come from the work of the review of powers, deterrents and safeguards. Other measures in part 7 include clauses relating to appeals, excise matters, funding bonds and measures under the avoidance disclosure rules and others. Those clauses are vital if the HMRC is to deliver the benefits set out in the O’Donnell review, including the closure of the tax gap and the modernisation of existing legislation. The importance of adequate safeguards has been recognised by the Government and the HMRC and the valuable views of representative bodies have been taken on board. In Committee, we spent seven hours on schedule 36 alone. I am not complaining about that; it is right that such an amount of time should have been spent on such important legislation. In addition to those safeguards in the primary legislation, further protection will be provided by regulations and guidance. Broadly, that is the main area of disagreement. It would be helpful to consider what the legislation actually includes. For compliance checks, schedule 36 alone includes 37 separate and identifiable safeguards. The levels and reductions for penalties for incorrect returns are now set in statute, rather than being in HMRC guidance to be left to the discretion of officers. On resolving disputes, clause 122 will introduce an optional statutory review of HMRC decisions. The amendment would delay that. Throughout our debates, the Opposition have repeatedly stated that all safeguards should be in primary legislation. I do not accept that, and I do not believe that the hon. Member for South-West Hertfordshire (Mr. Gauke) would if he were in my position; I hope that he will not be any time soon. Legislation cannot cover every conceivable scenario. Other forms of safeguard can be both flexible and a protection for the taxpayer. In deciding whether the HMRC is acting reasonably in any particular case, the courts will take account of its published guidance. As with last year’s penalties clauses, there will be full and open consultation on the guidance. That approach was applauded last year. Work on producing guidance on compliance checks in formal disputes resolution, penalties, debt and unpacking containers will be completed well in advance of the legislation’s coming into effect. Although it is true that we have not always been persuaded that further safeguards are necessary, additional safeguards were introduced in consultation before the Bill was introduced and in the course of our proceedings. The HMRC has been prepared to forgo certain benefits of alignment when respondents to consultation made a strong case for the retention of safeguards. For instance, we have retained the inquiry window for direct tax self-assessment cases and the evidence-of-facts rule for VAT. Following consultation, we also agreed that a penalty on a third party should apply only when that third party deliberately falsified or withheld information from a taxpayer. We removed a proposed penalty for failure to allow entry to premises unless there had been an independent external authorisation. During the parliamentary process itself, the Government have tabled further amendments ensuring that the power of entry and inspection does not extend to any part of premises used solely as a dwelling. Other than in cases involving the taxable supply of goods, we restricted the power to inspect business premises to those used by the person whose liability is being checked. I recognise the concerns that have been expressed about ensuring adequate safeguards, but such safeguards must provide real and effective protection for taxpayers, rather than merely create bureaucracy and delay. The balance is right in part 7. As I said, new clause 5 seeks to delay that implementation of part 7 until further reports. What could such reports add to the already extensive consultations and detailed debates in the House? No doubt, the hon. Member for South-West Hertfordshire will make the case in a moment. New clause 19 seeks to delay the implementation of part 7 until regulations containing a taxpayers charter have been approved by the House of Commons. Acceptance of that new clause would result in the additional safeguards in part 7 being delayed for another year—a somewhat perverse outcome, given the importance attached to safeguards. As the House will know, we are considering the introduction of a charter, which should bring many positive benefits, especially in improving the relationship between the HMRC, taxpayers and other customers. I want to put on record my gratitude to the representative bodies for the interest that they have shown in the subject, and particularly to the Chartered Institute of Taxation for the paper that it published in March. The consultation published on 19 June makes things clear. The terms of a charter should not be set out in legislation. That is not to devalue the charter, which is an important standard. Many taxpayers’ rights are set out in tax legislation—for instance, the right to appeal against certain HMRC decisions. Others, however, are provided through non-statutory routes such as codes of practice and departmental practice. In addition, an array of non-tax legislation—the Human Rights Act 1998, data protection legislation, the Freedom of Information Act 2000 and the like—also governs the HMRC’s relationship with taxpayers and claimants. A charter is intended to support that. The wording of an accessible and useful charter is not intended to be like that of legislation; it is meant to be a guide to the law. The use of statutory wording in a charter would compromise the intention to create a simple statement of the basic rights of taxpayers and other customers in their relationship with the HMRC. This is a large group of amendments, and I shall try to address quickly each of them in turn. Clause 112 forms part of a package of measures allowing the HMRC to check that taxpayers have met their obligation to pay, return and claim the correct amounts of tax. That package includes the power to require the production of documents and the power to inspect them. In essence, the clause reproduces the equivalent provisions from the former Inland Revenue and Customs and Excise. The clause consolidates the provisions that ensure that documents include electronic versions and allow HMRC officers access to computers holding information required for a tax check. The new provision also aligns and decriminalises the penalties that apply when a person obstructs an inspection of computer records or fails to provide reasonable assistance. Amendment No. 8 would not have any impact on the HMRC’s ability to carry out checks on electronically held records. The existing provisions would continue in force until superseded by clause 112, but the amendment would leave in place the current unsatisfactory situation whereby a person could face a criminal charge for obstructing the exercise of the power or for failing to offer reasonable assistance under one provision, and a financial penalty under the other provision. I believe that it is better to align those now.
- Time
- 18:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- It is a pleasure to return to the issue of powers. As the Financial Secretary said, we debated the matter at some length in Committee. The time we spent was valuable, although I had not realised that we spent seven hours on schedule 36 alone. I suspect that I may have been responsible for quite a chunk of that time, but I do not think that I will be addressing the House at anything like that length this evening. The debate that we had in Committee was important. The Government’s consultation and the proposals in the Bill provoked a considerable response, and there was a great deal of public interest. The professional bodies looked very closely at what the Minister said, in particular, to seek reassurance and a further understanding of what the measures involved. The debate was therefore a valuable and useful part of the Bill’s passage; in many respects, the process worked as it should have done. I compliment the Financial Secretary on the way she has addressed this matter, attempting to deal with the issues in a constructive manner. There are times in the course of all debates, including on this Finance Bill, which is no exception, when the Opposition wish to highlight—“take pleasure in” would be the wrong way of putting it—the fact that a Government have moved their position. We make accusations of U-turns, fiascos and humiliations—and rightly so with regard to some of the matters that we have debated today. However, on the subject of our discussion, the Government have moved for the best of reasons. There has been an intention to listen to the concerns of professional bodies and an attempt to allay them. We wish that the Government had gone further in some instances, which we shall discuss this evening, but I want to put it on record that the Government’s approach has been sensible. Equally, I hope that the Financial Secretary agrees that our approach has been one of constructive opposition in trying to scrutinise the Government’s actions and highlighting where we think they are wrong, but trying together to move the law in the right direction. The principal concern that the professional bodies raised is, at heart, simple. By and large, there is no objection to greater harmonisation of powers for different types of taxes. There are sometimes one-size-fits-all problems, but by and large, some harmonisation is recognised as beneficial. However, there is concern about balance regarding HMRC’s powers and deterrents. They are mostly increasing and are perhaps advancing faster than the safeguards. What HMRC requires to collect tax efficiently and enforce tax law, and the safeguards for protecting the taxpayer, are out of sync to some extent. That point is at the heart of the concern expressed by the professional bodies, and we raised it on numerous occasions in Committee. Movement has occurred and the Government have taken a constructive approach. There has been movement on notice before inspections of businesses and on inspections of third party premises. The Financial Secretary made some helpful comments and provided clarification on issues such as set-off involving tax credits. An Opposition amendment was even accepted; it dealt with the length of time after which HMRC may serve an information notice on a deceased person’s tax position. We are grateful to the Financial Secretary for agreeing to the amendment on the basis that it was common sense—as she said, it was a good amendment. That is not to say that there were not many other good amendments, which were not accepted, but we take what we can. The Government have also promised to keep matters under review—the provisions on powers, and especially the culture change in HMRC with regard to customer service and improving the taxpayer’s experience. Other specific issues to be kept under review include professional privilege, the meaning of “reasonable excuse” in the context of penalties and, as the Financial Secretary mentioned this evening, publicity for tax reclaims. That is important. However, we have also heard a great deal—we heard it again tonight—about the way in which many issues that we have raised will be addressed in guidance. The Financial Secretary said that we argued that everything needed to be in primary legislation. Yes, we argued that more than we currently have should be in primary legislation. Oppositions tend to argue that regulations should be made by the affirmative rather than the negative procedure, although there were circumstances in which we did not adopt that position.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- In the previous debate I was inaccurately accused of taking insufficient interest in the details of the Bill. Here I am now, but my detractors have left to discuss other matters elsewhere, which I regret. Although this does not at first sight appear to be a box office string of amendments, it is quite significant as it deals with the balance between the powers of the state and the liberties of the individual citizen. PricewaterhouseCoopers, which obviously follows these matters closely, has described the proposals that we seek to amend this evening as “the most fundamental changes to HMRC’s ability to inquire into direct tax returns since 1976”. A series of different Acts, including the Taxes Management Act 1970—the year in which I was born—and the Finance Act 1998 has been scrapped and a new framework for governing the practices of Her Majesty’s Revenue and Customs, augmented by further published guidance, has been put in its place. Members of all parties would recognise that HMRC has an important job to perform. It has a duty to collect on behalf of the Government the taxes that this Parliament has decided to levy on the people of this country. We would not, of course, enjoy the public services and other aspects of public expenditure if that task were not performed collectively on behalf of us all, so I am not in the business of running down HMRC. It has an important job to do; nobody likes paying taxes, but I observe that nobody likes the withdrawal of the public spending consequences either. We thus owe a debt to HMRC for undertaking what is not always the most popular work on our behalf. There will be occasions when HMRC detects behaviour that is either consciously fraudulent or, in some cases, not fraudulent but where the individual is not paying a level of tax that is deemed, on further inspection, to be appropriate and necessary. Up to a point, HMRC needs powers to probe the private affairs of individual citizens, but legitimate concerns have been expressed by many representative bodies that those powers have become excessive. HMRC’s website claims that “the Review of Powers is committed to consulting widely at each stage in the development of policy and legislation”, but many feel that the Government have ignored wider stakeholder reservations about the Bill. I made the point in Committee that the consultation period ended on 6 March, but the details of the proposed changes were announced in the Budget of 12 March. Although I have never worked in the Treasury, I suspect that many of these matters were decided not in the final few days, but many weeks earlier. A number of professional bodies share my suspicion that many of their representations were overtaken by the considerations and deliberations of the Treasury and that the consultation process was not as comprehensive or as “listening” as it might have been.
- Time
- 19:30
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- Before the hon. Gentleman is too quick to dismiss the concept of a taxpayer’s charter, will he concede that the OECD recommends such a course of action, and that many other developed economies have done exactly that? As I have suggested, such a charter provides for an improvement in the relationship between the taxed and the tax authorities.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I concede that, and the Government have on occasions been slightly unfairly maligned. A reasonable person trying to be as impartial as possible would say that part of the blame for some of the problems that HMRC has had could reasonably be attached to the Government because they sought to reorder and restructure the organisation. If one undertakes an organisational restructuring, one must live with the consequences of problems or inefficiencies that arise partly as a result of that restructuring. That said, were the Government of this country run by another political party, would such problems disappear overnight? No, it is reasonable to say that they would not. Such problems will inevitably arise in private and public sector organisations, because that is the nature of human error and of the new electronic age in which we live. The only thing we can do is to ensure that the safeguards are constantly reviewed and improved, and I appreciate that the Government are trying to do that—it would be odd if they were not. We encourage the Government to do even better in that regard. On the balance between the powers of the Revenue and the individual taxpayer, it would be helpful to clarify and formalise the specific powers of HMRC, which new clause 19 seeks to do. It is not a one-way street—it would be helpful for employees of that organisation to know in greater detail and with greater clarity what they are allowed to do. I and the hon. Members for South-West Hertfordshire (Mr. Gauke) and for Dundee, East (Stewart Hosie) raised hypothetical examples in Committee, and there are and always will be grey areas—probably even more than in the past, because people’s tendency to work from home, internet cafés or whatever will mean less distinction between the place of work and place of residence than even five years ago. A proper charter that explains what HMRC is able to do would therefore be helpful. Basic rights of appeal for individual citizens against the actions or decisions of HMRC would also be helpful, in which respect the charter would more closely resemble the citizens charters of the 1990s. Many people who understand that HMRC has a job to do, and that a tax inspection regime must be in place, nevertheless feel that they are interfacing with an organisation that is sometimes heavy-handed and unsympathetic to what they regard as legitimate reasons that their tax was not paid precisely as HMRC had decreed. Those people feel that they have little right of appeal or recourse to rectify that perceived wrong. New clause 19 would therefore balance more formally the powers of the state—which we recognise must exist in the field that we are discussing—with the liberties of the individual citizen. It should not be assumed that HMRC’s powers are always superior to those of the individual citizen. Taxpayers have rights just as tax collectors do. We look forward to the Financial Secretary’s closing remarks, but we wish to press new clause 19 to a vote at the appropriate moment.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
Mr. Brooks Newmark (Braintree) (Con)Conservative- Quote
- I had not intended to contribute to the debate, but I was so moved by the words of my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) that I am compelled to speak, albeit briefly, on amendment No. 4. I am in constant touch with members of the Braintree Pensioners Action Group, and I feel that pensioners, people on low incomes and people with disabilities might still be hurt by the apparent direction of the Government. We have heard that the entitlement period for those trying to reclaim overpaid tax will be reduced from five years 10 months to four years. We know of the efficiency, rigour and zeal with which HMRC seems to go about collecting tax. Unfortunately, on the other side of the equation, the elderly, those on low incomes, and those with disabilities are perhaps not as efficient in understanding how, when and the means by which they can reclaim their overpaid tax. As we have heard from my hon. Friend, they might not even be aware that they have overpaid. In that spirit, I have three questions for the Minister. First, what is motivating the Government to reduce the period that some of the most vulnerable people in our society have to reclaim overpaid tax? Secondly, what discussions has she had with the Low Incomes Tax Reform Group on the issue? I am sure that she has had many such discussions, because that group has clear concerns about the direction of the Government and HMRC. Thirdly, having listened to pensioners, the elderly, those on low incomes and particularly representative groups such as the Low Incomes Tax Reform Group, what protections do the Government seek to put in place for those who might be hurt by that general direction?
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- I want to address new clause 5, but in doing so return to the debate that we had in Committee on clause 112 on computer records. The Financial Secretary will recall the argument: clause 112 requires the taxpayer to allow HMRC, a commissioner or an officer to “inspect a document, or to make or take copies of or extracts from or remove a document”. We were talking about computer records, so I gave the example of an e-mail, attachment or web page on a server hosted outwith the country. I also made the point that clause 112 allowed an authorised person to have access to “any person having charge of, or otherwise concerned with the operation of, the computer”. That could be a third party, a maintenance company, someone with a management contract, or a computer that was not under any circumstances in the control of the taxpayer whose documents the Revenue was trying to see. The Financial Secretary gave us some comfort at that time, particularly in relation to the extraterritoriality potential in clause 112. However, it is in part 7, as is the introduction of schedule 36 penalties, including paragraphs 43 to 47 and 50, which include the concealment or destruction of documents, failure to comply with time limits, and the tax penalty if a failure or breach continues after an initial penalty has been levied. I am sure that it is not the intention of the Bill or the Revenue, but given the debate on clause 112 in Committee, it strikes me that a penalty under schedule 36 could be levied for concealment, breach of time limits or a tax penalty thereafter, for non-compliance with an order to allow a document to be copied, extracted or removed from a computer wholly under the control of a third party, and not under the control in any way, shape or form of the taxpayer. What attracts me to new clause 5 is the reference to safeguards applying to taxpayers who might find themselves in the hideous position of wanting to comply but being technically unable to do so. I look forward to what the Minister has to say about clause 112, computer records, how breaches could be penalised under schedule 36, and what safeguards might exist in the absence of new clause 5 to prevent or insure taxpayers from being penalised if they had no control over a document that the Revenue was trying to get at or to copy.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Jane KennedyLabour
- Quote
- I shall deal with the Government’s new clauses on set-off provisions before returning to the points made by the hon. Member for Dundee, East (Stewart Hosie) and others. As the House was told by the hon. Member for South-West Hertfordshire (Mr. Gauke) and as the explanatory note makes clear, new clause 16 is required as a result of a recent judgment by the Court of Appeal to protect the Exchequer from potential avoidance opportunities, and to ensure that tax is collected as Parliament intended. The hon. Gentleman asked me about the cost to the Exchequer. I approach the answer with some caution. It is extremely difficult to say how much would be lost if the Exchequer were to lose its powers and duties to set off outstanding liabilities against claims for overpaid tax, but it is clear from the value of claims currently lodged with HMRC that the revenue potentially at risk runs into hundreds of millions of pounds—less than £500 million, but nevertheless representing a considerable range. I do not wish to be drawn into too much detail, but there is a significant risk. Until the Court of Appeal judgment, HMRC had taken the view that only the person who overpaid the tax was entitled to make a claim for repayment. When a person makes a claim for over-declared VAT, HMRC is required to set off against it any outstanding liabilities of the claimant. For example, when a taxpayer submits a claim for £10,000 but has a VAT debt on file of £3,000, his eventual refund will be £7,000. The judgment of the Court of Appeal in the case mentioned by the hon. Gentleman, Commissioners for Revenue and Customs v. Midlands Co-operative Society, makes it clear that the right to make a claim can be transferred by the person who overpaid the tax, namely—this is where it becomes horribly legally complicated—the original creditor, to another person, the current creditor, who then becomes entitled to make the claim to HMRC for repayment of the tax. The potential loss of tax arises because there is no provision under current law for HMRC to offset the liabilities of the original creditor when the claim for the overpaid tax is made by someone else. As a consequence, taxpayers can, through assignment of the right to make a claim, avoid the set-off procedure. New clause 16 seeks to address that avoidance opportunity by putting the current creditor in the shoes of the original creditor for the purposes of the setting off of liabilities. That is about as far as I, a non-legal person, can follow the details, but it is important to ensure that when a person who has overpaid his tax liability—the original creditor—transfers the right to claim that overpaid tax to another person—the current creditor—the current creditor will not receive from HMRC any more than the original creditor would have received had he made the claim himself. Although the Midlands judgment was a VAT case, its application is not limited to VAT. As the current procedure for claiming overpaid VAT is replicated for all the indirect taxes administered by HMRC, the potential for avoidance and loss to the Exchequer exists for them all. HMRC believes that it may also exist in relation to claims for error or mistake relief in direct tax. I stress that the new clause does not empower HMRC to make the current creditor liable for the debts of the original creditor. It simply ensures that the current creditor cannot receive any more tax from HMRC than the original creditor would have been entitled to. It is not my intention that HMRC should rely solely on the new clause to recover the original creditor’s liabilities. When the right to claim a repayment from HMRC is transferred, the set-off mechanisms in the new clause will not be applied to a payment to the current creditor until HMRC has taken all reasonable steps to recover any outstanding liabilities from the original creditor. Amendments Nos. 24 to 28 make consequential changes to clauses 128 and 129. I am grateful to officials for their advice. This is one of those moments that occurred relatively seldom in Committee. I send my best wishes to the leader of an exemplary team of officials, and wish him many happy returns of the day on his 31st birthday. I am sure that he is enjoying spending it in our company this evening. The hon. Member for South-West Hertfordshire asked whether a motive test had been considered. The simple answer is no. The purpose of the new clause is not to prevent assignments that are genuinely commercial arrangements, or to make them impractical. It simply ensures that the Exchequer does not pay out any more than it would have had the claim been made by the original creditor. The hon. Gentleman spoke of what he perceived as the danger of erring too far on one side of the balance between powers and safeguards. The package provides greater consistency across taxes: although there are some extensions of powers, they are matched by tightening in other areas and a strengthening of safeguards. Inevitably there will be tensions as we seek to ensure that HMRC has appropriate powers to work effectively, and that taxpayers have strong safeguards. The balance has changed, but in my opinion it has changed in favour of the taxpayer. The schedule contains 37 statutory safeguards to protect the taxpayer, at the heart of which is the need for all actions carried out by HMRC to be reasonable. We debated that at length in Committee. The hon. Gentleman made a valid point about the protections for ordinary, decent taxpayers who might otherwise be badly affected. As I have said repeatedly, if there is any evidence that the changes work detrimentally in the way that he described, I shall wish to act to address that. At the heart of all our proposed changes is the need for HMRC’s actions to be reasonable. Guidance will support the safeguards, and will seek to ensure that taxpayers are fully aware of their rights. The hon. Member for Taunton (Mr. Browne) said that he would press new clause 19 to a vote. In my opening remarks, I explained at length the interest in the taxpayers’ charter, and I want to present proposals in due course. As the hon. Gentleman knows, we are in the early stages of consultation, and I prefer that approach to the one suggested in his new clause. The review of powers aims to include more safeguards in legislation where appropriate, and, as I have said, additional safeguards are set out in codes of practice and operational guidance. The hon. Member for South-West Hertfordshire asked how we could be sure that we would have a chance to scrutinise the guidance. HMRC set out the guidance in a timetable in the consultation response document that was issued at the end of March. The codes of practice and the examples were also published in both consultation documents, providing much of the detail needed, and full draft guidance on record-keeping has been published. All those documents are public and can be scrutinised in Parliament in the normal way, although obviously not by means of a legislative process. The hon. Gentleman suggested that taxpayers were not clear about what records to keep. Taxpayers have said that they do not want HMRC to be too prescriptive. Its largely generic approach requires records to be kept of income, sales and expenses, but it also allows taxpayers to decide exactly what they need to keep. They are best placed to decide, bearing in mind their own circumstances. What is important is for taxpayers to keep enough records to be able to make accurate tax returns or claims. The hon. Gentleman asked what would happen in the event of a dispute. When there is a dispute, the taxpayer can tell HMRC, and when there is genuine doubt, HMRC will use the written information power that we discussed in Committee. That power would carry a right of appeal in most cases, or it would have to be pre-authorised by an independent tribunal. The hon. Gentleman asked why there is no right of appeal against the power to inspect premises. The law says an inspection must be reasonable, and guidance will set out examples of specific cases where an inspection would, or would not, be reasonable. If HMRC breaches that guidance, the taxpayer could either make a formal complaint or refuse to allow the inspection to take place, knowing that for a penalty to be charged HMRC must demonstrate to the tribunal that the inspection was reasonable. The IT enhancements planned by HMRC will improve the handling of individuals’ tax details and will allow HMRC to identify incorrect payments earlier. That will mean that many overpayments will be repaid automatically without the need for a formal claim. In many such cases, a refund is due whether or not the taxpayer makes a claim, so the time limits to which the amendment refers do not apply. I did not address amendment No. 39 in detail as we debated it in Committee. It might be helpful, however, if I make the following comments. The seven days in the proposed legislation is a minimum period of notice, and usually a longer period would be allowed if necessary. We were asked what would happen in the event of a holiday, perhaps of a fortnight. That would not be a problem, as the taxpayers would have a reasonable excuse for delaying a visit until the conclusion of their holiday. Therefore, based on the requirement for HMRC to behave reasonably, the problems described would not arise. The new aligned time limits have been warmly welcomed by external stakeholders. The application of the same time limits across taxes will be a useful simplification for taxpayers. They will also allow HMRC to work in a joined-up way across taxes when carrying out checks, which will reduce costs for taxpayers. Most welcome of all has been the earlier certainty for taxpayers that will be provided by reduced time limits as they relate to direct taxes—HMRC will only be able to go back for six years when the taxpayer has not taken reasonable care to get their tax right. Six years is a substantial reduction from the 20 years that currently applies. HMRC will continue to accept later claims when the taxpayer has a reasonable excuse. I will keep the effectiveness of HMRC’s publicity and the planned pay-as-you-earn system improvements under review to ensure that people are prepared for the new time limits from 1 April 2010. A considerable period will pass before the new powers take effect, which is sufficient for not only Parliament, but the representative groups of taxpayers who are also closely scrutinising this work to be satisfied that the powers are appropriate. The hon. Member for Dundee, East asked about computer records. As I said in Committee, computer records are no different from paper records. If HMRC wishes to inspect any such documents, they must be relevant to the taxpayer’s tax position, and must be in either the taxpayer’s or the third party’s power or possession, and if they are stored abroad, they must be made available in the UK. All those requirements would be necessary. I know the hon. Gentleman is particularly concerned about where the computer or website, for example, is outside the control of the individual. It would be possible to demonstrate that to HMRC. As I have said to him, HMRC would have to liaise with foreign authorities, perhaps in the jurisdiction where the records are sited, in order to obtain the information through a formal exchange of information. To that extent, the individual taxpayer would step back in order to allow a process of dialogue with the tax authorities in the other jurisdiction to take place. The application of penalties is also no different. The hon. Member for Taunton asked about what HMRC is doing to protect taxpayer data. I refer him to the Independent Police Complaints Commission and Poynter reports. There is a long list of steps that HMRC is taking, and I encourage him to look at the reports in detail because they give the scope and nature of those improvements.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- I beg to move, That the clause be read a Second time.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. SpeakerCrossbench
- Quote
- With this it will be convenient to discuss the following amendments: No. 1, in clause 8, page 3, line 29, leave out ‘and civil partners’ and insert ‘,civil partners and siblings’. No. 2, in schedule 4, page 136, line 9, leave out ‘or civil partner’ and insert ‘,civil partner or sibling’. No. 3, in page 136, line 11, at end insert— ‘(1A) In subsection (1) “sibling” means a brother or sister with whom the deceased person had lived in the same household for not less than ten years before the person’s death.’.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. FieldCrossbench
- Quote
- I am grateful for this opportunity to move the new clause and speak to the amendments, but I will not be pressing them to a vote because I have learned that the Conservative Opposition are not going to vote on them tonight, although we have the votes to win. I do not think that it is fair on Labour Members to ask them to vote against their Government just for the sake of it, when we cannot win. So the message can go out clearly to the country that we might well have got change tonight—the Liberal Democrats and the nationalists were coming in with us—but sadly, the Opposition votes have crumbled. There is a case to answer, however, and I very much hope that the Economic Secretary will respond to the main points in the debate. When historians write up the Labour Government, the two changes they will pick on as the most lasting are the ban on smoking and the establishment of civil partnerships. Both of them changed in a significant and good way the nature of our society, one because it used the law to set—[Interruption.] It is interesting that my hon. Friend the Member for Telford (David Wright) is laughing; we may be so hard pushed at the election that the Government may have to fight it on those measures, so it would be well worth listening. If my seat was marginal, I would be desperate to find some good messages to impart to the electorate. Let us return to the debate. The law banning smoking has changed behaviour, and with civil partnerships we have rewarded the loyalty and faithfulness of couples of the same sex. When those measures went through we became a more civilised society on both fronts. The new clause would try to extend that approach for siblings who have made a home together, many of whom, as a result of the current duties paid on property at death, have to sell their home and start all over again. I did not table the new clause as a plea that such people should have special tax status or because they are siblings living together, they should be exempt from tax, but merely so that, as for married couples and those in civil partnerships, the tax would be delayed until the second sibling had died. Of course, it is right that the Treasury should be worried when well-meaning souls try to move amendments that sound very good on the surface but could be used for tax avoidance purposes. That is why the new clause includes a requirement that siblings would have had to live together for at least 10 years before the provision would take effect. Clearly, given people’s ability to manoeuvre around the tax system, if there were no such bar, it would pay them to move in when they knew a sibling was dying. Nobody is in favour of that. We want to reward decent behaviour. Many siblings affected by the current arrangements would undertake civil partnerships if the law allowed them to do so, but it does not. I ask Labour Members who oppose the proposal to think back to the time before civil partnerships. There were Members on the Labour Benches, and certainly some on the Conservative Benches, who thought that passing such an Act was against a law of nature, but once it was passed it was extraordinary how quickly people thought of it as a normal arrangement. One should reward such arrangements through the legal or tax systems, as would have occurred if there had been enough votes to support my proposal to give siblings the right to keep their family home until the second sibling dies. That is the point of the new clause, and I hope that I have explained its objectives. I fear that a message will go out from the Chamber that there are not enough votes to carry the proposal, but I believe it will be carried before too long, and I look forward with interest to hearing what the Minister and the Conservative spokesman say. I think we may hear a slightly more progressive line from the Liberal Democrats. I commend the new clause to the House.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I congratulate the right hon. Member for Birkenhead (Mr. Field) on bringing about this debate and raising the issue of siblings and inheritance tax. As he has already suggested, we are not inclined to support the new clause. I shall explain why, but it is not because we do not appreciate the legitimate concern felt by many siblings who have lived together for a number of years. I suspect that he was most concerned about cases in which, as a result of the inheritance tax charge falling on the estate when one sibling died, it would be necessary for the surviving sibling to sell the property—the joint home. That is an understandable concern; our party, and, I suspect, Members of all parties, have a great deal of sympathy for people faced with those circumstances.
- Time
- 21:00
- Source
- View in Hansard ↗
- Quote
- Does the hon. Gentleman not agree that if, say, in 2010 the individual allowance were £350,000 per person, and two siblings jointly owned their house equally, the house would have to be worth more than £700,000 before inheritance tax even became an issue?
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Yes, I do agree with that. Indeed, to some extent, the Minister anticipates my argument. I will set out why, although we have sympathy with the case—from her tone, I am not sure that she shares that sympathy—the new clause is not necessarily the right way of addressing it. The proposal is not the way in which we would address the issue, but we would address it, none the less.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- As the hon. Gentleman acknowledges, the Minister is surely right that if the threshold were £350,000, the house in question would have to be worth £700,000. However, that would be just as true for a married couple, or a same-sex couple in a formalised partnership. The question that the Minister needs to answer—the hon. Gentleman may choose to put it to her in these terms—is: why should two women who have established a civil partnership be eligible for that relief, but not two sisters who choose to live together in a house worth more than £700,000?
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- The hon. Gentleman makes a fair point, although I think that it will fall on both the Minister and Conservative Members to answer the question: why not treat siblings as a separate category, as we rightly do married couples and those in civil partnerships? Our concern has to do with the threshold, but what the Minister says is absolutely right. We are not talking about all siblings who live together; we are talking about those with a relatively large estate. However, equally, it would be fair to say that an estate of £700,000-plus is not necessarily that unusual, and we are not talking about only the very wealthy. That point is worth bearing in mind with regard to inheritance tax more generally. As house prices have risen—not so much in recent months, but over the previous 12 to 15 years—many more estates are being affected by inheritance tax. That is a legitimate concern, and I congratulate the right hon. Member for Birkenhead on raising the issue. I certainly see that happening in my constituency: relatively modest houses are now above the inheritance tax threshold, so there is a legitimate concern. Of course, many people who do not have an estate above the threshold aspire to have such an estate. In many respects, because of the way in which inheritance tax has developed over recent years, it now affects far more families and people who hope one day to have an estate of that sort of size. There is a legitimate problem with inheritance tax. The most prominent case is that of the sisters from Marlborough, Sybil and Joyce Burden, who have written to every Chancellor of the day since 1976—some eight Chancellors so far, although one suspects that the turnover may increase in the next couple of years or so. The sisters have also taken their case to the European Court of Human Rights, where their application was recently rejected. I think that our tax law should be determined by the conclusions of our debates about such matters in this House, not by the European Court of Human Rights in Strasbourg. None the less, the sisters have raised an important issue, particularly in the context of the surviving sibling having to move out to pay the IHT liability. I suspect that the Economic Secretary may make two arguments in that context: first, that it is possible to pay off IHT over a period of 10 years or so, and one can defer some of the liability; and secondly, that equity release is available. Some of the equity in the property can be released, but given that many people have saved all their lives to own a property outright, there is, unsurprisingly, a great reluctance to do what essentially is remortgaging part of it to fund a tax liability. My concern with the right hon. Gentleman’s proposal is about where precisely we draw the line. The line is currently clear with regard to married couples and civil partners, but what about, for example, long-term carers for elderly parents? The same case about protecting the family home could be made. What about adult disabled children who live with their parents? Again, a humane and reasonable case could be made for them. One is left with the question of where to draw the line.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Lynne JonesLabour
- Quote
- If that is the case, why did the hon. Gentleman not consider tabling amendments that would have extended the provision to those groups? I do not think that we should have the provision at all; the money that has been spent on allowing the transfer would have been better spent elsewhere in the public sector, and particularly on free long-term care. The provision has been introduced, however, and people think it unfair that siblings and the other groups that he has mentioned should be excluded.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I am grateful for that intervention, because it takes me on to the point that I was going to make. The reason why we do not support the new clause is that it is not bold enough. Instead, we propose a very simple way of addressing such concerns. I notice from the press reports about Sybil and Joyce Burden that their joint estate is estimated to be worth £900,000. Rather than provide additional exemptions for siblings and the other groups that I have mentioned, we propose simply to raise the inheritance tax threshold to £1 million. It would address the concerns of the vast majority of siblings who are affected, because we would be talking about a joint estate of £2 million. We would also be talking about the carers and the disabled adult children. Indeed, we would be talking more broadly. Our proposal would address the essence of the right hon. Gentleman’s concerns, and although we have sympathy with what he is trying to do, a simpler way of dealing with siblings, the other groups that we have mentioned, many other families who have acquired a relatively modest home in a part of the country where house prices have risen considerably, and people who have saved and built up a substantial estate, is to take them out of inheritance tax altogether, so that it becomes a tax for the very wealthy—a tax on millionaires, not on fairly average families. That is the policy that was announced at our party conference in October last year. It is clearly enormously popular, and it caused the Government to address the issue of inheritance tax in their autumn statement last year, when they announced the transferable nil-rate band. Like the right hon. Member for Birkenhead, the Government see that there is a problem with inheritance tax. However, if we want a Finance Bill that addresses those concerns, we may have to wait for a couple of years.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I understand why the new clause was tabled and I have some sympathy with the predicament that it raises. I should say in passing that the new clause may have a technical defect. I lived with my sister for 15 years, then I turned 18 and went to university. I do not know whether my right hon. Friend the Member for Birkenhead (Mr. Field) has been in such a position, but my point is that there are young people who live together as siblings for more than 10 years. However, that is not why I am speaking against my right hon. Friend’s new clause. Last year, about 6 per cent. of estates—about 34,000 of them—paid inheritance tax. This year, because of the changes and the doubling up of husbands and wives and civil partners, it is predicted that about 4 per cent. of estates, or about 23,000 of them, will pay the tax. However, what is important is not just the absolute numbers but the principle of the issue. We need to start with how we got to this position. One of my degrees is in sociology, and that colours how I approach this issue. In most societies, inheritance sprang up to bolster the family and pass property to children—think of peasants and the issues in different European countries about whether there is primogeniture and so on. Our inheritance tax is part of a historical follow-through of that in respect of fostering family life. That is why there are exemptions between husbands and wives and now, quite properly—as highlighted by my right hon. Friend the Member for Birkenhead—between civil partners. That is a welcome step forward, as it is to do with a relationship that, historically, most societies sought to bolster to a greater or lesser extent because of the involvement of children. Some civil partners have children and some do not; that takes us back to the debate on the Human Fertilisation and Embryology Bill, which we will not go into here. However, a lot of that debate revolved around the provision of a social unit that had adequate means of providing a stable environment for the children. That was particularly significant historically—a man might have been killed in the war and left a widow with young children, for example. For me, that is the historical background and how we have got where we are.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- On the historical background, I should say that the prayer book originally said that the purpose of marriage was to beget children. A more modern version says that it is for couples to form relationships. I am looking forward to the next stage of my hon. Friend’s speech.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- It is to do with encouraging stable relationships. Historically, although not so much today, that issue revolved around children, whether in respect of procreation or the change in the wording that we now have. The same imperative does not apply to siblings. I stand to be corrected, but I take it that when we are talking about siblings in this context, we generally mean blood siblings or, because of the 10-year thing, foster siblings who have had a long-standing relationship. We are generally thinking of older people who have chosen to live together, such as Sybil and Joyce Burden. There is not the same social imperative to have a tax regime to bolster that kind of relationship, desirable as it may be for people to live in stable relationships.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I do not disagree with what the hon. Gentleman is saying. I merely wished to highlight some of the arguments, the most persuasive of which is the one about where we would draw the line.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I agree with the general proposition put forward by my right hon. Friend the Member for Birkenhead about rewarding decent behaviour, but that gets us into the question of where we draw the line and how much state support there is for that. I would say to my hon. Friend the Economic Secretary that we should consider a form of deferral of inheritance tax. There is the classic example of two sisters who have lived together all their lives, or for the last 30 years of their lives. One is aged 80 and one is aged 70, and the 80-year-old dies. The 70-year-old might live for another 20 years, beyond the 10-year paying-off period for inheritance tax, and have to move out of a home that in some cases will have been the parents’ home. At the time that her 80-year-old sister dies, the 70-year-old might have lived in the house for 70 years and fully expect to live there for the rest of her life but be faced with an inheritance tax bill because house prices have gone up. That will involve only a small number of people, but we are looking at the principles. There could be some tax deferral mechanism so that when the younger sister dies 20 years later, that is when the house is sold and the inheritance tax becomes payable, albeit perhaps with interest rolled up over that 20-year-period. It would be similar to the transitional arrangements for people who go into care and are selling their houses for that reason. We need to think about slightly more creative mechanisms to adapt to the ways in which people live.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Lynne JonesLabour
- Quote
- Why should not those arrangements also apply to married couples?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- They could apply to married couples, but there is a social imperative, to which I referred in a sort of pop sociology way, in the context of why society does what it does, and its being comfortable with what it does. In the case that we are considering, and in trying to square the circle, I am content with the exemption for spouses and civil partners. Perhaps it would be best to have an open-ended period—things depend on the age difference between the siblings, the health of the older one, the one who dies first, and so on—but it could be up to 30 years, in which the inheritance tax bill is deferred until the second sibling dies or sells the house, perhaps to move into a sheltered bungalow. I urge my right hon. and hon. Friends on the Treasury Bench—I imagine that they will not accept the amendments—to consider some alternative arrangements to lessen the pressure on siblings such as Sibyl and Joyce Burden, but not to change the basic idea that exemptions apply to spouses and civil partners.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I wish to draw on a personal experience, which, although not directly relevant, is sufficiently relevant to illuminate our debate. My grandmother, who married Mr. Browne, was called Miss Gray—we are a rather monotone family. She was the oldest of four children and she died in 2000 in the house in which she was born in 1913. There were four children—two boys and two girls. Both sons were killed in the second world war and their names are on the war memorial in the church near the house, and my grandmother and her younger sister, my great aunt, survived. They continued to live in the house in which they were born until the day that they died. My great aunt died more recently. My grandmother married Mr. Browne and that is why the example is not directly applicable. However, I wanted to make the case because it is a perfect example of the sort of people whom the new clause would assist. Many women of that age did not get married and had to make different arrangements after the second world war that they would not have had to make in other circumstances, if such a seismic disruption to society’s normal development in the United Kingdom had not occurred between 1939 and 1945. Those women made exceptional arrangements. Many were sisters who lived initially with their parents and then, when the parents died in the 1950s and the 1960s, lived together in the houses in which they had been born or brought up. The full implications are felt only when one sister dies many years later—the social legacy of the second world war has lasted many decades. Sisters in those circumstances are aghast that the inheritance tax burden should apply to them. There is therefore a compelling case for the new clause. The Economic Secretary said in her intervention on the Conservative spokesman that inheritance tax would apply only to those who lived in what she implied was a posh house, which is worth more than £700,000. I appreciate that the number of houses that are worth that sum is falling by the day. This Government are perhaps trying to tackle the problem of the inheritance tax burden in their unique way. There are probably better methods, but they are doing their best. The threshold is not yet as high as £700,000, but the moral case is no different for sisters who were born in a house that is now worth £800,000 from that for those living in a house worth £600,000. They did not choose to be born in a house of a specific value—it is their home, the place in which they have lived for many decades, and they expect to live there for the rest of their lives. I urge the Economic Secretary not to regard this as a wedge issue, with the Labour party playing to a core constituency and saying, “It doesn’t really matter because we’re only talking about rich people. They’re the sort of people that the Conservatives speak up for and we can distinguish ourselves from them by saying that our priority is not to help rich old people but other groups in society.” In the case that we are considering, people in a house now worth £700,000 are just as worthy of support, compassion and assistance as those whose houses are worth a different amount.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Lynne JonesLabour
- Quote
- Surely the Government would not say such a thing, since they have acted to cushion married couples who live in, to quote the hon. Gentleman, posh houses.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am trying to explore the Government’s position, because it is difficult to understand fully the motivation behind the policy, although they seem to be very responsive to speeches made at Conservative party conferences. The only guidance that I would give the Labour party is this: whenever it tries to ape the Conservatives, its woes get worse rather than better. Tomorrow we are going to spend a lot of time talking about taxation of non-doms.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- You are.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Actually, nearly all tomorrow’s new clauses and amendments amount to yet more damage limitation—
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
Madam Deputy Speaker (Sylvia Heal)Labour- Quote
- Order. Time is going on, but we have not yet reached tomorrow’s debate.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Indeed. We should not get ahead of ourselves by moving on to the treats that we will be discussing tomorrow. Let me return to the matter at hand, which is an important one. A number of national newspapers—from memory, The Daily Telegraph has been particularly prominent—have campaigned strongly on the issue, so people will want to understand the positions that the different parties have taken, and in particular the Conservative party’s reservations. I should be interested to hear the Economic Secretary’s intellectual justification for saying that there is a significant material difference between, to take a hypothetical example, two women—let us say two 90-year-old women—who choose to enter a civil partnership, and therefore immediately become eligible for those benefits, and two 90-year-old women who have not met in the past few months, but who have lived together in the same house as sisters for the past 70 years. Indeed, as I said in an intervention, such a civil partnership could have been motivated by tax reasons. That would be a shame—although it would not be beyond our comprehension—whereas it could not possibly be the case for the two sisters who had lived together for many decades. The Economic Secretary said that the situation would apply to very few people. Of course that is the case, but that only strengthens the argument; given that the costs are so minute, the Treasury need not worry unduly. In fact, the Treasury could be quite charitable and expand the scope of the scheme. The costs are so small that the Treasury could win a lot of good will from people who feel that they are unfairly penalised, at a small burden to taxpayers as a whole. There are a few points in new clause 2 on which it is worth reflecting. One of them concerns the 10-year living together period. I assume that 10 years is an arbitrary figure, although any figure will inevitably be arbitrary, because it is quite hard to come up with a figure that is based on anything other than an arbitrary assessment. Some people might think that 10 years is quite a short period of time, because we are typically talking about two sisters or two brothers who have lived together for their whole lives. With higher house prices, brothers and sisters are increasingly buying flats together, in London or other parts of the country, because they cannot afford a mortgage on their own, they do not have a relationship with a partner and they regard buying a property with their brother or sister as the most safe and stable basis on which to proceed. In some cases, therefore, 10 years may be quite a short period of time. The Government may be more accommodating if that period were longer, and we could rightly consider that.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- The 10-year period was picked because I thought that there needed to be some ring-fencing of the new clause. There are no worthwhile figures as yet for how long civil partnerships last, but 10 years is longer than the average marriage. One might say that that is because so many marriages break up so early, thereby dragging the average down, but that is the average figure.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am grateful to the right hon. Gentleman for that intervention, because he has helpfully said that the figure was as un-arbitrary as he could make it, even though there was inevitably an arbitrary element involved. It is obviously necessary to have a figure, because we do not want people exploiting the provisions for tax purposes, even though that might not be foremost in their mind as they approach their imminent demise. I only suggest that, were the figure to be higher, the proposal would probably achieve its objective in terms of the type of people that we all have in mind while providing an even greater safeguard against potential abuses.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
Kitty UssherLabour- Quote
- This has been an interesting and useful debate that will enable us to tease out some of the issues that have been considered. I would like to place on record my thanks to my right hon. Friend the Member for Birkenhead (Mr. Field) for raising this matter and for constructively engaging with us on it. Two separate issues are involved, and perhaps it would be helpful to deal with them separately. The first concerns a point of principle; the second compassionate issues. Perhaps this will answer the point made by the hon. Member for Taunton (Mr. Browne). It is worth saying at the outset that we all have huge respect and admiration for anyone who is able to sustain a long friendship and relationship, such as those that exist between long-term cohabiting siblings. There are many families in which such relationships break down, and I have huge respect for the kind of relationships that we are talking about today. However, I do not believe that a parallel can be drawn between such relationships on the one hand, and marriages and civil partnerships on the other, as the latter involve particular legal and financial characteristics. The civil partnership issue is rather a distraction in this context. We are talking about marriage, including marriages involving same-sex couples, and the law and society view such marriages in a fundamentally different way compared with other close relationships such as blood relationships or close friendships. This issue has been tested in the courts, including the European Court of Human Rights in the case of Burden and Burden v. the United Kingdom, to which hon. Members have referred. The point was specifically discussed, so let me read from the findings of 29 April this year. The court said: “The absence of… a legally binding agreement between the applicants”— in this case, the two sisters— “renders their relationship of cohabitation, despite its long duration, fundamentally different to that of a married or civil partnership couple”. It went on to say that “marriage remains an institution which is widely accepted as conferring a particular status on those who enter into it”. That is the crucial point. Our policy on inheritance tax recognises the special position of marriage and its equivalent for homosexual couples, and we think a line should be drawn at that position. We will thus resist the new clause and amendments proposed by my right hon. Friend the Member for Birkenhead. The hon. Member for Taunton was entirely right when he said that the cost of accepting the amendments would be low, despite the point of principle that I have set out, but the precedent from crossing the line could potentially open us up to far wider costs. We have already debated some of the issues, but if we accept the provision for long-term cohabiting siblings, where do we draw the line? Should it be extended to cousins, parents or grown-up children, for example? Why, then, for 10 years, and not for nine, eight or seven years; and why not for flatmates or any other long-enduring relationships or even business relationships? Once we had conceded the first point, the potential cost to the Exchequer could, I feel, be extremely large. That is the point of principle.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- Given that the Minister said in her opening comments that this provision would apply only to a very small number of people, because most do not have the good fortune to live in an expensive house, surely the costs would not be that large, even if she conceded quite a few different cases. By her own estimation, 96 per cent. would not be eligible for the benefit because their house would not be sufficiently valuable.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Kitty UssherLabour
- Quote
- My point was that the overall costs would be far larger than simply the cost of accepting the particular amending provision. We have not costed it in detail because we have not looked at the number of long-term relationships that would be covered. My point was simple—that the cost of implementing the amending provision might be low, but that by conceding the principle, we could open ourselves up to far wider costs. That is a secondary point, however, as it is the unique institution of marriage and its gay equivalent that makes the point of principle here. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) spoke extremely well. He mentioned the issue of where we draw the line and he was right technically when he said that if we accepted the new clause, it would apply to any siblings who had lived together for any period of 10 years at any stage of their lives, which I am not sure was the intention behind what I guess was a probing provision. Let me move on to the compassionate issues. We have heard examples in respect of which our hearts automatically go out to elderly people who obviously do not want to be forced to leave the home that they have lived in for many decades, perhaps even for the whole of their lives. Let me try to tease out some examples. I said earlier when I intervened on the hon. Member for South-West Hertfordshire (Mr. Gauke) that once the limit was raised in 2010-11, the estate would have to be worth more than £700,000 before inheritance tax even became an issue. Let us think about an example where a house is worth £800,000—a round number, which makes it easier to work with. Let us suppose that such a house is owned equally by two siblings who have lived in it for a long time, perhaps having inherited it from their parents some time ago. If one of the siblings dies, the limit in 2010-11 will be £350,000, so inheritance tax will kick in on the difference between that and £400,000—namely £50,000. It kicks in at 40 per cent., so the inheritance tax bill is £20,000. Two things could then happen. The bill could be paid over 10 years, which would mean £2,000 a year. I do not know how that equates to the council tax bill on the house, but it might be possible for the individual to meet the additional amount. If not, various options would be available. If even an extremely elderly person was facing a charge of £20,000 and owns an asset of £800,000, it would be fairly easy to remortgage to get the necessary amount. Although on compassionate grounds I have sympathy for the individual on losing their elderly sibling, I am not sure that there are grounds for the state to intervene. I want to touch on the point made by my hon. Friend the Member for Wolverhampton, South-West about deferring the charge, even beyond phasing it for 10 years. In a sense, by remortgaging to get the capital required, a person is using the private market to do exactly that. With regard to the extremely exceptional circumstances of an individual in a house worth about £800,000 who is unable to access any of those possibilities, the HMRC inheritance tax manual allows situations involving genuine hardship or serious difficulty to be considered on a case-by-case basis. In extreme cases, therefore, there is a certain amount of flexibility, which would include postponing the payment of all or part of the tax due. Given the figures involved, however, there will not be many such extreme cases. The hon. Member for South-West Hertfordshire said that the subject under consideration affects “average families”—he used that phrase. The median house price in England and Wales is £180,000, so I do not know what his definition of average is, or what the average house price is in his constituency, but from where I am standing, a property worth £700,000 is in no way average.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- If inheritance tax affects only a tiny or very small minority—I do not know what phrase the Economic Secretary would use—can she explain why the centrepiece of the pre-Budget report, which was after all prepared at a time when the Prime Minister was considering going to the country, was changes in inheritance tax?
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Kitty UssherLabour
- Quote
- The hon. Gentleman completely misses the point. Our proposals related to what happens when property is passed down to children. That is not what we are discussing today. We are discussing whether the second sibling should be forced to leave the house. Of course, it has always been the case that no inheritance tax is paid when one spouse passes their part over to the other spouse.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I fully accept that the amendment relates to siblings, but as the Economic Secretary raises the point about inheritance tax being an issue only for the very wealthy, can she explain why the centrepiece of the Government’s pre-Budget report last October, in the run-up to a potential general election, was changes to inheritance tax?
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Kitty UssherLabour
- Quote
- I repeat that the hon. Gentleman misses the point. First, we raised the threshold up to £350,000 from 2010-11, and made the commitment that it will continue to rise with inflation, including house price inflation. Secondly, we made it absolutely clear that the zero relief could be transferred when the second parent died. As I said, that is a different point. The interesting thing that came out of the discussion on the pre-Budget report, as the hon. Gentleman has just confirmed, is that the Conservatives would raise the limit to £1 million. I am absolutely clear that that is not a good use of taxpayers’ resources. I am not sure where he would find the money to pay for it. Effectively, the proposal would take at least £1 billion and give it to people whose assets already make them millionaires. When a certain amount of public money is available, it is right to spend it on something that benefits genuinely average families, not millionaire estates as he proposes.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- On a slightly tangential matter, I have a constituent who was widowed in 1969 and remains a widow, but who cannot do the doubling up, to use the vernacular, because she was widowed so long ago. She did not get real benefit from the inheritance tax provisions when her husband died, but she was adjudged technically to have benefited from them, because of their wording. I do not expect my hon. Friend to deal with that matter tonight, but I hope that she can look at it again. I do not know what the cut-off date is, but a small number of people, including my constituent, are caught.
- Time
- 21:30
- Source
- View in Hansard ↗
- Speaker
- Kitty UssherLabour
- Quote
- We announced that we would backdate the measure so that it covered existing widows and widowers, but I should be happy to examine the specific case that my hon. Friend has raised.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- My I endorse what was said by the hon. Member for Wolverhampton, South-West (Rob Marris)? We raised the point in Committee, and he is absolutely right. I know that the Government’s proposals date back to some years ago, but it is the case that if the first spouse died before either 1974 or 1972, he or she will not benefit from the nil rate band. We urge the Government to reconsider.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Kitty UssherLabour
- Quote
- I do not know whether that is yet another example of an unfunded spending commitment from the Conservatives, but we felt that 35 years was a fairly decent point at which to draw the line. The point of principle is beginning to emerge. We want to make it clear that there is something special about marriage that makes it necessary for a nil band rate to apply. While we have sympathy and compassion for elderly people who have been living together for the vast majority of their lives, we feel that in view of the value of the estates concerned, Government intervention is not required except in the circumstances that I have described. I welcome the debate, but on that point of principle, I urge the House to reject the new clause.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. Frank FieldCrossbench
- Quote
- I beg to ask leave to withdraw the motion. Motion and clause, by leave, withdrawn. Further consideration adjourned.—[Siobhain McDonagh.] Bill to be further considered tomorrow. DELEGATED LEGISLATION Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees), Disabled Persons That the draft Rail Vehicle Accessibility (Interoperable Rail System) Regulations 2008, which were laid before this House on 21st May, be approved.—[Siobhain McDonagh.] Question agreed to. Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees), Constitutional Law That the draft National Assembly for Wales (Legislative Competence) (Social Welfare) Order 2008, which was laid before this House on 22nd May, be approved.—[Siobhain McDonagh.] Question agreed to. Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees), Consumer Protection That the draft Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008, which were laid before this House on 4th June, be approved.—[Siobhain McDonagh.] Question agreed to. european documents Motion made, and Question put forthwith, pursuant to Standing Order No. 119(9)(European Committees), Preliminary Draft Budget of the European Communities 2009 That this House takes note of the unnumbered Explanatory Memorandum from HM Treasury dated 2nd June 2008, relating to the Preliminary Draft Budget of the European Communities for the year 2009; and supports the Government’s efforts to maintain budget discipline in relation to the budget for the European Communities.—[ Siobhain McDonagh.] Question agreed to. DELEGATED LEGISLATION Ordered, That the Fire and Rescue Services (National Framework) (England) Order 2008 (S.I., 2008, No. 370), dated 3rd June, be referred to a Delegated Legislation Committee.—[Siobhain McDonagh.] Modernisation of the House of Commons Ordered, That Mr Iain Wright be discharged from the Select Committee on Modernisation of the House of Commons and Dr Howard Stoate be added.––[Siobhain McDonagh.] business of the House Ordered, That, at the sitting on Thursday 3rd July, the Speaker shall put the Questions necessary to dispose of proceedings on— (1) the Motions in the name of Ms Harriet Harman relating to Members’ Salaries; and; (2) the Motion in the name of Nick Harvey relating to Members’ Expenses and the Motion in the name of Ms Harriet Harman relating to Members’ Home Addresses in each case one and a half hours after the commencement of proceedings on the first such Motion; such Questions shall include the Questions on any Amendments selected by the Speaker which may then be moved; proceedings may continue, though opposed, after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.–— [Siobhain McDonagh.]
- Time
- 21:45
- Source
- View in Hansard ↗