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Mr. Hayes: Although I know that this may test the hon. Gentleman's intellectual capacity, is not the logic of his statement--given the figures that he presumably has at his disposal, showing an increasing number of marriage break-ups among people in their 20s and 30s--that reducing the allowance encourages marriage break-ups among younger and middle-aged people?
Mr. Davey: I was going to deal with exactly that point, and to say that, because of that very point, one has to interpret the figures with some care. I therefore take on board the hon. Gentleman's first point. However, the
figures do not support the second point that he was trying to make--that reduction and phasing-out of the married couples allowance has increased the divorce rate.
Mr. Gibb: Is it not the case that, although the value of the married couples allowance under the previous Government was reduced for people under 65, its value was maintained throughout that period--as it was in the current Government's first year--for people over 65? Do the figures therefore prove the case one way or the other?
Mr. Davey: I had planned to deal with the relevant point behind the hon. Gentleman's remarks--the need to ensure that we protect that group of elderly pensioners. We have to ensure that people in that group have some offsetting allowances, to ensure that they are not hit by the proposed measure. It is an important point, and the most germane argument in relation to this group of amendments.
There is a case for keeping the married couples allowance for new pensioners, to protect them from taxation increases. However, if we can protect that group within the Government's overall package, it would be satisfactory to phase out the married couples allowance for everyone, so that the tax system might be simplified. So far, although the Government have probably not gone far enough to compensate pensioners, they have included in the Finance Bill the right types of measures, on which we should hope to build in Committee.
The children's tax credit does not apply to this group of amendments--although, judging from his comments, the hon. Member for Canterbury might like them to.
Mr. Brazier:
What does the hon. Gentleman mean by that?
Mr. Davey:
The hon. Gentleman seemed to be suggesting that people would try to exploit the children's tax credit by having large families, and that the Government were trying to create such an incentive.
Mr. Brazier:
You have the wrong Member.
Mr. Davey:
I apologise; I was referring to the hon. Member for Arundel and South Downs (Mr. Flight).
The Liberal Democrat alternative Budget, which was produced before the Chancellor's statement, proposed a simpler tax system that got rid of allowances such as the married couples allowance and increased the basic personal allowances. So, in this regard, the Government are taking our ideas on board, or at least sharing the same ground and acknowledging that we need higher personal allowances that protect pensioners and other low-income groups from a higher tax burden.
Mr. Geraint Davies:
Is it not the case that raising allowances as prescribed in the Liberal Democrat
Mr. Davey:
I shall not try your patience too much, Sir Alan, but the document that we published prior to the Budget set out all the details and costings. Those costings included the abolition of the married couples allowance.
Our position today is totally consistent with what we said before the Budget. We shall vote against the amendments and support the Government tonight because they are going in our direction and increasing personal allowances to protect vulnerable groups. They could go further, and I am sure that we shall debate that later.
For example, clause 19 could have provided even more protection for elderly people. The Government introduced a 10p starting rate of income tax, but they have not applied it to savings. Is that not introducing an anomaly? They could have taken the opportunity to provide further protection for current and future pensioners who will be hit by parts of clause 28.
We call on the Government to ensure that pensioners are not only protected from the abolition of the married couples allowance, but targeted as a group that need more resources. In previous Finance Bills, the Government penalised pensioners through, for example, the abolition of dividend tax credit. I hope that the Committee will return to that point as we certainly intend to put the Government on the spot. More than 300,000 pensioners have lost an average of £75 a year as a result of that policy.
The Government could go further. In previous debates, my hon. Friend the Member for Northavon spoke about our policy to increase the basic state pension by £3 a week for those aged over 75 and by £5 a week for those aged over 80. That would target resources on those most in need, as poverty among elderly people is highly correlated with age. It would ensure that those groups were protected from the abolition of the married couples allowance, and more than compensated. They would be far better off with that package of policies.
We shall table amendments to the Welfare Reform and Pensions Bill when it is considered on Report, proposing that policy package. I believe that we already have the support of the right hon. Member for Birkenhead (Mr. Field), a former Social Security Minister. I shall be interested to see whether Conservative Members sign up to those amendments and vote with us on welfare policy. If they really are interested in protecting pensioners, they will back our policy, which is the best way of using taxpayers' money to alleviate poverty among the elderly. We look forward to them supporting us as that would be in line with their arguments this afternoon.
The Liberal Democrats reject the amendments because they would prevent an overdue reform of the tax system. They would prevent a reform that would simplify the tax system and free up resources that could be used elsewhere properly to promote the family, targeting resources on children, and giving the Chancellor the resources to tackle pensioner poverty.
Mr. Flight:
I listened carefully to the Chancellor's presentation of his Budget. He did not say that the married couples allowance would be retained for current pensioners, but abolished for future pensioners. He used
I spoke at a large meeting in my constituency the week after the Budget, at which I made clear the reality of the Chancellor's proposals. Not surprisingly, there was considerable annoyance in my audience at the Chancellor's Orwellian use of language to secure misleading headlines. I call on the Government to make their intentions and proposals clear, if nothing else. The Budget speech is too important for half truths.
The Chancellor also argued that there was a trade-off. He said that, although it was a good thing to abolish the married couples allowance--because it had got so untidy when it came to deciding who qualified for it, with many contorted questions about whether people were married or divorced, and so on--the trade-off was to be the new child credit.
More Orwellian language was used when it was stated that the proposal was all about the Government's pro-family policy. However, the word "family" does not now mean mother, father and children, as it used to. It now refers to children with perhaps one parent: if there are two parents, it does not matter whether they live together.
It is axiomatic that retired people do not have families. What I said in my intervention in the contribution from the hon. Member for Croydon, Central (Mr. Davies) was mainly in jest, but I was trying to illustrate the very real point that an argument can be made for changing the married couples allowance tax benefit to the new child credit. Such a change would have a redistributive element--the less well-off would be better off and the better off less well-off--but, overall, the benefit to families would be about the same.
There is a fairness to that argument that echoes the Chancellor's favourite phrase about fair tax policies, but there is no fairness in simply removing a substantial tax benefit for elderly people that is not to be made up elsewhere. The figures show that, for people over 75, the married couples allowance is worth more than £5,000. That is quite substantial, and the value of the allowance after tax is quite significant.
I want to expand on the point that has been made already about planning. People plan for their old age. Perhaps many hon. Members have not yet reached the age when they start such planning, but I certainly have. People work out their pensions and savings in building societies so that they can plan their financial arrangements for old age. With the introduction of stakeholder arrangements, the Government are exhorting more and more people to make such provision, but it is too late for people aged 65 to make changes, to begin new careers and take out new insurance policies, and so on.
I submit that a change such as is proposed requires much longer notice than a year. People retiring in the next 10 years, say, will not be able to make up for the tax loss that this change will inflict.
The reduction in the SERPS widows benefit has already been cited. That was announced some 13 years ago, but hon. Members will be aware that hardly anyone knew about it. The Department of Social Security often gives incorrect advice, but the real problem is that people were not aware, even after 13 years, of the changes to that benefit.
A principle of the tax system is that it should not change all the time. The Government made no mention in their election manifesto that they were going to abolish the married couples allowance for retired people. That abolition is part of a considerable and growing attack on the great rump of pensioners in the middle of society. When I listened to the hon. Member for Croydon, Central, I could not help feeling that he was saying that ageism is now politically correct among Labour Members. He seemed to feel that there was something virtuous in deriving pleasure from taxing older people more. Their pension funds are being taxed. They are being stopped from having tax credit on dividends if they pay no tax. The Government are removing tax benefits on insurance policies. Is all that some sadistic attack on elderly people? It seems to be thought that it is politically proper.
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