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7.30 pm

Mr. Flight: We have some sympathy with the underlying principles of the amendment, although we do not support it, in part for the reasons stated by the Minister and because it would create the equivalent of a personal allowance of £6,415 at a cost of over £4 billion, and we do not feel that that is fiscally viable right now.

It is a great pity that a massive effort has been devoted to simplifying the wording of tax legislation but not to the principle of simplifying the tax system for the typical citizen. If anything, the Government have an almost obsessive desire further to complicate the tax system as it applies to individuals and companies, including even foreign companies operating in this country. It must be wrong that ordinary citizens are unable to understand the tax rules that apply to them and that millions of people have to use accountants to look after their tax affairs. Surely it is not an insurmountable problem to arrive at a much simpler system.

In principle, the debate is whether to have two rates or to stay with the three rates that have been introduced by this Administration. Crucial to that, as the hon. Member for Truro and St. Austell (Mr. Taylor) pointed out, is the Government's intention. Is the 10 per cent. band just a political gimmick or do they intend to widen it significantly so that it is more in line with a model such as that in Hong Kong? It must be inefficient to have millions of people paying very small amounts of tax at 10 per cent., as at present, when an averaged-out higher personal allowance would potentially take a significant number of people out of tax.

The crucial point is the principle that lies behind the amendment. As the hon. Gentleman pointed out, the message is loud and clear, whether it comes from the Institute for Fiscal Studies or chartered accountants, that there is an urgent need to focus on simplifying our tax system. More and more people will end up doing self-assessment tax returns, so more and more people will fail to understand the tax rules that apply to them and there will be increasing trouble with people making mistakes and feeling that they have been ill treated.

24 Apr 2001 : Column 227

The amendment is a point well raised, but the specific mechanism is not operative. The cost of raising personal allowances to over £6,000 is too great a fiscal burden at this stage.

The Paymaster General: I understand the Liberal Democrats' main argument that personal allowances should be increased to remove low earners from the tax system. The hon. Member for Truro and St. Austell (Mr. Taylor) knows full well that the Government's response is that an increase in personal allowances benefits higher earners to a greater extent. To achieve our objective of dealing with the poverty trap and the inequality to which the hon. Gentleman referred, we therefore introduced the 10p starting rate of tax. In this Budget we raised the allowance applicable at the 10p rate--that provision is set out in the next clause.

I understand why the Liberal Democrats consistently advance their argument, but the Government reject it because we feel that it does not deal with our objectives of helping those on low incomes and reducing inequality. The hon. Gentleman's arguments were very confused, but I understand that the amendment is a means whereby Liberal Democrat Members can discuss their principled position on personal allowances. The amendment would introduce zero rate relief on £1,880, if the next clause is agreed to. All the arguments that the hon. Gentleman has advanced against the Government apply equally to his proposal because the amendment would result in a personal allowance, a zero rate relief band and subsequent relief bands. He knows that the cost of such a measure would be about £4.8 billion, which is not an insubstantial amount.

The hon. Gentleman asked why there should be a 10p rate. The Government have made it clear that we want to provide an incentive to those on low wages to work harder, earn more and keep more of their earnings, so that we can tackle the poverty trap. The 10p rate is not the only policy that we are using; there is also the minimum wage and the national insurance changes to which my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) referred earlier. We have also introduced the working families tax credit and the children's tax credit, which deal specifically with poverty. The hon. Gentleman will not be surprised to hear that, as a Minister, I favour our approach, with its balanced package, to what the Government agree with him are extremely important issues. The tax system and the supporting in-work benefits must not act as a disincentive to unemployed people to move into employment.

I turn now to the inequality argument advanced by the hon. Gentleman. I am sure that he will acknowledge that the vast number of people on low incomes are receiving benefits and are therefore not paying tax. Government policy assists them by enabling them to keep more money. By introducing programmes such as the new deal, we move people out of unemployment and into paid work. That affects the figures to which the hon. Gentleman referred. He sought to portray a simplistic relationship of cause and effect, but there are other ways to interpret the facts.

The data to which the hon. Gentleman referred relate to the 1999-2000 tax year, and if I am not mistaken they are from the Office for National Statistics. He will know

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that those figures do not include--indeed, they specifically exclude--the full-year benefits of the working families tax credit, the full effects of the introduction of the 10p rate and the reforms of national insurance, which have benefited those on lower earnings. Taken together over the whole Parliament, all the Government's measures show that we are bearing down on the inequality that the hon. Gentleman seeks to tackle in his amendment. Our judgment is that the balance of using resources is correctly set by widening the 10p band.

Mr. Matthew Taylor: The hon. Lady will be aware that statistics released in the past few days confirm that the gap between the richest and the poorest in this country has continued to widen. She has a good record of campaigning on poverty issues during the period in which I have been in the House. Does it not concern her that the Government's choice of cutting direct taxes while increasing indirect taxes inevitably increases the tax burden on those on the lowest incomes while cutting the burden on those on the highest incomes?

Dawn Primarolo: The hon. Gentleman has probably, like me, read the IFS study that shows that the disposable income of those on the lowest incomes is increasing. We must both be careful about how we use the figures. I take that as a correction to myself not to stretch certain issues too far.

As a result of the introduction of the 10p rate which, as I explained, is part of a wider set of policy objectives, including the minimum wage, national insurance reform and working families tax credit--which will move into integrated child credit in 2003--3 million people have had their tax bills halved, including 2.2 million low-paid workers. My right hon. Friend the Chancellor's proposals to increase the 10p band, which are the subject of clause 51, will halve marginal rates of tax for a further 450,000 people.

I accept that Liberal Democrat Members always want more, and that they want us to go further this evening. However, the Government believe that targeted tax cuts are part of a broader package to help those on low pay and, specifically, to help the unemployed into employment; that is the way forward. That package is affordable for the country; the extra £4.8 billion that the hon. Member for Truro and St. Austell proposes to spend in his amendment is not. While I have every sympathy with the hon. Gentleman's principled position, I do not agree with the methods that he seeks to use to achieve his objectives, so I urge my hon. Friends to vote against the amendment, should he push it to a vote.

Mr. Taylor: Having listened to the hon. Lady, I am worried that the Government are still advancing a case that nobody outside the House sees as anything other than a continuation of the Chancellor's political effort, begun in opposition, to rock the Conservatives. That has complicated tax. Everyone who deals with poverty argues that our route is better.

I am glad we have had an opportunity to debate the issue and I hope that the Paymaster General and her colleagues will reflect on it. Perhaps it is better to have movement on that after the election, rather than before. People are aware of the penny that we would put on tax for education and the higher rate that we would introduce

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for people with an income of over £100,000 a year to pay for our education, health and pensions policies, but this is an opportunity to make the point that we are also arguing for a tax cut for those on the lowest incomes. My hon. Friends and I believe that the Government have made the wrong choice; the Paymaster General has not addressed that in arguing that the amendment should be rejected on a technical point. We therefore wish to press it to a vote.

Question put, That the amendment be made:--

The Committee divided: Ayes 41, Noes 281.

Division No. 193
[7.43 pm


Allan, Richard
Baker, Norman
Beith, Rt Hon A J
Bell, Martin (Tatton)
Brake, Tom
Brand, Dr Peter
Breed, Colin
Burnett, John
Campbell, Rt Hon Menzies
(NE Fife)
Chidgey, David
Cotter, Brian
Davey, Edward (Kingston)
Fearn, Ronnie
Foster, Don (Bath)
George, Andrew (St Ives)
Gidley, Sandra
Harris, Dr Evan
Harvey, Nick
Keetch, Paul
Kennedy, Rt Hon Charles
(Ross Skye & Inverness W)
Kirkwood, Archy
Livsey, Richard
Llwyd, Elfyn
Michie, Mrs Ray (Argyll & Bute)
Moore, Michael
Oaten, Mark
Öpik, Lembit
Paisley, Rev Ian
Rendel, David
Robinson, Peter (Belfast E)
Ross, William (E Lond'y)
Russell, Bob (Colchester)
Sanders, Adrian
Smith, Sir Robert (W Ab'd'ns)
Stunell, Andrew
Taylor, Matthew (Truro)
Thomas, Simon (Ceredigion)
Tonge, Dr Jenny
Tyler, Paul
Wigley, Rt Hon Dafydd
Willis, Phil

Tellers for the Ayes:

Mr. Steve Webb and
Mr. David Heath.


Abbott, Ms Diane
Adams, Mrs Irene (Paisley N)
Ainger, Nick
Ainsworth, Robert (Cov'try NE)
Allen, Graham
Anderson, Rt Hon Donald
(Swansea E)
Armstrong, Rt Hon Ms Hilary
Ashton, Joe
Atherton, Ms Candy
Atkins, Charlotte
Austin, John
Bailey, Adrian
Banks, Tony
Barnes, Harry
Battle, John
Bayley, Hugh
Begg, Miss Anne
Benn, Hilary (Leeds C)
Bennett, Andrew F
Bermingham, Gerald
Best, Harold
Betts, Clive
Blears, Ms Hazel
Blizzard, Bob
Blunkett, Rt Hon David
Borrow, David
Bradley, Rt Hon Keith (Withington)
Bradshaw, Ben
Brinton, Mrs Helen
Browne, Desmond
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Butler, Mrs Christine
Campbell, Alan (Tynemouth)
Campbell, Mrs Anne (C'bridge)
Campbell, Ronnie (Blyth V)
Campbell-Savours, Dale
Cann, Jamie
Caplin, Ivor
Casale, Roger
Chapman, Ben (Wirral S)
Chaytor, David
Clapham, Michael
Clark, Rt Hon Dr David (S Shields)
Clark, Dr Lynda
(Edinburgh Pentlands)
Clark, Paul (Gillingham)
Clarke, Charles (Norwich S)
Clarke, Eric (Midlothian)
Clelland, David
Clwyd, Ann
Coffey, Ms Ann
Cohen, Harry
Coleman, Iain
Colman, Tony
Connarty, Michael
Cook, Frank (Stockton N)
Cooper, Yvette
Corbett, Robin
Corston, Jean
Cousins, Jim
Cranston, Ross
Cryer, John (Hornchurch)
Cummings, John
Cunningham, Jim (Cov'try S)
Curtis-Thomas, Mrs Claire
Dalyell, Tam
Darvill, Keith
Davey, Valerie (Bristol W)
Davidson, Ian
Davies, Rt Hon Denzil (Llanelli)
Dean, Mrs Janet
Denham, Rt Hon John
Donohoe, Brian H
Doran, Frank
Dowd, Jim
Drew, David
Drown, Ms Julia
Dunwoody, Mrs Gwyneth
Eagle, Angela (Wallasey)
Eagle, Maria (L'pool Garston)
Edwards, Huw
Efford, Clive
Ellman, Mrs Louise
Field, Rt Hon Frank
Fisher, Mark
Fitzpatrick, Jim
Flint, Caroline
Follett, Barbara
Foster, Rt Hon Derek
Foster, Michael Jabez (Hastings)
Foster, Michael J (Worcester)
George, Rt Hon Bruce (Walsall S)
Gerrard, Neil
Gibson, Dr Ian
Gilroy, Mrs Linda
Godsiff, Roger
Goggins, Paul
Golding, Mrs Llin
Gordon, Mrs Eileen
Griffiths, Jane (Reading E)
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Grocott, Bruce
Grogan, John
Hain, Peter
Hall, Mike (Weaver Vale)
Hall, Patrick (Bedford)
Hanson, David
Healey, John
Henderson, Doug (Newcastle N)
Hendrick, Mark
Hepburn, Stephen
Heppell, John
Hesford, Stephen
Hewitt, Ms Patricia
Hill, Keith
Hinchliffe, David
Hoey, Kate
Hood, Jimmy
Hoon, Rt Hon Geoffrey
Hope, Phil
Hopkins, Kelvin
Howarth, Rt Hon Alan (Newport E)
Howells, Dr Kim
Hoyle, Lindsay
Hughes, Ms Beverley (Stretford)
Hughes, Kevin (Doncaster N)
Humble, Mrs Joan
Hurst, Alan
Hutton, John
Iddon, Dr Brian
Illsley, Eric
Jackson, Helen (Hillsborough)
Jamieson, David
Jenkins, Brian
Johnson, Alan (Hull W & Hessle)
Johnson, Miss Melanie
(Welwyn Hatfield)
Jones, Rt Hon Barry (Alyn)
Jones, Helen (Warrington N)
Jones, Jon Owen (Cardiff C)
Jones, Dr Lynne (Selly Oak)
Jones, Martyn (Clwyd S)
Jowell, Rt Hon Ms Tessa
Joyce, Eric
Kaufman, Rt Hon Gerald
Keeble, Ms Sally
Kennedy, Jane (Wavertree)
Khabra, Piara S
Kidney, David
Kilfoyle, Peter
King, Andy (Rugby & Kenilworth)
King, Ms Oona (Bethnal Green)
Ladyman, Dr Stephen
Lawrence, Mrs Jackie
Leslie, Christopher
Levitt, Tom
Lewis, Ivan (Bury S)
Lewis, Terry (Worsley)
Liddell, Rt Hon Mrs Helen
Linton, Martin
Lloyd, Tony (Manchester C)
Lock, David
McAvoy, Thomas
McCabe, Steve
McCartney, Rt Hon Ian
McDonagh, Siobhain
McDonnell, John
McFall, John
McIsaac, Shona
McKenna, Mrs Rosemary
McNulty, Tony
MacShane, Denis
Mactaggart, Fiona
McWilliam, John
Mahon, Mrs Alice
Mallaber, Judy
Mandelson, Rt Hon Peter
Marshall, David (Shettleston)
Marshall, Jim (Leicester S)
Martlew, Eric
Maxton, John
Meacher, Rt Hon Michael
Merron, Gillian
Michael, Rt Hon Alun
Michie, Bill (Shef'ld Heeley)
Miller, Andrew
Moffatt, Laura
Moran, Ms Margaret
Morgan, Ms Julie (Cardiff N)
Mountford, Kali
Mudie, George
Mullin, Chris
Murphy, Denis (Wansbeck)
Murphy, Jim (Eastwood)
Naysmith, Dr Doug
O'Brien, Bill (Normanton)
O'Brien, Mike (N Warks)
Olner, Bill
O'Neill, Martin
Organ, Mrs Diana
Osborne, Ms Sandra
Pendry, Rt Hon Tom
Perham, Ms Linda
Pickthall, Colin
Pike, Peter L
Plaskitt, James
Pollard, Kerry
Pond, Chris
Pope, Greg
Powell, Sir Raymond
Prentice, Ms Bridget (Lewisham E)
Prentice, Gordon (Pendle)
Primarolo, Dawn
Prosser, Gwyn
Quinn, Lawrie
Rammell, Bill
Raynsford, Rt Hon Nick
Reed, Andrew (Loughborough)
Robertson, John
(Glasgow Anniesland)
Roche, Mrs Barbara
Ross, Ernie (Dundee W)
Rowlands, Ted
Roy, Frank
Ruane, Chris
Ruddock, Joan
Russell, Ms Christine (Chester)
Salter, Martin
Savidge, Malcolm
Sedgemore, Brian
Shaw, Jonathan
Sheerman, Barry
Sheldon, Rt Hon Robert
Simpson, Alan (Nottingham S)
Skinner, Dennis
Smith, Rt Hon Andrew (Oxford E)
Smith, Angela (Basildon)
Smith, Miss Geraldine
(Morecambe & Lunesdale)
Smith, Jacqui (Redditch)
Smith, John (Glamorgan)
Smith, Llew (Blaenau Gwent)
Soley, Clive
Southworth, Ms Helen
Squire, Ms Rachel
Starkey, Dr Phyllis
Steinberg, Gerry
Stevenson, George
Stewart, David (Inverness E)
Stewart, Ian (Eccles)
Strang, Rt Hon Dr Gavin
Straw, Rt Hon Jack
Stuart, Ms Gisela
Sutcliffe, Gerry
Taylor, Rt Hon Mrs Ann
Taylor, Ms Dari (Stockton S)
Taylor, David (NW Leics)
Temple-Morris, Peter
Timms, Stephen
Tipping, Paddy
Todd, Mark
Touhig, Don
Trickett, Jon
Turner, Dennis (Wolverh'ton SE)
Turner, Dr Desmond (Kemptown)
Turner, Neil (Wigan)
Twigg, Derek (Halton)
Tynan, Bill
Wareing, Robert N
Watts, David
White, Brian
Whitehead, Dr Alan
Wicks, Malcolm
Williams, Rt Hon Alan
(Swansea W)
Williams, Alan W (E Carmarthen)
Winnick, David
Winterton, Ms Rosie (Doncaster C)
Woodward, Shaun
Woolas, Phil
Worthington, Tony
Wright, Anthony D (Gt Yarmouth)

Tellers for the Noes:

Mrs. Anne McGuire and
Mr. Ian Pearson.

Question accordingly negatived.

24 Apr 2001 : Column 231

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

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