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Income Tax (Earnings Exemption for Persons Living in Poverty) (No. 2)

12.32 pm

Mr. Geoffrey Clifton-Brown (Cotswold) (Con): I beg to move,

The Bill is designed to alleviate poverty for some of the lowest-paid in our society. Those who earn less that 45 per cent. of the median of annual earnings, as defined by the Office for National Statistics, are struggling to survive on the equivalent of less than the minimum wage for working a 40-hour week. That group includes far too many of our youngest employees and elderly pensioners with a small amount of savings. I believe that there is a moral injustice in charging those people income tax on their meagre wages.

I propose to abolish income tax permanently for that group, which, on the basis of current figures, includes all whose income is £10,000 a year or less. Their income tax bills would be reduced by about £872 per year, which would offer a considerable fillip to their wages and, above all, provide an incentive to work and improve their standard of living.

To enhance those proposals, I also suggest the adoption of a system whereby those earning between £10,000 and £15,000 a year can be phased into the existing tax system through a £1 decrease in their new tax allowance for every additional £1 that they earn. Those earning between £10,000 and £15,000 would pay half the income tax that they pay now, while those earning more than £15,000 would be taxed according to the existing system. Although the means of introducing that method of easing low earners back into the existing income tax system would fall beyond the remit of my Bill, I believe that it would facilitate the implementation of my proposals.

The Conservative party has a proud record of helping those who are most disadvantaged in society. We are the only political party in Britain that has always offered the poorest in society the opportunity to pull themselves out of poverty and make a better life for themselves, their families and their communities. Indeed, the Conservative who was Chancellor of the Exchequer between 1993 and 1997 is the only current Member of this House who has made a real reduction in income tax—a reduction of 2p in the pound—that has not been accompanied by an increase in national insurance contributions, more than compensating for the reduction.

Moreover, when the Conservative party was in office between 1990 and 1997, we helped 8.2 million of the poorest people on the basic rate of income tax by removing them from the system. That trend has, sadly, been reversed, and since 1997 6.2 million of our poorest people have been dragged back into the system—a striking contradiction to the principle of the Rooker-Wise amendment introduced by the Labour party in 1977. Together, we must all foster a tax system that offers opportunity rather than entrapment. We must not construct a system that dictates that the poor are to be permanently trapped at the bottom of the income league.
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We all know about the difficulties that have been faced by hard-working families. The failing tax credit system has led to wrongful payments to 1.9 million of our poorest families and to thousands of people being financially crippled because of administrative error—and all at a cost of £475 million a year.

My Bill aims to help to reverse that trend by taking 6.6 million of our lowest paid workers out of the income tax system altogether, and reducing the income tax burden for a further 6.1 million, thus helping a total of nearly 13 million people. That would result in more than £5 billion being redirected from the Government coffers to the pockets of our lowest paid workers. I believe that, because of the balancing increases in public revenues, which I will set out in a moment, it should be possible to achieve that without serious reductions in funding for our public services.

Office for National Statistics figures show that we have an economy with only three quarters of those of working age actually in work. Moreover, there are some 625,000 employment vacancies, and there are more than 2 million people out of work who say that they would like to be in work. By allowing people to keep more of their own earnings, we will reduce welfare costs. Depending on the number of people who are encouraged back into work, that saving could be as much as £2.5 billion.

My proposals would make tax avoidance less profitable and so help the Government to tackle the black market and to improve the health and safety issues facing unregistered workers. Hopefully, a tragedy of the kind we saw at Morecambe bay would never occur again.

Even Whitehall would make savings, as the Inland Revenue would not have to deal with the complex tax affairs of the low paid, who often change jobs, do a lot of casual work and drop in and out of employment. Sometimes, they work in the black economy. Those macro-economic benefits are of course important, but my Bill is designed, first and foremost, to help the poorest members of our work force, who will, for example, be able to choose to save more of their own earnings to counter the looming pensions crisis that so many of my constituents are having to struggle with, or to keep more of their wages so that they can start to pay off personal debts. Unsecured debt has spiralled to a terrifying average of £7,650 per household.

Moreover, we will be able to reverse some of the disgraceful structural trends that have occurred in the past few years. Personal income tax allowances for the lower paid have failed to increase in line with inflation, contrary to the Rooker-Wise amendment. The poorest 10 per cent. of people in Britain have to give some 90 per cent. of their income to the Government, before credits, benefits and other allowances are provided. Above all, as the Department for Work and Pensions recently stated, the incomes of the poorest 10 per cent. of households after tax and benefits have fallen in each year since 2001.

It is vital to remember that, by giving the poorest workers the opportunity to keep more of their hard-won income, we would be allowing them to spend their wages as they wish, resulting in increased indirect revenues that will help us to balance the loss of income tax revenues. There is a strong case that my reforms could be
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undertaken without significant reductions in Government revenue, due to the increase in indirect revenues, the decrease in welfare costs as people move into work, the increase in national insurance revenues, the savings in Government bureaucracy and the tackling of tax-avoidance problems. Fundamentally, the reforms should result in increased growth and vibrancy of the economy.

The Bill is designed to take people living in poverty permanently out of the income tax system. It should be supported by hon. Members on both sides of the House. Helping our lowest-paid workers is not a party political issue—it is a moral good. This is a practicable proposal and a modern manifestation of the proud Conservative tradition of offering opportunity to all.

Question put and agreed to.

Bill ordered to be brought in by Mr. Geoffrey Clifton-Brown, Mr. John Whittingdale, Mr. Iain Duncan Smith, Mr. Edward Leigh, Nick Herbert, Mr. William Hague, Mr. Peter Atkinson, Mr. Peter Ainsworth, Andrew Selous, Peter Luff, Sir George Young and Mr. David Curry.

Income Tax (Earnings Exemption for Persons Living in Poverty) (No. 2)

Mr. Geoffrey Clifton-Brown accordingly presented a Bill to provide that income tax be not chargeable on the earnings of persons living in poverty: And the same was read the First time; and ordered to be read a Second time on Friday 20 October, and to be printed [Bill 89].

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Orders of the Day

Immigration, Asylum and Nationality Bill

[Relevant documents: The Second Report of the Constitutional Affairs Committee, Session 2003–04, on Asylum and Immigration Appeals, HC 211, the Fifth Report of the Committee, Session 2004–05, on Legal Aid: Asylum Appeals, HC 276, and the Government's responses thereto, Cm 6597and Cm 6236.]

As amended in the Standing Committee, considered

New Clause 1

Over-staying Leave Pending Appeal

'(1)   A person does not commit an offence under section 24(1)(b)(i) of the Immigration Act 1971 (c. 77) (over-staying leave to enter or remain) by virtue only of remaining in the United Kingdom at a time when the conditions in this section are satisfied.

(2)   Condition 1 is that—

(a)   the person's leave has been curtailed, or

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