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“We are still light years away from a simple personal tax system”.
The tax credit system is so complex that many people do not even bother to claim. That money is theirs by rights, but they are put off by the complexity of the system.
We have identified the fact that the very highest earners are getting richer, but the less well-off seem to be subject to more and more means-testing. That is a soul-destroying process, and it is not just or fair. It is wrong, for example, that tax is levied on pay rates once they exceed £2.65 an hour. Why should people earning the minimum wage or a sum just above it be forced to turn to the state to recover their confiscated earnings in the form of tax credits? Who is best served by that process? I do not believe that my constituents should have to go through that process to claim back money that is rightfully theirs. Another problem across our constituencies is the expanding poverty trap. Again, the Government are not deliberately making it bigger, but it is there. Some 2 million low earners still pay marginal rates of tax of between 60 and 90 per cent. Indeed, 200,000 people still pay marginal rates of tax in excess of 90 per cent. We in the House should not allow that to continue.
What is the solution? The priority fiscal reform of any Government, Labour or Conservative, should be to reduce the taxes on low earners. We must take people out of the tax and means-tested benefits net altogether. If the greatest cause of poverty is worklessness, we must work to make work pay. Reducing taxation on low earners will not only ensure that people keep more of what they earn, but will have huge social advantages.
In addition to encouraging people back into the work force, it will allow them to take jobs at or above the minimum wage, knowing that the money that they are earning will go into their pockets, and that they will be replacing the state as their family’s major provider. What price does dignity carry? “I am putting the food on my family’s table, not the Government”—many men and women would like to be able to say that.
Reducing the tax on low earnings will start to liberate people from a benefits system that can, at times, be seen as callous. I know that that is not a deliberate ploy on the Government’s part, but the benefits system can often seem remote and uninterested in people’s everyday concerns. All Members of Parliament are familiar with Her Majesty’s Revenue and Customs’ phrase:
“having looked at the information we hold and that you have provided, I consider that you should have been aware that your payments were wrong”—
a mealy-mouthed phrase used by HMRC as justification for clawing back perhaps thousands of pounds of overpaid tax credits from bewildered and frightened families, who are sometimes left facing legal action for the recovery of moneys that they do not possess. That is not the action of a caring state. Most of those people notified HMRC of their change in circumstances, and HMRC failed to update and amend its records accordingly.
Ed Balls: Take the example of the working single parent to whom the hon. Gentleman refers, for whom the combination of the minimum wage and tax credits would lead to an effective hourly rate of slightly over £12 an hour. If tax credits were taken away from that lone parent, would she be poorer, or how would the hon. Gentleman make up the difference—by a higher minimum wage or by tax cuts? Could he explain that conundrum to us?
Mr. Walker: The Minister makes a good point, and I am about to come on to it, but I will take no lectures from a Minister whose Department has just introduced a Budget that will leave people earning £18,000 worse off. The Minister should get his own house in order. I am trying to approach the issue in a non-partisan way and I hope he respects me for that.
Mr. Walker: No, I will not give way again.
Over the next five years, I would like to see the tax threshold increased to £12,500. Anybody earning less than that would not pay tax. That requires an increase in the threshold each year of £1,500. Yes, the cost of the increase would be about £8.4 billion per annum. That sounds a lot, but in the 2007-08 tax year due to
start in a week, the Government tax take is set to grow by £36 billion—that is, from £517 billion paid in this tax year to £553 billion paid in the tax year just starting, an increase of £36 billion. Then in each year for the next four years, the tax take is due to increase by £32 billion.
Helen Goodman: I am puzzled by what the hon. Gentleman is saying. I thought it was the policy of Conservative Members to share the proceeds of growth between tax reductions and increased public expenditure. How can the proceeds of growth be shared unless there is some increase?
Mr. Walker: I am happy to deal with that, but I am not speaking for my party. I am speaking as a very junior Member of Parliament for Broxbourne who is speaking because he feels passionate about the subject, and because he cares about alleviating the circumstances of the very poorest in society. Again, I will not be drawn into a partisan exchange.
The cost of reducing taxes by £8.4 billion a year is significant, but it would be substantially offset by higher rates of economic activity, with people choosing to take jobs and working longer. As people go back to work and increase their earnings, there will be savings in the £20 billion currently spent on tax credits, plus the other £100-odd billion spent on other benefits. The £42 billion could quite easily be found if we did not spend the £36 billion that the Government have earmarked for unpopular ID cards and the failing NHS IT records system.
I would be more than happy to have a debate on how we fund the future alleviation of high levels of taxation. I, as a Conservative—in answer to the question from the hon. Member for Bishop Auckland (Helen Goodman)—might like to fund it by getting rid of schemes that I do not think will deliver benefit to the taxpayer, or, yes, partly fund it by slowing the growth of the state, or yes, partly fund it by a reduction of the tax benefits and benefits that we pay out.
I know that Labour Members are concerned that many people on low incomes are paying tax and they might argue, as the hon. Member for Luton, North (Kelvin Hopkins) did, that the taxes of the very richest should go up. Let us have the debate. We cannot live in a sterile political world where we are afraid to talk about things that matter to the many millions of people out there in the community. We have an obligation and duty to them.
Mr. Newmark: I do not wish to cause a ruckus in my own party, but I hope my hon. Friend would agree that a core part of our policy is to put stability before tax cuts, and that we cannot achieve the goals that he seeks unless we put stability before tax cuts.
Mr. Walker:
Of course we want to achieve economic stability, but it is not impossible that a future Government, whether Labour or Conservative, could commit to taking the very poorest people out of tax altogether. We are, after all, elected to run the country and to make hard decisions. I can almost anticipate the Minister’s response. He will say that raising tax thresholds, as the hon. Member for Bishop Auckland said, cannot be done because it will benefit the rich.
That is not good enough. It is an abrogation of our responsibility to the least well off in society. Raising tax thresholds may benefit the rich, but the marginal benefit to the very poorest in society will be far greater.
Ed Balls: I do not wish to make a partisan point. In the spirit of the hon. Gentleman’s comments, I say to him that if he keeps the minimum wage at its current level, abolishes the tax credit for single parents and uses the money instead to raise the personal allowance, a single parent will be significantly worse off by many hundreds of pounds. Does he accept that fact?
Mr. Walker: We can assist single parents through universal child benefit. I point out to the Minister that the Joseph Rowntree Foundation said in recent evidence to the Scottish Affairs Committee that tax credits may be useful for single parents, but they keep many married couples and cohabiting couples in poverty. That is worth thinking about. I can send him that evidence if he wishes to double-check it.
Yes, I agree that cutting taxes or raising thresholds may benefit high earners, but as I said, the marginal impact of raising tax thresholds will be felt far more keenly by hard-working families at the bottom end of the income scale. The purpose is not just to give people back money. It is to give them back their self-respect and to reduce the role of the state in their lives.
Who would benefit from Charles Walker’s proposal from Broxbourne? People who want to work, people in work—despite what the Minister says, both single people and married people—families and pensioners, all worthy recipients of a tax cut allowing them to keep more of the income that they earn. Who would not benefit? The overbearing state would not benefit, and the poverty industry would not benefit if we took measures that genuinely alleviated poverty and restored self-respect to people and to families.
8.28 pm
Mr. Brooks Newmark (Braintree) (Con): I draw hon. Members’ attention to my entry in the Register of Members’ Interests.
In 1998, the Chancellor proposed a code of fiscal stability so that the Government would adhere to the principles of transparency, stability, responsibility, efficiency and fairness. The reality in 2007 is that he has given us another Budget so opaque that a cut in the basic rate of income tax will actually leave some of our poorest families worse off.
After the Budget, the Chancellor told Radio 4:
“It wasn’t a short-term giveaway”,
and he certainly got that right. Before he entered office, he said:
“I want the next Labour Government to achieve what in 50 years of the Welfare State has never been achieved. The end of the means test for our elderly people.”
Last week, however, he gave us a Budget that will drag even more of the most vulnerable people in our society into his means-tested credits fiasco.
With his 11th Budget, the Chancellor has shown once again that he is the true heir to Blair—all spin and no delivery. He has failed to deliver a balanced Budget—by “balanced”, I mean letting the House and the public know that while he was giving with one
hand, he was taking with the other. It should therefore come as no surprise that no one believes a word he has said. The Chancellor should reflect on the following day’s headlines: one paper went with, “Tax cut: It’s just a big con”; another went with, “Brown tax cut trick”; and a third used, “What Gord giveth, Gord taketh away”. In less than 24 hours, the Chancellor went from tax cutter to tax con.
The heart of the debate concerns the environment and environmental taxation. Office for National Statistics data show that the proportion of total taxation composed of environmental taxes has fallen from 9.8 per cent. in 1999 to 7.7 per cent. in 2005. The Chancellor told the Treasury Committee in December that there were five strands to the Government’s policy on tackling climate change, and I want to go through each of them. The first strand is science and innovation, but the reality is that innovation schemes, such as the Peterhead DF1 carbon capture project, have stalled while the private sector waits for the Government to catch up.
The second strand is market mechanisms such as carbon trading. Page 173 of the Red Book claims that
“a strong lead from the UK”
has helped the EU’s carbon trading scheme, but the Environmental Audit Committee recently found that
“the emissions projections appear to have been inaccurate and inflated, and the national caps derived from them too unambitious”.
That is hardly an unqualified success.
The third strand is encouraging personal and social responsibility. Airline passenger duty is typical of the Chancellor’s delight in raising stealth taxation from the environment. The money raised is not actually reinvested in the environment, and, as I said in my interventions, it does nothing to change the public’s behaviour. However, I noted with interest that my hon. Friend the shadow Chancellor mentioned in his response to the Budget a letter from the Secretary of State for Environment, Food and Rural Affairs entitled, “DEFRA’s priorities for the Budget of 2007”, in which the Secretary of State noted that
“there is a case to look again at making domestic flights subject to VAT.”
When questioned earlier in the debate, the Secretary of State seemed to throw in the towel, but I am delighted that he shares the view of my right hon. Friend the Member for Witney (Mr. Cameron) that the polluter must pay. More is the pity that the Chancellor went out of his way to attack my right hon. Friend’s submission during the Budget debate.
The fourth strand concerns public investment in environmental efficiency. I welcome grants for pensioners to install insulation and central heating, as well as reductions in VAT on energy saving and environmentally friendly products. Conservative-led Braintree council has shown the Chancellor the way ahead for some years by offering council tax rebates in return for investment in cavity wall insulation, so the Chancellor’s measures are hardly ahead of the curve.
The fifth strand concerns tax incentives and tax reliefs. The stamp duty exemption for carbon-free homes might be a step in the right direction, but the website smarthomes.com states that there are currently 27 zero-carbon homes in the UK, so there is clearly a
long way to go before the relief is actually useful. Furthermore, as I said in my interventions, the increase in vehicle excise duty does nothing to control usage. Vehicle excise duty is a tax on ownership, not on mileage or usage. Instead of having a policy driven by the polluter pays principle, the Chancellor views the environment as another vehicle for stealth taxes.
I should like to move on to public sector debt, which is a particular interest of mine. In 1997, the Chancellor’s pre-Budget report statement promised:
“We shall legislate so that there is a duty on Government to report to Parliament on how they are meeting their fiscal rules; in that way, everyone can plan for the future on a much clearer and better informed basis.”—[ Official Report, 25 November 1997; Vol. 301, c. 774.]
Table C4 on page 278 of the Red Book shows public sector net debt reaching half a trillion pounds, but that figure is dwarfed by potential off-balance-sheet liabilities, such as the private finance initiative and public sector pension liabilities, which push public sector net debt to well over £1.3 trillion. That represents nearly £2 off balance sheet for every £1 on balance sheet. The only way to find out the extent of public sector pension liability is for us to keep asking parliamentary questions. So much for our being clear and better informed about things. The Chancellor’s creative accounting means that he is more like the Enron Chancellor than the Iron Chancellor.
Despite a steady rise in the tax burden since 2000, successive Budgets have seen the Chancellor borrow £100 billion more than he originally intended. On Wednesday, he admitted that we need to borrow £8 billion more than he said was the case in December—a mere three months ago. Mystic Meg could do a better job of predicting public debt figures than the Chancellor. After his 11 Budgets, Organisation for Economic Co-operation and Development data show that public sector spending accounts for 45.3 per cent. of gross domestic product, while the International Monetary Fund says that the UK has the largest structural deficit in the G8.
Much has been said about public services, but I want to touch on the theme because it is important. The 1999 Red Book boldly declared that
“the Government does not pass on the costs of services consumed today to the taxpayers of the future—each generation is expected to meet the current costs of the public services from which they benefit.”
In 2001, in another red book, The Sun, he was quoted as saying that
“any additional resources must be matched by reforms so that we get the best value for money. There is not to be one penny more until we get the changes.”
Yet again, there is nothing in this Budget about public sector reform. Richard Lambert, the director general of the CBI, has said:
“The skill levels of many young people leaving secondary school remain poor despite almost a decade of rising investment in schools. Basic skills remain a real weak point of the UK economy.”
Page 139 of this year’s Red Book shows that education spending growth is set to halve to 2.5 per cent.—that is below the growth rate of the economy—despite a Labour party pledge in its 2005 manifesto:
“We will continue to raise the share of national income devoted to education.”
Furthermore, the Chancellor’s silence on the national health service speaks volumes, given that nurses’ jobs are being axed, junior doctors are on the march and community hospitals are being closed—in some cases, they are not even being built. My Braintree constituents were promised such a hospital. I welcome the fact that almost twice as much money has been spent on the NHS since 1997, but there has been no equivalent improvement in productivity, so it is not surprising that the public are asking where all the money has gone.
During the past couple of days, we have heard much about business taxation and competitiveness. The issue is important for our business community. The corporate tax rate change is forecast to lose the Treasury some £1.38 billion in the fiscal year 2008-09. However, I am led to believe that changes to tax relief on capital expenditure should net £1.49 billion more in the same year. Of the £985 million that the Chancellor is clawing back through the corporate tax system, £820 million will come from small businesses. The bottom line for business is that total business taxes will raise almost £3 billion extra over the next two years.
Professor Peter Spencer, economic adviser to Ernst and Young’s ITEM club, summed up the Budget’s effect on business:
“It is a con trick, there’s no doubt about it. I’ll be amazed if people are duped by it for more than five minutes.”
David Frost, director general of the British Chambers of Commerce, was concerned about the “long-term damage” to small business:
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