Previous Section Index Home Page

He went on to say that he hoped there would be a review of the decision to scrap the 10p rate.

Essentially, the Chancellor is relying on tax credits to soften the blow inflicted by the loss of the 10p band. In deciding whether it should be retained, we should examine the tax credit system. The impact of the abolition of the 10p band is even tougher on the poor and the low-paid when we take account of the fact that only 61 per cent. of people entitled to working tax credit claim it. Among people without children, the figure drops to 19 per cent. The Treasury itself has budgeted on the assumption that only 25 per cent. of the working tax credit due to childless households will actually be claimed—and who can blame people for being wary of becoming embroiled in tax credits?

Although we support tax credits in principle and believe that they can and should play a continuing role in alleviating poverty, the tax credit system is broken and in need of drastic reform. Referring to tax credits in connection with the abolition of the 10p band is simply not a complete answer. Their effectiveness in mitigating the impact of the loss of the 10p band is undermined by the current chaos in the tax credit system. The fundamental problem is its complexity. As the National Audit Office has said, that complexity underlies the problems with fraud and overpayment.

The more complex the system, the more likely it is that mistakes will be made. People claiming tax credits must fill up a 12-page form and wade through a 60-page explanatory note. Robin Williamson, of the Low Incomes Tax Reform Group, recently commented:

30 Apr 2007 : Column 1280

—tax credit entitlement, that is.

The First Deputy Chairman: Order. I am quite prepared to allow the hon. Lady to make a passing reference to that, but I do not think that this is the place for a detailed debate on the child tax credit system.

Mrs. Villiers: Again, I am grateful for your guidance, Mrs. Heal.

It is of considerable concern that the loss of the 10p band will hit people on low incomes. It will mean that more people are forced into the tax credit system, with all the serious problems that the House has debated on so many occasions. It cannot help in any way to fulfil the Chancellor’s declared intention of tackling poverty, either. The Chancellor tried to grab the headlines with an income tax cut in the last few words of his Budget statement, but the Bill gives us no such cut—nor will the legislation to come, given the other tax rises that the Chancellor plans to introduce.

As Mike Warburton of Grant Thornton said of the Budget:

Michael Saunders of Citigroup said that the Chancellor’s

Peter Spencer, economic adviser to Ernst and Young, said:

Clause 1 shows more clearly than ever that the Chancellor’s 11th and final Budget was a tax con, not a tax cut, and the nation has not been fooled by it.

Mr. Frank Field: Thank you, Mrs. Heal, for calling me. May I also thank you for exercising such judgment, which allowed the Opposition enough leeway to tell us what they were really thinking about, which is, of course, what is happening on the streets now: the fight between the Liberal Democrats and the Conservatives. I want to address my comments to the Treasury Bench, where decisions will be made this year and no doubt next year as well. My speech is on the impact of the 10p rate of tax.

Whatever views one has of the Chancellor, one has to be pretty deranged to say that he is not passionate about redistributing resources to the poorest. I willingly sign up to that message. Therefore, I am puzzled that he has allowed this aspect of his Budget to go through. My feeling is that, on this one occasion, he cannot have done his sums.

Those on the Treasury Bench know that, a month ago, I tabled questions asking how many people will be net losers as a result of the abolition of the 10p rate and how many of those people will not be compensated by the tax credit system. I am sure that, when those in the Treasury get around to answering my question a month late, they will be so appalled by the answer that they themselves will look before Report to meet those Labour Members who are going to table amendments—if we
30 Apr 2007 : Column 1281
possibly can—so that those who are going to lose out will not lose out, at least for a transitionary period.

The issue is twofold: there is redistribution from poorer people to richer people, but there is also redistribution within families. I want to draw the Committee’s attention to both those aspects of redistribution, which are unsatisfactory to Labour Members. Members of Parliament, given the salaries that we are on, will benefit from the tax package, but if we let the measure go through next year, those of our constituents who earn a sixth of our salaries will pay about £3 a week more in tax. That cannot have been the aim of the move.

As I said, the redistribution occurs not only in a traditional sense—from poorer people to richer people—but within families. With most families, although not all, it is the men who are higher earners and the women who are lower earners. Therefore, if the abolition goes through, in every family in the land who are in that position, the women generally will pay more tax and their husbands will pay less tax. If the measure is unaccompanied by other protection measures, it will redistribute from women to men within families and, between families, from poorer families to richer families.

As I said earlier, no one who is in control of their marbles believes that the Chancellor is not passionate about redistributing to poorer people. Some of us may have a debate about the methods of that redistribution, but no one should doubt the intent. Therefore, it is a surprise that the measure is going through as it is. I believe that once those in the Treasury, a month late, get around to answering the question that I tabled, they will be so horrified by the findings that they themselves will look at what measures we can take, and those measures should be of a transitionary nature, not permanent.

The move that the Chancellor is making to simplify our tax system as much as possible and to make it easier for people to understand is the right one. The aim is for the standard rate of tax to be the tax rate that determines whether people work harder, train more, get jobs with greater responsibilities and push up their family income as a result. Therefore, I support the desire that the Chancellor has. I cannot believe, however, that he did the sums on the matter, in possibly his last Budget. When he has done the sums, he will not be happy at supporting a change that redistributes income in a family from lower paid women to higher paid men in that household, or more generally from lower paid workers to higher paid workers such as MPs. I hope that when we come to Report it will not be necessary for Labour Members to table amendments and that the Government themselves will make those changes.

6.15 pm

Mr. Gauke: It is a great pleasure to follow the right hon. Member for Birkenhead (Mr. Field), whose work on the matter is highly regarded by hon. Members on both sides of the House.

It is a curious amendment, but it is helpful in giving Members an opportunity to debate these matters.
30 Apr 2007 : Column 1282
Amendment No. 10 would result in a starting rate of income tax of zero per cent. I know why those who tabled the amendment have proposed that, but presumably if one is paying zero per cent. one is not starting to pay income tax. It is not a starting rate; it is a threshold, but it is a useful device to enable us to discuss these matters.

Mr. Frank Field: The starting rate would be 20p.

Mr. Gauke: Indeed.

It is useful to be able to discuss these matters. The changes to income tax that will be introduced next year and that we have touched on were perhaps the key consideration when analysing the Budget. The issue of the winners and losers is key. Indeed, as a member of the Treasury Committee, I am pleased that the Labour-dominated Committee has recommended that, in future, the Red Book should set out a clear analysis of winners and losers, so that it is possible to see much earlier who they are. This year, the Red Book set out some examples of winners, but not of losers—curiously. I know that journalists were complaining about the fact that it was impossible to get any losers out of the Treasury. Given that this was a broadly tax-neutral Budget, if there were some winners, presumably there must have been some losers.

The Institute for Fiscal Studies has been much more helpful on the matter. My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) referred to the IFS’s analysis that stated that 5.3 million households would be losers as a consequence of the Budget changes. As we heard from my hon. Friend, that point was confirmed to the Treasury Committee by Mark Neale, a senior Treasury official. He must have felt that he was safe in saying that. He said that

He may have felt that that was a perfectly reasonable and safe thing to say. However, Mr. Neale was due to give evidence to the Treasury Committee the day after, alongside the Chancellor, and was curiously withdrawn after the quotation was used in various newspapers. Mr. Neale’s absence was not explained, but we all worried about his safety and I hope that no harm has come to him.

The estimate that 5.3 million households would lose out as a result of the Budget was put to the Chancellor, and he was asked whether he accepted it. Given that his own officials had accepted it, one would have thought that he would not have had a problem. However, he advanced two arguments as to why he did not accept that estimate, which was made following the changes in income tax that he announced. The first was that the minimum wage was rising.

I, too, asked a parliamentary question, which was referred to the Department of Trade and Industry. Unlike the right hon. Member for Birkenhead, I have had some success in getting an answer. It contained an analysis of those people earning the national minimum wage, broken down by salary. The fact is that the majority of those on the minimum wage have an annual salary of less than £5,000, so they will be unaffected by the income tax changes. The remaining
30 Apr 2007 : Column 1283
171,000 earn over £5,000. Let us assume that all 171,000 are losers; I do not think that we can necessarily do that, but for argument’s sake let us do so. Let us assume also that they are in separate households, which is highly unlikely. That takes us to 171,000 households who are on the minimum wage and whose income therefore, one could say, will increase over the course of the year. That will not make much of a dent in the figure of 5.3 million households that the IFS estimates will lose out as a result of the Budget, and the figure of 171,000 is, perhaps, optimistic.

Julia Goldsworthy: The minimum wage is lower for younger earners, and they will be too young to be entitled to tax credits. For those people, this will have a penal effect.

Mr. Gauke: The hon. Lady’s comments bring me to the second argument that the Chancellor used in disputing the figure of 5.3 million household losers, which was the take-up of working tax credits. I will not dwell on the point, but he claimed that the take-up will substantially increase. For households with no children, the current take-up rate by expenditure is about 25 per cent., and by person it is 19 per cent.

In giving evidence to the Treasury Committee, the Chancellor produced some figures which no one had seen before. They related to working tax credit take-up as a whole, as opposed to households without children. He said that a further 100,000 were now claiming, but he was not able to give a percentage figure. I recall reading an article in The Daily Telegraph that reported that the Chancellor once tore a strip off an official who was unable to give percentage figures. The Chancellor gave an overall number, and I have tabled a parliamentary question to find out the percentage for households without children.

Given that the Chancellor had claimed that there was an increase and confidently predicted further increases, I decided to table yet another parliamentary question, and again I have had success in obtaining an answer. I do not know whether the right hon. Member for Birkenhead feels victimised by that. Perhaps I am more popular with the Chancellor than he is.

Mr. Paul Goodman: You could not be less popular.

Mr. Gauke: I could not be less popular with the Chancellor, as my hon. Friend points out.

I tabled a parliamentary question on the level of take-up of working tax credit that the Treasury anticipated over the next few years, to which I received the answer that the Government do not make forward projections for take-up rates.

Therefore, the Chancellor has used two arguments, neither of which holds water. It appears that the changes in income tax announced in the Budget will result in 5.3 million households losing out. If the Chief Secretary would like to dispute those figures, I would be grateful to hear that and to understand the argument. However, this is a substantial change. At a time when the economy is doing well, 5.3 million households will lose out, and those households are generally the poorest, not the richest.

30 Apr 2007 : Column 1284

Paul Flynn (Newport, West) (Lab): I shall be brief. As an old lag who has attended many debates on pensions over a long period—and perhaps I should state that I have a personal financial interest in the basic pension, which I have been receiving for some seven years now—I can recall a pensions crisis. I recall the 17 years under the Tory Government when the level of the basic pension was cut following their severing of the link with earnings in 1980. A few years later, they cut in half the value of the state earnings-related pension scheme. The introduction of SERPS under Barbara Castle in 1975 was one of the most progressive moves ever made, and it was supported by all parties in the House. The Tory Government also promoted the personal pension scam that robbed 6 million people, who received derisory pensions compared with the amount of money put into them. It was left up to the Labour Government to put that right. Therefore, there was a pensions crisis.

We must resist the fiction that is promoted by the Opposition parties and the tabloid press in an effort to convince people, especially pensioners, that what they read in the newspapers is true and that they should not believe their own personal experience over the past 10 years. That experience has been a very successful one. For a period of six years I used to get up in the early hours of the morning—

The First Deputy Chairman: Order. I ask the hon. Gentleman to relate his remarks to the amendments under discussion.

Paul Flynn: I shall confine my remarks to the subject under discussion, although there is a temptation not to do so in one’s “anecdotage”. I certainly shall not support the amendment although, like other Members, I am very concerned about this measure in the Budget and find myself at a complete loss to explain to my constituents who are on low pay and who will not receive any compensatory payments why it will be introduced. I want to repeat what my right hon. Friend the Member for Birkenhead (Mr. Field) said to the Government: there is time to reflect and to come up with a different solution. The Chancellor’s record over the past 10 years has been splendid and there has not been a need to restore the link with earnings because the pension credit, winter fuel payments and other allowances have meant that for the first time in many years pensioners have received justice.

Mr. Frank Field: Will my hon. Friend briefly comment on the fact that if this measure is passed it will be an attack on many women because, generally, women are lower paid than men? Therefore, the proposal will lead to a redistribution within households from women to men.

Paul Flynn: It is strange that this measure has been introduced at the same time as the splendid Pensions Bill—for the first time in 30 years there is proposed legislation that is based not on someone putting their finger up in the air to find out which way the political wind is blowing and acting in accordance, but on evidence and facts. That Bill will give justice to women. Unfortunately, this element of the Budget will have unintended consequences, and I urge the Government to look at it again.

Next Section Index Home Page