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My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) made some important points in his contribution today, and in Committee. He repeatedly pressed the Minister on the changes made in the 2007 Budget, and on the fact that there were clearly winners and losers thanks to the changes. It seemed to me that the Financial Secretary accepted that there would be as many as 5.3 million losers due to the budgetary changes, as stated by a senior civil servant to the Treasury Committee. It was interesting, however, that the Prime Minister refuted that figure. We will see how matters pan out.
The debate on national insurance and pensions is important. It will go on for many years and decades to come, so it is perhaps a little perverse that the Government have rather hysterically held on to this idea that we must have everything sorted out by 2031. I respect the idea, and very much agree with it, that we need long-term thinking in this area, but the world of work, pensions, national insurance and taxation will be very different in 23 years’ time. If we consider the situation almost a quarter of a century ago, we find that the accepted norms of tax rates were higher, and that we were living in a less globalised world. One thing of which we can be sure is that the next 23 years will bring even greater change, with the emergence of China and India as great economic superpowers—
Madam Deputy Speaker: Order. I am sure that the hon. Gentleman knows that he is going wide of the Bill. I hope that he will confine his remarks on Third Reading to the matters contained in the Bill.
Mr. Field: Thank you, Madam Deputy Speaker. I stand duly admonished by you. With that in mind, the concept of simplification is very much to be admired, whether in speaking style or in relation to the Third Reading of the Bill.
I support the recommendation of my hon. Friend the Member for South-West Hertfordshire that we vote against the Bill because there is a sneaking doubt on the part of myself and my colleagues that it is driven by a desire to raise revenue more than anything else. As the hon. Member for Taunton pointed out, a mechanism could have been put in place to ensure that the process was revenue-neutral, instead of raising £1.5 billion or more as a back-door tax increase.
The Bill is very useful, but I hope that it is a starting point for a broader debate that needs to take place on fiscal drag. There are now almost 4 million people who pay higher-rate tax, compared with just 2 million just 10 years ago. I am probably taking words out of the Minister’s mouth, but she may suggest that that is a sign of great affluence, and there is an element of truth in that. However, it seems to me that the lowest-paid in our society pay far too much tax as it is. It is not just an issue for higher-rate tax payers, but for those at the lower end of the band. Detailed thought is required, through this sort of legislation and in Finance Bills in years to come, to ensure that the lowest-paid pay far less tax. Certainly in my constituency in central London, taxation is a massive disincentive to the lowest-paid, especially those in social housing, to get any job, notwithstanding benefits such as tax credits and the minimum wage.
I look forward to the Bill reaching the statute book, as I am sure it will. We will vote against it and I hope that some of our arguments will hold sway in the House of Lords and that the Government will make some of the changes that we suggested.
4.19 pm
Peter Viggers: I do not look forward to the Bill reaching the statute book. It is a nasty little measure. The Exchequer Secretary described it as a technical measure and, although it is short, it is complicated. A website on the subject begins: “Prepare to be baffled”. It says that the state second pension is the most ridiculously complicated benefit on the face of the planet.
“Prepare to be baffled” is the correct phrase, as is “Prepare to be taxed”. The Bill will especially disadvantage those who earn between £37,000 and £43,000. As has been said, the overall measures in the Budget, including the Bill, will involve raising a tax of some £1.5 billion and creating 5.3 million losers. The Financial Secretary has pointed out that 3.5 million of those losers will lose less than £3 a week, but it follows that 1.8 million people will lose more than £3 a week.
Hon. Members will remember the French statesman Talleyrand, who was widely believed to be incapable to telling the truth. He was extremely devious and everyone tried to work out a second motive for everything that he did. When he died in 1838, Metternich is reported to have said, “I wonder what he meant by that.” I felt that way when I listened for more than 10 years to the Budgets of the then Chancellor of the Exchequer, now the Prime Minister.
Let me quote from the Budget speech of 21 March 2007. The then Chancellor said that he was
“creating a tax system for income that has just two rates and two thresholds.”
He also said that he was creating a system
“to reward work, to ensure working families are better off and to make the tax system fairer”.—[ Official Report, 21 March 2007; Vol. 458, c. 827-28.]
First, he said the basic rate of tax would be cut by 2 percentage points from 22 to 20 per cent. and the 10 per cent. starting rate of income tax on earnings would be abolished from 2008-09. Consequently, income tax and earnings would be charged at two rates—the basic rate of tax at 20 per cent. and the higher rate at 40 per cent.
Madam Deputy Speaker: Order. I was allowing what I believed to be a passing reference, but I remind the hon. Gentleman that we are considering Third Reading of the National Contributions Bill. Perhaps he will relate his remarks accordingly.
Peter Viggers: I am grateful to you, Madam Deputy Speaker. The then Chancellor of the Exchequer also said—this is the key point, leading to the introduction of this Bill—that the upper earnings limit for national insurance contributions would be aligned with the higher rate threshold. It is those words alone that led to the Bill. My quote showed the then Chancellor’s typically glutinous preening, which contrasted with the comments that are behind the Bill.
It would have been helpful if the then Chancellor had developed the capacity for telling things the way they were. He made a great pitch for presenting the whole picture to the House. He made a great point about simplifying. He said that the upper earnings limit for national insurance would be aligned with the higher rate threshold for tax. However, he was not genuinely simplifying. He is simply bringing the rates together—aligning the rates but not the systems. Two systems remain—an annual taxation system and a weekly system for national insurance. It was therefore incorrect to claim that he was simplifying.
The system remains too complicated. We were told that the Bill and the other measures relating to the 2007 Budget were part of a package. We have been told many times, including today by the Financial Secretary, that we must look at the relief of child poverty and at lifting pensioners out of poverty. “Child poverty” is rather a misleading expression. A child might ask his father, “Daddy, are we quite rich?”, to which the reply might be, “Well, I’m quite rich, but you, like all children, are incredibly poor.” We are not talking about child poverty; we are talking about family poverty, which includes children. The expression is therefore misleading.
Tax is too complicated at the moment. Pensioner tax credit take-up is very low, and for Ministers to—
Madam Deputy Speaker: Order. I must remind the hon. Gentleman that he must relate his remarks to the contents of this Bill.
Peter Viggers: Thank you, Madam Deputy Speaker. The Bill is of course part of the overall Budget measures, and this is a revenue-raising issue. The amount of tax, and revenue generally, taken by the Budget is too high. The Bill is part of that—
Madam Deputy Speaker: Order. That might well be the hon. Gentleman’s view, but I must remind him once again that it is pertinent to discuss only the contents of this Bill on Third Reading.
Peter Viggers: I am grateful to you, Madam Deputy Speaker.
I oppose the Bill, which, among other things, will give the Government the opportunity to raise further national insurance contributions without coming back to the House and introducing primary legislation. One of the purposes of the Bill is to allow the Government to come back with regulations to increase national insurance, and on that basis and for the other reasons that I have given, I shall readily vote against it on Third Reading.
4.26 pm
Mr. Tobias Ellwood (Bournemouth, East) (Con):
I pay tribute to the comments of my hon. Friend the Member for Gosport (Peter Viggers). He was right to point out the larger context in which we should place the Bill, and the errors that we have found creeping into the last Budget that we have been faced with. It is important to put in context the consequences of the Bill to the person in the high street and the people in our constituency. These consequences must be placed in the context of council taxes, increased fuel bills and
so forth. This is not a tax-neutral measure, as the Government would have us believe. They might be able to convince the Labour Members that it is, using the figures in the Red Book, but the middle-income earners who will be hit by it will end up out of pocket.
We strongly support the idea of tax simplification. As my hon. Friend the Member for Gosport pointed out, we have a very complicated tax system, and it behoves us all to try to simplify it. There is a consequence to the Bill, however; it is the price tag that is associated with it. That is why the Conservatives will not support it on Third Reading.
If we were to ask any of our constituents exactly what national insurance contributions were, I doubt that they would be able to give us a proper definition. Some might say that they were supposed to link in with the original desire to protect against unemployment, or that they had some connection with the health service. Others might say that they had a link with pensions. The system is now so confusing, with all its smoke and mirrors, that it is seen simply as another stealth tax. It is a confusing tax that is used to raise more funds for the Government.
As we have heard from my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), the impacts of the proposals will be twofold. The first will involve the changes to the upper earnings limit. This has come about because of the curious gap that has emerged between national insurance contributions and the higher rate of income tax. Simplification of the tax system is, of course, important, but we see this as a clever way of introducing a stealth tax that will give the Government a revenue increase of about £1.5 billion, which will be taken directly from middle-income earners. It has been estimated that that will affect about 5 million households across the UK, involving people who earn between £39,000 and £40,000 a year.
Mr. Gauke: Does my hon. Friend share my curiosity about a question that we pursued in Committee? We asked how many of the 5 million households that will lose out as a consequence of the Budget would be in that £39,000 to £40,000 range, and how many would be in the lower range, involving people earning under £18,000 a year. I do not think that we have yet had an answer to that question.
Mr. Ellwood: I know that my hon. Friend posed that and many other questions in Committee to which he did not get an answer —[Interruption.] I see that I have gained the Minister’s attention. Perhaps she would—
Madam Deputy Speaker: Order. The hon. Gentleman may well not have received an answer in Committee, but as I said earlier, we are now on Third Reading of this particular Bill.
Mr. Ellwood:
I am grateful for your guidance, Madam Deputy Speaker, but I seek the Minister’s indulgence to clarify how many middle-income families will be affected by the Bill. When she responds, perhaps she will allude to that important aspect. According to our calculations, the groups most affected by the Bill will be teachers, doctors, senior nurses and fire services personnel, who have just had a horrendous funding review. In Dorset, for example, firemen have an
increase of only 2.5 per cent. over the next three years—1 per cent. in the first year, 0.5 per cent. in the following year and—
Madam Deputy Speaker: Order. Let me remind the hon. Gentleman once again that he must relate his remarks to the content of this narrowly drawn Bill.
Mr. Ellwood: Once again, Madam Deputy Speaker, I appreciate your clarification, but as I pointed out earlier, it is the Red Book that misleads us by ignoring some of the other factors that affect our constituents.
The second aspect of the Bill is its impact on pensions, particularly in respect of the upper earnings accruals point, about which my hon. Friend the Member for South-West Hertfordshire spoke at length earlier. The House will be pleased to know that I will not go into any further detail at this stage. [Hon. Members: “Hear, hear.] I am pleased to hear that confirmation. Suffice it to say that the consequence of this second aspect of the Bill is an effective raid on the rebates of the state second pension to the tune of about £400 million. That is not an insignificant amount of money for a Government who say that they want to help those groups of people.
In conclusion, let me say that the consequence of simplifying the tax system comes with a price tag—a price tag of £1.5 billion.
Mr. Gauke: Does my hon. Friend agree that when the Government talk about tax simplification, it is time for the rest of us to start counting the spoons?
Mr. Ellwood: Once again, my hon. Friend gives us pearls of wisdom. This is a day on which we should be returning our tax forms, and it seems that that is exactly what the Liberal Democrats, who appear to be absent, are doing. It is also a day on which a green budget has been produced by the Institute for Fiscal Studies, saying that there is a black hole in the nation’s finances of £8 billion—
Mr. Deputy Speaker (Sir Michael Lord): Order. Perhaps the change in Deputy Speaker will manage to persuade the hon. Gentleman that he is once again wide of the mark. If he is not going to return to the Bill, this may be a good time for him to think about concluding his remarks.
Mr. Ellwood: I will take your advice, Mr. Deputy Speaker.
We are seeing not only a price tag, but a loss of scrutiny, so I recommend that every hon. Member vote against the Bill.
4.34 pm
Jane Kennedy: With the leave of the House, Mr. Deputy Speaker, I thank hon. Members for their kind words to officials, and I add my own thanks for their hard work, inspiration and assistance with the Bill.
The hon. Member for Cities of London and Westminster (Mr. Field) and a number of other Members berated us for taxing more higher-rate taxpayers as a result of this package, but I have to say that the fact that more
higher-rate taxpayers are paying higher taxes is a sign of economic success, increased national prosperity and record employment levels. Since 1997, there have been—
Mr. Deputy Speaker: Order. I am sure that the Minister would expect me to be even-handed in these matters, so let me give her the same advice that I have given to Opposition Members.
Jane Kennedy: Thank you, Mr. Deputy Speaker.
I have written to members of the Committee to provide the further details that were requested earlier. I leave the House with this final thought. This is what Robert Chote of the Institute for Fiscal Studies said about the Budget package that has been the subject of today’s debate:
“To reform the system in a useful way within tight financial constraints and with only modest gains and losses should be a cause for congratulation rather than criticism.”
I commend the Bill to the House.
Question put, That the Bill be now read the Third time:—
The House divided: Ayes 256, Noes 147.
AYES
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, rh Mr. Douglas
Allen, Mr. Graham
Anderson, Mr. David
Anderson, Janet
Armstrong, rh Hilary
Austin, John
Bailey, Mr. Adrian
Baird, Vera
Balls, rh Ed
Banks, Gordon
Barlow, Ms Celia
Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Beckett, rh Margaret
Begg, Miss Anne
Bell, Sir Stuart
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Blackman-Woods, Dr. Roberta
Blears, rh Hazel
Blizzard, Mr. Bob
Borrow, Mr. David S.
Brennan, Kevin
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, rh Andy
Butler, Ms Dawn
Byers, rh Mr. Stephen
Byrne, Mr. Liam
Cairns, David
Caton, Mr. Martin
Cawsey, Mr. Ian
Clapham, Mr. Michael
Clark, Ms Katy
Clark, Paul
Clarke, rh Mr. Charles
Clarke, rh Mr. Tom
Coaker, Mr. Vernon
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Tony
David, Mr. Wayne
Dean, Mrs. Janet
Denham, rh Mr. John
Devine, Mr. Jim
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Drew, Mr. David
Eagle, Angela
Eagle, Maria
Efford, Clive
Ellman, Mrs. Louise
Ennis, Jeff
Etherington, Bill
Farrelly, Paul
Field, rh Mr. Frank
Fitzpatrick, Jim
Flello, Mr. Robert
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gapes, Mike
Gardiner, Barry
George, rh Mr. Bruce
Gibson, Dr. Ian
Goggins, Paul
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hanson, rh Mr. David
Harman, rh Ms Harriet
Harris, Mr. Tom
Havard, Mr. Dai
Healey, John
Henderson, Mr. Doug
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hodgson, Mrs. Sharon
Hoey, Kate
Hoon, rh Mr. Geoffrey
Hope, Phil
Hopkins, Kelvin
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Humble, Mrs. Joan
Iddon, Dr. Brian
Illsley, Mr. Eric
Irranca-Davies, Huw
Jenkins, Mr. Brian
Jones, Helen
Jones, Mr. Kevan
Jones, Mr. Martyn
Jowell, rh Tessa
Joyce, Mr. Eric
Keeble, Ms Sally
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khan, Mr. Sadiq
Kidney, Mr. David
Kilfoyle, Mr. Peter
Knight, Jim
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, Mr. David
Laxton, Mr. Bob
Lazarowicz, Mark
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
MacShane, rh Mr. Denis
Mactaggart, Fiona
Malik, Mr. Shahid
Mallaber, Judy
Marris, Rob
Marsden, Mr. Gordon
Marshall, Mr. David
McAvoy, rh Mr. Thomas
McCabe, Steve
McCafferty, Chris
McCarthy, Kerry
McCartney, rh Mr. Ian
McDonagh, Siobhain
McDonnell, John
McFadden, Mr. Pat
McGovern, Mr. Jim
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNulty, rh Mr. Tony
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Miliband, rh Edward
Miller, Andrew
Moffat, Anne
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Moran, Margaret
Morden, Jessica
Morgan, Julie
Morley, rh Mr. Elliot
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, Mr. Jim
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Osborne, Sandra
Palmer, Dr. Nick
Pearson, Ian
Pound, Stephen
Prentice, Bridget
Prentice, Mr. Gordon
Primarolo, rh Dawn
Prosser, Gwyn
Purnell, rh James
Raynsford, rh Mr. Nick
Reed, Mr. Andy
Reed, Mr. Jamie
Riordan, Mrs. Linda
Robertson, John
Robinson, Mr. Geoffrey
Roy, Mr. Frank
Ruane, Chris
Ruddock, Joan
Russell, Christine
Ryan, rh Joan
Sarwar, Mr. Mohammad
Sharma, Mr. Virendra
Shaw, Jonathan
Sheerman, Mr. Barry
Short, rh Clare
Simon, Mr. Siôn
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andy
Smith, rh Mr. Andrew
Smith, Ms Angela C. (Sheffield, Hillsborough)
Smith, Angela E. (Basildon)
Smith, Geraldine
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stoate, Dr. Howard
Stuart, Ms Gisela
Taylor, Ms Dari
Taylor, David
Thomas, Mr. Gareth
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Turner, Mr. Neil
Vis, Dr. Rudi
Waltho, Lynda
Watson, Mr. Tom
Watts, Mr. Dave
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Mr. Alan
Williams, Mrs. Betty
Wills, Mr. Michael
Wilson, Phil
Winnick, Mr. David
Winterton, rh Ms Rosie
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wyatt, Derek
Tellers for the Ayes:
Alison Seabeck and
Liz Blackman
NOES
Afriyie, Adam
Alexander, Danny
Amess, Mr. David
Ancram, rh Mr. Michael
Arbuthnot, rh Mr. James
Baldry, Tony
Barker, Gregory
Baron, Mr. John
Bellingham, Mr. Henry
Benyon, Mr. Richard
Bercow, John
Beresford, Sir Paul
Bone, Mr. Peter
Bottomley, Peter
Brady, Mr. Graham
Brake, Tom
Brokenshire, James
Brooke, Annette
Browne, Mr. Jeremy
Browning, Angela
Bruce, rh Malcolm
Burstow, Mr. Paul
Burt, Alistair
Butterfill, Sir John
Cameron, rh Mr. David
Carmichael, Mr. Alistair
Carswell, Mr. Douglas
Cash, Mr. William
Clappison, Mr. James
Clark, Greg
Clarke, rh Mr. Kenneth
Cormack, Sir Patrick
Davey, Mr. Edward
Davies, David T.C. (Monmouth)
Djanogly, Mr. Jonathan
Dorries, Mrs. Nadine
Duncan Smith, rh Mr. Iain
Ellwood, Mr. Tobias
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Field, Mr. Mark
Foster, Mr. Don
Francois, Mr. Mark
Fraser, Mr. Christopher
Gale, Mr. Roger
Gauke, Mr. David
George, Andrew
Gibb, Mr. Nick
Gidley, Sandra
Gillan, Mrs. Cheryl
Goodman, Mr. Paul
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Hammond, Mr. Philip
Hammond, Stephen
Hands, Mr. Greg
Harper, Mr. Mark
Hayes, Mr. John
Heald, Mr. Oliver
Heath, Mr. David
Heathcoat-Amory, rh Mr. David
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hollobone, Mr. Philip
Holloway, Mr. Adam
Holmes, Paul
Horam, Mr. John
Howard, rh Mr. Michael
Howarth, Mr. Gerald
Huhne, Chris
Hunt, Mr. Jeremy
Hunter, Mark
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jones, Mr. David
Keetch, Mr. Paul
Kirkbride, Miss Julie
Lait, Mrs. Jacqui
Lamb, Norman
Lansley, Mr. Andrew
Laws, Mr. David
Leigh, Mr. Edward
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Lidington, Mr. David
Lilley, rh Mr. Peter
Loughton, Tim
Luff, Peter
Mackay, rh Mr. Andrew
Main, Anne
Malins, Mr. Humfrey
May, rh Mrs. Theresa
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Murrison, Dr. Andrew
Neill, Robert
Öpik, Lembit
Osborne, Mr. George
Ottaway, Richard
Paice, Mr. James
Penning, Mike
Penrose, John
Prisk, Mr. Mark
Randall, Mr. John
Rifkind, rh Sir Malcolm
Robathan, Mr. Andrew
Robertson, Mr. Laurence
Rosindell, Andrew
Ruffley, Mr. David
Selous, Andrew
Shapps, Grant
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, Mr. Keith
Soames, Mr. Nicholas
Spicer, Sir Michael
Spink, Bob
Spring, Mr. Richard
Steen, Mr. Anthony
Swire, Mr. Hugo
Syms, Mr. Robert
Tredinnick, David
Tyrie, Mr. Andrew
Vaizey, Mr. Edward
Vara, Mr. Shailesh
Viggers, Peter
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Walter, Mr. Robert
Waterson, Mr. Nigel
Watkinson, Angela
Weir, Mr. Mike
Whittingdale, Mr. John
Wiggin, Bill
Willetts, Mr. David
Williams, Mark
Willott, Jenny
Wilshire, Mr. David
Winterton, Ann
Winterton, Sir Nicholas
Wright, Jeremy
Young, rh Sir George
Tellers for the Noes:
Mr. Simon Burns and
Mr. Crispin Blunt
Question accordingly agreed to.
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