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John McFall (West Dunbartonshire) (Lab/Co-op): As the Chief Secretary knows, it was the Treasury Committee that recognised that the 10p tax rate withdrawal would cause problems for many people; indeed, the Treasury official who appeared before the
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Committee last year mentioned that 5.3 million was the ballpark figure. In our report, we have asked the Treasury to look at that, but I will go one step further today and give the Chief Secretary and the Chancellor time to think about this before the end of the Second Reading debate tonight: I will ask my Committee to explore with the Chancellor and his officials who will lose out as a result of this 10p tax rate withdrawal and to look at any measures that could be implemented sooner rather than later to compensate them. I will ask my Committee members to look at that so that we can report back before June or July in order to inform the Treasury, in the hope that we can go a step further towards ensuring that we do not penalise poor people unnecessarily.

Yvette Cooper: My right hon. Friend knows that I respect immensely the work that he and his Committee have done. We would certainly welcome further work from it on this matter, and we hope that he will be a part of the work that we now want to take forward, looking not only at families on low incomes with children, but at families on low incomes without children. We would like to take that forward rapidly, with a series of further programmes of work with stakeholders, in order to report back in advance of the pre-Budget report and to look further at these issues. I would certainly welcome further discussions with my right hon. Friend, and I acknowledge his points on the need to make progress as speedily as possible in these areas.

There are a series of further measures in the Bill to support the environment, as well as the wider work to provide additional support for the economy in challenging times and for millions of families. We shall continue to do more in all those areas, not just in the Bill but as part of future work. I commend the Bill to the House.

4.55 pm

Mr. Philip Hammond (Runnymede and Weybridge) (Con): This Finance Bill is introduced against a backdrop of unprecedented uncertainty facing the British economy. Over the past six months, we have seen key leading economic indicators turn downwards, consumer and business confidence collapse, retail sales dip and the housing market turn. Millions of families and businesses are apprehensive about what the future holds for them.

At times like this, people want a Government who are strong and unified, with a clear long-term strategy and a sense of purpose. Instead, they have a Government who are weak and disunited, fighting each other rather than fighting for Britain, dithering and indecisive, and focused on their own short-term problems. They have a Government who have lost their sense of where they are going and their will to go there.

This Finance Bill is an opportunity missed. What the country needs today is a Finance Bill that will set Britain back on the right course. It needs a Bill to deliver a fair deal to hard-pressed families as the cost of living soars and earnings stagnate; to restore our business-friendly credentials, which the fiasco of the pre-Budget report did so much to undermine; and to set out a transparent process for future business tax changes and for proper consultation on them. The
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country needs a Bill to define clearly the scope of the rules and the processes for enforcing them consistently and fairly, and to reinforce the incentives for the investment and entrepreneurship that will deliver the jobs and prosperity that Britain needs for the future.

What we have is a Finance Bill that exposes the legacy of the economic incompetence that has left Britain so ill prepared for the current uncertainty and given the Chancellor so little room for manoeuvre. He has so little room that he has to increase taxes on average families who like an occasional drink or drive a family car. The Bill leaves the business community still facing huge uncertainty about the detail of the non-dom taxation policy, which is now set out in schedule 7—a schedule that is so dense and impenetrable that even the experts tell us that they are baffled by it. By the Government’s own admission, it is still so full of holes, six months after the PBR announcement, that it will require substantial amendment during the Bill’s passage.

In short, this is a Finance Bill that does exactly what we do not need at this point in the economic cycle. It raises taxes on households as the economy slows, the cost of living soars and the housing market teeters on the brink, fuelling the collapse in consumer confidence. It raises taxes on business at a time when our competitors are cutting them to support their economies, undermines investment and business confidence, and kicks families and businesses when they are down.

It is typical of this Prime Minister that, at a time when the focus of attention in the Bill should be on supporting business and consumers and stimulating investment to keep the economy from slowing still further, the income tax measures announced in his Budget of 2007, when he was seeking to box in his successor, have dominated the debate. Perhaps it is poetic justice that when he stepped off the plane to confront the grim reality of home, it was his income tax reform that was fuelling the collapse of his authority and undermining his successor’s first Finance Bill.

It is typical, too, that the Prime Minister seems to be just about the only person who still does not get it and is still in denial that there is a problem. He still refuses to acknowledge his cynical sacrifice of the interests of the poorest to his own short-term political agenda. Opposition Members well remember the farce of the 2007 tax con Budget, and how Labour Back Benchers cheered the announcement of the reduction of the basic rate. What a coup to crown the then Chancellor’s decade in the Treasury, and to launch his bid for the Labour leadership. How he basked in that achievement—for about five minutes.

Then, it unravelled. Table A1 of the Red Book exposed the sleight of hand that paid for the tax cut with the abolition of the 10p rate. Then, the Institute for Fiscal Studies identified who the losers would be; the Chief Secretary to the Treasury apparently cannot say the figure, but I will: 5.3 million of Britain’s poorest families. That figure was confirmed, give or take, in the Treasury’s evidence to the Select Committee, and that is after taking account of the increases in tax credits.

Mr. John Redwood (Wokingham) (Con): My hon. Friend is making a very powerful case. Is it not even odder that the people who are going to pay this extra
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burden through the abolition of the 10p band are exactly those who are hit most severely by the surge in food and energy prices and by the further big hike in fuel duty when they want to travel in their car?

Mr. Hammond: That is what makes the timing of this all the more poignant, and I suspect that that double whammy has focused the minds of many Members in this House.

The thing is that the Prime Minister knew that his tax cut would be paid for by an increase in the tax burden of the poorest. The tax-cutting Budget became the tax con Budget, and boy, is the Prime Minister paying for his five minutes of glory.

Mr. Russell Brown (Dumfries and Galloway) (Lab): Can the hon. Gentleman explain to the House why members of his party sat on their hands when an amendment was tabled for last year’s Budget?

Mr. Hammond: We identified this problem in the 2007 Budget within an hour of the then Chancellor sitting down, and as I understand it, two amendments were tabled in the course of the following debate. One would have reduced the 10p tax rate to zero, costing the Exchequer about £16 billion, which is not a sensible or fiscally responsible way to address the problem. The other sought to put in place a long-term constraint on the Chancellor’s ability to manoeuvre in future Budgets. Neither of those is the right way to address this problem. We have to deal with the issues in this Finance Bill, the Budget before it and the 2007 Budget, and we believe that that is the way to tackle these problems.

Mr. Ian Austin (Dudley, North) (Lab): If the hon. Gentleman expects anybody to take seriously his new-found concern for the poor and low-paid, can he explain to us why his No. 1 tax reform proposal is inheritance tax reform to benefit multi-millionaires such as the shadow Chancellor and the Leader of the Opposition, or the abolition of stamp duty on shares to benefit multi-millionaire City traders? Can the hon. Gentleman tell us which way he voted on the minimum wage, the introduction of tax credits and the introduction of the winter fuel allowance, all of which show that Labour has been consistent in delivering better standards of living for the poor and low-paid?

Mr. Hammond: I appreciate that the hon. Gentleman may be the only Parliamentary Private Secretary left in the Government who is supporting the policy, but it is pretty unprecedented to have the Prime Minister’s PPS on the Back Benches with a crib note, trying to intervene in this debate. I suspect that we on the Opposition side of the House are rather with Mr. Carter on this.

If the Government want to talk about what happened in 1997, as the Chief Secretary to the Treasury did, instead of talking about the issues facing the poorest households in our society now, in 2008, then nothing demonstrates more clearly that they have lost the plot and the will to govern, and lost the way forward for Britain.

Several hon. Members rose

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Mr. Hammond: If I may, I shall press on.

Once again, the man who likes to boast of his long-termism demonstrated the cynicism that has come to personify him, as he reversed a long-term policy objective for short-term political gain.

Mr. Ian Austin: On a point of order, Madam Deputy Speaker. Could you reiterate the answer that you gave to the Opposition Chief Whip about the speaker’s right to take every intervention that is put to them?

Madam Deputy Speaker: I have indeed repeated this on more than one occasion, but I will do so again. It is up to every individual hon. Member of this House to make their own decision whether they give way for an intervention or not.

Mr. Hammond: It seems that the Prime Minister’s Parliamentary Private Secretary is trying to invent a new constitutional convention: that Prime Ministers’ Parliamentary Private Secretaries must be allowed to intervene at any point in the debate on some kind of privileged basis. We would not encourage that.

In case anyone has forgotten, Labour’s 1997 election manifesto—that unfulfilled promissory note—promised, among many things, that Labour would

That was before the term “stealth tax” had even been invented. The manifesto continued:

So said the 1997 manifesto, on which Labour Members sitting opposite were elected.

That long-term objective was achieved in 1999, and was hailed by the then Chancellor, who said:

That was what the then Chancellor said in April 1999. He concluded:

Today, 5.3 million low-income households know that he does not keep his promises. The income tax burden of some of them will double because, by 2007, the long-term objective had apparently outlived its political usefulness, and the low-income households that had benefited from it were betrayed by the Prime Minister. What price now his moral compass?

David Taylor (North-West Leicestershire) (Lab/Co-op): I stand second to none in having great reservations about the loss of the 10 per cent. rate, which is why I am backing the amendment that will be put forward next week by my right hon. Friend the Member for Birkenhead (Mr. Field).

Would the hon. Gentleman care to correct a canard that seems to have established a life of its own in recent weeks: that this particular change will fund the whole cost of the 2 per cent. reduction in the standard rate, which is about £7 billion or £8 billion? Some 5.3 million
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individuals or families will lose, on average, between £0 and £232—that is the most that can be lost—and £116 times 5.3 million is about £600 million. That is not even 10 per cent. of the cost of reducing the standard rate by 2 per cent.

Mr. Hammond: I am happy to do so. I was to address precisely that point later in my speech, but I shall give the figures now. As the Chief Secretary to the Treasury knows, the Institute for Fiscal Studies has calculated that the total loss of those who are losers—the 5.3 million households—is approximately £766 million. That compares with the £9 billion cost to the Exchequer of reducing the 22p rate to 20p and, interestingly, with the £550 million that the Chancellor managed to magic out of nowhere between his pre-Budget report last October and the publication of his Budget this year to fund his climbdowns on capital gains tax and the non-doms regime. When they want to find the money, they seem to be able to do so.

I also have some good news for the hon. Member for North-West Leicestershire (David Taylor), who has signed early-day motion 1052, and for all those hon. Members who signed early-day motion 1308. My hon. Friend the Member for Worthing, West (Peter Bottomley), who was one of the original signatories of early-day motion 1308, has re-tabled that early-day motion this afternoon, so that hon. Members will be able to reconfirm their support for the sentiments that it contains, as I am sure their constituents would expect them to do.

Of course, everyone likes a tax cut, but how many hon. Members, on either side of this House, came into politics to increase taxes on the poor? There is almost universal consensus that that group is already overtaxed, but increasing taxes on the poor is precisely what we are being asked to do in voting for this Finance Bill this evening. How many hon. Members, and how many people in this country who will themselves be net beneficiaries of the 2p basic rate tax cut, feel comfortable knowing that that cut will be paid for by increasing the taxes of the lowest paid in our society? They include single people, childless couples on low incomes who are not entitled to tax credits, those who—for whatever reason—do not claim tax credits to which they are entitled, and elderly people under 65 living on savings income or pensions. Care workers, soldiers, postmen, call centre operators, security guards and hospital porters are all examples of the millions of ordinary working people who will be penalised.

Linda Gilroy: I am following the hon. Gentleman’s remarks with great interest. Can he tell my constituents, some of whom live in the poorest ward in England—a legacy of the Conservatives—how he voted on the 10p tax rate in 1999, on tax credits and on the minimum wage? Unless he puts that information on the record, none of my constituents will be impressed by his new-found religion.

Mr. Hammond: I would stop short of calling it a religion. A theme is developing, because the only way that the Government can think of to try to defend their position is to go back to a baseline of 1997. By implication, the Prime Minister is trying to say to
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people, “Look, don’t worry about the fact that you will be £200 or £250 worse off this year as a result of the Finance Bill. Just remember that you had some good times in years gone by, so you shouldn’t worry too much if we take this money away from you now.” I have to tell the hon. Lady and the Prime Minister that that is not how people, especially those on low incomes, think or plan their lives. Those people need help now to deal with the hit being imposed on them, the scale of which many of them—and, I suspect, Labour Members—did not appreciate until very recently.

Mr. Gordon Prentice (Pendle) (Lab): Given that there will undoubtedly be losers as a result of the abolition of the 10p rate, what would the gentleman do to compensate those losers in the short term, rather than months down the line?

Mr. Hammond: I am glad to note that the hon. Gentleman was one of the signatories of the early-day motion, and I hope that he will sign early-day motion 1340 at the earliest opportunity.

We have made it clear that the message that we hope to send to the Government next Monday evening is that they have to go back to the drawing board and unpick this £20 billion package of income tax rates, income tax thresholds, tax credits and national insurance bands in order to mitigate the most negative effects—£766 million-worth—on the poorest families.

Peter Bottomley: I had three messages today. One was from someone whose son had become ill and she wonders how she will pay for prescriptions, one was from a pensioner aged 63, and one was from a woman who says that she has a few part-time cleaning jobs earning £6,500 a year. Her husband is in relatively low-paid work and she says that she cannot believe that a Labour Government can do this. In a non-party spirit, cannot the Government do something to help these hard-working or early-retired ordinary people?

Mr. Hammond: I entirely agree with my hon. Friend’s sentiments. My inbox has been jammed with e-mails and my postbag stuffed with letters from people—not necessarily my constituents—telling me how this change will affect them. Disbelief is the key theme. People simply cannot believe that Parliament can conceivably impose such a penalty on people who are on such low incomes.

Angela Browning: Is the situation not ironic whenever the Government foul up? I can only think that the impact of the 10p abolition on that group of pensioners was a foul-up, as the Minister has still not answered my earlier question. Was it a deliberate policy, and did the Government think that the loss to that group of very poor people of an average of £2 a week meant, in the Minister’s words, “Just a modest amount”, or does my hon. Friend believe that the Government fouled up and are now, as usual, looking to us to try to sort out their mess?

Mr. Hammond: I must tell my hon. Friend—I think I have already said this—that I do not think that it was a foul-up. The then Chancellor knew precisely what he
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was doing. He was making a pitch for votes in a Labour leadership contest and he wanted to show that he could reach out to middle England, Blair-like, in the contest to come. He sacrificed the interests of some of the poorest in our society on the altar of his short-term political interests.

The Labour-dominated Treasury Committee—we always describe it like that, but having heard what its Chairman has helpfully said today, I am not sure how relevant that is any more—put the point in its report on the 2008 Budget with masterful understatement. It said that

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