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“the group of main losers from the abolition of the 10 pence rate of income tax seem an unreasonable target”—
Mr. Ian Austin: Will the hon. Gentleman give way?
Mr. Hammond: The hon. Gentleman has had enough of a turn today. He needs to scuttle back to No. 10. I hope that the purpose of his being here is to take the pulse and feel the mood. I hope that he will go back to No. 10 and tell his master what the mood is.
Let me finish the quotation. The report stated that
“the group of main losers from the abolition of the 10 pence rate of income tax seem an unreasonable target for raising additional tax revenues”.
The Prime Minister claimed that that was all done in the interests of tax simplification. The Conservatives are in favour of tax simplification, but we would not propose, nor can we support, a reform of the income tax system that is carried on the backs of the poorest. It is morally abhorrent.
The truth is that the package had nothing to do with simplification. Why should it? Its author, after all, is the man who has doubled the length of our tax code and given us the most fiendishly complex tax system in the developed world. He simply does not do simplification. It had nothing to do with a long-term strategy either. Indeed, it undid that man’s own long-term objective eight years after he had achieved it. As I have said already to my hon. Friend the Member for Tiverton and Honiton (Angela Browning), it was all about trying to convince the Labour party as it moved to choose its new leader that he could reach out, Blair-like, to middle England. He might have fooled them at the time, but if proof were needed of the extent to which the Prime Minister is out of touch with the British people, this debate delivers it.
When the parliamentary Labour party met a few weeks ago and discussed the doubling of the 10p rate, a nameless Minister was quoted as saying:
“Gordon did not seem to understand what they were talking about and kept insisting that nobody would lose out by the change. He...gave the impression he was living on another planet.”
Last week, the Prime Minister was not on another planet, but he was on another continent. He was still insisting that no one would lose out and he could not understand what all the fuss was about. The inner circle in the bunker with him remained in denial. The Minister for the Cabinet Office airily dismisses the fate of the 5 million people who are worse off as a result of the changes as a “matter of regret”—a minor piece of collateral damage in the path of the clunking fist. The Secretary of State for Children, Schools and Families
apparently thinks that raising tax on the poor is part of the process of taking forward “the fairness agenda”.
Others understand; they get it. They come from all Opposition parties and from Labour, and include some Members on the Treasury Bench. The Lord Chancellor understands; so does the Minister for the Olympics. It appears that the penny is slowly dropping even for the Foreign Secretary. Perhaps even the Chancellor of the Exchequer was hinting last week in China that he understood. The hon. Member for Sheffield, Hillsborough (Ms Smith), who we are delighted to see in her place today, appears to have got the message. In her case, it was drowned out by another message that came across the Atlantic in a display of long-distance bullying that would put the Kremlin to shame. Those Members understand because they have been listening to their constituents, holding their surgeries and reading the letters and e-mails, as we all have, from people who are just working out what the Prime Minister’s “simplification” means for them.
Mr. Hammond: I will give way to the hon. Member for Wolverhampton, South-West (Rob Marris), but I will get my bonnet out of the way first.
Rob Marris: The hon. Gentleman will, of course, be aware of the question that I asked my right hon. Friend the Chief Secretary to the Treasury. The hon. Gentleman keeps quoting the figure of 5.3 million, but there are counterbalancing measures. He always does his research and he is careful with his figures; can he give the House the net number of households that will lose out? Most of us would agree that it is not 5.3 million, although we are concerned that there are losers.
Mr. Hammond: I am afraid that on this occasion the hon. Gentleman has not done his research. The 5.3 million figure from the Institute for Fiscal Studies is a net figure.
Mr. Hammond: It is no good the hon. Gentleman’s saying that it is not; it is a net figure. What is more, Treasury officials who gave evidence to the Treasury Committee gave a net figure of about 5 million, so I am afraid that the hon. Gentleman will have to go back to the drawing board.
John Mann (Bassetlaw) (Lab): The hon. Gentleman is very precise in trying to outline the problem. Will he be equally precise in outlining a remedy? So far, the only solution that we have heard from him is the idea that there should be a review of the whole Budget. Does he propose getting rid of the 2p income tax reduction, and will he reintroduce the 10p income tax rate? If he will do neither, what precisely does he propose doing? So far, he has been strong on generalities but has not given any specifics.
Mr. Hammond: As the hon. Gentleman signed one of the earlier early-day motions, I assume—
Mr. Hammond: I give way to the hon. Gentleman.
John Mann: The hon. Gentleman is now becoming inaccurate. Will he be quite precise about his remedy for the problem that he outlines?
Mr. Hammond: As I understand it, the hon. Gentleman has reservations about the policy put forward by the Government. We want to work with Labour Members who have such reservations, and indeed with the Government. The Leader of the Opposition has made it clear that he is prepared to sit down with the Chancellor or the Prime Minister and try to sort out the mess into which the Government have got themselves.
When the Chancellor wanted to climb down on the capital gains tax proposals and the non-doms part of his pre-Budget report last October, he was able to find £550 million. If he wants us to work with him, to look at the whole £20 billion package of income tax and national insurance changes, and to work out how we might mitigate the effect on the worst-off in society, we are happy to do that. Let me remind the hon. Member for Bassetlaw (John Mann) that we are scrutinising a Finance Bill. The Opposition’s job is to consider each of the measures in the Bill and to vote against them if they are inappropriate and bad for the country. However, it is the exclusive prerogative of Ministers of the Crown to put forward new proposals that have tax-raising effects.
John Mann: The hon. Gentleman’s party leader disagrees with him; his party leader says that it is for the House to make its decisions. The two of them have the opportunity to table amendments to the Bill. Precisely what amendments will the hon. Gentleman put forward, so that I and others in the House can consider and contemplate their worthiness or otherwise?
Mr. Hammond: Procedurally, the hon. Gentleman is wrong; only Ministers of the Crown can put forward the type of amendment to the Finance Bill that he suggests be made, but we live in hope that amendments will be tabled to the part of the Bill that we are discussing—and not necessarily by the official Opposition. We will look carefully at those amendments. If the hon. Gentleman and his colleagues hold their nerve and focus on addressing the problem, rather than on trying to score party political points against those across the Chamber from them, we can win this one. We can send the Government back to the drawing board to think again.
Mr. Hammond: I will not give way to the hon. Gentleman again. I have given way to him three times in a row. We are not asking the Government to back down completely from their proposal; that is not realistic. We are asking them to go back to the drawing board, and to unpick the package and put it back together again in a way that mitigates the effect on the poorest members of our society. I think that that is what Labour Members who have concerns want.
Mr. Hammond: I shall make a little progress, but I will take further interventions in a moment.
John Mann: On a point of order, Madam Deputy Speaker. For the sake of clarity, may I ask whether it would be in order for the official Opposition, or any Member, to table an amendment to the Finance Bill?
Madam Deputy Speaker: That would depend entirely on the wording of the amendment. The Table Office would give advice to any Members who wished to table such an amendment.
Mr. Mark Hendrick (Preston) (Lab/Co-op): Further to that point of order, Madam Deputy Speaker. Would it be in order for the Opposition to table an amendment, referring to this issue, that had already been tabled for Committee stage?
Madam Deputy Speaker: I repeat what I have just said. I cannot make a ruling on an amendment that is not before me. I have said that any amendments to be tabled will be guided by advice from the Clerks in the Table Office.
Angela Browning: On a point of order, Madam Deputy Speaker. Will you advise me? It is a long time since I have read “Erskine May”, but does it have a section requiring that when a Government are in a mess such as this, it is somehow incumbent on the Opposition to table an amendment to get them out of the mess? Would that carry procedural weight in the House?
Madam Deputy Speaker: The hon. Lady is an experienced Member. Whether she has recently read “Erskine May” or not, I am sure that she is aware that it is open to Members to table amendments. It is open to the Government to govern, and to the Opposition to oppose.
Mr. Hammond: Let us get back to where we are now.
Stephen Hesford (Wirral, West) (Lab): Will the hon. Gentleman give way?
Mr. Hammond: No, I am going to make some progress, because I have already been speaking for half an hour.
“Watch this space,” the Exchequer Secretary said on Friday; I say to my hon. Friends that if we watch her space through to the next reshuffle, I fear that we may find it empty. Let us hope that she meant that, behind the intransigent bluster that the PM does so well, the backroom boys in the Treasury U-turn department were working over the weekend and yet another climbdown is in preparation—if not today, then before the debate in Committee next Monday. The Government found the money for concessions on non-doms and capital gains tax; they can look at the package and unpick it if they want to.
I could make many other points about the Bill. The former Chancellor’s Budget last year did not stop at the 10p rate for low-income families; when he had finished reversing his policy on the 10p rate of income tax, at the expense of low-income families, he reversed his policy on the taxation of small companies and announced an increase of 3p in the pound—hammering the very people whom he had encouraged just a few years earlier to
incorporate their businesses with the now-abolished zero rate. The message is clear: people should not come here if they are looking for a stable and predictable fiscal regime for their business.
Is the Prime Minister responsible for all the problems in the Finance Bill? That depends on who we think was the author of the pre-Budget report. The chaos and confusion that followed from the ill-thought-through proposals on the tail of the cancelled election last October have caused a huge problem in the business community and damaged Britain’s reputation as a business-friendly environment and the Labour party’s credibility with business even further. I could talk endlessly about those issues, but the mood of the House is to move on.
I want to refer specifically to one more thing before I finish: the dramatic increase in powers being granted to Her Majesty’s Revenue and Customs. Some tax experts are telling us that that is the single most important long-term aspect of the Bill. The pattern started with the Finance Act 2007, and without waiting to see how the new powers work in practice the Government have gone on to extend them to the whole range of taxes in this Bill.
HMRC will be given powers to authorise itself to enter premises, including third-party premises. The safeguard on distraint of taxpayers’ goods will be scrapped in primary legislation. There are constitutional questions around clause 117, which will create an order-making power to repeal or amend any primary legislation, including the Finance Act 2008 itself. These are huge new powers at a time when HMRC is miscalculating the taxes of 1 million or more of our fellow citizens every year, when public confidence in the chaotic administration of tax credits is at an all-time low, and when the shockingly casual attitude to data security has been exposed by the loss of the personal data of half the families in Britain. The Government’s response is to give it more powers. This increase in powers is a step too far and a step too soon, and we will seek to postpone their implementation, if the Bill obtains a Second Reading, and to get them brought forward again in a stand-alone Bill that would be subject to scrutiny in the other place, which has expressed a strong interest in such bureaucratic powers.
As the economy slows and we all peer into an uncertain future, this is the wrong Finance Bill to present to this House today.
“We are where we are”,
as the Chancellor said on the “Today” programme on 13 March, and we all know who is responsible for getting us here, ill-prepared, over-borrowed and almost uniquely exposed—the same person who is responsible for most of the Chancellor’s woes in this Finance Bill. At a time when families, particularly those on lower incomes, are struggling with the soaring cost of living and stagnant earnings, it clobbers them with tax increases. At a time when Britain desperately needs business investment to create the jobs and prosperity of tomorrow, it raises business capital taxes by 80 per cent. At a time when people crave certainty, it creates ambiguity, with arbitrary and sweeping new powers for the authorities and an unparalleled lack of clarity around some of its most important clauses.
Most of all, this Finance Bill represents a breach of trust: with investors, who invested on the basis of Labour’s long-term capital gains tax regime; with small businesses, who incorporated on the back of Labour’s long-term small companies tax plan; and, above all, with the 5.3 million low-income households who were told by our Prime Minister, when he lowered their income tax in 1999,
“When we make promises, we keep them.”
The weasel words that the Chief Secretary offered to the House will satisfy no one; they do not begin to address the Government’s breach of trust with those on the lowest incomes in Britain. She goes on about 1997, talking about winter fuel payments that do not affect that group of people at all.
Earlier this afternoon, we heard what the Bank of England is going to do to help Britain’s hard-pressed families and businesses. Now it is the Government’s turn. A promise is a promise. The Government need to go back to the drawing board and reconstruct their tax reform package so that it is not carried on the backs of the poorest in our society. Until they do, my hon. Friends and I, and I suspect many other honourable Members of this House, will not support this Bill.
5.32 pm
John McFall (West Dunbartonshire) (Lab/Co-op): It is traditional for a Treasury Committee report to be tagged for debate on the Second Reading of the Finance Bill, so as Chairman of the Committee I am pleased to give a short speech on that report. The Treasury Committee’s report on the 2008 Budget was published at the start of the recent recess and has been widely covered, but it was misrepresented in some quarters, not least in terms of forecasts. The Committee itself makes no forecasts for growth in future years, but we said that the outlook from the collection of independent forecasters indicated that the Treasury’s forecasts were slightly optimistic.
I will consider three aspects of the Finance Bill and its contents: first, the overall fiscal position; secondly, the measures to reduce poverty and the 10p tax rate; and thirdly, the scope and impact of measures affecting non-domiciled taxpayers. On the fiscal position, in many ways the Government’s position is strong. Other than Canada, no G7 country has had a fiscal surplus in more years since 1997 than the United Kingdom, and compared with many EU countries our levels of public sector net debt are low. As a Committee, we understandably focused on the two fiscal rules that the Government have set themselves, and we highlighted two areas of concern. First, on the interpretation of the golden rule, we consider that it has been too closely linked to the timing of economic cycles, which has encouraged a position in which examination of the Government’s overall fiscal position has been unduly focused on rather arcane controversies about the dating of the economic cycle.
Secondly, the margins by which the Government expect to meet their sustainable investment rule relating to net sector public debt are tight, and seemingly highly dependent on the Treasury growth forecasts, which are at the top of the outside forecasts for growth in 2008 and 2009.
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