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Mr. Redwood: Does the right hon. Gentleman agree that if we add the unfunded pension liabilities, the PFI and PPP off-balance-sheet liabilities and the off-balance-sheet liabilities for Network Rail and Northern Rock, public sector total obligations are in excess of gross national product, at around £1.5 trillion? That is an enormous figure.
John McFall: As the right hon. Gentleman knows, the Treasury Committee comprises Members of all parties—his own, the Liberals and Labour. We have concluded that the fiscal position of the UK is strong in comparison to other EU countries.
I want to focus on the measures to reduce poverty and on the 10p tax rate. The Treasury Committee considered the problems of marginal deduction rates and the impact of the abolition of the starting rate of income tax in the context of measures to reduce poverty. We welcome the increases in child benefit and child tax credit that are designed to achieve further progress on the Government’s child poverty targets, and we specifically welcome the £1 billion that the Government found to fulfil those targets. As those on the Front Bench know, we were cautious about that because, in a previous report, we questioned whether the Government were resiling from their commitment. We were pleased to see that the £1 billion was included in the Budget proposals.
We note the significant one-off increases to the winter fuel allowance, which should make all pensioner households better off in the tax year 2008-09, and which need to be built on by further measures in future years; those increases will help 9 million pensioner households. We also welcomed the maintenance of the 10 per cent. starting rate for savings for pensioners. Our concern about the abolition of the 10p income tax rate, however, is concentrated on households that do not stand to benefit from measures targeted on families with children, those seeking to return to work or pensioner households. We specifically said that those who do not gain from the measures on child poverty, fuel poverty and incentives to work would lose out, and we are talking largely about those on incomes of about £18,500 a year and less. We are talking about those who are under 60, who will not qualify for the winter fuel allowance; those with no under-18s in their households, who will not qualify for child poverty payments; early retirees; and those not claiming working tax credit, where take-up is low. The Minister will know that the tax credit take-up rate is about 19 or 20 per cent., which is scandalously low. I believe that £1.28 billion is available, and it is important that there is a campaign to increase the take-up rate. We cannot allow such a scandalously low figure to be maintained.
Mr. Russell Brown: Does my right hon. Friend agree that although the tax credit system has been a boost to the incomes of many households, any household that has fallen foul of the system will be reluctant to get involved with it again in case it receives an overpayment that has to be paid back? That does not act as an incentive; it makes people more than reticent about getting involved.
John McFall:
My hon. Friend is right, but the Government have to be lauded for their intentions. Previously, we had a system under which we had to wait for more than a year to find out what people’s
earnings were, and then corrections would be made. The Government say that they will move to a system whereby things can change on a monthly basis so that we can encourage people to work. However, the bureaucracy gets in the way. People do not remind the Government of their intentions or report their earnings, or loss of earnings, and we end up with the situation we have seen in the past. We have to work on that, and I endorse a system whereby we ensure that people’s income is reviewed on a regular basis so that they get the benefits they need. However, there are problems with the system and, as my hon. Friend knows, the Select Committee has been vigilant about that. We will ensure that we maintain that vigilance.
Kelvin Hopkins (Luton, North) (Lab): According to the ombudsman, Britain is alone in having three different Departments that provide benefits—through local government and housing benefit, the Revenue and the Treasury, and the Department for Work and Pensions. Would it not be simpler if one Department provided all those benefits—a one-stop shop, which could be adjusted weekly or monthly according to need?
John McFall: I agree that that is a good concept. However, we are not nearly there at the moment and we must work with the system that we have. None the less, it is worth considering as a long-term proposal.
Mr. Dunne: On tax credits, especially the marginal deductions for those who are seeking to get back into work and coming off tax credits, the problem is that the Budget increases the number of people who have to pay more than the 60 per cent. marginal rate of tax if they come off working tax credit and get into work. In the past 10 years, that number has grown from 800,000 to 1.8 million. Surely that trend is going in the wrong direction.
John McFall: The hon. Gentleman is a good and hard-working member of my Committee, but on the marginal rates of taxation he knows that, since tax credits were introduced in 1997, the 100 per cent. withdrawal rate has almost been abolished, and we are focusing on the 60 to 70 per cent. rate.
I remember evidence from Mr. John Whiting of PricewaterhouseCoopers, one of our expert advisers on tax, who said that the high marginal deduction rates might be the consequence of the Government trying to achieve their social policy goals. He—and, indeed, Treasury officials—mentioned that the main reason for that was the extra help that the 2007 Budget introduced through tax credits. He said:
“That brought more people into tax credits, the result being that more people then faced higher marginal deduction rates.”
On the one hand, we want to help people by bringing them into tax credits, but on the other, there are the marginal deduction rates. There is no doubt that there is an issue, to which the Treasury Committee will revert.
However, the controversy about the removal of the 10p tax rate has highlighted the importance of the challenge for the Government to do more for those who slipped through the net of measures on child
poverty and fuel poverty, especially by redoubling our efforts to make working tax credit take-up worth while for those in households without children.
Ministers made the point about the number of people who are affected by the change. The Treasury Committee is clear about the matter. In evidence to the Committee last year, Mr. Mark Neale, the director of the budget, tax and welfare directorate at the Treasury, said that 5.3 million was the ballpark figure. We should all be straightforward and honest about that, identify the problem and state what we will do. I therefore reiterate my invitation to the Chief Secretary and others. I will put it to my members that the Treasury Committee examine the issue urgently and report back to the Treasury. I repeat that 5.3 million is a ballpark figure.
The Treasury stated to us in evidence:
“Estimates are that 0.8 million single earners with income under £18,500 will see their income decrease by around £1.45 a week on average...The maximum amount any single individual could be worse off by is £232 per year (£4.46 per week) about 3 per cent. of net income...For households that are worse off, the average loss is about £2 per week.”
The Treasury recognises that. Indeed, the Chancellor acknowledges it. In evidence to the Committee, he clearly said that it would affect women between the ages of 60 and 65. Let us therefore establish that people will be affected. People on low incomes will be affected and we need to find out who the winners and the losers are.
One of the problems is identifying the winners and the losers. I have been asked in many interviews in the past few weeks why it has taken Members of Parliament a year to wake up to this matter. No specific information identified the winners and losers and one had to wait until the new arrangements were introduced in the Department for Work and Pensions—that happened last month. Before I was interviewed on one television programme, I tried to find out, through contact with representatives of the Department for Work and Pensions, exactly what the new measures were. They said that they would not be available until the first Monday in April.
We got that information, from which I found out that, sure, a working household with no children with a combined income of £17,500 to £18,000 a year would lose about £13 a week, but also that in some instances single earners would gain. There is a fuzziness, and we do not know who the winners or the losers are. I refer the Minister to the Treasury Committee’s clear recommendation in its report on the 2007 Budget:
“An important part of any change to the personal taxation regime must be that both winners and losers can identify, with ease, how they are affected by the changes stated within a Budget package. We recommend that, in future, this information be provided within the Red Book.”
If the Government had indeed provided that information in the Red Book, we might not be having the highly charged debate on the issue that we are having today.
Mrs. Betty Williams (Conwy) (Lab): Does my right hon. Friend agree that the media’s claims that Labour Back Benchers have been silent on the issue for 12 months are misleading? Members like me were writing to the Treasury about the points that our constituents were raising with us on the issue 12 months ago.
Kelvin Hopkins: My right hon. Friend rightly talks about winners and losers. Would it not simplify the situation if the only losers were the very rich? They would pay more tax, which would not complicate the system, because they do not claim benefits, and no one on average or low incomes would need to be a loser at all.
John McFall: That is another of my hon. Friend’s long-term objectives.
Mr. Eric Illsley (Barnsley, Central) (Lab): Over the past hour or so, my right hon. Friend has made the Government the offer that his Committee will look again at the 2008 Budget. I hope that those on the Front Bench will intervene to indicate that they accept that offer. May I impress upon my right hon. Friend the need to undertake that inquiry with some urgency, in order that the Government might have a vehicle through which to alleviate the situation in which many lower-paid taxpayers find themselves?
John McFall: I would be pleased to return to that issue as quickly as possible. As I have mentioned, the Treasury Committee has tracked the issue since last year, when the figure of 5.3 million people not gaining was given. We have been on the case for that year and we would all like a decent resolution of the problem, but it is for the Chancellor and the Prime Minister to respond.
John Mann: That figure was given to the Treasury Committee last year by Mr. Chote. He also said that the figure would come down over the 12 months, but could not say by how much. Has he given an update on what the precise figure is?
John McFall: No, 5.3 million is still the figure. I mentioned the winners and the losers. There are ups and downs and a nebulous element to the process. That is why we need to ensure clarity in the debate, so that we can show who the winners and the losers are. If the Committee undertook any inquiry, that is one thing that we would want to do.
John Mann: I thank my right hon. Friend for giving way again. I was not trying to minimise the issue for the losers; I was just referring to the evidence that Mr. Chote gave the Committee last year. He made it clear that the figure of 5.3 million would come down over the next 12 months. It would be helpful to have some proper quantification of the figure. Whether the figure is 5.3 million, 4.3 million or 3.3 million, the issue is still vital, but it appears that Mr. Chote has not provided any further information.
John McFall:
There are in fact figures. I do not want to go through them tonight, but let me give my hon. Friend a feel for them. Some 2.2 million of the total will be single working people with no children who do not receive tax credits, while 1.2 million will be two-earner couples with no children and 400,000 will be households comprising one-earner couples without children, most of which will be in the range of about £17,000 to £18,500. There will be 700,000 two-earner
couples with children who will lose twice because of income tax and national insurance changes, but who will perhaps gain only once through child tax credit or working tax credit. There will be 300,000 tax-paying women between the ages of 60 and 64 who do not get tax credits and who are too young to be compensated by the rise in pensioner tax allowance. There will also be 500,000 non-workers paying more tax on their taxable benefit and pensions than they gain. They could be early retirees or incapacity benefit claimants. We can see, therefore, how wide-ranging the impact of this measure will be. Those are the figures that add up to the 5 million; I am quite happy to share that information.
John McFall: I said that I was going to make a short speech, but the record will show that the interventions have taken longer than my speech so far, so I am being true to what I said at the beginning.
Mr. Graham Stuart: Many football fans get frustrated with supporters who turn up only when their team is winning. Does the right hon. Gentleman agree that the Labour party has the opposite problem, in that many of its members develop a conscience only when their team is losing?
John McFall: Absolutely not. We are on the park all the time. As I said, the Treasury Select Committee has been on the park on this issue for a year. We have not even taken a break at half-time and we have not had any Lucozade, so what is the problem?
Pete Wishart (Perth and North Perthshire) (SNP): The right hon. Gentleman said that he was looking for a solution to the issue of the 10p rate. Surely that solution will present itself next Monday when the right hon. Member for Birkenhead (Mr. Field) presents his amendment. If the Chairman of the Treasury Select Committee and his colleagues want a solution to this, all they have to do is support their right hon. Friend.
John McFall: That is utter nonsense. The fact is that 21 million people—four out of five people—will gain from the measures. It is typical of the Scottish National party to say that we can find a solution to the problem by creating further anarchy. We cannot do that; we have to be realistic and grown-up about this. The fact is that there is a taxation issue here in the Budget, and we need to be positive about it. Why do I want a solution? I want a solution because poorer people will be affected, and I would have hoped that the hon. Gentleman shared that worthy concept rather than warmongering and trying to create division. He is living up to his past, however, and he will probably continue to do so.
I want to move on to better things. The only other measure that I want to talk about today is personal allowances for non-dom taxpayers. Public debate has focused on the issue of non-doms who will be required to pay the £30,000 charge, but many shorter-term non-doms will be affected by the removal of personal allowances, including many with quite small amounts of unremitted foreign income. There has been a focus
on the wealthy non-doms, but almost none on the low and middle-income groups who will be affected by the changes.
There is a serious risk that HMRC could face the problem of millions of foreign workers either seeking advice or being in breach of the new law. John Whiting, our adviser on the Select Committee, was very clear on the issue of low-income non-doms, and he said that millions of them could be affected. I am aware that the Treasury has estimated that there are 80,000 people with both a UK and a foreign income. That might be because it did not include the unwitting non-doms. The Treasury Select Committee report makes it clear that we feel there has been insufficient consideration of the possible impact of the tax changes in the Budget on middle and lower income groups, and we would like the Government to look at that.
By far the largest group of people affected will be the lower and non-income professional workers. An example that has been cited are the typical Polish or Romanian migrant workers who pay UK taxes but who probably do not even know that they are non-doms because they do not know the term, and therefore do not realise that they are about to lose their personal allowance. They will certainly not have any advisers. That group could unwittingly be in breach of the new £2,000 limit for non-doms, and could therefore suddenly lose their UK tax-free allowance. We are asking the Government to be aware of that problem. More importantly, in the light of some of the recent comments about the capability of HMRC, we are asking HMRC to be aware of it. If it is likely to affect millions of people, HMRC needs to understand the problem that is coming down the line.
Mr. Philip Hammond: The right hon. Gentleman talks to the same kind of people as I do, and I am sure he will have heard that there is a mood growing among tax professionals that HMRC in fact intends to deal with this problem by turning a blind eye to the large number of low-income non-doms who will inadvertently become non-compliant. Is that the impression that the right hon. Gentleman has gained, and does he share my concern that that would be the beginning of a slippery slope?
John McFall: I shall refer again to John Whiting of PricewaterhouseCoopers, who has highlighted this point. In his evidence to the Committee, he said that HMRC had come a long way in terms of its engagement with business. This is still a live issue, however, because I am not sure whether HMRC is aware of the potential problem. It is that lack of awareness that I am trying to point out to the Minister. This applies to anyone whose foreign income could be affected, such as anyone with overseas savings of about £40,000, as the interest on that would be more than £2,000, which is the de minimis level. Equally, the measure could affect anyone renting out a property abroad or who has a summer job abroad. I want HMRC to look at this, because I have enough on my plate as Chairman of the Treasury Select Committee with all the inquiries that we carry out. I do not want to have to carry out an inquiry into this matter in a year’s time, so will the Minister help me out by solving this before it becomes a bigger problem?
I am willing to work with my colleagues in the Government on the withdrawal of the 10p tax rate in relation to low-income workers so that we can identify and compensate them, and so that we are not seen to penalise them unnecessarily. With that, I shall finish my short speech.
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