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9.28 pm

Mr. Adam Holloway (Gravesham) (Con): My constituency has many low-income families and the focus of my concern is the tax credit system that is supposed to bridge the gap for those on lower incomes when the 10 per cent. band is removed. Other measures will help to bridge the gap, but they will not be introduced until April 2009. They also rely on people applying for and using tax credits. That is a shift from taxing people on income and earnings to the benefit system.

Instead of a starting rate of tax that helps hard-working individuals and families, we will have a benefits system that is complicated and burdensome, especially for some of the sorts of families we are talking about. I take as an example a family in my constituency—other hon. Members will have many more examples—in which both parents are working. Do we want to encourage them to work and to earn money with a lower starting rate, or do we want them to spend their free time continually fiddling with child tax credit applications and becoming more and more dependent on a benefit culture?

I want to run past the House some research that illustrates the inefficiency of the processing of tax credits, but before I do I want to pay tribute—as would quite a few other people, I would guess—to the staff on the tax credit hotline and the staff at HMRC, who always had a difficult system to deal with. We have all met constituents—we have sat in their homes surrounded by piles and piles of relevant paperwork—who are trying to make head or tail of their statements and the various amendments. They are unable to persuade the powers that be that they spent overpaid tax credits in good faith. As we all know, those overpayments are often the result of errors on the part of HMRC, and the many people trying to cope with the complicated system.

There is a dilemma. Should we recover the taxpayers’ money that was paid in error to hard-working families who went on to spend that money on essentials, also in error, or should we write off that money, which came from taxes paid by other hard-working families and individuals?

One reason for highlighting the plight of my constituent, who lives in a tower block and does their best with young children, is that the last thing that working families want to do is to spend additional time fiddling around applying for tax credits and benefits. Shifting the balance from the 10 per cent. rate to tax credits does not help working families. Some families I have met have variable incomes and have multiple jobs to make ends meet. They certainly do not benefit from a shift from the 10 per cent. rate to a need to make tax credit applications, which they must change every time there is a minute adjustment in their employment arrangements. One of my constituents told me that a tax credit office adviser had told them to try to have only one job as it would simplify the tax credits situation. That seems pretty crazy.

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I understand that one idea being mooted by the Government to get out of this hole is to refund unclaimed tax credits, which run into hundreds of millions of pounds. The taxpayer is already owed about £4 billion in overpaid credits, and solving the problem through further use of the woefully inefficient system perfectly highlights the shift towards a long-term benefits-based system that reduces the impetus for people to work. My constituents are paying for the increased inefficiency in the tax credit benefit system, having the burden of the system imposed on them or avoiding the situation altogether because it is too complicated for them to deal with.

Hard-working families will also be hurt by the abolition of the 10 per cent. starting rate in income tax. In a way, I feel quite sorry for the Government. If the tax credit system had been more competently designed and managed, large numbers of families up and down the country would have been indebted to them for the additional income. As it is, millions of taxpayers are now oblivious to the amount of their money that has been washed down the drain through incompetence. Many thousands of families who are entitled to tax credits are feeling pretty fed up. Those who fund them through their taxes are becoming more aware of the cost and inefficiency of the system. Thousands of people in my constituency will be among the 5.3 million who will lose out through the removal of the 10 per cent. rate. I cannot help agreeing with the right hon. Member for West Dunbartonshire (John McFall) who said a few hours ago that we are penalising poor people completely unnecessarily.

9.33 pm

Joan Walley (Stoke-on-Trent, North) (Lab): I am grateful for the opportunity to take two minutes to make a specific point that relates to my constituency. I apologise to the House that I was not present at the start of the debate, but I had urgent constituency business. If I had had the chance to make a long speech, I would have wanted to refer to the 10p tax rate and to have said that I have every confidence that the Government will resolve the matter. I would also have followed the example of my hon. Friend the Member for Bury, North (Mr. Chaytor), and said that the environmental changes in the Budget are far-reaching. It will stand the country in good stead.

In the minute that I have, I wish to refer to the part of the Finance Bill that deals with industrial buildings allowances, and to ask the Financial Secretary to the Treasury whether, before the Bill’s final stages, she could have further talks with the North Staffordshire chamber of commerce and industry and the Minister for the West Midlands, who has concerns about manufacturing in the area. As for the ways in which the Budget and the Bill are designed to deliver increased investment and growth overall, will the Financial Secretary look specifically at clause 82 and the removal of industrial buildings allowances for manufacturing areas such as the one that I represent? The measure is being applied retrospectively, and that could have an adverse effect on small family firms that have invested in manufacturing and are resisting the temptation to move and invest abroad. They are, and want to continue to be, part of the UK economy. Will she
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consider the effect that the clause will have on small family businesses? I am most grateful to her for her attention to the issue.

9.35 pm

Greg Clark (Tunbridge Wells) (Con): Last night, I received an e-mail from one of my constituents, who said:

I am delighted to have the chance to do that, because my constituent is representative of a number of people in my constituency who have been in contact with me, and of others across the country.

It is extraordinary that in his final Budget as Chancellor, the Prime Minister, having cast around for people to raid for revenue, should have alighted on the least well-off who are employed. He has always said, and asked us to believe, that work is the best way out of poverty. What kind of message does it send when those who are targeted are precisely those who are in work but who are earning the smallest possible amount? Is that a wholesale reversal of his mantra over the years?

There is an almost grotesque irony in the fact that the group hit hardest by the increase in tax are people on the Government’s official poverty line. The amount at which a single person will be hit is £149 a week; £145 a week is the official poverty line for a single man. The Government have targeted those on the poverty line to raise revenue. Of course we can argue about whom we can best help when distributing the Treasury’s occasional largesse, but for people in the Treasury to have a discussion about which people should be tackled and hit hardest, and come up with the answer that it is low-paid people on the poverty line, is so extraordinary that it beggars belief.

As for how the issue can be resolved, of course the review that has been mentioned will no doubt involve discussion of tax credits and the question of how we can put more money into child tax credits. However, as my constituent made clear in his e-mail, there are people across the country in deep poverty who do not have children. Their poverty should be our concern, just as other people’s poverty is. Child poverty is to be tackled, but adult poverty is booming. Severe poverty—people on incomes of less than 40 per cent. of the median across the economy—has hit a 30-year record under this Government, and is increasing all the time. Surely our aim should be to rescue them from poverty, as well as to tackle child poverty. We should not get into a situation in which we can take adults out of poverty only by making them dependent on their children. That is not right, and it is not a sustainable way forward.

Kelvin Hopkins: Can the hon. Gentleman remind me which Government raised VAT—a regressive tax—from 8 per cent. to 17.5 per cent., broke the link with earnings for pensioners and saw child poverty rocket?

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Greg Clark: The hon. Gentleman’s constituents in Luton will be delighted that he has chosen a debate on a practical matter, about which I am sure they have written to him, to rehearse tired arguments that are 20 and 30 years old rather than deal with the problem in hand.

I suggest that we deal with the problem in hand. Ministers on the Treasury Bench should give some indication of how they intend to get out of the mess that they have got into. They should not pretend that there are no means available to do that. The calamitous Budget that resulted in this situation had implications for charities too; I should say that I am a Front-Bench spokesman on charities. Charities were caught up in the issue of whether the circumstances were unforeseen or, as my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) said in his masterful speech, the result of a rather more cunning enterprise—to raise revenue without disclosing its source.

Charities found that they would be paying £70 million a year, given the reduction in gift aid coming from the reduction in the basic rate. The then Chancellor kept quiet about that in his Budget speech, but in this year’s Budget the Chancellor came forward with a package of £285 million to relieve charities for a limited, three-year period. The Treasury was exercised and busy in trying to find a way to get charities out of the mess that it had created for them, but what was wrong with the low- paid? Why could the Treasury not give them the thought and attention that it gave charities? Why have the Chancellor and Prime Minister said that they will start thinking about that now? Why did they not do that before the most recent Budget? Why do we have to wait for the pre-Budget report and the Budget after that?

I am conscious that time is short. It is lamentable that the Government have chosen to hit our pensioners, and the very people whom we want to encourage into work and give the best start, with this doubling of tax. If that was a mistake, the Government should admit it; if it was deliberate, they should recant it. I hope that on Monday practical steps will be taken immediately to address the serious problem that faces my constituents and others around the country.

9.42 pm

Mr. Mark Hoban (Fareham) (Con): This has been an important debate. Before I turn to the substance of my remarks, I want to comment on some of the speeches made by right hon. and hon. Members on both sides of the House. The Chairman of the Treasury Committee offered an olive branch to the Government—although the Chief Secretary to the Treasury seemed to bat it away— by suggesting that the Committee, rather than the Treasury, might look at the number of losers from the abolition of the 10p tax rate. The Chairman also highlighted the risk that the changes in the rules on non-doms will create a culture of non-compliance among those on low incomes.

The hon. Member for Taunton (Mr. Browne) spoke for 32 minutes. It was a speech long on style, short on substance and composed almost entirely of extracts from other people’s speeches and articles—and one joke, which badly misfired. The hon. Member for Middlesbrough (Sir Stuart Bell) spoke about the net
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losers from the tax changes. He doubted whether 5.3 million people were affected, but as the Financial Secretary knows from her own parliamentary questions, 5.3 million households are net losers from the scrapping of the 10p rate.

In a characteristically forensic speech, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) threw out a challenge to those on the Labour Benches. He came up with his own analysis of why the former Chancellor might have decided in his final Budget to scrap the 10p rate. Labour Members could not come up with their own explanation for why he might have done that.

Anne Main: It was a mishap.

Mr. Hoban: Some say that it was a mishap. I asked the hon. Member for Dumfries and Galloway (Mr. Brown) whether the scrapping of the rate was due to incompetence—but that, apparently, was not the answer. Labour Members could not admit that it was deliberate, calculated and well worked through. The challenge that they face is to explain to the House and to their constituents why, in his last Budget, the then Chancellor went ahead with this measure, which would penalise 5.3 million households.

Lynne Jones: In fact, I addressed that issue in my speech on Budget day 2007; I suggest that the hon. Gentleman read it. He is concerned about those who have lost out, as was the hon. Member for Tunbridge Wells (Greg Clark), who looked for practical measures to help them. Yet the hon. Gentlemen did not support the amendment tabled last year by my right hon. Friend the Member for Birkenhead (Mr. Field). Earlier, the shadow Chief Secretary misrepresented—

Mr. Speaker: Order. Interventions should be short.

Mr. Hoban: Given that the hon. Lady says that I should refer to the speech that she made in 2007, she might wish to read the remarks of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), in which he set out very clearly why we did not vote on last year’s amendments.

The hon. Member for Barnsley, Central (Mr. Illsley), who spoke about the damage that the Budget will cause to the licensed trade, echoed the remarks made by the Under-Secretary of State for Culture, Media and Sport in the Morning Advertiser—until, of course, he had to recant and say that his comments did not represent his views. Clearly, the call from No. 10 that kept the hon. Member for Sheffield, Hillsborough (Ms Smith) on the Government team also worked in his case.

My hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) talked about a Budget without a theme and expressed the view that perhaps the Government held off on increasing fuel duties because they understood that taxes were starting to be painful. My hon. Friend the Member for Northampton, South (Mr. Binley) spoke about the challenges posed in this Budget to small businesses and the increase in the rate of taxation for small companies.

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The speech by the hon. Member for Wirral, West (Stephen Hesford) was rather like that of the hon. Member for Taunton, except that there was no style and no substance. The hon. Member for Dundee, East (Stewart Hosie) highlighted the fact that there was no room for manoeuvre in this Budget—a message that we have been hammering out for the past few months. I am pleased to find that he is on board on that. The right hon. Member for Oldham, West and Royton (Mr. Meacher) gave a remarkable shopping list of tax increases that demonstrated exactly why he could not find the supporters to stand against the Prime Minister for the leadership of the Labour party.

My hon. Friend the Member for Beverley and Holderness (Mr. Stuart) again highlighted the fact that no Labour Members could explain the changes announced in last year’s Budget leading to 5.3 million households losing out. The hon. Member for Bury, North (Mr. Chaytor) discussed environmental taxes. Conservative Members believe that new revenues raised from environmental taxes should be used to reduce the burden of taxation on families, unlike the appalling measures put forward by this Government, who put a green gloss on environmental taxes. My hon. Friends the Member for Gravesham (Mr. Holloway) and for Tunbridge Wells (Greg Clark) also highlighted the issue of people who have lost out as a consequence of the abolition of the 10p rate.

The focus of today’s debate has been on the announcements made not by this Chancellor but by his predecessor in last year’s Budget. The pitfalls of scrapping the 10p rate were pointed out last year, but the argument has gathered momentum as people have started to realise its impact. Members in all parts of the House will have had letters and e-mails from constituents about it. It has cropped up on doorsteps time and again over the past few weeks, as those on low incomes who do not qualify for or do not take up tax and pension credits work out that they are worse off as a consequence of scrapping the 10p rate. A constituent who wrote to me last week told me that she earns £15,000 a year and works for only 30 hours a week so as to help to look after her mother. She asked me to raise in Parliament what she felt was the unfairness of the new income tax rates for people such as herself who have contributed into the system for all their working lives only to be let down by the Government once again—a view that many thousands of people up and down the country have expressed over the past few months.

Hard-working people on low incomes feel penalised by this measure. It is no wonder that 70 Labour MPs have signed early-day motions critical of the scrapping of the 10p rate and that Parliamentary Private Secretaries and ex-Ministers are queuing up to criticise it, with the exception of the Prime Minister’s PPS—the only PPS who was wheeled into the Chamber to support the scrapping of the 10p rate.

Mr. Ian Austin: I am very grateful to the hon. Gentleman for giving way. Instead of the pathetic, schoolboy debating society wisecracks we got from the shadow Chief Secretary, can he tell us why anyone should take seriously his party’s new-found concern for the poor, when its top priorities for tax reform are dealing with inheritance tax, to give a big tax cut to
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millionaires such as the shadow Chancellor and the Leader of the Opposition, and the abolition of stamp duty on shares for hard-pressed millionaire City traders? At the same time, will the hon. Gentleman tell us how he voted on the minimum wage, the introduction of tax credits—

Mr. Speaker: Order. Perhaps the hon. Gentleman can write to the hon. Member, because his intervention is too long.

Mr. Hoban: I gave the Prime Minister’s PPS the opportunity to speak—I think he is the first Prime Minister’s PPS to speak in a debate in this House and refer back to his crib sheet, which he also had to refer to earlier. Let me remind him of the centrepiece of the pre-Budget report in October: a change in the rules on inheritance tax. We will not take any lessons from him on these matters. Of course, the hon. Gentleman is part of the problem: the constant listing of briefings and changes of mind. The Exchequer Secretary said “Watch this space” on Friday. The Chief Secretary was on the airwaves on Saturday, trying to pretend that nothing was going to change.

Today, we have a new line—the “jam tomorrow” line. The argument is: “We don’t have the time to sort this crisis out before Monday. Just wait till the pre-Budget report and we will sort it all out then.” But this is not a problem that has suddenly emerged in the past few days. No one can pretend that this crisis came as a surprise. The Prime Minister and the Treasury knew last year that a net 5.3 million households would be worse off as a consequence of the abolition of the 10p rate. In fact, the Exchequer Secretary herself was signatory to a Treasury Committee report of last year that was highly critical of the decision to scrap the 10p rate—it cropped up during our debates on the Budget and the Finance Bill last year.

The Government have had plenty of time to put together a package to soften the blow for the losers. Let us not forget how quickly the Government can move when they want to. They quickly backtracked on non-doms, and let us remember how quickly they reversed their position on inheritance tax, after facing pressure from business. Why is it that the 5.3 million households who have lost out have to wait until the PBR? Why do they have to wait, when the Government can move so quickly if they want to?

Why should the people affected believe that there will be jam tomorrow? As the Institute for Fiscal Studies points out, the number of childless, working age adults in poverty has increased by half a million since 1997. They are not going to listen to the promises, hints and suggestions made by the Treasury and the Prime Minister. They want prompt action, and I suggest that Labour Members hold their Ministers to account on the matter, because the pressure put on the Treasury during the past few weeks has clearly started to create movement.

Rob Marris: Several of us have raised this very issue with the Government for the past 12 months. The hon. Gentleman is absolutely right to say that this issue has been around for 13 months, since the 2007 Budget, but we still have no comprehensive alternative policies from the official Opposition.

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