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Mr. Hoban: I would have expected the hon. Gentleman, for whom I have a great deal of respect, to come up with a better intervention than that. If this problem has been around for so long, why have the Government not responded? Why have they not listened to Labour Back Benchers? Why have they not listened to the Parliamentary Private Secretaries who have been writing letters to complain about it? The Government did not budge on a single thing about it until they realised that they had a large-scale rebellion on their hands, and if Labour Members want to put pressure on the Government to get prompt action, they should continue to push the Government to change their mind.
There are many other measures that we could discuss, including the small companies rate; changes to capital gains tax; non-doms; raising taxes for families; putting a green gloss on the Budget; and using an attack on binge drinking to increase taxes on alcohol. However, the challenge for the Government is scrapping the 10p rate, to which there is widespread opposition. We heard that tonight, not only from the Opposition Benches, but from Labour Members.
Last year, the Government put together a package to ensure that people over 65 or those with young children would not lose out by scrapping the 10p rate. However, that left 5.3 million households losing out, including those who have retired early, young people on low incomes who do not qualify for tax credits, and those who are over 25 and on low incomes, but have no children and do not claim tax credits. The challenge that the Chancellor faces is whether he can help those 5.3 million households this year. Can he act to remedy the unfairness of last years Budget in the Bill? As Labour Members know, the Government have no excuse not to act. The problem is not new; they have known about it for a year and they can act quickly when they wish. They can back down just as they did when they compromised on non-doms, retreated on capital gains tax and reversed their policy of reducing taxes on small companies.
The Government should do the right thing for families and businesses in times of economic uncertainty, when they are finding it harder to meet ever-higher costs, including increased fuel prices and council taxes. By opposing the Bill, we are telling businesses and families that we are on their side, while the Government are on their backs.
The Financial Secretary to the Treasury (Jane Kennedy): It is a pleasure to bring to a close the Second Reading of this years Finance Bill, and I thank all hon. Members who have contributed. My right hon. Friend the Chief Secretary gave a forthright presentation of the benefits of the Bill, and I compliment the hon. Members for Runnymede and Weybridge (Mr. Hammond) and for Taunton (Mr. Browne) on their robust presentations of their parties positions. I welcome the speeches of all those, especially Conservative Members, who expressed a keen interest in the poor and the impact, as they perceive it, of the Budget on some poor people in Britain. It is one of the Governments successes that we have turned the agenda around so that poverty is now at the centre of debate. I welcome that.
As one would expect with such a wide-ranging Bill, several points have been made and I would like to respond to as many as possible, within the constraints of time. However, before dealing with those points, I would like to address the changes that the Bill makes to income tax and restate the context in which the debate takes place.
The introduction of the starting rate of income tax in 1999 was an important step in providing incentives for people to work, along with the reduction in the basic rate of tax to 22 per cent. and a set of changes that took 900,000 low paid workers out of paying national insurance contributions. However, the 10p rate is a poorly targeted way of helping people on low incomes. It benefits the very highest earners, but not the very lowest earners, who pay no tax. Since 1999, we have been developing a far more targeted way of making work pay for people on low incomes, and of providing them with support.
Our tax credits systemthe working tax credit and the child tax creditnow supports 6 million families across the country. The changes to income tax in the Bill have to be seen as part of a package that puts additional resources into those tax credits. The child element of the child tax credit has been increased by £150 a year above inflation this month, and the income threshold up to which working tax credit is received in full has increased by £1,200.
Mr. Graham Stuart: Will the Financial Secretary give way?
Jane Kennedy: Whenever I see the hon. Gentleman bouncing up and down, I think of the old adage that empty vessels make the most noise. However, he occasionally makes interesting contributions, as his speech today showed. If he will allow me to make a few more comments, I will take interventions.
The changes to income tax in the Bill must be seen as part of a package that puts additional resources into those tax credits. The child element of the child tax credit has been increased, as I said. Those changes mean that 3 million of Britains 7 million families with children will now have their income tax liability effectively wiped out by the tax credits and child benefit that they receive. Together with the changes in the National Insurance Contributions Bill, which is before another place, the above-inflation increases in personal allowances for pensioners and the reduction in the basic rate of income to 20 per cent., those changes were designed to interact as a package.
As my hon. Friends the Members for Middlesbrough (Sir Stuart Bell) and for Dumfries and Galloway (Mr. Brown) said, the overall impact of those changes is to provide more support for families and pensioners. Some 80 per cent. of families with children will be better off, 200,000 children will be lifted above the poverty line and 600,000 pensioners will be taken out of paying income tax, meaning that 59 per cent. of pensioners aged 65 and over will get their incomes free of tax.
Jane Kennedy: I will give way in just one moment.
We have of course carefully considered the impacts of the package. It was I who gave my right hon. Friend the Member for Birkenhead (Mr. Field) a detailed answer on 18 October about those who gained and those who lost as a result of the overall package. I acknowledge that some of those people are in households in receipt of low incomes [ Interruption. ] Yes, some of them. We are acutely conscious of the possible impact on the low paid. We have of course considered ways of compensating those groups. However, that would be not only difficult to achieve, but disproportionately expensive in many cases. We cannot target
Jane Kennedy: Hon. Members who have just come into the debate might want to give me one more minute.
We cannot target tax measures at the specific groups that have lost out, and so any changes would also benefit people who have already gained from the package, taking valuable resources away from elsewhere.
Mr. Stuart: I am extremely grateful to the Minister, who was partly gracious in her answer. It is not empty vessels bouncing up in the Chamber, but the empty promises of the Labour party that most concern my constituents. What policies and funding need to be put in place to meet the Governments target of halving child poverty by 2010-11? Are those policies in place and will she ensure that that commitment is met, or is the Treasury Committee right that the Government have lost their wholehearted commitment to reducing child poverty?
Jane Kennedy: If the hon. Gentleman is as committed to eradicating poverty as he claims, I would have hoped that he would acknowledge the steps that we took in the Budget to lift the families of a further 200,000 children above the poverty line. Our approach to the Finance Bill and the Budget has been carefully constructed precisely to enable us to make that progress in tackling child poverty, which his party was responsible for more than doubling when they were in power in the 1980s and 1990s.
If we were to amend the criteria for tax credits, for example, to make more people eligible, we would also reduce their effectiveness in specifically targeting those at the greatest risk of poverty, such as low-income families with children. Again, those changes would also be expensive.
My right hon. Friend the Member for West Dunbartonshire (John McFall) not only spoke on his own behalf, but drew attention to the Treasury Committees report. I should like to quote something that he said in an interview:
While tax simplification is a laudable aim, it seems strange that the abolition of the 10 pence starting rate of income tax disadvantages mainly low income households. As such, the Government must ensure that these people are identified, and appropriate help given to them to ensure they receive the benefits to which they are entitled.
I welcome what he said earlier, as well as any contribution that he and his Committee might make to the process. I completely take his point about ensuring that we work harder to ensure that those who are entitled to, for example, the benefit of tax credits, and working tax credits in particular, receive the entitlement that they deserve. It may well be that many people who fear that they will lose as a result of the proposed change would not be in that position if they were claiming the working tax credits to which they are entitled.
My hon. Friend the Member for Barnsley, Central (Mr. Illsley) and others said that we could not wait until the pre-Budget report, but nor can we unpick the tax package without unravelling its benefits.
The hon. Member for Tiverton and Honiton (Angela Browning) and others mentioned pensioners who have taken early retirement. I want to say a word about those in the 60 to 65 age group. About a third of the women in that age group who are affected will be in two-earner households. It is therefore not true to sayas the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) did, in what I acknowledge was a powerful speech, from an Opposition point of viewthat 5.3 million of our poorest families will see their taxes double. That is how he and his colleagues characterise the situation, but it is not true. The make-up of those who will, overall, pay a relatively small increase in taxes is diverse, and that is why it is difficult to say exactly who they are, and why it is difficult to devise a set of measures to ameliorate the effect of the changes.
Overall, this is a package that provides targeted support to the families and pensioners who need it most [ Interruption. ] Hon. Members do not have to shout and bawl. I am under enormous time pressure.
Jane Kennedy: I will of course give way, but hon. Members do not have to shout in order to make their point.
Greg Clark: Will the Minister confirm that, as a result of the abolition of the 10p rate, 300,000 more people will be in poverty [ Interruption. ]
Jane Kennedy: I listened carefully to the contribution that the hon. Gentleman made earlier, but I did not hear what he just said. Please could he restate what he just asked, because I did not hear it?
Greg Clark: Is the Minister aware that the abolition of the 10p rate will put another 300,000 people in poverty?
Jane Kennedy: No, I do not accept the figure that the hon. Gentleman is offering. I have said that I do not recognise it. All the work that we are focused onand the whole of the tax packageis centred around the Government achieving their priorities of ensuring that pensioners and children in poverty receive the help that they deserve.
Jane Kennedy: I am not going to give way to the hon. Gentleman again.
In last years Finance Bill debate, on 30 April, the
Mr. Nicholas Soames (Mid-Sussex) (Con): Will the right hon. Lady give way?
Jane Kennedy: I cannot refuse.
Mr. Soames: May I congratulate the right hon. Lady on her magnificent speech? Would she be good enough to tell the House her figure for the number of people who will be put into poverty by this change?
Jane Kennedy: I do not accept the proposition [ Interruption. ] It is always a pleasure to welcome the hon. Gentleman to the debate, but it is interesting to see him joining those who are defending the poor.
In last years debate, the spokesman for the Conservatives, the hon. Member for Chipping Barnet (Mrs. Villiers), commented on the proposals put forward by the Liberal Democrats that the 10p income tax band should be replaced by a 0 per cent. tax band.
Our primary concern about them is that they have not been properly costed, so it would not be fiscally responsible to vote in favour of them.[ Official Report, 30 April 2007; Vol. 459, c. 1276.]
I put it to the House that it would be fiscally irresponsible to unpick the package presented in this Finance Bill; we cannot do it. However, my right hon. Friend the Chancellor has made it clear that he understands the concerns expressed and that we want to do more to help many of those who do not benefit from the package.
The Conservative party likes to say and has saidthough I was quite surprised to hear Conservative Members say itthat we have lost our moral way and that the moral compass of the Government has lost its direction. In that context, let me say this. When I was elected in 1992, one in four men aged 25 and over in my constituency were unemployed, yet unemployment in this country is now almost a thing of the past, particularly among the young people I represent in my constituency. Even if we had not fixed unemployment, or even if we had addressed only the scourge of unemployment and not built the schools and hospitals and not put in the investment in public services that we have, I would still be incredibly proud to be taking forward a Finance Bill on behalf of this Government, who have achieved so much. I hope that the House will support the Government in these measures, which we will take forward next week.
Question put, That the Bill be now read a Second time:
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