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The reason was obvious; the better-off were thought to be more valuable voters in any forthcoming electoral conflict. The low paid, if they vote at all, tend to be safe Labour voters, and anyway they might not notice. Looking back, I can think of no other reason why part of the Budget proposed that the change would not come into effect for 12 months. It was not even legislated for at the time. The only reason for that was, as we all know, that the groups about whom we are talking do not follow the details of Budgets; 90 per cent. of the public do not follow the details of the Budget. People catch up with the Budget when they see the change on their pay slip. They sometimes turn up to
their MP’s surgery and ask why their tax has gone up because they never grasped the news that they were the victims. That is what has happened. Unfortunately for the Prime Minister, this Bill has come in a year later.
In this House, a lot of people noticed the measure last year. It took about 24 hours for them to do so because it had not been clearly flagged up. The then Chancellor had tried to bury it, but the debates erupted and the issue got into the press. People began to talk about not a tax cut, but a tax con, one of the popular phrases that rapidly got into the political debate. But none of us at that time came up with a proposal, apart from the right hon. Member for Birkenhead (Mr. Field). There was a very simple problem. I have looked up my own speech to make sure and I did state that as someone of pensionable age and reasonably well off, I had benefited considerably from the Budget. I was suitably grateful; it was very nice of the then Chancellor to put me and one or two of my hon. Friends in a rather better position. I did ask why this was at the expense of some of the lowest earning people in the country, as that did not seem to be very sensible. But none of us had a remedy.
If my analysis is right—that the real problem was that the then Chancellor was cutting the standard rate when he could not afford to do so—the logical explanation would be not to cut the standard rate by quite so much. But in this Chamber we appreciate that all of us, including me, did not have the nerve to get up and say “You should not cut the standard rate until you can afford to do so. Why don’t you put it back again?” We ruled that out, but now comes the uncertainty.
The right hon. Member for Birkenhead, not for the first time, has achieved an absolute triumph by mobilising what was, I suspect, a much more considerable body of support in his own party than the ones who had the nerve to sign the relevant motion to make the Government do something about it. But he is plainly extremely unclear exactly how the measures will be delivered and, let us be clear, he is talking about a considerable amount of public expenditure.
We keep talking about how much it would cost to put back the 10p band. I have no idea what sum the right hon. Member for Birkenhead is visualising will be spent on compensating all these people. I will not be so churlish as to ask how this will be paid for, because it could not be paid for at the time of the 2007 Budget. The Treasury sometimes finds itself hit on the head with public expenditure that it cannot afford so the next pre-Budget report or Budget will presumably contain some means of raising the revenue.
Meanwhile, the difficulty is that all the mechanisms that we have identified are extremely complicated and unsatisfactory. I regard the winter fuel payment as an electoral bribe paid to most pensioners. The money is taken from the right-hand pocket and put in the left-hand pocket at Christmas with a clear message; pretend this is for your fuel bills and spend it wisely. Many Members of this House receive it, as do most Members of the House of Lords, who regard it as a tax rebate. If it is given to everybody between the ages of 60 and 65, those of us who, sadly, have just crept past the age of 65 will be very indignant because most of those people will not be on a 10p marginal rate and quite a lot will be young pensioners, many with full-time occupations and good incomes. It is not very satisfactory.
The tax credit system is a most unsatisfactory way to proceed. The errors are too great. It greatly benefits some low-earning people, but it also causes great hardship to many low-earning people because of the errors that are made and the pain of recovering overpayments. So, how on earth will we target effectively the people we have in mind? I will vote for the amendment because it puts in concrete form the only thing that matters: that the Government, having agreed to do this, have to come back and produce something that delivers the goods.
I listened to the Chief Secretary last week, and I can well understand why she has ducked out of the debate today, because last week she did not have the first idea how this undertaking would be honoured. I understand the difficulty: Prime Ministers have a habit of making sweeping promises and then turning around to the Treasury and saying, “Carry on sergeant-major; now deliver what I have promised a majority of the House of Commons we are going to do.” So I wish the Financial Secretary well, when she rises to speak.
I share some of the suspicions that have been raised, however. I read the Chancellor’s tax letter to the Select Committee Chairman. The recipient, the right hon. Member for West Dunbartonshire (John McFall), is present; I see that he is nodding, and I am sure he agrees that the letter does not cast a great deal of clarity on exactly where we are now going to go. I am also worried that weasel words are already getting in, in the context of what the right hon. Member for Birkenhead has just related to us or has ever said on the subject. In particular, although the letter talks about the pensioners—those over 60—being, perhaps,
“helped through the mechanism that already exists to pay the Winter Fuel Allowance”
“all the changes will be backdated to the start of this financial year”,
when it goes on to talk about the other categories of people affected, there is no suggestion of anything being backdated to the start of the financial year. Therefore, the idea that people will be compensated in full, or even on average, did not even get as far as the Chancellor’s letter. As one of the Liberal Members rightly pointed out, all Members are meeting people, so we can all cite people who are—sometimes in the most elaborate, but unfortunate combination of circumstances— hit by this. People come to us and say, “My income has gone down,” and they will all have to wait for some period of time before any changes are even announced that will address that, and only the people between the ages of 60 and 65 appear to have got any undertaking of a backdate even by the time the Chancellor wrote this letter.
We are now all facing up to the fact that, even since the 2007 Budget, things have got much worse for the people we are concerned about. Since the announcement but before the change came into effect, while earnings have not been moving significantly, utility bills and council tax have increased and food bills are rising very rapidly, so everybody’s discretionary income is being squeezed and the current situation of the people concerned is worse than we could have contemplated when this measure was first announced. Therefore, the sums— comparatively small, though they might sound to us—that
they complain about when they come to see us are a big blow to those people’s budgets at a difficult time.
We need an amendment to hold the Government to what the right hon. Member for Birkenhead thinks they have committed themselves to, but we cannot just take that on trust. The fact that it is almost impossible to conceive of an easy mechanism for achieving this means that we must make sure that the whole thing does not slip away and get lost so that by the time we reach the pre-Budget report in November we are again having obscure arguments with Treasury Ministers who are trying to persuade us that, really, when we look at this carefully, quite a lot of what they said happened.
This is an appalling episode. Some long nights of work are required in the Treasury to sort out how to compensate most of these people and, equally importantly, how to make sure they are helped fairly quickly this year to deal with the consequences now. If we just let this go today simply on the basis of the assurances we have been told about, and when we find that those assurances are almost impossible to understand—we cannot get hold of them and do not know what the mechanisms will be—it would be a great folly.
I therefore urge the right hon. Member for Birkenhead to vote for the amendment, which just ties the Government down to introducing specific things. The House has risen as a body and said to the Government, “This is not a fair way of paying for the point you wanted to make in the Budget at the time.” We must ensure that they come back with a fairer way or a system of compensating those who are about to suffer. I do not envy the Financial Secretary to the Treasury—I see her poised to get up, so I shall allow her to do so in a moment—as she has one of the more ridiculous and impossible briefs to present to us. I hope that she can assure us at least that she will use her best endeavours, and perhaps she will allow the amendment to hold her to things and make her deliver something concrete.
9.45 pm
Steve Webb (Northavon) (LD): Before the Minister rises, I wish to make a brief contribution about one of the groups that is losing out from this package—people in the 60 to 64 age bracket. My contribution is inspired, first, by the fact that this group has been in contact with me and with many other hon. Members in largish numbers, and, secondly, by what the right hon. Member for Birkenhead (Mr. Field) said. There is a sense that the House is being asked to accept a pig in a poke for this group and that what those constituents want, above all, is certainty. I do not believe that that certainty has so far been provided.
I raise the issue of women in the 60 to 64 bracket, in particular, because one of them contacted me having heard the Prime Minister give an interview in which he said that people should not worry because pensioners have been compensated. This lady said, “Last time I looked I was a pensioner, but I am losing out by more than £200 a year”. That is because women in that age bracket, although pensioners, do not qualify for the pensioner tax allowance. Such people have contacted me and other hon. Members in large numbers.
The first question is: what compensation can such people expect to receive? Amendment No. 19 refers to the compensation package and suggests that the 10p
rate is reversed unless we are happy with the compensation package. I am not convinced that we will get the very precise answers that women in the 60 to 64 age group want—I shall shut up and sit down shortly so that the Minister can tell us her response.
When I intervened on the right hon. Member for Birkenhead, I asked what these people will get. What can they expect, supposing that they have lost up to £200 net of other changes? If I understood him rightly, he said that they could expect average compensation. If the group, on average, has lost £100, I take his understanding of what he has been promised to mean that the people involved will get £100. If, for the sake of argument, there were 300,000 losers in this age group, half would still gain and half would lose. Clearly people would lose less than they would otherwise have done, but there would still be a significant number of losers. The first point is, thus, that women who have read in the press that the Government will compensate them might discover, at some point, that the Government will not compensate them in full—they may compensate people in part at some point.
The second question is: when will such people be compensated? This group ought to be the most straightforward of all to deal with, because if the winter fuel payment mechanism is used, that is probably one of the simplest things that could be done. If we have to wait until the pre-Budget statement, which is traditionally made in November, and then, presumably, for legislation, because we will need to define, in a new way, a very specific group, people will not get their money until 2009. The reason the winter fuel payment has a September cut-off date is that it takes three months to give everybody the money. Let us assume that the pre-Budget statement is made in November, and legislation is made over Christmas and the new year. If we add three months on top of that, it could be well over a year before those women receive partial compensation. That is not what they will have perceived they were going to receive.
Mr. Frank Field: Two things are now clear from this debate. The first is that no party is proposing the re-introduction of the 10p rate. The second is that nobody yet has any ideas about how to compensate people. A judgment must be made as to whether we believe that the Government, in good faith, will strive to find as many of the people involved as possible. Nothing on tonight’s Order Paper gives the pensioners that the hon. Gentleman is talking about any more reassurance than we have heard from those on the Treasury Bench or from me.
Steve Webb: I agree with the right hon. Gentleman on his second point; it is a question whether we believe in the good faith of the Government. Given that the root of this problem was an attempt to deceive people and to portray something in one way that came across in another, the worry is that the presentation of this compensation package is already being spun. I simply do not have confidence that the Government will act in good faith in this regard. On his first point, I suspect that we will divide later on whether the clause should stand part of the Bill. The Liberal Democrats will clearly and unambiguously vote against the Government’s measure.
The right hon. and learned Member for Rushcliffe (Mr. Clarke) made a point that I wish to reiterate. Let us suppose that the package costs around £1 billion—because we cannot identify the losers and just give them back their losses—and we end up paying, for example, men in the 60 to 64 bracket who may not have lost out in the first place. Where would that £1 billion come from? Would it come from another tax, thus creating a whole new set of losers? Can we be confident that the compensation package really will compensate people, or will it just create a new set of unjustified losers? The right hon. Member for Birkenhead would be the first to acknowledge that that money will have to come from somewhere. Someone will have to pay the bill for this incompetence and we may find that it is other vulnerable people, unless it is achieved through a progressive mechanism. This Government are not known for using progressive mechanisms.
Those who heard the news last week may have hoped that they would be compensated. It would be a cruel deception if, having found out only this month that they have lost out, the compensation was not paid until next year and did not even then compensate them for their losses. That is why the compensation package, as so far outlined, is wholly inadequate.
Jane Kennedy: I am sorry if the right hon. and learned Member for Rushcliffe (Mr. Clarke) thinks that I am a sorry substitute for my right hon. Friend the Chief Secretary, but it is normal for the Financial Secretary to respond to such amendments.
The two amendments that have been tabled are intended to allow the tax rates announced at the Budget to stand only until the beginning of January, when the Chancellor would be required to make a statement, for approval by the House, about measures taken to mitigate the impact of the removal of the 10p rate. The amendments are unnecessary and would effectively freeze clause 3 if they were accepted. They are, in the time-honoured phrase, wrecking amendments.
The result of these amendments would be to change fundamentally clause 3 and would mean that Budget resolution 4, which enables HMRC to collect tax between the start of the tax year and Royal Assent to the Finance Bill, would fall. We would be left in the position in which HMRC would have no legal power to collect any tax on the first £2,320 of taxable income from the start of the tax year. Most employers, because they would require changes to their payroll systems, would also be unable to deduct the correct amounts from their employees.
Alongside those administrative issues, the amendments proposed would impose huge burdens on all taxpayers to finance these changes. I am sure that the Opposition did not set out to achieve that. I had hoped that they would use this amendment to discuss the wider issues in relation to the removal of the 10p rate.
It may be useful if I remind the House of our record in tackling poverty and helping the low paid since 1997, through a comprehensive programme of reform to the tax and benefits system. It would not be right to allow to go unchallenged the idea that all poor households were hurt by the removal of the 10p rate. In discussing those in poor households who are beneficiaries of this Budget, I do not seek to dismiss the concern about the proposed change, but our work to tackle poverty has
focused on getting as many people back into work as possible, as we believe that work is the best route out of poverty. We are committed to making work pay through improving financial incentives to work.
The new deal has focused on creating programmes to help certain sectors find and maintain jobs. Employment is now at record levels, at 74.7 per cent. with over 29 million people in work—a rise of more than 2.9 million since 1997. Alongside this, in 1999, the Government guaranteed the lowest paid a minimum income for the first time. Since its inception, the national minimum wage has risen by 59 per cent., while median earnings have risen 37 per cent. That has brought to an end the long-term trend of wages at the bottom of the income distribution growing far more slowly than average earnings. That reform is very precious to me, as I used to work as trade union organiser for the then National Union of Public Employees and campaigned on the issue throughout the 1980s, when it was not universally supported by the Labour movement. I am proud of that achievement.
Mr. Devine: My right hon. Friend will remember the mid-1980s, when public sector workers—domestics who had worked in the national health service for five, 10 or 15 years—were sacked and told to bid for their jobs. They bid £2, £1.50, £1.20, £1—and then, “Sold to the lowest bidder!” The Conservative party called it efficiency savings. We called it exploitation of low-paid workers, particularly women.
Jane Kennedy: I am grateful to my hon. Friend for those comments, and I agree entirely. He will remember who was in power at that time.
On working tax credits—I can see the pained expression on your face, Sir Alan. [ Interruption. ] It is not a pained expression. That is good. Working tax credits have benefited 6 million families, with the average working family now £60 a week better off in real terms since tax credits were introduced in 1999. Some 3 million of Britain’s 7 million families with children will receive more in tax credits and child benefits than they pay in income tax. That will effectively wipe out their tax liability altogether. For those without children, the average award in 2005-06 was more than £1,900 a year. That is why I encourage all those who come into contact with people on low incomes, particularly single people, to tell them that they should consider whether they would be eligible for working tax credits.
Over the past 10 years, the Government have also focused on long-term support for all pensioners to provide security in old age.
Sir Robert Smith: Will the Financial Secretary give way?
Jane Kennedy: If the hon. Gentleman will allow me to make a little progress, I will be happy to give way later. I am coming to the 10p tax rate in a moment. If he will contain himself, a number of assertions were made and it is right and proper that I should respond to them.
All pensioner households are now, as has been said, supported by winter fuel payments. Nearly 60 per cent. of all pensioners will not pay any income tax at all in 2008-09. Pension credit has guaranteed a minimum
net income of £119 for a single person. While the Conservatives talk about tackling poverty with pretend concern, we have tackled it. It might be of interest to the House to learn that, way back, the right hon. Member for Witney (Mr. Cameron) made a very revealing comment. He said:
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