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Meg Munn:
My hon. Friend raises an important point. We are in regular contact with Governments on those issues. As I have said, the important point is that
all sides need to stop the conflict, because until it stops and the talks are in place, we cannot hope for the much-needed peace in Darfur and in Sudan.
T5. [204791] Mr. David Chaytor (Bury, North) (Lab):
The recent rise in global food prices has led to food riots in a number of developing countries, one of which is Cameroon. As it is the only Commonwealth country to have an English-speaking minority with a justified sense of grievance, will the Minister speak to her
counterpart in Cameroon to ensure that the riots over food prices are not used as a pretext for a further crackdown on that English-speaking minority?
Meg Munn: We obviously share the concern that all Cameroonians should enjoy equal rights, free from disadvantage, in respect of their regional or linguistic reasons. We have not raised this issue previously, but I am happy to pass this on to my noble Friend and to take up this issue of discrimination.
Income Tax
3.34 pm
The Chancellor of the Exchequer (Mr. Alistair Darling): With permission, Mr. Speaker, I would like to make a statement on how I propose to deal, this year, with the consequences of the withdrawal of the 10p starting rate of income tax.
In the Budget last year, my right hon. Friend the Prime Minister, as Chancellor, introduced just two rates of tax with the basic rate of tax cut from 22p to 20p—the lowest rate for 75 years. At that time, allowances for pensioners over the age of 65 were increased; and recognising that, as the tax credit system became more developed and more generous, we were better able to target resources on low-income households, we increased the working tax credit and the child tax credit, as well as child benefit.
As a result of those changes, more than 16 million households have gained and 600,000 more pensioners pay no income tax at all. Because of the changes announced in 2007 and in this year’s Budget, half a million children will be lifted out of poverty—a record that no other Government have ever matched.
In my letter to the Chairman of the Treasury Committee three weeks ago, I said that I would set out our proposals to help those who lost out as a result of the withdrawal of the 10p starting rate of tax for the longer term in the pre-Budget report later this year. As I said in my letter, my focus would be on changes to offset the average loss of £120 per household and that whatever conclusions we came to, the changes would be backdated to the start of this financial year. But I also said that I would not wait unnecessarily until November before setting out how we intended to proceed.
I said that I would look at the administrative practicalities of other options that some right hon. and hon. Members have suggested, including a one-off rebate or compensatory payment, as well as changes to the tax credit system to allow the average losses to be offset. Having looked at this further, I believe that a rebate scheme would be complex and expensive to administer. It would also take time to set up and, in any event, changes to the eligibility for tax credits could not be introduced this year.
However, I can bring forward a proposal for this year that will offset the average loss and that will provide financial support more fairly, quickly and efficiently than any one-off rebate scheme—provided we legislate for it now in this year’s Finance Bill. For that reason, I am proposing to bring forward one measure from the pre-Budget report now.
I want to help families on low and middle incomes as soon as possible. But my proposal for this year will not only help those on low incomes who lost out, but do more to help all basic rate taxpaying families at a time when oil and food prices have been rising in every part of the world. So, at a cost of £2.7 billion, I will increase the individual personal tax allowance by £600 to £6,035 for this financial year, benefiting all basic rate taxpayers under 65.
That will mean that 22 million people on low and middle incomes will gain an additional £120 this year. It will mean that 4.2 million households will receive as
much, or more than, they originally lost. The remaining 1.1 million households will see their loss at least halved. In other words, 80 per cent. of households are fully compensated, with the remaining 20 per cent. compensated by at least half. In addition, 600,000 people on low incomes will be taken out of income tax altogether.
People aged between 60 and 64, whose average loss was £100, will also get the advantage of the increased personal allowance worth up to £120. They will also receive the additional £50 winter fuel payment for this year, which I announced in the Budget. The increased personal allowance will apply to all income for this tax year and so will be backdated to 6 April. As a result, from September, basic rate taxpayers will see a one-off increase in their monthly income of £60 and then an increase of £10 per month for the rest of the financial year.
Higher rate taxpayers were largely unaffected by the reforms that were announced last year. So it is fair to focus this additional support on basic rate taxpayers only. However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am reducing the threshold at which an individual starts to pay tax at the higher rate by £600.
The net effect of these changes is that the tax liability of everyone who currently pays tax at 40 per cent. will be unaffected by the increase in the personal allowance. Those brought into the higher rate will gain by up to £120 this year.
I propose to legislate for these changes in this year’s Finance Bill so that taxpayers will get the benefit of the change from September. Raising the personal allowance is simpler than other solutions, and also retains the benefit of a simpler tax system and allows basic rate taxpayers to see the benefits as soon as possible, and for the whole of this financial year.
My proposal will also provide additional support for individuals and families this year, including those on middle incomes who have benefited from other reforms announced in 2007. We are providing that support at a time when they are facing additional costs. I have brought forward this measure from the pre-Budget report in order to ensure that people get the benefit as soon as possible. I shall set out proposals for next year and beyond at that time.
As I made clear at the time of the Budget, it is right and sensible to allow borrowing to rise and investment to be maintained as the economy slows. Debt is lower than it was in the past and low by international standards. Our fiscal policy, like our monetary policy, is designed to support stability in these uncertain economic times generated by the turbulence in world financial markets and global commodity-price inflation. I am able to finance the proposal through borrowing this year, ensuring that we do not take money out of the economy at this time.
I will, of course, set out my fiscal projections and decisions in the pre-Budget report as usual, consistent with the fiscal rules and in line with the requirements of the code for financial stability. For future years, our aim is to continue the same level of support for those on lower incomes and I shall bring forward proposals to do that in the pre-Budget report.
The change that I am announcing today represents the fairest and most effective way to help all those affected as a result of the changes proposed last year. In addition, this family tax cut provides support this year for those on middle incomes at a time when they face increased bills, so supporting the economy. I commend the statement to the House.
Mr. George Osborne (Tatton) (Con): This is, of course, the 10th emergency statement in the 10 months that the Chancellor has been in office. How humiliating for him to come to the House today with a mini-Budget to clear up the mess made by the Prime Minister in his last Budget as Chancellor.
Unlike in the case of the Minister for Housing today, we have not seen an advance copy of the statement. The Chancellor will forgive us if we look at the small print of his Budget announcement—after all, this lot cheered when he announced the last changes, which then unravelled.
Let me also make it clear that we will welcome anything that can be done to help the millions of low-paid people hit by the regressive tax rises of this Government. We will support any genuine compensation that is offered. The Prime Minister, muttering to his Chancellor, might remember that he spent months before the last general election arguing against increases in personal tax allowances, saying that they were not a particularly well-targeted measure.
Surely the lesson is that this sounded less like a considered statement from a Chancellor and more like a cynical press release in a by-election campaign. First we got the tax con, and now we are getting the compensation con, for it is clear that this help is for one year only. It is a one-off payment—a one-off solution to tax rises that hit every year. The Opposition remember the one-off council tax rebate to pensioners before the last general election. We will look carefully at what the Chancellor promises. We will ask him what the long-term plans are to help people and to compensate them. The Government are treating people like fools.
The Chancellor said in his first interview in his job, with the Financial Times, that tax changes should only ever be announced “at the proper time”—at the Budget or the pre-Budget report. Since then, he has announced U-turns on every single original tax idea that he has had. And here he is, in the middle of May, reopening last year’s Budget’s changes in income tax and attempting to clear up the mess of the man sitting next to him. It comes on the same day that inflation numbers have soared and his plans to tax foreign profits are unravelling. Surely whatever remaining reputation that the Prime Minister had for economic competence has evaporated today.
This is the Prime Minister who, on the plane back from America, said that there were no losers from his Budget, but was then forced to admit that there were millions of losers. He said that he would not rewrite his Budget but he now sits as the man next to him rewrites the Budget that he gave. He said that in-year payments were impossible, but now the Government are making in-year payments.
Let no one be fooled— [ Interruption. ]
Mr. Speaker: The right hon. Gentleman should be listened to, and I do not expect a Parliamentary Private Secretary, Mr. Robertson, to be shouting across the Chamber. It is just not the done thing.
Mr. Osborne: Why do they not save their fury for the internal Labour party rows that are happening?
Let no one be fooled about why the Chancellor is making this statement today. It is not because he wanted to, or because of any sense of guilt at hitting the low-paid, or because the Prime Minister thinks that it is the right thing to do. It is because this divided, dithering and disintegrating Government are panicking in the face of the Crewe and Nantwich by-election. The Prime Minister, who once commanded so much respect from friends and foes alike, now looks like the unelected leader who is desperate to save his skin, cowering before every electoral challenge and insulting the intelligence of the very people whom he has hurt.
This is a one-off change only, for this year only. The Chancellor serves up a compensation con after a tax con and expects people to believe it. What utter cynicism, what total incompetence—and what a complete humiliation for this Chancellor of the Exchequer.
Mr. Darling: Three weeks ago, when the hon. Gentleman stood at the Dispatch Box on the first day of consideration of the Finance Bill, he led us to believe that he had very strong views and that steps should be taken immediately to deal with those people who lost out as a result of the withdrawal of the 10p rate. Yet today he cannot tell us whether he is for or against what we are proposing.
Once again, as on every issue, we see that there is nothing here of substance. The shadow Chancellor cannot say whether he is for the proposal or against it. The Conservative party was in favour of withdrawing the 10p rate when the proposal was first made. When my right hon. Friend the Member for Birkenhead (Mr. Field) put forward his amendment last year, the Conservatives abstained. Three weeks ago, they wanted to reinstate the 10p rate. Their position has been completely confused and it is self-evident today that they have no idea whether they are for or against what we are proposing.
We are making proposals that will help 80 per cent. of those who lost out as a result of the changes. They will gain up to £120 a year, and that will go a substantial way towards helping people. I am sorry that the Conservative party could not bring itself to welcome what we are doing.
John McFall (West Dunbartonshire) (Lab/Co-op): I welcome the Chancellor’s statement today. I have to say that it is nothing but churlish and mean not to welcome a statement that benefits everyone on basic rate taxation and which takes 600,000 people out of tax altogether.
Given the Chancellor’s welcome for the Treasury Committee’s inquiry, which was focused exclusively on the low-paid, will he continue to work with us to monitor the effects of the Government’s policy on ensuring the reduction of child poverty, the elimination of fuel poverty and the increase in the labour market participation of those on benefits? That inquiry will ensure that we work towards the PBR and get something
done for people—not just for this year, although what my right hon. Friend has done is welcome, but for future years as well.
Mr. Darling: I am grateful to my right hon. Friend for the welcome that he has given. He is right that today’s proposals will benefit many people in this country. Yes, the Treasury will of course continue to co-operate with the Treasury Committee and its inquiry. I think that I am still looking forward to appearing before that Committee at the beginning of June.
Dr. Vincent Cable (Twickenham) (LD): I of course welcome measures to lift low earners out of tax, and for a few hours this announcement may well get the Chancellor out of the difficulties that he created for himself. How many of the 5.3 million losers will be fully compensated by the measure? A quick back-of-the-envelope calculation—that is all that he has allowed us to do, because he is hiding behind market sensitivity—suggests that to compensate the losers, he would have needed to raise the threshold by £1,000. Clearly the Treasury has done the sums and has looked at the various categories, including pensioners, low-paid workers, and part-time and full-time workers. Can he tell us precisely how many of the 5.3 million losers will be fully compensated within the year?
Secondly, the Chancellor has imposed an apparent levy on high earners; the money will be clawed back from them. How long will that measure be in place, and how much of the £2.4 billion cost will be paid for by that route, rather than through additional borrowing?
Can the right hon. Gentleman also explain in a little more detail his reasons for rejecting the idea of a tax rebate? Over the past few days, I have had discussions with tax practitioners, including people from the low incomes tax reform group, which I know he relies on very heavily. That group suggests that it would be perfectly simple for the Inland Revenue to calculate the tax that people would have paid under the old 10p/20p system, and rebate them fully for their losses. The group will come forward with a proposal to that effect in the next few days. Why is the measure that he described more complex than that, and why does it do less to guarantee payments?
Finally, the Chancellor is quite right to focus attention on the low-paid workers, many of them earning well below the minimum wage, who pay tax. It is welcome that he is moving in the direction of lifting them out of tax. All of us will have to focus on how that is done and how it is paid for. I hope that today’s measures are not just another short-term gimmick, but the beginning of a process through which the low-paid pay less tax.
Mr. Darling: The hon. Gentleman raises four perfectly pertinent questions, which I shall answer. May I acknowledge his welcome for the measure that I am proposing?
First, I said in my statement that 4.2 million households will receive as much as, or more than, they originally lost. The remaining 1.1 million householders will have their loss at least halved. In addition, those people might be benefiting from tax credits and other
measures. I set out to try to offset the average loss; I think that that is what the majority of people in the House wanted us to do. The hon. Gentleman also asked how the measure is being paid for. This year, it is being paid for by borrowing. As for what I have done in relation to higher rate tax payers, under the tax system, every single taxpayer gets the same personal allowance, but because I wanted to ensure that the help went to basic rate taxpayers only, I made a change there. People who currently pay the 40 per cent. rate will not pay any more, so the cost is covered by borrowing.
The hon. Gentleman also asked why I did not use a rebate. I looked into that very carefully. I had always thought that the Liberals’ policy was to use allowances. He is nodding; it is not clear why he is wishing on me something that he does not want himself, but there we are. I considered the issue of rebates, and I saw that that would be horrendously complicated. We would have to set up a new system. In addition to that, the Inland Revenue tells me that every year about half a million people move, and the Revenue does not know their addresses, so their cheques would go missing. When I looked at the proposal, and at the comparative costs, which are not actually that different, I decided that it would be far better to do something simpler and easy to understand. It is easy to understand that personal tax allowances will be raised by £600 a year. Basic rate taxpayers will therefore get £60 in their pay packet from September, and £10 a month thereafter.
The hon. Gentleman’s final question was what would happen in future years. I have said that I will set that out in the pre-Budget report, but I repeat what I said in my statement: in addition to helping those people who have an income of up to £20,000—those whom people were principally concerned about—we are helping those whose incomes go up to £40,000. Given the current circumstances, in which people face increasing bills because of what is going on in the world commodity markets and the financial markets, this year it is right to do more to help people on low and middle incomes—in other words, all those on the basic rate tax—as other countries have done. That is why I think that my proposal is far better and far more effective, and goes far further, than the measures that many people were asking for just three weeks ago.
Mr. Frank Field (Birkenhead) (Lab): I congratulate the Chancellor on putting an end to the issue. I hazard a guess that the pleasure being expressed from the Labour Benches will be widely expressed in the country as well. As the Prime Minister is in his place, may I add that over the weekend I allowed my campaign to become personal. I much regret that, and I apologise without reservation.
Mr. Darling: I am grateful for what my right hon. Friend said in both respects. It is not every day that hon. Members have the courage to say what he said, and it is appreciated. In relation to his comments on tax, I hope that most people, not just in the House but outside, will welcome the announcement as a substantial step in helping people on low incomes as well as those on middle incomes, especially at a time when they rightly look to their Government to support them in very difficult and uncertain times in the world economy.
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