| Previous Section | Index | Home Page |
Mr. Redwood:
I can see the temptation to make a party point or two in these circumstances, but is there not one view that unites Members in all parts of the
House? We are genuinely puzzled over why some of those on the lowest incomes should face this tax increase, and we cannot believe that the Government really intended it. Is it not rather a pity that the Financial Secretary did not repeat the assurance that all 1.1 million people would be guaranteed not to be worse off by whatever means the Government come up with in the autumn? Is that not a concern that we can all share?
Mr. Hammond: That is true. There was speculation at the beginning of this fiasco as to whether it was a simple error—a failure to understand the distributional consequences of the measure—but I well remember saying in the Committee of the whole House that, while I deferred to no one in my enthusiasm for criticising the Prime Minister, I had never suggested that he was either stupid or innumerate. Subsequently, in evidence to the Treasury Committee, officials have made very clear that a full distributional analysis was undertaken, that the measures announced in the 2007 Budget were announced—as the phrase goes—with eyes wide open, and that the Prime Minister knew exactly what he was doing. What his game plan was at the time, when he was faced with the Labour party leadership and a possible election in the autumn, is anyone’s guess, as I have said. Members will form their own views on what his ultimate intentions were.
Mr. Frank Field: The hon. Gentleman is in typically generous mood this afternoon as he assesses the Government’s dilemma. May I ask what advice he might give them? The right hon. Member for Wokingham (Mr. Redwood) has suggested that the House is united in the view that the poorest paid should not lose out as a result of the Budget changes. Does the hon. Gentleman believe that next year the Government should increase personal allowances above the level of indexation and pay for the increase by clawing it back, perhaps through national insurance increases for those of us who benefited from the 2p cut in the standard rate?
Mr. Hammond: Various suggestions are being bandied about. I do not consider it my responsibility to be prescriptive about the solution that the Government should adopt. They dug the hole, and they can jolly well get themselves out of it. We have a responsibility to ensure that the Government stick to the promise that they made to the right hon. Gentleman in the Committee of the whole House and present proposals at the time of the pre-Budget report—as the Financial Secretary to the Treasury has already suggested that they will—to deal with the issue in terms that fulfil that promise. That is the obligation that we must enforce, and that, I think, is the mood throughout the House.
Mr. Field: Let us consider the worst possible scenario. It is an unlikely prospect, but let us suppose that the Government stumbled again, and in the November statement did not come up with a package that met the requirements of Labour Members. The hon. Gentleman is presumably aware that if enough of us tabled a motion, the Opposition would have time to debate it and to censure the Government. While I do not propose that he should help the Government to dig themselves out of a hole, he might suggest that he would be ready to ensure that they do not get out of the hole without fulfilling the commitment made to the very poorest workers.
Mr. Hammond: The idea of a censure motion is interesting, and I am grateful to the right hon. Gentleman for advancing it. I do not know whether he has had time to read new clause 4 in detail, but it presents our solution to the immediate challenge to Parliament. It lays down a marker that holds the Financial Secretary to her commitment to revisit the matter in the pre-Budget report, and requires the Chancellor to return at the time of the report with a comprehensive solution. He has plenty of time: he has the rest of the summer in which to work it out with his armies of civil servants. The important proposal in new clause 4 is for the House ultimately to decide whether his solution constitutes a satisfactory and acceptable delivery on the promise made to the right hon. Member for Birkenhead a couple of months ago.
Mr. Love: Will the hon. Gentleman give way?
Mr. Hammond: I will give way once more, but then I must make some progress.
Mr. Love: I thank the hon. Gentleman for giving way. According to the Treasury Committee report, the Chancellor will be faced with two choices: either to focus directly on the 1.1 million families at relatively low cost but with a huge increase in the complexity of the tax system, or to take a step that is much less complex but which will cost the public purse a great deal more. Which of those two options does the hon. Gentleman think the Chancellor should choose?
Mr. Hammond: The first part of the hon. Gentleman’s question was a useful contribution, but the latter part was not, because this is not my hole—I did not dig it—and, as I will now outline, there are many ways in which the problem could be tackled, including through the suggestions of the hon. Members for Birmingham, Selly Oak (Lynne Jones) and for North-West Leicestershire.
The Institute for Fiscal Studies suggests that some of the remaining losers could be compensated by raising the personal allowance still further or by extending working tax credits to those working 16 hours a week at the age of 21 and over. If the Government want to claw back some of the gain they have delivered this year through new clause 11, they could use a variant on the taper, which the hon. Member for North-West Leicestershire has proposed, although, as the hon. Member for Edmonton (Mr. Love) rightly says, that would be at the cost of making the tax system more complex and expensive to operate, when the original intention was to make it simpler.
As we know, in Her Majesty’s Revenue and Customs, with complexity goes a tendency to make errors, which is bad for the integrity of the tax system as a whole. The IFS says that if the Government chose to freeze the personal allowances at the level introduced by new clause 11 instead of indexing them in accordance with the law under the Income and Corporation Taxes Act 1988, that would be equivalent to a real cut of around £200 and would thus claw back about a third of the gain received by each basic rate taxpayer, leaving about 8.3 million families worse off next year than they are this year.
There are many different solutions, but we do not have the resources that the Treasury has and I do not pretend to have answers to the dilemma in which the Government find themselves. However, what unites Members in all parts of the House is a belief that something must be done, both this year for the 1.1 million
families who are still worse off, and in future years for those who have been compensated by the increase in personal allowance but do not yet know if they will get the increase next year along with the additional winter fuel payments. We are united on that, because it is morally unacceptable to fund a tax cut on the backs of the poorest, and because the Government promised that they would do such a thing—and rebuilding political trust in this country, which is a priority for my party, requires that Governments get into the habit of keeping the promises they make.
A variety of mechanisms have been suggested, and I commend the Labour Back Benchers who have sought to engage in this debate and remind the Prime Minister of his commitment. Precisely because there are many ways in which the Government can deliver on their promise, I and some of my party colleagues have tabled new clause 4, which I call the insurance policy clause. It is a variant on an amendment that we tabled in the Committee of the whole House and it should appeal alike to those who expect the best from the Chancellor and those who fear the worst, because it introduces a sunset provision for the changes to the starting rate unless the Chancellor has by the end of this year laid before the House of Commons a report setting out what he has done, and what he intends to do, to compensate those who are still losers when all the measures are taken together, following the introduction of the measures that the Government are introducing today.
Our proposal is deliberately not prescriptive. There is no requirement that the Chancellor must take one approach or another. There is no attempt to force him to give his answer today; we accept that he will do so at the time of the pre-Budget report. It will be for the House then to decide whether it is satisfied with the actions he has taken, or proposes to take, as set out in the report that he will be required to make. Given the parliamentary arithmetic—unless the rate of by-elections increases a little between now and the end of the year—that will mean in practice that he must satisfy the 50 or 60 Labour Back Benchers who have been most concerned about, and active on, this issue that he has in this autumn’s pre-Budget report delivered on the commitment to compensate all the losers.
All those who believe that a solution for the future has to be found and announced in the pre-Budget report, as well as those who doubt the Chancellor’s commitment or ability to deliver and those who do not, should be able to coalesce around this insurance policy clause. If the Chancellor can satisfy the House by the end of the year that he has delivered, in his pre-Budget report, a lasting and satisfactory solution that adequately compensates those who have lost out, he will have no difficulty in obtaining his resolution and thus overriding the sunset provision. But if he should be tempted to turn his back on this issue, or if the Prime Minister should be tempted to renege on his earlier commitments, the sunset clause will provide a mechanism for a parliamentary check to keep them both honest.
4.15 pm
I sincerely hope that Members on both sides of the House will support new clause 4 to strengthen the House’s power to determine the outcome of this mess in due course. It is a mess in more ways than one. One of
the benefits of the 2007 proposals that was trumpeted by the Chancellor at the time, and spoken of in warm terms by the Financial Secretary in consideration of the National Insurance Contributions Bill, was the alignment of national insurance and tax thresholds. We were told that that would bring greater simplicity to the tax system and reduce cost burdens for businesses and taxpayers alike. It was a strategic step in what the Financial Secretary called the significant simplification of the tax and NI system. Indeed, she told the House during consideration of the Bill that the alignment of NICS and higher rate income tax was the “main purpose” of the Bill. I am sorry to have to tell the House that, if that was the main purpose, the House’s time has been wasted. Thanks to new clause 12, as the Government claw back the benefit of the increased personal tax allowances from higher rate taxpayers, the higher threshold for national insurance contributions will remain, so people will still pay more in national insurance, but the threshold for the higher rate of tax is dropped, reintroducing the complexity—the removal of which was claimed to be one of the principal benefits of the 2007 package.
New clause 6 seeks to shine the spotlight on the misalignment of tax and national insurance thresholds. It would require the Treasury, in any year when the thresholds are different, to report to Parliament explaining why, setting out its plans for convergence in the future, and setting out the costs to employers and the HMRC of a divergent system and the savings that would be made by convergence. The Government have made the case that a simpler tax system is a better one. That is ironic, in view of the fact that this is the same Government who have given us the longest tax code in the world and made our tax system one of the most complicated, but on this issue they were right. If it were not so debilitating to Britain’s reputation, it would be laughable that just about the only effective measure that the Government have introduced to simplify the tax system has unravelled under the weight of their incompetence.
Having flagged up the significance of convergence and its economic benefits, the Government should accept new clause 6, with its underlying assumption that a system of converged thresholds remains the objective, and they should be prepared to explain to Parliament, on each occasion that they do not achieve that objective, why they have not done so and what steps they will take to move to convergence, as well as revealing the costs of divergence. I would be interested to hear from the Financial Secretary whether the Government are still committed to the objective of aligned thresholds, because her language of late has suggested a desire to move the thresholds closer together, rather than the original and meaningful purpose of aligning them completely.
Mr. Mark Field (Cities of London and Westminster) (Con): Does my hon. Friend agree that one of the difficulties for the Government even of the converged thresholds initiative, which we entirely agreed with, was that it was not going to be revenue-neutral at that stage? Perhaps he will explore the subject with the Minister to try to ensure that so far as hard-pressed middle-earning taxpayers will pay for the result of that convergence, they will at least have some of the disadvantage brought back because the confusion to which he has alluded will be sorted out.
Mr. Hammond: I know that my hon. Friend served with distinction on the Committee that considered the National Insurance Contributions Bill. He is well versed in these issues. The Financial Secretary will have heard his comments and, I hope, will feel able to respond to them in her substantive speech.
Let me move on to new clause 1A. There is a theme among these amendments and new clauses of seeking to strengthen Parliament’s control over the process. New clause 1A seeks to strengthen Parliament’s knowledge and oversight of the Treasury’s projections in a situation where the state of the public finances is deteriorating rapidly. Traditionally, the Chancellor gives to Parliament statements of the Treasury’s forecast of economic growth and public borrowing twice a year—at the pre-Budget report in November and at the Budget in March. In normal times, that is just about sufficient. However, when the public finances are deteriorating rapidly and economic growth projections are being downgraded regularly, that is simply not good enough. Parliament is being kept in the dark.
At the time of the pre-Budget report last year, the Chancellor said that the Government would borrow £36 billion and that growth this year would be 2 to 2.5 per cent. In the Budget, just four months later, he said that he would borrow £43 billion—£7 billion more—and downgraded his growth forecast to 1.75 to 2.25 per cent. Since then, the continuing effects of the credit crunch and the oil price shock, all of which Britain is ill-prepared to absorb, have led every commentator, including the Bank of England, sharply to downgrade their expectations of economic growth. With a downgrading of the growth forecast invariably comes a downgrading of tax receipts and, all other things being equal, an increase in the expected level of borrowing.
I concede that the territory is complicated. The Government benefit from higher tax receipts from North sea oil and gas—I am sure that we will hear something about that as Report stage unfolds. So long as unemployment does not begin to rise rapidly, the automatic stabiliser of increased welfare spending will not necessarily manifest itself. The Government have now stated that they will borrow an extra £2.7 billion for the 10p compensation package. The picture is complicated and it is simply not good enough, when the Government are led by a Prime Minister who claims to want to reinforce the accountability of the Executive to Parliament and to build a new relationship between citizen and Government, for them to keep both Parliament and the population in the dark.
All leading City commentators and the Bank of England have downgraded their economic forecasts. We know that the Treasury will have revised its forecast, but that revision remains locked away in the Chancellor’s safe. Parliament is left in ignorance, as are the people. They are left ignorant of the scale of the slow-down in the economy that is expected by the Government and of the size of the increase in public borrowing that that will entail.
New clause 1A enshrines the principle that when income tax changes are made in-year—an unusual situation that implies very unusual circumstances—the Government should publish an updated report on economic growth and public borrowing so that Parliament, as well as the nation, has an authoritative view of the bigger picture when approving the changes that it is asked to make to
income tax. The established principle is that tax changes are announced only in Budgets and pre-Budget reports and that growth and borrowing are forecast at the same time. If tax changes are made at other times, the updated forecasts should be set out alongside them for the sake of transparency and completeness.
I shall conclude by referring briefly to new clause 10 and amendments Nos. 102 to 109, tabled by the hon. Members for North-West Leicestershire and for Birmingham, Selly Oak. As I have said before, we believe that it is the Government’s responsibility to deliver on their promises to compensate all those who have lost out from the abolition of the 10p rate of tax.
As I said earlier, the Prime Minister, when he introduced the 10p band, claimed:
“When we make promises, we keep them”.
Last May, he faced a Back-Bench rebellion and made another promise—he promised the right hon. Member for Birkenhead that he would compensate all the losers in full. So it is disconcerting that this morning’s edition of The Sun should report that he had
“slammed the door on help for 1.1 million low-paid workers hit by the Government’s 10p tax fiasco.”
The headline says that there will be “Not a Penny More” aid the for 10p tax rebels, so the hon. Members for North-West Leicestershire and for Birmingham, Selly Oak deserve praise for maintaining the pressure. There are advantages and disadvantages to the solutions that each proposes, but they are a contribution to the debate—in stark contrast to the reported slamming of the door by the Prime Minister.
Our view is that this is the Government’s problem, and that it was created by the Prime Minister’s machinations last year. It is for them to clean up their own mess, by coming forward with detailed proposals to help the remaining 1.1 million losers and explaining how they will continue support into the future—but compensate the Government must if they are to deliver on the promise that they made. They must make those proposals known to Parliament, and not only in private to their Back Benchers. That is why we believe that new clause 4 is the best way forward: it is a sunset provision that gives the Government the latitude to explore an optimum solution to delivering compensation, but one that will give Parliament the final say as to whether the proposals are adequate.
I sincerely hope that hon. Members of all parties who are determined to ensure that the Government deliver on the promise given to the right hon. Member for Birkenhead will support new clause 4 in the Lobby tonight. May I give you notice, Mr. Speaker, that with your leave I shall be seeking a separate Division on new clause 4?
David Taylor (North-West Leicestershire) (Lab/Co-op): Thank you, Mr. Speaker, for calling me to speak and for selecting new clauses 10 and 20 for debate this evening. I am grateful to my 20 colleagues who are the new clauses’ co-signatories. Many others who have not signed have said that they will support the new clauses in the Lobby at the end of this part of the debate if I exercise my right to move them formally, should that be appropriate.
I shall speak mainly to new clause 20, which supersedes and replaces new clause 10, which has a slight textual error. New clause 20(3)(a) specifies an addition to the
personal allowance of £600, rather than the £120 that was incorrectly printed in new clause 10. The new clauses are otherwise identical, but new clause 20 is the framework for my address to the House this evening.
The level of taxation is a crucial and sensitive performance indicator for any Government. There are many myths about the differences between parties, and they are persistent. At least one of those myths was laid to rest in 1997, when the incoming Labour Government famously committed to—and delivered on—public expenditure levels that were unchanged from those of the previous Conservative Government. It is perhaps a measure of the Opposition’s esteem for this Government that they have committed—if they were to return to power in, say, 2015, or some later date—to stick to our public expenditure levels for a two-year period. That is an echo of what we did 11 years ago, and I welcome it.
However, some myths persist, and one was exposed very effectively by a well-known commentator on these matters, Andrew Dilnot, at the time of most recent conferences of the three main parties. He said that the electorate would see the “customary but bizarre spectacle” of the two parties—the main Opposition party and the Labour party—emphasising the differences between us on public expenditure and taxation, even though they were quite minor. In an important section of his article, he went on to state:
| Next Section | Index | Home Page |