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“Even when you take borrowing into account by looking at total spending rather than just taxation, during every year that Mrs. Thatcher was in power, except the last two when the economy was in an unsustainable boom, her government spent more of national income than Mr. Blair’s did.”
The crucial sentence followed, and I hope that Members will hang on to it and perhaps wake up at 3 o’clock tomorrow morning and say, “Is that really right?” It reads:
“Her Government averaged public spending of 45.4 per cent. of national income”
between May 1979 and when she fell, in Paris or elsewhere, in November 1990. The Government of Mr. Blair, our own former Prime Minister, in the 10-year period between May 1997 and when he stepped down last June, averaged 39.7 per cent., which is almost 6 per cent. less public expenditure as a proportion of gross domestic product. That should lay to rest the myth—it is patently false—that modern Labour Governments are reckless high spenders and excessive taxers. That is a myth and the figures give the lie to it.
4.30 pm
Mr. Philip Hammond: Given what the hon. Gentleman has just told us, why does he think that the then Chancellor thought it necessary to introduce the fiscal rules that he introduced, and why do the Government seem to set such store by them?
David Taylor: The then Chancellor was a very wise and creative politician who had sound reasons for taking his actions. They were proved to be wise, at least for quite a lengthy period.
Although there is a bit of a myth about Labour having high-taxing Governments and the Conservatives being abstemious in that regard, the level of taxation,
especially for the low-paid, is hugely important to Labour Members. That is why the abolition of the 10p tax rate in the 2007 Budget had such resonance on our Benches. It was because of its impact, which I shall discuss in a moment.
The most effective Labour Prime Minister of the 20th century was indisputably Harold Wilson, who famously said—I think that it was at the October 1962 Labour party conference:
“This party is a moral crusade or it is nothing.”
The last Prime Minister quoted those words on the death of Harold Wilson. Amen to them, because many Labour Members felt moved to join our party in a crusade to combat poverty, tackle inequality and root out injustice. We can be proud of a legion of successes and advances, but when it became clear that the unintended consequences of the 2007 Budget would adversely affect 5.3 million people on low pay, while leaving 21 million people better or no worse off, we were alarmed that poverty, inequality and injustice were being worsened by the decisions that had been taken. That was a triple whammy, and we urged the Chancellor of the Exchequer—by then it was the new Chancellor—to eliminate it. We did not want those three problems of poverty, inequality and injustice to become entrenched, perpetuated or institutionalised to any extent.
That was how the debate started about how to get out of the situation. It was not a problem such as would feature in the children’s comics, where with one bound we could be free. An awful lot of time, trouble and evaluation of options was involved. My early contribution to try to assist the Government drew on my background as a tax accountant. I designed and promoted a fairly simple framework based on an additional tax allowance of £1,200, but with tapering. It would have compensated those who had lost out, and only them, with the amount that they had lost through the abolition of the 10p rate, and only that amount. The people who were affected at that stage, before the 13 May announcement, were typically those on an income starting at about £5,200. The peak loss occurred among people with an income of about £7,600, for whom the loss was about £240, and it tapered off because of all the tuppences that they were receiving from a lower rate at a capped level of about £19,600. So there was a triangle with, at its centre, £7,600. Those people who earned about that amount were, before the 13 May statement, losing about £240.
Mr. David Hamilton (Midlothian) (Lab): I am not one of the 21 signatories to my hon. Friend’s new clause, but I will be supporting him in the Lobby tonight. Can he expose the myth that we have taken money from the poor to give to the poorer? It has been suggested that the people who will pay are those on £13,000 to £18,000.
David Taylor:
I can. There are always myths in the area of taxation and accountants grow fat exposing them or sometimes exploiting them. The fact is that the official reason for the abolition of the 10p rate was at least in part that it would fund the reduction of the standard rate from 22p to 20p. The actual losses of 5.3 million people, as I shall go on to explain in a moment, aggregated to about £700 million in that regard. In no way did the savings generated for the Government by the abolition of the 10p rate for the lower band of
income earners fund the tuppence reduction for salaries that went off into infinity from about £19,600. I think that I intervened on the hon. Member for Runnymede and Weybridge (Mr. Hammond) in the Budget debate to make that point. They made a small contribution to that reduction, but it would be unfair to say that it was a case of the poor subsidising the rich.
I therefore devised a fairly simple framework to compensate people with the exact amount that they had lost. They typically had income taxed at only 10 per cent. under the old system, between £5,200 and £7,600. The maximum loss was £240 per annum. I incorporated my framework into early-day motion 1477. In a rare success, I got a letter published in The Guardian on 7 May, six days before the Chancellor announced the details of his scheme. One part of it reads:
“An HMRC software developer can code it up rapidly. No changes needed to WFA, tax credits or minimum wage.”
They were options at the time, and I am pleased that they were abandoned because they were not a great idea. The letter continued:
“And the tax rate stays at 20%. It has the benefit of (relative) simplicity, it is retrospective”—
that was always a requirement of the campaign for compensation—
“and it will fully and accurately reimburse all those (and only those) who otherwise lose up to £240 per year. Total cost around £650m - much less than the political damage that we are incurring.
Come on, Gordon, announce something like the above as the chosen scheme so that our party can start to put this damaging distraction behind us.”
It is disappointing that two months on we still have this distraction, and I hope that this debate will at last lay this one to rest.
The scheme that I suggested was similar to that which exists for pensioners. They have a higher tax allowance that is tapered off and disappears. It starts to taper off at about £21,000 and disappears totally by about twice that sum. I urged my right hon. Friend the Chancellor not to pursue the winter fuel allowance, national minimum wage and tax credit route for the under-65s. It was an imprecise, uncertain and lengthy way of doing it. This is a tax problem. It was a problem injected into the taxation system and it needed a solution within the tax system. It did not need solutions that were incomplete, delayed or inaccurate.
I was pleased to be present in the Chamber on 13 May when the Chancellor announced an extra tax allowance, albeit not my £1,200, which would have been the basis for reimbursement of full losses. The Chancellor decided to reimburse average losses, so obviously the tax allowance he inserted was not £1,200 but £600. That reimbursed the average loss of £120, but it was not tapered and allowed for the fact that it was not applied to those who pay income tax at the 40 per cent. rate—as all of us in the Chamber do. New clauses 11 and 12 are designed to implement the Chancellor’s statement of 13 May.
The package was broadly welcomed on the Labour Benches at the time, but the difficulty was that it gave £120—£600 extra allowance at 20 per cent.—to 22 million people, of whom a good 14 million or more were not adversely affected by the abolition of the 10p rate. They had not received a hit of any kind, but 5.3 million—that famous figure—had been affected.
Mr. Philip Hammond: The hon. Gentleman is being very coherent and I understand his argument, but is he proposing that 18 million people should have clawed back from them some of the benefit of the personal allowance awarded to them under new clause 11? Given the squeeze on incomes and the soaring prices that families face, does he think that that is an appropriate measure at this point in time?
David Taylor: I was just coming to that point, so I shall make it now. New clause 20, to which I am speaking, sits on top of the Chancellor’s existing arrangements. I did not want to interfere with the thrust of those arrangements, because 14 million or more of the 22 million people in question will have already factored into their personal budgets the fact that they will receive £120 during this tax year—£60 in September and £10 in each of the following six months. As the Chancellor said on 13 May, that was designed in part to compensate people for higher fuel bills and so on. My new clause 20 sits on top of those provisions, and I shall vote for new clauses 11 and 12 before turning to my proposal.
Mr. Redwood: I am grateful to the hon. Gentleman, who is genuinely trying to find a solution to the problem. Does he have a figure for the additional costs that his idea would impose on the Treasury?
David Taylor: I shall be pleased to answer that question, and will do so almost immediately.
The abolition of the 10 per cent. rate adversely affected 5.3 million people, and the Chancellor’s statement on 13 May more than fully compensated 4.2 million of them—in fact some of them had not quite suffered a hit of £120—but 1.1 million people remained, and my new clause 20 is designed to compensate that group. What will it cost? It is a matter of relatively straightforward and simple arithmetic. The maximum uncompensated loss at present, which went from £0 to £240 to £0—from £7,200 and so on—has been reduced by £120, so the uncompensated loss runs from £0 to £120 to £0 again. The average uncompensated loss, which my new clause will address, is around the £60 mark as far as we can tell: thus, 1.1 million people at £60 is £66 million. That is not an enormous sum; it is the kind of amount that the Chancellor might find down the back of the metaphorical settee when announcing his Budget. It really is a trivial sum. It is about 100th of 1 per cent. of his total tax take, not a major hit on the level of taxation. At only £66 million it is very good value, and I am sure that the Chancellor and his representative on the Treasury Bench must be tempted to snatch my hand off at this point.
4.45 pm
The Treasury Committee also had its doubts. I have reflected on its excellent report, and I am pleased to see that its Chairman, my right hon. Friend the Member for West Dunbartonshire (John McFall), is in the Chamber. There is a lot of good reading in the report, even for the 640 non-accountants in Parliament. We do not necessarily find out who the culprit is at the end, and there is not much love interest, but by and large it is an excellent report that people can read in the recess, which starts three weeks today. I should like to mention two of its conclusions. The first is conclusion 20 on page 111, which states:
“There were consequences from the abolition of the starting rate of income tax. The Government has attempted to tackle this
problem through the 13 May announcement. However, this has still left 1.1 million households as losers. There is a pressing need for the Government seriously to examine ways in which the remaining losers can be compensated.”
That is precisely and entirely the object of new clause 20, to which I am speaking. The report says:
“The Government must set out proposals to achieve this by the time of the 2008 Pre-Budget Report”,
The other part of the report that I wish to quote mentions the £2.7 billion cost. A lot of it was dead weight, although the dead weight was dressed up as an attempt to compensate tens of millions of families for higher fuel bills. That is fine; I support that, and that is why I shall vote for new clauses 11 and 12. The report says:
“Even though the £2.7 billion was not substantially well-targeted, the raising of personal allowances announced on 13 May was a welcome step towards creating a simpler tax system”.
The phrase, “not substantially well-targeted”, was rather kind. I think that there may have been heated debates about that in the Committee. I would love to get on to the Treasury Committee; that is a bid for membership, although the Environment, Food and Rural Affairs Committee, which I have served for seven years, is a fine Committee. I guess that there were heated debates in which a rather stronger phrase than “not substantially well-targeted” was used. The phrase is much too kind, because the approach that the 13 May statement took towards dealing with the uncompensated 1.1 million people was like using a blunderbuss at Bisley, as I heard someone on the radio say this morning. I agree with that statement, not least because I made it myself.
The £2.7 billion cost can be broken down into £2 billion for the 16 million or so non-losers and the 4.2 million people who were fully, or even more than fully, compensated; there is also the issue of partial compensation for 1.1 million people, which I am trying to address now. There was always a trade-off between targeting and complexity; we know that. Such trade-offs are endemic in the taxation and welfare systems. We have to deal with that in whatever way we can. The Chancellor faced a dichotomy—a clear choice. He could go for a simple system, perhaps with a simple flat-rate allowance, but that would be expensive because of the dead weight and the lack of tapering. Otherwise, he could go for a slightly more complicated system that was cheap, focused and targeted. I think that that is a fair description of new clause 20, which I am promoting.
Mrs. Betty Williams (Conwy) (Lab): My hon. Friend is making a powerful case for new clause 20. I appreciate that he is not a prophet or the son of a prophet, but I am sure that he has given great attention to the case that he is making. Does he believe that new clause 20 will cover all the losers whom Members of Parliament across the country have been trying to help in the past few months?
David Taylor:
I do, and the new loser bands—the bands for those who have residual uncompensated losses—apply to those with an income from around £6,400. The bands still run up to £7,600, and now, because of the £120, they taper out at £13,600. That is the umbrella of income under which people still have uncompensated
losses. We are talking about a maximum of £120, which is still at that £7,600 point. The figure involved is 1.1 million people; we are not talking about dribs and drabs. Typically, constituencies represented by Labour Members of Parliament have 2,000 or perhaps even 2,500—in some cases there are 3,000—such individuals or families. To Members of Parliament, £120 a year may not seem a substantial sum, but to families who are up against it, with high and rising core prices, even an addition of £10 to their monthly income can be helpful, crucial or valued.
There was a choice, the Chancellor went for the simple and expensive option, and I am effectively adding to new clauses 11 and 12 my own humble attempt to refine the announcement in a way that would deal with those 1.1 million people. My scheme would build on the announcement, and it is, I hope, simple, accurate and inexpensive: £66 million seems to me to be good value if it gets rid of a political, financial and fiscal problem. There are plenty of sticks lying around for the electorate to beat us with, but let us at least put one of them on to the bonfire.
My purpose in tabling new clause 20 was not to seek a method of beating the Government in the Lobby. I have not been the most persistent loyalist in recent years; I have had my concerns about a range of Government policies, and I have expressed my unhappiness through the votes that I have cast on a variety of topics. However, on this issue, my purpose was to ensure that the matters were debated and that an option was aired for the Chancellor to consider when he analysed the background to his pre-Budget report. I am not wedded to the scheme; it is just a suggestion.
The Treasury Committee received from the Institute for Fiscal Studies and others a range of ideas, and equally they might work. They have their costs, weaknesses and strengths. I believe that my suggestion would work, and I commend it to the House. I reserve the right to press the new clause to a Division if necessary, but when the Minister responds, I want to hear an absolute copper-bottomed, concrete-rooted guarantee that the Government, and the Treasury team in particular, are focused on those 1.1 million people. There are perhaps 2,500 such people in the Minister’s constituency, and they are important.
Kelvin Hopkins (Luton, North) (Lab): Just before my hon. Friend finishes, does he accept that the Government would do well to look at the whole income tax system for the future and to take an opportunity—certainly in the next Budget—to make the system more progressive, more redistributive and more graduated in the middle range, with higher taxes on the rich and distinctly lower taxes on the poor?
David Taylor: My hon. Friend and I are both regulars at Treasury questions, and we often express such sentiments and point to the fact that if tax evasion and avoidance in the UK economy were more effectively tackled, it would produce a stream of revenue that would resolve some of our problems in respect of council housing, free accommodation for those in social care and so on. However, Mr, Deputy Speaker, I sense that you want me to return to the track and not to be seduced by the pretty scene that my hon. Friend paints for me.
Mr. Paul Truswell (Pudsey) (Lab): At the risk of briefly seducing my hon. Friend further, I should say that many older people who have contacted me believing that they have lost out because of the withdrawal of the 10p tax rate are actually losing out because their tax code is wrong and they do not receive their full age-related benefit. Is that not the other side of the coin, and a matter that we need to pursue to ensure that people are taxed properly?
David Taylor: About six weeks ago, I was sitting in the front room of a retired miner who had a relatively low retirement income. I would guess that he was about 70 or 71 years old, and he was certain—he had rung me up in high dudgeon, so I dashed the two miles from my office to where he was—that the Chancellor’s abolition of the 10p tax rate had left him with a higher tax burden. However, he was wrong, and I pointed out why. His British Coal superannuation scheme had been slow to implement the much higher personal allowance that the 2007 Budget had provided for from 6 April 2008 precisely to cater for the abolition of the 10p rate, among other things. So my hon. Friend is right: more people felt that they had been adversely affected than had actually been in practice. There has been more concern, hostility and disapproval among not only those who have lost out themselves, but those who have observed our party for a generation and more and believe that what we did at that time did not sit easily with the objectives for which we have fought and will continue to fight.
I have about two more sentences to say. My requirements are that we should have a copper-bottomed guarantee that the Treasury team will focus on the 1.1 million people still affected, that those people will get full and precise compensation—£66 million is trivial in Treasury terms—and that that compensation will be delivered as rapidly as is humanly possible, ideally within the 2008-09 tax year.
Let us hear what the response will be when we get to the pre-Budget report, but the guarantee has to be copper-bottomed, otherwise we will be in the position highlighted by my right hon. Friend the Member for Birkenhead (Mr. Field). After a successful party conference that has boosted our morale and narrowed the gap with the Conservative party, and after we have gone from minus 18 to plus 3, or something like it, we will want to take advantage of the situation and soar into the stratosphere. We will not want to be encumbered by having the Chancellor come back to the Dispatch Box having hatched a deal for the 1.1 million people that is not adequate. I want to hear from the Minister words that will satisfy me; otherwise, I shall press new clause 20 to a Division.
Mr. Jeremy Browne (Taunton) (LD): In a manifestly sincere and decent speech, the hon. Member for North-West Leicestershire (David Taylor) said that one has to read to the end of the Treasury Committee report before finding out whodunnit. I can reveal to anybody who does not wish to read the entirety of the report that we all know who committed the crime on this occasion: the Prime Minister.
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