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I should tell the House that I believe that new clause 6, tabled by the hon. Member for Runnymede and Weybridge, is technically flawed. [Hon. Members: Why?] I can tell hon. Members why. Subsection (1)(b) states that the basic rate limit is set out in section 10(2) of the Income Tax Act 2007, but in fact it is in section 10(5). Also, the new clause does not recognise that with tax calculated annually and national insurance weekly, it would be rare for the two to be exactly
aligned. Requiring a report every time they were not aligned is unnecessary. I hope that the hon. Gentleman will accept that.
Turning to the substance of the debate, we have focused on what needs to be done to address the problem described by my right hon. and hon. Friends. Amendments Nos. 102 to 109 envisage two parallel tax systems. One would have three rates of tax10 per cent., 22 per cent. and 40 per cent.and the other would have two rates of tax20 per cent. and 40 per cent. What I am saying formed the substance of the letter that I sent to my hon. Friend, but it is of value to explain why the amendments would not work, although we have considered them. Individuals could choose to be taxed under one or the other system at any time during the tax year. They could change their mind at any time over an unspecified period. We have estimated that the amendments would cost about £1.8 billion.
I am afraid that the proposal would prove to be unworkable for individuals, for employers and for HMRC. Two parallel tax systems would require employers and HMRC to set up a new system over and above the one currently in place. That in itself is doable, and if it were the right thing to do, it might be necessary to do it, but, most importantly, I am not convinced that individuals who have lost out from the changes would find such a tax system beneficial. Two different systems would be confusing and impossible to understand for some taxpayers and hon. Members will acknowledge that those in the lowest income groups would find it particularly difficult to judge which system would benefit them. HMRC would simply not be in a position to give advice on such decisions.
I very much appreciate the manner in which my hon. Friend the Member for North-West Leicestershire spoke to new clause 20. The one thing on which I agreed with the hon. Member for Taunton was his description of my hon. Friends speech. My hon. Friend spoke with humour but passionately about what is clearly a serious issue not just for him for many of my right hon. and hon. Friends. New clause 20 is superficially attractive. We have had an opportunity to talk through some of the detail. My right hon. Friend the Chancellor made it clear in his evidence to the Treasury Committee that we had looked at what could be done through tapering, but we had to reject it for this year. For instance, I am advised that the new clause would affect 7.1 million taxpayers. I want to explain why that is the case. It would require a further 5.6 million people, most on low incomes, to complete a self-assessment tax return.
There are 7.1 million people with incomes between £6,400 and £13,600 who would benefit from the extra personal allowance proposed by my hon. Friend the Member for North-West Leicestershire. The average gain for those on lower incomes would be around £60, with an overall cost of some £450 million, because the number of people who would benefit goes so much wider. That is the advice that I am given.
Mr. Philip Hammond: We cannot hear.
Jane Kennedy: I beg the hon. Gentlemans pardon.
There is a much wider group, therefore, than the 1.1 million remaining losers from the personal tax reform package, and that would mean an increase of at least about 5.6 million in the number of people who had to
complete self-assessment tax returns. We have considered the taper, and for those reasons, we believe that a taper is not the right way to deliver, in the swift way in which we wish to deliver it, the help that we want to give to address the problem described. Her Majestys Treasury estimates that the new clause still means that about 200,000 households would not be fully compensated.
The point about pensioners illustrates the point. People aged 65 or over should benefit from significantly increased personal allowances. Low and middle-income pensioners can have an income of at least £9,030 before they pay tax. However, if individuals are concerned, as has been described this afternoon, that their tax code is not correct, they should obviously contact HMRC, which will seek to correct it as soon as possible.
It is worth appreciating the fact that for pensioners with incomes over £21,800, subject to a taper to reduce additional allowances, it can be more difficult to get the allowance right in-year because of the complexity of the taper for pensions. That reinforces the point that I have been making that a taper is complex and would inevitably lead to many more people being required to self-assess. So I hope that my hon. Friend the Member for North-West Leicestershire will accept that.
Stewart Hosie (Dundee, East) (SNP): The Minister cannot seriously be suggesting that the need to fill in tax returns is the reason why this will not work. She expects 750,000 people who pay tax on their savings to fill in a tax return to claim back on average £80 from HMRC. If she argues that it is all right for people with low savings income to fill in a tax return, she cannot also be saying that the need to fill in a tax return is the reason why we cannot use a taper in this case.
Jane Kennedy: I am acknowledging that there are difficulties. The number of people who would be drawn into self-assessment is large. They would be precisely the people who would find it difficult to judge which of the two tax rates they would benefit from. Equally, they would find it unnecessarily complex to fill in a self- assessment return, perhaps because they work in more than one job. We considered it, but we decided that it was not the best way to help those people.
Mr. Philip Hammond: I sense that the right hon. Lady is close to concluding. Can she tell the House what is the cost of issuing new notices of coding in respect of all employees as a consequence of new clauses 11 and 12 if the House is minded to pass them tonight?
Jane Kennedy: I hope that the House will be minded to pass them. We have said that the overall cost of the proposals is £2.7 billion. We have been completely open. I cannot give the hon. Gentleman the exact detail that he asks for. I do not believe that it affects the proposal that we are putting forward. I hope that the House will support the Government new clauses.
This could be my penultimate intervention. May I bring my right hon. Friend the Minister back to what she said to the Chairman of the Treasury Committee when he asked whether the Treasury would move every sinew to ensure that all 1.1 million would be compensated
as rapidly as possible within the taxation system, ideally within the current tax year? Her answer, briefly, was yes. Will she underline that that is what she meant to say, and that she persists with it now?
Jane Kennedy: I made it clear that we were conscious of the fact that 1.1 million people
Mr. David Gauke (South-West Hertfordshire) (Con): Households.
Jane Kennedy: Yes, households. They have not been fully compensatedto use the phraseas a result of the changes that we proposed in May. I am conscious of the welcome that those proposals have had from the House. I cannot say more at this point about the detail of what we intend to do, but I hope that my hon. Friend will accept that we are focused on this point. We are not complacent. We appreciate that there is work to do to help those individuals. That is what we are working to do. We will introduce proposals in the pre-Budget report.
Jane Kennedy: Several hon. Friends are obviously hoping to offer help at this point.
Mr. Frank Field: May I add to that point? Am I right in thinking that when my right hon. Friend says that the Treasury is focused, she means that it is focused on introducing a package that fully compensates those who are not yet fully compensated?
Jane Kennedy: Yes. I feel as if we are getting close to the most philosophical considerations in this debate. I have repeatedly described exactly the commitment that we have given to deal with the problems that we face. My right hon. Friend the Chancellor has made it clear that neither he nor we are complacent. He made it clear in his statement to the House on 13 May that he would return to the issue in the pre-Budget report. I can again state that to the House. Yes, there will be concrete proposals. Yes, they will address the point. Yes, they will be targeted. Yes, they will be implementable as soon as possible. The amendments and new clauses that my hon. Friends have introducedI do not want to sound patronisingare well intentioned, but I believe that there are serious problems with them, and that they should not be pressed at this stage. We should be given the time to bring forward our proposals in the pre-Budget report in the proper way.
David Taylor: I am grateful to my right hon. Friend for giving way to me again. There are Whips all round the Chamber, who do not routinely see me as a paid-up member of the deferential patsy tendency from which ministerial aspirants are traditionally selected. However, I can tell my right hon. Friend that with a huge amount of trust and good will, which I hope will be repaid in the pre-Budget report, and after great agonising, I shall not at this stage move[Hon. Members: Ah!]. It is all very well people saying that, but I shall not be moving new clause 20, and I underline that point to my right hon. Friend.
Jane Kennedy: I am extremely grateful to my hon. Friend. I take his point, and we accept seriously the trust with which he has charged us. The new clauses in the name of the Chancellor that we have debated this afternoon will bring great relief to the vast majority of householdsmore than 4 millionwho ended up paying more tax as a result of the abolition of the 10p tax band. Overall, the Budgets of 2007 and 2008 made proposals that take 600,000 pensioners and 600,000 other taxpayers out of tax altogether. Our proposals have been widely welcomed, and I hope that our new clauses and our amendment will be supported this evening.
Clause read a Second time, and added to the Bill.
(1) In section 10 of ITA 2007 (income charged at main rates: individuals), for subsection (5) substitute
(5) The basic rate limit is £34,800.
(2) The amendment made by subsection (1) has effect for the tax year 2008-09 and subsequent tax years.
(3) But until 7 September 2008 for the purpose of ascertaining the amounts deductible or repayable under PAYE regulations it may be assumed that the figure specified in section 10(5) of ITA 2007 for the tax year 2008-09 is £36,000.. [Jane Kennedy.]
Brought up, read the First and Second time, and added to the Bill.
(1) The amendments made by the provisions of this Act specified in subsection (2) shall cease to have effect at midnight on 5 January 2009 unless the conditions set out in subsection (3) have been satisfied.
(2) The provisions referred to in subsection (1) are
(b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate).
(3) The conditions referred to in subsection (1) are that
(a) the Chancellor of the Exchequer shall have laid before the House of Commons a statement setting out the measures taken, or intended to be taken, to mitigate the effect of the amendments made by the provisions of this Act specified in subsection (4), when taken together, on those for whom such effect is a net increase in income tax payable, and
(b) the House of Commons shall by resolution have approved such statement.
(4) The provisions referred to in subsection (3) are
(a) sections 1, 3(2) and 3(3),
(b) section 3(7)(a) and Schedule 1 (in so far as they relate to the starting rate), and
(c) any other provision of this Act the effect of which is to change the bands of income on which income tax is charged.. [Mr. Philip Hammond.]
Brought up, and read the First time.
Question put, That the clause be read a Second time:
The House proceeded to a Division.
Mr. Deputy Speaker (Sir Alan Haselhurst): I ask the Serjeant at Arms to investigate the delay in the No Lobby.
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