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‘(3A) At the end of section 646(8) of ITTOIA 2005 (adjustments between settlor and trustees etc.), insert—
“(9) A settlor of a settlement in respect of which he is liable to pay income tax under section 624 or 629 is entitled to receive credit for any income tax paid by the trustees of such a settlement in calculating his income tax liability and to be repaid any excess of that credit over that liability.
(10) A settlor who receives a credit under subsection (9) above is to that extent not entitled to recover any tax from the trustees under subsection (1) above.”
(3B) The amendment made by subsection (3A) shall be deemed to have effect from 6 April 2006.’.
Mr. Field: I have been in the House for 30 years, and have moved many motions on new clauses and many amendments. I have always taken real pleasure in doing so, but I cannot say that I take much pleasure in moving this new clause, or from the feeling that we are somehow on course for a collision with the Government over the treatment of many people in our society who earn low wages.
Political parties, whatever part of the House they occupy, are broad coalitions, containing people of diverse views, but they also have core values which keep them together. There is clearly a huge divergence of views on the Labour Benches among Members who have been in the House for some time and those who have arrived more recently, and among those who think of themselves as traditional or old Labour, those who think of themselves as new Labour, and those who simply think of themselves as Labour. However, the golden thread that links us is that, when push comes to shove, we are all on the side of the poor.
The Government have taken a number of measures of which Labour Members, and, I hope, those in other parties, can be proud. They have tried to move life chances towards those who generally have least, and, if need be, away from those who find it easiest to make it to the top. Therefore, there was in the beginning puzzlement, which turned to anger, that in the 2007 Budget the Government announced the abolition of the 10p starting rate of tax accompanied by a 2p reduction in the standard rate of tax. Since coming to this House I have been an advocate for cutting taxation and particularly the direct rate of tax, the headline rate with which the people whom I represent are massively concerned. It determines whether they take a job, whether they work longer hours and so on.
I was staggered, as were other hon. Members, that that 2p reduction in the standard rate of tax was largely—although not totally—paid for by the abolition of the 10p starting rate. The cost of the 2p reduction was about £9.5 billion; the extra revenue from abolishing the 10p starting rate was about £8.5 billion. We found ourselves for the first time that I can recall advocating a measure that increased the tax burden on the lower paid and made it easier for people such as me, other Members and millions of people outside the House of Commons. It flew in the face of our understanding of what Labour is about: being on the side of the poor.
It is true that it took a little time for Treasury Ministers to recognise that there was not just an issue here, but that it was something that cut to the quick most of us who have devoted our lives to public service. We were anxious to see measures that would offset, as far as humanly possible, the additional tax burden that we had placed on the people taking home the smallest
wage packets. The Government, to their credit, have introduced a number of such measures. They have changed benefit rates and protected those over retirement age who would have lost out by increasing the tax allowances, so that the sums they would lose would be met. I note that others may wish to raise the fact that those who retired before 65 would not receive the same protection as older people, such as me.
Mark Fisher (Stoke-on-Trent, Central) (Lab): Is my right hon. Friend certain about what he is saying about pensioners? I think there is a popular misconception along the lines he is describing. My understanding from pensioner constituents is that a pensioner must have an income of over £22,000 to gain from the measure and that anyone with an income below that amount will be worse off.
Mr. Field: I will very happily stand corrected and I hope that my hon. Friend catches your eye later, Mr. Deputy Speaker.
Ms Sally Keeble (Northampton, North) (Lab): My right hon. Friend is right to refer to pensioners such as himself. Male pensioners who retire at 65 get the allowance but women pensioners who retire at 60 do not. Does he agree that they have missed out?
Mr. Field: They certainly have. I repeat that I hope my hon. Friend the Member for Stoke-on-Trent, Central (Mark Fisher) catches your eye, Mr. Deputy Speaker, to develop his point.
There have been benefit changes on top of tax allowance changes for us pensioners. There have been two welcome and major initiatives in the Budget, presented to us as mitigating the effects of the abolition of the 10p rate.
The first major point is that since the announcement of the abolition of the 10p rate, there have not been specific tax changes relating solely to those who have lost out from the abolition. In the initial statement the new Chancellor announced a £2.7 billion package which increased tax allowances by about £600. That applied to all of us, however. We in this House benefited from that; we benefited from the 2p increase as did those on the 10p rate, and there was also a more recent increase in tax allowances across the board, which we again benefited from, as well as the people who lost the 10p rate. Therefore, the relative tax burden that the abolition of the 10p rate placed on the poorest earners in our country has not been rectified.
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My hon. Friend the Member for Hyndburn (Mr. Pope) and I wrote to the Chancellor three months ago to say that that is still a big issue. We did so not simply for our consciences’ sake, as conscience is magnified because by next May or June we will have to face the electorate, and there are quite a lot of low-paid workers out there who might not be writing us letters any longer—they may have given up on that effort—but who still feel aggrieved that we made the move in the first place, and some of whom also know that they remain worse off in money terms compared with 2007 despite the increases in personal tax allowances.
So although I welcome all the moves that the Government have made, I am also puzzled. Labour Members’ grievance with the Government was that,
with the new disadvantages we had placed on the poorest earners in our society, there were no specific measures aimed at rectifying this change that we had brought about. This was not an act of nature; we did it. I cannot be the only MP who has received letters from constituents saying, “Please persevere. I understand why the Government are finding billions and billions of pounds to bail out the banks. I accept that it may well be necessary to do that, but we have needs as well.” Their grievance is that although we could find all that money for the banking system, it appears that in this Budget and previous Budgets we have found general changes that benefit all of us but we have not specifically managed to rectify the increase in the tax burden that our Government have brought about for those who earn the lowest wages in our society.
When my hon. Friend the Member for Hyndburn and I first went to see the Chancellor days after he was appointed to that office, he was as courteous as ever and asked, “Well, how would you solve the issue?” This was before the Government found £2.7 billion to make the general increase of £600 in tax allowances. We suggested that the best move would be to increase tax allowances across the board to ensure as far as humanly possible that there were no losers, but that that increase should then be clawed back from all of us who had been the gainers from the 2p rate by increasing national insurance. My hon. Friend and I left that proposal with the Chancellor.
The next part of this saga took place on the morning that the Government announced they would increase tax allowances for all of us. The Chancellor phoned me and said, “There will be a statement this afternoon. I can’t tell you what’s in it, but I hope you will like it”. As I am on the same political side, when I came to the House I wanted to say as much as possible in favour of the measure, but I cannot describe the depth of my despair as I heard the Chancellor saying there was going to be a universal increase but there would be no clawback. It is true that I welcomed that package. Who was I to stand up when the Chancellor had found £2.6 billion and spit on his feast and say this is not what is actually required, especially as I hoped that we might at a later stage get him to tailor that measure to help the lowest paid and claw the necessary sums back off the rest of us, and in so doing help to balance the books?
Mr. Jeremy Browne (Taunton) (LD): Was not one of the strange features of the Chancellor’s compensation package that, although it had the advantage of simplicity, the majority of the £2.7 billion was given to taxpayers who had not lost as a result of the doubling of the 10p rate?
Mr. Field: I agree entirely. We benefited by the 2p rate reduction—I say “we” because those of us in this Chamber benefited.
Mr. Field: Is the hon. Gentleman going to declare his earnings at the higher rate now?
Mr. Browne:
My earnings are those of a Member of Parliament. To be fair to the Government, I understood that the threshold was adjusted when people went to the top rate, so basic rate taxpayers, including some people
on good salaries, did benefit substantially but anybody who earned over the higher rate threshold did not benefit, because the two measures cancelled each other out.
Mr. Field: The hon. Gentleman is perfectly right, and the figures, if they are to be trusted, show that 2 per cent. of people did not benefit in this way. When I said “we”, I was trying, perhaps too crudely, to identify us with our constituents for once, given the yawning gap that has become apparent in the recent past.
The substantive point remains that although moves have been made to compensate those whose tax burden increased—that was not the rich or the very rich, but the poor; it was those who earn least in our society yet still turn out to work—the Government prefer to add in all the changes that they make in order to work out who still has not been compensated fully for the abolition of the 10p rate.
So let us assume, for the moment, that we have given up trying to obtain a targeted package to meet the increase in the tax burden of those with the smallest wage packets and we have gone down the Government line of, “Well, it was to help them as well, and in these difficult times we are not that interested in maintaining tax equity. People got more money.” Let us examine what the figures show.
Were the increases in the tax allowances—the £600 and then the £130—really meant to help those who lost out in the abolition of the 10p rate? The following figures come from the Treasury. By 2010-11—not today, but then; these figures presumably take into account some other changes that might be made—500,000 households will still be losers from this abolition, within those households there will be about 1.3 million individual losers, and the average sum that they will lose will be between £2 and £3 a week. I hope that most of us would think that £2 or £3 a week is a substantial sum for us, but it is huge for people whose earnings are low. I am humbled when constituents come to my surgery to tell me that they are on £11,000 a year, they have two children they are bringing up brilliantly and they are being messed around by tax credits, yet they still survive. If this House ever wants to know how to manage the national accounts, it could look to Birkenhead, where quite a few people could teach us a thing or two.
Those Treasury figures on the losers still assume a 100 per cent. take-up rate for tax credits. Fortunately, because many of the losers who have children are so desperate, they will have claimed tax credits—whether or not they wish to do so and whether or not they think that to do so is noble—because that extra money to balance the books is jolly helpful. Many of the losers in those figures will thus be people who do not have children, and we know that the take-up rate among that group is about 20 per cent. The Government’s calculation assumes that the take-up rate is 100 per cent., but even with such a rate 500,000 households will still be losing out in the financial year 2011-12, those households will contain about 1.3 million individuals who are losing out and, on average, those individuals will, even years ahead, still be losing between £2 and £3 a week.
Mr. William Cash (Stone) (Con):
I thoroughly endorse what the right hon. Gentleman says, for all the reasons that he has given. He mentions the year ahead. Does he
agree that if we take into account the real figure for public net debt, which is now £3 trillion—not the £1 trillion the Government say—the increases in taxation that are due as a result, together with the necessary reductions in public expenditure, will have a devastating impact on the less well-off and will make their situation intolerable? In other words, we really will have two nations.
Mr. Field: I do not dispute that point, and the hon. Gentleman may be able to make his case later in the debate.
Mr. Timms: I am listening with great interest to my right hon. Friend, and I wish to take issue later with some of his figures. He mentioned 1.3 million individuals —is that an estimate of the number of people in the 500,000 households that the Government have confirmed will remain losers from the effects of these various changes?
Mr. Field: I confess that I do not know the answer. I am merely reciting the IFS figures. Today it said that 500,000 households would lose, and 1.3 million individuals. I assume that most of those individuals will be in those households. If our constituents were asked whether they believed the Treasury or the IFS, they would probably side with the IFS.
Mr. Timms: Actually, we had a call from the IFS to ask us where the 1.3 million figure came from, so this may be a circular argument. It may be that 1.3 million is an estimate of the number of individuals in the 500,000 households. There is no dispute that 500,000 households will be—modestly, I would argue—less well-off as a result of the series of changes that have been made over the last couple of years. I was not sure where the 1.3 million figure came from, and my right hon. Friend appears to be saying that he is not sure either.
Mr. Field: Well, I am sure, because it comes from the IFS. When I was broadcasting with representatives of the IFS today, they said that that was their estimate.
Mr. John Gummer (Suffolk, Coastal) (Con): Does the right hon. Gentleman accept that these relatively small amounts of money are in fact large amounts of money, not only in the areas where deprivation is traditionally widespread but in constituencies such as mine? Rural areas can have large numbers of very poorly paid people with large families, to whom these are significant sums. I agree with him that there is nothing as humbling as meeting at one’s surgery people who make do with very small amounts of money and have come to talk to their Member of Parliament about £1, £2 or £3 less a week in circumstances that should never have arisen.
Mr. Field:
I am sure that those sentiments are reflected on both sides of the House. The disappointment that I feel can be summed up as follows. I am not trying to decry the moves that the Government have made to try to rectify the unnecessary burden that we have placed on some of the poorest households in this country—a burden that would be unforgivable if it were a Tory Government doing it, and is even worse because it is our Government. Of course there are real problems now with the Government finances. I am even more of a
hawk on this issue than those on the Treasury Bench, because I think there will be real problems in the short term in trying to float the gilts that we will need to float to reach the medium term, unless both Front-Bench teams show far greater resolution about the need to bring public expenditure into line with tax revenue. I want us to lead that debate because the sorts of reforms that I wanted to see and that we did not see in the last 12 years or so, when we had huge amounts of money to spend, might well be brought about when we have to think about what the Government’s priorities are and how we can ensure that our resources are concentrated on them.
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I am not trying to downplay the real difficulty that the Government have in balancing the books and getting us to the medium term so that some of these changes in public expenditure and taxation can come into effect. The sums that we talking about to bring justice to the group of people who earn the least are modest compared with the size of the deficit that has been revised, in a major way, three times since last November. I cannot believe that there would be any risk to the currency or any risk of encouraging a gilts strike if the Government were to make modest new claims on debt to meet the honour that we owe this group of our constituents.
I said at the beginning of my speech that for 30 years I have spoken always with pleasure, jumping up to make a suggestion and thinking that it would somehow be accepted. I know, however, from the conversations that other Members have had with the Government that the Government have dug in on this point. They are playing for very high stakes tonight. I hope that when those on the Treasury Bench contribute to the debate they will say more than we have heard from the unofficial sources during the day. If all we are offered, yet again, is warm words, my thinking is that we should press the new clause to a Division.
Mr. David Drew (Stroud) (Lab/Co-op): I want to hear those redistributive noises from those on the Front Bench, and I am looking forward to hearing what they have to say. My right hon. Friend knows that the only caveat to my support for his new clause is that the 10p rate had a secondary redistributive effect on the number of people post-60 who chose to redistribute their leisure for their working time. How would he answer the allegation that that was a downside of the 10p rate, notwithstanding those that it was there to help?
Mr. Field: I have been bending over backwards not to suggest this is a very easy thing that fits into nice little boxes. There are clearly what my grandmother would have called swings and roundabouts, and I accept my hon. Friend’s point, but I nevertheless believe that the main thrust of the argument that Labour Members have made remains.
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