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The problem has been well described by my right hon. Friend the Member for Birkenhead (Mr. Field). Members in all parts of the House regardless of party, and, more particularly, the millions of people who have been disadvantaged by these changes, owe a great debt to my right hon. Friend. Together, he and my hon.
Friend the Member for Hyndburn (Mr. Pope) identified the problem initially, persuaded us very early on that it existed, and have campaigned on it consistently over the past two years. Everybody who cares about this issue is greatly in their debt. I hope that that view is shared even on the Treasury Bench, as well as across the House.
This debate goes right to the heart of what Parliament is about. The essence of what we do is to raise grievances and, in return for the right to do so, vote supply to the Government. I think that not only Labour Members but Members in all parts of the House want the Bill to go through: the Budget has many good things in it, and we want to vote supply to the Government. However, we want to raise what is a serious grievance for many of the poorest people in our society.
It is right that my right hon. Friend has identified that grievance and articulated it so well. The people who are most disadvantaged by these changes are, as he said, people on the most modest incomes. They come to all our surgeries and talk about it—sometimes not even in terms of pounds, almost pennies, but those sums make the difference between a dignified life and a life that lacks dignity because they cannot participate in society. They are not glamorous sums, which is possibly why the press and other media have been less interested in this grievance than in many others. These changes do not catch the headlines, but they mean a great deal to people who come to our surgeries £50, £100 or £120 a year worse off as a result.
It is right that this grievance should not only be identified but put right tonight. We will want to vote supply to the Government, but we want them to recognise that grievance, and to recognise that they have caused the problem and it is up to them to put it right. As my right hon. Friend said, doing so would not involve a huge sum; it is perfectly within the grasp of the Government to rectify their mistake.
Why has there not been a greater outcry? Possibly because, as I said, the losses for any one individual are very small. Ironically, that makes it even more important that they should be addressed. It is also because many people, particularly pensioners, have difficulty in working out exactly how their pension works and what their financial position is. Many of my constituents have said, “I sense that I am worse off under this. I am told that I will be, and I have been to the citizens advice bureau and they have identified that fact, but I do not fully understand it.”
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As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said, the tax system is so complicated at various times and in various ways that, as we all recognise, the people who come to our advice surgeries do not fully understand the minutiae of it. They do not realise that they are worse off, or exactly what is causing it. That is why we are particularly in debt to my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Hyndburn. They have identified the problem, with the help of the IFS, and articulated it.
This debate is about poverty. That is not a fashionable subject, and I regret that the Government whom I have been proud to support over the past 12 years have not often talked about poverty. They have talked about the
future, entrepreneurship and the great expansion of our economy, but there are still large pockets of poverty in all our constituencies, in rural areas and in city areas such as mine. That poverty is made worse by the 10p change, and it has been intensified.
Lynne Jones (Birmingham, Selly Oak) (Lab): I think it is unfair to say that the Government have not talked about poverty, but by and large it has been about child poverty or pensioner poverty. They have fallen down in not talking about people who do not fall into either of those categories because they do not have a family and are not pensioners. Those people are the worst off because they do not have extra benefits, and they will be particularly hard-hit by the measure in question.
Mark Fisher: I take my hon. Friend’s admonition. Of course Ministers have discussed poverty, but when the story of this Government comes to be written, I do not believe it will say that they have crusaded and pioneered to eliminate poverty generally in our society. Some 12 years on, we still have a residue of poverty.
Ms Karen Buck (Regent's Park and Kensington, North) (Lab): Pursuant to the remark by my hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones), one thing that causes me great concern is the difficulty of separating out low-earning adult poverty from child or pensioner poverty. Many low-earning adults live in families that have children, and indeed there is evidence that one driver of child poverty is there being adults in the house who are very low earners. Although progress may have been made on specific aspects of poverty, it is critical that we tackle it across the board, including for single earners, as we are seeking to do today.
Mark Fisher: I entirely agree with my hon. Friend, and of course I would want to make the exception, which was implicit in her remarks, that those who earn low wages and are in poverty have been helped remarkably well by this Government. The Prime Minister, when he was Chancellor, introduced tax credits and transformed the lives of many of my constituents who were on poverty wages. It gave them a decent lifestyle. When the people on the end of poor administration of tax credits are examined, the system gets a bad reputation, but it has been a life-changing and life-improving experience for the vast majority of those who receive tax credits. It has tackled implicit poverty among many of our constituents.
Poverty does exist. It is a low-level condition but a very painful one, and it is Parliament’s responsibility to try to put it right, not to make it worse. The 10p change undoubtedly made it worse for many people. Tonight is the time when the Government have to face up to that and recognise that they have got this slightly wrong and can put it right. We owe it to the people affected to correct it, and we owe it to my right hon. Friend the Member for Birkenhead, for his crusade, to put it right tonight. I hope that we will.
Mr. Jeremy Browne:
I want to limit my comments to new clause 1, which the right hon. Member for Birkenhead (Mr. Field) tabled, and amendment 37, which I tabled. The common theme that links them is the desire of my
party and others to help people on low incomes have a higher standard of living and be more self-reliant and less dependent on the state.
Let me begin with the 10p rate. Members who have perhaps followed matters in less detail than those of us who served on the Committee must cast their minds back to 21 March 2007—nearly two and a half years ago—when the Prime Minister delivered his final Budget speech as Chancellor of the Exchequer. I remember it well because he stood at the Dispatch Box and announced, with great fanfare, the change that we are still discussing more than two years later. I remember Labour Members celebrating with abandon, waving their Order Papers and regarding the speech as a triumph. They left the Chamber in one big phalanx to go to the Tea Room, or wherever they took themselves. They did not want to listen to the comments of politicians from other parties and were confident that the soon-to-be Prime Minister had devised a master plan, which would improve the lives of their constituents. I suspect that the perception that it might ensure a fourth consecutive general election victory for the Labour party also contributed to their misplaced euphoria.
Lynne Jones: May I point out that some of us were less ecstatic than the hon. Gentleman suggests? I well remember making a speech on that day, pointing out that the measure disadvantaged the poorest. I was not particularly in favour of introducing the 10p tax band; I wanted to raise the threshold, which would have been a much better way of helping the poorest people.
Mr. Browne: I am grateful for that intervention for two reasons. First, amendment 37 does precisely what the hon. Lady said, so I look forward to her supporting it. Secondly, she leads me neatly on to the comments of the leader of the Conservative party. In response to the rabbit that the then Chancellor pulled out of a hat, he said:
“Well, the Chancellor has finally given us a tax cut.”—[ Official Report, 21 March 2007; Vol. 458, c.829.]
Sadly, perhaps not for the first time, he was mistaken. We had not the abolition of the 10p rate—the term often used to describe the change—but the doubling of it. That left more than 5 million people worse off than they were before the change was made.
It was argued at the time that simplification was the motive for the change, but as the hon. Member for Wolverhampton, South-West (Rob Marris) rightly pointed out, the system has not become simpler. Indeed, since that Budget, the income tax system has become, if anything, more complicated.
What happened after that Budget? We finally got the now Prime Minister to accept that there were more than 5 million losers as a result of the change. Initially, he refused to accept that there were losers, and when we got beyond that stage, there was willingness to acknowledge that there were losers but unwillingness to consider compensating them. It seems extraordinary now, but we were told that the size of the budget deficit made it impossible to afford to compensate them. I think it was probably a combination of not wanting to spend the extra money and stubbornness—an unwillingness to believe that the Government had been caught out in an error of such magnitude.
The decision was then taken in an emergency Budget—that is what it was, in all but name—to borrow some additional money to try to buy off the right hon. Member for Birkenhead and other Labour Members who had suddenly realised, to their horror, that far from being a masterstroke, the measure not only further impoverished some of the poorest in their constituencies, but was likely to be electorally disastrous. This afternoon, we are joined by the hon. Member for Crewe and Nantwich (Mr. Timpson), who offered a vivid illustration of the perils that the Labour party faced if it pretended that the measure was anything other than unpopular.
I slightly disagree with the hon. Member for Stoke-on-Trent, Central (Mark Fisher), when he asked whether people were always aware of the impact of such changes on their income. I was struck by the fact that members of the London-based media, for want of a better expression, were slow to pick up on how damaging the change was, probably because they are invariably paid far more than those in the losing category. However, my constituents were alert to the downsides. I have been stopped in the supermarkets and in the street more about that issue than about any other in the four and a bit years that I have been a Member of Parliament. They said, “I hope when you’re up in the House of Commons you’re holding the Government to account on doubling the 10p rate because I’m losing out as a consequence.”
It is also inaccurate to suggest that the measure damages only those on low incomes. Sometimes debate in the House is caricatured as being about us, on our MP incomes, benevolently trying to help people in circumstances of extreme poverty. Some people on very low incomes lost out as a result of the Government’s doubling the 10p rate, but many of my constituents, who are on incomes of £13,000, £14,000, £15,000 and £16,000—regarded not as low, but as typical wages for people who work in agriculture, catering or hospitality in Somerset—were also losing out, even when the effect of reducing the basic rate by 2p was taken into account.
Mr. Edward Timpson (Crewe and Nantwich) (Con): Does the hon. Gentleman recall that at the time, the effect of abolishing the 10p tax rate on some of the poorest members of our society could be seen most graphically in the payslips that they brought to show us, on which they could see that £2 or £3 was being taken from them every week? They were fully aware of the impact, and that made it even more extraordinary that the Government did not realise that there were many losers as a result of the measure.
Mr. Browne: That is true. Of course, the measure was not implemented straight away—it was a ticking time bomb, which the then Chancellor oddly chose to put under his own premiership, waiting to blow up when he assumed the post of Prime Minister. Nevertheless, the hon. Gentleman is right that people noticed. It is also interesting to note that the different categories of people who lost out noticed. I, too, received many letters from women aged between 60 and 64, who identified themselves as losing out as a result of the change. Members of another category wrote in smaller numbers. People under 25 on low incomes with no children also lost out. Some brought it to my attention because they had noticed the difference in their payslips. There was generally a keen awareness of the change.
The Labour party does not do well in my constituency. No one would say that it was an area with a strong Labour tradition, but many people approached me who had not voted Labour, and perhaps would never consider doing that, but were still shocked that a Labour Government had chosen to implement a policy that seemed so precisely to target and disadvantage those on the lowest incomes. They thought, as the right hon. Member for Birkenhead said, that the sole purpose of the Labour party was to help people in those circumstances. They wondered, if it did not do that, what the point of it was.
Mr. Richard Bacon (South Norfolk) (Con): Does the hon. Gentleman agree that there was a keen awareness on the part of not only our constituents, but the Government? Sir Nick Macpherson, the permanent secretary at the Treasury, gave evidence to the Public Accounts Committee at the time, in which he clearly said that a thorough and detailed distributional analysis was done. They knew exactly what the effects would be.
Mr. Browne: I do not doubt that. There are serious questions about the Prime Minister’s judgment, but none about his ability to add up. I think that a cold political calculation was made: people on low incomes have a lower propensity to vote and, if they do, a high propensity to vote Labour, so there was no need to give them any incentives. The now Prime Minister was concerned about people in so-called middle England. He feared that Tony Blair’s appeal to those people was greater than his, as Prime Minister-in-waiting.
The change from a 22p basic rate to a 20p basic rate was therefore meant to send a clear signal to the media and others that the then Chancellor could connect with middle England and, what is more, that he could continue to outflank the Conservative party on the right by achieving a 20p basic rate, which had been an aspiration of Lady Thatcher and others, but which had not been achieved when the Conservatives were in government. He was going to deliver that, even though the collateral damage was inflicted on people on low incomes. Because their votes were taken for granted by the Labour party, however, there was no need to worry about them.
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Bob Spink (Castle Point) (Ind): I am grateful to the hon. Gentleman, who is making a remarkably balanced speech and making a lot of sense. Will he share with the House his party’s view of increasing personal allowances, but balancing that by increasing the higher rates of tax, so that we properly target the vulnerable and poorer people in society, which is the right thing to do?
Mr. Browne: I am grateful to the hon. Gentleman as well. I am building up an unlikely coalition behind amendment 37, which is precisely what I seek to achieve. I will get to that very amendment in a moment and speak to it in slightly greater detail. The situation that I have outlined was the one that the Government faced, and the calculation made was essentially a political calculation.
Mr. Bone:
I am listening to the hon. Gentleman with great interest. I agree with a lot of what he is saying, but I do not believe for one moment that, in celebrating the cut down to 20p, any Labour Member thought that the
poorest in society would be worse off. However, I have not been able to decide whether the move was a Government cock-up or a Government policy. What are the hon. Gentleman’s views on that?
Mr. Browne: My view, for what it is worth, is that the Treasury and Treasury Ministers knew perfectly well and were quite cynical in their calculations, for the reasons that I have just given. However, I think that quite a lot of Labour MPs suspended their judgment and only later came to realise the full and awful consequences of what the then Chancellor had announced. Those consequences were awful for two reasons: first, they fundamentally undermined what those hon. Members had come into politics for, which was to try to help people on lower earnings; and secondly, those hon. Members realised that it would be devastating for them electorally when the electorate woke up to those consequences.
Mr. Gummer: Would there not also be support for that view if one took into account the parallel occasion, when the then Chancellor spoke to the CBI and announced the removal of one of the most important green proposals—the proposal to insist that people report on their carbon reductions—in order to send out a signal that he was on the side of business? This is all part of a sad pattern of attempts to get headlines in the Daily Mail.
Mr. Browne: That is an interesting point. I will not be tempted too far off the beaten track, Mr. Deputy Speaker, but when people come—very soon—to write the history of new Labour, the 10p tax rate will be the watershed moment, when the Labour party tried to triangulate its way to the right of the Conservative party, in an attempt to crowd it out and leave it no room to have any electoral appeal. However, that was dependent on the left, as it were, not minding about all the efforts to woo middle England, which sometimes meant neglecting Labour’s core vote, and on other occasions meant actually punishing it. The 10p tax rate was the moment when the elastic stretched too far. The interesting point about that decision was that it was announced in the final Budget speech by the then Chancellor. That speech was meant to set up his premiership and begin a new era of new Labour, but as we now realise, it did precisely the opposite: it signalled the end of new Labour and the start of the desperate circumstances that the party of government has been in ever since.
The new Chancellor of the Exchequer was left in a difficult situation. We all have sympathy for him, just as we have sympathy for the team of Ministers who have to stand up in this debate and justify the position in which the Prime Minister has put them, because it is hard to unravel the proposal without just reverting to the previous situation. Indeed, with the Prime Minister having announced that the 10p rate was an interim proposal and is now in the distant past, the Government are unable to move back to the situation that existed before. What they have tried to do, therefore, is address the concerns raised by the right hon. Member for Birkenhead and others by spending a lot of public money—more public money, interestingly, than it would have cost to revert to the previous situation—targeting those who were losers as a result of the 10p rate.
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