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Kate Hoey: The hon. Gentleman is right. The problem is that whenever we say that we want something to be changed and we know that that is the right thing to do, a reason is given for it not to be done which makes many of those who have supported the measure in
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question change their minds and decide not to vote for it. They can all examine their consciences, and it is perfectly right for them to do so.

Mr. George Howarth (Knowsley, North and Sefton, East) (Lab): I accept that the position could possibly be put right within 24 hours, but will my hon. Friend accept just for one moment that, if the Government are right, within those 24 hours an enormous amount of damage could be done to the economy and, consequently, an inordinate amount of damage could be done to the very people whom she and I seek to protect?

Kate Hoey: I am not an economist, and I am sometimes quite glad that I am not, but I see things in a common-sense way. I find it incredible that we should not pass a measure asking the Government to find a solution to the problems of the 1.3 million people who have been so badly hit. The Government have had months and months in which to sort those problems out. It is not up to the official Opposition, the Liberal Democrats, the Scottish National party or my right hon. Friend the Member for Birkenhead to come up with a solution. The Government could have come up with a solution, but they chose not to. They thought that the problem had gone away, but the fact that we are not all still receiving hundreds of letters about the issue does not mean that it has gone away. Most of my constituents who have suffered have almost given up, believing that the Government will not listen.

A woman wrote to me saying:

on the 10 per cent. tax band.

I have received a number of similar letters, and I am sure that all Members were being visited by their constituents months ago. However, people have become fed up with going on and on about the issue, because they feel that the Government are not listening. Tonight’s debate gives us all an opportunity to say that the problem must be solved, and could be solved.

I hope that if my right hon. Friend the Member for Birkenhead presses his motion to a Division and the new clause is accepted, the Government will sit up all night and, indeed, for the next 24 hours. We have until 5 August in any event, and there is no huge impetus for the problem to be solved in the next 24 hours, but it could be none the less. Let us sort the problem out. Let us show that we realise that the poorest people in our country are being hit and that that was a mistake, or, if not a mistake, the wrong decision. Let us show that we want to change it—and the only time when we can change it is tonight.

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Mr. Drew: I can say little more than my right hon. Friend the Member for Birkenhead (Mr. Field) or my hon. Friend the Member for Vauxhall (Kate Hoey). I rise with considerable sadness and with a quizzical outlook. I want to hear some answers from Treasury Ministers to some fairly obvious questions. Two and a half years ago, the 2p reduction was made to the basic rate, and the 10p rate was removed as a means of funding that.

I do not understand why it is so difficult to track down the real losers. If there are 1.3 million losers, I would have thought that the finest minds in the Treasury working night and day would have been able to identify who they were and what the impact on them has been. What numbers have been crunched and what decisions have been made to try to do what the Government set out to do when they realised their mistake? Why did they not go further on earlier occasions to deal with a running sore, something from which we cannot hide? We have made some of the poorest people poorer. That is unacceptable, but it is something that we can rectify even at this late stage.

I intervened on the hon. Member for Fareham (Mr. Hoban) to say that if only we had spent more hours dealing with tax avoidance and fewer hours making the poorest poorer, some Labour Members would feel that our time here had been well spent. Even at this late stage Ministers must realise that they must do something. They face the possibility of a large rebellion tonight; that has been coming for the last two and a half years. There have been various skirmishes but tonight it is for real. It is a question of poverty and of trying to make the case for those who have been made worse off by a change that was not thought through.

At the time some of us thought that it was a pure gimmick. There was a debate to be had about whether the 10p rate was the most appropriate way to try to help the very poorest in our society. Part of the problem that I have is that we do not know who these 1.3 million people are. They are not a group; they are individuals—I will not go into the question of there being no such thing as society. However, this is not one homogenous group. There is a need for measures to deal with these different people even at this late stage. I am looking for Ministers to come clean on this. What measures have they explored to try to help those who have been hit? Those people have written to all of us, which makes it so much more difficult. We cannot say it is those who are 16 to 18, or 18 to 21, or single pensioners—women largely—aged from 60 to 65. Many of those are in that group but they are not the totality. There are others. My hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones) mentioned couples with no children who are in this group and feel particularly hard done by because they have struggled to stay in work and to earn a decent living. They saw the 10p rate as a good way of rewarding them.

Ms Diane Abbott (Hackney, North and Stoke Newington) (Lab): Does my hon. Friend agree that there has been some talk in the past 48 hours that if this new clause is passed tonight, the following morning the Government will not be able to collect taxes, the markets will crash and government will grind to a halt? Does he not agree that these are tales to frighten children and that people should decide to vote tonight on the merits of the arguments and not on implicit threats from Treasury Ministers?

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Mr. Drew: I always think it is better to win the debate through argument than through other ways—for example, people instructing us it is better to vote one way rather than another. I am looking to Ministers to go through the arguments presented by my right hon. Friend the Member for Birkenhead and to say that the situation is not as he described it. So far that has not happened. There has not been a willingness to engage and to find an alternative way we could take this forward, other than some of the measures introduced in both the pre-Budget report and the previous Budget.

We are at a difficult stage now. We need to recognise that the hurt among core Labour supporters remains. Some of us will find it very difficult not to want to go back to where we were, which was to recognise that these are the people whom we cannot afford to be made worse off. That is what Ministers need to do and that is what I look to my right hon. Friend the Financial Secretary to do now.

6.45 pm

Mr. Timms: We have had a very good debate. At Budget 2007, the Government announced the abolition of the 10p rate and changes to personal tax and tax credits. Most households were compensated by other parts of the package, but my right hon. Friend the Member for Birkenhead (Mr. Field) and others argued forcefully and successfully that more needed to be done. The Government accepted that and on 13 May last year my right hon. Friend the Chancellor announced an increase in the personal allowance. Most people began to benefit from that from last September by a total of £2.7 billion. Some 22 million people on low and middle incomes saw their tax reduced by £120 in 2008-09 and 4.2 million of the original 5.3 million households who lost out from the abolition of the 10p rate received as much or more than they originally lost, but not higher rate taxpayers. I was glad that the hon. Member for Taunton (Mr. Browne) intervened to make that point.

On Report of last year’s Finance Bill, which made the changes that were announced, my predecessor, my right hon. Friend the Member for Liverpool, Wavertree (Jane Kennedy), was asked by our right hon. Friend the Member for Birkenhead and others about further commitments. She argued that we had substantially reduced the number of losing households but she acknowledged that there were still, at that time, just over 1 million households losing out, and that we needed to do more to help. The hon. Member for Fareham (Mr. Hoban) suggested that we then did nothing. That is simply untrue.

In the PBR, the Government announced further support. We rolled forward the increase to the personal allowance announced in May, increasing it by a further £130 above inflation. Those changes now fully compensate over 90 per cent. of the 5.3 million households who would otherwise have been paying more, reducing the number to around 500,000 households in 2011-12. The maximum individual loss is now £92 a year, or £1.77 per week, if there is no offsetting tax credit gain. The average loss for a household is now less than £1 a week. I agree with those who have said that even a loss of that size is significant for some of the people we are talking about, but it is important to make it clear that we are not talking about average losses of £2 or £3 as has been
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suggested. [ Interruption. ] May I make some progress because I know that the House is anxious to conclude the debate?

It is not the case that all these losing households are low-income households. Relatively few are in the lowest income decile, because many in that group do not pay income tax, and we have taken an additional 800,000 people out of income tax altogether through the steps we have taken. Of the 500,000 households that remain, some 100,000 are in the highest income decile. For example, if a household comprises a City banker and a second earner who lost out from the abolition of the 10p rate, that household is included in the 500,000. There are 100,000 of the 500,000 in that category. The new clause would prevent the Government from collecting any income tax until well-off households like that were made even better off. I cannot believe that that is the intention, but that would be the effect of the new clause. At the 2008 PBR, we acknowledged that, although the number of losing households had been reduced by 90 per cent., there would still be some who lost out. Although public concern has not been completely eradicated, it has certainly been substantially allayed by the changes we have made.

There has been some discussion of the impact of the new clause, and I want to comment on that. Income tax is an annual tax that needs to confirmed annually in each Finance Bill. If the new clause were carried, without some rather desperate measures we would be unable to collect income tax this year, and income tax already collected would have to be repaid. The chaos does not bear thinking about.

Let me comment on the position of the Conservative party. The Conservatives did not object to the abolition of the 10p rate, and the 10p rate has not been mentioned in any Conservative amendment to the Bill. They have not previously supported amendments on this topic moved by my right hon. Friend the Member for Birkenhead—presumably, in the past, because of concerns in respect of fiscal responsibility. They have not today suggested any mechanism for compensating losing households, despite my giving the hon. Member for Fareham the opportunity to do so. Yet now they are set to abandon fiscal responsibility and follow their leader, who signed the amendment, through the Division Lobby to block the collection of income tax. Lest anyone thought the Conservative Opposition were fit to form a Government, their disgraceful position today shows that they are not.

Several hon. Members rose

Mr. Timms: I want to make a little progress for now, and say the following to my right hon. Friend the Member for Birkenhead, for whom I have great respect. I agree with my hon. Friend the Member for Stoke-on-Trent, Central (Mark Fisher) that my right hon. Friend and those who have worked with him have achieved a very substantial amount through their pursuit of this matter over the past couple of years. The terms of this new clause are, however, impossible for the Government to comply with. We could only do so by announcing large sums of extra spending—£2.6 billion this year if this was to be done by increasing the personal allowance further—and the imperative of fiscal consolidation rules that out. Alternatively, we could come up with some
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very complex means-testing arrangement, which would reduce the cost somewhat but also introduce unmanageable new processes. With the best will in the world, that would take a considerable period of time, and in the meantime we would be unable to collect income tax.

That is not to say that there is nothing we can do. I and my colleagues would be very happy to discuss any ideas my right hon. Friend or others might want us to consider before the pre-Budget report, and to see if we can help further. My hon. Friend the Member for Northampton, North (Ms Keeble) and others highlighted concerns about women who retired at 60 after a lifetime of work and who will now pay more tax than they had expected until the age of 65, and there are also other concerns about the particular circumstances that some people face. We will be happy to look at those, too.

Ms Keeble: Will my right hon. Friend not only look at the practical consequences to do with the money these women have lost and the fact that that comes out of pension income and not earned income, but address these women’s real sense of grievance that they were discriminated against and told, “Not to worry, dear; your husband’s got a higher tax allowance”?

Mr. Timms: Absolutely—and that should certainly not have been said to anybody. There is a sense of grievance, although it is substantially allayed by the changes we have made. I will certainly be happy to look at those points over the next few months, however.

Mr. Godsiff: Will the Financial Secretary briefly explain what would happen if new clause 1 were carried this evening? Is he saying that if it were carried, the Government’s tax-raising powers would end?

Mr. Timms: Well, the power to collect income tax ahead of Royal Assent is founded on the Provisional Collection of Taxes Act 1968, section 1 of which provides that a resolution under the Act has statutory effect for a specified period. One of the things that brings that specified period to an end is rejection of the provisions of the Bill reflected in the resolution, so we would not have until 5 August to carry on collecting income tax. As I have said, there would have to be some rather novel legislative interventions rather quickly.

David Taylor (North-West Leicestershire) (Lab/Co-op): I moved a not dissimilar measure in the equivalent debate in July 2008, and I offered a formula to the Minister at the time. I did not press it to a Division because I was assured that strenuous efforts would be made to remedy the remaining problems. There appear to be 500,000 families and an average of £50 each, which amounts to £25 million. Can the finest minds in the Treasury not fashion a method of compensating for that £25 million that does not involve a factor of hundreds of millions of pounds in excess? I cannot believe that that can be true.

Mr. Timms: Actually, it is true, and we have taken strenuous measures. I think my hon. Friend is suggesting some very complicated means-testing system that would require, for example, a very large number of people to fill in self-assessment forms who do not currently have to do so, and who would not know until the end of the year what their income tax was. I want to underline the
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fact that I am very happy to look at suggestions that Members and others may want to raise between now and the PBR. Blocking income tax is not the answer, however, and I ask my right hon. Friend the Member for Birkenhead to withdraw the new clause.

The hon. Member for Taunton described amendment 37 as progressive. He also had the good grace to acknowledge that it would cost a fair amount of money: £18.5 billion actually, so it is completely unaffordable. I do not think the House will be attracted to it, despite the oratory that he employed to urge his move upon us.

Amendment 40 provides for the adjustments that have to be made between settlors and trustees of a trust. It seeks to set out a mechanism for payment of tax by settlors, and addresses settlor-interested trusts and certain trust income of children that is treated as income of the settlor of the trust. I say to the hon. Member for Fareham that these changes are not necessary, however, as what they seek to achieve is already allowed by the rules. If he needs me to provide any further detail on that, I will be very happy to do so.

New clause 1 and amendment 37 challenge the Government’s response to helping families now and to compensating those who lost out from the abolition of the 10p income tax rate. I pay tribute to my right hon. Friend for leading a lengthy campaign on this issue, which has been effective and successful. He was right to raise it, and he has brought about significant changes. My case is that our response has been fair, straightforward and effective, and that it substantially deals with the concern raised. I understand that there are continuing concerns, and we are happy to continue to look at them, but halting the collection of income tax is not the answer.

Mr. Frank Field: There is clearly something wrong with our procedures when Members who wish to reform a Budget constructively have to resort to tabling a new clause that, according to my right hon. Friend, will blow the House and everything else asunder if we press it to a vote. It is very significant, however, that he did not say in response to the intervention of my hon. Friend the Member for Birmingham, Sparkbrook and Small Heath (Mr. Godsiff) what would happen if we passed the new clause. We all know perfectly well that we are not rejecting the Budget. We are not rejecting these powers; we are putting a temporary hold on them. Let us suppose, however, that my right hon. Friend is right about the outcome. We know perfectly well what any rational, sensible Government with a real wish to live would do. They would immediately come back and say that they would have a vote of confidence now and insist that it is passed, and one would hope that, with a little humility, they might come back with the measures we are all asking for.

This debate has been quite a simple one, although it has taken a long time. When I opened it, I said that although there were different views among those on this side of the House—those of old Labour, new Labour and just Labour—the great golden thread that linked us all and sent us here in public life was the desire to protect the poorest. We might have disagreed about everything else, but that was sacred to us. This 10p measure that the Government introduced has tried to break that golden thread.

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Of course, the Government have taken some measures, but they have not taken a single measure that specifically helped those who lost out by the abolition of the 10p rate. The Government have taken other measures that have benefited taxpayers generally, including those who were losers from the abolition of the 10p rate, but they have taken no specific tax measure to compensate that group. Tonight is our last opportunity to say to the Government that they need to renew their faith and our faith in the tradition that sent us here, so that when we go into that general election—

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