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House of Commons
Session 2008 - 09
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Public Bill Committee Debates
Finance Bill

The Committee consisted of the following Members:

Chairmen: Mr. Peter Atkinson, Mr. Jim Hood
Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
Barlow, Ms Celia (Hove) (Lab)
Binley, Mr. Brian (Northampton, South) (Con)
Blackman, Liz (Erewash) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Engel, Natascha (North-East Derbyshire) (Lab)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hoban, Mr. Mark (Fareham) (Con)
Hosie, Stewart (Dundee, East) (SNP)
Howell, John (Henley) (Con)
Jenkins, Mr. Brian (Tamworth) (Lab)
Joyce, Mr. Eric (Falkirk) (Lab)
Moffatt, Laura (Crawley) (Lab)
Pearson, Ian (Economic Secretary to the Treasury)
Pugh, Dr. John (Southport) (LD)
Robertson, John (Glasgow, North-West) (Lab)
Roy, Lindsay (Glenrothes) (Lab)
Seabeck, Alison (Plymouth, Devonport) (Lab)
Soulsby, Sir Peter (Leicester, South) (Lab)
Stuart, Mr. Graham (Beverley and Holderness) (Con)
Syms, Mr. Robert (Poole) (Con)
Timms, Mr. Stephen (Financial Secretary to the Treasury)
Todd, Mr. Mark (South Derbyshire) (Lab)
Liam Laurence Smyth, Committee Clerk
† attended the Committee

Public Bill Committee

Tuesday 19 May 2009


[Mr. Peter Atkinson in the Chair]

Finance Bill

(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)

10.30 am
The Chairman: I welcome members of the Committee to the start of our proceedings on the Finance Bill. I have a couple of housekeeping points to make. Jackets may be removed. Will hon. Members ensure that their pagers are switched off? They will have noticed the red boxes. They may keep their Bill papers in them, but will they please return them to the cupboard after each sitting?
I remind the Committee that adequate notice should be given of the intention to table amendments. As a rule, my fellow Chairman and I do not intend to call starred amendments, including any that might be reached during an afternoon sitting of the Committee.
The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move,
That the Committee shall meet—
(a) on Tuesdays at 10.30 a.m. and 4.30 p.m., and
(b) on Thursdays (other than Thursday 4 June) at 9.00 a.m. and 1.00 p.m.,
when the House is sitting.
Thank you, Mr. Atkinson, for your welcome. I wish to take the opportunity to say a few words. I extend a warm welcome to you and to your co-Chairman, Mr. Hood. We welcome the experience and the knowledge that you will bring to our proceedings, as well as your firmness and fairness. I am confident that you will guide us so that our deliberations are thorough and to the point. I welcome Mr. Laurence Smyth, who will be assisting the Committee. I also welcome the hon. Members for Fareham, for South-West Hertfordshire and for Hammersmith and Fulham, and other members of the Conservative party who will be supporting them, particularly those who will be serving on the Committee for the first time. We shall be spending a lot of time together during the next few weeks.
I also welcome the hon. Member for Taunton to our proceedings. I am pleased that I shall be stoutly supported throughout our debates by my hon. Friends the Exchequer Secretary and the Economic Secretary, who I am delighted to see here. I know that they will want to join me in welcoming my hon. Friends on the Labour Benches to the Committee and to express warm thanks to them in anticipation of our progress.
I wish to put on the record my thanks to the many advisers and representatives who have already given advice throughout the preparation of the Bill. We shall obviously be welcoming further contributions from them as we scrutinise it in greater depth during the next few weeks. They do a great deal of work and make an important contribution to our task. I look forward to our deliberations as we fulfil our duties in examining the Bill in Committee.
Mr. Mark Hoban (Fareham) (Con): I also welcome you, Mr. Atkinson, and your co-Chairman, Mr. Hood, to the proceedings. The Financial Secretary and I are veterans of proceedings on the Finance Bill. This is my fourth Bill as a Front Bencher. I participated in proceedings in 2002 as a Back Bencher, so I know what a long haul we have in front of us. I have not quite reached the record established by the Financial Secretary’s predecessor, the right hon. Member for Bristol, South (Dawn Primarolo). She dealt with 13 Finance Bills in Opposition as well as in Government, a record in longevity to which I am not entirely sure that I aspire.
Our proceedings are perhaps the less glamorous aspect of the Budget. All the excitement of Budget day is over and done with. We have moved from a Committee of the whole House to a Public Bill Committee, and the fact that our proceedings are not programmed will give all members of the Committee the chance to explore at length the provisions of the Bill. Labour Members who did not take part in the debate on the Finance Bill in the House will now have the opportunity to voice their concerns about aspects of it. I am disappointed that the hon. Members for Wolverhampton, South-West (Rob Marris) and for Coventry, North-West (Mr. Robinson), the most assiduous participants when the Bill was discussed in the Committee of the whole House, have not found favour with the usual channels to serve here, but perhaps their absence will enable other Labour Members to shine and flourish in the confines of this room.
We are about to undertake an important scrutiny process The Financial Secretary said on the Floor of the House and by letter that the Government would table amendments. It is important to get the Bill right and to approach it with the rigour and seriousness that a Bill affecting so many people requires. I am grateful, as the Financial Secretary is, to the support of House advisers, who give up their time voluntarily to help inform us and to make sure that the scrutiny process is effective. I am grateful to my hon. Friends for joining us in Committee and I am sure that we shall do battle with the Treasury Bench and Labour MPs in a generous and well-spirited way.
Question put and agreed to.
That the order in which proceedings are taken shall be: Clauses 1 to 5; Schedule 1; Clause 6; Schedules 2 and 3; Clauses 10, 12, and 13; Schedule 4; Clauses 15 and 17; Schedule 5; Clauses 18, 19 and 21 to 23; Schedule 6; Clauses 24 to 26; Schedule 7; Clause 27; Schedule 8; Clause 28; Schedule 9; Clause 29; Schedule 10; Clause 30; Schedule 11; Clause 31; Schedule 12; Clause 32; Schedule 13; Clauses 33 and 34; Schedule 14; Clause 35; Schedule 15; Clause 36; Schedule 16; Clause 37; Schedule 17; Clause 38; Schedule 18; Clauses 39 and 40; Schedule 19; Clause 41; Schedule 20; Clauses 42 and 43; Schedule 21; Clause 44; Schedule 22; Clauses 45 and 46; Schedule 23; Clauses 47 and 48; Schedule 24; Clause 49; Schedule 25; Clause 50; Schedule 26; Clause 51; Schedule 27; Clauses 52 and 53; Schedule 28; Clauses 54 to 58; Schedule 29; Clauses 59 to 61; Schedule 30; Clause 62; Schedule 31; Clause 63; Schedule 32; Clause 64; Schedule 33; Clause 65; Schedule 34; Clauses 66 to 71; Schedule 35; Clauses 72 to 75; Schedule 36; Clauses 76 to 82; Schedule 37; Clause 83; Schedule 38; Clause 84; Schedule 39; Clause 85; Schedule 40; Clause 86; Schedule 41; Clause 87; Schedule 42; Clause 88; Schedule 43; Clause 89; Schedule 44; Clause 90; Schedule 45; Clause 91; Schedule 46; Clauses 93 and 94; Schedule 47; Clause 95; Schedule 48; Clause 96; Schedule 49; Clause 97; Schedule 50; Clause 98; Schedule 51; Clause 99; Schedule 52; Clause 100; Schedule 53; Clause 101; Schedule 54; Clauses 102 to 105; Schedule 55; Clause106; Schedule 56; Clauses 107 and 108; Schedule 57; Clause 109; Schedule 58; Clauses 110 to 117; Schedule 59; Clause 118; Schedule 60; Clauses 119 to 122; Schedule 61; Clauses 123 and 124; new Clauses; new Schedules; Clauses 125 and 126.—(Mr. Timms.)

Clause 1

Charges and main rates for 2009-10
Question proposed, That the clause stand part of the Bill.
Mr. Timms: We announced in the pre-Budget report and confirmed in the Budget that the basic rate of tax would remain at 20 per cent. and the higher rate of tax at 40 per cent. for the current tax year. As part of a package of measures, we reduced the basic rate to 20 per cent. from 2008-09, which is the lowest rate for more than 75 years, with the 40 per cent. higher rate continuing to apply to higher-rate taxpayers. Taken with the other changes made to personal tax, basic-rate taxpayers are £145 a year better off in April 2009 compared with April 2008. In 2009-10, 21 million households will gain, on average, by about £6 a week compared with April last year.
The tax rates for this year will continue to preserve the two-rate structure for the vast majority of taxpayers. In the pre-Budget report we set out support to low and middle-income families—to help during the global economic downturn—and the fiscal consolidation measures that we would need in the medium term. All of those changes together mean that no one with an income less than £100,000 will see an income tax rise in 2010-11, when the increases take effect. The measures for 2010-11 announced in the Budget will focus only on the highest 2 per cent. of incomes, those above £100,000 a year—the opportunity to debate those matters will come later.
Mr. David Gauke (South-West Hertfordshire) (Con): First, may I say what a great pleasure it is to serve under your chairmanship in this year’s Finance Bill Committee, Mr. Atkinson.
Clause 1 sets out the main rates for income tax, as the Financial Secretary stated. It would be fair to say that the issue of rates is not as prominent this year as it has been. As the Minister said, the Government have preserved the two-tier structure for income tax. The two-tier structure was announced in the Budget of 2007 by the then Chancellor, the current Prime Minister, and is one that will last, it would appear, for two years, and for two years only. The reason why the issue of rates was so prominent last year—I was one of those lucky enough to serve on the Finance Bill Committee—was that the two-tier structure that we see in the clause was established, with a basic rate of 20 per cent. and a higher rate of 40 per cent. That was the first year of the structure, because before that we had the 10p rate. Next year it appears that we shall have an additional 50p rate.
Turning to how we got to where we are with the clause, it was the consequence of the Budget announcement of 2007. In his very last sentence, the then Chancellor announced that he was reducing the basic rate of income tax from 22p to 20p. Earlier in his speech he had announced the abolition of the 10p rate, but he had not made it clear that there would be—even taking into account the reduction to 20p—a substantial number of losers.
The Minister has referred to the structure of income tax and the fact that there would be no losers in 2010-2011. But when the new structure was announced in 2007, it quickly became apparent that 5.3 million households would lose out as a consequence of the abolition of the 10p rate. That number was quickly produced by the Institute for Fiscal Studies soon after that Budget. I served on the Treasury Committee and I remember that that number was broadly confirmed by Treasury officials. When the same figure was put to the then Chancellor the day after, he denied that figure and said—for various technical reasons that I do not intend to go into—that the figure was incorrect. By the time we got to our proceedings last year, it was clear that the figure of 5.3 million households losing out was correct. By that point, Ministers had confirmed the figure in written answers, after it was pursued by the right hon. Member for Birkenhead (Mr. Field), although he pointed out that getting those answers was somewhat difficult and it was not possible to obtain answers about how many individuals would lose out.
I have stated the figures now because the Government have their structure of 20p and 40p in clause 1, but the issue of the losers from the abolition of the 10p rate has not gone away. It is true that during our proceedings last year the Government introduced a compensation package that cost £2.7 billion and raised personal allowances. One could be cynical and say that it was during the Crewe and Nantwich by-election last year. If that was the reason, the package was singularly ineffective. None the less, it confirmed that the increase in personal allowances, which was described as temporary this time last year, would not be withdrawn in the PBR last autumn.
There is still uncertainty as to whether there are a substantial number of losers, and I draw the Committee’s attention to EDM 1279, which has been tabled by the right hon. Member for Birkenhead, who suggests that up to 3.8 million individual taxpayers continue to lose out as a consequence of the new structure. The EDM has been signed by 60 Members—predominantly Labour Members. I could be wrong, but I do not believe that any members of the Committee have signed it, and I suspect that Labour members of the Committee are relieved that they did not sign it because, had they done so, they might not have had the honour of being selected for this Committee. It was EDM 1279, but I fear it is too late now.
The EDM calls for compensation, and we appreciate the fiscal mess that the Government are in. If there is to be a compensation package, the question of affordability will have to be considered. Can the Minister confirm whether that number of up to 3.8 million taxpayers is correct? If it is not, what is the correct number? The question is about the number of individual taxpayers. That is an important point because the Government have always given the number of losers in households. It would still be helpful if the Minister could provide the households number to the Committee, but the point made in a number of instances by the right hon. Member for Birkenhead is that a household may consist of two earners. The example that he often gives is that the man may well benefit from the reduction of 2p in the basic rate of income tax, bringing us to the 20p that we have today, but the woman may be earning less and she may well be losing out as a consequence of the abolition of the 10p rate. Collectively as a household they may well be benefiting, but she as an individual may well be losing. That is why it is interesting to pursue the question of individuals as well as households. That information would therefore be very helpful and it remains astonishing that a Labour Prime Minister, in an attempt to pull a political stunt, was prepared to double income tax for low earners.
10.45 am
The other reason why the issue of rates, which we are debating in clause 1, is perhaps not as prominent as it was last year is that those of us who served last year will recall that the hon. Member for Taunton, on behalf of the Liberal Democrats, tabled a motion to reduce the rate of income tax from 20p to 16p. That, I understand, is no longer the Liberal Democrat position, although we look forward to the hon. Member for Taunton setting out his reasons in due course. I suspect that we will address this when we look at the issue of personal allowances, but I wonder whether the arguments used this time last year on 20p or 16p proved to be so persuasive that the Liberal Democrats changed their course. No doubt we will find out.
The other point I make, with regard to the main rates, is that I do not wish to touch on the various issues relating to the 50p rate which the Government intend to introduce next year. That is for later clauses and my hon. Friend the Member for Hammersmith and Fulham will be setting out our views on those issues. However, I note that in 1997, 2001 and 2005 the Labour party manifestos on which the Government were elected promised not to raise the basic and higher rates of income tax. That, of course, is a pledge that is going to be broken—to the extent that a manifesto pledge in those areas is worth anything from this Government. One can question whether it is even worth asking that question, but I am interested to know from the Financial Secretary whether his party intends to provide a pledge not to raise the standard rate of income tax. Clearly, the Labour party intends to breach its manifesto pledge on the higher rate of income tax, but will it repeat its pledge on the basic rate of income tax and, if it does, will he explain why people should take that in any way seriously?
Save for those brief remarks, Mr. Atkinson, we would be grateful to hear the Minister’s answer, but we are proposing no amendments to clause 1.
Mr. Jeremy Browne (Taunton) (LD): Mr. Atkinson, this is my first opportunity to echo the comments made by others in saying how much I am looking forward to serving under your chairmanship, and that of Mr. Hood, during the course of our deliberations.
The hon. Member for South-West Hertfordshire reminded us that, at this stage in our deliberations last year, I tabled an amendment to reduce the 20p rate to 16p. It remains Liberal Democrat policy to try to reduce the income tax burden on those on very low earnings. Our preference now is to try to do that through thresholds, rather than the rate itself. But the total amount that we wish to redirect to low earners remains the same. More detail will obviously be made available, possibly in next year’s Finance Bill. We live in times of rapid political change so who knows what will happen?
The other two points that I wish to make are slightly more central to the clause. First, I find it extraordinary that the first clause of this rather substantial piece of legislation contains a word that is misleading. It states:
“the higher rate is 40%”.
It is not the higher rate as anyone understands it in the wider world. As I understand it, compensation and tax credits make marginal rates for those on low incomes variable. Then there is a 20 per cent. rate and the 40 per cent. rate—this is without national insurance. There was then going to be a 45 per cent. rate and there are a whole range of tapers which mean that at some point people are paying marginal rates on their income of 61 per cent. Then it drops off and there is a 50p rate. By no reckoning is 40p the higher rate. It is roughly in the middle. I query whether the Bill is accurate in the impression that it seeks to create when even on line 8 people are invited to believe that 40 per cent. is the highest rate of income tax one can pay, unless one says that it is the higher rather than the highest rate, but I would regard that as splitting hairs.
My final point is about simplicity. In his final Budget as Chancellor, the Prime Minister gave as a reason for having two rates the fact that everyone would know where they stood. It was nice and clear cut. There is merit in greater simplicity, as we have discussed before. Indeed, I am told that “Tolley’s Tax Guide” has increased from 4,555 pages in 1997 to 9,841 pages in 2006. So it has doubled in length in a decade. That is an unreasonably large amount of guidance and legislation to get through in order to understand the tax liabilities in this country. Therefore, greater simplicity is valued by nearly everybody except, perhaps, accountants who benefit from a lack of simplicity.
The Government made a merit of having a more simple structure of income tax, but have then complicated it at every turn to try to target assistance or, indeed, penalties at particular groups in society. We now have a higher rate that is not the higher rate, a system that is meant to be simple that is not simple and large numbers of people on low incomes who have been heavily penalised as a result of the Government’s changes. So it is not a happy start to a long period of reflection and deliberation on other clauses that are probably even less attractive to the general public than this first one.
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