 House of Commons |
Session 2008 - 09 Publications on the internet Public Bill Committee Debates Finance Bill |
The Committee consisted of the following Members:Liam Laurence Smyth,
Committee Clerk † attended
the Committee Public Bill CommitteeTuesday 19 May 2009(Morning)[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.
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. Ordered, 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 1Charges
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.
I have only a
few, brief comments to make on what is, after all, a very short clause.
However, it is worth putting the clause in the context just given by
the hon. Member for South-West Hertfordshire. Of course, the discussion
that we had a year ago about this clause focused primarily on the 5
million-plus people in the
UK who were losing income as a result of the Government doubling the 10p
rate of income tax for those on particularly low earnings. Of course,
the Government’s attempts to try and rectify that situation and
convince Labour Back Benchers, in particular, and people right across
the country that they had not intended to inflict such financial
penalties on people on low earnings, meant that there was little
opportunity to scrutinise quite serious changes to our system of income
tax. The Government did not introduce those proposals in the
normal way through a Budget and a Finance Bill so the opportunities for
scrutiny were compromised. That is regrettable. Approximately a million
people are still net losers as a result of the changes that the
Government introduced, even with the compensation that was meant to
rectify that
issue. 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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