Mr.
Timms: I note that the content of clause 1 is not very
controversial so I will keep my remarks brief. The hon. Member for
South-West Hertfordshire asked me about the early-day motion and the
reference to 3.8 million people. I am aware of that figure,
but I cannot confirm it as I have not seen the analysis and I am not
sure of the basis that underpins it. However, the number of households
that have lost out as a result of the changes has been reduced from
over 5 million—which was the initial announcement, as the hon.
Gentleman said—to 600,000 this year, and 500,000 by 2011-12. It
will therefore have been reduced by 90 per cent. by that time. The
losses that we are talking about are less than £1 a week on
average this year. We have made a great deal of progress in addressing
the concerns that were raised in the Committee and elsewhere a year
ago.
Mr.
Gauke: I note that the Minister is not able to confirm the
figure of 3.8 million individuals who have lost out, and again he has
given a household number. Is that because the Treasury has simply not
done any analysis on how many individuals will lose out, and if not,
why not?
Mr.
Timms: It is because the available data are on a household
basis. I think that there was some discussion about that last year. I
do not know of a sound basis on which to do the individual calculation.
The figure of 3.8 million sounds large, and I would be
surprised if it was that big, but as I said, I have not seen the
analysis and I cannot comment on whether it is a plausible figure. I am
confident that the number of households that have lost out will be
600,000 this year and the extent of the losses is extremely
modest.
The hon.
Member for South-West Hertfordshire raised a point about the changes
regarding the new 50p rate, as did the hon. Member for Taunton who also
commented on the restriction of allowances. We will come on to those
matters shortly so I will not say any more about them at this stage,
other than to observe that it is right for us to take action to respond
to the biggest economic crisis that the world has seen in 70 years.
That requires some fiscal consolidation and we have set out what I will
argue is a fair way of taking the necessary action. That is for a later
debate, and I commend the clause to the Committee.
Question
put and agreed to.
Clause 1
ordered to stand part of the Bill.
Clause
2Basic
rate limit for
2009-10
Mr.
Gauke: I beg to move amendment 1, in
clause 2, page 2, line 2, at
end add— ‘(3) The amount
specified in Section 12 of ITA 2007 shall similarly be
£37,400.’.
I should say
at the beginning that those of us who were in the House on Thursday
will be aware that business closed earlier than anticipated. As a
consequence, there was something of a hurry to table the amendments. I
make no claim that amendment 1 is technically the finest amendment ever
placed before the Committee. It is a rather hurried
attempt—which I considered to be the lesser of two
evils—to submit a flawed but pertinent amendment that would
enable the Committee to debate one of the significant issues that face
many people in the country, namely the impact on savers of the
reduction in interest rates that has occurred in recent
months.
We must look
at what we can do within the taxation system to help savers at this
difficult time. Consequently, amendment 1, which raises the threshold
for income tax on savings, is a quick and simple way to bring this
matter to the Committee. My party’s policy is to go further than
amendment 1, but it is consistent with what the amendment is about,
which is to help savers by reducing the burden of income tax on their
savings. I hope that that clarification is helpful to the Committee,
Mr. Atkinson, before I turn to some of the things that we
can do to help savers in the context of clause
2. 11
am
Mr.
Timms: I do not entirely understand what the hon.
Gentleman is saying. How is the proposal different from the one we
debated in the Chamber to remove tax altogether? In a sense it is
rather hurried. Is his party’s policy now that tax should be
reduced to 10p or to
nil?
Mr.
Gauke: That is a perfectly fair question. The policy
remains the same—to reduce tax to nil. The amendment arrived
literally as the Minister was sitting down on the Adjournment
debate—I do not want to conceal that from the Committee. Our
policy remains the same, but it is only fair to the Committee that I
explain that. If the Minister has been forced to examine in great
detail the arguments about extending the basic rate, as I fear he may
have done, I should perhaps apologise, but it was a “needs
must” amendment—something that was to hand.
The Minister
will be aware of our policy for 2009-10 to abolish tax on savings
income for all basic rate taxpayers. Applying the 10p rate could be
described as a halfway house. The amendment is designed to probe the
matter.
Mr.
Browne: A simple question: what are the cost implications
of passing amendment
1?
Mr.
Gauke: The hon. Gentleman asks a fair question. We would
expect amendment 1, in conjunction with new clause 2, which raises the
personal allowance for pensioners, to cost £4.1 billion. We
could have found the money by reducing the growth rate in public
spending for 2009-10. When we produced the policy, the Government were
proposing a 3.4 per cent. real-terms increase in the growth rate. We
propose restraint, so that increase should be 2.6 per cent. To put it
another way, the Government were going to increase public spending from
£620 billion to £650 billion and we suggested that, of
that £30 billion increase, £5 billion could be used to
help savers.
I suspect there is a degree of
sympathy across the Committee for a group of people who have, most of
us would say, done the right thing by trying to put money aside and
provide some independence for themselves, but who have found their
income substantially reduced because of falling interest rates. We
estimate that savers have lost approximately £22 billion of
annual interest income as a result of rate cuts. Let me be clear: we
think it was necessary to reduce interest rates—we are not
criticising the Monetary Policy Committee of the Bank of
England—but people have lost out as a
consequence.
Mr.
Timms: The hon. Gentleman is making a fair point about the
impact of what has happened on savers. However, I want to press him a
little further on how he proposes to finance the £4.1 billion
cost. We have had debates in the Chamber about £5 billion of
saving cuts this year, although his party has not given us any details
about where they would have made those cuts. From next year, as he
knows, we are introducing £5 billion-worth of efficiency
savings. Is his party proposing another £5 billion on
top of those efficiency savings to pay for this measure, which
presumably would be continued into next
year?
Mr.
Gauke: What we have is a policy for this year—a
policy to find additional funds for savers this year and to make
savings this year. There is still an opportunity for the Government to
reconsider and to pursue the policy that we advocate. Assuming that
they do not do so, next year, if we are in government, we will be in
the position next year of having to assess the public finances to
identify the savings needed to reduce public spending.
As the
Minister has rightly said, the Government believe that it is perfectly
possible to find efficiency savings of £5 billion, although that
is not altogether surprising in a budget of £650 billion. We
note that the Government do not seem to think that there will be any
great difficulty in making those savings next year. We wonder why it
cannot be done this year.
Mr.
Browne: The hon. Gentleman said a moment ago that what had
stimulated the Conservatives to bring forward this policy was a big cut
in base interest rates and the impact that that cut had had on savers.
Obviously, one sympathises with savers who are in that position.
However, should we infer from his comments that the policy would no
longer apply if interest rates rose to high levels again? Is it, in
effect, like the Conservative fair fuel stabiliser, so that if we were
to have very high interest rates, a penal tax would be brought in to
punish savers, so that some sort of equilibrium was achieved? That
appears to be the logical conclusion to draw from his description of
the policy.
Mr.
Gauke: The hon. Member for Taunton sometimes allows his
own version of logic to carry him away. There is a short-term and a
long-term argument for savings. The short-term argument is particularly
acute at the moment, because, as I am sure he is finding in his own
constituency, there are people who have not spent rashly or not built
up huge debts—quite the reverse—who
are
still being hit hard, perhaps because of the recklessness of others.
That is the short-term argument and that is why we are pursuing this
policy.
However, I am
grateful for the hon. Gentleman’s intervention, because it
brings me on to some of the longer-term issues and in particular why we
need to do more to encourage saving. That is a fundamental point about
how we rebalance the economy.
We have not
been saving as much as we used to. I know that there has been a
recovery in the savings ratio in the last few months, as tends to be
the case during a recession. The ratio was down at about 1.7 or 1.8 per
cent and it is now up at 4.8 per cent. Nevertheless, the fact is that
society as a whole has been borrowing too much and saving too little.
Our level of household debt has become very considerable—greater
than our GDP. Relative to the size of our economy, we have the highest
household debt in the G7. Figures from Alliance & Leicester show
that 13.5 million Britons did not save in 2008, which is 28 per cent.
of the population. Research for MoneyExpert states that a third of
adults face financial disaster within two months of losing their jobs,
because we do not save enough as a society.
That has
several impacts, one of which is a lack of resilience if there is a
downturn in the economy, which is what we have unfortunately been
experiencing, leaving individuals in a difficult position. The burden
on the state also increases if individuals do not have their own
savings to protect them from economic and personal
difficulties. Mr.
Mark Todd (South Derbyshire) (Lab): The hon. Gentleman is
making a powerful argument for the long-term merits of policy towards
savers, but is now the time, in macro-economic terms, to incentivise
savings? That is certainly not the normal understanding of a correct
response to a
recession.
Mr.
Gauke: We think that a tax cut would be helpful; the hon.
Gentleman and I have debated such matters in the past. My party
believes that the principal response do a downturn such as this should
be monetary policy. As I stated earlier, we have no criticism of the
reduction in interest rates that has occurred; we need a monetary
response. Indeed, we have argued for a long time that more could be
done to get credit flowing around the economy. Furthermore, the likes
of Christina Roma, who is one of President Obama’s advisers,
argue that the multiplier effect of a tax cut, which is, after all,
what we are advocating, is as significant as public
spending. I
understand the hon. Gentleman’s argument, but one of the
difficulties surrounding the whole issue is that there never seems to
be a good time to encourage saving. The Government have tended to enjoy
the tax revenues from a boom and from a rise in stamp duty owing to an
asset bubble and, as a consequence, they have not done enough to
encourage
saving.
Mr.
Browne: I was going to make the same point as the hon.
Member for South Derbyshire and speak of my concern about incentivising
saving during a recession. However, I am interested in the response
given by the hon. Member for South-West Hertfordshire to that point,
because he appears to argue for a fiscal stimulus: he says that this is
a good opportunity to cut taxes and
put more money in people’s pockets. My understanding of the
respective positions of the Government and the Conservative party is
that the Government want an unfunded tax cut, but will only give money
to people when they spend it, whereas the Conservatives want an
unfunded tax cut, but will only give money to people when they save it.
Is that the current
position?
Mr.
Gauke: The point I am making is that the response to a
recession should be monetary. The concern expressed by the hon. Member
for South Derbyshire is that that would take resources away from public
spending and direct them towards people who save. If one is worried
about a Keynesian fiscal stimulus, there are those who still defend a
tax cut rather than public spending and argue that it would have
precisely the same effect. I return to my essential position that the
response has to be monetary. Indeed, the hon. Member for Twickenham has
made the point in the Chamber on at least one occasion—I quoted
in from the Committee of the whole House last week—that, despite
all the arguments, all parties essentially agree that the response
should be monetary. There might, however, be a disagreement on fiscal
measures on the
periphery. Mr.
Peter Bone (Wellingborough) (Con): I wonder whether we are
getting to the crux of the difference between the Government and the
Opposition. The Government believe in more and more public spending,
whereas the Conservative party believes in controlling public spending
and giving tax cuts and more money to people. Does my hon. Friend also
agree that it is extraordinary that he is being grilled so much more
than the Minister? It is almost as though we are in power
already. 11.15
am
Mr.
Gauke: I am grateful for my hon. Friend’s
observation. Taking his second point first, I am happy to be grilled
and welcome such tension about Conservative party policies, as I am
sure he does, and he is quite welcome to intervene on such
points.
The
Government’s position on public spending is somewhat
schizophrenic. They state that now, in 2009, more public spending is
necessary and that the Conservatives are all about cuts and being
beastly generally, despite the fact that the Government have already
slowed their public spending plans and have proposals for future public
spending—noticeably after the general election—that are
really quite tight and that will involve real-term cuts in departmental
expenditure. Yes, there is a difference between our party and the
Government: we believe that public spending restraint should start as
soon as possible, whereas they are delaying those painful
decisions.
There
is a feeling, perhaps across the board and the only question is one of
timing, that we need to do more to restrain public spending and to help
savers. The argument we tend to hear from the Government and their
supporters is that that might be right, but now is not the right time.
However, the financial difficulties facing savers and the crisis within
the balance of our economy are such that we do not have time to
waste. I
return to one of the reasons why encouraging saving is important and
would be helpful. In recent years we have seen a boom and an explosion
of debt and asset
prices, not only in the UK, although we have a particular problem, but
in much of the west. As a consequence, we face significant global
imbalances. In 1997, gross foreign current liabilities were
£1,100 billion; by 2008, that figure had quadrupled to
£4,400 billion—a sign of the expansion of banking
liabilities as a consequence of the savings being created in countries
such as China. To give
another example, in 2001 the customer funding gap—a definition
used by the Bank of England to express the difference between what
banks have lent and borrowed from British households, businesses and
institutions—was nil. By June 2008 it was £740 billion,
as a consequence of banks funding themselves 40 per cent through
wholesale sources. I mention that because there is an imbalance within
the global economy. In countries such as China, huge savings were being
made and the Chinese economy was clearly expanding rapidly, but because
the culture of saving in China and in parts of the developing world is
so strong, those savings have essentially come to the UK. We have had
an imbalance whereby the west has been consuming while the east has
been saving. That creates a degree of instability, which I think is a
factor in a lot of the difficulties that western economies have had in
the past couple of years.
Since August
2007, those wholesale sources of finance have dried up, and that caused
the credit crunch. However, we can also look to the fact that over a
long period we in the west largely stopped saving. I shall not
exaggerate the impact of our policy and say that the tax cuts that we
propose for 2009-10 will effect a transformation. It is a wider problem
and there are other factors influencing the fact that we have not been
saving enough. However, we could signal the direction that we are going
in. I
note that the BBC’s Robert Peston refers to the new capitalism,
one element of which is a stronger sense of saving in the UK and other
western economies. With interest rates coming down to historically very
low levels, the signal to those who may be thinking of saving is,
“Is it really worth putting money aside for a rainy day? When
things get difficult, you do not get anything for your savings
anyway.” That is the immediate difficulty we face.
Although flawed, I hope that
amendment 1 has enabled the Committee to probe what we can do to help
savers and whether we can reduce income tax. I shall give a couple of
examples that relate, not to increasing the pensioner allowance, but to
abolishing tax at basic rate for savers. A 60-year-old retired couple,
with a total pension income of £12,000, could be
£400 a year better off. A 40-year-old single mother,
working part-time and earning £100,000, with savings producing
£800, could be £160 a year better off. Our proposal is
affordable, it would help innocent victims of the downturn and it would
signal, in the longer term, that we value savings. We are going to have
to save more as a society and we, as a Government, should do what we
can to help savers.
John
Howell (Henley) (Con): I start by thanking my hon. Friend
for arguing for savers. I will look at savers who are pensioners. I
have been concerned about the Government’s apparent
dismissiveness of the impact on pensioners of the reduction in savings
interest. In its utterances, the Department for Work and Pensions has
been minimising how the impact will fall on pensioners and,
particularly, whether it will increase the number of
pensioners likely to fall below the margins that one would normally
expect. That is partly due to the statistical approach that it
uses. The
figures for 2006-07, which are probably the most complete, show that
something like 72 per cent. of pensioners were in receipt of income
from investments. That is a huge number. The average income was more
than £50 per week, which is a significant amount of money. By
using the median rather than the average, we can bring that down to
£7 and, therefore, dismiss it as insignificant, but even then,
if an individual was relying on a notice-based deposit account, their
income would have fallen from £7 to £2 a week, as a
result of the interest rate cuts. Will the Minister say whether the
Treasury is as dismissive of the effect of interest rates on pensioners
as the Department for Work and Pensions seems to
be?
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