Clause
3Personal
allowance for 2009-10 for those aged under
65 Question
proposed, That the clause stand part of the
Bill.
The
Chairman: With this it will be convenient to discuss new
clause 2— Personal allowances for 2009-10 for those aged over
65 ‘(1) For the tax year
2009-10 the amount specified
in— (a) section 36 of
ITA 2007, and (b) section
257(2) of ICTA, (personal
allowance for those aged 65 to 74) is replaced with
“£11,490”. (2)
For the tax year 2009-10 the amount specified
in— (a) section 37 of
ITA 2007, and (b) section
257(3) of ICTA, (personal
allowance for those aged 75 and over) is replaced with
“£11,640”’.
Mr.
Timms: The clause increases the personal allowance for
those aged under 65 by £130 above indexation. Over the last year
we have announced a number of changes to personal tax which focus
support now on low and middle income households while consolidating the
fiscal position in the medium term, targeting those who can afford to
pay more while protecting those with the lowest incomes.
In May last
year, we announced an in-year rise in the personal allowance worth up
to £120 to all basic-rate taxpayers. Most people saw the benefit
of that change from last September. In the pre-Budget report, we
announced further support for families, reflecting their difficulties
at the moment. We rolled forward the increase in the personal
allowance, and increased it by a further £130 above inflation.
For 2009-10, that means that the tax free personal allowance will
increase from £6035 to £6475. The clause makes that
change. The
package of measures announced in the pre-Budget report, of which clause
3 is an important element, provides support to all low and
middle-income families for the current period, and will mean that some
23 million taxpayers with an income under £40,000
will be, on average, around £145 a year—nearly £3
a week—better off in April 2011, compared to April 2008. Changes
since the Budget last year will mean that 800,000 low-income households
will be completely taken out of tax. The changes brought in by the
clause will also fully compensate about 90 per cent. of households who
would have otherwise been paying more net tax from the removal of the
10p tax rate, as we were discussing a few minutes
ago.
New clause 2
would raise the age-related allowances for those aged 65 and over by
£2,000 from its current level this year. The hon. Member for
South-West Hertfordshire said earlier that this was part of a package
that he estimated as costing £4 billion. I think that this
particular part of it would cost some £1.2 billion. I guess from
what he is saying that he envisages it being a one-year only increase
in the age-related allowances, with the expectation that the
age-related allowance would be reduced again in the following year.
That would be an unusual thing to do; changes of this kind to
age-related allowances really ought to be on an enduring basis, rather
than a temporary basis. It is a significant downside to what he is
proposing.
Mr.
Atkinson, if I am able to catch your eye at the end of this short
debate, perhaps I will say some more about new clause 2, but I commend
clause 3 to the
Committee.
Mr.
Gauke: On clause 3, I note the increases in personal
allowances. The Minister has stated that he also acknowledges that this
does not succeed in compensating a number of those who have lost out as
a consequence of the 10p rate being abolished. I am sure that point has
been noted by his own Back Benchers.
On
new clause 2, the Minister said that he could see difficulties in an
increase in personal allowances being for one year only. I note that
comment. As I have made clear, this policy is for this year and
personal allowances would need to be looked at again next year were we
in a position to control what those allowances might be and consider
the appropriate approach. I was rather struck by the irony that a
Minister was querying whether it was appropriate to use the personal
allowance on a temporary basis to address a particular problem. Those
of us who recall last year’s debates will know that the
Government did precisely that with a temporary increase in personal
allowances to address the 10p rates, which they made permanent in the
PBR. Certainly the intention this time last year—it was almost
to the day that the compensation package was announced—was that
it was on a temporary basis. I am not sure that the Government are on
the strongest ground
here. As
the Minister stated, the intention of new clause 2 is to raise the
personal allowances for those over 65 and those over 75 by an
additional £2,000 a year.
Mr.
Todd: The new clause appears to be silent on the issue of
the point where the benefit of this increased allowance starts to be
lost. There is a point at which this raised allowance for those over 65
deteriorates. Is that adjusted at all within the
proposal?
Mr.
Gauke: The hon. Gentleman makes a fair point. It is an
important technical point and one which the new clause does not fully
address. We recognise that there will be a tapering system. Our policy
is aimed at helping those who benefit from the basic rate. We think
that these amendments help to achieve
that. I
note the Minister’s earlier points about the benefit of raising
personal allowances and taking pensioners out of the tax system, but
our proposal does not result in some of the difficulties of pensioners
having to claim back taxes in certain circumstances. Clearly it helps
to take pensioners out of the tax system. I do not intend to run over
all the arguments about encouraging saving in
order to provide resilience for individuals, to encourage independence
and perhaps even to provide stability within our banking system, as I
have made those points already. Equally this group has been hit hard by
the fall in interest rates in recent months. This must be seen as part
of the package to help savers which I addressed earlier. We believe
that this is a useful policy. It will help those who have been unfairly
affected by the fall in interest rates. An increase in personal
allowances in this area is a simple way of redressing
that. Mr.
Todd: I want to explore this a little further. If this is
targeted at those who have lost income from falling interest rates it
will apply to any pensioner over 65 whose income may be drawn from any
source. I am not quite clear about the targeting of this in relation to
the hon. Gentleman’s
argument.
Mr.
Gauke: The hon. Gentleman is right to say that income in a
number of other areas has also declined, but this measure needs to be
seen as part of a wider package. Pensioners, for example, are in a more
difficult position than they were a couple of years ago due to the
changing economic climate. We think that the Government should pursue
that matter, and to find savings in public spending now in order to
provide support to pensioners would be a sensible
policy.
Mr.
Bone: I have spoken to pensioners in my constituency whose
savings income has gone down so drastically that they have had to go
back to work. Would not the new clause benefit those people, as they
would get an effective reduction in the income tax that they
pay?
Mr.
Gauke: That is absolutely true. These are difficult times
and there may also be people who have delayed retirement. I can think
of constituents who are in exactly that position. Those people deserve
our support, and consequently, I commend the new clause to the
Committee.
Mr.
Jeremy Browne: As we saw from our
discussions on clause 2, it is important that Opposition parties get
the details of their policies right before submitting them to the
Committee. As far as I understand, the Conservative party’s
policy changes depending on what point on Thursday afternoon it is.
Amendment 2, which I tabled, is not being discussed directly, but it is
helpfully on the blue sheet that gives notice of amendments. It seeks
to provide an opportunity to discuss how different income tax
thresholds could benefit different interests and income groups. Unlike
the Conservative proposals, this is an extremely robust and well
thought through set of proposals by my party, and it will form the
centrepiece of our election manifesto.
Mr.
Bone: I have a sense of dÃ(c)jà -vu. Did not the
hon. Gentleman stand up at this time last year and say that his
proposals were going to form the centrepiece of the Liberal Democrat
manifesto? Will we have new proposals before the election for next
year?
Mr.
Browne: Sadly, we have not had an election so we carry on.
However, the hon. Gentleman is right—it remains our view that we
should give greater assistance
to people on low and middle incomes by charging them less in income tax.
Last year we suggested that that might be achieved by reducing the
basic rate. We are now saying that the same objective could be better
achieved by raising thresholds. We propose that instead of the figure
of £6,475, the personal allowance should be £10,000. That
would result in a reduction for anybody earning in excess of
£10,000.
Mr.
Todd: On a point of order, Mr. Atkinson, I am
not clear which amendment we are discussing. We appear to be hearing a
speech in favour of an amendment that has not been
selected.
The
Chairman: That is not a point of order for me, but
something that the hon. Member for Taunton might wish to
explain.
Mr.
Browne: I am grateful to you for providing me with that
opportunity, Mr. Atkinson. We feel that the clause would be
better if it said £10,000 instead of £6,475, and on that
basis, we do not feel able to support it. The stand part debate gives
me an ideal opportunity to argue that clause 3 is not a good basis on
which to legislate. I hope that the Committee will be convinced by my
argument and will reject the clause. We believe that increasing the
allowance to £10,000 would have a profound and beneficial impact
on people on low and middle incomes. For example, it would represent an
income tax cut of £705 for those earning over £10,000,
and 4 million people would not pay tax altogether.
I do not wish
to try your patience, Mr. Atkinson, but it would not be
credible for us to make this case without convincing the Committee and
the country that the sums add up and that we have lots of robust
proposals for financing this radical and attractive
measure.
12
noon
The
Chairman: Order. I wish to clear some confusion in my
mind. The hon. Gentleman can speak to clause 3 stand part—the
entire clause—at this moment. We are not debating only the new
clause; we are debating the whole thing. I was not sure whether he was
clear on
that.
Mr.
Browne: That is what I was hoping to
do.
The
Chairman: At the end of this debate we will put the
question whether clause 3 should stand part of the Bill. There will be
no division on the new clause; if there is to be one, it will be much
later in our
proceedings.
Mr.
Browne: I was just seeking to make a point about the
Government’s proposed 2009-10 personal allowance for those aged
under 65. I do not wish to incur your wrath, Mr.
Atkinson—I did not want to speak at length about alternatives
put forward by my party. Those will become apparent in time, and I do
not wish to get too far from the matter in hand. I want to put on the
record, because it is important, that attention will increasingly be
paid to the question of how we can alleviate the tax burden on those on
low and middle incomes. The Government have in many cases tried to do
that with a
complex system of tax credits. Our fear is that that leads to excessive
complication; the system could be simpler. As we all know from our
constituencies, there can be a sizeable administrative burden, which
the Government do not always deal with very efficiently. My party is
coming up with alternative proposals that we feel would be
helpful.
Mr.
Gauke: I am grateful to the hon. Gentleman for giving way
during his explanation of the clause and his proposals on personal
allowances. It has often been said, certainly by his colleagues, that
as part of a fiscal stimulus there is a need to raise taxes on the
wealthy to fund tax cuts for those on low pay. Is this proposal
explicitly part of a fiscal stimulus, or not? Secondly, as I understand
it, when this policy was announced, it was going to be financed by
abolishing tax relief on higher earners’ pension contributions.
Now that the Government have gone some way towards that, does that
leave a black hole in the hon. Gentleman’s party’s
calculations?
Mr.
Browne: I shall not answer at great length because I do
not wish to upset anybody, Mr. Atkinson. The first point is
that our proposals are revenue neutral, so there is a shift in the tax
burden to try to assist people on low and middle incomes. Therefore, it
is not a fiscal stimulus in the sense of borrowing money to fund an
overall tax cut. I think most people would accept that those on low and
middle incomes tend to spend a higher proportion of their income than
those on higher ones, so the effect—admittedly fairly
modest—might be to increase overall spending without changing
the overall tax burden. Shall I go on to the second
point?
Mr.
Gauke: I hope the hon. Gentleman will forgive me for
intervening while he responds to the first point, before having a
chance to respond to the second. The Liberal Democrat tax policy as
presented by the hon. Member for Twickenham, particularly in debates
after the PBR, was that there is a need for a fiscal stimulus, but a
funded one. I think the hon. Member for Taunton is acknowledging that.
Applying his own logic, does this mean that when the time comes for
fiscal tightening—if he believes fiscal measures are
appropriate—there would be a transfer and that his party would
raise taxes on the poorest and cut taxes on the wealthiest, because
that would be a fiscal
restraint?
Mr.
Browne: I am grateful for that intervention because I wish
to share with the Committee my desire to see the tax burden reduced, if
possible. I have watched both Labour and Conservative Governments
increase taxes on people on low and middle incomes, and I know how much
difficulty that causes. That is not a path that I would argue for going
down. We are proposing a measure that would help people and households
with fairly modest incomes. It is not primarily designed to try to
stimulate the economy as a whole, but that would be a beneficial
by-product of our policy, were the Government to adopt it. As I said,
it would have a modest but nevertheless real stimulus effect because of
the different spending patterns of different
groups.
Mr.
Bone: Will the hon. Gentleman give
way?
Mr.
Browne: I will, but first let me finish answering the
previous intervention. It is true that one of the measures we are
proposing in order to fund the increase
in the personal allowance—a reduction in income tax for people on
low and middle incomes—is to standardise tax relief on pension
contributions at the basic, 20 per cent. rate. To some extent, the
Government have taken a dimension of that pot of funding, but quite a
small one, because Government policy still allows for pension relief at
the upper rate and only cuts it off higher up the income
scale.
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