(12 years, 2 months ago)
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16:38 - The Committee having divided: - Ayes: 231 / Noes: 298 - Question accordingly negatived.
16:54 - divided: - Ayes: 299 / Noes: 230 - Question accordingly agreed to.
18:00 - The Committee divided: - Ayes: 234 / Noes: 289 - Question accordingly negatived.
18:14 - The Committee divided: - Ayes: 240 / Noes: 283 - Question accordingly negatived.
18:27 - The Committee divided: - Ayes: 283 / Noes: 231 - Question accordingly agreed to.
Rachel Reeves (Leeds West) (Lab)
I beg to move amendment 65, page 2, line 37, leave out subsection (2).
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
With this it will be convenient to discuss the following:
Amendment 66, page 3, line 5, leave out
‘was born after 5 April 1938 but before 6 April 1948’
and insert
‘is 65 or over at some time in the tax year, but under 75 throughout the tax year.’.
Amendment 67, page 3, line 17, leave out
‘had been born after 5 April 1948’
and insert
‘is under the age of 65 throughout the tax year’.
Amendment 68, page 3, line 19, leave out paragraph (d).
Amendment 69, page 3, line 26, leave out
‘was born before 6 April 1938’
and insert
‘is 75 or over at some time in the tax year.’.
Amendment 70, page 3, line 38, leave out
‘had been born after 5 April 1948’
and insert
‘is under the age of 65 throughout the tax year.’.
Amendment 71, page 3, line 40, leave out paragraph (d).
Amendment 72, page 3, line 42, leave out subsection (5).
Amendment 73, page 3, line 45, leave out sub-paragraph (i).
Amendment 74, page 4, line 2, leave out subsection (7).
Clause stand part.
Rachel Reeves
It is a privilege to serve under your chairmanship, Ms Primarolo.
I rise to speak to the amendments and to oppose clause 4, which will freeze age-related allowances for those who are receiving them and abolish them for those who are approaching retirement. I hope that Members from all parts of the Committee will join us in our opposition this afternoon. Defeating the clause would prevent a real-terms increase in tax for millions of older people in this country, which will cost £83 a year for 4.4 million people on modest incomes and as a much as £322 for 360,000 people who will reach the age of 65 next year.
We are seeking to reverse the Government’s freezing and abolition of age-related allowance for three simple reasons: first, that tax increase adds to the financial pressure already felt by older people on modest incomes facing rising costs; secondly, it picks the pockets of pensioners to fund an irresponsible tax cut for millionaires; and thirdly, the way in which it has been introduced adds insult to injury, breaking a promise made by the Chancellor just a year ago and using the language of tax simplification to cover up what is clearly and simply a tax grab.
Alun Cairns (Vale of Glamorgan) (Con)
The hon. Lady is expressing opposition to the freezing of the age-related allowance. Did she express the same opposition when the last Chancellor did exactly the same in the Labour Government’s last Budget?
Rachel Reeves
This is a permanent freeze, and the allowance is being abolished entirely for people coming up to retirement next year, so it is very different from a one-year freeze.
Rachel Reeves
I will make some progress.
For the reasons that I have given, pensioners from the National Pensioners Convention have come to Parliament today to lobby MPs to vote against the change. Let us take each issue in turn and consider who will be hit, because there has been some myth making by defenders of the granny tax about how only well-off pensioners will be affected. The truth is, those who will be hit have very modest incomes.
Harriett Baldwin (West Worcestershire) (Con)
The hon. Lady refers to the “granny tax”. I know that she, like me, would really like to see older women retiring with the same income as men over time. Does she therefore accept that 60% of the effect of the freezing of the age-related allowance will be on men and 40% on women, so it should not really be referred to as a granny tax?
Rachel Reeves
The money involved will not alleviate the pressure on women in retirement. It will all be used to give a tax cut of £40,000 to 14,000 millionaires. The hon. Lady talks about women in retirement, and it was Government Members who voted to increase the state pension age for women with just five or six years’ notice, hitting them by up to £15,000 in lost retirement income. We will not take any lectures from them about the matter.
Derek Twigg (Halton) (Lab)
I notice that we have not heard much about fairness or about the big tax cuts being given to millionaires in the interventions by Government Members. Is it not true those retiring next year with personal or occupational pensions of as low as £67 a week could be affected by the change to age-related allowance? The Government are attacking a group of pensioners with modest incomes, which will be a particularly devastating blow in the most deprived areas such as Halton.
Rachel Reeves
I know that my hon. Friend sticks up for pensioners in his constituency, unlike Government Members, who want to grab the incomes of pensioners in their constituencies.
My hon. Friend points out the evidence that we have commissioned from the House of Commons Library, which shows that a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put someone in the firing line of the additional tax. People with such pensions are not the privileged few, living a life of luxury in retirement. The measure will hit millions of people who have worked hard in ordinary jobs and managed to set aside just enough to give them a small pension that relieves them of reliance on means-tested benefits and allows them to have some security in retirement.
Ian Swales (Redcar) (LD)
Can the hon. Lady tell the Committee how much tax somebody getting an occupational pension of £67 a week would pay under the new arrangements?
Rachel Reeves
If they were being taxed at 20%, that would mean tax of about £13 a week on their pension. Such pensioners will be hit hard by the changes.
We know how hard it already is for many people to save enough for a modest pension, so why have the Government picked on pensioners to pay more? As the chief executive of Saga has put it:
“Amid all the talk of tax cuts…the main tax-raising measure”
in the Budget
“consisted of a stealth tax increase on older people who did actually work and save hard for their future.”
Gransnet has warned that
“this tax change offers no incentive to save”,
and the National Association of Pension Funds has stated that it will
“come as a blow to millions of pensioners who have paid in to the tax system throughout their working lives. Pensioners with modest amounts of pension saving stand to be the biggest losers.”
Let us be clear that the change will hit people with small pensions who have made sacrifices to save and are now being penalised for doing the right thing.
Brandon Lewis (Great Yarmouth) (Con)
Putting aside the fact that people on incomes such as my hon. Friend the Member for Redcar (Ian Swales) mentioned would pay zero in tax, which makes the hon. Lady’s argument purely academic at best, is it not true that she is referring to the same group of people who have just had the biggest ever increase in their pension? That is much different from the previous Labour Government’s 75p insult.
Rachel Reeves
The people who will be hit by this tax are those who have an income in retirement of between £10,500 and £25,000 a year. They will pay tax at 20% on any income over £10,500 a year. That is why 4.4 million pensioners will lose out by an average of £83 next year. People retiring next year will lose out by up to £322. That is the reality of the change that we will vote on this afternoon.
Nick Smith (Blaenau Gwent) (Lab)
I understand that age-related benefits were an idea put forward by Winston Churchill. Does my hon. Friend think that George Osborne knows better than Winston Churchill?
Rachel Reeves
Government Members would do well to look to Churchill rather than to their current leaders when deciding how to vote today.
Jacob Rees-Mogg
Winston Churchill, a very great man, took us back on to the gold standard as Chancellor. If we were to follow every proposal of Winston Churchill’s as Chancellor, we would find it very difficult to run the economy.
Rachel Reeves
I thank the hon. Gentleman. His constituents have had a hard time in the past few days. Older people will be hit by the changes to pensioners’ tax allowances, and of course the pasty industry in Cornwall and the south-west will be hit hard, so there is a double hit for his region.
We need to remember the situation that most pensioners face. They do not have ways of making up for a loss of income by going out and finding work. That is what it means to be retired. They are therefore particularly vulnerable to rises in the cost of living and to unanticipated changes in their financial circumstances. The Office of Tax Simplification report notes that the current age-related allowance was
“introduced to reflect potentially higher costs of living of older people.”
That was why Winston Churchill introduced it in 1925. As the OTS has stated:
“Older people can struggle to meet living costs. They are often on a fixed income once they have retired, or perhaps on a declining income in real terms where flat annuities have been purchased”.
Katy Clark (North Ayrshire and Arran) (Lab)
I understand that one reason why the age-related allowance was originally introduced was the higher cost of heating when people are older. Does my hon. Friend agree that that is particularly important now given the rising cost of fuel, and even more so in parts of the country where the weather is worse, such as the north and Scotland?
Rachel Reeves
It has been pretty cold in my constituency in Leeds this winter, as well. My hon. Friend is right to make that point, because people face many extra costs as they get older, such as in heating their home.
Robert Flello (Stoke-on-Trent South) (Lab)
I am enjoying my hon. Friend’s speech, and she is being extremely generous in allowing hon. Members of all parties to intervene. To continue her point, pensioners now face an increase in the cost of not only gas and electricity, but of a decent, healthy meal that will sustain them. As people get older and more frail, they need to ensure that they eat proper, decent, balanced meals. Costs are going through the roof all the time and constituents such as mine will look at their weekly household bills and be horrified. To add this insult to that injury is simply a disgrace.
Rachel Reeves
I thank my hon. Friend for his intervention. Indeed, Citizens Advice said that the change
“has to be considered in terms of the cumulative impact. Fuel prices continue to rise, and that is a key worry; 43% of the people who come to us are worried that they will not be able to meet their fuel bills. We have examples of people coming into our bureaux who do not heat their homes because they are worried about not being able to afford it... This group of people very often have to rely on their savings in order to live in their retirement, and they are getting very low interest on them.”
My hon. Friends have therefore made good points, which represent their constituents’ very real concerns.
Moreover, pensioners have already been hit hard by the Government. The winter fuel allowance has been cut; pensions have been indexed to a lower measure of inflation; the raising of the state pension age for women has been brought forward, and last year’s VAT rise has added £275 to the costs that an average pensioner couple faces. Evidence from the Institute for Fiscal Studies to the Treasury Committee confirms that, as a result of the tax and benefit changes that the Government have implemented, the incomes of pensioner households have fallen by 1.4%, and most have little prospect or opportunity of making up that loss.
Nadhim Zahawi (Stratford-on-Avon) (Con)
I have a very simple question: will the hon. Lady reverse the policy on the allowance?
Rachel Reeves
We do not know what the economy will look like in three weeks, let alone in three years. The Government’s choices are making our economic prospects worse and worse. In the past year, the Office for Budget Responsibility has had to revise down its forecast for UK growth three times. It is now expected to be a third less than it was a year ago. We will publish our manifesto before the next election, but it will be very different from Government Members’ manifestos because we prioritise hard-working families, not a tax cut of £40,000 for 14,000 millionaires. That is why we will vote against the provision this evening.
The Exchequer Secretary to the Treasury (Mr David Gauke)
On the Government’s treatment of pensioners, the hon. Lady mentioned uprating the state pension. She will know that we have introduced a triple lock so that the state pension increases by the higher of 2.5%, CPI or earnings. She will also know that, according to the plans we inherited, pensions would rise in line with earnings. As a consequence of the increases by CPI rather than earnings, the state pension has increased by £127 more a year than it would have done under the plans that we inherited. Does she accept that?
Rachel Reeves
Not many Governments would want to take credit for the fact that inflation has reached 5.3%. Pensions have had to rise by just over £5 to compensate for the increase in the cost of living for pensioners. The Government increased VAT and took no action to tackle excessive gas and electricity bills, and that is why inflation is so high for ordinary working families and pensioners.
Rachel Reeves
That is like suggesting that if inflation was 10% and the Government had to increase pensions by £10 a week to keep pace, pensioners should celebrate and thank them. Of course they will not thank them because the increase in pensions only keeps pace with the rising cost of living. If the Government want to take credit for record high inflation, be our guest.
Rachel Reeves
No. Cuts to vital services such as the NHS and to social care and local transport also hit pensioners hard on top of the increases in VAT and the cuts to their pensions.
Many of the worst cuts are still to come. Analysis of the 2010 spending review showed that, on average, pensioner couples would be hit hard by cuts to services, amounting to £1,275 a year or 6% of their household income, while single pensioners stood to lose services worth £1,300 a year or 11% of their income. As we heard from the Treasury Committee yesterday, many pensioners are also paying a price for the Government’s failure to get the economy moving because the Government are relying on the Bank of England to undertake more quantitative easing to prevent the economy from sinking deeper into recession. That means that annuity rates and returns on pensioners’ savings are lower than they would otherwise be.
Brandon Lewis
The hon. Lady referred to the increase in the pensioners’ allowance and linked it to inflation. How high would the Labour Government have moved it in the current circumstances of inflation? How would they have paid for that with council tax rises elsewhere?
Rachel Reeves
I return to my earlier point: if inflation was 10% and pensioners got a £10 increase in their pension, would Government Members celebrate and say that that was huge largesse for pensioners? It is not; it just keeps pace with the cost of living. The increase in VAT, and the increases in gas and electricity prices, which the Government have done nothing to tackle, and the rise in petrol prices, mean that the cost of living for pensioners and other families has increased enormously because of the Government’s choices.
There is a further hit to pensioners’ incomes, buried in the detail of the Budget documents. This year, an estimated 300,000 pensioners stand to lose their savings credit, while others stand to lose as much as £276 a year as a result of reduced rates of savings credit. Under the Chancellor’s latest plans, the savings credit will be abolished completely, costing more than 100,000 new pensioners as much as £897 a year: another stealth tax that the Chancellor tried to slip past pensioners; another slice taken from the constrained budgets of ordinary families.
Kelvin Hopkins (Luton North) (Lab)
I support my hon. Friend’s comments. Rather than speculate about what the next Labour Government will do after the next election—I like to think that Government Members have already conceded defeat—what about the Government’s backing off now and reversing the dreadful decision?
Rachel Reeves
I thank my hon. Friend and congratulate him on hosting the National Pensioners Convention in Parliament today. It came to make the very point that my hon. Friend just made, and that pensioners made to us in the Committee Room earlier. Some Government Members would do well to listen to some of the pensioners in their constituencies.
It adds insult to injury for the Prime Minister and other Government Members to tell pensioners that they should be grateful for a rise in the basic state pension that merely matches the rate of inflation. It is not a rise—it simply keeps things level. If Government Members do not know the difference, they should get out into the real world, where the costs of food and fuel are going up and it is getting harder and harder to make ends meet.
Rachel Reeves
The idea that pensioners have been protected from the squeeze on living standards is simply not true. It is divisive and distorts reality when Government Members try to make that point, and conceals the fact that many older people are under genuine pressure. We should do what we can to help them, not see pensioners as a soft target for stealth taxes, as the Chancellor so clearly does.
Julie Hilling (Bolton West) (Lab)
The increase in pensions has not actually kept up with the cost of living, because if the Government had not been so mean as to change to CPI, but had used RPI, pensioners would have an amount of money that kept in touch with the increasing cost of living.
Rachel Reeves
I thank my hon. Friend for that intervention. All hon. Members know that the average rate of inflation for pensioners is often very high—higher than it is for ordinary families—because they spend more of their income on gas, electricity and food, the rates of inflation for which are going up at a higher rate.
Fiona O'Donnell
In constituencies such as mine, many pensioners live in rural communities without access to public transport, so we need to add into the mix the cost of running a car, which is essential to their quality of life.
Rachel Reeves
My hon. Friend sticks up for pensioners in her constituency, where, as she says, there are many pressures on their costs and standard of living.
In fact, the only people insulated from the Government’s unfair choices and economic failures are the wealthiest. The richest 10% of people over the age of 65 will be wholly untouched by the tax increases that we are debating. Indeed, those with incomes over £150,000, including, we might note, some members of the Cabinet, will benefit from the cut in the 50p rate of tax that we debated yesterday.
Richard Harrington
I am so extremely grateful to the hon. Lady for giving way—I hope she will forgive my perseverance. Having listened to her argument in some detail, I should like to ask her a question. Principle is very important to her. Does she believe that under-65s should have a lower personal allowance than over-65s as a point of principle?
Rachel Reeves
Winston Churchill was right in 1925 when he introduced that measure. People who are retired have fixed incomes, as a result of which there are more pressures on them and they cannot make up the additional changes. That is why the Opposition will vote against the Government’s change. We do not think it is the right priority or the right thing to do at this time, especially because the money is not being used to help young people to get back to work, to help the poorest pensioners or to help families of children who are struggling with the rise in the cost of living. Instead, the money is being used to give a tax cut of £40,000 to 14,000 millionaires. I can tell the hon. Gentleman what my principle is: we should prioritise ordinary families, ordinary pensioners and young people who are out of work, not those on multi-million pound salaries. That is my principle and those are my priorities. I am sorry that Government Members do not share them.
That is the second reason why the Opposition are opposing the tax increase on millions of modest-income pensioners. As my hon. Friend the Member for Pontypridd (Owen Smith) so eloquently expressed on Monday, the measure is unfair and unnecessary when the Government are spending £3 billion on a tax give-away for the richest 1%. Hon. Members will remember that, originally, the Government said that the 50p tax cut would be paid for by a mansion tax and a crackdown on tax avoidance. However, the cut costs 10 times as much as is raised by the new measure on stamp duty—the Chief Secretary’s sorry substitute for a mansion tax—and more than three times as much as is raised in the Budget by reductions in tax avoidance. In fact, cutting tax avoidance should be part of every Budget anyway, and the money raised by measures to tackle tax avoidance in this Budget is less than the average reductions in tax avoidance achieved by Labour’s Budgets. In addition, we have since discovered that the Government’s definition of tax avoidance includes donations to UNICEF, Macmillan, the Royal National Lifeboat Institution and other charities that do fantastic work in our communities. That the Government cannot see the difference between tax avoidance and giving money to worthwhile causes again shows how out of touch they are.
Meanwhile, the single biggest revenue raiser in the Budget is the measure before us. More than £3 billion over the next five years will be raised from the pockets of pensioners with modest incomes. Where does it all go to? Does it go towards paying down the deficit? No. Does it help young people to get back to work? No. Does it help poorer pensioners? No—they have been hit too by VAT rises and service cuts. Instead, the money, which is being taken from those with pensions of just a few thousand pounds a year, is being spent on a tax cut for people for whom this tax grab would have counted as mere small change.
The Government were said to have been surprised by the anger that the measure has aroused, but that again goes to show how out of touch they are with the reality faced by most people, and how far they have strayed from the values and priorities of the British people. It goes to the heart of the problems that the Government face and the problem with their conception of fairness, and the callous arrogance with which they have abandoned the pretence that we are all in it together.
Age UK responded to the Government’s measures by stating:
“we feel it is disappointing that the Budget offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes who are already being squeezed”.
The chief executive of Saga said:
“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”
The National Pensioners Convention, which I met earlier today, stated:
“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax…whilst those earning £150,000 or more will see their tax bills reduced. This is seen by many as the last straw…Pensioners feel they are being asked to bail out the super rich…and it’s simply not fair.”
Age UK, Saga, and the National Pensioners Convention have hit the nail on the head. It is just a shame that the Chancellor and the Prime Minister are so blinded by the demands of the super-rich that they fail to see it.
Finally, it is worth recognising that the measure is not the only reason why people are so angry. It is not just the blatant unfairness that has offended people, but the way in which the change was announced. Most people believe that our older generation deserve to be treated with respect and dignity, yet this Government and the Chancellor tried to get away with going back on a previous promise by dressing up a tax grab as a “simplification”. Just one year ago, on page 35 of the 2011 Budget Red Book, people were told:
“For the duration of this Parliament…the age related allowance will be over-indexed”
according to
“CPI and will increase by the equivalent of the…RPI”.
What the Chancellor said then was clear and unmistakeable, but that is another broken promise by the Conservatives and their Liberal Democrat friends. The Institute for Fiscal Studies agrees. It says that the Chancellor
“should have avoided dressing up what is clearly a tax increase as merely a simplification”.
In the same letter from Age UK to the Chancellor that I have quoted, it also states:
“We are concerned that you announced the change to age allowances as a way to simplify the tax system and indeed the Budget Report lists the change under…‘Simplification’... rather than under ‘Personal and Property taxes’”.
The Chancellor also attempted to hide behind the Office of Tax Simplification, but its director has told the Treasury that attempts to use its recommendations as a cover for his tax grab are “not 100% accurate”. The relevant report by the Office of Tax Simplification states clearly:
“we would stress…that the Office of Tax Simplification has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations”.
It is all too clear why the Chancellor did not bother to wait for the final OTS report: he was not really interested in simplifying taxation for older people. Rather, his single-minded focus and overriding priority was getting his millionaires’ tax break through, and he was willing to fund it by cutting the incomes of pensioners.
In conclusion, we all know what an embarrassment this Budget has become to Government Members. We know how it has shaken their confidence in the strategic genius of the Chancellor and that many of them have heard from constituents who are anxious about the impact that the measure will have and angry about how the Government have treated people who deserve better.
Therefore, today, the Opposition are glad to be giving Government Members an opportunity to make amends and a chance to dissociate themselves with this disreputable raid on the incomes of older people. They have a choice. Do they stand with the millions of people who have worked hard and saved what they can? Or do they stand with the Chancellor and his friend, the Chief Secretary, who see pensioners as a soft touch ripe for a sneaky tax grab? The Opposition know whose side we are on. We are about to find out whose side Government Members are on.
Ben Gummer (Ipswich) (Con)
I am pleased to follow the hon. Member for Leeds West (Rachel Reeves) in this important debate. It is important because it touches on perhaps the greatest challenge facing politicians and representatives in this Chamber. She is a luminary of the new Labour party and one of the stars of her intake, and it is always a pleasure to hear her in the Chamber and on the television. No doubt, at some point, she aspires to high office not only in her party but in government. [Interruption.] There is no punch line. The hon. Lady is no joke. It is important to remember that, at some point, Labour will form a Government. I hope it is not too soon, but it is in the nature of our democracy, and a fine thing, that we swap sides now and again.
Richard Harrington
I was interested to hear my hon. Friend’s comments about Labour’s prospects of forming a Government. I listened to the comments about pensions from the hon. Member for Leeds West (Rachel Reeves). Does he think I will be a pensioner by the time Labour forms another Government?
Ben Gummer
My hon. Friend is full of vigour and will be going a long time, so I hope not.
The key challenge facing us is the extraordinary rate of demographic change in this country. Between now and 11 minutes past 3, the average age at which people are expected to die in this country will increase by 15 minutes. As a consequence, by 2041, the amount we spend on old-age pensions will have increased from about £80 billion now to £250 billion, even with the changes introduced by my right hon. Friend the Chancellor and his colleagues. Even with the reforms that the Government have initiated, we will deliver to our successors in this place—including the shadow Chief Secretary to the Treasury—a formidable challenge, and not only have we not properly faced up to the challenge but we are not talking properly to the public about it.
I can understand why Labour Members have tabled amendments on VAT and other matters—they can make their political points about the balance in the Budget and the Finance Bill with complete justice—but I am seriously disappointed that they have tabled amendments on this issue, because it is the most modest start to trying to deal with what is a really big and fundamental problem for us all.
Mark Field (Cities of London and Westminster) (Con)
My hon. Friend is making a sensible and thoughtful speech and some important points. The hon. Member for Leeds West (Rachel Reeves) prayed in aid changes made by Sir Winston Churchill 87 years ago. However, the numbers qualifying then for any sort of pension, let alone an age-related one, were minuscule compared with the numbers qualifying today and in decades to come.
Ben Gummer
My hon. Friend is entirely right. When Sir Winston Churchill served in Lloyd George’s Cabinet and the Liberals introduced the universal pension—one of that Government’s great achievements—a quarter of people never reached pension age. They never got to the point where they could draw down their pension. We are in a completely different place now.
I am not proposing to the Committee that we start now to think about the wholesale and widespread pension reform that is required, but surely we should start by trying to change some of the anomalies, and this anomaly is such a glaringly obvious one. At the moment, Members on both sides of the House, including those of us who represent constituencies with many low-earners—low-earners with families struggling desperately—are telling our constituents to pay a different rate of tax from pensioners, who, only because of their age, qualify for a different allowance.
Katy Clark
If the hon. Gentleman believes that the allowance is such a glaring anomaly, why was there not something about it in his party’s manifesto?
Ben Gummer
The hon. Lady asks about the party manifesto. I had hoped to discuss the broader issues and great challenges facing us. Manifestos are, by their nature, broad brush, and this is such a tiny change to the tax system in the grand scheme of what the Treasury has to deal with. It is entirely right that the Government are, bravely, addressing it now. In all honesty, would either party go down to such detail in any future manifesto? It is entirely right that the Government are saying, “This is an anomaly. It is incorrect and unfair, and what is more, it is one of the many anomalies that are unaffordable in the long term.”
Kelvin Hopkins
I hear time and again the Government saying that things are unaffordable and raising spectres of vast pensions bills in the future. This is a simple matter of transferring money from one group of people to another—namely, from the rich to the less rich. Were the abolition of the 83p rate by Mrs Thatcher and Geoffrey Howe and of the 60p rate by Nigel Lawson and getting rid of the 15% surcharge on unearned income all anomalies?
Ben Gummer
I profoundly respect the hon. Gentleman. He is a torchbearer for a former age in the Labour party, and he should raise that point with his own Front-Bench team. We are clearly not going to agree on it. However, at some point, someone needs to face up to the fact that we will almost double spending on old-age pensions between now and 2040. I shall put that in context: the number of people retiring this year who will be alive in 2041 will be more significant than now. I cannot give the precise figure, but hundreds of thousands of people retiring in the next few years will be alive in 20 or 30 years. We are not only dealing with an intergenerational problem, with a problem between this generation and a generation in two or three generations’ time or with a problem between people in their 20s and those in their 60s or 70s; we are dealing with a problem of those retiring now and to whom we must promise pensions and a decent standard of living in 30 years’ time. The ability to afford that is at the crux of the Government’s reforms, and this proposal is just the start of it.
Graeme Morrice (Livingston) (Lab)
My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) asked why, if this was such a wonderful proposal, it was not in the Conservative party’s manifesto. My question is this: if this is such a wonderful proposal, why was it the only one not leaked before the Chancellor’s statement?
Ben Gummer
The hon. Gentleman knows that that is not the case. [Interruption.] Well, it isn’t. I was endeavouring to have a wider debate about the importance of the reform in the context of the massive pensions challenge and of trying to pay for the pensions of vulnerable people not just this year but in 10 and 15 years.
Nadhim Zahawi
I take my hon. Friend back to Labour’s chances of forming a Government. Does he agree that that requires credibility, and that credibility is built on taking debates such as this one as seriously as he is taking them and addressing these important issues, rather than just jumping on bandwagons, being opportunistic and misleading the nation at the precise time when the nation requires real leadership?
Ben Gummer
I thank my hon. Friend for his intervention and for his compliment, because I, too, could be critical of the Government in one respect—[Hon. Members: “ Ah!”] It is not a criticism of the policy. None of us in this place has yet started to be completely straight with people about the enormous scale of the challenge that faces us.
Sheila Gilmore
The hon. Gentleman’s discussion about the issue of old people is interesting, but is it not the purpose of this provision not to provide greater pensions—or, perhaps, better social care—but to balance the cut to the 50% tax rate?
Ben Gummer
I wish we could deal with this canard. I did not want to be political about this—[Interruption.] No, I tell the hon. Member for Nottingham East (Chris Leslie) that I did not. Five times more revenue is being taken from the wealthiest people in this country as a result of the Budget than from reducing the top rate of tax. That argument has been dealt with and, although it is pity, I suspect that that is why the hon. Member for Leeds West, who is a serious-minded and intellectual member of the Opposition Front-Bench team, realises that the only way she can make an argument about this issue is by trying to shackle it to a false argument about the top rate of tax, to which it has no relation whatever. This is about beginning to reform provision for people who are retiring in our country. If we do not begin to make these small changes, we will not even be in a position to make the changes that will be necessary in future.
Mark Field
My hon. Friend was absolutely right when he said earlier that we have collectively been living well beyond our means. That over-consumption by today’s Britons, including today’s pensioners, will have to be paid for by generations to come, and that cannot be justifiable. Given the interventions on him from the Opposition, does he agree that we made it clear before the election in our manifesto that we would maintain intact all the universal benefits—in particular, TV licences, the winter fuel costs and a lot of the travel allowances, along with a significant number of other pension-related benefits—that we have been true to our word and that we will remain so for the rest of this Parliament?
Ben Gummer
My hon. Friend represents a seat with a huge personal vote. I was not lucky enough to take over from a Conservative Member of Parliament with a huge personal vote such as his. I was therefore targeted in the last few weeks of the campaign by the Labour party and its union friends, who issued a series of postcards claiming that we would abolish the winter fuel allowance, free TV licences and all those other things. It is a matter of great pride to me that even in coalition, when compromises must be made, those promises, made by my right hon. Friend the Prime Minister, were kept.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
Will the hon. Gentleman give way?
Ben Gummer
I am so deeply tempted by my hon. Friend that I will give way to her.
Anna Soubry
I am sorry that I had to leave the Chamber for a short period, but I am extremely grateful to my hon. Friend, who is making an important and thoughtful speech. However, I am sure that, like me, he will have received e-mails and letters from pensioners in his constituency who are worried that their real incomes are in some way being cut by this Government. What would he say, not only to the pensioners in his constituency, but to those in mine—and no doubt in many other constituencies—who are worried about their futures?
Ben Gummer
My hon. Friend is right in two senses. Everyone is concerned about their standard of living. That is the nature of recovering from this terrible recession, which has many causes. As a Government, we are in the position of having to make very difficult decisions. Again, it is a point of great pride to me that we are being brave enough to make those decisions and to spread the load throughout the entire taxpayer base. It is a matter of extraordinary difficulty, but the group that has been hit least so far by the savings, efficiencies and cuts that the Government have had to make has been pensioners, because they have benefited from the triple lock and a whole series of other interventions by the Government, and because they are not recipients of other benefits. As a result, this measure is probably the most modest incursion into pensioner income.
Ben Gummer
I will, but before I do, let me say in response to that intervention that there are many pensioners in my constituency who are on very low incomes. They are suffering considerably at the moment. Most of them do not have incomes anywhere close to the current allowance. What we are trying to do—in improving their lot through the triple lock guarantee, as well as protecting the pension credit, the winter fuel payments, the cold weather payments and the free TV licences—is protect the benefits of those who are least able to look after themselves.
My hon. Friend the Member for Broxtowe (Anna Soubry) is right in another sense. It is not just today’s vulnerable pensioners whom we must look after and seek to help, but the vulnerable pensioners in 20 and 30 years’ time. If we do not make changes now and try to protect the state’s income to some degree, we will not be in a position even to afford the benefits and pensions that we promise people now, let alone to anything like that degree in 20 or 30 years’ time, and that will be a problem for both parties.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Obviously the proposals that we are talking about today do not apply to the very poorest pensioners or the better-off pensioners. However, let me ask the hon. Gentleman a simple question: what incentive will there be for people to save for their retirement?
Ben Gummer
The hon. Lady is entirely right. One of the terrifying things that comes out of all public opinion surveys is the lack of savings and even the lack of people expecting to save for their old age. I hope that the reforms brought in by the Minister responsible for pensions—the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb)—for auto-enrolment and encouraging savings will be the beginning of a fully funded pensions system.
However, that is for another debate. I am aware of the strictures regarding Committee time and the fact that other Members wish to speak. I would therefore like to make one final comment. Lord Turner’s 2005 report, which was commissioned by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said that
“unless new government initiatives can make a major difference to behaviour, the present voluntary system of pension savings, combined with the present state system, is unlikely to deliver adequate pension provision.”
Moreover, he went on to say that the only means of achieving that would be through cross-party consensus. If we are to be serious about providing decent pensions, not only to people today, but to people in five, 10 and 15 years’ time—that includes people retiring this year and next year, who will be in their 80s and 90s when we will really be starting to pick up the bill—all parties must, between us, come to some sort of consensus about the difficult decisions that need to be made.
Mark Durkan (Foyle) (SDLP)
In that context, does the hon. Gentleman agree that if we are to encourage confidence among people out there that they can commit to planning and saving for their pensions, no Government should ever engage in an easy drive-by hit on pensioners?
Ben Gummer
The hon. Gentleman would be right, were the changes in the Bill modest to that degree. They represent a freeze for those who are already receiving the allowance, which will be merged into the basic rate allowance which will then move up towards it. In that regard, the taper could not be more gentle.
It is entirely right to say that the Government need to sketch out a very long-term plan for pensions, and I know that the Pensions Minister is beginning that process, but it will need the support, input and intellectual vigour of Members such as the hon. Member for Leeds West if it is to be a success in the long term. Otherwise, we and our successors will be unable to pay the bill, and pensioners will be freezing and starving as a result. The bill will be unaffordable and we will be fighting to pay it against a global economy in which we are unable to compete. That is a terrifying prospect, and I hope that we can begin to deal with it now by supporting the Government in what I hope is the first of many of the changes that need to be made in order to protect the living standards, the decency and the dignity of those people who have worked hard all the way through their lives.
The Temporary Chair (Mr Bone)
Order. I remind right hon. and hon. Members that, because of the programme motion, this debate has to finish at 4.38, and that the Minister has to reply to it. Short speeches would therefore be appreciated.
Dr Whiteford
I will try to keep my remarks short. I have listened to today’s debate with great interest. First and foremost, it is important that we take proper account of the long-term erosion of pensioners’ incomes over the past three decades, since the link between earnings and the state pension was broken, and of the more recent pressures in the wake of the financial crisis.
The changes to age-related allowances that we are discussing will not affect the poorest pensioners or those who are comfortably off. They will, however, affect the 40% of pensioners who have modest incomes. Those people have saved for their retirement, and 4.4 million older people will be worse off as a result of the changes.
Katy Clark
I agree with everything that the hon. Lady has said so far. Does she agree that a subject that we do not discuss often enough is that of pensioners who rely on their savings? Low interest rates mean that they are currently getting a far lower income from their savings than they had envisaged.
Dr Whiteford
I absolutely agree. In fact, that was one of the points that I wanted to make, because that subject has been eclipsed in the debate about the changes.
The Government have made great play of the recent increases to the state pension, and seem to suggest that they will somehow offset the changes to the tax allowances. As the hon. Member for Leeds West (Rachel Reeves) pointed out, however, we must remember that that is simply an inflationary rise. It will only keep pace with prices; it is not an increase. It is only a small step in the right direction towards restoring pensioners’ incomes to a level that most of us would recognise as providing a decent standard of living.
I have mentioned in the House before that the way in which pensioners experience inflation can differ markedly from the way in which the general population as a whole experiences it. One of the most obvious and significant examples of that relates to heating and domestic fuel costs. Retired people are more likely to have to heat their homes during the day, while the rest of us enjoy the benefit of our workplace heating systems. Many pensioners also find it harder to keep warm because of their age and the fact that they are not moving about so much. So any inflation in the cost of energy is felt disproportionately by pensioners, and nowhere more so than in those parts of these islands that experience consistently colder weather.
Last year, we saw sharp and dramatic increases in home energy costs, which played a big part in driving inflation up to over 5%. Energy prices have come down since that peak, but I heard on the news this morning that some economic commentators believe that inflation this year is going to be well above the Bank of England forecasts that the Government are using, and that we could experience inflation of over 3% this year as well. The welcome increases in the state pension have only kept it in line with inflation and might not keep it in line with inflation as it is experienced by people of pensionable age. That is why the Government’s argument that the changes to age-related tax allowances are compensated for by the increases in the state pension is somewhat spurious. In real terms, this tax grab squeezes the incomes of pensioners on modest incomes.
It is also all too easy to forget that pensioners have already paid a heavy price for the financial crisis. Those pensioners affected by these new changes to age-related allowances are in many cases the same people who saw the value of their savings and investments plummet in the wake of the financial crisis. Since then, they have had to contend with record low interest rates, coupled with high inflation. As the Treasury Committee reminded us earlier this week, quantitative easing, whatever its intended consequences, has had some very nasty side effects for those reaching retirement age and looking to buy an annuity in the last few years.
Fiona O'Donnell
The hon. Lady, like me, has many pensioners in her constituency who are on modest incomes and thought they could afford to live out their retirement and be able to cope with running a car, higher food prices and all the other added costs of rural living. Does she agree that this change is going to wreck the plans of many of those pensioners?
Dr Whiteford
I agree entirely. It is about not only rural and transport costs, but increases in VAT, cuts in fuel allowances and so forth. All these things have put a real squeeze on people living on fixed incomes, who have little opportunity to find money from any other source. These have not been easy financial times for those on fixed incomes, who have been the forgotten victims of the financial crisis. It is not fair to say that pensioners have got off lightly so far from the public spending squeeze—quite the reverse. In considering changes to age-related allowances, we need to understand that the granny tax will tighten the screw on people who have already had significantly to tighten their belts in recent times.
Those affected by this measure are all living on below-average incomes. Most will have paid tax throughout their working lives, and most thought they were doing the responsible thing by saving for their retirement. Crucially, they do not have the opportunity to find alternative sources of income. They are on fixed incomes and are living off savings.
Dr Whiteford
I was about to wind up, but I would be delighted to take an intervention.
Stephen Williams
The hon. Lady just said that this group of people are on below-average incomes. That might be true across the broad span of the population, which includes people in work on enormous salaries, but for pensioners, surely they are on way-above-average incomes.
Dr Whiteford
The hon. Member for Leeds West pointed out that nobody on an income of more than £25,500 a year will be affected by this measure. Frankly, with average earnings above that, I do think that most of those pensioners are living in what most people would consider to be quite modest circumstances, particularly when, as I have already argued, they have to pay much greater heating costs. Their lifestyles are not without particular burdens that they have to bear, and they do not have a chance to improve them.
Dr Whiteford
I shall not take another intervention; I am trying to conclude my remarks.
The Government had a chance to regain the confidence of pensioners after a long hiatus and much erosion of the position of pensioners over a number of decades, but they have squandered that opportunity. They are sneaking through these proposals in the fine print, claiming that they are for simplification. That undermines whatever confidence pensioners had left in them. On the streets of my constituency, people have been angry to see that what has been given with one hand as a modest increase in the state pension has been taken away from their occupational pension with the other hand.
We are leaving pensioners without any real incentive to save. We are not going to tackle the challenges of our changing demographics with that kind of attitude because people will question whether it is worth their while putting money aside for their retirement. I do not think that is a way forward, and I hope the Government will step back from this very regressive measure.
Margot James (Stourbridge) (Con)
I welcome the Budget, which has been a Budget for enterprise and growth, and I would defend the reduction in the top rate of tax, which seems to be the Opposition’s main bone of contention. I think older people have a stake in the future of our economy just as great as everybody else. There is no doubt in my mind that the introduction of that 50p top rate of tax by the last Government—right in the last throes of the last Government—was extremely damaging to our country’s image as a place of business, growth and prosperity. I am glad that the Chancellor has taken the brave step of reversing it in part.
Katy Clark
The hon. Lady will be aware that the income of the very rich has increased by 20% over the last two years since her Government came to power. Politics is, of course, a question of choices. Does she not think that our choice should be to try to get money from those people rather than from pensioners on modest incomes?
Margot James
I thank the hon. Lady for her intervention. I notice that she cited the last two years over which the incomes of the very wealthy have increased, but she might equally well have quoted the last 12 years of the Labour Government, during which I believe top earners did extremely well. It is a question of choices, and I feel that the Chancellor has made the right choice. In fact, it is a set of choices: it is not just a choice between one thing and another. I think it essential for this country not to be out of kilter with the rest of the world in terms of its top rate of income tax.
Margot James
I wanted to begin by setting the scene and explaining why I thought that the Budget represented a step forward, but as the debate is actually about the age-related allowance, I will make a bit of progress on that subject now.
Mark Field
I thank my hon. Friend. I entirely agree with what she said about the importance of promoting enterprise.
It was suggested earlier that 14,000 millionaires would benefit from the tax reduction. I am not sure how Labour Members arrived at that figure, but surely the notion that all our problems could somehow be solved if the rich paid their way is the nub of the issue. Given the relative scarcity of rich people in comparison with the vast majority of the electorate and as a proportion of the United Kingdom’s population of over 60 million, it is an absolute myth that we could solve all our problems by imposing heavy taxes on bankers and other rich people.
Margot James
I thank my hon. Friend for his intervention, which prompts me to remind the House that the top 1% of wealthy people in this country account for 30% of tax revenues. As my hon. Friend has pointed out, they constitute a very small segment of the population, and I think that if they are required to contribute any more than a third of the total, many will choose to go overseas where they will be taxed less.
Margot James
I want to make some progress on the main subject of the debate, which is the freezing of tax allowances, but first let me make a couple of other points. Labour Members did not mention that the other thing that the Budget has rightly done is take many people out of tax altogether by increasing tax allowances. I believe that that has benefited up to 24 million.
All this must be seen in the context of deficit reduction. There have been exchanges across the Chamber about parties’ manifestos. I stood on a manifesto that was all about getting some sense back into the public finances and reducing the outrageous deficit that was bequeathed to the current Government. The Chancellor’s central strategy to deal with that deficit involves 80% of spending cuts and 20% of revenue raising. Given that the Opposition oppose virtually all the spending cuts, would reduce VAT, and are proposing not to freeze older people’s allowances, we can only conclude that they are not serious about reducing the deficit, and in that regard they are grossly out of step with public opinion.
Fiona O'Donnell
Perhaps the hon. Lady will make the progress to which she referred and will begin to deal with the issue that represents the substance of today’s debate. May I ask her whether she made representations to the Chancellor before the Budget, asking him to freeze the age-related allowance?
Margot James
I did not make representations to the Chancellor on a matter as technical as the one that we are discussing. Having dealt with that point, I will now proceed to discuss the freezing of older people’s allowances.
I consider the term “granny tax”, coined by the media and exploited by the Labour party, to be very pejorative. As was pointed out by my hon. Friend the Member for West Worcestershire (Harriett Baldwin), it is also very inaccurate, as 60% of those who will be subject to the freeze are men. Moreover, this is not a new tax, although some sections of the media presented it as such. I do not see how the freezing of an allowance can possibly constitute a new tax.
It is unrealistic to suppose that older people should be immune from the need to contribute to reducing the deficit. My hon. Friend the Member for Ipswich (Ben Gummer) made that point very eloquently. Let me add a statistic of my own: the number of people aged 65 and over is expected to rise by 65% in the next 25 years to 16.4 million. Some of the measures that were introduced so many decades ago to the benefit of older people simply cannot be sustained in the current period of rapid demographic change.
Robert Flello
I would argue that pensioners are not at all immune to the effects of the Government’s policies, whether in terms of their cost of living or their access to the NHS, and almost all the pensioners I speak to also argue that. As a result of the allowance freeze, pensioners are paying more because their allowances are not increasing in line with inflation. They are being hit with a tax, therefore, and what really sticks in their craw is that they are being asked to pay this extra money at a time when it appears to them that millionaires are paying less.
Margot James
I thank the hon. Gentleman for his comments, but I should not take any more interventions as other Members wish to speak.
Mark Field
It cannot be bad that a U-turn should come so quickly. Seriously, however, I wanted to make the point that there are some very poor pensioners in my constituency—it is more socially mixed than many colleagues might imagine—and they are suffering greatly. However, the message I get from many of my pensioner constituents is that they worry for their grandchildren. They worry about their opportunities and about the difficulties they will face in getting on the housing ladder and in having the quality of life that their grandparents perhaps took for granted. Many of my pensioner constituents understand my hon. Friend’s point that the burden of getting the deficit down must be shared across the generations.
Margot James
My hon. Friend has, in part, responded to the point made by the hon. Member for Stoke-on-Trent South (Robert Flello), and I was going to say that some 5 million older people will not be affected by this measure. We can split hairs on this issue, but I accept that the measure does amount to an additional payment. However, although the allowance freeze results in an increase in tax payable, it does so only by an average of £84 a year. I accept that that is not nothing, but it is a relatively small sum. The measure is raising so much money for the Exchequer by dint of the fact that so many people are in receipt of state pensions. The pain, as it were, can therefore be shared by many, and the resulting amount per person is very small. I apologise for the fact that I shall not take any more interventions, but so many other Members still want to speak.
To address the other point made by the hon. Member for Stoke-on-Trent South, the Government have a good record in protecting people on pensions. We have restored the earnings link. The Labour party had 13 years in which to restore the link, and Barbara Castle called for that every year until her death. We have done it. We have also secured it with the triple lock.
The hon. Member for Leeds West (Rachel Reeves) was ungenerous in arguing that we appeared to be proud of the inflation rate. If she had remained in the Chamber, I would have told her that that inflation has largely been driven by increased oil and commodity prices, which Governments have no control over. It is to the credit of this Government that they were brave enough to say, “We will increase the state pension by either 2.5%, the rate of inflation or the rate of earnings, whichever is the greater.”
Margot James
I am sorry, but I will not take any more interventions.
As a result of that Government pledge, there will be no cash losers from this allowance freeze. We have protected universal benefits, with the single exception of not renewing the temporary increase of £100 in the winter fuel payments. We have protected all the other universal benefits, however, as we promised to do. Some 600,000 of the poorest pensioners have received a warm home discount of £120 extra to help with their fuel bills. We have also frozen council tax for two years running. Council tax has been a bone of contention among older people, many of whom have been hit hard by increases in it over the past decade. We have also protected, and increased slightly, the budget for the NHS. As we all know, older people account for more of that expenditure than any other group and they will benefit disproportionately from the NHS budget increase.
I have already made the point that freezing this allowance will entail a cost of, on average, £84 a year. I accept that that is not a derisory amount for someone living on an income of just over £10,000 a year. However, 5 million pensioners will not be affected by this measure. In fact, the Joseph Rowntree Foundation, an organisation that Labour Members sometimes cite, has said that the media coverage has lost all perspective on this matter, stating that
“you would think it’s doomsday for older people…I’m not sure. I think we’re losing perspective on phasing out the Age-Related Allowances”.
It makes a number of good arguments as to why it takes that view.
In conclusion, I must say that I have received very few critical letters on this subject from pensioners. The vast majority of older people in my constituency are more concerned with the prospects for their grandchildren; the average age of a new home buyer is now 38. They might not have read “The Pinch” by my right hon. Friend the Minister for Universities and Science, which was published two years ago, but he pointed out, among many other things, that those in the generation born after 1970 are the first not to be able to look forward to a better standard of living than their parents. That point is felt keenly by many older people in my constituency. Although they cannot easily increase their income, they accept that their grandchildren are facing a different future from the one they faced. Unlike the Labour party, they know that the alternative to facing down this deficit, with everyone making a contribution to that strategy, is the further impoverishment of their grandchildren, and that is not a price that they are willing to pay.
Graeme Morrice
I am conscious of the time, Mr Bone, so I will keep my speech short. May I start by congratulating my hon. Friend the Member for Leeds West (Rachel Reeves) on her excellent introductory speech? What she said clearly reflects the views of Labour Members.
The Chancellor’s granny tax is certainly the aspect of the Budget that has caused the most anger among my constituents. As we now know, the Chancellor’s plans, which were buried in the Budget smallprint and described as a “tax simplification”, will mean that 4.4 million pensioners who pay income tax will lose an average of £83 per year next April, with people who turn 65 next year set to lose the most, at up to £322. This measure will affect pensioners on modest incomes of between £10,500 and nearly £30,000, with pensioners on incomes above the higher threshold being unaffected by the change. The pensioners in my constituency I have spoken to about the granny tax are really angry about the Chancellor’s decision to hit them in this way. It seems obvious to them that it cannot be right that while putting up taxes for pensioners, the Government are giving the rich a tax cut. My constituents simply cannot understand why, after they have worked hard all their lives, the Chancellor is now targeting those on low and middle incomes in retirement in order to fund a tax cut for millionaires. As one constituent put it to me recently,
“I sincerely hope you and your colleagues do not support this granny tax and you fight for all our pensioners who worked all our lives to help this country. I am 71 years old and thought I had seen it all, but this is the pits, so do your job and kick this out.”
Harriett Baldwin
Has the hon. Gentleman shown his constituents the article in the Financial Times headed: “When is a tax not a tax? Answer: when it’s ‘the granny tax’?
The article says:
“let’s calmly consider what has actually happened…In fact, grannies have retained their cherished position within the UK tax system: they will continue to be allowed more tax-free income than other members of the population—and for at least another three years”.
Has he shared that article with his constituents?
Graeme Morrice
I must confess that I have not shared that article from the Financial Times with my constituents, who, like me, are more avid readers of the West Lothian Courier. As we know, the increase in inflation, high fuel, energy and food prices and the VAT increase up to 20% have eroded any increases given to pensioners by the Government.
I am delighted to be able to tell the constituent whom I have just quoted and all the others who have contacted me about this issue that we on the Labour side of the Committee are trying our best to do exactly that today. In other words, we will do our job and kick this proposal out.
Alun Cairns
I am grateful to the hon. Gentleman for his generosity in giving way. There is an inconsistency between his actions and his standpoint at the last Budget brought in by the previous Chancellor, who froze the age allowance and the personal allowance. The hon. Gentleman is talking about the effect on pensioners on modest incomes, but at least on this occasion there was a significant increase in the personal allowance. When the previous Chancellor froze the age allowance, he also froze the personal allowance, so that tax affected people on lower incomes. Does the hon. Gentleman not accept that logically that position is inconsistent?
Graeme Morrice
I am grateful to the hon. Gentleman for his contribution, but I thought we were talking about the proposals in this Bill.
Although we are clear that the granny tax is not right and not fair, the coalition parties have been desperate to try to play down the significant impact of the measure. As we are aware, this is a £3 billion tax raid on our nation’s pensioners. Indeed, the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) actually went as far as to insist that there is no granny tax at all. That will no doubt come as a great surprise to the 4.4 million pensioners who will be worse off as a result of the proposal, but it is typical of the increasingly desperate attempts by Liberal Democrats to distance themselves in the media from unpopular Government policies, before voting with the Tories to get those same measures through Parliament.
Graeme Morrice
I notice that there are two Lib Dems in the Chamber today, so I will give way to one of them.
Ian Swales
The hon. Gentleman has obviously discussed the fairness of this measure with his pensioner constituents. Has he discussed with his other constituents the fact that when his Government left office, people on the minimum wage and hard-working parents were paying £603 a year more tax than their grandparents on the same income? Does he think that that is fair and has he discussed it with his other constituents?
Graeme Morrice
I refer the hon. Gentleman to my comment a few moments ago: we are talking about the proposals contained within this Bill.
Whereas some brave souls in the coalition parties were prepared yesterday to rebel over pasties and static caravans, we wait to see if any of them will speak up for millions of pensioners and join us in opposing this squeeze on pensioners’ incomes. I suspect not, and the message today on the granny tax will be clear: only the Opposition will stand up for pensioners and working people in these tough times.
Brandon Lewis
I supported the Budget a couple of weeks ago and I still do now. It is important to look at it in its entirety, and at how it fits in with other things that are going on. At the moment, an increase in personal allowance is being put in place; it will rise by £1,100 in April 2013, taking it to £9,205 in total. That is the largest real personal tax cut for the median earner in more than a decade, from which 24 million people will benefit. It will give basic rate taxpayers a real cash gain. The Government are taking 2 million low-paid workers out of tax altogether.
Let me put that increase in local context as the Member of Parliament for Great Yarmouth. It lifts an additional 75,000 people in the east of England out of income tax altogether. That will have a dramatic impact on many low earners in my constituency, which is the 54th-most deprived local authority out of 326. The average earnings in Great Yarmouth are £21,900 per annum, compared with the national average of £26,100.
Mr Iain McKenzie (Inverclyde) (Lab)
Does the hon. Gentleman agree that to benefit from this increase in the tax threshold one first needs to have a job? That is what most of my constituents are asking for—a job.
Brandon Lewis
I thank the hon. Gentleman for that intervention, which gives me a chance to highlight the good news we had this week regarding the number of people in employment. In Great Yarmouth we saw not only an increase in employment this month, which is very welcome, but an increase in the number of young people in employment. That is a testament to the work the Government are doing, and also, I hope, a sign of the improvements that are coming. It is also a testament to the opportunities put in place through the previous Budget and the work of the Department for Work and Pensions, particularly on work experience and the Work programme, which is also having an impact.
In Great Yarmouth, we also have a particularly high number of part-time and seasonal workers due to the nature of the constituency and its tourism industry. The change in personal allowance is a huge help to that sector of the local work force. It puts extra money into the pockets of hard-working families across my constituency.
Fiona O'Donnell
I am sure that the hon. Gentleman is going to talk about the age allowance at any moment. Has he considered its impact on his local economy? That money was not being spent on skiing trips or foreign holidays; it is money that would, in the main, be spent in the local economy.
Brandon Lewis
The hon. Lady has just made a very good argument for cutting taxes and increasing the personal allowance, which is exactly what this Government are doing. The reason why I have chosen to talk about particular issues is that I agree with something my hon. Friend the Member for Stourbridge (Margot James) said a moment ago. Pensioners in my constituency are often concerned about the future for their family—their children and their grandchildren. The work this Government have done has put in place changes, enterprise zones and opportunities for people to increase jobs, as we have seen this month, so there is a real opportunity for people in future.
We must also take into account something else. In Great Yarmouth, a prediction listed by our local health teams in the past few years is that our pensioner group will increase by 35% in the next 15 years. That is a huge increase. I fully agree with my hon. Friend the Member for Ipswich (Ben Gummer) that we have to ensure that this country can provide for people in their pensionable years in future. As we face such an increase in the number of such people, the Government must take the decisions that mean we can provide a good and fair opportunity for the future of all pensioners. That is why I also appreciate the Government’s work to move towards a fair and straight flat-rate pension for pensioners in future, on which I congratulate them. The work done in the last two Budgets will make that possible. It will mean that our economy can move forward and that we can make fair and proper provision for people in various age groups.
As the personal allowance for all people, including under-65s who work hard, increases, there will be an impact on pensioners in future. The changes announced in the Budget that simplify the tax system make it clear that there will eventually be a flat, fair and generous rate of allowance for all people. As Opposition Members have admitted, that means that nobody has a cash loss at all. In fact, pensioners under this Government had the biggest increase in their basic state pension ever seen. More than 5 million of the poorest pensioners are unaffected thanks to the triple lock. All pensioners are therefore better off and will receive the biggest ever increase of £5.30 a week. In 2013, they will receive £130 more than they would have received under the previous Government’s plans. Pensioners will respect this Government for that and appreciate the Government’s credibility for putting together a solid economic base to allow it to happen.
That is why the measure should be looked at as a whole, particularly for an area such as Great Yarmouth, where we have a high proportion of pensioners. We must make sure that we can provide for them properly and fairly in the future, and also that the economy can create jobs for their families and increase our economic growth. Being in government is about making tough decisions. Those must be the right decisions, and that is what being in government is about. As we heard today from those on the Opposition Front Bench, opposition is often about opportunism, not about making right or proper decisions.
Alison McGovern
I shall make a few remarks about an important impact of the changes, which is at risk of going unrecognised. I think of that as the cluster impact of the changes. Our country does not have the same kind of people distributed uniformly across the United Kingdom. People of different ages cluster in different areas.
I am deeply proud to represent the Wirral, not least because the area has a higher proportion of older people. It is a great strength of our area. They bring a large amount of expertise and stability, and we should not talk about people living longer as though it was a negative thing. I benefited from having grandparents who lived longer than they might have expected, and I cherished each of those relationships.
With that clustering of older people comes a responsibility to pay attention to the issues that affect them. Even if that was not the right thing to do in and of itself, our local economy in Wirral is highly dependent on the income of pensioners. We have many small independent businesses whose relationship with their customers is important. They have regulars of many years’ standing, and many of those people are retired and on a fixed income, so even if it was not the case that we should care about the needs of older people, the employment of the rest of us in the Wirral and the vitality of some of the local shops is related to the income of older people.
Before I deal with the clustering of the local economy and the attention that Ministers must pay to how our economy works in practice, I want to make a few points about longevity and the increase in life expectancy that we are seeing. We must recognise that this is not a uniform phenomenon. Not everybody in our country is living longer in the same way. There is a social justice element. Poverty is still a pretty strong determinant of the length of people’s life. People such as those in my constituency who have worked in manufacturing might not expect to live as long as those in relatively more affluent parts of the country. My constituency is very mixed, and there are people there who may not be able to expect to live longer as the average increases. That average masks different expectations.
When Treasury Ministers make decisions about, for example, age-related allowances, I ask them to find out how those will impact on different parts of the country and different groups of people. The impact will not be uniform. We are not all uniformly living longer in exactly the same way. The NHS is a wonderful thing, but we still have a heck of a long way to go on public health to make sure that poverty does not limit people’s life expectancy, as it has done in the past and still does.
Ben Gummer
The hon. Lady makes a sensible point. One of the big challenges that faces us in increasing the state pension age and the point at which people retire is trying to understand the different requirements of people who have done heavy manual labour throughout their life or for any part of their life and have had different physical pressures put upon them, and those who have not. But that does not remove the point that most people who are affected by the tax allowance freeze are relatively wealthy pensioners—most of them. Therefore, although this is not a precise instrument, I am not sure that her point addresses exactly what the Minister seeks to do.
Alison McGovern
I shall return to my constituents and tell them that a moment of cross-party agreement broke out over the problem that the hon. Gentleman and I agree exists, where we must rightly consider the state pension age, but that that decision will affect certain people in a completely different way from that suggested by any average figure. I hope that the hon. Gentleman will allow me to respond to his second point by saying that I will remark later on whom the proposals affect and their relative position.
Before making my substantive point about how the economy clusters and how these proposals will affect us, I want to answer the point about inflation made by the hon. Member for Stourbridge (Margot James), who has unfortunately just left the Chamber. She sought to make a case against my hon. Friend the Member for Leeds West (Rachel Reeves), saying that the Government were doing pensioners a great service by increasing their pension on inflation, which has come about because of events beyond our shores, and the Government are just trying to respond to the oil price, and so on. I have no doubt that world events have had an impact on inflation in this country. Thankfully, I do not have to work out which events have an impact on inflation and report that to the Chancellor. That is the job of the Governor of the Bank of England. I have read the Governor’s letters on inflation and he remarks on the impact of the Government’s VAT rise on inflation. If the hon. Lady were here, I would tell her that it is not entirely true to say that the inflation that we face that has caused the Government to be so proud of their cost of living rise for pensioners is entirely beyond our control. It is in part at least down to the Government’s action.
I want now to think about the cumulative impact of this policy and a couple of others on the part of the world that I represent, but also on similar local economies. Some of the Government’s decisions have resulted in a kind of conflagration that means that particular localities face a really difficult economic future.
Charlie Elphicke (Dover) (Con)
The hon. Lady makes much of the fact that age and longevity vary quite a lot throughout the country. She has also made a connection between shorter life span and deprivation. How many of her constituents with a short or shorter than average life span will be affected adversely by the age-related allowance, because it is over £10,000?
Alison McGovern
The hon. Gentleman seems to be saying that if you are poor enough to have a short life span, you are not rich enough to be affected by the change, which is an interesting hypothesis. It is a testable proposition, but it seems entirely wide of the mark.
Alison McGovern
I always try to be generous. In fact, I thought that we were agreeing across the House that the argument about increasing life expectancy cannot be made in such a broad-brush way, but perhaps the situation was not as happy as I had thought it was.
David Mowat
The hon. Lady is making a powerful point about the cumulative impact of policies on particular regions of the country. Her constituency is close to mine. Will she concede that in the last year of the previous Government the north-south divide, measured in terms of gross value added per head, reached its maximum level in the past 20 years? That is something we have to fix in this Parliament, not continue.
Alison McGovern
I am so pleased that the hon. Gentleman chose to mention the north-south divide, because it gives me the opportunity to discuss a concept that trips off the tongue so easily but is actually extremely unhelpful in tackling the kind of local economic development that I am asking Treasury Ministers to consider when making decisions. He will know as well as I do that although the north-west, which we both represent, has significant deprivation, it also has some pretty wealthy areas—the Chancellor himself has the honour of representing one such area. The north-south divide, as a concept, masks a whole lot of other inequalities. Again, I mention the inequalities in London. It cannot be said that there is a simple, straightforward north-south divide in this country affecting every locality in the same way; we should have a much more fine-grained analysis. There are places in the north that are extremely successful and places in the south that really need help.
Before I try the patience of the Chair any further, I will return to the importance of age-related allowances.
Alison McGovern
I will give way, and I feel sure that the hon. Gentleman will say what he thinks the Government ought to do to ensure that the cumulative impact of their policies, and their policy on age-related allowances specifically, does not hold back local economic development in parts of Wirral.
Charlie Elphicke
I thank the hon. Lady for giving way again; she is being extraordinarily generous in taking interventions. She is making a characteristically extraordinarily thoughtful speech. It is a matter of great concern that over the past decade and a half, the gap between the least well-off and the richest has grown. There is now more inequality. Will it not help to reduce the inequality between pensioners to increase the basic state pension by the biggest amount ever—£5.30, which is a big jump—and to ensure that the richest pensioners do not get such a high benefit, but do not lose out either, by capping the allowance?
Alison McGovern
That was a long intervention. The hon. Gentleman said that inequality grew under the previous Government. I point him to analysis done, if I recall correctly, by the Institute for Fiscal Studies at the time of the 2010 general election, which showed that the incomes of the lowest on the income scale increased significantly under the previous Government. We can have a discussion about how one deals with the inequality that is created when the incomes of people who earn a great deal of money rise, but I fear that it would not be within the scope of this debate. I am sure that we will discuss that on another occasion.
I will conclude my remarks by talking about the squeezed middle, because it is people on what one would think of as middle incomes who are affected by age-related allowances. In its frequently asked questions section on this policy, the BBC states that
“it is a ‘middle-income’ range of 40% of pensioners who will not get what they might have expected from the tax system.”
Lyn Brown
Is my hon. Friend not astonished by the figure of 40%? If one listens to the Conservative party trying to explain away this awful attack on our pensioners, it does not seem like it is talking about 40% of the pensioners in this country. A very high number of pensioners will be affected by this change.
Alison McGovern
That point was very well made. I am never surprised by the ability of people to brush over things. We have heard this afternoon that this is a minor technical change. As I said, I am quoting the BBC itself—[Laughter.] I know that Conservative Members are not always the greatest fans of the BBC, but it states that
“it is a ‘middle-income’ range of 40% of pensioners who will not get what they might have expected from the tax system.”
Harriett Baldwin
Much as we all love and admire the BBC, not everything that it puts on its website to do with benefit changes is accurate. I am sure that the hon. Lady would want to find a more reliable source.
Alison McGovern
Would the hon. Lady like to intervene on me again, then, and say what proportion of pensioners will be affected, if she thinks the BBC is unreliable?
Harriett Baldwin
A BBC website had a wholly inaccurate story yesterday about the changes to employment and support allowance, so it is not an accurate source. That is the point I am trying to make.
Alison McGovern
Is the hon. Lady therefore saying that the proportion is not 40%? She indicates that she does not know—that is fine.
Ben Gummer
Whatever the proportion of pensioners affected, whether it is 10%, 20%, 30% or 40%, does the hon. Lady think it is right that they currently get a different tax rate from low-earning families who are struggling hard but for some reason seem to be discriminated against just because they are not over 65?
Alison McGovern
The hon. Gentleman, too, is welcome to intervene on me again and say what he thinks the proportion is if he thinks the BBC is wrong. He said it might be 10% or 20%. No? Okay.
Rachel Reeves
Does my hon. Friend agree that it is disappointing that hon. Members will vote on the matter today without having any idea what proportion of older people it will affect? She is correct to say that 40% of pensioners will be affected, and I am pleased that Opposition Members know their facts, unlike Government Members.
Alison McGovern
The great Bill Shankly once said that he was always surprised that people were surprised at surprises. In one sense it is surprising that Government Members seem to question the BBC and yet cannot intervene to tell me that it is wrong. As the BBC states, those affected will be
“a ‘middle-income’ range of…pensioners who will not get what they might have expected from the tax system.”
That is a very important point. Of course we are all concerned about the impact of the recession on the poorest, but there is another factor to consider. People on middle incomes, who might have had certain expectations about how they could live their life, are now being disappointed and do not know what is coming in the future.
People feel that one of the big problems with the Budget is that certain matters that were brushed over and not explained fully have subsequently come out as being pretty serious. The insecurity facing people at the moment, especially those in the middle of the income distribution, is really quite serious, not least because it is not very good for people’s quality of life if they are constantly worrying about what next year might bring financially. How they interact in the economy and their actions as consumers are also deeply affected by that insecurity.
One of the biggest challenges for Treasury Ministers to address is how communities such as I have mentioned in the Wirral and other parts of the country, where time after time Government announcements have chipped away at the money in the local economy, can deal with the insecurity facing people. The Budget will have a significant impact on people’s quality of life.
Fiona O'Donnell
My hon. Friend is making an excellent contribution. Does she agree that when we meet older people in our constituencies, it is inspiring to hear how concerned they are about young people’s future? However, what they see in the Government’s taking money from 40% of pensioners is not an effort to invest in creating jobs for young people. What really hurts is the fact that that money is being used to give a tax break to millionaires.
Alison McGovern
My hon. Friend is right. Of course, older people are worried about the next generation’s future, and they do not believe that the Government are making the right move, not least for the reasons that she gave.
I hope that Treasury Ministers will reconsider the proposal and their approach to local economic development. Economies are geographically centred, and businesses currently face, as I have said time and again, a chipping away of resources in their area. That makes growth extremely hard and I hope that Ministers will consider that.
Graham Evans (Weaver Vale) (Con)
I pay tribute to my hon. Friends the Members for Stourbridge (Margot James) and for Ipswich (Ben Gummer), who have eloquently made many of the points that I intended to make. I do not want to repeat them.
First and foremost, the Bill makes it clear that the Government are sticking to the plan to deal with the mess left by Labour and eliminate the structural deficit. That is essential for market confidence in the future of our economy and wealth creation.
Secondly, the Bill is clearly on the side of working people and pensioners. It is pro-business and helps people who want to do better for themselves and their families. It cuts tax for 24 million ordinary families across the country, including 2.5 million in the north-west. Thanks to the Budget, most basic rate taxpayers will keep an extra £220 of their salary every year. That represents the largest real personal tax cut for people on average earnings in more than a decade. I appreciate that £220 might not seem like that much to the Labour leader, sat in his multi-million pound home in Primrose Hill, but for people struggling to get by in Cheshire, £220 is a real help. The Bill therefore helps working people.
Mark Garnier (Wyre Forest) (Con)
Does my hon. Friend agree that over the period of the changes to the tax-free allowance, the total contribution will be more than £500 for the average individual?
Graham Evans
I am most grateful to my hon. Friend for making that good point, with which I agree. It is a good Budget for working people on basic rate tax.
Sheila Gilmore
Does the hon. Gentleman accept that, particularly for families with children, the decreases in tax credits and other benefits more than outweigh the increase in the personal allowance?
Graham Evans
As a father of three young children, I realise that we are all in this together, and we need to make those sacrifices. The Government’s maximum benefit cap of £26,000 is all to do with that.
Brandon Lewis
Following on from the intervention about growth and families, since the Budget one company in Great Yarmouth has made an acquisition and an investment of hundreds of millions of pounds that will create more jobs. Another company, Seajacks, has received investment from a Japanese company of hundreds of millions of pounds, which will allow expansion and create more jobs, which will help those families who need that money and families of pensioners. Does my hon. Friend agree that that sort of work in the Budget, which facilitates such growth, will move our country forward and ensure that we get out of the mess that we inherited from the previous Government?
Graham Evans
Absolutely; I am most grateful to my hon. Friend for that contribution. At the end of the day, the Budget tells the world that this country is open for business because private sector investment and wealth creation through businesses such as those that my hon. Friend mentioned are critical to the success of the whole nation, not just young people and hard-working families, but pensioners.
Thanks to measures such as the clamp-down on tax loopholes, the very rich will pay more. There is an ideological divide: the Labour party wants the rich to pay symbolically higher rates of tax; the Budget ensures that the rich actually pay more tax. Her Majesty’s Revenue and Customs and the independent Office for Budget Responsibility agree that the 50% rate raises next to nothing. Indeed, having a higher income tax rate than communist China indirectly reduces tax revenues as it fundamentally undermines the competitiveness of the UK economy, discouraging inward investment and risking a brain drain of our brightest talent.
Kate Green (Stretford and Urmston) (Lab)
The hon. Gentleman’s comparison with communist China is completely spurious when we look at what remains of a western capitalist economy, but does he accept that it is widely agreed, including by the OBR, that the calculations on the amount raised by the reduction of the 50p rate to 45p are highly speculative?
Graham Evans
The hon. Lady makes a valuable point. I have huge respect for her and for everything she has done on child poverty, but if the 50% tax rate was so important to right hon. and hon. Members of the Opposition, why did the Labour Government introduce it only a month before a general election? Why did they not introduce it in 1997, 1998, 1999 or any of those 13 years? They left it until their last month.
Brandon Lewis
Bearing in mind what the hon. Member for Stretford and Urmston (Kate Green) said, was my hon. Friend as surprised as I was yesterday when we voted on a Labour new clause that would have cut the rate to 40%?
Graham Evans
My hon. Friend makes a good point, which the Prime Minister made yesterday at the Dispatch Box.
David Mowat
A number of Labour Members have mentioned bravery in respect of Government Members and some Budget measures. I was not a Member of the House before the last election, but perhaps Opposition Members who were could tell us whether they lobbied the Chancellor for a 45% or a 50% tax rate during the 12 years of the Labour Government, in which the disparity between rich and poor in this country rose to the highest level ever.
Graham Evans
I am grateful to my hon. Friend for making that point on the disparity between rich and poor under the Labour Government.
I accept the point made by the hon. Member for Stretford and Urmston (Kate Green), but bringing the UK’s top rate of tax in line with other international competitors such as Italy, France and Germany, and cutting corporation tax to the lowest level in the G7, will send out a powerful message that enterprise and aspiration are valued in this country. In the spirit of the Leader of the Opposition’s recent Occupy-style hyperbole, I want the 1% to come and occupy and therefore pay tax and create jobs in the UK.
Graeme Morrice
The hon. Gentleman said a few moments ago that reducing the top rate from 50p to 45p raises next to nothing. We had a discourse on this in Committee yesterday, and in Prime Minister’s questions, when the Prime Minister said something similar to what the hon. Gentleman says. However, in fact, the official HMRC book confirms that the loss to the Treasury will be up to £3 billion. Should we not use that money to finance the deficit and avoid having to make draconian cuts on our pensioners?
Graham Evans
I am not sure about those figures, but I would go back to my original point: if the 50% tax were so important to the hon. Gentleman and his colleagues, why did Labour not introduce it 13 years ago?
Stephen Williams
Perhaps I can help my hon. Friend with his rhetorical question. Apart from Mr Williams in the Chair, the Minister and me, and the delightful Labour Whip, the hon. Member for West Ham (Lyn Brown), everyone in the Chamber happens to be from the 2010 intake and probably did not witness members of the Labour Government cheering when they produced tax cuts for the super-rich—they reduced their capital gains and income taxes while at the same time raising tax for the poorest by abolishing the 10p rate. Therefore, in fact, the pressure was all in the opposite direction.
Graham Evans
I am grateful for the hon. Gentleman’s astuteness in recognising that most hon. Members in the Chamber are relatively new. He raises a good point, but I want to go back to the one made by the hon. Member for Livingston (Graeme Morrice). My hon. Friend the Member for Stourbridge made the point that the top 1% richest people in the country now contribute 30% of tax to the UK Exchequer. In 1976, when Denis Healey, the famous Labour Chancellor, said he would squeeze the rich until the pips squeak, the top 1% richest people in the country contributed only 11%. So the 1% now contribute significantly more. I would be interested to hear how much more the hon. Gentleman feels they should contribute.
The Bill contains a raft of additional measures, some of which have been mentioned, to promote growth, especially in the north of England. There are far too many to list but I will point out a few that as a northern Member I especially welcome. Enterprise loans to help young people to set up and grow their own businesses are a great idea to foster ambition and creativity among the next generation. I firmly believe that what matters is not where someone comes from or went to school but where they are going, and there is no better way for young people to get on than starting up their own business, working for themselves, employing other people, growing that business and contributing to wealth creation.
The introduction of an above-the-line research and development tax credit is a simple but important move. It will help British businesses to stay competitive in the long run and send out the message that we back innovation. I am fortunate to have Daresbury science and innovation campus in my constituency. It is an internationally outstanding campus with more than 100 outstanding start-up businesses. I hope that they will be the Googles, Amazons and Microsofts of the future which are born in this country.
There are also excellent measures to help make the UK the technology capital of Europe, including a new £100 million fund to support investment in new university research facilities; £60 million of investment in the UK centre for aerodynamics; the allocation of £100 million for ultra-fast broadband in 10 of our biggest cities, including Manchester; £50 million to fund ultra-fast broadband in 10 smaller cities; and the extension of mobile coverage to 60,000 rural homes along 10 key roads.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
On a point of order, Mr Williams. I thought we were having a debate on the granny tax rather than on Second Reading of the whole Finance Bill.
Graham Evans
Thank you, Mr Williams. I say to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) that, as I alluded earlier, many of these points have been raised by other hon. Members on both sides of the House. I will soon bring my speech to an end. I hope he will forgive me.
There is even more support coming business’s way in my neck of the woods with £4.3 million extra for Cheshire and Warrington local enterprise partnerships. In addition, the Budget confirms a further £130 million for investment in the northern hub rail project, which will work well alongside High Speed 2. Furthermore, the new city deals, which will decentralise power and bring even more investment directly up to Manchester and Liverpool, are excellent news for those great cities and my constituents who commute to them in huge numbers each morning.
Graham Evans
I have given away several times. I am bringing my speech to a conclusion.
Finally, I welcome the Chancellor’s announcement that people will now receive a personal tax statement detailing exactly how much tax they have paid and what it has been spent on by the Government. This is a great move for transparency. I know that Labour are nervous about what will happen when people see, in black and white, how much of their taxes go on paying interest on the last Government’s debt.
This is an excellent Bill. It is a radical and reforming Bill. It comes from a Government firmly on the side of business, working people and pensioners, and it tells the world that Britain is open for business.
Katy Clark
Thank you, Mr Williams, for giving me the opportunity to follow on from that Second Reading speech by the hon. Member for Weaver Vale (Graham Evans). I will resist the temptation of talking about the Budget because I had that opportunity in Monday’s Second Reading debate.
Katy Clark
I think that many Government Members must feel ashamed of this policy, particularly given that it was not in the Conservative party’s manifesto. Many people who voted for the Conservatives, particularly pensioners, will be disappointed that they have introduced this policy.
We have heard numerous comments from Government Members giving the impression that the policy would affect super-rich pensioners, but, in reality, pensioners on modest incomes will be affected. It is pensioners on incomes between £10,500 and £29,400 who will be affected by the change. I do not think that anyone in this House can really believe that these are rich people; rather, we are talking about people on modest or middle incomes.
Alun Cairns
Does the hon. Lady accept that when the last Chancellor froze the age allowance and the personal allowance at the same time, pensioners on much lower incomes were affected?
Katy Clark
That was done as part of a range of measures. We have been talking about a package of measures today, and what we know is that pensioners will be disproportionately affected by the range of measures that this Government are steamrollering through. I will return to that later, but the hon. Gentleman’s point also highlights the fact that the changes proposed at that time treated everybody, of all ages, in the same way. In this debate we are trying to focus on the impact on pensioners of the freeze in what is an age-related benefit. We have heard a number of contributions that have highlighted how pensioners are struggling as a result of many of the Government’s policies, as well as the economic situation we are in, which the Government are not trying to alleviate.
My hon. Friend the Member for Leeds West (Rachel Reeves) put this debate in the bigger picture by highlighting the fact that the £3 billion that the Government will save as a result of the proposed change will be used to help some of the richest people in the country. The big picture is that the richest in this country are getting richer, at a time when the living standards of those on modest or low incomes are going down. We have heard a number of attacks on the last Labour Government in this debate, but the reality is that the figures show that the living standards of those on low, modest or middle incomes went up. There was also an increase in the living standards of the wealthiest in the country, but we are now seeing the living standards of ordinary people—people on low or modest incomes—plummeting, while at the same time we see huge and escalating increases in the incomes of rich individuals and many corporations.
Mr McKenzie
We hear much from Government Members about the message that this Budget is sending the world—that Britain is open for business, and so on. What message does my hon. Friend think the Budget is sending to our pensioners up and down the country, and particularly those on incomes that they have worked hard for, by setting money aside and preparing for their pensions?
Katy Clark
The word “dignity” has been used a number of times in this debate. It is an important word, particularly given the proposed change, which has been put forward at short notice. We have had debates about pensioner income over many years in this place. We have heard a number of proposals, from parties in all parts of the House, that would change the financial position of those reaching retirement. However, a common theme has been the importance of giving as much notice as possible of any change, particularly when dealing with people’s incomes in retirement, so that people can make the changes necessary to cope with the changing world.
One of the problems with the proposed change, which will come into effect in 2013-14, is that it represents not a minor or technical change, as many Government Members have said, but quite a substantial drop in income at short notice for people on modest or medium incomes. My hon. Friend the Member for Livingston (Graeme Morrice) highlighted the impact on those who turn 65 in 2013-14, who could lose £323 a year, which represents a significant amount, not a technical change. Therefore, to answer my hon. Friend the Member for Inverclyde (Mr McKenzie), people in those income brackets will be very disappointed by the change. That is one reason I have highlighted the fact that the measure was not in the manifesto. If the Government think that it is an important part of their long-term pension reform, it should have been in the manifesto. It should have been consulted on and thought through, and a great deal more notice should have been given to the individuals affected.
Charlie Elphicke
A key concern of mine is to understand why there should be a higher personal allowance for senior citizens than for hard-pressed families who are struggling to get by. Why does the hon. Lady think that that is justified?
Katy Clark
I mentioned this in an intervention. At the time of the allowance’s introduction, a number of reasons were given, one of which was pensioners’ higher heating costs. A full explanation was given during those debates of the higher and additional costs that are associated with retirement. Those higher costs of living have a disproportionate impact on pensioners. In the debates on pensions that we have had over the past few months, a great deal has been said about the higher costs that pensioners face, and about the possibility of having a different form of indexation for pensions, given that pensioners tend to have different living costs from the rest of the population.
Karen Bradley (Staffordshire Moorlands) (Con)
I have listened carefully to the hon. Lady’s point about pensioners’ higher living costs, but does she not accept that allowances such as the winter fuel allowance reflect the Government’s acknowledgement of their different costs? A young mum at home with her baby, who would also need to heat her home, would not get that allowance.
Katy Clark
Many pensioners, and many among the general population, are disappointed that the Government have not lived up to their election promises on that allowance.
The point that I was making is that pensioners need more time to adjust. I welcome the increase in the personal allowance—I believe that there should be higher personal allowances for everyone—but if the Government are going ahead with this particular kind of proposal, they should give people many years’ notice so that they can prepare for the changes. Given the situation that pensions are now in, which I will go into in more detail if I have time, this is the wrong time to be clobbering pensioners in this way.
Elizabeth Truss (South West Norfolk) (Con)
Are we not in this situation partly because of the failure of reform over the past 30 years? Despite the fact that people are living longer and longer, nothing has been done. We have now abolished the compulsory retirement age, which will enable many older people to carry on working and earning more income. Why was that not done under the previous Government?
Katy Clark
The hon. Lady is attempting to rewrite history. She will know that the previous Labour Government brought in a whole range of reforms to take account of the increase in the living age. My hon. Friend the Member for Wirral South (Alison McGovern) highlighted the fact that that increase is far from uniform, owing to health inequalities. Life expectancy has not increased so much among people on lower incomes and from lower socio-economic groups, for example.
Ian Swales
The hon. Lady mentions the need to give notice of the changes. Does she know how much notice was given of the freezing of the age-related allowance in 2010-11?
Katy Clark
Government Members keep trying to return to that point. As I have said, the freeze applied to all allowances, and it is not comparable to what we are debating. This is a specific debate about long-term Government policy towards pensioners and the long-term cumulative effect that this change will have.
As I say, this is the wrong time to come forward with changes of this nature. We heard a well-informed contribution from the hon. Member for Banff and Buchan (Dr Whiteford) on the situation faced by pensioners who rely on private savings. I suspect that many of us as constituency MPs have had a considerable number of representations from individuals who have planned their pension and retirement savings over many years on the assumption that higher rates of interest would apply, enabling them to live off the savings they had made over a long period. I very much hope that in 2013, when these changes come into force, the economic situation will be different, but I suspect that those pensioners will be in a similar position. That is another powerful reason why now is an incredibly bad time to make changes of this kind. In my view, they should have been introduced with far greater notice.
The Government should know that pensioners are being disproportionately affected by the policies they are pursuing. We hear a great deal from Government Members about their ambitious deficit reduction plan—so far, of course, we have only seen the deficit increase. What we are seeing locally, and I suspect they will be seeing it, too—[Interruption.] Government Members are well aware that they are borrowing more and that the deficit is going up. In their constituencies as well as mine, however, local people will be experiencing the start of draconian cuts in public services, which will have and are already having a disproportionate effect on those in retirement. Even before the current economic difficulties, we were all aware of the struggle councils were having in trying to provide the social services required for our changing demographic and our ageing population.
Mark Garnier
The hon. Lady really must get the point about the deficit right. The deficit has been reduced from more than £150 billion when this Government first came to power to, I think, £132 billion this year. She may be getting confused between deficit and debt, and Government debt is going up, but it is going up because we have such catastrophic public finances as a result of the previous Government.
Katy Clark
The hon. Gentleman is well aware that borrowing is going up. As I was saying, despite the fact that the Government are failing and have consistently failed to meet their own targets, the reality is that the cuts in public spending they have already made—and they propose more for the coming years—are having a disproportionate effect on the pensioner community.
Katy Clark
I hope to come to a conclusion shortly, but I will give way for the last time.
Stephen Williams
The hon. Lady has twice said that pensioners are disproportionately affected by the collection of measures the Government are introducing to reduce the deficit. May I quote what Paul Johnson, the director of the Institute for Fiscal Studies, said about this particular measure? He said:
“Despite this morning’s headlines, this looks like a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes. From this Budget we calculate that pensioners will lose on average one quarter of one per cent of their income in 2014”.
How does she square that—the Opposition often like quoting the IFS—with pensioners being disproportionately affected by what the Government are doing?
Katy Clark
I think that the hon. Gentleman’s constituents will be very interested by his complacent approach. I suspect that he is well aware of the impact that the Government’s cuts are having on his constituents as well as mine, and well aware of the pain that his constituents are suffering. I am sure that he is also aware that pensioners rely disproportionately on social services and the public sector, and that the forthcoming cuts will make life particularly difficult for them.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak in this debate, in which there has been a wide range of contributions. We have had a rerun of the Budget, Second Reading and most of yesterday’s debate. It would seem unreasonable for me not to make a wide-ranging contribution on this topic as well.
Nigel Mills
No, I will happily discuss the granny tax. I feel no shame about my Government’s policies. Unlike Opposition Members, I am not trying to airbrush out most of the last 12 years of history and pretend that all those disasters never happened. I am happy to address what the Government are doing.
We need to put the position in context. In the financial year that has just ended we were still spending £126 billion more than the tax revenue that was raised, and we expect to spend more than £90 billion more than tax revenue in the current tax year. That is not a healthy financial situation, and it is not a desirable position. We do not have enough money to go around doing many things that we would like to do, no matter how useful or socially valuable. The global financial situation is very difficult, and we must make difficult decisions. During the election campaign, Government Members told potential constituents “This will be a difficult Parliament. We will have to make cuts, not because we do not think the things we are cutting are good and not because we would not prefer to leave them as they are, but because we must try to sort out the horrible mess that exists.”
Jack Dromey (Birmingham, Erdington) (Lab)
Did the hon. Gentleman say to his constituents “Elect me, and we will introduce a granny tax to fund a tax cut of £40,000 for 14,000 millionaires”?
Nigel Mills
Obviously I did not say that, because I would have been wrong if I had, but I did say that no section of the population would be spared the pain caused by our sorting out the mess that we would have to deal with. I would also have said that I considered the 50p or, more accurately, 52p tax rate an invidious measure which had been devised as a political trap, that it was a terrible tax policy, and that it would probably raise very little money.
The two independent studies that support the Budget have shown that the cost of lowering the rate to 45p is about £100 million a year. The saving from the so-called granny tax is approximately 10 times the size of that. If anything in the Budget is being funded by the granny tax, it is the reduction in personal allowances for the low earners in society.
Charlie Elphicke
Does my hon. Friend recall the former Labour Prime Minister Tony Blair saying back in 1997, “Elect us and we will destroy the private pensions system on which you rely for your retirement with a £150 billion impost”? I do not recall anything of that nature appearing in the Labour party’s manifesto.
Nigel Mills
I think my hon. Friend is suggesting that we should view the issue in the round—the issue, that is, of how we can encourage people to fund their own retirement and achieve the decent level of income that they want in a way that is not unaffordable for the taxpayer.
Mr McKenzie
I suspect that at the last election the hon. Gentleman did not tell his constituents that he would impose a granny tax on them, but that he did tell them that if the Conservatives were elected they would be a fair Government. Is it fair to impose this granny tax while also giving a tax benefit to millionaires? Will he go back to his constituents and tell them that this is a fair Government, therefore?
Nigel Mills
I certainly did say to my constituents that we would be a fair Government. I support fair tax measures. My hon. Friend the Member for Bristol West (Stephen Williams) quoted the IFS saying the granny tax was a
“a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes.”
While Opposition Members may not wish to believe the Government’s pronouncements, or even those of the Office for Budget Responsibility or the Office of Tax Simplification, perhaps they will believe those of the IFS.
We are not in a happy situation. I do not think any of us are happy about the types of Budget we are going to need to have throughout this Parliament and even perhaps most of the next one. There will have to be a series of measures on both taxation and spending that are going to hurt large parts of the population, while we try to tackle the deficit, which still amounted to £126 billion last year.
Kate Green
Something interesting and important was said a few moments ago: it is important that we design a system that encourages people to save and to look after themselves to a degree in retirement, and which rewards them for doing so. Does the hon. Gentleman agree that one of the problems with the granny tax is that people who have been able to make modest savings into small pension pots for their retirement, and who therefore perhaps now have an income of £12,000 or £13,000 a year, are seeing the effort they made to save completely wiped away? Is that not an injustice that is of particular concern if the Government want to incentivise saving for retirement?
Nigel Mills
I accept that that is an issue in respect of the granny tax proposal, but I suspect that the £5 billion tax raid which has been referred to and a whole series of other measures that have discouraged saving will have far more serious impacts. I am sure the hon. Lady would join me in welcoming the Government’s proposal to introduce the flat-rate individual state pension of, I think, £140 per individual, as that will help address the problem she mentioned.
Charlie Elphicke
Does my hon. Friend agree that the previous intervention was a real cheek? The party of the hon. Member for Stretford and Urmston (Kate Green) destroyed our pension system and raided our pension funds, and it also destroyed thrift by introducing means testing into the pensions system, thereby totally disincentivising any form or saving and personal responsibility whatever.
Rachel Reeves
If the hon. Gentleman is such a strong advocate of saving, will he join me in expressing disappointment about the fact that this Government have abolished the savings gateway and the baby bond, and have watered down automatic enrolment so that it will be introduced at a later date, and for people earning higher incomes than envisaged under the last Labour Government?
Nigel Mills
The hon. Lady is tempting me to make an even more broad-ranging speech than I had intended, and if I were to talk about such matters, I suspect I might be in danger of being ruled out of order. Let me repeat that there are things that would be nice to have but that are unaffordable in the current situation. Difficult decisions have had to be taken and spending has had to be targeted where it is most needed.
Returning to the topic of the granny tax, I do not feel guilt—that is the wrong word—but I do strongly believe that we need to simplify our tax system. Setting up the OTS is a great measure that this Government have taken, and it has performed the tasks given to it incredibly well. Those of us who advocate tax simplification have to accept that whenever we try to simplify tax, it is likely that some people will win and others will lose out. At a time of budget constraint, there is no way of softening the blow on those who will be losers, so we are left with a choice between muddling on as we are, with a ridiculously complicated and clunky tax system, or trying to simplify it in the hope that in the long run we will end up with a far better system.
Nigel Mills
I have given way many times, so I shall not do so again.
I am not sure that the Government have quite gone down the model line by picking up on the key points made in the OTS report on pensioner taxation. However, if we consider the tax system for pensioners—with higher personal allowances for those over 65 and those over 75, the tapering or claw-back of money depending on how much income they have, as well as all the other different allowances—we can see that the situation is incredibly confusing.
Elizabeth Truss
Does my hon. Friend agree that one of the things we need to do at the moment is encourage employers to take on more staff? If we have a system such as the Chancellor proposes in the long term and is certainly looking at, whereby national insurance and tax are simplified, it will be much easier for employers to process those expenses and to take on new staff, and that will really help to get the economy going.
Nigel Mills
I entirely agree about a simplified tax system, and if we could have found a way of merging income tax and national insurance, taking away one complexity, that would have been a great step forward. The tax regime for pensioners—people in retirement—is far too complicated and we need to find a way of simplifying it.
Nigel Mills
Not at the moment. I am sure that all hon. Members have seen pensioners in their surgeries who have suddenly been landed with a huge tax bill that they were not expecting because PAYE had not been deducted from a private pension or because they had different income levels from those they were expecting. All of a sudden these people are facing a bill of a £1,000 or more that they literally cannot afford, and through no fault of their own. So the whole spirit of trying to simplify the tax position for pensioners is exactly the right way forward. This measure is not the end of that; it will be the start of trying to get to a place where everyone can understand what their correct tax position will be and will not have to fill in myriad tax returns. People have to claim this age-related allowance, and that is slightly unusual. Normally, people expect their personal allowance to be an automatic thing, but people have to write to claim this, and that has always struck me as a strange anomaly.
The direction we are trying to take is clearly the right one. This measure is not something that any of us would have wanted to do, and I feel sympathy for all those pensioners, including my parents, who will lose money as a result of it. This is one of the many issues about which we do not just get grief from our constituents; we get grief about it from our own families every time we see them. I have to try to explain to my family why they have to put up with this pain. When we have got the personal allowance up to £10,000, the actual value of these increased allowances over that level will have been greatly reduced compared with the £3,000 difference that I believe the figure was at the start of this Parliament.
I do not think that anyone in this House is saying that as the basic personal allowance is rightly hiked up to £10,000, there is any way we can afford to hike the pension one up by the same amount—all anyone was ever expecting was for it to go up by some measure of inflation. As that benefit was to be so reduced by the end of this Parliament, we have to wonder whether or not the actual benefit to people would have been worth all the complexity, and all the hassle of maintaining these things and the delivery cost.
So I say to the Government that simplifying tax is right. This measure is one of those in the box marked, “Necessary, but unpleasant and not what we wanted to do”. We would all much rather find ways of giving our pensioners more income, but I am convinced that this is one of those things that we just have to do to take our tax system in the right direction and try to fix the deficit. However, I encourage the Government to examine all the other things in the Office of Tax Simplification’s report on tax and pensions and try to introduce some of them too, so that we get a fully developed and balanced reform, rather than just this start.
The Temporary Chair (Hywel Williams)
Order. I intend to call the Minister at 4.23 pm, so I ask hon. Members to keep their contributions short.
Sheila Gilmore
I am now totally baffled, because the hon. Member for Amber Valley (Nigel Mills) returned to the simplification issue, but what we heard earlier, when he perhaps was not in the Chamber, was an impassioned ex post facto rationalisation for this change given by the hon. Member for Ipswich (Ben Gummer) and, to a lesser extent, by the hon. Member for Stourbridge (Margot James). They sought to assure us that this really was not about simplification, and that it was all part of a master plan to deal with the problems of an ageing population and make the pensions system better for people. So I am now baffled as to which it is. Is it about tax simplification only or is it about a very thoughtful plan, which had not previously been mentioned? This is where I was also puzzled by what the hon. Member for Ipswich said, because nothing of what he said was said by the Chancellor; no obvious rationale on those terms was given by the Chancellor when he introduced this measure in his Budget speech, as he slipped it in as being “simplification”.
This is not part of dealing with the problem of an ageing population; there are other ways of doing that. If the money raised was to be used to help with pensions, it would be a different matter. If it were to be used to help people in my constituency who are struggling with increased care costs and who are not getting assistance with care because they do not meet the extremely high thresholds that are now being imposed, we would have to listen to the suggestion. However, the provision is about finding some extra money to fund the big tax cut that has been given to people with high incomes.
Richard Harrington
I am trying to follow the hon. Lady’s rationale and that of her colleagues about this change in the pension arrangements. Their argument is that this money is being used to fund wealthy people through the reduction from 50p to 45p, but would it not be just as logical to say that it is being used to fund the big increase in personal allowances, which benefits everybody?
Sheila Gilmore
I think it is important to see this in the context of the cut in the 50p rate.
I am also concerned about some of the attempts today to counterpose and, as usual, level down. It is fascinating. We heard earlier that if we were going to increase the allowances for young people and working people, it was not fair that older people who were already retired should have a higher threshold. Why do the Government always want to level down? Why do they feel, essentially, that they have to pit one group against another rather than saying that the unfairness lies in the high tax levels for working families? Let us not forget that many of those families have not benefited from the rise in the tax threshold because of the changes to tax credits.
Some of the apparently quite small measures that the Government are introducing are illogical. We keep being told that we want people to save and to benefit from savings and work, but yet again this measure undermines that. We have seen that, too, in the way in which working tax credit has been dealt with. We have heard about people with very low working hours who will lose a lot of working tax credit. Working tax credit was frozen, however, and was not increased in line with inflation when benefits were. That totally contradicts the Government’s own policies, because if we want to make work pay rather than benefits, why put up benefits in line with inflation but not working tax credit?
At lot of what is happening is illogical and it is important that we straighten things out and oppose this provision. I shall sit down now so that my hon. Friends can speak.
Charlie Elphicke
One key point is missing from this debate, and that is a memory on the part of the Labour party. We have heard a lot of cant from the Opposition and they have shown very little memory of the pensions raid back in 1997, which knocks the issue of age-related allowances into a cocked hat. It should be remembered that there was a £150 billion pension stealth tax at that time. Indeed, Ros Altmann, who was an adviser to Tony Blair, famously said that Labour “destroyed our pensions system”. The numbers involved as regards age-related allowances are small compared with that massive and unjustified smash-and-grab raid on our pension system, which destroyed the private savings culture that had been built up over so many years. Then, considering the insidious introduction of pensions means-testing, which was a massive attack on personal responsibility, it is extraordinary to hear arguments from the Labour party that the measures on age-related allowances somehow take away that personal responsibility, given that it introduced a whole system that systematically wrecked the taking of personal responsibility. We need to hear a bit more humility from the Labour party and a bit more of an apology.
Charlie Elphicke
On the contrary, I am really delighted that we have delivered on the pensions triple lock guarantee. Some hon. Members might recall that back in April 2000—it was a long time ago so perhaps the hon. Lady has forgotten—the basic state pension rose by 75p. That was the kind of care and concern we saw for pensioners from the Labour party, whereas the Conservative party is ensuring that we have the highest ever increase in the basic state pension, in cash terms, of £5.30 a week.
Julie Hilling
I thank the hon. Gentleman for giving way because he makes this link between the 75p increase, which did not go down well at the time but was based on inflation, and this increase, which is of course also based on inflation. Pensioners will get no benefit whatever—no increase in their pension—from this amount. It simply compensates them for the rate of inflation. In fact, they will lose out because it is based on the consumer prices index, not the retail prices index. For most pensioners, the inflation they feel is much closer to RPI; indeed it is above that because of the way their expenditure has to be made.
Charlie Elphicke
The hon. Lady forgets that the way the triple lock works involves not just inflation but earnings. At the moment, earnings are not rising at a great rate of knots because of the massive economic mismanagement of the Labour party that this Government are trying to put right, and that is not being assisted by the chaos in the eurozone. Over time, however, earnings will outstrip inflation and I suspect that will happen in the latter part of this year, so that has a bearing on age-related allowances.
Mr Marcus Jones (Nuneaton) (Con)
Does my hon. Friend agree that there is some hollowness to the Labour party’s argument regarding the state benefit? After all, Labour prevaricated for many years from the early 1980s in relation to the link to earnings that was taken away in the early 1980s. They had 13 years to rectify that, but did not do anything about it. Now we have put the triple lock in place, they are criticising that. Which way does my hon. Friend think they want it— with pensioners better off, as they will be under the Conservative-led coalition, or with pensioners being worse off as they were under Labour?
Charlie Elphicke
Exactly so. My hon. Friend makes a powerful point. It is true that we took away the whole issue of the earnings link, but we restored it, whereas the Labour party sat by as a spectator, including in its time in government. Overall, the package for pensioners means that no pensioner will lose out in cash terms. It is a fair settlement and this Government have looked after pensioners extraordinarily well.
Mr Gauke
Clause 4 makes changes to age-related income tax personal allowances, supporting the Government’s longer-term aim of simplifying the tax system by creating a single personal allowance regardless of age. In light of the Government’s commitment to increase the personal allowance to £10,000, together with our commitment that older people will benefit from future increases in the personal allowance above their 2013 allowance once these are aligned, there will be no need to continue with this complication in the tax system. One of the Government’s key objectives for the tax system is to make it simpler and easier for everyone to understand.
Elizabeth Truss
Given that the UK is 94th in the world according to the World Economic Forum for the extent and complexity of our tax system, has my hon. Friend heard any proposals from the Labour party about how to make our tax rates more competitive or how to make our tax system simpler?
Fiona O'Donnell
Perhaps I can make a helpful point to the Minister. Does he think it simplifies the tax system for 30,000 Scottish families to have to fill in a tax return to be entitled to child benefit?
Mr Gauke
I will deal with that in my remarks on child benefit, which we will debate shortly. The idea of people having the same personal allowance whether they are 64, 65 or 75 seems to me perfectly sensible.
The changes made by the clause will help ensure that people get the allowances to which they are entitled, pay the right amount of tax and make it more straightforward for Government to administer, thereby minimising costs to the taxpayer. A 2009 report from the Public Accounts Committee commented that the age-related allowances were
“complex and hard for older people to understand and place too much emphasis on older people having to prove their eligibility, resulting in errors in claims and potential overpayments of tax”.
In March this year, the Office of Tax Simplification published its interim report, “Review of Pensioner Taxation”, which highlighted no less than nine complexities in relation to the age-related personal allowance. One of the main sources of complication is the taper, which we have heard about in the debate this afternoon. The taper removes an individual’s personal allowance where their income exceeds £24,000 at a rate of £1 for every £2 over this limit, up to the point at which their personal allowance is the same as that for an individual born after 6 April 1948. This creates a 30% effective marginal rate of tax for individuals on relatively modest incomes and brings people into the self-assessment system when, in most cases, they would otherwise have no need to complete a tax return.
For some, in particular people whose tax affairs have previously been entirely dealt with under the PAYE system through their working lives, and who have therefore had nothing to do with HMRC, this can be a challenge. They now find themselves having to complete forms and tax returns for HMRC because they may be affected by the taper when they reach the age of 65. The changes made by the clause, alongside the increases that we have made to the personal allowance, mean that we can now simplify the system of personal allowances. This will remove complexity and confusion for some taxpayers. But nobody will lose out in cash terms as a result of these changes.
Let me emphasise that point. As a result of these changes, nobody will lose out in cash terms. In fact, half the people over 65 in 2013-14 will pay no income tax at all and are unaffected by these changes. Those who are affected by the withdrawal of age- related allowances will benefit from a £1,100 increase in the personal allowance.
Ian Austin (Dudley North) (Lab)
The Minister said twice that nobody would lose out in cash terms. Can he tell us how many people will lose out in real terms?
Mr Gauke
The number affected is very clear. We have published it in the tax information impact note. It is 4.4 million people, as we have made clear throughout. But as I say, nobody loses out in cash terms, and the increase in the personal allowance is the largest increase ever.
Richard Graham (Gloucester) (Con)
We heard from the Opposition some extraordinary statements which included the phrase “levelling down”. Will my hon. Friend confirm for the benefit of all Members of the House that the changes made to the tax-free element of income affect 24 million workers and take another 850,000 workers out of income tax altogether? That is called levelling up, not levelling down.
Mr Gauke
My hon. Friend is absolutely right. What we are seeing, and what we have seen over the past few years while this Government have been in office, are rapid increases in the personal allowance. The main personal allowance is rapidly catching up with the age-related allowance, which gives us this opportunity to make the simplification, as we are doing.
Those who are affected by the withdrawal of age-related allowances will still see the total amount of deductions that they pay reduce significantly compared to those under the age of 65, because we are retaining the exemption from national insurance contributions for those of state pension age. So, for example, even under the freeze, a 69-year-old with an income of £18,000 in 2013-14 will pay less than half as much in tax and national insurance contributions as someone aged 30 earning the same amount.
Kelvin Hopkins
The Minister may be too young to remember, but the Conservative Government under Mrs Thatcher abolished the Rooker-Wise amendment. The basic state pension would have been much higher now had that amendment been kept in place. What about raising the basic state pension in steps to where the pension would have been had the Rooker-Wise amendment never been abolished?
Mr Gauke
The Rooker-Wise amendment related to tax thresholds. As for indexation, we are using the higher of earnings or inflation or 2.5%. The plans we inherited were just earnings. That is an important point.
Despite difficult economic conditions, the Government continue to protect benefits for pensioners, including winter fuel payments, free bus passes and free prescriptions, to name but a few. Many pensioners are also benefiting from the Government’s decision to make funding available to local authorities to freeze council tax, and we also have the Warm Homes discount. The Institute for Fiscal Studies has submitted evidence to the Treasury Committee showing that pensioners are the group least affected by the tax and benefit changes implemented by the Government. It has given evidence that pensioners have benefited the most from the distributional impact of tax and benefit changes for some years. I assure the House that the Government are supporting, and will continue to support, pensioners.
Richard Graham
My hon. Friend raises some valid points about how much the Government have done for pensioners throughout the country, referring to all those crucial changes, such as the triple lock, the link back to earnings, and the retention of all the benefits that pensioners have. My constituents remember the sharp contrast between the rise in the basic state pension of 10% since the Government took office and the 75p offer from the previous Government, which, with collective amnesia, they seem to have entirely forgotten.
Mr Gauke
My hon. Friend is right to remind the Committee of that.
We must ask ourselves whether pensioners are disproportionately affected by Government policies. The answer is clearly no. The evidence is very clear on that. After the reforms, does the tax system treat pensioners unfairly? No. By definition, having one personal allowance across the board, regardless of age, is not unfair on pensioners. Is there a strong, principled case for different personal allowances based on age? We have not heard that case made today, other than the fact that Winston Churchill thought it was a good idea in 1925. The official Opposition’s policy is to tell everyone under 65 that they should have a lower personal allowance than those over 65.
Clause 4 supports the Government’s long-term aim of simplifying the tax system by creating a single personal allowance. It removes the complicated tapering system, making personal allowances easier to understand. In the longer term we will have a single, generous personal allowance for everyone while ensuring that no one is a cash loser. I ask the hon. Member for Leeds West (Rachel Reeves) to withdraw the amendment.
Rachel Reeves
If you believe what the Exchequer Secretary said, Mr Williams, you would think that pensioners would have come to Parliament today to thank the Government for everything they have done for them. The reality is that pensioners up and down the country feel seriously let down by the Government. In contrast to the out-of-touch speech we heard from the Exchequer Secretary, we have heard concerns from Opposition Members, including my hon. Friends the Members for Wirral South (Alison McGovern), for North Ayrshire and Arran (Katy Clark), for Livingston (Graeme Morrice) and for Edinburgh East (Sheila Gilmore), and we heard a contribution from the hon. Member for Banff and Buchan (Dr Whiteford). They stick up for their constituents, listen to them and understand their concerns that pensioners will lose £83 this year and those who will retire next year will lose £322, with very little notice, and that is after many other hits, including the increase in VAT, and despite the fact that pensioners face additional costs, such as heating, compared with other people, and that the Government have done so little to consult on these changes before they are introduced.
The fact is that this tax raid on pensioners is being used to fund a tax cut for millionaires—a tax cut worth £40,000 for 14,000 millionaires. That shows where the priorities lie for Government Members. The priorities for Opposition Members lie with ordinary families, young people and pensioners, who are feeling the full impact of the Government’s policies. All Members now have a chance to show where their priorities lie; are they with millionaires or with pensioners? Will Government Members listen to the leadership of their former leader, Winston Churchill, who introduced the age-related allowance in 1925, or to their current leadership, the Prime Minister and the Chancellor, who are making a tax grab on pensioners? It is up to Government Members to decide how they will vote, but pensioners up and down the country will be watching this afternoon to see where their priorities lie, because the reality is that the Government are introducing these reforms because they want to help millionaires and hurt pensioners. We will vote for amendment 65 and against clause stand part.
The Temporary Chair (Hywel Williams)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.
Mr Christopher Chope (Christchurch) (Con)
I beg to move amendment 9, page 4, line 33, leave out ‘high’ and insert ‘higher’.
The Temporary Chair (Hywel Williams)
With this it will be convenient to discuss the following:
Amendment 10, page 4, line 34, at end add
‘for recipients of child benefit’.
Amendment 75, page 4, line 35, at end add—
‘(2) Schedule 1 will not come into effect until a study has been carried out into ways of mitigating the impact of the Schedule on families with only one earner, compared with families with two earners, and placed in the Library of the House of Commons.’.
Clause stand part.
Amendment 11, in schedule 1, page 131, line 7, leave out ‘high’ and insert ‘higher’.
Amendment 12, page 131, line 8, leave out ‘high’ and insert ‘higher’.
Amendment 25, page 131, line 10, leave out ‘£50,000’ and insert ‘£60,000’.
Amendment 26, page 131, line 11, leave out
‘one or both of conditions A and B are’
and insert ‘condition A is’.
Amendment 13, page 131, line 12, leave out ‘high’ and insert ‘higher’.
Amendment 27, page 131, leave out lines 19 to 24.
Amendment 28, page 131, line 24, at end insert—
‘(5) A person (P) is not liable to a high income child benefit charge if the total adjusted net income for the year of that person and any partner does not exceed £100,000’.
Amendment 77, page 131, line 24, at end insert—
‘(5) A person (P) is not liable to a high income child benefit charge if the total adjusted net income for the year of that person and any partner does not exceed £100,000, subject to any child or children in respect of whom child benefit is claimed being resident in the United Kingdom notwithstanding the European Communities Act 1972.’.
Amendment 14, page 131, line 26, leave out ‘high’ and insert ‘higher’.
Amendment 29, page 131, line 29. leave out from ‘met’ to end of line 30.
Amendment 30, page 131, line 31, leave out ‘and B’.
Amendment 31, page 131, line 32, leave out from ‘is’ to end of line 13 on page 132 and insert ‘100%’.
Amendment 32, page 132, line 14, leave out from beginning to end of line 2 on page 133.
Amendment 33, page 133, leave out lines 16 to 26.
Amendment 34, page 133, line 29, leave out ‘another’ and insert ‘a higher’.
Amendment 35, page 133, line 30, leave out from ‘681B(1)(a)’ to end of line 33.
Amendment 36, page 133, leave out lines 36 to 39.
Amendment 37, page 134, leave out lines 3 and 4.
Amendment 38, page 134, leave out lines 10 to 12.
Amendment 15, page 134, line 28, leave out ‘high’ and insert ‘higher’.
Amendment 39, page 134, leave out lines 34 to 37.
Amendment 16, page 135, line 9, leave out ‘high’ and insert ‘higher’.
Amendment 40, page 135, leave out lines 13 to 23.
Amendment 41, page 135, leave out lines 37 to 40.
Amendment 17, page 135, line 38, leave out ‘high’ and insert ‘higher’.
Amendment 18, page 136, line 9, leave out ‘high’ and insert ‘higher’.
Amendment 42, page 136, leave out lines 13 to 23.
Amendment 19, page 136, line 35, leave out ‘high’ and insert ‘higher’.
Amendment 20, page 136, line 38, leave out ‘high’ and insert ‘higher’.
Amendment 21, page 136, line 45, leave out ‘high’ and insert ‘higher’.
Amendment 22, page 137, line 13, leave out ‘high’ and insert ‘higher’.
Amendment 23, page 137, line 22, leave out ‘high’ and insert ‘higher’.
Amendment 24, page 137, line 26, leave out ‘high’ and insert ‘higher’.
Schedule 1 stand part.
Mr Chope
I rise to speak to amendment 9 and the other amendments in the group, standing in my name and that of my hon. Friend the Member for Gainsborough (Mr Leigh). We face a rather unsatisfactory state of affairs, because the guillotine will fall at 6 o’clock, which means that we have precisely 52 minutes to discuss the whole of clause 8 and schedule 1, which deal with child benefit and will affect 1.2 million families up and down the country, potentially yielding £1.5 billion for the Exchequer. How can one do justice to the complexity of what the Government are proposing in this short space of time?
Mr Chope
I see the hon. Lady on the Opposition Front Bench agrees with me about that.
Perhaps it is appropriate to start by reminding the Committee of what our right hon. Friend the Prime Minister said on 26 May 2009. He said that he had accepted, as Conservative party policy, that
“The House of Commons should have more control over its own timetable, so there’s time for proper scrutiny and debate.”
He said that
“there should be much less whipping during the committee stages of a Bill,”
because
“that’s when you really need proper, impartial, effective scrutiny—not partisan point-scoring and posturing.”
It is against that background that I enter into this debate with confidence.
The Government’s proposals will, by their own admission, result in more complexity and less simplicity, which is completely at odds with their avowed intent on tax policy. The administrative costs alone will exceed £100 million, and 650 extra staff will have to be taken on to administer what is effectively the removal of child benefit from 1.2 million families.
Kelvin Hopkins
I agree with the hon. Gentleman entirely. I recall when child benefit was first introduced in the 1970s, and I have to point out to those on the Government Front Bench that, throughout the Thatcher and Major Governments, no attempt was made to get rid of that universal benefit. We should stick with universality in this case.
Mr Chope
The hon. Gentleman is absolutely right. Even during the International Monetary Fund crisis in the mid-1970s, things never got so tough that the Government of the day felt the need to interfere with child benefit. It was a reflection of the fact that families with children had higher costs than those without.
The proposals will create all sorts of perverse incentives, and the people who want to try to avoid the measures will have a field day. This has been well covered by the Treasury Select Committee’s recent report, as well as by the Chartered Institute of Taxation and other expert bodies. The fundamental issue is the proposals’ lack of fairness, as between one family and another.
Mr Stewart Jackson (Peterborough) (Con)
The Centre for Social Justice says that the Government’s policy
“could threaten a new wave of family instability and breakdown”,
and that it
“flies in the face of their commitment to ‘shared parenting’.”
Does my hon. Friend find it incongruous that that policy is being pursued at the same time as the Government are failing to honour their commitment to introduce marriage or family tax breaks in this or future Budgets?
Mr Chope
My hon. Friend makes a really good point, which was also covered in the recent Adjournment debate on this subject, which received what I can describe only as a rather woolly response from the Exchequer Secretary to the Treasury, my hon. Friend the Member for South West Hertfordshire (Mr Gauke). He said that, basically, something was going to happen in this Parliament but the Government were not quite sure what or when. That was not good enough. We need an opportunity to look at the whole issue of transferrable tax allowances, and allowances in the tax and benefit system that recognise the family and marriage.
Returning to the issue of fairness, two people on £50,000 a year with children will not have to pay the high income child benefit charge, whereas a family with children with one person earning over £60,000 will have to pay it.
Steve Brine (Winchester) (Con)
On the issue of fairness, would my hon. Friend have any truck with the idea of limiting child benefit to, say, the first two or three children, regardless of the parents’ income, which would retain the universal element?
Mr Chope
There is a whole host of ideas going round. There was a time when no child benefit or allowance was payable for the first child, on the basis that parents should take responsibility for that child and bear the costs themselves, but, if they had any more, they could expect the state to help them. My hon. Friend’s point illustrates further the fact that this measure should have been the subject of proper consultation and draft clauses, so that we could have had a debate on it in the wider context of universal benefits. Instead, it was announced at the party conference and implemented in this way.
Andrew Gwynne (Denton and Reddish) (Lab)
Is not one of the benefits of a universal system of child benefit the fact that everyone in society who has children feels part of that society and that welfare state? The proposal will breed resentment not only between the haves and the have-nots but between the haves and those whose family situation fits the new system.
Mr Chope
The hon. Gentleman makes a good point against these provisions. On the issue he raises, it would be worth reminding ourselves that the Christian organisation CARE has produced a useful document, “The Taxation of Families 2010/11”, which considers whether current tax burdens are fair. It looks at the relative position of households up and down the income distribution scale in the United Kingdom. For a family on £51,543 a year, who represent 150% of the reference wage, a single person with no children is better off than 94% of the population, a one-earner couple with no children are better off than 81% and a lone parent with two children are better off than 80%. Yet a one-earner couple with two children are better off than only 63% of the population and a two-earner couple with two children are better off only than 69%. That shows that targeting families with children for this tax exacerbates the unfairness rather than ameliorating it—running directly against the principles of fairness, equity and justice.
Kate Green
I congratulate the hon. Gentleman on his amendment and on his arguments in support of it. Does he agree that because of the failure to consult, we do not know the answer to the question of how this policy will play out between women and men? Currently, child benefit is paid to the mother as the maintainer of children, but she may now come under pressure from her partner to forgo that child benefit so that his tax bill is not affected. That means an injustice between women and men; and, more importantly, it affects the amount of money spent on children.
Mr Chope
The hon. Lady is absolutely right: that is another of the behavioural consequences, the full implications of which are not yet apparent.
One has to ask why we are going down this road. The justification for it—the avowed policy objective—is this:
“In order to address the fiscal deficit, the Government believes that it is right to ask those on higher incomes to contribute more.”
The Government’s proposal, however, asks those on higher incomes with families and children to contribute more, while those on higher incomes without children are not asked to contribute more. I do not see how that can be fair.
In case anyone thinks this is an issue discussed only among academics, let me say that it certainly goes very close to the heart of many of my constituents. I shall quote briefly from a letter that I received since the Budget from a constituent living in Christchurch. He starts off:
“I am writing to express my utter disgust and outrage at your party’s stance on child allowance announced in the budget last week.”
He explains that he and his wife choose to work hard, believing that they have a responsibility
“to look after ourselves and to help to generate wealth for the wider community”
by contributing their utmost to industry. He says that he has an income of £60,000 and that his wife earns £12,000, providing a combined income of £72,000. As he puts it:
“under your disgusting new Tax rules we will lose the child benefit for our two children. However, in a household with two working parents earning £40,000 each, combined income of significantly more…that family gets to keep their benefit.”
Mr Chope
Before I give way to my hon. Friend, let me read the last paragraph:
“I ask for your commitment to continue your fight against this latest most disgusting taxation scheme on child allowance and rally your fellow back benchers against the current disgraceful and unethical budget.”
Steve McCabe (Birmingham, Selly Oak) (Lab)
If the hon. Gentleman is not successful with his amendment, will he take his constituent’s advice and ask his colleagues to vote against the proposal in its entirety?
Mr Chope
If I am given the opportunity, and if I do not succeed in persuading the Government of the merits of amendment 28 in particular, I shall feel obliged to vote against both the clause and the schedule. I think that by then we shall have done everything possible to try to persuade the Government to change their mind., and if they do not want to change their mind, I shall feel duty bound to express my view in the Lobby accordingly.
The Treasury figures show that there are 840,000 households with children in which at least one person earns over £60,000 a year. I have proposed that everyone earning over £60,000 a year should pay a standard tax increment of about £1,000, which would generate about £2 billion. The 840,000 people in households with children would be only £300 better off, or a bit more, depending on how many children they had. There are approximately another 1.1 million people with taxable incomes of over £60,000 who do not have children. If everyone earning over £60,000 paid an extra £1,000, we would not have to bother with this very partial project of penalising families with children.
I am not suggesting that as a definite solution. I should much prefer, for example, to reduce our contribution to the European Union. [Hon. Members: “Hear, hear.”] However, it would at least be fairer and more consistent with the Government’s avowed intent that those on higher incomes should contribute more to deficit reduction.
Amendment 9 proposes that the
“High-income child benefit charge”
in clause 8 should be described as a higher-income charge. I do not think it accurate to describe someone earning over £50,000 a year as having a high income—although such people may have a higher relative income, as is apparent from the CARE figures that I gave earlier. Funnily enough, HMRC’s own Budget document refers to
“Child Benefit: Income Tax Charge for Those on Higher Incomes”.
I hope that my hon. Friend the Minister will accept that the charge in clause 8 should also be described as a “higher” rather than a “high” income charge. Under the heading “Policy objective”, the document states:
“In order to address the fiscal deficit the Government believes that it is right to ask those on higher incomes to contribute more.”
Obviously mine is a small amendment in comparison with the more substantial ones. If the Government are unwilling even to concede that point, it shows that the degree of stubbornness in the Treasury is even greater than many of us thought.
Is the high-income child benefit charge classified as a tax? I tabled a question to that effect that was due to be answered on Monday, and have just received a written answer from my hon. Friend the Minister—it should have been given then, but I understand the reason for the delay—which states:
“Classification is a matter for the independent Office for National Statistics.”
Effectively, we are talking about a new tax on people with particular incomes, rather than about removing child benefit from them. I have every belief that, in due course, the Office for National Statistics will classify this as a tax.
The Government have been keen to emphasise the need to cut expenditure, and not so keen to introduce tax increases. That may be why they have been rather coy about admitting that this will probably be a tax increase for definition purposes rather than a cut in benefit. My amendment 28, on which I hope we shall have an opportunity to vote, would ensure that there was no unfairness in the treatment of families with identical incomes. The single-parent trap and the couple penalty would be avoided, and the objective that taxes must be fair and simple would be met. This tax is neither fair nor simple.
We were discussing the granny tax earlier, and I would describe the measure now under discussion as a tax targeted at mummies and daddies in the squeezed, hard-working middle. People on equivalent incomes without parental responsibilities have nothing extra to pay and some households on joint incomes with children will also pay nothing, whereas single parents earning over £60,000 will pay a minimum of £1,300 a year more than before, and some of them will pay a lot more than that. This cannot be right. I hope the Minister will say the Government have had second thoughts and are minded to withdraw their proposal.
Cathy Jamieson
I will be as brief as possible, as I am aware that there is not much time left.
There are two key issues: the principle of what child benefit is supposed to be for, and the practical implications of the Government’s proposals. I want to emphasise the word “child” because we have lost sight of the fact that we are talking about children. The Child Benefit Bill introduced in May 1975 by the then Labour Government, with all-party support, was intended to offer a universal, non-means-tested, cash-free tax benefit for the good of all children. At its simplest, it was designed to ensure that mothers had money paid regularly into their purses, giving them at least some form of stable income, and that the money would be used for their families.
Steve McCabe
Like the hon. Member for Christchurch (Mr Chope), a constituent of mine, Mrs Morris, contacted me. Her family’s income falls just above the threshold. They have four children to feed and clothe, and a mortgage, bills and fuel costs to pay, and they are going to lose £3,000 as a result of this measure. How can any reasonable person say that is fair?
Cathy Jamieson
My hon. Friend makes a very interesting point, and I shall come on to address the effect of this measure on many families on that borderline.
Many Members will have come from, or know, families for whom child benefit—or the family allowance, as it was called in days gone by—was a lifeline. No doubt some on the Government Benches will characterise our position as Labour trying to give more cash to high earners.
Cathy Jamieson
But that argument simply does not wash from a Government and a Minister who have continued to support a tax cut to millionaires while millions of ordinary people, including Mrs Morris and many people in my constituency, are feeling the pinch. Article 27 of the UN convention on the rights of the child, which the UK has signed, outlines an obligation to assist parents in meeting the material needs of their children.
Mark Reckless (Rochester and Strood) (Con)
Yesterday, the Prime Minister pointed at the Opposition Benches and said Labour MPs would be voting to give themselves a benefit, yet just after the Budget the Leader of the Opposition said to the Cabinet that they were getting rid of the 50p top rate of income tax to help themselves. Can we not all accept that we on the Government Benches are getting rid of the 50p rate to try to improve the economy, and Labour Members are trying to protect universal benefits and the welfare state as they have understood it?
Cathy Jamieson
I was hoping that the hon. Gentleman was going to respond to my point about children, but that is obviously not the case.
It is expected that the revised proposal will affect about 1.2 million families. Some 790,000 couples and 30,000 lone parents will lose the full amount of their child benefit. A further 330,000 couples and 20,000 lone parents will lose a proportion of their child benefit. The average loss will be about £1,300.
When these proposals were first announced, I tabled a parliamentary question asking for an estimate—not an exact figure—of the number of people earning between £50,000 and £60,000 who are in receipt of child benefit in each parliamentary constituency. I received the answer two days ago. It was short and simple: this information is “not available.” Surely that is exactly the sort of information that should be available in advance of such proposals being made to help MPs judge the impact of Government policies on their constituencies.
Kate Green
Does my hon. Friend agree that if the Government do not even know that simple fact, they are even less likely to know how many people have incomes that vary and fluctuate between £50,000 and £60,000, and that that is going to introduce yet further complexity for those families in the course of the year?
Cathy Jamieson
Again, my hon. Friend makes an extremely important point, which I hope to discuss in relation to how the clawback will operate. Will the Minister commit to provide that breakdown by parliamentary constituency and make it available, as a matter of urgency, in the House of Commons Library?
It has appeared at various times during the debate that the announcement of the changes was designed more to appeal to the Tory party conference than as a plan to be actually implemented. Suggestions have been made that the Chancellor perhaps did not even believe that he would have to implement it. I do not know whether that is true, but this appears to be yet another part of what the Leader of the Opposition described as an “omnishambles”. In Scotland, we would say that the Government’s plan is a bit of a boorach, which translates as a mess or a muddle.
This boorach is, once again, entirely of the Government’s own making. On the clawback, those with incomes above £50,000 will have their child benefit withdrawn at 1% for each £100 of income from January 2013. There is to be no child benefit entitlement for families where any earner has an income of more than £60,000. Some of the changes being proposed might be small steps forward, but they do not change the fundamental unfairness. To return to the point made by my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) about his constituent Mrs Morris, a couple with children where one earner is on £60,000 and another is on £10,000 will lose all their benefit, whereas a dual-earner couple on £50,000 each will potentially keep it all.
As the hon. Member for Christchurch (Mr Chope) said, the implementation of this approach will be complex. New computer systems and new staffing will be required. The Government have estimated costs of between £8 million and £13 million for the computer systems’ development and running costs alone, plus £100 million for staff resources. Interestingly, they have estimated that £5 million will be spent on customer information. I do not know exactly what customer information they intend to provide, but I hope that it will be explained in plain English. Over the years I have grown to mistrust Bills that have one-line clauses and multi-page schedules.
Schedule 1 is certainly not set out in customer-friendly wording. An MP sitting in an advice surgery trying to look through it to check out whether or not their constituents have an entitlement would have to go through seven pages. After several lines defining person “P”, person “Q” and whether or not “Q” is the partner of “P” throughout the week, they would find new section 681C, which provides an equation to work out whether someone would be entitled or not. That is not very customer friendly. There is a serious point as to whether the clawback mechanism is fair and workable.
Mr Mark Spencer (Sherwood) (Con)
Will the hon. Lady explain to the taxpayers of Sherwood in Nottinghamshire who are working more than 50 hours a week and probably earning only £20,000 as a family, why they should pay tax to support someone earning in excess of £60,000?
Cathy Jamieson
That is an important point and I will address it straight away. We have to decide whether or not we believe that child benefit is a benefit that should be paid for the good of children. What we are seeing in this measure is an unfair system, which is not providing for children; it is introducing a new form of taxation, as has rightly been pointed out, and people will be facing huge problems.
I was going to deal with my next point later, but I shall say now that individuals with an income in excess of £50,000 are going to be required to inform Her Majesty’s Revenue and Customs as to whether they or their partner are in receipt of child benefit. It is not clear what would happen where someone either does not know or claims not to know whether their partner is receiving child benefit. In the absence of a legal obligation on partners to share information on benefit receipt, it is unclear what the tax authorities are going to do. Perhaps the Minister will enlighten us.
Helen Goodman (Bishop Auckland) (Lab)
My hon. Friend is making an extremely important and interesting point. Is she saying that this measure threatens the independent taxation of women?
Cathy Jamieson
My hon. Friend makes a very good point. As I have outlined, the problems could be similar if both partners had an income in excess of £50,000. The charge would then apply to the partner with the higher income, and to avoid it being applied twice the partners would presumably have to share information with each other on their incomes and co-ordinate responses in their respective self-assessment forms or HMRC would have to implement some mechanism to link together individuals’ tax records to decide which partner was liable for the charge.
As was mentioned earlier, there would potentially be further difficulties if somebody who did not expect to come within the income bracket for the child benefit charge discovered at the end of the tax year that their income exceeded the limit. It can be quite common for self-employed people to find on preparing their accounts that their income was greater than expected. HMRC would then apply the charge retrospectively, but in order to do so it would need full details of the person’s cohabitation history for the year end. I gently tell the Minister that the potential for disputes is fairly obvious. The living together as husband and wife test is an established feature of the social security system, but we all know from the people who come to our constituency surgeries the problems that emerge. Its extension to the tax system raises a huge range of other issues. Whether a partnership exists will have to be determined on an ongoing basis throughout the year, rather than just at a single point of time, and individuals might not be aware of the need to report changes in their personal circumstances to the tax authorities.
We have already heard that there is a danger that the plan will encourage people to deny the status of their relationship to avoid the child benefit change, which will effectively introduce a couple penalty. That could be a disincentive for a lone parent considering moving in with a higher income person and could create an incentive for couples to split up when one partner has a high income. For people with several children, partnering decisions could have significant financial implications.
Fiona O'Donnell
Has my hon. Friend, unlike the Government, considered the fact that in families where one parent chooses to stay at home and raise their family, that parent will now be forced into seeking employment? In this market, that will not be feasible.
Cathy Jamieson
My hon. Friend makes a significant point and that is part of the fairness test, which I do not think has been met. The Centre for Social Justice has been very critical of this aspect of the Government’s plans, which it argues could
“threaten a new wave of family instability and breakdown…which flies in the face of their commitment to ‘shared parenting’.”
Mark Garnier
I am not entirely unsympathetic to a great many of the hon. Lady’s points, but what she is describing has a great deal to do with the complexity of the tax system as a whole. That tax system doubled in complexity under her Government.
Cathy Jamieson
With respect to the hon. Gentleman—he said he had some sympathy with my points, so I do not want to be entirely negative in response—we will not solve the complexities of the taxation system by adding even more complexities that are unfair to families and will affect children negatively.
Let me put one final issue on the record. People who are not in work and who receive child benefit for a child under 12 receive national insurance credits to enable them to build up entitlement to state pensions. The Government’s original announcement led to concerns about the impact on future pension entitlements of women, in particular, if families stopped claiming child benefit. The Government said from the outset that no one would miss out on national insurance credits as a result of the child benefit changes, but it is unclear how they proposed to ensure that. Under the latest proposals, people who are entitled to child benefit and families affected by this charge may elect not to receive it, but a claim for child benefit will still need to be made in order to receive national insurance credits. Information published by HMRC confirms that.
I am extremely conscious of the time so I will not say anything more, other than that I think that everybody should listen carefully to the debate and to the points that have been made. When Members consider how to vote, they should consider both the principles involved of support for families with children as well as the layers of complexity and confusion there will be if the proposal goes through.
Mr Stewart Jackson
I had not intended to speak in this debate so I shall keep my remarks brief. I do not have at my fingertips the comprehensive figures that my hon. Friend the Member for Christchurch (Mr Chope) gave; he made some cogent and powerful points. From my point of view it is always a very risky endeavour when a political idea is fleshed out to become a fiscal policy of any Government. The remarks made just after the general election at the Conservative party conference were really an aspiration that is now being turned into a policy. I believe that this policy is a fiscal time bomb that will blow up in the faces of this Government. I also believe that what we are doing—[Interruption.]
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. The hon. Gentleman is speaking.
Mr Jackson
I defer to the parliamentary private secretary to the Financial Secretary, my hon. Friend the Member for Reading West (Alok Sharma). [Interruption.] At least he is at the moment.
The hon. Member for Denton and Reddish (Andrew Gwynne) made a very important point about crossing the Rubicon of undermining the universality of child benefit. The same point was made earlier by my hon. Friend the Member for Christchurch. Some time ago, the Child Poverty Action Group said this about child benefit:
“A benefit which goes to virtually all children is of course expensive. But it can also be argued that it is more likely that such a benefit will have ‘substantial and wide-ranging support’, and may be difficult to abolish; provision for the poorest children only, whilst cheaper, is often more precarious.”
Specifically, intergenerational redistribution and the value placed on children are universal values that we are seeking to undermine.
Harriett Baldwin
What would my hon. Friend say, though, about the example of two wealthy Americans who have four children born in this country who receive child benefit tax-free from the UK Treasury, but have to pay tax on it to the internal revenue service?
Mr Jackson
My hon. Friend makes a valid point and I accept her argument, but we need to look at this proposal within the context of the wider proposals in the Budget. We are rightly reducing the top rate of tax and corporation tax, so for those in the upper 20% income range we have introduced fiscal policies through which we seek to support entrepreneurship and business, supporting those higher-rate earners. We are also proud to be taking a substantial number of poorly paid working people out of tax. My concern is that we are not extending those same tax breaks to the squeezed middle and it is a very important message that we are sending. I accept that the Chancellor has tackled the specific issue of the cliff-edge effect, but he has not done enough to secure my vote in terms of the discrepancy regarding the one taxpayer in a two-person household.
Mark Reckless
A rather larger category than that mentioned by my hon. Friend the Member for West Worcestershire (Harriett Baldwin) is the very minimum of £62 million a year—and I suspect much more—that is paid to children who are resident elsewhere in the European Union where costs are much cheaper, many of whom have never even visited the UK.
Mr Jackson
My hon. Friend makes an extremely apposite point. If we really are all in this together, it beggars belief for my constituents and his that we are talking about looking after the interests of people on low or median incomes but are remitting abroad, within the European Union, anything between £40 million and £75 million in various benefits for people and families who do not even live in this country.
It would not be fair not to mention that the Chancellor has sought to ameliorate the concerns that various Members across the House have expressed about this policy and I give him due credit for that. Unfortunately, however, I think this policy will go badly wrong and will have a specific impact on aspirational, ambitious families and will breach the basic tenet of universality in child benefit. For that reason, I cannot and will not vote for it.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. I must call the Minister at 5.48.
Helen Goodman
There are four problems with the proposal that the Government are putting to the Committee this evening. First, it is unfair. The hon. Member for Christchurch (Mr Chope) made it clear that it is unfair as between family patterns of income, unfair as between men and women, and unfair as between those who have children and those who do not.
Secondly, the proposal is illogical. Because it is unfair as between those who have children and those who do not, it would be more sensible, in order to have a fairer approach, to address the fact that personal allowances are paid to people on very high incomes. If the Minister is concerned about people on very high incomes, he would do better to shave the personal allowances of people on such incomes, but far from doing that, what he did was cut income tax for those people. That is illogical.
Thirdly, the proposal adds to complexity. I hope the Minister can explain to the House how he will maintain the independence of women’s taxation, given the information-sharing requirements of the new system.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
The point about women’s tax and independence is extremely important. Does my hon. Friend agree, following also the point made by the hon. Member for Christchurch (Mr Chope), that the likely behavioural impact of the changes, which could include women being encouraged or coming under pressure not to work, is that they would contribute to higher female unemployment, which we know is at its highest since 1987?
Helen Goodman
I am grateful to my hon. Friend. I was coming to that point. I want the Minister to address specifically the point about independent taxation of women. He was shaking his head earlier. I hope he will explain from the Dispatch Box in two minutes’ time how he can maintain it. My hon. Friend is right. As I said, there is an issue, thirdly, of complexity being added to the system.
Finally, the proposal is completely uneconomic. It will be bad for work incentives. People will think, “No, I’m not going to do extra hours.” There will be arguments in families about who does what. It will also mean that some people will refuse promotions. This is no way to make the British economy more efficient.
Mr Gauke
We are somewhat short of time. There are two reasons why we may not be able to do the measure justice. First, the Opposition tabled an urgent question, which took an hour out of our debate—[Interruption.] They may groan, but they did. We had agreed that there would be no statements today to allow us to have a proper amount of time. Secondly, the Opposition included in the debate both the clause and the schedule. They need only have put the clause in for us to have the debate. As a consequence, the schedule will not be scrutinised in the Public Bill Committee.
Clause 8 introduces a tax charge on a child benefit recipient or their partner if their income is above £50,000. The changes that we are introducing in the Bill ensure a balance between reducing the cost to the Exchequer of child benefit and ensuring that those on low incomes are not affected. Opposition Members like to forget that the reason why we are making very difficult decisions is the state of the public finances that we inherited. We must ensure that the measures that we take are both fair and reasonable. It is only right and proper that we ask those with the broadest shoulders to bear the greatest burden. That is why the measure and others announced by my right hon. Friend the Chancellor at the Budget—
Mark Reckless
The Minister said that the charge would apply if “their” income was above £50,000. That would be correct if he accepted the amendment of my hon. Friend the Member for Christchurch (Mr Chope). But actually it applies if his or her income is above £50,000. But on “their” income, they can carry on up to £100,000 as long as the amount is split equally between them.
Mr Gauke
The focus on doing this through the tax system and on having one taxpayer above a certain threshold enables us to avoid the position whereby we would have to put every child benefit claimant through the tax credit system and apply a means-tested system to 8 million different cases, creating a substantially greater administrative struggle for both Government and many individuals. That is why we have taken that particular point.
Mr Leigh
Unfortunately, we are introducing more and more complexity. For example, the new charge must be paid by the higher earner, who might not be claiming child benefit when the lower earner is claiming, even though the lower earner is not legally obliged to inform the higher earner whether he or she is claiming child benefit. This is an absurdity, making our tax system even more complex.
Mr Gauke
I recognise that not everyone wants to address the matter and that there are those who do not want to change the position whereby people earning £20,000 or £25,000 a year are paying taxes to fund child benefit for substantially wealthier families, and I realise that arguments are made to defend that. But if we are to do something about it, we have a choice. Do we do this through a tax credit system, which means putting everybody through that system, and doing it on a household basis, or do we try to find an alternative way of doing it that reduces the administrative demands? I do not deny that there is complexity in this method, but relatively, we believe that this is the simpler way of doing it.
Dr Whiteford
It is misleading to insinuate that poorer families are subsidising better-off families. If there is a need to address income inequalities, why should people who have children pay the price of that rather than people who do and do not have children according to their means?
Mr Gauke
The only benefit received by those in the top 10% of earners, which includes all of us, is child benefit, if they have children. That is the only benefit that we receive, so it is the only one that can be reduced or withdrawn. That is why we have this approach. It is perfectly fair that steps are taken to remove child benefit from those households that contain people in the top 10%.
Caroline Lucas (Brighton, Pavilion) (Green)
Has the Minister heard of progressive taxation? That would be a concrete way of clawing back money from those who can afford it. The danger of the Government’s approach arises when everyone has a service and everyone stands up to defend it. As soon as one starts to chip away at it, it is undermined, and the poorest lose out most.
Mr Gauke
We do have progressive taxation, and under this Government the top 1% of earners pay 27.7% of all income tax at a higher rate than at any point in our history. While considering the universality of child benefit, what is being done was not our first choice, but given the position that we were left in it was necessary. When a Government need to raise revenue it makes sense to turn to a measure with a broad base where a significant number of recipients are not reliant on the additional payments they receive, and child benefit is just that sort of payment. That is why my right hon. Friend the Chancellor said that we would seek to withdraw child benefit from higher rate taxpayers. We always said that we would consider how to implement the measure, and we have been clear that a complicated new means test is not a sensible way forward. Instead, we should look to the existing systems and processes to ensure that we can achieve this goal.
Mr Laurence Robertson (Tewkesbury) (Con)
I am still confused about why we cannot assess all the incomes in a household in the same way as when we quite correctly limit the benefits a household can claim to £26,000. What is the difference?
Mr Gauke
For those who are in the tax credit system, we currently make an assessment of household income. If a person is not in the tax credit system, we do not make an assessment of household income and so have information only on individual income. Were we to try to do this on the basis of household income—I understand the argument made by hon. Members that that is the right thing to do—we would have to accept that that would involve putting everybody claiming child benefit, all 8 million, into the tax credit system which would be a substantial administrative burden on the state and on those individuals.
A number of points have been made in the course of the debate. Let me see whether I can pick up on those, rather than addressing every amendment. My hon. Friend the Member for Christchurch (Mr Chope) argued that the provision should apply only to a household income of £100,000 or more. Not only would that result in the administrative challenge I have set out, but it would cost an additional £900 million, which would be unaffordable as well as impractical.
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) asked about providing information at constituency level. We can release the information by region, but the survey data are simply not good enough at constituency level. I can say that 63,000 people in Scotland will gain as a result of the changes we announced in the Budget, compared with the previously announced policy. She asked what the £5 million for customer information will pay for. It includes provision for an online calculator and guidance for customers, and a letter that will go out in the autumn to all individuals above the higher rate threshold. We will also be updating existing guidance and testing it with customers, and there will be marketing spend to highlight the policy.
My hon. Friend the Member for Christchurch asked why the legislation refers to “high” rather than “higher”. He is right that “higher” is mentioned in some of the other documentation, but the point, which parliamentary counsel considered, is that “higher” begs the question, “higher than what?”, so we used “high”.
Mr Gauke
I have only one minute remaining and want to address the concerns raised during the debate, so I will not give way.
The question was raised of classification and whether or not this was a tax. As my hon. Friend the Member for Christchurch said, that will depend on the Office for National Statistics assessment. Let me deal with the question the hon. Member for Kilmarnock and Loudoun asked. Independent taxation will still apply, each partner will still have their own personal allowance and tax rate bands, and the amount of child benefit, even if it is received by the taxpayer’s partner, will not increase the amount of income liable to tax. Where there are two high earners in a household and they do not want to tell each other their incomes, there will be a mechanism whereby they can find out whether they have a higher or lower income but without the full details.
Mr Hoyle, my time is up. As I have said, the Government have had to make difficult decisions. In order to continue to provide child benefit, we must do so in a sustainable manner. At the current cost that is not the case. We have increased the threshold to £50,000 and put in a taper. This all mitigates some of the concerns that hon. Members have raised, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament.
Mr Chope
I thank everybody who has participated in this spirited debate. Having heard the Minister’s explanation in relation to amendment 9, I will seek to withdraw it. Hopefully, we can have a vote on amendment 28, which deals with the injustice whereby a single-earner family earning £60,000 will lose their child benefit while a family with two people earning £50,000 will retain it. This issue will come back to haunt the Government, I fear. That sometimes happens when policies are drawn up on the back of a fag packet. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.