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
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.
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.
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.
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.