Fuel Prices and the Cost of Living

Debate between Angela Eagle and Geraint Davies

Wednesday 16th March 2011 Commons Chamber

[Geraint Davies (Swansea West) (Lab/Co-op)]

rose—

[Ms Angela Eagle]

rose—

Finance Bill

Debate between Angela Eagle and Geraint Davies

Thursday 15th July 2010 Commons Chamber

[Geraint Davies]

In terms of the public finances, £3.6 billion is a massive amount to be raised in a very tight period, so given that there is so much uncertainty and change around the Government’s proposals, does my hon. Friend accept that they present an enormous risk? From the viewpoint of the industry, it appears that the Government are playing fast and loose and are undermining the confidence of the financial markets and credit rating organisations in their capability to manage our economy or their finances.

[Ms Eagle]

My hon. Friend raises an extremely important point and I obviously look forward to the contribution that he will make to our debate in due course. If he looks at the amendment he will see that the point of it is to try to get more detail about what is in the Government’s mind. The time scale for putting the provisions in place is extremely short in relation to the beginning of the new financial year—a point to which I shall return.

The amendment would provide that an order that completely repealed all the paving legislation and all the work to put into effect the higher earnings charge would not be allowed until Parliament has more idea of at least the outline for the proposed replacement arrangements. There are some coy little hints in the Red Book but not much else to go on—certainly no detail—if we are to repeal an already organised charge that has been well consulted on. The amendment also provides for a distributional analysis to show

“the likely impact of the proposed replacement arrangement; and…the revenue implications of the proposed replacement arrangement.”

I accept that the Government have said that they want to replicate the yield, but as my hon. Friend correctly pointed out, the yield is not an insubstantial amount and it rises quickly. In the tax year 2012-13, a yield of fully £3.6 billion for the replacement measure is already on the Budget scorecard.

The planned yield is a considerable sum and the Government need to reassure us that they are not putting it at risk by ripping up all the work that has been done to implement the original policy since it was announced in 2009. There are clear dangers in destroying all that work, wiping it off the statute book and starting again from scratch so close to when the change is meant to come in, not least because of the tight time scales as we approach the start of the financial year 2011-12, when collection of the revenue is meant to begin. The Red Book states:

“The Government wishes to engage employers, pension schemes, experts and other interested parties to determine the best design of a regime.”

That does not fill me with confidence that the Government have the first clue about how their policy intent can be changed into an actual tax change. It is a complex area and they have only a small period to get the measure right.

I assume that the powers will have to be legislated for in the September Finance Bill; perhaps the Economic Secretary can tell me when she replies to the debate. There is not much time—probably only the summer—so I hope she will have a holiday, but I am not sure quite how that will turn out if she is put in charge of sorting out the proposals in an appropriate time. Her officials could get no break at all. To be honest, as they contemplate their second or third Finance Bill of the year, her officials will probably need a break as much as she does. While there is not a lot of time left, there is an awful lot of yield at stake if the Government get this wrong, and that is what we are exploring through amendment 60.

--- Later in debate ---

[Ms Eagle]

There are issues of process on which I would appreciate the hon. Lady’s enlightenment in her response to the debate.

There is also an issue about the backstop position. The hon. Lady says that draft clauses might be brought forward, and, although I am sorry to go on about process, it is important when it comes to tax changes. We gave ourselves close to two years to do all the work to introduce the higher rate relief charge, because it was such a difficult and complex area. We wanted to ensure that those who were liable to pay had plenty of time to plan, understand their liabilities—even if they did not like them, which they rarely do in my experience—and get to know the system, so that there was certainty about it. It now seems clear that there is a degree of uncertainty, which those who would have been particularly badly hit by the high charges, the very richest in our society, might welcome. However, we felt that they should shoulder a fairer burden of the necessary fiscal consolidation, because they had done so well during the good times.

If the Government are serious about protecting the yield, there has to be a trade-off with fairness. The Government have hinted at using the annual allowances as a way of raising that money, rather than our way, and if they introduce that change those on incomes of less than £130,000 will be dragged into the tax net. We wished to avoid that with our solution, so, if the reduction in annual allowances that the Government are considering turns out to be their final decision, in response to the debate will the hon. Lady tell us how many people it will affect? The Government have hinted that that is their preferred way, but our amendment would ensure a distributional analysis of the measure’s effect. Given that we legislated for a particular approach to raising that yield, and given that the Treasury did a great deal of work on developing that system, it would be entirely appropriate for the Treasury to produce some comparisons between that and the preferred approach at which the hon. Lady and, certainly, the Red Book have hinted. How great will the sudden tax liability be of people who earned less than £130,000 a year and would not have been affected had our approach to raising the yield gone ahead? How low down the income scale will the restrictions on tax relief go?

[Geraint Davies]

For clarity, does my hon. Friend agree that the Government’s proposal consists of a multi-billion-pound giveaway for the richest 2% of people in this country at a time when the rest of the country faces massive financial penalties due to the actions of international bankers? Those very bankers will be given the extra bonus by this Government, and that is an absolute disgrace.

[Ms Eagle]

Again, my hon. Friend makes an important point in his characteristically acerbic way. I was going to ask the Minister, in a slightly more polite way, how much of the income that the very richest would have paid will now be paid, under the new plans, by those on lower incomes. I hope she can give us that figure.

The key issue with annual investment allowances is that they drag people into paying the extra tax regardless of income. For example, a modest earner might receive a bequest from a deceased relative and make a big payment into a pension, and under our system they would have been able to pay in up to £225,000 without incurring tax. Alternatively, a modest earner might receive a redundancy payment and wish to put it away, and we clearly want to encourage that if they do not have a pension. If the hon. Lady’s system is to be of the sort hinted at in the Red Book, that person would be much more affected, regardless of their ordinary income; they would be deterred from putting anything other than the annual investment allowance into a pension fund because of the nature of the tax. I hope she will at least admit that that is an implication. Has she any numbers that relate to this issue?