Taxation (Living Wage)

Jim Cunningham Excerpts

Tuesday 22nd January 2013 Westminster Hall

[Robert Halfon]

That is where the philosophical difference between the right hon. Gentleman and me lies; I believe that we need to move away from a handout society, in which people’s taxes are recycled to hand out to various groups, to a hand-back society, in which people are handed back their own money through the tax system.

Some people on the right, especially in the think-tank world, oppose the 10p tax rate on the grounds that it is not radical enough. They say that it might undermine the case for a flat tax in some future Parliament. The problem with that—again, as the IFS has set out—is that a flat tax would be deeply regressive and it would be hard to defend as fair. While that remains true, a flat tax is unlikely to happen.

For example, the IFS has shown that merging income tax and national insurance contributions to a flat rate would literally take from the poor and give to the rich, unless the state was shrunk to a size that is politically impossible. Where I agree with people on the right, and with thoughtful commentators such as Ryan Bourne from the Centre for Policy Studies, is that the Government must do much more to generate support for broader tax cuts. My point, however, is that surely the best way to achieve that is to show that tax cuts are moral—to use a Blairite phrase, “for the many and not the few”—and that they will help millions of hard-working people, not just millionaires.

[Mr Jim Cunningham (Coventry South) (Lab)]

I do not have any difficulty with the hon. Gentleman’s proposal that there should be a 10p tax rate; in fact, it was a Labour Government who actually introduced that rate. Regarding a living wage, which the hon. Gentleman alluded to, I understand that there are no proposals—certainly, they would not be put forward by Labour—to legislate for a living wage. It is a voluntary thing, and it is down to employers, in fact, to decide whether to pay it.

The hon. Gentleman also referred to the minimum wage. I can certainly remember in my constituency many years ago that under the previous Conservative Government there was—what was it called? I think that it was called a “family supplement”, or something, for people on low wages. On one occasion, which really led Labour to legislate for a minimum wage—

[John Robertson (in the Chair)]

Order. Will the hon. Gentleman finish his intervention?

[Mr Cunningham]

I will do in a minute. The fact was that in my constituency we had people on £1 an hour. As I say, I have no difficulties with the hon. Gentleman’s proposal, but whatever Government are in power, at the end of the day, the big threat is from the Exchequer. It is the Exchequer that will probably try to torpedo his proposal.

[Robert Halfon]

I thank the hon. Gentleman for his intervention. As I said before, I agree fundamentally with the minimum wage; it is a moral right that people are paid a certain wage, and I am glad that my party now supports that, but I have questions about the living wage. First, how do we set it? I believe that it puts enormous burdens on smaller businesses; the big multinationals will be able to deal with it. I do not want it to act as a disincentive to employment, and I believe that the burden of responsibility for the living wage should not be on businesses but on the Government: the Government should reduce taxation.

[Mr Cunningham]

rose—

[Robert Halfon]

I give way again to the hon. Gentleman.

[John Robertson (in the Chair)]

I hope that the intervention will be shorter this time.

[Mr Cunningham]

Frankly, if it is voluntary, then it is not forced on small employers. It is the big employers who can pay it.

[Robert Halfon]

Of course, if businesses want to pay their employees a living wage, that is all well and good; I would be delighted at that and would have no problem with it whatever.

My hope is that once the threshold reaches £10,000, we will consider bringing back the 10p rate for the lower-paid. Some Liberal Democrats disagree; they have suggested that the best way to help families is to raise the personal allowance even further, to something like £12,500 a year. I absolutely agree the coalition should fulfil its £10,000 commitment, but it would be unwise to raise the personal allowance even further. Everyone should feel that they have a stake in the state, and they should have some stake in the tax system even if they pay only a small amount, because they need to realise that public services are not free and that there is no magic money tree. My fear is that the Liberal Democrats want to pay for their policy, which will cost £14 billion if applied to everyone, by dragging even more workers into the 40p band. That is what has happened historically. The problem is that we will soon have families with not very high wages paying a marginal rate of 40p, and that will include police officers, shop owners, managers and senior nurses in the national health service.

--- Later in debate ---

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Member for Harlow (Robert Halfon) on bringing this matter to the House for consideration. I want to give a Northern Ireland perspective and to discuss the importance of small and medium-sized businesses, particularly for my constituency, but also for constituencies across the rest of the United Kingdom.

Times are tough for many families throughout the UK. They face stagnating wages, coupled with rising costs. Many small businesses are struggling and cannot afford annual pay rises. The question in many families is, is it better to be in or out of work? The cold reality of the market out there has pressed many of them to make a decision about that.

The Government have shown that they are attempting to address the situation through the uplift of the personal allowance threshold. That should mean that approximately 250,000 workers on low pay no longer have to pay income tax, which has to be good news. The same uplift will also mean that most basic and higher-rate taxpayers will pay £47 less tax from April, after the Chancellor increased their tax-free limit to £9,440 a year.

The Chancellor has indicated that the steps the coalition has taken have increased the number of low earners lifted out of tax to 2.2 million. Again, that is good news, and things are going the right way. The amount of tax paid by people on the minimum wage will have been cut in half by next year. From next April, the personal allowance will rise by a further £235, so the total increase next year will be £1,335—the highest cash increase ever. Over the past two years, the Government have announced total increases to the personal allowance of £2,965, with the aim of reaching a £10,000 allowance in this Parliament.

I read the report of the debate about paying a living wage, which would help many people. Northern Ireland has the highest proportion of people earning below the living wage in the UK, at 24%, and is followed by Wales, at 23%. The lowest proportion of sub-living-wage earners is in London and the south-east; in both cases, it is 16%. However, the number of people affected in London is 570,000. In the north-west, it is also 570,000, while in the south-east, it is 530,000. In terms of the numbers, therefore, those are the most affected areas, but they do not compare with Northern Ireland in percentage terms.

A study showed that workers in the hospitality industry are the worst affected, with 90% of bar staff, and more than four out of five waiters and waitresses, or 85%, paid less than the living wage. The study also showed that 75% of kitchen and catering assistants, as well as launderers and dry cleaners, were paid less than the living wage. Similarly, 70% of cleaners and florists received less than the living wage. Clearly, those figures are of some concern.

[Mr Jim Cunningham]

There has been a whole range of price increases on things such as travel, as well as benefit cuts. In tax terms, would the reintroduction of the 10p tax rate offset that and take people to the level of the living wage?