Income Distribution and Taxation

Jim Cunningham Excerpts

Wednesday 9th April 2014 Westminster Hall

[Mr Harper]

I cannot answer the right hon. Gentleman’s detailed question, because I have not studied the matter, but the other thing that he needs to do—I am not sure whether he has incorporated this into his judgment—is look at the interaction of the tax changes that we have made with the benefit system. Over this Parliament, there will be a significant increase in the personal allowance from what it was in 2010-11 when we came to power, and what it will be when this Parliament finishes, from something in the order of £6,000 or £6,500 to £10,500. A lot of people on lower incomes, such as those on the minimum wage, are moved out of the taxation system altogether. Previously, people could be on a relatively modest income and paying tax, but at the same time getting various income-related benefits.

I think that I have set that out carefully, but if I have not, the Minister will do so in her response. Otherwise, because the debate is not about universal credit and she might not have all those facts at her fingertips, I am sure she is happy to write and to set it out in detail later. I am, however, grateful for the point made by the right hon. Gentleman.

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

I will be quick, as the hon. Gentleman does not have much time. I thank him for giving way, but when the present Government came to power basically someone did not start paying tax until just over £6,000. I do not have the exact figures with me, but if we take into account, for example, 6% inflation over the past four years, the value of the £10,000 threshold that has been introduced drops by £1,200. In other words, had the £6,000 been pushed up for inflation over the past four years, we might arrive at a different value for the benefits to be got out of £10,000 before paying tax.

[Mr Harper]

The hon. Gentleman makes half a sensible point. He is right that the personal allowance would have gone up because of indexation in line with inflation—the statutory provision, unless the Chancellor decides not, in which case he has to set out why—but by only a relatively modest amount. The difference between what it would have gone up to had we simply indexed it and the great increase to £10,500 next year is a significant policy change and has made a real difference to people on lower incomes, many of whom will have been taken out of tax completely.

Finally, to look at the impact in my own constituency, under the tax changes this April a further 381 people are taken out of tax altogether, but 37,223 people benefit from the rise in the personal allowance. If we take the figures for the whole of the Parliament, 4,334 of my constituents will have been taken out of paying income tax entirely by the significant changes in the personal allowance. That significant benefit incentivises people, particularly at the lower end of the income spectrum, to work, and it is why there are several thousand more people in my constituency in work now than there were in 2010, when this Government were elected.

In the environment we are in, where we have a limited amount of money and we cannot cut taxes for everybody, we should focus our help on those who are lower paid and who are genuinely on middle incomes, which, as I said, are incomes of about £20,000, and not numbers beginning with threes or fours. In my constituency, I can see that that is where the benefit should be focused. It should be a priority both for this Government and for our party to make sure that we are delivering benefit to as many people as possible. I am pleased to say that the message I took from the Budget, after listening to the Chancellor’s speech very carefully, was that that was where he has aimed our tax changes.

I agree with the right hon. Member for Oxford East (Mr Smith) about the focus. The welfare changes that we are making, with the benefit cap and the changes to universal credit, which I think, overall, have increased the incentives for people to work, are the right messages. The very simple one is that work should always pay and that we are trying to use our changes to the tax system to benefit the many hard-working families who are trying to do the right thing, but who are finding things difficult—although with the improving economic news, they will see rises in their incomes above the rate of inflation, therefore making them better off in real terms. Those are the people we should focus on and I am pleased that, in my judgment, that is exactly where the Chancellor aimed his Budget. That is why I was very pleased, in my short speech in the Budget debate, to commend it to the House, and why I am very pleased to support the Finance Bill.