Taxation: Personal Thresholds

Lord Newby Excerpts

Monday 20th January 2014 Lords Chamber

[Baroness Eaton]

To ask Her Majesty’s Government how many people on the lowest incomes have been lifted out of income tax by the rise in personal tax thresholds since 2010.

[Lord Newby (LD)]

My Lords, by 2013-14, 2.4 million low-income individuals have been taken out of income tax altogether as a result of this Government’s increases to the personal allowance since 2010. This number will increase to 2.7 million once the personal allowance reaches £10,000 in April 2014.

[Baroness Eaton (Con)]

I thank the Minister for that Answer. The significant changes to the personal allowance mean that someone working full time on the minimum wage has seen their income tax bill more than halved under this Government. Does he agree that this is the most effective way to support those on low and middle incomes because it enables them to keep more of the money they earn?

[Lord Newby]

My Lords, I do agree. The effect of what we have done is that by 2014-15 there will be a £705 cash benefit to low-income households, which even in real terms is well over £500. This has made a material difference to the income of people in those categories and is much to be welcomed.

[Baroness Lister of Burtersett (Lab)]

My Lords, the Resolution Foundation has shown that in future the 3 million taxpayers on universal credit will receive only about one-third of what other taxpayers receive from an increase in tax thresholds, and the 5 million low-paid workers below the tax threshold of course receive nothing. Does the Minister agree that this is a singularly ill targeted policy for helping those on the lowest incomes, and will he consider alternative, more progressive policies instead?

--- Later in debate ---

[Lord Newby]

No, I simply do not agree with the noble Baroness. The Government are considering a number of measures which will help people on low incomes, of which a potentially significant increase in the minimum wage is perhaps the most significant.

[Lord Sharkey (LD)]

My Lords, now that our economy is growing again, can the Minister say what more the Government can do to help those who need it most, in particular the long-term youth unemployed?

[Lord Newby]

My Lords, the most important thing the Government can do as the economy grows is to ensure that the macroeconomic framework is conducive to greater growth. There has been a 300,000 fall in the claimant count within the past year, so that is the single biggest thing that the Government can do to promote the continued reduction in unemployment and long-term unemployment. Youth unemployment has been falling now for five quarters. It is not falling fast enough but a raft of measures, including improved vocational education and an expansion of the apprenticeship scheme, have been designed specifically to tackle that long-standing issue.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend agree that one of the best ways of helping people on the minimum wage to improve their income would be to raise the threshold for national insurance and consider merging national insurance and income tax? That would help employers and those on the lowest pay.

[Lord Newby]

My Lords, the Government have looked at merging national insurance and income tax. It is one of those ideas that is perennially discussed but every time the Government look at it they back off because it is extremely difficult to achieve. The problem with what the noble Lord’s suggests is principally the cost. However, I would remind him that the Government are introducing in the National Insurance Contributions Bill a tax-free national insurance allowance of £2,000 which will benefit every firm but particularly small firms. The Federation of Small Businesses has said that the single biggest consequence of that change will be increased employment.

[Lord Davies of Oldham (Lab)]

My Lords, the noble Lord deserves an easy ride today given his other responsibilities as Liberal Chief Whip, so I will ask him a very straightforward question. Does he agree with Citizens Advice that, for many low-income families in work, any gains they make from this change to the personal allowance are swamped by the Government’s other changes to tax and benefit, and that working families are £1,600 each year worse off since this Government came to power?

[Lord Newby]

My Lords, we can improve the status and income of poorer families by having a robustly growing economy and an increase in average earnings and household earnings. This is now under way. Our job is to make sure that we continue it.

[Lord McKenzie of Luton (Lab)]

My Lords, the Minister will be aware that the Government have adopted the policy of raising the qualifying earnings threshold for auto-enrolment in line with the personal income tax threshold rather than changes in the value of earnings. This denies lower-paid workers, mainly women, the benefit of an employer pensions contribution and of course saves the Treasury the cost of tax relief. How many low-paid workers is it estimated will have lost out because of this approach during this Parliament?

[Lord Newby]

My Lords, I will have to write to the noble Lord with the answer to that question. However, I am sure he will agree that the raft of measures that the Government are taking on pension reform will have as one of their signal benefits that many women who have lost out on pensions in the past will gain from adequate pensions in the future.