Finance (No. 4) Bill

Richard Graham Excerpts

Thursday 19th April 2012 Commons Chamber

[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.

--- Later in debate ---

[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.