Finance (No. 2) Bill

Debate between Robin Walker and Stewart Hosie

Thursday 18th April 2013 Commons Chamber

[Mr Robin Walker]

It is a pleasure to take part in this debate and to speak about one of the most important and beneficial changes announced in the Budget. In dealing with the clause stand part element of the debate, I intend to talk about the level of the basic rate of income tax and, more importantly, the increase in the threshold, which, as the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, are directly linked.

I would first like to clarify one point, having been contacted by a very concerned constituent who had heard that the basic rate for the top level of tax was being reduced to £32,000 and, as she earns £35,000, was worried that she will suddenly become a 40% taxpayer. It is important to clarify that the basic rate thresholds are set on top of the threshold for paying income tax and that no one is being asked to pay the 40p higher rate until they earn £41,450.

[Stewart Hosie]

Of course, that is only part of the story, because the threshold before one pays 40% has gone down from £37,500 to £32,000, a reduction of over £5,000, while the 20% threshold has gone from £6,500 to £10,000, which is an increase of only £3,500. In fact, 670,000 more people are now paying the 40p rate than were doing so three years ago, so many more people now fall within a tax band that used to be only for the rich.

[Mr Walker]

I take the hon. Gentleman’s point. I had thought that his party was in favour of progressive taxation. Certainly, I believe that raising the income tax threshold and taking many people out of tax is one of the coalition Government’s great achievements. It was a Liberal Democrat policy at the general election, and on this occasion I will admit that they had an excellent idea.

The coalition Government are right to recognise that it is vital to make work pay and that that cannot be done through welfare reforms alone. By also ensuring that people can keep more of the money they earn, we will stimulate the economy, reward work and alter the balance between dependency and opportunity.

I am delighted that Ministers have been able to bring forward planned changes to the income tax threshold by a year so that workers at the lower end of the wage spectrum will not have to wait until 2015 to pay less tax. As a result of the changes announced in the Budget, more than 34,000 people in Worcester will receive a tax cut and 3,370 people who would have been paying income tax in 2010 will pay none at all. That will not only reward those people, but directly stimulate our local economy—we have heard from Labour Members about the importance of people having money in their pockets to spend in the shops. In four years, the threshold at which people have to pay tax will have been raised by 50%, which is good news for millions of part-time workers who have been taken out of the tax system altogether and full-time workers on average earnings who benefit from a reduced burden of income tax.

The Opposition have downplayed those changes and focused on changes to tax credits to argue that some working families will be worse off. In doing so, they show a profound misunderstanding of the pride people take in the money they earn and their desire to support themselves. It is far better for the individual and their family to earn their money, keep the fruits of their labour and be able to spend it as they see fit than for it to be taken away and for the individual to be dependent on the faceless benignity of an all-knowing state that might choose to hand a proportion of it back—might—but that, if Labour ever gets control of the Treasury again, might find itself without the means to do so.

To listen to some of the speeches we have heard from the Opposition over the past few weeks, one might be forgiven for believing that the tax credits system, as it currently stands, was a vital part of Attlee’s welfare state and a bastion of the post-war consensus; it is not and it was not. In its current form, it is the creation not of a Beveridge or a Bevan, but of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who so rarely graces the House with his presence. I am glad that that complex system, which takes money away from working people to feed it through the Government sausage machine and re-allocate some of it, is to be rolled into universal credit and reformed to ensure that work will always pay.

It is far better to remove the tax from thousands of hard-working people in my constituency, and millions across the country, so that they can keep the money they have earned for their needs, their homes and their families. If we are to support families, it is far better, as the right hon. Member for Birkenhead (Mr Field) has argued, to use public money to invest in early intervention than to use it to prop up a complex system of credits that fails properly to support work and has always failed to reach millions of the people who, in theory, are eligible for it.

The fact that the Government are increasing the tax threshold shows that we are rewarding work at the same time as simplifying the tax system. The fact that we have been able to bring forward those changes shows that there is a sense of urgency about delivering an unalloyed public benefit, which many Labour Members have supported today.

I would argue that the same sense of urgency should be brought to the issue of child care support for working families. The Prime Minister set out exciting policies on that before the Budget but my constituents are being asked to wait until 2015 for the support. I have heard from many constituents who are delighted to hear that it will be available through the tax system but are then devastated to realise that by the time it is implemented, their children will have grown out of the eligibility criteria.

If a thing is worth doing, it is worth doing now. I urge the bright and brilliant men and women of the Treasury to bend their backs to the task of bringing those valuable initiatives forward in the shortest possible time. While they are at it, I urge them to consider a proper transferable married person’s tax allowance to support the family.

I welcome many initiatives in the Budget and I hope that the Chair will not rule me out of order if I touch briefly on a few of the others that will make a real difference to people in Worcester. Freezing once again the duty on fuel is more than welcome and much appreciated. Removing the much loathed beer duty escalator will raise a toast in many of Worcester’s pubs. The employment allowance will help more small businesses to create vitally needed jobs.

Returning to my opening remarks and the matter under consideration, I make one suggestion for the future, and I sincerely hope that Treasury Ministers can take it on board. Raising the income tax threshold is and has been the right thing to do, and it remains so. It is wonderful that we have brought forward to 2014 the date at which the threshold will reach the magic number of £10,000. However, today we should open a debate about that number. The figure of £10,000 was not worked out by economists or in careful consultation with employers and workers, nor was it based on any reflection of financial reality; it was drawn up as a manifesto promise in a party conference on the eve of an election.

In my view, the Conservative party missed out by not making that promise ourselves. Today we should start to consider the level at which the threshold for income tax should be set in the future. I believe that it should be the same as the earnings of a full-time worker on the minimum wage.