Finance (No. 2) Bill

Stephen Timms Excerpts

Committee stage & Committee of the Whole House (Day 1)
Monday 19th April 2021 Commons Chamber

[Mrs Flick Drummond (Meon Valley) (Con) [V]]

Like all Conservative Governments, this is one who believe that people should be encouraged to create wealth and invest it wisely without undue interference from the state, bureaucracy or taxation for taxation’s sake. The fundamentals of our economy were strong nationally and in the Meon Valley as we headed into the coronavirus pandemic, and I am confident enough that we are well set to emerge from it and carry on with good growth. Although it is not the topic of this segment of the debate, I must welcome the announcement in the Budget of the Solent freeport, which will bring jobs and investment to the whole region, which includes my constituency.

I want to speak to clauses 5 and 28. The pandemic has created a major challenge for state finances, and I recognise that the Treasury must cover the cost of the measures it has taken to support jobs and society. The two long-running strands of policy covered in these clauses are the reform of personal income tax allowances and the lifetime allowance in pension fund accrual.

The commitment to a £12,500 personal allowance featured in the Conservative party’s 2015 election manifesto, and I am pleased that we are achieving it a year early. Since 2010, the personal allowance has grown more quickly than average earnings, and a huge number of workers have benefited. In announcing a freeze between now and 2026, we will see some of that eroded—around £8 billion of income flowing back into the Treasury by 2025-26—and I hope that Ministers will ensure that we direct the benefits of recovery at the groups on the lowest incomes, whom we have done so much to help in government already. Needless to say, I will not be supporting the Opposition amendment to clause 5.

Another area where I hope Ministers can keep an open mind is simplification of our pensions system in the future, but today I would like to concentrate on the lifetime allowance in clause 28. As many other Members will have seen in their postbag, this has been affecting doctors in the NHS, senior teachers and others in the public sector who have taken or considered early retirement to avoid breaching the cap. As well as creating a situation where the Treasury does not see some of its forecast tax take coming in, it means that in some cases, people have gone back to work as contractors or locums, sometimes filling gaps that have been created by this policy on pensions.

The intention behind the lifetime allowance when it was introduced in 2006 was to simplify a large number of regimes. However, freezing it at just over £1 million without the tie to the consumer prices index means that we are seeing some complex reworkings of remuneration schemes, and we will see more unintended consequences as growing numbers of people look to find ways to avoid the cap. The British Medical Association’s survey of GPs indicated that almost half of doctors would consider early retirement to protect their earnings after retirement. While the Budget forecast states that by 2025-26 there will be an additional £300 million of revenue, it does not account for other costs that the policy could contribute to.

Pension policy generally encourages people to forego current consumption, so that they can enjoy a higher standard of living later in life. However, the trade-off here is different, and we risk public services having to cope without staff or pay for them because they are contractors or locums if we carry on eroding the value of the lifetime allowance. I hope the Treasury will look creatively at how we can balance ensuring that people on higher incomes pay their rightful share of tax with the need to ensure that skilled and experienced workers continue to contribute to the wider public good throughout their working lives.

[Stephen Timms (East Ham) (Lab) [V]]

Clause 31 relates to the decision to cut the £20 a week uplift in universal credit and working tax credit in six months. I want to focus my brief remarks on that decision, highlighted by my hon. Friend the Member for Ealing North (James Murray), because it will be key in the impact analyses in new clause 23 and amendment 15. A Work and Pensions Committee report in February drew attention to the Joseph Rowntree Foundation’s finding that withdrawing the temporary increase

“will risk sweeping 700,000 more people, including 300,000 more children, into poverty”,

and that

“500,000 more people could end up in deep poverty (more than 50% below the poverty line).”

It goes on to explain that

“people who were already more likely to be in poverty were most affected by the economic storm caused by COVID-19: workers in low-wage sectors or part-time jobs, people living in areas with higher rates of deprivation, families with children, disabled people, or those from BAME backgrounds…around 60% of the families who lose out being in the bottom 30% of the income distribution.”

It goes on to say that

“60% of all single parent families in the UK will experience this overnight cut to their incomes”

when the £20 a week is removed.

Under the Government’s plans, the cut will happen just as unemployment is forecast to peak. The last time anything like this happened in such circumstances was 90 years ago under the national Government of Ramsay MacDonald. It will devastate the finances of a large number of struggling families. Ministers will find it extremely hard to justify, so I particularly welcome today’s reported call by more than 100 Conservative MPs to make the £20 a week uplift permanent.

The Resolution Foundation’s “Living Standards Outlook 2021” in January said that rising unemployment and removing the £20 uplift would push 800,000 adults and 400,000 children into relative poverty—the biggest annual poverty rise since the 1980s. A Northern Ireland woman told the Joseph Rowntree Foundation:

“The £20 uplift to Universal Credit has meant I have just about managed to keep my head just above water. I’m living day to day trying to pay my bills and keep my house warm for my child. Taking this away now or in six months means I will be drowning in debt.”

A London woman said:

“We’ve relied heavily on food banks…That £20 is often the difference between light and heat or no light and heat. If you don’t have gas, you can’t cook.”

A Leeds man said:

“I am aware of the extra—if it wasn’t for that I don’t know how I would survive. Living on Universal Credit is hard; it’s extremely hard. It is literally living day to day and working out where my next food is coming from.”

Twenty pounds a week should not be taken away from people like that just as unemployment peaks. Iain Porter of Joseph Rowntree told the Select Committee that the current benefit level without the £20 uplift is

“at the lowest level since around 1990 in real terms”,

and that as a proportion of average earnings, it is the lowest ever. Inflicting that just as unemployment is peaking is indefensible.

The principal policy manager at Citizens Advice told the Select Committee:

“At the very least, if the uplift is not made permanent, we think it needs to be in place for at least 12 months while we go through the tricky part of recovery from this crisis.”

I hope Ministers will reflect and, having done so, decide after all not to make this cut in September.

[Huw Merriman (Bexhill and Battle) (Con) [V]]

Thank you very much indeed for allowing me to contribute to this afternoon’s proceedings, Dame Rosie. I want to talk about clause 5, on the freezing of personal allowance for four years from 2021-22, the resulting amendments, which would push the freeze back by a year, and the general position across the proceedings this afternoon with regard to allowances and the freezing or otherwise of them.

In the six years that I have been a Member of Parliament, it has been a matter of great pride that we have reduced the personal tax allowance. It was half the level that it is now, since it was raised to £12,500. That is the highest basic personal tax allowance across all G20 countries and means that a typical taxpayer is saving £1,200 in tax. More importantly, it has really sent out the message that work pays. It is no coincidence that, as well as the increase in personal allowance and the introduction of the national living wage levels that we have, we have seen record levels of employment and record lows in unemployment. It is a great success story. The covid pandemic has put all that at risk, though,which is why I find myself in the bizarre position of supporting the personal allowances freeze and intending to vote against any amendment tabled by those on the left to delay that freeze for a year. Ultimately, if we do not do something about our finances, we will do the country a great disservice and end up costing individual taxpayers—or non-taxpayers —even more by mismanaging our national debt.