Finance Bill

I am delighted to be guided by you, Mrs. Heal. I will, however, refer in passing to an observation by the hon. Member for Falmouth and Camborne (Julia Goldsworthy), who reiterated the Liberal Democrats’ support for a local income tax. Far from supporting income tax reductions, her party wants a 4.5 per cent. increase via the local system. I suspect that that is something that her colleagues are not mentioning on the doorsteps this afternoon. It is instructive to examine the changes in income tax rates proposed for 2008-09 by the Chancellor in his Budget speech. In particular, when we evaluate the 10p band and the 22 per cent. basic rate in clause 1—which the amendments would alter—it makes sense to consider the responses to the Chancellor’s announcements. In reaching a conclusion on the merits of the 10p band, we should assess the Chancellor’s proposal to abolish it as from next year. It is striking that the Chancellor’s ““rabbit out of a hat”” announcement on the basic rate does not appear in clause 1. He began his Budget speech by saying that he did not want to follow Gladstone’s example and act as Chancellor as well as Prime Minister. However, he still seems very keen to bind the hands of his successor by pre-announcing tax changes for next year, and even later in some instances. Contrary to the spin that he tried so hard to place on the Budget, taxes on income will rise next year as a result of the changes that he announced. The Red Book shows taxes on income rising by £340 million in 2008-09, if we take into account the increases in national insurance and the scrapping of the 10p band. Serious concern has been expressed about the impact of the loss of the 10p band on those with low incomes. The IFS calculated that 5.3 million families would be worse off as a result of the loss of that band, and other changes proposed in the Budget. That figure was confirmed as being broadly ““in the right ball park”” by Mark Neale, managing director of the Treasury’s Budget, tax and welfare directorate, when he gave evidence to the Treasury Select Committee. Abolishing the 10p band will result in a transfer of the burden of tax from those on middle incomes to those on low incomes. According to the IFS, the big losers will be people earning between £5,225 and £18,500 a year, particularly those without children, whose loss will not be compensated for by tax credits. Adults without dependent children will be among the hardest hit, because the blow will not be softened to a significant extent by those tax credits. According to the IFS, the poverty rate among that group is now 4 million—the highest since records began in 1961. It is now the largest group of poor people, comprising up about one third of the total. Recent Government data show that child poverty is rising as well—it rose by 100,000 last year—and that the real incomes of the poorest 20 per cent. of the population are falling. There are now more people in entrenched poverty—below 40 per cent. of median earnings—than there were when the Chancellor took over at No. 11.