Finance Bill

The first part of the hon. Gentleman's question was a useful contribution, but the latter part was not, because this is not my hole—I did not dig it—and, as I will now outline, there are many ways in which the problem could be tackled, including through the suggestions of the hon. Members for Birmingham, Selly Oak (Lynne Jones) and for North-West Leicestershire. The Institute for Fiscal Studies suggests that some of the remaining losers could be compensated by raising the personal allowance still further or by extending working tax credits to those working 16 hours a week at the age of 21 and over. If the Government want to claw back some of the gain they have delivered this year through new clause 11, they could use a variant on the taper, which the hon. Member for North-West Leicestershire has proposed, although, as the hon. Member for Edmonton (Mr. Love) rightly says, that would be at the cost of making the tax system more complex and expensive to operate, when the original intention was to make it simpler. As we know, in Her Majesty's Revenue and Customs, with complexity goes a tendency to make errors, which is bad for the integrity of the tax system as a whole. The IFS says that if the Government chose to freeze the personal allowances at the level introduced by new clause 11 instead of indexing them in accordance with the law under the Income and Corporation Taxes Act 1988, that would be equivalent to a real cut of around £200 and would thus claw back about a third of the gain received by each basic rate taxpayer, leaving about 8.3 million families worse off next year than they are this year. There are many different solutions, but we do not have the resources that the Treasury has and I do not pretend to have answers to the dilemma in which the Government find themselves. However, what unites Members in all parts of the House is a belief that something must be done, both this year for the 1.1 million families who are still worse off, and in future years for those who have been compensated by the increase in personal allowance but do not yet know if they will get the increase next year along with the additional winter fuel payments. We are united on that, because it is morally unacceptable to fund a tax cut on the backs of the poorest, and because the Government promised that they would do such a thing—and rebuilding political trust in this country, which is a priority for my party, requires that Governments get into the habit of keeping the promises they make. A variety of mechanisms have been suggested, and I commend the Labour Back Benchers who have sought to engage in this debate and remind the Prime Minister of his commitment. Precisely because there are many ways in which the Government can deliver on their promise, I and some of my party colleagues have tabled new clause 4, which I call the insurance policy clause. It is a variant on an amendment that we tabled in Committee of the whole House and it should appeal alike to those who expect the best from the Chancellor and those who fear the worst, because it introduces a sunset provision for the changes to the starting rate unless the Chancellor has by the end of this year laid before the House of Commons a report setting out what he has done, and what he intends to do, to compensate those who are still losers when all the measures are taken together, following the introduction of the measures that the Government are introducing today. Our proposal is deliberately not prescriptive. There is no requirement that the Chancellor must take one approach or another. There is no attempt to force him to give his answer today; we accept that he will do so at the time of the pre-Budget report. It will be for the House then to decide whether it is satisfied with the actions he has taken, or proposes to take, as set out in the report that he will be required to make. Given the parliamentary arithmetic—unless the rate of by-elections increases a little between now and the end of the year—that will mean in practice that he must satisfy the 50 or 60 Labour Back Benchers who have been most concerned about, and active on, this issue that he has in this autumn's pre-Budget report delivered on the commitment to compensate all the losers. All those who believe that a solution for the future has to be found and announced in the pre-Budget report, as well as those who doubt the Chancellor's commitment or ability to deliver and those who do not, should be able to coalesce around this insurance policy clause. If the Chancellor can satisfy the House by the end of the year that he has delivered, in his pre-Budget report, a lasting and satisfactory solution that adequately compensates those who have lost out, he will have no difficulty in obtaining his resolution and thus overriding the sunset provision. But if he should be tempted to turn his back on this issue, or if the Prime Minister should be tempted to renege on his earlier commitments, the sunset clause will provide a mechanism for a parliamentary check to keep them both honest. I sincerely hope that Members on both sides of the House will support new clause 4 to strengthen the House's power to determine the outcome of this mess in due course. It is a mess in more ways than one. One of the benefits of the 2007 proposals that was trumpeted by the Chancellor at the time, and spoken of in warm terms by the Financial Secretary in consideration of the National Insurance Contributions Bill, was the alignment of national insurance and tax thresholds. We were told that that would bring greater simplicity to the tax system and reduce cost burdens for businesses and taxpayers alike. It was a strategic step in what the Financial Secretary called the significant simplification of the tax and NI system. Indeed, she told the House during consideration of the Bill that the alignment of NICS and higher rate income tax was the ““main purpose”” of the Bill. I am sorry to have to tell the House that, if that was the main purpose, the House's time has been wasted. Thanks to new clause 12, as the Government claw back the benefit of the increased personal tax allowances from higher rate taxpayers, the higher threshold for national insurance contributions will remain, so people will still pay more in national insurance, but the threshold for the higher rate of tax is dropped, reintroducing the complexity—the removal of which was claimed to be one of the principal benefits of the 2007 package. New clause 6 seeks to shine the spotlight on the misalignment of tax and national insurance thresholds. It would require the Treasury, in any year when the thresholds are different, to report to Parliament explaining why, setting out its plans for convergence in the future, and setting out the costs to employers and the HMRC of a divergent system and the savings that would be made by convergence. The Government have made the case that a simpler tax system is a better one. That is ironic, in view of the fact that this is the same Government who have given us the longest tax code in the world and made our tax system one of the most complicated, but on this issue they were right. If it were not so debilitating to Britain's reputation, it would be laughable that just about the only effective measure that the Government have introduced to simplify the tax system has unravelled under the weight of their incompetence. Having flagged up the significance of convergence and its economic benefits, the Government should accept new clause 6, with its underlying assumption that a system of converged thresholds remains the objective, and they should be prepared to explain to Parliament, on each occasion that they do not achieve that objective, why they have not done so and what steps they will take to move to convergence, as well as revealing the costs of divergence. I would be interested to hear from the Financial Secretary whether the Government are still committed to the objective of aligned thresholds, because her language of late has suggested a desire to move the thresholds closer together, rather than the original and meaningful purpose of aligning them completely.