Finance Bill

We have had a very good debate. At Budget 2007, the Government announced the abolition of the 10p rate and changes to personal tax and tax credits. Most households were compensated by other parts of the package, but my right hon. Friend the Member for Birkenhead (Mr. Field) and others argued forcefully and successfully that more needed to be done. The Government accepted that and on 13 May last year my right hon. Friend the Chancellor announced an increase in the personal allowance. Most people began to benefit from that from last September by a total of £2.7 billion. Some 22 million people on low and middle incomes saw their tax reduced by £120 in 2008-09 and 4.2 million of the original 5.3 million households who lost out from the abolition of the 10p rate received as much or more than they originally lost, but not higher rate taxpayers. I was glad that the hon. Member for Taunton (Mr. Browne) intervened to make that point. On Report of last year's Finance Bill, which made the changes that were announced, my predecessor, my right hon. Friend the Member for Liverpool, Wavertree (Jane Kennedy), was asked by our right hon. Friend the Member for Birkenhead and others about further commitments. She argued that we had substantially reduced the number of losing households but she acknowledged that there were still, at that time, just over 1 million households losing out, and that we needed to do more to help. The hon. Member for Fareham (Mr. Hoban) suggested that we then did nothing. That is simply untrue. In the PBR, the Government announced further support. We rolled forward the increase to the personal allowance announced in May, increasing it by a further £130 above inflation. Those changes now fully compensate over 90 per cent. of the 5.3 million households who would otherwise have been paying more, reducing the number to around 500,000 households in 2011-12. The maximum individual loss is now £92 a year, or £1.77 per week, if there is no offsetting tax credit gain. The average loss for a household is now less than £1 a week. I agree with those who have said that even a loss of that size is significant for some of the people we are talking about, but it is important to make it clear that we are not talking about average losses of £2 or £3 as has been suggested. [Interruption.] May I make some progress because I know that the House is anxious to conclude the debate? It is not the case that all these losing households are low-income households. Relatively few are in the lowest income decile, because many in that group do not pay income tax, and we have taken an additional 800,000 people out of income tax altogether through the steps we have taken. Of the 500,000 households that remain, some 100,000 are in the highest income decile. For example, if a household comprises a City banker and a second earner who lost out from the abolition of the 10p rate, that household is included in the 500,000. There are 100,000 of the 500,000 in that category. The new clause would prevent the Government from collecting any income tax until well-off households like that were made even better off. I cannot believe that that is the intention, but that would be the effect of the new clause. At the 2008 PBR, we acknowledged that, although the number of losing households had been reduced by 90 per cent., there would still be some who lost out. Although public concern has not been completely eradicated, it has certainly been substantially allayed by the changes we have made. There has been some discussion of the impact of the new clause, and I want to comment on that. Income tax is an annual tax that needs to confirmed annually in each Finance Bill. If the new clause were carried, without some rather desperate measures we would be unable to collect income tax this year, and income tax already collected would have to be repaid. The chaos does not bear thinking about. Let me comment on the position of the Conservative party. The Conservatives did not object to the abolition of the 10p rate, and the 10p rate has not been mentioned in any Conservative amendment to the Bill. They have not previously supported amendments on this topic moved by my right hon. Friend the Member for Birkenhead—presumably, in the past, because of concerns in respect of fiscal responsibility. They have not today suggested any mechanism for compensating losing households, despite my giving the hon. Member for Fareham the opportunity to do so. Yet now they are set to abandon fiscal responsibility and follow their leader, who signed the amendment, through the Division Lobby to block the collection of income tax. Lest anyone thought the Conservative Opposition were fit to form a Government, their disgraceful position today shows that they are not.