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Mr. Edward Davey (Kingston and Surbiton) rose--

Mr. Flight rose--

Dawn Primarolo: I shall give way first to the hon. Member for Kingston and Surbiton (Mr. Davey), who is itching to intervene.

Mr. Davey: Will the Paymaster General confirm that using the money that the Conservatives propose to spend on a so-called tax cut for pensioners to increase the basic state pension, as proposed by the Liberal Democrats, would be much more effective in reducing pensioner poverty?

Dawn Primarolo: I shall not act as a referee between the Liberal Democrats and the Conservatives about which party has the marginally better policy. I believe that the Government have the best policy.

Mr. Flight: The Paymaster General may have misunderstood our proposals. Pensioners who pay tax at the rate of 40 per cent. would not benefit from our proposals. The 3 million pensioners in the middle, who pay the standard rate of tax, would be the main beneficiaries.

Dawn Primarolo: I am grateful to the hon. Gentleman for confirming that not all pensioners would benefit from Conservative party proposals on the age-related allowance. The publicity and--dare I say it?--the spin implied that all pensioners would gain from the change. Clearly, that is not the case.

Mr. Bercow: The Paymaster General invariably makes the best fist of a poor case. It is, none the less, a poor case. We are considering a position whereby the interest earned on income that has already been taxed is at stake. It is mere casuistry for the hon. Lady to dance on the head of a pin. My hon. Friend the Member for Arundel and South Downs, whose expertise the Paymaster General has graciously and rightly acknowledged, made the point that people are being taxed twice for the same money. That is so blindingly obvious that only an extraordinarily clever person could fail to see the point.

8.15 pm

Dawn Primarolo: The hon. Gentleman is extraordinarily clever. If he cares to study the way in which investments are taxed, he will realise that they are taxed on the interest that they earn. That money has not been taxed before.

Mr. Bercow: That is very cheeky.

Dawn Primarolo: That is how tax law works. If Conservatives want to explain the benefit of their suggested policy change in that way, that is fine. However, they should not suggest that the money is taxed twice.

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I dealt with savings in my intervention on the hon. Member for Arundel and South Downs and in my initial comments. He also considered the married couples allowance. First, the Conservatives said that they would reintroduce the married couples allowance, then they said that they would not. They then claimed that they would limit the number of those who would gain from it. Again, the proposals lack clarity. Eight out of 10 married couples and eight of 10 families with children would gain nothing. Single parents and married couples with both partners working would gain nothing. That also applies to married couples with children of secondary school age. However, the Government's policies--the 10p starting rate, the working families tax credit, the minimum wage, the children's tax credit, increases in child benefit and reform of the national insurance system--are all targeted at helping families on low income.

Clause 50 establishes income tax for 2001-02. It shows that the Government have kept their promises on tax rates. We promised not to increase the top rate of tax, which remains at 40 per cent. We promised not to raise the basic rate of tax. The Chancellor's stewardship of the economy, ably assisted by my right hon. Friend the Chief Secretary, has meant that we were able to make a cut of 1p in the basic rate last year, to 22p. We promised to introduce the new starting rate of 10p and we have done that. The next clause expands that provision.

We are halving the marginal rate of tax for nearly 3 million people. Our policies mean that the direct tax burden on a single earner family on average earnings and with two children will fall from 21.5 per cent. in 1996-97 to 18.1 per cent. by 2001--the lowest since 1972. The Government keep their promises on tax, and I commend the clause to the Committee.

Question put and agreed to.

Clause 50 ordered to stand part of the Bill.

Clause 51

Starting rate limit for 2001-02

Question proposed, That the clause stand part of the Bill.

Mr. Flight: Although the increase in the band by £360 per annum will be welcome to all citizens who benefit, and the Government boast that they have increased it by more than the statutory indexed increase, it is worth pointing out that it is equivalent to 69p a week. At the same time, the increase in the upper limit for national insurance from £535 to £575 a week has resulted in an additional national insurance bill of £2.09 a week for 2.9 million people.

The Chancellor did not announce that in the Budget; in retrospect, we knew that another stealth tax was on the way. Therefore, nearly 3 million people are £2.09 a week worse off and 69p per week better off. There may be justifiable reasons for such redistribution--it depends on one's view of what is best for the economy. However, the Chancellor's failure to make it clear that, for 3 million people in the middle, more was being taken away with one hand than given with the other shows a lack of transparency and is simply electioneering.

Mr. Edward Davey: I want briefly to put on record my concern at the continuing complexity in the tax system

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that the 10p band represents. The arguments against the 10p band are as powerful as those that were used against the 20p band when it was introduced as an election gimmick by the former Chancellor, now Lord Lamont, just before the 1992 election. The problem with these bands of lower tax over a small amount of income is that they do not target the most tax relief on the poorest people. They also add unnecessary complexity to the tax system.

If one is trying to target precious resources on those who need them most, one should always increase the allowance. That takes people out of tax altogether. The Institute for Fiscal Studies has been arguing this for years, and it has been right for years. One used to hear from many Labour politicians--including some very reform- minded politicians--when they were in opposition, that they understood that argument. Simple arithmetical calculations can be made to show that, for every extra £1 million that the Government have to spend, it is always better for the poorest people if that money is spent on increasing the allowance because that takes the poorest people out of tax altogether.

Mr. Bercow: It is very difficult to contain oneself in these circumstances because, frankly, the amiability of the hon. Gentleman is equalled only by his effrontery. He has the brass neck to grumble about the complexity of the system--which has undoubtedly been exacerbated under the auspices of this Chancellor--but, unless he is going to argue, as my hon. Friends and I consistently do, for simplicity and for lower overall taxation, he has a cheek, as he is arguing for higher overall taxation. He can rest assured that his cheek in this debate will be relayed by me to the next Conservative Member of Parliament for his constituency, Mr. David Shaw.

Mr. Davey: I am sure that the former hon. Member for Dover, to whom the hon. Gentleman refers, will be pleased that his election expenses have now been started by the hon. Gentleman.

It is rich for the hon. Gentleman to accuse another Member of the House of having a brass neck. He raised the issues of the level of taxation and of the simplicity of the system. I make no bones about the fact that the Liberal Democrats have argued, continue to argue, and will argue at the forthcoming election that the basic rate of income tax and a new top level of tax for incomes above £100,000 a year should be raised to provide revenue to fund our public services and to ensure that pensioners have a better deal. However, I shall not continue down that line, Mr. Lord, because you will rule me out of order.

I was making a point, separate from the hon. Gentleman's argument, about complexity. Whatever one's view on the overall burden of taxation, surely there can be consensus on the need for simplifying the system and getting rid of bureaucracy and unnecessary costs, whether in relation to individuals or the corporate sector. New tax measures such as this add extra complexities.

Dawn Primarolo: Will the hon. Gentleman explain whether a balance needs to be struck between simplicity and fairness? If he believes that to be the case, where and how should such a balance be struck?

Mr. Davey: The point that I was making was that if one increases the personal allowance--the 0 per cent. band of

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taxation--one gets the benefits of both worlds: the benefits of greater fairness and of greater simplicity. That is the whole point of the argument made not only be party politicians but by academics, accountants, members of the tax profession and members of the business sector.

Dawn Primarolo: I understand the point that the hon. Gentleman is making now. However, when he started his complexity argument, he was advocating raising the marginal rates of tax and the average rates of taxation by a combination of policies that he said his party would advocate at the next election, whenever that is. Will he explain why it would be fair to put up the marginal rates of tax and the average rates of taxation at the same time?

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