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With the other decisions I have made today, we are able to hold to our pledge made at the election not to raise the basic rate of income tax.[ Official Report, 21 March 2007; Vol. 458, c. 828.]
Other hon. Members have spoken about the groups of people who will be affected. In particular, they have mentioned those on very low incomes, those who work part timeperhaps many of them will be womencouples with no children and a particular group of pensioners. Another group is those aged under 25 who are on low incomes, because they do not qualify for working tax credits. For those people, the tax system will not reward their work, ensure that they are better off or become fairer for them. On the surface the changes look attractive, but there is a lot going on underneath and it is not clear how it will all interact.
The hon. Member for Chipping Barnet (Mrs. Villiers) made some good points about the statistics and bombarded the House with useful information. This is outrageous, and the right hon. Member for Birkenhead (Mr. Field) is being very reasonable in his new clause. All he is saying is that we should be upfront about matters. The differential impact on different groups of taxpayers should be made clear at the point at which the announcements are made. Tribute must be paid to the right hon. Gentleman for teasing out much of the information in the Budget debate and during the progress of the Bill.
If the Minister is not prepared to accept the new clause, I wonder whether he would consider an alternative way of pursuing the matter. The Statistics and Registration Service Bill will come back before us in the near future, and perhaps the national statistician might be able to call in the issue and for the information to be made available as a national statistic.
We have a sense of the impact that the changes will have, and much of that is thanks to the work of the Institute for Fiscal Studies, whose response to the Budget provided a lot of information. I do not see any reason why the Treasury could not undertake that work in advance and publish at the same time as the Budget. Some very compelling arguments have been made. It is crucial that the information is made available at the time that the changes are announced, instead of when they are implemented.
The Chief Secretary to the Treasury (Mr. Stephen Timms): I welcome this debate, and all hon. Members will understand the motivation and thinking behind the new clause moved with characteristic conviction by my right hon. Friend the Member for Birkenhead (Mr. Field). However, I hope that I can persuade the House that the proposal is impractical and that, if we are to assess the impact of personal tax changes on a group of taxpayers, we need to do so over a period longer than that covered by a single Budget.
It is worth reflecting on what this years Budget package will achieve. There will be a significant simplification of the income tax system, which my right hon. Friend has welcomed, and the reduction in the basic rate to 20p. A further 200,000 children will be taken out of poverty, on top of the 600,000 helped in that way by previous measures. More than 500,000 pensioners will be taken out of tax entirely, and the biggest proportionate gains from the Budget tax package will go to those in the lowest two deciles of income.
That latter fact is something that I want to emphasise, especially in light of the observations made by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), and it is made clear in the analysis presented by the Institute for Fiscal Studies to which a number of speakers have referred. That analysis is still available on the IFS website, and I was checking it out earlier today. It is a very striking attribute of the Budget that the biggest proportionate gains go to the households on the lowest incomes.
Julia Goldsworthy: Does that take into account people claiming their entitlement to tax credits? One problem is that some people are too young to claim tax credits, and another is that many people simply do not do so.
Mr. Timms: In fact, the analysis does take that into account. I refer the hon. Lady to the slide in the Budget analysis on the IFS website that sets out the relevant figures. The slide shows two bars for each decileone on the assumption of 100 per cent. take-up, and the other on the assumption of 33 per cent. take-up of tax credits by childless families. The statement that I have made about where the biggest proportionate gains fall applies in both those cases.
Mrs. Villiers: I understand that Treasury officials acknowledged to the Treasury Committee that their figures were based on the assumption that the take-up of working tax credits would amount to only 25 per cent. That does not give one a lot of confidence in the systems effectiveness.
Mr. Timms: That depends on the figures to which the hon. Lady is referring. I am not sure which they are, but later in my remarks I will deal with the take-up of tax credits. That is an important matter, but the take-up of tax credit for family income support is much greater than under any previous system that we have had in the UK.
Stewart Hosie: At this early stage in his remarks, will the Chief Secretary confirm that the take-up of family tax credits is at around 80 per cent. but that, according to the most recent report, unclaimed working tax credits amounted to £5 billion last year? Does he agree that the take-up rate for working tax credits was about 60 per cent?
Mr. Timms: I can confirm that the take-up of tax credits among the lowest-income families is well above 90 per cent. I do not know the basis for the figure quoted by the hon. Gentleman, but the take-up is very high among those who need the greatest support. It is certainly much higher than that achieved under any previous system of family income support.
To reform the system in a useful way within tight financial constraints and with only modest gains and losses should be a cause for congratulation.
This Budget builds on the progress made in earlier Budgets. There has been some discussion, rightly and fairly, of the position of pensioners. This year, the Government are spending in real terms about £11.5 billion more on pensioners than if we had left the system as it was in 1997, and nearly half that extra spendingmore than £5 billionis going to the least well-off third of pensioners. On average, they are £2,300 a year or £44 a week better off. Other groups in the taxpayer population referred to in the debate have benefited from other changes. We need to make a full assessment of the effects on people of changes introduced over a period rather than insisting on the basis of one years tax changes that there should be transitional protection.
The Budget package forms the next stage in a programme to offer more support for work, for families and for pensioners. It includes eight separate reforms and the House will have the opportunity to debate each as they are put into legislation over the next two years. When the package is fully implemented, 6 million families with children will be better off and the gain to work will rise by £50 a year for many, up to £350 a year for some, helping to work make pay. The package reduces and simplifies personal taxation within a fiscally neutral Budget, protecting and boosting the incomes of vulnerable groups, with the number of losers minimised. I am not saying that there are none, but the number has effectively been minimised.
The new clause would require transitional relief measures so that any adverse effects of personal tax measures are phased in over a period. That would not be the right thing to do for two reasons. The first is complexityI know that my right hon. Friend the Member for Birkenhead is sensitive about that point. Income tax is paid by more than 30 million people I think my right hon. Friend said 31 million. Transitional, and thus temporary, changes would add significant complexity to a system that is central to Government finances and to the maintenance of strong public services.
The impact of the proposal would depend on the form taken by the transitional measures. My right hon. Friend and I had a brief conversation about one model, which is, if I understood it rightly, that taxpayers could choose whether they were taxed on the basis of the new system or the old. I think he realised that would be an extremely complex system to administer and that it would impose a large burden on employers as well as on Revenue and Customs. In debating the new clause, I am in some difficulty, because I am not sure what kind of transitional measures we are talking about. The only ones I can think of, which my right hon. Friend and I briefly discussed, would be impractical. Indeed, it would be impossible to implement such a dual system in time for next year.
Mr. Frank Field: My right hon. Friend says that he is in some difficulty because he does not understand the nature of transitional relief, but we are still waiting for him to give us a proper breakdown of who benefits and who loses. His difficulties are nowhere near as great as ours in trying to understand the Governments position.
Mr. Timms: The point I was making is that I do not think that there are any practical transitional measures that we could adopt. If the House were to legislate, there would have to be transitional relief measures. We would need to have some idea that a practical package were available for us to implement and I do not think there is one.
I apologise to my right hon. Friend for the fact that it has taken so long to answer his question about numbers. I am pleased and relieved that he has the information, which I hope is helpful. Other analysis is available, including that undertaken by the Institute for Fiscal Studies, to which reference has been made.
My right hon. Friend is particularly well informed about pensions, so he will recognise that one of the major reasons why the UK has such a complex pension system is that it contains so many transitional measures to maintain old arrangements phased out in the past. It would be a mistake to introduce similar arrangements in the tax system.
The elements of the personal tax package in the Budget were designed to ensure that, overall, low income groups were effectively protected, and the IFS analysis confirms that they have been. For example, a single-earner couple without childrento pick up on one of the points that was made earlieron half median earnings receiving working tax credit will be £175 a year better off as a result of the Budget. That is right in the middle of the band that was mentioned. A lone parent, with one child, working full time at the minimum wage will be £335 a year better off. If we all agreeI think that on the whole we dothat it is right to prioritise the reduction and ultimately the eradication of child poverty, we need to prioritise households with children in Budget measures. That is what the package in the Budget does.
I hope that I have managed to persuade the House that it would not be right automatically to require transitional measures for any changes that left a particular group of taxpayers disadvantaged, however slightlywhich is what the new clause would do. As far as I can see, where losses accrue to some as a result of the changes, they are small.
Julia Goldsworthy: I am listening carefully to what the right hon. Gentleman is saying about transitional arrangements, but is he able to say whether the Treasury will undertake to publish information at the time of the Budget on the effect of the measures on individuals, as well as information on how their incomes may have changed over time? That would enable us to see clearly, in one place, the impact of Budget measures on different income groups.
Mr. Timms: Information has already been published. I point the hon. Lady to the IFS analysis for the sort of detail that she is asking for. That shows that the biggest proportionate gains from the package will be enjoyed by households in the lowest two income deciles. That is an important feature of the package.
I hope that I have persuaded the House that it would not be right to agree to the new clause. I understand the concerns expressed by my right hon. Friend the Member for Birkenhead and others across the House, but they are effectively addressed by the tax credit changes that are part of the package as well. I hope that he feels that it would not be right to press the new clause to a vote, but, if he does press it, I will certainly ask my hon. Friends not to support it.
Mr. Frank Field: I thank my right hon. Friend for those comments. The thrust of his remarks was that we have not put forward a workable scheme for transitional relief, but it was only seconds before I came into the Chamber that we got the crudest information on the numbers who would be gainers and the numbersthe 3 millionwho would be losers, so it is a bit rich of him to say that we might have persuaded him had we come up with a workable scheme. For some reason or other, the information was not available. We could have looked at those data and come up with a workable scheme.
I want to make two comments: one to my side and one to the Opposition. What the Chief Secretary said was significant. He said that households in the lowest two deciles are the big gainers from the Budget. Since Lord Lawson introduced personal taxation, we have never been primarily concerned with household income; we have been concerned with individual income. On this side of the House, we were particularly keen on that, because we wished to see a transfer from wallet to purse wherever possible. If the Bill goes through as it stands, it will reverse the tradition that we started. It will move moneys from low-paid womens purses into the wallets of higher-paid husbands. For that reason alone, people on this side of the House ought to be disturbed. I am sorry that there are not more women Members present to support that group in the debate and then in the Lobby.
Had it not been for the speech made by the hon. Member for Chipping Barnet (Mrs. Villiers), I would have said that my right hon. Friend the Chief Secretary took the biscuit. We were told by the official Opposition that while the new clause addressed a serious problem, they would not vote on the matter. The hon. Lady said that we could rely on the tax credit system to compensate people who will lose outwe do not know who they are, but we know that there will be 3 million of them. The official Opposition have rightly secured debates and asked questions on tax credits. This evening, the hon. Lady said that one in two
payments were wrong. However, although the tax credit system works so badly, she thinks that the lowest paid of our tax-paying constituents will be protected.
Mrs. Villiers: The right hon. Gentleman must have misunderstood the point that I made. As I made clear in my speech, I strongly believe that the tax credit system will not solve all the problems produced by the Budget changes. However, a range of measures could be used to relieve hardship resulting from tax changes. We should not just phase in changes because there are other options to be considered.
I did not think that the answers given from the Treasury Bench were adequate. My right hon. Friend the Chief Secretary is probably the most gifted member of the Treasury team and he knows that his performance was below par. I hope that many hon. Members will join us in the Lobby.
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