Finance (No. 3) Bill

Public Bill Committee, 10 May 2011.

Roger Gale (Conservative, North Thanet)

Before I call the Minister to the move the sittings motion, I have a few announcements. Members of the Committee who have not already done so may remove their jackets if they wish to. Will right hon. and hon. Members ensure that all electronic devices and mobile phones are switched off? I remind the Committee that the use of laptops is not permitted in Committee and that electronic devices are not permitted for use for speaking notes.

Document boxes have been provided for Members to keep papers in between meetings, unless Members wish to take their papers with them, in which case they may take the box. It would be appreciated if Members could return the boxes to the storage cupboard at the end of the sittings. The Committee Room will be locked during the lunch break, so it will be perfectly possible for Members to leave their papers on their desks if they wish to do so.

I also remind Members that adequate notice should be given for amendments. Mr Hood and I do not intend to call starred amendments, including any starred amendments that may be reached during an afternoon sitting. I hope that that is all clear. If any Member has not engaged in the arcane process before and is unclear as to what is going on or why, please feel free to seek information from the Chair. We are, as the Inland Revenue likes to say, here to help you.

David Gauke (Conservative, South West Hertfordshire)

I beg to move,

That the Committee shall meet—

(a) on Tuesdays at 10.30 am and 4.30 pm, and

(b) on Thursdays at 9.00 am and 1.00 pm

when the House is sitting.

Thank you, Mr Gale. Before I speak to the motion, I would like to welcome you, Mr Gale, and Mr Hood as Chairs of the Committee. Both of you have experienced the excitement that can often occur in debates on Finance Bills, and I am sure that the Committee will benefit from your experience and wisdom in such matters. The Bill before us covers a wide range of issues, but I know that you will assist us in keeping our focus on the matters at hand. I would also like to extend my welcome to Mr Patrick, who will be assisting you.

It is a great pleasure to see enthusiastic participation from Opposition Members. Finance Bill Committees have occasionally lacked a certain eminence, but I am sure that the high quality debate in which we are about to engage will make this a year to be savoured. I am especially glad to see the right hon. Member for Delyn and the hon. Member for Bristol East, though I note that the hon. Member for Nottingham East (Chris Leslie) has decided not to undertake the challenge of serving on the Committee this time. His absence will be keenly felt on both sides of the Committee. None the less, I am sure that the shadow Ministers will be ably assisted by their hon. Friends on the Opposition Benches, many of whom spoke during the Finance Bill debates downstairs.

For those for whom this is the first time engaging in the detailed scrutiny of such a Bill, I hope that they will find the experience as valuable as I first did. I would also like to thank the hon. Member for East Antrim, although he is not in his place at the moment.

I must not forget my hon. Friends who are sitting on the Benches beside me. While the Opposition have mustered only two shadow Ministers, we will be fully stocked, with my hon. Friends the Members for Fareham and for Putney assisting me through the sittings. I also wish to welcome my other hon. Friends, including some who made their maiden speeches in previous Finance Bill debates, including my hon. Friends the Members for North East Cambridgeshire and for Lincoln.

I am sure that many hon. Members are aware of the forthcoming nuptials of my hon. Friend the Member for Elmet and Rothwell, which surely leads me to welcome also my hon. Friends from our coalition partner. We can be sure that our partnership remains strong, no matter how bumpy the ride, and I look forward to the captivating and valuable contributions that they will provide.

At the beginning of the Committee on the previous Finance Bill, I said that that Bill was a product of consultation and deliberation. That is truer of this Bill than any before it. We published the majority of clauses in draft on 9 December for a period of technical consultation and received more than 200 responses. I thank the bodies that have worked with the Treasury and Her Majesty’s Revenue and Customs in the preparation of the Bill, especially those who commented on the draft legislation. The Bill is better for it.

I am sure that hon. Members will take heart in the words of Gladstone—it is always good to quote a Liberal—when he said:

“Finance is, as it were, the stomach of the country, from which all the other organs take their tone.”

I know that hon. Members will approach our discussions with true hunger.

David Hanson (Labour, Delyn)

Good morning, Mr Gale, and on behalf of the Opposition Benches I welcome you to the Chair, just as we will welcome your colleague, Mr Hood, in due course. Like the Minister, with whom I seem to have spent a considerable amount of time in Committee over the past 12 months, I welcome the Clerk and his team to our discussions. Let me reassure the Minister that although my hon. Friend the Member for Bristol East and I are the only two shadow Ministers present, I can say modestly that quality rather than quantity will keep us on board today. If either of the Minister’s ministerial colleagues wish to leave the Room at any time, we would be more than happy for them to do so.

This is the sixth, or possibly the seventh, piece of financial legislation that we have dealt with in Committee over the past year alone, and this Bill contains 93 clauses and 26 schedules. In the past, I recall the then Opposition criticising the complexity and scale of previous Finance Bills, so it is interesting to note that the Government have maintained the level of clauses and schedules in the legislation to be considered by the Committee. We will make key criticisms of the Bill, and we will table amendments to key clauses during our discussions. However, the Opposition are content with the sittings motion and we will support it.

As we scrutinise the legislation, I look forward to the contributions of my hon. Friends, some of whom are serving on a Public Bill Committee for the first time. We look forward to seeing whether we can help the hon. Member for Elmet and Rothwell to enjoy his marriage and—potentially—help the hon. Members for Bristol West and for Brecon and Radnorshire to enjoy their divorce from the coalition in due course. There will be occasions when, by natural inclination, the Liberal Democrats might be happier supporting the Labour Opposition than some of the measures in Bill, and we will see if we can tempt them to do so. In the meantime, I look forward to commencing the discussion on clause 1. I wish the sittings motion well, and look forward to spending the next 14 sittings with the Minister and other colleagues.

Clause 1

David Hanson (Labour, Delyn)

I beg to move amendment 3, in clause 1, page 1, line 9, at end add—

‘(3) The Government will publish the terms of reference and timetable for its review of the additional rate of income tax and provide updates to Parliament on the progress of the review by 30 September 2011 then every six months until September 2014.’.

Clause 1 deals with the rates of taxation if the Bill is approved, and sets them at 20%, 40% and the special rate of 50%. Amendment 3 was tabled in my name and that of my hon. Friend the Member for Bristol East and seeks clarity on the Government’s intentions for the 50p tax rate as set out in clause 1, and on the issues that were raised by the Chancellor of the Exchequer in the Budget speech. Those matters set in train a review that we believe requires further clarity, and we would also like further explanation about where the Government stand on the important matter of the 50p tax rate in future Budgets and the duration of this Parliament.

The amendment would require the Government to

“publish the terms of reference and timetable for its review of the additional rate of income tax and provide updates to Parliament on the progress of the review by 30 September 2011 then every six months until September 2014.”,

By that stage, I expect the review to have been completed. This matter is important and the Labour Opposition want to focus on it. It is important to debate it and to obtain a clear idea of the Government’s intention and proposals for the 50p rate of tax. That is in the Bill for consideration and approval today, but the Chancellor has indicated that he wants to review it in future. An article in The Daily Telegraph, which I obviously read every day and which is an important organ of communication to the masses, indicates that the Chancellor of the Exchequer—it refers to him as George Osborne—

“is hoping to scrap the 50p top rate of tax in his Budget in 2013, on the back of evidence that the new higher rate does not make money for the Exchequer.”

The article, by Andrew Porter, says:

“The Chancellor has insisted that the rate is only temporary and he wants to offer traditional Tory supporters tax cuts well before the next election.”

That is the background to the amendment before us. We seek clarity from the Minister and, through him, from the Chancellor on the review, its progress, who will be involved, how it will be undertaken, why he seems to have pre-empted it by saying that he wants to scrap the tax rate by 2013, and on the general merits or demerits of the proposal in due course.

It is important to look at the history of the 50p tax rate to date, and I hope that you will allow me to do so, Mr Gale, because it is relevant to our discussion about the clause. Hon. Members will recall that when my right hon. Friend the Member for Edinburgh South West (Mr Darling) was Chancellor of the Exchequer he said in his pre-Budget statement on 24 November 2008 that it included some measures to raise revenue for future years. He said that among the options to raise funds, the fairest should affect those who had done best from the growth in the previous decade. He indicated that they were those with the highest incomes who had seen their earnings almost double since 1996 and would see them rise still further from April 2011, according to his then predictions. He intended to introduce a new income tax rate of 45% on incomes of more than £150,000, which would affect only the top 1% of incomes.

The pre-Budget report at that time indicated that the higher rate of 45% would be effective from April 2011. It estimated that the 45% rate would raise around £670 million in 2011-12. At the time, there was comment and discussion about that. Some commentators believed that it was a return to the redistributive taxes of the 1970s, some thought that it would not raise the money that the Chancellor predicted, and some thought that it was a good and positive development. The key point was that the Chancellor indicated that the potential to raise money via a higher rate was available and something he felt strongly about. The Trades Union Congress—this will interest my right hon. and hon. Friends—thought that that was a positive move, and discussions took place across the board with a range of feedback about the 45p tax rate.

In the 2009 Budget on 22 April 2009, my right hon. Friend the Member for Edinburgh South West announced two important revisions to the previous pre-Budget proposals for the rate of taxation. He said:

“I am not proposing to increase taxes on income for this year. However, as the economy recovers and wages start to grow again, it is right that we take additional steps. I believe that it is fair that”

only

“those who have gained…should contribute more. Only those with incomes over £100,000 a year…will be affected. In November, I announced a new rate of income tax of 45 per cent. on incomes above £150,000—the top 1 per cent. of taxpayers. In order to help pay for additional support for people now and to invest in the future, I have decided that the new rate will be 50 per cent., and will come in from April next year—a year earlier.” [Official Report, 22 April 2009; Vol. 491, c. 244.]

The new income tax rates were set in the 2010 Budget so that from April 2010, a 50% additional rate of tax would apply on incomes above £150,000. Discussions took place and there was comment across the board on that proposal. The then Chancellor believed—rightly, in my view—that those who earn £150,000 or more should contribute more when we are tackling a deficit than those on lower incomes. Because of that, the Finance Bill proceeded with the proposal for a 50p tax rate.

I am pleased to say that because of the election being called, the Finance Bill was debated in its entirety over three hours on 7 April 2010 with little reference being made by the then Opposition to the new income tax structure; the Finance Bill was approved; and the new 50p rate of tax was brought into effect.

Indeed, during the general election campaign, the three major parties made no mention of any changes to the new higher rate of tax. The Conservatives did not mention it. I think that that was primarily because they did not want to be seen as the party that was supporting tax cuts for the richest members of society. I am not sure, but the Liberal Democrats probably wanted us to tax even more highly. The Labour party went into that election with the Budget proposals to ensure that we had the 50p tax rate as a permanent feature of the tax system.

David Gauke (Conservative, South West Hertfordshire)

I am fascinated to hear the detailed history of this measure. Will the right hon. Gentleman enlighten the Committee on the position of the Labour party in its 2005 general election manifesto on the higher rate of income tax?

David Hanson (Labour, Delyn)

I do not want to test your patience, Mr Gale. The reason why I am talking about 2010 is that we went into the election campaign with a Finance Bill that had not been contested by the then Opposition. They did not say that they wished to change the 50p tax rate. There was consensus in the House of Commons that the 50p tax rate should be introduced in 2010 to help with the deficit and to ensure that we were all in this together and that it was not the case that just some people in our community did not pay their share.

The coalition Government secured victory in the general election—even I have to accept the basic fact that that did happen last May. The new coalition Government published their coalition agreement and not a single mention was made of the 50p tax rate. There was no mention of abolishing it, reducing it or increasing it. Not one mention was made of it in the coalition agreement.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am listening to the argument carefully, but I am not quite sure what point you are trying to make. Could you enlighten us on that? Budgets are evolving things; they move forward. The words that you repeated of the former Chancellor of the Exchequer—

Roger Gale (Conservative, North Thanet)

Order. The hon. Gentleman has been here long enough now to know that he must address his remarks through the Chair.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I apologise, Mr Gale; I will try not to make that mistake again.

The right hon. Member for Delyn was speaking about the previous Chancellor, who had made the comments relating to the income expected to be derived from the 50% tax rate, and about the arguments based on that at the time, but there is now evidence that it is not bringing in the same amount of tax revenue that perhaps a lower rate would. Surely the right hon. Gentleman cannot be saying that a Budget should be decided at the beginning of a five-year Parliament and no changes should be made to taxation even if certain circumstances present themselves, such as the 50% rate not generating as much income as perhaps it was thought it would.

David Hanson (Labour, Delyn)

I am grateful to the hon. Gentleman because he goes right to the nub of the argument that I will make in due course. The Chancellor has announced a review of the 50p tax rate and—unless that esteemed organ, The Daily Telegraph, has got it wrong—he has already

“insisted that the rate is only temporary and he wants to offer traditional Tory supporters tax cuts well before the next election.”

My purpose in referring back to the comments of my right hon. Friend the Member for Edinburgh South West and what happened at the end of the previous Parliament, when we decided to take steps to have a 45p tax rate and then a 50p tax rate—and the Conservatives did not oppose the 50p tax rate during the election—is to simply lay the ground for saying that we have some choices to make on deficit issues.

I will come on to those choices in a moment, but the Chancellor has already announced in his Budget that the 50p rate referred to in clause 1 will not exist in the future. He has also announced a review but, apart some very vague information, we know no details yet about how it will be undertaken, by whom, when, where or why. I will come on to that review in a moment. The purpose of the amendment is to get clear details of the review, how it will be undertaken and what steps it will take, so that we can ensure that it has transparency, clarity, objectives and a time scale.

At the moment, we are in a vacuum. The Chancellor has said that the 50p rate will go. He has pencilled in a date by which it will go—2013—but we do not know how that will be done. We need to know so that Parliament, and those people who take an interest in these matters outside Parliament, can scrutinise that process. I am grateful to the hon. Gentleman for his intervention because he has helped me to begin to clarify why we want the amendment to be passed. Whatever the fate of the 50p rate, which we can argue about downstream, and whatever the debate about its fairness and other aspects, we need to have some clarity about how the decision will be made.

Bill Esterson (Labour, Sefton Central)

Surely the point is that this debate is about the future and what the Government’s intentions are, not about the past. We need to understand the reasons why the Government are looking at the 50p tax rate in the way that they are. Is it, as T he Daily Telegraph says, a pre-election tax bribe for the electorate, or is it about responsibility and reducing the deficit? That is why the amendment is so important. We need to understand exactly why the Government want to take such an approach, and the timing should be about good financial management, not a bribe for the electorate.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend for his point. There are several issues that we need to explore and I hope that my hon. Friends will assist later in doing so. One issue is the timing of the review. The Chancellor in his Budget speech on 23 March confirmed that there will be no change in the rates of income tax for the coming year. That fact is reflected in clause 1. However, he suggested that the case for the 50p rate should be re-examined once we have comprehensive data on the amounts of money it has actually raised for the Exchequer in its first year. That is perfectly reasonable, and I give the Chancellor the benefit of the doubt on that. It is reasonable that we consider the level of resources that the 50p rate raises. But as a result of spin to the papers, the headlines on the same Budget speech discussions stated: “George Osborne: 50p rate could be scrapped by 2013.” Already we have an indication that the direction of travel is to scrap the 50p rate by 2013, probably 18 months before an election. Is that about an election win, deficit management or income generation? Or is that simply about the fact that the Chancellor is not clear about what the review consider, when, how, by whom and where. That is why we have tabled the amendment.

Ian Murray (Labour, Edinburgh South)

Will my right hon. Friend indicate to the Committee whether he thinks the Chancellor may, in fact, increase the rate?

David Hanson (Labour, Delyn)

I would be very happy to consider the benefits of that. Labour Front Benchers have a very clear position: we support the 50p rate for the duration of this Parliament and our taxation proposals will be in the manifesto ready for the next election. We can debate those proposals at that time.

The Chancellor has said that he wants a review of the 50p rate to be undertaken by some vague date—potentially 2013—and yet he has not been clear about how, where, when and for what purpose. In due course, I will explain the challenges that will also be faced by ending the 50p rate. We already know the direction of travel. In answer to my parliamentary question on 26 April 2011 and to that of my hon. Friend the Member for Glasgow North East (Mr Bain) on the same day, the Minister said:

“The Government believe the 50% rate could do lasting damage to the UK economy if it were to become permanent.”—[Official Report, 26 April 2011; Vol. 527, c. 323W.]

Why are we having a review? If the Minister believes that the 50% rate could do lasting damage to the UK economy if it were to become permanent, does that not pre-empt the outcome of the review? Does that not pre-empt the decisions that the review might take? Why are we investing time and energy in a review when the Minister has already said that the 50% rate could do lasting damage to the economy?

The amendment indicates that we want the Minister to give us terms of reference, a timetable and updates on the review. We want to know how much the review will cost and why it is being undertaken. We want to know when he will make an announcement and end the vacuum. We will have this 50% rate until such time as he decides that he does not want to have it. He will base the rate—going back to the point made by the hon. Member for Elmet and Rothwell—on evidence-based decision making on the level of income that the tax raises. I fear that that is not evidence-based policy making at all, but dogma-based policy making on the basis that the Government do not like the 50% tax rate, do not want it and, ultimately, will ensure not that we are all in this together but that some people are in it a little bit less than others.

Richard Harrington (Conservative, Watford)

Perhaps the right hon. Gentleman could explain his point to us. Apparently, his case is that this particular request for the terms of reference, the timetable and review to be published is not dogmatic, although he believes that the reason the review is being held is dogmatic. On his case, does he then think that there should be a formal publishing of terms of reference and timetable for every review that the Treasury does about every piece of tax or for every piece of legislation?

David Hanson (Labour, Delyn)

I am a great believer in transparency, and I would have thought that the hon. Gentleman appreciated it as well. At the moment, we have some 275,000 50p top-rate taxpayers who do not know whether they will pay that top rate of tax for one, two, three or four years—for the duration of this Parliament. The review that has been thrown on to the table has no clarity about its terms of reference, objectives or time scale. The Chancellor and the Minister have said that the tax rate is damaging. We could have a self-fulfilling prophecy of people deferring and fiddling around with various taxes to ensure that they do not pay the 50p tax rate over the next two years.

There are many issues that are creating a vacuum. Will the Minister clarify a number of simple points? If he announces to the House of Commons, as the Chancellor of the Exchequer has done, that a review will be undertaken by HMRC, it is incumbent on him to say to the House, “This is the time scale. This is who will undertake it. This is when it will report. This is how you put evidence into it. This is when we will make a decision for a future Budget on whether that 50p tax rate stays or goes.”

Ian Mearns (Labour, Gateshead)

Something that has bemused me about the Government’s proposal on the 50p tax rate is that as the Government’s attitude towards the whole economy is to get rid of the deficit over the life of the Parliament, what is particularly special about this year as opposed to any other year within the life of this Parliament with regard to the 50p tax rate?

David Hanson (Labour, Delyn)

That is a very good point and one that I will return to shortly. All the Budget proposals by Treasury Ministers—and the Opposition—are about choices. They have to choose which taxes to raise and which to leave. We are told that we are all in this together, and we are told that there is a deficit that needs to be tackled. There certainly is a deficit that needs to be tackled—let us not shy away from that. We can have a wider debate on that at some point if you wish, Mr Gale, but the key point is this: what choices are the Government making to tackle that deficit?

This year, in clause 1, the Government support a 50p tax rate that will raise some money. I would welcome the Minister’s latest estimate of how much money that will raise. In future years, however, they are creating that vacuum. One Government option under review is to reduce the tax rate to 40p while, at the same time, raising other taxes that will hit other people in our society in a different way. From answers to written questions that I have tabled, we think that that option will do lasting damage. The Government are making a political choice, which we need to explore before we give our support, or otherwise, to the clause in due course.

Nicholas Dakin (Labour, Scunthorpe)

My right hon. Friend is setting out with great clarity the advantages of the amendment for open and transparent Government. I am certain that Government Members will welcome that when they make their contribution, because that will help, rather than hinder. Does he agree that another area that the review will undoubtedly look at is the threshold at which people begin to pay, or do not begin to pay, that higher level of tax?

David Hanson (Labour, Delyn)

Indeed. That is a very important point. The key point, ultimately—this is why it is important to set out a formal review of procedures—is that I need to know exactly how, when and where the Government are establishing that review on the tax rate, so that we can have a debate and come to a conclusion on whether we should reduce the tax rate to 40% and, if so, on what basis.

I do not want to repeat myself, but it is important to mention something at this point. The Minister stated in a written answer to a written question that I tabled:

“The Government believe the 50% rate could do lasting damage to the UK economy if it were to become permanent.”—[Official Report, 26 April 2011; Vol. 527, c. 323W.]

Why does that matter? In 2011-12, some 275,000 people will pay the 50p tax rate. In the north-east region, which is ably represented on the Opposition Benches today by my hon. Friends the Members for Gateshead, for Middlesbrough South and East Cleveland, for Houghton and Sunderland South, and for North Tyneside, 5,000 people will pay the higher rate of income tax. In the north-west region—

David Gauke (Conservative, South West Hertfordshire)

I am looking forward to Wales.

David Hanson (Labour, Delyn)

I am coming to Wales. There are a lot of regions in this country and I assure the hon. Gentleman that I will get to them all before the debate is finished. In the north-west region, represented by my hon. Friends the Members for Wirral South, and for Sefton Central, there are 18,000 higher rate taxpayers. In Yorkshire and Humberside, which is represented on the Opposition Benches by my hon. Friends the Members for Scunthorpe and for Sheffield Central, some 13,000 people paid a higher rate of tax. In the east midlands, 12,000 people paid the higher rate of tax; in the west midlands, 15,000 people. In the east of England, there are 34,000 people on the higher rate of income tax.

David Gauke (Conservative, South West Hertfordshire)

Additional, not higher.

David Hanson (Labour, Delyn)

I am grateful to the Minister for his admonition. Some 34,000 people in the east of England, and 94,000 people in London pay the additional rate of tax. In the south-east, 67,000 people pay the additional rate of tax. In the south-west, represented by my hon. Friend the Member for Bristol East, that figure is 17,000. In my own area, Wales, 4,000 people pay the higher rate of tax. In Scotland, which is represented by my hon. Friends the Members for Cumbernauld, Kilsyth and Kirkintilloch East, for Edinburgh South, and for Airdrie and Shotts, some 16,000 people pay the additional rate of tax. If the hon. Member for East Antrim were here today, he would find that 4,000 people in Northern Ireland pay the additional rate of tax.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

For the sake of clarification, will the right hon. Gentleman outline whether those people are actually paying the tax, whether they are projected to pay the tax, or whether there is a greater number of people who should be paying the tax and that those are the people who are actually paying it? I am slightly unclear about how much tax avoidance there may be within those figures.

David Hanson (Labour, Delyn)

These are people who, according to the Library, qualify for the additional rate in 2011-12—275,000 across the whole of the United Kingdom.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

So these are people who would qualify but are not necessarily paying the tax?

David Hanson (Labour, Delyn)

The Library note indicates that 275,000 people are eligible for the additional rate of tax at this rate. The point I am making, and the only reason I make those points about the regional areas, is that in the north-west, where 18,000 people pay the additional rate of tax, there are some 3.2 million taxpayers. In the eastern region, where 34,000 people pay the additional rate of tax, there are fewer taxpayers across the board. There are fewer higher rate taxpayers in the constituencies of my hon. Friends the Members for Wirral South, and for Sefton Central than in the eastern region where there are fewer taxpayers as a whole.

The Financial Secretary may smirk, but the point is quite simple. This is a choice. If the tax cut goes ahead in 2013, it will give a tax cut to more people in the east than in the north-west. We are clearly not all in this together. [Interruption.] Hon. Members may not like the point, but in the constituency of my hon. Friend the Member for Gateshead, 5,000 people pay the additional rate of tax out of a population of 1.2 million. In the south-east, 67,000 people will pay out of a population of just over 4 million. More people pay it because there are more people who are better off in the south-east than there are in my hon. Friend’s region. If the Government choose to reduce that taxation to 40% it will be money potentially lost to the Exchequer. We can debate that in due course—[Interruption.] The Exchequer Secretary is heckling from a sedentary position. Would he like to elucidate?

David Gauke (Conservative, South West Hertfordshire)

Yes, I would. I was merely pointing out the right hon. Gentleman’s history. He served as Parliamentary Private Secretary to Tony Blair. I wonder what Tony Blair would make of this speech.

David Hanson (Labour, Delyn)

The former Prime Minister had enough confidence in me to make me a Minister for 11 of his 12 years in office. The next Prime Minister had enough confidence in me to make me a Minister for three of his years in office, so I am sure that they were well aware of my views on these matters as a whole.

The simple point I am making to the Minister is that we are talking about a political choice. Ultimately if the choice is made to reduce the 50p rate to 40p—we do not yet know when, where and how, which is the purpose of the amendment—the benefits of the reduction will be felt more strongly in London, the south-east and the east than in Scotland, Wales, the north-west, the east midlands, the west midlands and Northern Ireland. That may not be a politically palatable point for some Government Members, but if we are all in this together, the tax cut choice that is potentially being made by the Government for future years will disproportionately benefit people in certain regions. We happen to represent around the room today, with the honourable exception of my hon. Friend the Member for Walthamstow, regions that will be disproportionately hit by that tax cut.

I do not have constituency figures. I wish I did, but the Library cannot provide them. I suspect that my hon. Friend the Member for Walthamstow will have fewer of the 94,000 higher additional rate taxpayers in London in her constituency than there are in the constituency of the Cities of London and Westminster, where we are today. I am only guessing but I might be correct, and I hope that my hon. Friend will concur. The point I am making, which is valid for all our arguments, is that if we are to have a review that looks at the income that will be lost or gained by this tax progressing for the next few years, it should also look at the impact on regional disparities and at the other taxation that might have to rise to meet the Government’s deficit reduction plan and which will hit people disproportionately across all regions of the UK.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I find the right hon. Gentleman’s argument incredible. First, to make a serious point, the Government have introduced plans that differentiate between different regions to provide a stimulus for business and to try and move business populations, apart from that in the south-east, to other parts of the country. Secondly, however, I will follow the right hon. Gentleman’s argument and give a spurious analogy. As there are more Manchester United fans in Surrey than elsewhere, if Manchester United were given a 10 point reduction, it would affect more people in Surrey than in Manchester. That is a nonsensical argument. The right hon. Gentleman cannot seriously suggest that, in order to balance out taxes, we should have a different tax regime for each region of the country. We are the national Government.

David Hanson (Labour, Delyn)

The hon. Gentleman is missing the point. He needs to recognise that, as of today and, indeed, under clause 1, we have a proposal for a 50p tax rate that applies across the whole of the United Kingdom. I support that, and, although I would not want to speak for them, I suspect that all my hon. Friends support that, too. Indeed, the Government support that, because it is in clause 1. However, according to the Chancellor, we are going to abolish the 50p tax rate in 2013. We do not yet know, which is why we have tabled the amendment, how much that has been considered, but we believe that he wants to abolish it in 2013. The simple point that I am making is that, when the tax rate falls from 50p to 40p, the benefits of the reduction in taxation will be disproportionately spread across the United Kingdom. There will be people in London, the south-east and the east who will get more benefit from that tax cut than in the north-east, Yorkshire, Scotland, Wales and other regions that are represented across the Committee today.

Karen Bradley (Conservative, Staffordshire Moorlands)

Does the right hon. Gentleman agree that if the additional tax rate is not raising tax revenue, the regions that receive a disproportionate amount of tax revenue will be disproportionately affected by that?

David Hanson (Labour, Delyn)

That is one of the interesting points. Again, I am looking at this issue in the round. I am simply saying that that is one option in 2013 that could have a disproportionate effect. We want to see the evidence, which is why I hope that the hon. Lady will support my proposal, because it says that we should have terms of reference, a timetable for the review and updates to Parliament on progress. In that way we can see what the HMRC revenues are and what progress is being made, and we can make a judgment based on revenue rather than what we appear to have already, which is dogma. I refer again to the article in The Daily Telegraph, which says:

“The Chancellor has insisted that the rate is only temporary and he wants to offer traditional Tory supporters tax cuts well before the next election.”

If that is the case, let him say so. Let him just ditch the review and just do it. If the review is evidence based, however, as the hon. Lady seems to want it to be, she should support the amendment, so that we can see what the evidence is, so that we can monitor it and so that it is not just a case of a rabbit being pulled out of the hat in the 2013 Budget that says, “Here’s a tax cut of 10p in the pound to the top 275,000 taxpayers, which predominantly goes to London, the south-east and the east.” That is my point, and I hope that the hon. Lady will reflect on that when she considers voting on the amendment.

Stephen Williams (Liberal Democrat, Bristol West)

The right hon. Gentleman is talking about the geographical and political distribution of temporary tax rates. Would he remind us of the political impact of, and which section of society was affected by, the last Budget of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who doubled the rate of income tax from 10% to 20% for the poorest people in society?

David Hanson (Labour, Delyn)

I fear, Mr Gale, that you would rule me out of order if I went down that particular track. The hon. Gentleman will remember that my right hon. Friend the Member for Kirkcaldy and Cowdenbeath made amendments to the 10p tax rate, reviewed it and admitted that it was a mistake. To be honest, I am trying to stop the Minister from bundling into further mistakes by doing that in future.

Stella Creasy (Labour, Walthamstow)

If we look at this review, it might be worth considering that 2013 is the year in which 40% of the Budget cuts will take effect, affecting areas such as mine, which are not likely to have many higher rate taxpayers, but we know that those cuts are coming. The Government may wish to reflect on the impact that reducing the rate at that point in time is having on unemployment and the cost of benefit take-up, and on the Exchequer.

David Hanson (Labour, Delyn)

My hon. Friend makes a valuable point, and I support her assertion.

On 5 April 2012, the family element of child tax credit will drop by £545 for families earning more than £26,000 a year; the working family tax credit will be reduced by £180 for people working less than 30 hours, and by £254 for people working more than 30 hours; the 50-plus element of tax credit will be abolished, which means that those who work between 16 and 29 hours will lose £1,300; child benefit will be frozen, which will cost about £100 to £240 across the board, and it will be abolished for higher rate families in 2013; benefits and tax credits will rise according to the consumer prices index rather than the retail prices index, which will mean a loss of about £200 to households; in January 2013, child benefit will be cut by about £1,000; and in 2013 there will be a loss of working families tax credit of about £390.

A range of changes will be made in 2013, and that links to the amendment. We suggest a review with a timetable and terms of reference so that the matter can be considered in detail. For the hon. Member for Staffordshire Moorlands, we suggest making it evidence-based rather than basing it on dogma. We suggest considering all these points clearly, because in 2013 there will be severe challenges to the living standards of many people on middle and low incomes. However, people on higher incomes—there are only 275,000 of them—will find themselves paying less tax; they will pay 10p in the pound less on the additional rate, and the Chancellor has indicated that he wants to do that now. What is the point of having a review over the next three years if the Chancellor has already said what he wants to do? The purpose of the amendment is to put some framework to that review, so that we can track it, possibly in a productive way.

Brandon Lewis (Conservative, Great Yarmouth)

The right hon. Gentleman speaks with a focus on and an interest in the regional impact. As a strong believer in understanding where we have come from in order to have a better feeling of where we are going, I am curious to know whether he believes that the previous Government went out of their way deliberately to target the south-east and east of England.

David Hanson (Labour, Delyn)

No. What the previous Government tried to do was ensure that those who were able to bear the burden fairly did so, and people on £150,000 and more are in a position to bear some of the burden much more ably than those on lower incomes. If the hon. Gentleman asked me a straight question about choosing between a 50p tax rate and cutting child benefit, I know which choice I would make, because we need to consider how to spread the burden of difficulties that we face in a fair and equitable way.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Does my right hon. Friend agree that it is notoriously difficult to predict what will happen as a result of tax changes? That is why the Government should hold a review to consider all the evidence. If there is evidence of people deliberately avoiding paying the 50% rate, it should be considered but, as we heard, hard-pressed families across the country face massive cuts, and it would be wrong of the Chancellor to press ahead without considering what the impact will be.

David Hanson (Labour, Delyn)

That brings us back to the amendment, which is about terms of reference, the timetable and updates to Parliament. I am concerned to ensure that we take an evidence-based approach. I give credit to the hon. Member for Staffordshire Moorlands for this, but information may ultimately show that we do not gain revenue through the 50p but lose it. I do not know whether that is true, but I want to know how and when the assessment will be made. I also want to ensure that we do not have what is effectively a three-year vacuum, in which individuals do not know what the position is and can make alternative tax arrangements or look elsewhere. It is important that we have clarity.

That is important for two other reasons. I shall refer first to that august organ of the media, The Guardian, which on every occasion is accurate and factual in its reporting. On Sunday 27 March 2011, it ran the headline, “Cable confirms ending of 50p tax rate”. That was very helpful. Again, forget the evidence, forget the discussions during the next three years, forget the review and the points about whether that policy raises or does not raise money. The Business Secretary “confirms ending of 50p tax rate”. Interestingly, the headline goes on to say, “and reveals ‘mansion tax’ plans.” The article says:

“The business secretary, Vince Cable, has confirmed the 50p rate on tax will be abolished”.

The article does not say “may”, “could”, “possibly” or “on evidence”. It says the rate “will be abolished”. It goes on to say that he

“revealed the government would consider bringing in a ‘mansions tax’ to ensure the wealthiest pay their way.”

Who am I not to believe the Business Secretary, a key member of the Government and a key supporter of the Exchequer Secretary? Who am I not to believe him? If he says that it “will be abolished”, presumably it “will be abolished”. If he says that it “will be abolished” and the Government are considering

“bringing in a ‘mansions tax’ to ensure the wealthiest pay their way”,

presumably the Government are considering that measure as part of the ongoing review about which we know little and of which we have no details.

When the Exchequer Secretary responds, will he confirm what the Business Secretary said? Perhaps he could also explain whether this issue is part of his consideration of the alternative to a 50p tax rate, because that information would form some of the review’s terms of reference.

Paul Blomfield (Labour, Sheffield Central)

My right hon. Friend is generous in giving way. It is helpful of him to make the point that the Government are clearly thinking about different tax proposals. A moment ago, he referred to the regional variations in the impact of the higher rate. Does he agree that the terms of reference should include, for example, the impact of VAT, which has hit hardest many of those in the poorest and lower to middle-income families in some of the constituencies that Labour Members represent? It would be helpful if the terms of reference were debated fully, so that we have the opportunity to make those sorts of points.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend, because he makes an interesting point. The terms of reference for the abolition of the 50p rate should include an assessment to determine whether such a move raises the money that it is claimed it will raise. That is a key first principle.

The terms of reference should also consider whether a choice is made between that tax and other taxes, assessing whatever level of income it raises versus that raised by other taxation. There should also be an assessment of how that tax impacts on sectors of our community. I have talked about regions. Not all of the London region, the south-east region and the east region is wealthy and prosperous. There are a range of options to be chosen by the Government when it comes to taxation.

Jessica Lee (Conservative, Erewash)

Following the logic of the right hon. Gentleman’s argument and considering alternative options, is he considering increasing the higher rate of tax? Where would it end—80%, 90%?

David Hanson (Labour, Delyn)

I am grateful to the hon. Lady for putting that question. I can give her a very clear answer to it. As the Opposition, Labour supports the 50p tax rate being available for the duration of this Parliament. [ Interruption. ] I cannot be any clearer than that. I will say it again in case the Exchequer Secretary missed it, as he was talking. We support the 50p tax rate for the duration of this Parliament. The hon. Lady, the Ministers and the rest of the UK will have to wait for our manifesto for the next election, to see what rate of taxation we support in future parliamentary elections. It may have escaped the Exchequer Secretary’s notice, but we are in opposition at the moment. We can be very clear about what we want to do now and in the future we will take an offer to the electorate about future levels of taxation, based on the economic circumstances at the time.

Alok Sharma (Conservative, Reading West)

So it could go up.

David Hanson (Labour, Delyn)

The hon. Gentleman says that. I cannot be any clearer than to say that we support the 50p tax rate for the duration of this Parliament. We will make a decision on levels of taxation for the next manifesto; that decision will be in the next manifesto, and we will fight that election on that particular policy.

Bill Esterson (Labour, Sefton Central)

It would be helpful if Conservative Members who question whether the 50p tax rate raises more or less than lower rates of tax were to present their evidence today, as this debate is so crucial and timely. I am curious about what the Chancellor believes, given his statement about maintaining the 50p tax rate in his Budget and the reasons he gave, which were about fairness. The question for Government Members is, is it about fairness or is it a question of which tax rate raises the most revenue?

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend. We have been very clear on our tax proposals. The leader of the party, my right hon. Friend the Member for Doncaster North (Edward Miliband), and the shadow Chancellor, my right hon. Friend the Member for Morley and Outwood (Ed Balls), have said clearly that they want the 50p rate maintained for the duration of this Parliament. We will have to make decisions based on the economy in due course. The Minister will be among the first to know when we produce our manifesto.

Alison McGovern (Labour, Wirral South)

It is a pleasure to speak under your chairmanship, Mr Gale. Does my right hon. Friend consider that evidence should be at the core of this debate, as my hon. Friend the Member for Sefton Central said, and that the murmurings we have heard from Government Members show that the Government want to force this as a matter of dogma, rather than as a question, as our amendment suggests, of doing what is right for the country on the basis of the optimum level of taxation that can be brought in?

David Hanson (Labour, Delyn)

My hon. Friend makes the key point that this is about evidence. The purpose of the amendment is to ask for clarity. We are not asking for very much. I am asking for the review’s terms of reference and timetable, and for updates to be given to Parliament. We are not saying to the Minister, “Make a decision.” We are simply asking, “On what basis are you making the decision? Over what time scale are you making it? Who is advising you about it? Are you taking into account the information that the hon. Member for Staffordshire Moorlands was so helpful in bringing to the table? Are you taking into account the points that my hon. Friend the Member for Sheffield Central made about other taxation issues?”

Is the Exchequer Secretary reflecting on what the shadow Business Secretary—I mean the Business Secretary; I still think of him as the shadow, as he is still a sort of shadow in government—is saying about the business tax and the fact that there is a mansion tax proposal? What are the terms of reference for this review?

Nicholas Dakin (Labour, Scunthorpe)

I think my right hon. Friend makes a good point when he emphasises the need for transparency. It is quite proper to speculate about what might happen. We have heard much of that in the debate so far today. However, at the end of March the Deputy Prime Minister said that a modified version of the mansion tax would be introduced—I am quoting from The Daily Telegraph—

“once the economy was recovering and those on lower middle incomes were ‘breathing more easily’”.

That plays into this debate. The Deputy Prime Minister said that it would be a different sort of mansion tax from the one that was promised before the election. That emphasises again the importance of being clear about how this review is taking place. There is speculation about these ideas, and the public have a right to understand how they are being considered. I think my right hon. Friend is doing well to spell out these issues.

David Hanson (Labour, Delyn)

I would not have raised the issue of the mansion tax at all had it not been raised by Ministers and linked to the abolition of the 50p tax rate. I originally quoted The Guardian of 27 March, but let me bring Members up to date. The Independent on Sunday on 8 May had the headline, “Lib Dems tell PM, You must rein in the Chancellor”.

As part of the discussion on that—and who am I to disbelieve what briefings are given by Ministers to The Independent on Sunday?—the Business Secretary has said, referring to policy decisions:

“We have to make sure that the coalition does not stray into policies of the Conservatives when it is not agreed coalition policy.”

The article continues:

“He once again raised his pet project to impose a ‘mansion tax’ on the most expensive properties as a way of financing Mr Osborne’s plans to scrap the 50p rate of tax.”

There is also a direct quote from the Business Secretary:

“There is a lot of unfinished business in the coalition agreement”.

That article was published on Sunday. The Minister needs to tell us whether the mansion tax is being considered as part of the terms of the review of the abolition of the 50p rate. Two Liberal Democrat Members—the hon. Members for Brecon and Radnorshire and for Bristol West—are present in Committee today. Perhaps they can help. I would be happy to take an intervention from them on whether they believe that the mansion tax is a better way of ensuring that the richest people in the community “pay their way.” Do they see that proposal as a replacement for the 50p rate?

Do the terms of reference include a discussion about things such as the mansion tax? I do not know. The Business Secretary is indicating that the issue is on the table. He is saying that, if the 50p rate is removed, it should be replaced by the mansion tax. On a point of clarity, I am not sure whether we would support such a tax. It has its attractions in some parts, but I do not think that it would be workable, feasible or practical. I do not think that the Liberal Democrats think it would be either, which is why they turfed the policy overboard previously. [Interruption.] Well, we will look at that, but the key point is that I do not know whether the mansion tax is being considered by the Exchequer Secretary as part of the terms of reference.

On the review, I asked the Chancellor of the Exchequer

“what the terms of reference are for the HM Revenue and Customs review of the 50 pence rate of income tax.”

It was a straightforward question, which I would have thought would be easy to answer by saying, “The terms of reference are as follows: A, B, C, D and E.” The answer that I received from the Exchequer Secretary was:

“The Chancellor has asked HMRC to assess the revenue raised by the 50% rate using relevant self-assessment data.”—[Official Report, 26 April 2011; Vol. 527, c. 323W.]

That does not give clarity on the terms of reference. It simply says that the Chancellor has asked HMRC to make the assessment, but why has he done that?

The Chancellor has made great play of the establishment of the Office for Budget Responsibility, whose terms of reference include examining budget responsibility across the board. In a helpful note on its website, headed, “What we do”, the OBR says:

“We produce forecasts for the economy and public finances. We publish five-year forecasts twice a year in our Economic and fiscal outlook (EFO) publication. Our spring EFO is published at the same time as the Budget and incorporates the impact of any tax and spending policy measures announced in it.”

It goes on to say:

“We judge progress towards the Government’s fiscal target…We assess the long-term sustainability of the public finances…We scrutinise the Treasury’s costing of Budget measures…In support of these activities, we undertake a variety of research projects through the year.”

It notes that it publishes briefing material and provides regular briefings, and that it looks at the monthly public finances.

Why has the Chancellor not submitted the review of the proposed tax change in 2013 to the OBR? It is an organ of Government that is independent and designed to look at such matters in a fair and effective way. I do not understand why he has asked HMRC to conduct the review. Does he anticipate—this goes to the heart of the amendment—that the information from HMRC will be public, will be shared with the OBR, and will be open to public scrutiny in the House of Commons and elsewhere? I am at a loss as to why HMRC is doing the review—we do not know any of its other details—when the OBR has been established for that very purpose.

How will the Exchequer Secretary ensure that, between now and 2013, there is transparency, with external scrutiny, and that information is publicly available? What public information on the progress of the review during the two and a half years does he expect? What instructions have Treasury Ministers given to HMRC, or to any other agent of the Government, about the review and the team carrying out the review? When will they report and to whom? Will an interim report be made public? Are there really no formal terms of reference for the review? If there are, why does not the Exchequer Secretary simply publish them as per the amendment before us today? Will the Treasury, the OBR and HMRC assess behavioural responses that will lead to changes in other taxes, owing to the 50p rate? The measure cannot be seen in isolation, as my hon. Friends have pointed out.

I make no comment other than to put it on the record that, on 22 February, Duncan Weldon, a Guardian writer on economics, indicated that he believes the 50p tax rate is paying dividends:

“The latest public sector borrowing figures have revealed an unexpectedly large surplus for January 2011. The Treasury repaid £3.7bn last month, surpassing expectations”.

He goes on to say:

“The most likely explanation is that higher income tax receipts partially represent the new 50p rate kicking in and raising revenue.”

He believes that the 50p rate is contributing towards that rate of repayment.

As part of the review, I want to know whether external bodies—outside agencies—can submit evidence about the effectiveness or otherwise of the 50p rate in relation to the level of taxation that it is allegedly bringing in. That would answer the point made by the hon. Member for Staffordshire Moorlands and would provide an opportunity for the Committee to scrutinise those issues across the board.

I do not wish to detain the Committee for ever on these points, but it is important that we get some answers from the Exchequer Secretary about the long-term plan for this particular taxation proposal. When we come to the clause stand part debate shortly, we will be asked to endorse the 50p tax rate for this year. Therefore, the Minister must believe that the 50p tax rate is raising money this year, or he would ask us to reject it now. We are being asked to accept that it will be in existence for the next 12 months. Although we have heard it from the Chancellor only in a throwaway comment in the Budget statement, we are being asked to accept that there will be a review. We need to know very clearly the terms of that review. We need to know who can contribute to that review and on what basis the Exchequer Secretary will make decisions in 2013.

Will the Exchequer Secretary justify why he has already apparently set out his stall in favour of the abolition of the 50p rate in 2013, irrespective of the evidence, by saying that it should not be a long-term tax, that it is damaging to the economy and does not raise income? He seems to be facing both ways at once in trying to kick it long to show that he is being fair in making an assessment, while at the same time sending a signal out to everyone that he wishes to abolish the tax and have the 40p rate for all. That links back to the points that I made earlier. Such a choice potentially has a differential impact on incomes across the United Kingdom. That choice is being made at a time when we are making other difficult choices that are hitting a range of people across the UK in different ways. In my view, the choice should be made on the principle of evidence. We strongly believe that we can raise money from this tax and that it should be in place for the duration of this Parliament. We will look at the evidence and make a judgment for the next Parliament on the basis of that information. The Exchequer Secretary has done the opposite. He has said he does not believe that this is a fair tax or that it is right to have it, and he will try to concoct a review, about which we know little, to justify that in retrospect and to move to abolition in 2013.

There is a clear division between the Government and the Opposition, and I hope we will be able to explore it in some detail. For these purposes, however, I hope that the Exchequer Secretary will accept the amendment, which makes no judgment on the 50p tax rate, but simply says, “Publish the terms of reference and the time scale and make sure we do not have a vacuum on these important issues.”

Roger Gale (Conservative, North Thanet)

Before we proceed, I should say that although the shadow Minister was entirely in order throughout his remarks, he and others who have served on Committees that I have chaired will be well aware that I take a fairly relaxed view of stand part debates. Members may choose to have them at the beginning or the end of our deliberations on a clause, but not both. By the time the debate on the amendment is concluded, I shall probably take a view that clause 1 has been adequately aired. Fourteen Members have intervened to date, so I caution the Committee that there may well not be a stand part debate.

David Gauke (Conservative, South West Hertfordshire)

It has been a great pleasure to listen to the right hon. Member for Delyn move amendment 3, which seeks further information on the Government’s plans to assess the revenues from the additional rate of income tax. As the 50% rate was introduced by the previous Government, I can understand why he is interested in establishing whether it raises the revenues they estimated it would.

As the right hon. Gentleman will be aware, the Government assess the revenues from all taxes on an ongoing basis. The Chancellor’s Budget statement to the House on 23 March simply highlighted the fact that he has asked Her Majesty’s Revenue and Customs, as part of that ongoing work, to see how much the additional rate actually raises. HMRC will look at all the available evidence about the impact of the 50% rate, including data from the 2010-11 self-assessment returns, which will become available next year.

To answer one of the right hon. Gentleman’s questions, HMRC is undertaking the review because it is important that all the information available on the 50% rate is considered, and only HMRC can analyse individual self-assessment returns, because they contain confidential taxpayer information. That is why HMRC has been asked to perform this role.

In looking at the issue, HMRC’s main challenge will be to isolate the impact of the additional rate from other factors. In light of that, it will conclude its analysis as soon as it is practical to do so. Its findings will then be used to inform the Government’s wider thinking on taxation policy, with any announcements made by the Chancellor as part of the annual Budget process in the usual manner.

Of course, the Government keep all taxes under review and reserve the right to announce changes at the appropriate time. Indeed, tax changes are generally made at Budgets. Given that, there is no reason to accept the amendment, and I ask the right hon. Gentleman to withdraw it.

Let me also say a word or two about transparency. It has to be acknowledged that the Government have substantially increased the transparency of the Budget forecasting process with the introduction of Office for Budget Responsibility. We have ensured that independent outside experts can make assessments of the forecasts and projections in the Budget. We have made substantial advances in that respect, and the OBR will be involved in future Budgets, ensuring that projections are as accurate as possible by providing some independent analysis. There has, therefore, already been a substantial increase in transparency.

Given your strictures, Mr Gale, perhaps I can say a word or two about clause 1 generally. The Government are committed to creating a fairer tax system that provides greater reward for work and aspiration while supporting the public finances. This year will see the largest ever increase—£1,000—in the personal allowance, which is introduced in clause 3, to which we will turn shortly. That represents the first step in our commitment to increase the personal allowance to £10,000 and will remove more than 800,000 people from income tax altogether.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Drawing on the shadow Minister’s comments about the cut in the basic rate being of greater benefit to those in the south, surely the comments just made by the Exchequer Secretary demonstrate how this Government have done more for the poorest regions in the country than any previous Government.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to my hon. Friend, who made a good point. The increase in the personal allowance will benefit people up and down the country. I regret the tone of the—[ Interruption. ]

Roger Gale (Conservative, North Thanet)

Order. I am sorry to interrupt. I appreciate that the Opposition Whip needs to brief his flock on occasions, but there is a limit to how long I am prepared to allow him to wander around the room.

David Gauke (Conservative, South West Hertfordshire)

I was making the point that it would be a pity if the debate on taxation matters became one in which we pit one part of the country against another. That does nothing for the unity of the United Kingdom, although I appreciate that the Labour party has not achieved much on that front over the past few weeks, in Scotland in particular.

Alison McGovern (Labour, Wirral South)

I am interested in the Exchequer Secretary’s point that it is a mistake to pit one part of the country against another. Is he saying, therefore, that the economy functions universally similarly throughout the country and that the Government have no role in measuring the impact of their taxation policy in different parts of it?

David Gauke (Conservative, South West Hertfordshire)

No, the economy does not act universally. There are different conditions in different parts of the country. Not long ago, in our debates on the National Insurance Contributions Bill, in which we proposed an employers’ holiday for some parts of the UK and not for others, the Opposition argued that we should apply it to every part of the country. We therefore recognise that different parts of the economy have different circumstances.

I am not sure that it is profitable for the Labour party to claim that some policies will favour the south-east against the north-east and so on. I fear that that fails to understand the importance of a successful, entrepreneurial, dynamic economy for the whole of the United Kingdom, which is what we seek to achieve.

Ian Mearns (Labour, Gateshead)

I am grateful for the Exchequer Secretary’s recognition that there are differential impacts of national policy on different parts of the country. In taking that on board, there is no resulting differential approach by the Government in managing the economy on a national basis—or very little evidence for that. Such evidence would be gratefully received, certainly by my constituents.

David Gauke (Conservative, South West Hertfordshire)

I touched on the NICs holiday policy, which is available to new businesses in the north-east but not to those in the eastern region, for example, where my constituency lies. We have made attempts, but my broad point is that a strong, dynamic economy benefits the whole of the UK and would enable us to pay for the public services that we need to apply throughout the UK. It would be a pity for the Labour party to fall into merely representing one region versus another, but it is not for me to advise it on how it goes about the business of opposition.

Turning back to the 50% rate in the context of the clause, we believe that now is not the right time to remove that additional rate, when we have a freeze in public sector pay and are taking tough decisions on welfare and public spending. However, in an age when businesses, capital and people are increasingly mobile, our income tax system must be internationally competitive. High tax rates send a negative signal to individuals and businesses that are looking to work and invest in the United Kingdom. The Government believe that a 50% rate would do lasting damage to the UK’s economy if it became permanent.

David Hanson (Labour, Delyn)

If the Exchequer Secretary wishes to keep the tax rate this year, will he say—to answer the question of the hon. Member for Staffordshire Moorlands—how much revenue the Exchequer expects to bring in through the 50p tax rate?

David Gauke (Conservative, South West Hertfordshire)

Projections were made under the previous Government when the 50% rate was introduced. The Chancellor announced in the Budget that HMRC will review those projections and the information that had come in. Clearly, there was considerable uncertainty about the projections made under the previous Government. I am not saying that they were made in bad faith, by any means. I think that they were done in good faith, but there is clearly a range of views. Some economists argue that the rate could be a lot less; some argue that it could be a lot more.

The fact is that there is uncertainty about the behavioural impacts of the 50p rate, such as to what extent it will increase tax avoidance, to what extent it will mean more people leaving the UK or not entering the UK and to what extent it will result in people retiring earlier. Significant questions can be asked. Indeed, if we were to consider a purely static analysis of the 50% rate, we would get three times the amount projected by the previous Government. However, within the figures is the assumption that there will be considerable behavioural changes, but when there are assumptions on such a scale, there is considerable uncertainty, which is why we want to look at the data when they come in—a task that HMRC will perform.

Bill Esterson (Labour, Sefton Central)

It would be helpful if the Minister clarified again the reasons for keeping the 50p tax rate. He did not say whether he agreed with the Chancellor’s saying that it was about fairness and that those on much lower incomes were making sacrifices. Equally, is the rate being kept to help with deficit reduction or not? My third point ties in with what my right hon. Friend the Member for Delyn said: is it not better to analyse the likely impact before making decisions rather than leaving the matter uncertain? From what the hon. Gentleman has just been saying, he is far from clear about the impact of keeping the 50p tax rate.

David Gauke (Conservative, South West Hertfordshire)

As for whether it is better to do the analysis before than afterwards, I accept that up to a point, but if it is possible to conduct an analysis when we have seen what has actually happened, it is likely to be better informed—and that is what we propose to do. I was clear about the reason for keeping the rate at such a level when there is a freeze in public sector pay and when we are having to make some very difficult decisions. It is fair that it continues, but we recognise that, if it remains in place on a permanent basis, it could do lasting damage to the UK’s competitiveness.

Ian Mearns (Labour, Gateshead)

As the Exchequer Secretary has emphasised the uncertainty of the impact, despite the oversight of the Office for Budget Responsibility, has he not outlined the case for the amendment?

David Gauke (Conservative, South West Hertfordshire)

Well, I have outlined the case for HMRC to look at the data early in 2012, which is exactly what it will do. The fact is that tax decisions are announced in Budgets. Decisions about the 50p rate will be announced in a Budget, and that will be informed by HMRC’s analysis, as the Chancellor outlined in his Budget speech, and which I am reiterating today. The amendment would not add anything. I urge the right hon. Member for Delyn to withdraw it, and I urge my hon. Friends to reject it should he press it to a Division.

We want to stress that the 50p rate is a temporary measure and it could be damaging. That is not a particularly “ideological” position—I think that was the word the right hon. Member for Delyn used—after all, it is consistent with the position that the Labour party took in 1997, 2001 and 2005, although it did not maintain that manifesto position after the 2005 general election; I recognise that it took a different position in 2010. Some Labour Members may notice what 1997, 2001 and 2005 have in common compared with 2010 as far as their party is concerned, and I will let them draw their own conclusions. It seems to me that a party that does not recognise the need for the UK to have a competitive tax system is not doing itself any favours.

Ian Murray (Labour, Edinburgh South)

I think everyone on the Committee understands the need for a competitive tax system in this country, but would the Exchequer Secretary not concede that, particularly in the current climate, we also need a fair tax system? When the poorest are being hit hardest, discussions about the 50p tax rate being temporary send out the wrong message.

David Gauke (Conservative, South West Hertfordshire)

It sends out absolutely the right message to say that the 50p rate is temporary. We face particular circumstances at the moment in which everyone has to make considerable sacrifices due to the state of the public finances left by the Labour Government. We recognise that, and in these circumstances, we are not rushing to remove the additional rate of income tax. We want to explore the facts further and how much revenue it is raising, but in the longer term, in a globalised world in which it is more important than ever that the UK is competitive, a 50p tax rate, which is higher than that of most of our competitors, clearly puts us at a competitive disadvantage. Were we to signal that it was permanent, which I think is the Labour party’s position, it would not do the UK any favours as we go around trying to attract businesses to invest in the UK and to get the best and the brightest to locate here. It does not serve any part of our society to be uncompetitive in this field.

Stella Creasy (Labour, Walthamstow)

The Exchequer Secretary has made an eloquent case for his concerns about bringing the best and the brightest to the UK, but could he also tell us his thoughts on damaging family income? I wrote to the Treasury when the announcement was made about cutting child benefit to highlight the many families in my constituency in Walthamstow who, by dint of London weighting, found themselves tipping into the higher income bracket. If they had two or three children, they lost £3,000 or £4,000 a year. I wrote to ask whether, if the measure was just about addressing the deficit, the Government would commit to reviewing it in 2015. I got no response to that, yet the Government are making a clear commitment on the 50p tax rate due to the damage it might do to Britain’s competitiveness. Will the Exchequer Secretary make a statement to the Committee about the impact of the damage that the cut in child benefit is doing to families in places such as Walthamstow and other areas of London? Given the case he makes today, will the Government also review the cut?

David Gauke (Conservative, South West Hertfordshire)

I do not want to test your patience at any great length, Mr Gale, but the decision on child benefit will affect households in the highest 20% of income. We recognise that it is a tough decision; it is an example of the tough decisions that we have to make due to the state of the public finances. The hon. Lady is perfectly entitled to make her case, although I worry that the right hon. Member for Delyn will argue that there are fewer higher rate taxpayers in other parts of the country compared with London, so were we to change our policy, it would favour London and the south-east over the rest of the UK. I wait to hear that argument.

The hon. Lady raises a fair point in that the child benefit policy was a tough decision, but we have to find savings somewhere, and that saving applies to more prosperous households than most.

Stella Creasy (Labour, Walthamstow)

I seek clarification because the people in Walthamstow I am talking about are, for example, bendy bus drivers, who, because of London weighting, find themselves just tipping over into that category by £1,000 or £2,000. Will the Exchequer Secretary confirm that the Government care more for the people they might attract from overseas? The 50% tax rate might affect bankers, but it also affects bendy bus drivers and nurses working overtime in our NHS who live in London and find themselves tipping into that category. Let us be clear about the Government’s priorities.

David Gauke (Conservative, South West Hertfordshire)

The point on child benefit is that we have to reduce the deficit, which means making some tough decisions. If the 50p rate becomes a permanent part of our tax environment, in the long-term it would, at the very least, damage our competitiveness and we would raise less in tax. If we have an uncompetitive tax system that drives businesses and high earners out of the UK, we would have less to spend on public services and on child benefit. That is a simple economic lesson that needs to be relearned from time to time, but it remains a fact of life.

Nicholas Dakin (Labour, Scunthorpe)

I thank the Exchequer Secretary for being so generous in giving way.

Are not the points being made by my hon. Friend the Member for Walthamstow and by the Exchequer Secretary exactly the same? Different tax changes affect people’s behaviour. People’s behaviour to avoid the tax rate that affects child benefit is the same as that to avoid the 50p tax rate. They should both be treated the same.

David Gauke (Conservative, South West Hertfordshire)

If the hon. Gentleman is making a case that the dynamic impact of the changes on child benefit will be considerable, we are not persuaded by that. We do not think that the evidence supports that. A lot of evidence suggests that a marginal rate of 50% on high earners is more likely to have a behavioural impact.

On clause 1 and amendment 3, it is necessary to review the facts. More evidence will come to light as a consequence of the self-assessment returns for 2010-11, which are likely to be filed in particular during January 2012. That evidence will enable us to be better informed. It seems right that any decisions on additional rates should be informed by that analysis, although it is clear that over the longer-term a permanent tax rate of 50% would be damaging. Any decisions on the additional rates would be made in a Budget and legislated for in a subsequent Finance Bill. This Finance Bill does not withdraw the additional rates. If and when that happens, I am sure a future Committee will debate it at some length.

Ian Mearns (Labour, Gateshead)

The point made my hon. Friend the Member for Walthamstow, which the Exchequer Secretary himself echoed, is that the relaxation of the 50p rate would disproportionately benefit one part of the country: London and the south-east of England. In London and the south-east of England there would be 161,000 beneficiaries of such a relaxation; in the rest of the United Kingdom there would be only 138,000 beneficiaries. Obviously, a relaxation of the 50p tax rate would have disproportionate benefits and detriments.

David Gauke (Conservative, South West Hertfordshire)

But if that is the right thing to do, and if that is what the evidence points to, additional sums would be raised in taxation by a more competitive regime. Such sums would enable us to fund public services throughout the UK. That is the argument we are making. It was accepted by the Labour party in previous years, and the Labour party may want to reconsider it a little more closely than it appears to be doing at the moment.

The overriding priority of the June 2010 Budget was to reduce the fiscal deficit and bring the public finances back under control. Clause 1 introduces income tax for 2011-12, and in doing so supports the Government’s fiscal objectives. As well as asking the right hon. Member for Delyn to withdraw the amendment, I encourage the Committee to support clause 1.

David Hanson (Labour, Delyn)

I am afraid the Minister has not helped me come to a conclusion on the matter, and I wish to examine it further. The Minister said he had no indication yet of how much revenue has been raised in real terms by the 50p proposal in the years 2010-11. That is subject to further consideration by HMRC when self-assessment tax forms come in. However, the Minister and his colleagues have already said that they believe it to be a damaging tax. My point is this: the Minister has made a judgment based on his dogmatic view of the 50p tax rate, rather than on evidence, income or even where that income, if there is any, will come from in future years.

David Gauke (Conservative, South West Hertfordshire)

The right hon. Gentleman talks about evidence. On what evidence did the Labour party in 1997, 2001 and 2005 believe that is was right not to raise the higher rate of income tax?

David Hanson (Labour, Delyn)

Well, we could continue that discussion for a long time. In the years of the Labour Governments, up to the banking crisis, we had increasing investment and jobs, and increasing public sector investment, which created jobs and employment. Therefore, we were able to maintain a lower tax regime, because we had strong public sector-led investment. As the Minister is aware, there was a worldwide banking crisis, which impacted not just on the UK but elsewhere. Therefore, we have lost revenues due to higher levels of unemployment and a range of other reasons. The Government at the time felt that a key task was to raise £1.1 billion from that additional rate. Unlike the current Government, we thought we should all be in it together.

David Gauke (Conservative, South West Hertfordshire)

I have listened carefully to the right hon. Gentleman’s argument. It seems that the reason why the Labour Government did not have to raise the higher rate of income tax in those years was that public spending was high, if I understood him correctly. When public spending is high, one does not need to raise taxes. It is still not clear to me why in 1997 the Labour party felt it was good to say that higher rate income tax should not go above 40%, given the position set out by the right hon. Gentleman today.

David Hanson (Labour, Delyn)

We have taken a view on the economy. In 1997, the Labour Government felt that they could strengthen the economy, and build jobs and public services, by a range of measures that did not include that particular one. In the time of deficit and crisis, we believed that we could recoup additional income. The estimate was of £1.1 billion for 2010-11, and a further £2.4 billion each year until 2014-15. That would be £10.7 billion in total, from that level of taxation of a group of people, who, I remind the Committee, number around 275,000 out of the total UK population.

Ian Mearns (Labour, Gateshead)

Does my right hon. Friend agree that, judging by the Minister’s response to the debate and the questions he put in interventions, he has already determined that the 50p tax rate will be relaxed very soon?

David Hanson (Labour, Delyn)

That is the key point of the debate. The purpose of the amendment is to have clear terms of reference and a timetable, so that the decision that the Minister takes on the 50p tax rate for future Budgets—I accept not for this one—is based on evidence. If the evidence shows that the 50p tax rate means that we have reduced income, the Labour party would not support that. The purpose of the tax rate was to ensure that we spread the income generation across income levels. The estimate of £10.7 billion up to the next election is money that can be raised from one portion of society to spend on important projects elsewhere. It is important to do that and make that assessment. The Minister seems to have already taken a decision that he is against the 50p rate as a matter of principle, and will not take into consideration the evidence that Members have seen about its impact on income generation as a whole.

Bill Esterson (Labour, Sefton Central)

Does my right hon. Friend agree that it would be helpful if the Exchequer Secretary intervened on him soon to clarify that point and to put on the record, once and for all, whether the Government intend to reduce the 50% tax rate, regardless of the evidence, or whether they will be guided by the evidence that they have received?

David Hanson (Labour, Delyn)

That is an extremely good point. Perhaps the Exchequer Secretary will make it clear—either in an intervention or after I have finished—whether, if the evidence shows that the 50p tax rate raises an amount of money that is anywhere between £1 billion and the estimated £10.7 billion, he will still reduce the top rate. That would be an interesting discussion to have on a future finance Bill.

Bridget Phillipson (Labour, Houghton and Sunderland South)

My concern is that, although the Exchequer Secretary has said that if additional money is raised the Government may retain the 50% tax rate for longer, there is also talk about the competitiveness of the UK tax system in attracting business. I understand that point, and I entirely agree that the UK needs a competitive tax system, but I am not clear what measures the Exchequer Secretary will use to judge the effectiveness of that versus the income generated through the 50% tax rate.

David Hanson (Labour, Delyn)

My hon. Friend makes a very valuable point. It is incumbent on the Exchequer Secretary to tell the Committee exactly what he believes, as a matter of principle, about the 50% tax rate. The purpose of the amendment is to set a framework to assess whether the 50p tax rate should be retained after a future date. We have taken a principled view that it should be kept for the duration of this Parliament, because assessments made by the previous Labour Government showed that it would raise £10.7 billion over the next three to four years.

The Exchequer Secretary has said, through the Chancellor of the Exchequer, that he wishes to see the 50% tax rate end in 2013, irrespective of the evidence—that is effectively what he has said.

David Gauke (Conservative, South West Hertfordshire)

No.

David Hanson (Labour, Delyn)

Well, if the Exchequer Secretary wishes to clarify that point, let him do so.

David Gauke (Conservative, South West Hertfordshire)

The position is very clear. The Chancellor reiterated in his Budget speech the point made by the right hon. Member for Edinburgh South West when he introduced the 50p rate that it was a temporary measure and that, were it to be permanent, it would do lasting damage to the British economy. We have also said that HMRC will review the data in early 2012 and that any decisions will be guided by those data, so our position is very clear.

David Hanson (Labour, Delyn)

That is not exactly what the Chancellor of the Exchequer has said publicly about the Government’s position. He has said—and in his responses to me, the Exchequer Secretary has said—that it will be a damaging tax in the long term. On what evidence has he made that assertion? What evidence does the Exchequer Secretary have today that his assertion is true? Will he intervene now to explain what evidence he has from his Treasury officials that the tax is damaging in the long term? I will give him the opportunity to intervene on that point.

David Gauke (Conservative, South West Hertfordshire)

The fact is that the UK’s additional rate of tax is higher than that of most of our competitors. Our assessment is largely the same as the one made by the Labour party in 1997, 2001 and 2005—that high rates of marginal tax damage the UK’s competitiveness and do lasting damage to our economy in the long term. Labour was right during those years; it is wrong now.

David Hanson (Labour, Delyn)

The Committee will note that that was not evidence but opinion. To date, we have heard no evidence that the 50p tax rate is achieving the objectives that the Exchequer Secretary is concerned about or that it is deterring individuals from outside the United Kingdom from settling here. The purpose of the amendment is to ensure that we have some clarity on those points.

I still worry that, although we will undoubtedly approve clause 1 and accept the 50p tax rate for today, the terms of reference of the review—of which we still have little detail—may generate a conclusion in 2013 that is skewed towards the initial indication of the Chancellor’s view. My concern is that as a result of that conclusion we might not be able to raise the level of revenue that we could through the 50p rate, which will be damaging to the economy, and we would give a tax break to people in certain parts of the United Kingdom and not in others.

Ian Mearns (Labour, Gateshead)

My right hon. Friend makes a very good point. Does he agree that the logic of what the Minister has said might lead us to wonder why the Chancellor did not relax the 50p tax rate in his Budget speech? The Minister has provided no evidence to support its retention, but it is in the Budget speech and is part of this year’s Budget.

David Hanson (Labour, Delyn)

Exactly. My hon. Friend makes an extremely good point, because, again, in this year’s Budget we have the 50p tax rate. The Minister could make an assessment on the basis of previous Labour Governments’ assessments of how much money has been raised from that tax rate, but he persists in saying that the Government want to abolish it. They want to have some justification for doing so, however, so that they do not appear to be benefiting only the richer sections of our community at a time when everybody else is facing child benefit cuts, high levels of unemployment, working tax credit freezes and massive public spending cuts. A certain sector of our community would be not only insulated but given a tax handout, which would not play well in the first year of a three-year austerity Budget.

The Minister has already said that he believes the tax rate should go. He is hoping, effectively—this is the point that my hon. Friend the Member for Gateshead is making—that in three years’ time the review, about which we still know little, will provide evidence to indicate that the 50p tax rate will lead to a loss of revenue and therefore should be scrapped. The Minister hopes that that will be the case, but he has already indicated that he wants the tax rate to go. My hon. Friend the Member for Sefton Central and I have asked him whether he would keep it if it was shown in three years’ time to have raised money. Will he answer that question now? If this tax is shown still to raise money in 2013, does he intend to keep it? Will he intervene on that point?

Mr Gauke indicated dissent.

David Hanson (Labour, Delyn)

The Minister has declined to intervene on that point. Whatever the outcome of the review in 2013, I believe that he intends to scrap the 50p tax rate as a sop to the 275,000 people who are affected by it, about whom Members have expressed some concern, who are predominantly still in London, the south-east and the east. For the record, I am not arguing for differential taxation across the United Kingdom; I am simply saying that Ministers’ decisions will have a different impact on different parts of the United Kingdom. Reducing the tax rate from 50% to 40% will disproportionately benefit people who live in London, the south-east and the east. It will undoubtedly benefit people in my constituency; there must be somebody who earns more than £150,000 in my constituency, but there are not many such people. In other constituencies there are many more, which is why the Minister needs to reflect.

Alison McGovern (Labour, Wirral South)

My right hon. Friend has pointed to some of the complexities that are involved in this decision. Does he agree that the Government need to consider that companies, in deciding where to locate, or businesses, in deciding to move, do not consider only the top rate of tax? They may consider the whole picture of taxation. Our plea for evidence, demonstration and facts relates not only to the top rate of tax that we are debating in clause 1 but to the interplay between that rate of tax and other taxation. It relates to the general impact that that has on society and on whether the UK is therefore a good business prospect globally.

David Hanson (Labour, Delyn)

My hon. Friend makes a valid point. I would have thought that people locate to the United Kingdom because of issues of quality of life, and because of skills, businesses and other important things. People live in London because it is a vibrant, dynamic city with lots to offer, not only because of the rate of taxation. People live in the constituency of my hon. Friend the Member for Edinburgh South, because of the great opportunities there, which are not only related to the level of taxes. The banking industry and financial services sector industry are thriving not only because of the level of taxation in Edinburgh. I cannot imagine people upping sticks from Edinburgh with the financial services sector, simply because the level of tax remained at 50p.

Ian Murray (Labour, Edinburgh South)

I am tempted to say that independence for Scotland might drive them away, but that would be ruled out of order.

Roger Gale (Conservative, North Thanet)

It would.

Ian Murray (Labour, Edinburgh South)

I nearly used the word “divorce” as well.

One aspect that has just been mentioned, about where people locate big businesses and where employment is generated, is key. The Institute for Fiscal Studies, as my right hon. Friend will remember, drew a profile of this Government’s choices, in terms of their austerity budget and tax policies, and the only thing that kept the graph moving towards the top decile paying the most was the 50p tax rate. Therefore, if there is a lower proportion of the additional taxpayers in Scotland—and indeed, in Edinburgh—than there are in the east, south-east, or in London, that means that the poorest in my constituency are paying a disproportionate amount for the mistakes that have been made by the very people who should be paying this 50p tax rate. Does my right hon. Friend agree that it would be very good to see a proper profile of who is paying the most in order to pay down the deficit?

David Hanson (Labour, Delyn)

Indeed, and I remind my hon. Friend that there are some 16,000 additional rate taxpayers in Scotland, compared with 18,000 in the north-west, 34,000 in the east, and 94,000 in London. It is important to reflect on that point, because if a decision is made by the Exchequer Secretary, income may well be forgone. The previous Labour Government planned to raise the figure that I mentioned earlier, which was about £10 billion. We do not yet know, because the Exchequer Secretary has not been clear with us as to what that level has been in the past year, but if it is proved that income has been generated and if the tax is ultimately reduced, that income will either have to be found through additional funds being raised from other people in society, as my hon. Friend has said, or through additional public expenditure cuts. The Government have to make that choice.

I do not know what the terms of reference for the Exchequer Secretary’s review are, which is why I support amendment 3. I do not know whether he is taking into account issues to do with other choices of expenditure, in the event that the 50p tax rate is shown to generate income. For the record, the Minister has steadfastly refused to answer the question whether he would abolish the tax if it was proved to raise money. My fear is that the review will not take into account the other impacts of potential taxation or public spending cuts, in the event that the 50p tax rate proves to be one that raises income.

Nicholas Dakin (Labour, Scunthorpe)

I am listening carefully to my right hon. Friend’s argument. Does he feel that if it is a genuine evidence-based review, which the Government have assured us that it will be, and it clearly demonstrates that the tax rate raises more money than changing it would generate, clearly it would stand?

David Hanson (Labour, Delyn)

That is the point that we are making to the Exchequer Secretary, and it is important that we reflect on those matters very strongly.

Bridget Phillipson (Labour, Houghton and Sunderland South)

The Exchequer Secretary has made it clear that even if this is proven to work, inasmuch as it raises additional revenue, we could still end up in the position of having nebulous, vague political arguments about competitiveness, even if by his own measure of raising revenue that 50p rate has been proven to work.

David Hanson (Labour, Delyn)

Indeed. One of the worries that I have, which I think supports what my hon. Friend has said, is that we may end up with a self-fulfilling prophecy. Given what the Chancellor and the Exchequer Secretary have said, individuals will now expect the 50p tax rate to go in 2013. They will make arrangements to move their resources into other areas or pay deferred taxation, using accountancy to achieve that objective. That will ensure a self-fulfilling prophecy over that period, and the issue of not raising revenue that the hon. Member for Staffordshire Moorlands mentioned might come to the fore. I think that the Exchequer Secretary needs to reflect on that strongly.

I was also concerned not to hear from the Exchequer Secretary any detailed comment on whether the Business Secretary has initiated discussions on the mansion tax as part of the review. I go by what I read in the papers, so I would welcome an indication of whether the review will consider other forms of taxation, such as the mansion tax, for those in the richer sectors of our community as part of the income generation that he seeks from the Bill.

I would be grateful if the Exchequer Secretary answered those points, but if he wants to make any response on the other points, I will happily listen to it. Also, I ask him once more why he has not indicated that the OBR is doing the review.

David Gauke (Conservative, South West Hertfordshire)

I answered that.

David Hanson (Labour, Delyn)

Well, I do not think that he answered it to my satisfaction. I fear we are coming to a conclusion on that point. I hope that the Exchequer Secretary will accept the amendment, and I urge my right hon. and hon. Friends to support it.

Roger Gale (Conservative, North Thanet)

The question is—

Nic Dakin rose—

Roger Gale (Conservative, North Thanet)

Order. Conventionally, the Chair will not take an intervention after the person who moved the amendment has wound up. I am afraid that that is standard practice. I have endeavoured to ensure that all hon. Members have had the opportunity to intervene at some length, which is in order, but I must draw the line now. The hon. Gentleman may wish to bear that in mind for the future.

Roger Gale (Conservative, North Thanet)

Members will probably have been made aware through the bush telegraph of the sad news that David Cairns, the hon. Member for Inverclyde, has died. I mention that now because, as is custom and practice, the Speaker will make a statement at the start of the afternoon’s sitting in the Chamber, and I am sure that Members will wish to be present.

David Hanson (Labour, Delyn)

On a point of order, Mr Gale. May I thank you for that announcement? We became aware of the news during the debate, and it was one of the reasons why I was not minded to continue the discussion on the amendment for very long. I served with Mr Cairns in Northern Ireland for two years, and hon. Friends here in the Committee were good friends of his. We mourn his passing, and certainly want to pay tribute to him in due course. He was a very committed Member of the House and served his constituency extremely well, and we are very sad and sorry about his passing.

David Gauke (Conservative, South West Hertfordshire)

Further to that point of order, Mr Gale. May I associate myself and my colleagues on this side of the Committee with the right hon. Member’s remarks? David Cairns was a very popular Member of this House and well-respected by both sides, and our thoughts are with his friends and family at this difficult time.

Roger Gale (Conservative, North Thanet)

The points made by the two Front-Bench spokespeople are a matter of record, and I am sure that their expressions of sorrow and condolence will be shared by all Members.

Before we proceed, for the benefit of Members who have not served on a Committee before, let me make it absolutely plain that the duty of whoever is in the Chair is to protect the interests of Back Benchers as far as possible—we always endeavour to accommodate Members who wish to speak. However, there is a convention that once the mover of an amendment has been called to wind up the debate no further contributions are taken. I say that simply because if Members wish to speak they should rise and make that clear to whoever is in the Chair before the Front-Bench spokesman—from either side, depending on who has moved the amendment—is called. I hope that that is clear, because I would not wish people to feel that they were unable to participate.

Clause 2

David Gauke (Conservative, South West Hertfordshire)

Clause 2 sets the basic rate limit for income tax for the 2011-12 tax year. The limit set this year ensures that the gain from the personal allowance increase for 2011-12 is focused on the low and middle-income taxpayers who need it most, and it is set in such a way that the majority of higher rate taxpayers pay the same amount of tax and national insurance contributions as planned by the previous Government.

The clause reduces the basic rate limit by £2,400 to £35,000 in 2011-12 which, when combined with the £1,000 increase in the personal allowance introduced by clause 3, means that the higher rate tax threshold for 2011-12 is reduced by £1,400 in cash terms, to £42,475. Together with the corresponding adjustments made to keep the national insurance upper earnings and profits limits aligned with the higher rate tax threshold, that means that the majority of higher rate taxpayers pay the same amount as planned by the previous Government.

The coalition Government are committed to creating a fairer tax system that rewards work, with real-terms progress every year towards increasing the personal allowance to £10,000. The £1,000 increase in the personal allowance introduced by clause 3 represents the first step towards that £10,000, and will benefit 23 million individuals, removing more than 800,000 people from income tax altogether. However, we had also to ensure that increasing the personal allowance by £1,000—the largest increase ever—was consistent with bringing the public finances back under control. Accordingly, we have made the adjustment in clause 2 to focus the benefits on people on low and middle incomes—the right decision for a fair and sustainable change.

The overriding priority of the June 2010 Budget was to reduce the fiscal deficit. At a time when we are asking so much of so many, it is right to reward the efforts of people who choose to work by increasing the personal allowance, but equally, it is right to focus the gain from the increased allowance on those who need it most. The change in the basic rate limit does exactly that.

David Hanson (Labour, Delyn)

As the Minister said, clause 2 sets the basic rate limit for income tax at £35,000. Subsection (1) replaces the existing amount of the basic rate limit in section 10(5) of the Income Tax Act 2007, which is £37,400, with the figure of £35,000 for 2011-12. Subsection (2) disapplies the indexation provisions for the basic rate limit for 2011-12 as a whole. As the Committee will know, an individual’s taxable income is charged to tax at the basic rate of tax up to the basic rate limit. The basic rate limit is subject to indexation—an annual increase based on the percentage increase to the retail prices index. Parliament can override indexed amounts through the provisions in the Finance Bill.

The basic rate limit for 2010-11—the year until April of this year—was £37,400. Had that been indexed, it would have become £39,200. Because of clause 2, it is now at £35,000, which means that we have dragged into the higher rate of taxation an increased number of individuals across the board. The clause sets the basic rate limit at £35,000 in 2011-12. That follows the announcement in the June Budget that the basic rate limit would be reduced below the figure in the plans that the coalition Government inherited, in order to ensure that the increase in personal allowances was targeted on basic rate taxpayers. That links to clause 3, which we will discuss shortly.

The reason why I am testing the Minister on this matter is that I want an indication from him not only of the impact on those people who will now be subject to higher rate taxation, but of the implications of that higher rate taxation in relation to a range of other measures in due course. The Institute for Fiscal Studies has estimated that the reduction in the basic rate limit will mean that an additional 750,000 people are dragged into the higher rate tax bracket. I would welcome from the Minister an indication of his assessment of the number of people who are now being put into the higher rate tax bracket who would not have been in it had this change not been forthcoming, because those individuals will pay a higher level of tax and that will have a knock-on effect on a range of other issues, which I will explore in a moment.

Ian Murray (Labour, Edinburgh South)

My right hon. Friend will perhaps go on to talk about this, but one of the key issues that has been raised, certainly with me in my constituency, relates to those individuals who earned £36,000 to £37,000 a year and were in the lower rate tax bracket, but who now, because of this sleight of hand by the Chancellor, have gone into the higher tax bracket and are in danger of losing their child benefit. Could my right hon. Friend comment on that?

David Hanson (Labour, Delyn)

My hon. Friend anticipates the discussions that we intend to have on this clause. The Minister did not really touch on those issues in his introductory remarks. That sleight of hand—that was a useful phrase that my hon. Friend employed—means that whatever number of individuals are brought into the higher tax bracket will be affected in 2012 and 2013 by a range of other measures that apply to people in the higher tax bracket. My hon. Friend mentioned one example—child benefit. Clearly, individuals with children will lose their child benefit in 2013 when the Government remove child benefit from households with a higher rate taxpayer. The Government are not only breaking the universality of child benefit, but ensuring that those individuals who are higher rate tax payers do not receive child benefit. Clause 2 means that a number of people—we have determined that it could be about 750,000, but I would welcome the Minister’s assessment of the number in due course—on relatively modest incomes of £35,000 to £43,000 are being dragged into the higher rate tax bracket and will therefore find themselves subject to the loss of benefits in a range of other areas.

The Minister will know that it is not only child benefit that is affected. Last week on the Floor of the House we discussed clause 35, “Reduction in childcare relief for higher earners”, which effectively reduces the level of child care tax relief for higher earners. Before we agree on the clause, the Minister should examine how many individuals will be affected in other ways, downstream or in other years, by the changes.

As the Government have confirmed, it is estimated that about 160,000 additional households that currently qualify for child benefit will be dragged into paying the higher rate of tax. I accept that a considerable number of households on relatively modest incomes will benefit from the provisions in clause 3 and the higher threshold, but they will then find themselves in the higher tax bracket. In 2013 they will lose benefits such as child benefit, which is essential for child care and child support, particularly in a single-parent household.

I would like to tease out the Minister’s assessment of what impact those changes will have on the wider level of benefits downstream in 2012 and 2013. Will he give the Committee some indication of what modelling has been done and what savings have been made? What will the impact of the changes be for those people who currently receive child benefit, and who perhaps thought that they would continue to receive it even when they heard in the press that it was being removed for higher earners? Some of those people will now be pulled into the higher earning category, and they will lose child benefit and child care vouchers and tax relief accordingly.

The Treasury has estimated that 20,000 additional people in single-income families will pay the higher rate of tax from April 2011, and 15,000 from April 2012. It is important for the Minister to give the Committee his assessment of the impact of the legislation, particularly with regard to single people. The clause will bring additional people into the higher-rate tax bracket, and I want to know whether an assessment of the measure has been made, including a breakdown of how many single people and couples will fall into that extra category, along the lines of the Treasury figures. What is the Minister’s assessment of how the changes in clause 2 will affect people in 2013? There will be those who believe that they are paying the lower rate of taxation but who, if clause 2 is agreed, will find themselves paying the higher rate. In due course—in two years’ time—they will find that they also lose child benefit.

In my view, a modest income of between £35,000 and £40,000 a year might well be earned by a junior police officer, a junior teacher or a junior local government worker. There will certainly be people in the private sector on relatively modest incomes who find themselves dragged into the higher rate tax bracket because of the measures in the clause, and that will lead them to lose child benefit in 2013. Has the Minister had cross-governmental discussions with colleagues from the Department for Work and Pensions or the Department for Business, Innovation and Skills about the impact of the legislation on potential employment opportunities for single parents, both male and female? The marginal difference between the higher rate of tax and the loss of child benefit may mean that people are not able to afford the child care that could keep a single person at work in the community, particularly in metropolitan areas such as London.

Ian Mearns (Labour, Gateshead)

The point outlined by my right hon. Friend will affect tens of thousands of households up and down the country and appears to be more than mere prestidigitation on behalf of Ministers. It will be a devastating blow for the many people for whom we have coined the phrase “the squeezed middle”. It will affect the potential income of families, particularly those with children, who will also lose their child benefit. The measure is stunning, and I apologise to my hon. Friends, because I had not spotted it coming.

David Hanson (Labour, Delyn)

It is key that the Minister assures the Committee that he can give us details on the numbers of people who will lose out in future benefits, such as child benefit, because of the measures. If the Committee accepts the clause, we will ensure that a large number of people are brought into higher rate tax. At some point in future, therefore, those people will lose access to child benefit and, in particular, to child care vouchers.

Mr Gauke indicated dissent.

David Hanson (Labour, Delyn)

The Minister shakes his head. Perhaps he wants to intervene to explain how people who will be new higher rate taxpayers under the clause will not lose out in 2013. If he can explain that, I shall be very happy.

David Gauke (Conservative, South West Hertfordshire)

I shall explain why I am shaking my head by returning to clause 35 and the child care vouchers, which we debated last week. To clarify, under the policy that is implemented by clause 35—which was introduced, after all, by the Opposition— higher rate taxpayers will get, essentially, the same tax relief as basic rate taxpayers. Without the changes under clause 35, higher rate taxpayers would continue to get greater tax relief than basic rate taxpayers.

David Hanson (Labour, Delyn)

I accept that. We touched on that matter in passing and the Minister knows that we supported clause 35 last week and before that. Can he answer the question on child benefit? He has an opportunity to do so now. How many people will lose child benefit because of the impact of clause 2? Can he tell the Committee now how many people in all our constituencies will wake up on a date in 2013 and find themselves no longer receiving child benefit?

David Gauke (Conservative, South West Hertfordshire)

I will respond to the right hon. Gentleman—

David Hanson (Labour, Delyn)

Oh, the Minister will respond in due course. It is worth while his doing that, because people fear that the clause, as portrayed by him, is very much linked to clause 3, which we will discuss shortly. Clause 3 raises the level of personal allowance to approximately £7,500, with an objective, set in the coalition document, to raise it to the Liberal Democrats’ aspiration of approximately £10,000.

In his introductory remarks on clause 2, the Minister said that the increase in personal allowance has been paid for, in part, by the change in the allowance in clause 2—it has helped to support the funding of clause 3. Does he expect to extend the provisions in clause 2 still further between now and 2013? Does he expect to include more people in the higher rate tax bracket to achieve the aspiration in clause 3, and to achieve the future aspirations to the £10,000 limit? We will debate those matters in detail when we discuss clause 3, but they link significantly to my points on the impact of clause 2.

To conclude, I want the Minister to tell us two things. First, what assessment has he made of the number of individuals who will be deemed to be higher rate taxpayers because of clause 2? Secondly, what assessment has he made of that higher rate taxpayer inclusion on people’s ability to access benefits, such as child benefit, in 2012 and 2013? He needs to make clear to the Committee the impact of all those measures, because today we are simply faced with clause 2, which makes no mention of the fact that higher rate taxpayers will lose child benefit in 2013. It makes no mention of the arrangements for working families tax credit and other benefits, which will change as a result of the higher rate taxpayer status in 2013.

It is particularly important for us to hear the Minister’s assessment of how many women the measure will affect. How many women, many of whom depend on child benefit, will be brought into the higher tax rate? Within that, how many single women will be affected by the change in clause 2? He will find that individuals will lose out on future benefits because of the change. It is incumbent on him to talk about not just the clause, but its knock-on impact on others in society as a whole.

David Gauke (Conservative, South West Hertfordshire)

Let me see what I can say in response to the questions asked by the right hon. Gentleman. Clauses 2 and 3 will ensure that the benefit from the increase in the personal allowance is focused on those who pay basic rate income tax. To be fair to him, he did not fall into the trap, as some have, of saying that there will be an income tax increase for those paying higher rate income tax, as the reduction in the basic rate merely counteracts the benefit that would otherwise apply to the increase in the personal allowance.

The right hon. Gentleman asked what the number of losers will be. To put it more precisely, he asked how many people will become higher rate taxpayers as a consequence of a reduction in the basic rate limit. Compared with the plans that we inherited, an additional 385,000 people will become higher rate taxpayers in 2011-12. Around two thirds of them will be better off under the overall approach because they will experience the full benefits of the increase in the personal allowance without experiencing the full loss from the reduction in the basic rate limit. He may be interested to know that I am able to provide a regional breakdown of those numbers. I will not give that to the Committee on this occasion, but the information is available if he wants it.

Perhaps I can provide some clarity on one or two of the comments that suggested that people earning £36,000 will start paying the higher rate of tax. That is not how the income tax system works. Individuals start paying the higher rate from £42,475. That threshold represents the sum of the personal allowance, which is £7,475, and the basic rate limit of £35,000. We have also announced our plans for the following year. As we want to focus on encouraging work across the piece, and we do not need to keep the measure limited to basic rate taxpayers, we are not reducing the basic rate limit in the same way, so we will not bring more people into the higher tax rate.

I know that you, Mr Gale, will not want us to engage in a lengthy debate on child benefit. The right hon. Gentleman asked a number of factual questions, not all of which I am in a position to answer. However, at a time when we have to make difficult decisions, it is not fair for people on low incomes to continue subsidising the child benefit of those earning much more. As I said, it is right to focus the gains of the personal allowance increase for 2011-12 on low and middle-income taxpayers. The changes to personal tax thresholds announced in the June 2010 Budget mean that the majority of higher rate taxpayers will pay the same amount of tax and national insurance contributions as planned by the previous Government.

The right hon. Gentleman is asking me for a considerable breakdown. We are some way away from the changes in child benefit. I am not sure that it helps hugely to give figures here about changes in the current personal rate limit in order to assess the impact that they will have in January 2013. I do not intend to be detained on this particular subject.

David Hanson (Labour, Delyn)

Does the Exchequer Secretary not accept that this is an important point? The Committee needs to know what impact these proposals will have before it can approve clause 2 today. The impact will be that a number of people—I would welcome clarification on the number—will be brought into the higher rate of tax and, therefore, under current Government policies will lose child benefit in 2013. It is important that the Committee sees this figure before it considers accepting the clause. It is an implication of the clause that has not been considered before our discussion today.

David Gauke (Conservative, South West Hertfordshire)

The 2012 Finance Bill will put in place the relevant thresholds that will apply in January 2013. We still have to legislate on the child benefit changes, and there will be plenty of opportunity to debate their impact later. Additional people will be paying this tax as a consequence of the changes. It is estimated that the figure is 385,000, two thirds of whom will still be gaining from the overall package of changes in income tax. Increasing the personal allowance demonstrates the Government’s commitment to make sure that work pays and to reward those who choose to work.

David Hanson (Labour, Delyn)

In that case, I will carry on for a moment. We also need to know another key fact, which has not been touched on by the Minister. How many single people do the Treasury estimate will fall into the higher rate tax band as a result of the changes under clause 2? A single person who falls into the higher rate tax band under the proposals in clause 2 may not qualify for child benefit in 2013. Two individuals with a joint income that is £25,000 more than that of the single person will, under the current Government proposals, receive child benefit in 2013. At the moment, only higher rate taxpayers are losing out under the proposals on child benefit. I accept that child benefit is a separate issue, but there is a causal link. If an individual becomes a higher taxpayer, they will, under Government proposals, lose child benefit. If need be, we will continue until 1 o’clock and the Minister can reflect on this in the three hours between now and the next sitting. It is incumbent on him to bring back to this Committee his assessment of the number of single people who will be paying a higher rate of tax as a result of clause 2 and who will be losing child benefit under the proposals for 2013. We need to know that figure before we can agree on this clause.

Stella Creasy rose—

Roger Gale (Conservative, North Thanet)

Order. For the benefit of Hansard and the record, I was not entirely clear whether the Exchequer Secretary had sat down and this was an intervention.

David Gauke (Conservative, South West Hertfordshire)

I had sat down.

Stella Creasy (Labour, Walthamstow)

I thank my right hon. Friend the Member for Delyn for giving way. Do his points not raise further concerns about the different measures on household income and individual income? I am thinking of some of the problems that we are seeing both in this Bill and in the child benefit proposals. I notice a recurring pattern here. In a number of Committees that I have sat on with my right hon. Friend and the Exchequer Secretary, there has not been enough data effectively to scrutinise some of these concerns. I hope that the Exchequer Secretary will listen to my right hon. Friend’s points and acknowledge the need to provide better information about the distinction between measures affecting households and those affecting individual income —there is also London weighting to consider—because of the consequences that will be felt by many households and individuals across the country as a result.

David Hanson (Labour, Delyn)

Well—

David Hanson (Labour, Delyn)

Good afternoon, Mr Hood, and welcome to the Chair for this afternoon’s sitting. You will, undoubtedly, chair future sittings and it is a pleasure to serve under your chairmanship and that of your co-Chair, Mr Gale.

This morning, we discussed clause 2, which changes the basic rate limit from £37,400 in 2010-11 to £35,000 for 2011-12. The key point is that, had that been indexed for 2011-12, the figure would have been, in my estimation, about £39,200 for the basic rate. There is a difference, therefore, between the current basic rate, proposed by clause 2, of £35,000 and the potential index rate of £39,200. Before we finished this morning, the purpose of our discussion was to test the Minister on the impact of that change on those taxpayers who will now fall into the higher rate—there will be several of them—as well as the knock-on effect in two years’ time, in 2013, on the number of individuals entering the higher tax rate. They will have to—[Interruption.]

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. I am sorry if the right hon. Gentleman is interrupting a discussion on the Government Benches, but I would hope that the Government would listen to his speech.

David Hanson (Labour, Delyn)

I am grateful for your assistance, Mr Hood. In fairness to the Ministers, I was summarising our discussion before our break at 1 o’clock, but I appreciate your support.

Jimmy Hood (Labour, Lanark and Hamilton East)

The right hon. Gentleman is wrong if he assumes that the purpose of my interjection was to support him—far from it. I am insisting that Standing Orders are adhered to and that, when Members are on their feet and addressing the Committee, others—not just those on the Government Benches—do not have conversations. He should not assume that I was supporting him. We should stick to the Standing Orders.

David Hanson (Labour, Delyn)

I am grateful, Mr Hood. I did not in any way mean political support, but support for the Committee. I think that I should quit while I am ahead, because I would not wish to cross you on such matters so early in your chairmanship.

Before our break, I mentioned two issues that the Minister needed to reflect upon, and I would now welcome his view on them. What is his assessment of the number of people who will now enter the higher tax rate as a result of the proposed change to drop to £35,000? We have had some estimates and I would welcome his confirmation of the situation. That leads me to the impact of the tax changes in two years’ time on things such as child benefit for individuals who now pay a higher tax rate as a result of the clause. How many of the new entrants to the higher tax rate are single parents? Has the Minister made an estimate of the number? Some individuals who now fall into the higher tax rate will be denied universal child benefit in 2013, because they have joined that higher tax rate, but others who earn a lower rate of pay but who are in a partnership with someone who may well earn more money will not be removed from universal child benefit in 2013, because they will be taxed as an individual and not as part of a collective partnership.

I and my hon. Friends believe in the principle of the universality of child benefit and we will stick to that principle during the course of this Parliament. Before we discuss clause 2 and potentially take a vote on it, we need some clarity from the Minister about its impact downstream, especially on people who paid into the system believing that they would receive benefits, such as child benefit, at a later stage and who believed—until this provision was produced in the Budget—that they were lower rate taxpayers and not higher rate taxpayers, but who now find themselves in the higher tax band.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Perhaps I can illustrate the point that my right hon. Friend is making by giving the example of a constituent who contacted me. She earns a sum that currently puts her in the higher tax band. Her husband is terminally ill and they have a small child, so she is set to lose her child benefit at the point that she most desperately needs it. She finds that to be an unbearable burden on her family. I am sure that we sympathise with her for the position that she is in, as she does not regard herself as a wealthy woman and she is now responsible for providing the income for her whole family.

David Hanson (Labour, Delyn)

My hon. Friend makes a very valuable point about the impact that the child benefit cut will have, in due course, on higher rate taxpayers. There are people today who would not have been in the previous higher tax band of £37,400. Because there has been a reduction to £35,000, those individuals are now in the higher tax band. They could well be single parents, or they could be people who, in due course, will have additional parental responsibilities because of bereavement. They are individuals who at one point were not in the higher tax band but now, because of clause 2, they will be in that band.

Can the Minister say how many of those individuals there are? What assessment has he made to establish how many of them are single parents, who will face an even heavier burden than other people when they lose their child benefit because of this change? How many people will lose other benefits because of the proposals in clause 2? The level for the higher tax band is set at £37,400, as opposed to £35,000. That sum of £37,400 is a significant amount of money but, even with the allowances on top, it is not a king’s ransom. It is an average income for many people in society today. That £2,500 loss, from £37,400, plus the loss of indexation, which means a total loss of around £4,200—bringing more people into the higher tax band—means that there is a real squeezed middle who are paying for the Government’s deficit choices. When we debated the last clause we talked about the 50p tax rate, which is being removed from people who earn a significantly higher level of income than those who are being squeezed under the proposals that are before us today.

Ian Murray (Labour, Edinburgh South)

My right hon. Friend makes a vital point. In considering clause 1, we discussed at length how the 50p tax rate might be removed in 2013. That would be around the same time that all the new thresholds will kick in, so that people lose their child benefit. So the Government will be saying to the highest earners, “Here’s a tax cut”, while they are saying to everyone else, “We are taking more money from you”. Does my right hon. Friend think that that is really the way that the Government should be working?

David Hanson (Labour, Delyn)

My hon. Friend makes exactly the point that we spent some time this morning—around two and a quarter hours—discussing in relation to clause 1 and the amendment to it that we tabled, as well as the point that I am making now. Although the two changes will never equate and the money raised from one measure will not equate to the money forgone in another measure, there is a real change of policy whereby people on a higher level of income are taxed at a lower level and people on middle incomes are being squeezed. They will not only lose more in taxation, because of the changes in clause 2, but they will not qualify for benefits, such as child benefit, in 2013. We in Labour support universal child benefit.

There are some estimates from Government regional offices, quoted in Hansard on 30 March, that indicate the number of people who will enter the higher tax band this year compared to the number for last year, for each of the regions of the UK. Those estimates quoted in Hansard come from a parliamentary answer. Of those people, how many are entering the higher tax band because of rising levels of salary and how many are entering it because of the reduced levels of allowance that we are discussing today? For example, the figures quoted in Hansard on 30 March for the north-east region will be of interest to many Members in the Committee. Last year in the north-east, 80,000 people were in the higher tax band and this year there will be 100,000 people in the higher tax band, an increase of 20,000. We need some indication from the Minister about how many of those changes are because of rising salary levels, and how many are due to the fall in the allowance set out in clause 2. My hon. Friends the Members for Gateshead, for Middlesbrough South and East Cleveland and for Houghton and Sunderland South will take an interest in that figure because we need to know the impact of the change.

Figures for the north-west show 59,000 more people in the higher tax band in 2010-11. That may be because of increasing salary levels in Wirral South, but it may also be that some people will have moved into that higher rate tax band because of the changes proposed in the legislation. I could give a range of figures, but it is estimated that a total of 600,000 extra people across the country will move into the higher tax band, including 90,000 in London and the constituency of my hon. Friend the Member for Walthamstow. There will be 47,000 such people in Scotland and the constituencies of my hon. Friends, the Members for Edinburgh South and for Airdrie and Shotts. Were he present, the hon. Member for East Londonderry (Mr Campbell) would have discovered that in Northern Ireland an extra 11,000 people will be going into the higher tax band.

In conclusion, we demand a greater level of clarity on the two big issues of how many people will move into the higher tax band because of the changes to the legislation, and how many of those will be disadvantaged because of the changes to child benefit. All those people will be affected, but we need a breakdown of how many single parents and others will be disadvantaged in real terms, so that we can see the impact of the clause before voting for or against it.

David Gauke (Conservative, South West Hertfordshire)

First, may I say what a great pleasure it is to serve under your chairmanship in a Finance Bill Committee once again, Mr Hood? It is not a new experience for me, but it is a pleasant one none the less. I will try to address some of the concerns raised by the right hon. Member for Delyn. To some extent, we went around this track this morning, and I have already tried to respond to some of his points.

The right hon. Gentleman highlights the number of people who will be brought into the higher rate tax bracket as a consequence of clause 2, compared with what would have happened had the basic rate limit been uprated along with RPI. It is a perfectly fair question, and I am sure the right hon. Gentleman would not have wanted to give the impression that the previous Government intended to uprate those limits by RPI—they planned to freeze the basic rate limits and increase the personal allowance by less than indexation, as announced in the 2008 pre-Budget report. As a consequence, the most relevant numbers are those that compare the plans we inherited with what we have done. As I made clear this morning, the basic rate limit has been reduced rather than increased to ensure that the benefit of the increase in the personal allowance goes to basic rate taxpayers, not to those who pay the higher rate. That difference means that there will be 385,000 extra higher rate taxpayers, compared with the plans of the previous Government.

The right hon. Gentleman—as I thought he might—had some regional numbers. I fear that I may have tempted him down that line of argument when I said that I could provide him with regional figures for the 385,000 people who are now in the higher rate tax band but would not have been under the plans of the previous Government. The numbers are 12,000 for the north-east, which the right hon. Gentleman mentioned; 58,000 for London; 8,000 for Northern Ireland; and 38,000 for the north-west. Those were the areas that he particularly highlighted but I can provide him with the full figures. The point I made this morning is that two thirds of those people would still gain from the personal tax package. They would be better off because they would experience the full benefit of the personal allowance increase without experiencing the full loss of the reduction in the basic rate limit.

The second matter on which the right hon. Gentleman spoke was the inter-relationship with child benefit. Again, I made the point this morning that that is still 18 months or so away. Trying to consider these numbers at that level of detail will probably not be terribly helpful or accurate. However, as we announced at the time of the spending review, the withdrawal of child benefit from families including a higher rate taxpayer will affect about 1.5 million families. That estimate included the impact of the rise of the personal allowance and the consequent reduction in the higher rate threshold introduced under the Bill, which was announced in June’s emergency Budget by my right hon. Friend the Chancellor. It was therefore part of the baseline on which the child benefit changes were assessed. The reduction in the higher rate threshold in April 2011 to £42,475 does not therefore create any losers in addition to the 1.5 million already announced as a result of the withdrawal of child benefit from families with a higher rate taxpayer.

Bill Esterson (Labour, Sefton Central)

The Minister rightly sets out the number of families affected by the changes in the higher rate threshold and child benefit. He seems to accept that a large number of people will lose out from the changes, but when we add the VAT increase that took place at the beginning of January, he should accept that middle-income families are paying much more than they did before the changes made by the Government. As a result, families on not huge sums of money are being made to pay a big contribution towards paying off the deficit.

David Gauke (Conservative, South West Hertfordshire)

The last words that the hon. Gentleman spoke, about paying off the deficit, or reducing the deficit, are important. We have to reduce the deficit. Choices need to be taken to achieve that, but we cannot get away from the fact that we have to reduce it. Only 13% of earners are higher rate taxpayers. All sections of society have to make a contribution, but it should be clear to Opposition Members that if we say that higher rate earners are not to play a role, it will have to be picked up by someone else.

The Government are determined to do it in as fair a way as possible; we should not target the poor, and believe that those with the broadest shoulders should bear the greatest burden. Yes, it involves making tough decisions. Nobody wanted to have to make the decisions on child benefit that we did, but we have to reduce the deficit. It is easy for the Opposition to say that they are against this or against that—against any type of proposal —because their constituents will understandably be upset about difficult decisions that have an impact on them. None the less, a sensible Government have to take those tough decisions, and I regret the fact that we have not received the support of the Opposition, which I believe we should receive.

Ian Mearns (Labour, Gateshead)

Does the Minister accept that the consolidated impact on some households of the benefit change and the change in tax allowance could be as much as £1,700 a year?

David Gauke (Conservative, South West Hertfordshire)

I do not wish to downplay the significance of what we have to do to reduce the deficit, but it is an indication of the size of the problem and the size of the deficit that we inherited. However, it might be worth pointing out the cumulative impact of the tax, tax credit and benefit reforms introduced in the last Budget and earlier Budgets by both Governments but being implemented by this Government. The top decile will see the largest losses. I am not sure that Members on either side of the Committee would think that that was wrong, but it involved some tough decisions, and some people being hit hard.

We must remember, when considering clause 2, that the reduction in the basic rate limit needs to be looked at alongside clause 3 and the personal allowance increase. We have made significant steps to take a large number of people out of income tax to reduce the income tax liability for some 23 million individuals who are basic rate taxpayers. That is something of which the Government are proud.

Clause 3

David Hanson (Labour, Delyn)

I am grateful for the opportunity to discuss clause 3, and to put it into the context of the debate on the Budget and incomes. Clause 3 sets the personal allowance for those aged under 65 at £7,475 for 2011-12. That is a rise from £6,475 in 2010-11. Subsection (2) disapplies the indexation provisions for the allowance for 2011-12.

Individuals are entitled to a personal allowance for income tax that depends on an individual’s age and income. Income tax personal allowances are also subject to indexation—an annual increase based on the percentage increase to the retail price index. Parliament can override those amounts, and provisions in the Finance Bill can do that. The clause allows for a rise from £6,475 in 2010-11 to £7,475 in 2011-12. I need not remind the Committee that that benefits everybody who is a taxpayer, no matter what their level of income. It benefits those on higher rate taxation and those on lower rate taxation. It does not benefit those individuals who pay no taxation at all, such as pensioners or the unemployed.

The increase in allowance of approximately £1,000 was set out in the June Budget, which also set out the fact that the personal allowance would increase by a further £630 in 2012-13, with an equivalent £630 reduction in the basic rate limit to leave higher rate thresholds unchanged. Those measures will come into effect in the next financial year and are not included directly in these clauses. It is an estimate that the Treasury has made. Will the Minister confirm the estimate of the number of individuals who will benefit from those changes? We believe that approximately 880,000 people will be taken out of income tax altogether, but I would be grateful if he confirmed his assessment and understanding of the number of people who are taken out of income tax as a result of the proposals in clause 3.

It has been claimed that 60% of those who are taken out of tax will be women. I would welcome the Minister’s assessment of that in relation to clause 3. In addition, my understanding is that HMRC estimates that approximately 23 million basic rate taxpayers will gain, on average, by around £117 per annum. However, I would like to test the Minister. I nod my head to the Liberal Democrat members of the Committee— the hon. Members for Brecon and Radnorshire and for Bristol West—who pressed hard for that trajectory in the coalition agreement. The price of that has been their support of some very unpalatable Government measures that have been introduced elsewhere. Clause 2 proposes that the allowance should rise to £7,475 by 2011-12. The hon. Members for Bristol West and for Brecon and Radnorshire would like to see the personal allowance rise to £10,000 by the next election under the coalition deal. I would be interested if the Minister gave some indication of its trajectory, not only for this year under clause 3 but for future years towards the objectives of Liberal Democrat Members.

I would also welcome some indication from the Minister of the net impact of all this. The provisions in clause 3 cannot be taken in isolation. The Lord giveth and the Lord taketh away. The Government have increased the personal allowance this year from £6,000-odd to £7,475, which is of great benefit to those who pay income tax. However, we also have to face a rise in VAT, a freeze in child benefit and cuts in working family tax. Will the Minister explain to the Committee how those feature across the board, and what impact they will have on the benefits of the clause, which he will undoubtedly trumpet?

Paul Blomfield (Labour, Sheffield Central)

Does my right hon. Friend agree that the narrative developed for taking this position on personal allowances was that it would help the very poorest? However, the Institute for Fiscal Studies pointed out that in 2009-10 only 62% of the adult population had a high enough income to pay income tax. It went on to say that these tax cuts are not targeted well enough to help the poorest.

David Hanson (Labour, Delyn)

My hon. Friend makes a valid point. In fact, he pre-empts what I was about to say. I confirm what he said. The Institute for Fiscal Studies said that in 2009-10, only 62% of the adult population had a high enough income to pay income tax.

In supporting the clause, and effectively supporting the forgoing of taxation that would otherwise have been raised, we need to assess not only the provisions in clause 3 but the impact of other changes on the community at large. For 38% of the adult population who do not pay income tax, there are VAT on rises on petrol, on white goods and on other goods across the board, there are changes in pension levels resulting from changed calculations, and possible changes being made downstream to the winter fuel allowance. Many of these changes will impact on individual incomes, and clause 3 is being promoted with the strong support of the Liberal Democrats as a way to take people out of tax. Clause 3 may take people out of some income tax, but it does not take them out of taxation; 2.5% on VAT is just as important to families as being lifted out of some portion of income tax by the proposals before the Committee.

Ian Murray (Labour, Edinburgh South)

The Red Book and the documents produced by the Office for Budget Responsibility clearly show that the Government are giving with one hand, with the increase in the tax allowance, but that with the other they are taking away with a host of other taxes. Over time, the Government’s figures for the reindexation of thresholds from RPI to CPI show that although they will be giving away £1.2 billion they will take back £1 billion. Over time, the thresholds will be eroded.

David Hanson (Labour, Delyn)

My hon. Friend makes a sound point.

I simply ask the Minister to explain the impact of clause 3, and on whom it will impact. I also ask him to consider clause 3 in a wider context. Will it make a difference to the tax take for society at large, and will the Government’s tax proposals make an overall difference for individuals in our community? As my hon. Friend the Member for Edinburgh South says, we need to consider not only the proposed changes to the indexation of thresholds; we also need to consider the clause in the light of all the other tax changes before agreeing to support it. It is a benefit to those who pay tax, but it is being paid for by sleight of hand in other ways, and people feel that they are having to pay through indirect taxation. I would welcome the Minister’s views on that, as well as his overall view of the net impact not just of these tax changes, but others on individuals who will be affected by the changes in clause 3.

Is the Minister committed—this will be of particular interest to the hon. Members for Bristol West and for Brecon and Radnorshire—to meet the trajectory towards £10,000 by the end of this Parliament? Is it a one-off, in which case we can support it—or not, depending on our view of the clause—or is it part of a strategy to continue to raise thresholds over the next two to three years to the level requested by the Liberal Democrat coalition partners?

Ian Mearns (Labour, Gateshead)

I am interested in teasing out what the Government’s attitude will be to national insurance down the line. There are proposals on the table to consolidate national insurance rates with general taxation rates. If that were to happen, people on pensions, who have a pensionable income that would be taxable, would then become liable to a part of the tax burden that they do not have to pay at present. That, in conjunction with the future progress of the proposals under discussion, would be interesting.

David Hanson (Labour, Delyn)

I am sure that the Minister will comment on that point and the time scale for the amalgamation of tax and national insurance. My key point relates to the Liberal Democrat proposal for a trajectory towards a £10,000 personal allowance. I do not want to test your patience by returning to clause 2, Mr Hood, but it raised the basic rate limit to ensure that we included more people in the higher rate of taxation. Clauses 2 and 3 are intrinsically linked by that provision. By raising the level, does the Minister see a trajectory over the next three to four years towards the £10,000 that the Liberal Democrats wish to see, or will it be ruled out by further higher rate threshold reductions, which will mean that other individuals, who are on a moderate income in the £35,000 to £43,000 tax bracket, will pay for it?

On clause 3, what is the Government’s long-term strategy on tax allowances? Can the Minister give the Committee an overall figure in relation to the tax and benefit changes, so that we can assess what the clause means in relation to value added tax and other changes being made by this Government?

David Gauke (Conservative, South West Hertfordshire)

Clause 3 supports the Government’s aim of creating a fairer tax system by rewarding the efforts of those who choose to work and by supporting millions of taxpayers on low and middle incomes. As we have heard, it increases the personal allowance by £1,000 in cash terms, from £6,475 in 2010-11 to £7,475 in 2011-12. Compared with plans inherited from the previous Government, that will lift more than 800,000 individuals out of tax altogether, and it will mean that 23 million basic rate taxpayers have an average real-terms gain of £160 a year, equivalent to £200 a year on average in cash terms.

David Hanson (Labour, Delyn)

Will the Minister give way?

David Gauke (Conservative, South West Hertfordshire)

I will provide clarification during the course of my remarks, if the right hon. Gentleman is prepared to bear with me. The clause represents the first step towards meeting our long-term objective of increasing the personal allowance to £10,000 which, as the right hon. Gentleman has pointed out, was a Liberal Democrat policy at the general election and one that was signed up to in the coalition agreement. The agreement notes that we are committed to making real-terms increases towards the £10,000 target ever year. Those increases will be announced as part of the Budget process. Clearly, we are already making substantial progress towards meeting that target. The personal allowance increases announced to date will take 1.1 million people out of tax altogether. Including the announcements in the June 2010 Budget and the March 2011 Budget, 23 million basic rate taxpayers will gain.

In the recent Budget, the Chancellor announced the next step. The clause relates to 2011-12, but from 2012-13 we will see an increase of £630 in the personal allowance. As I said, in total, the Government’s action will take 1.1 million individuals out of tax from April 2012. Compared with the previous Government’s plans, 23 million basic rate taxpayers will benefit by an average of £210 a year in real terms.

Ian Murray (Labour, Edinburgh South)

I appreciate the complexity of this particular issue. The Minister mentioned 23 million taxpayers, and he said that 1.1 million taxpayers will be taken out of the tax system altogether. However, he is talking about that in cash terms, whereas the indexation of the 2010-11 figure of £6,475 would have been £310. Is that figure of 1.1 million people on top of that, or are we talking about a £1,000 cash-terms increase rather than the £690 figure that it would be if we take out the indexation for the particular year?

David Gauke (Conservative, South West Hertfordshire)

This is compared with the plans that we inherited from the previous Government. Another way of looking at it is to say that if we had stuck with the plans we inherited, an additional 800,000 individuals would be paying income tax. I hope that is helpful to the hon. Gentleman.

In fact, may I be slightly more precise about the numbers? The right hon. Member for Delyn asked a perfectly fair question when he said that he understood that the number of people who would be taken out of tax was 880,000. That was the assessment that we made in the June 2010 Budget. Because September’s inflation was higher than forecast, the real-terms increase in the personal allowance was less than it would have been previously. As a result, our latest estimate is that 830,000 individuals will be taken out of tax in 2011-12, compared with the figure under the plans that we inherited.

David Hanson (Labour, Delyn)

I am grateful to the Minister for those revised figures, which are welcome. For the record, they show that 50,000 fewer individuals will be taken out of tax. However, the Minister should also clarify that we are talking about individuals who are being taken out of income tax, because tax is still levied on all those individuals through VAT and other measures that he is aware of.

David Gauke (Conservative, South West Hertfordshire)

Yes, the right hon. Gentleman is right. Those individuals are being taken out of income tax. However, I want to respond to the point made by the hon. Member for Sheffield Central. He asked whether these people are really the poorest people. They are low earners, earning roughly between £6,500 and £7,500. They are striving in difficult circumstances, and it is right that we should seek to give them help. They should be encouraged and I imagine that that approach will have the support of all members of the Committee.

I was asked about the percentage of people being taken out of income tax who are female. That percentage continues to be 60%.

Ian Mearns (Labour, Gateshead)

Has there been any estimate of the additional tax burden that those same individuals will bear as a result of the increase in VAT? Do you have some figures on that, so that we can do a real comparison of the real-term effects on those people’s livelihoods?

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. I do not have any figures, but I am sure that the Minister has.

Ian Mearns (Labour, Gateshead)

I beg your pardon, Mr Hood.

David Gauke (Conservative, South West Hertfordshire)

I was looking to you, Mr Hood, to help me.

I will attempt to answer the hon. Gentleman. As I have said a number of times already in our debates, we face a very difficult fiscal situation and we need to make tough decisions. If we look at the accumulative impact of the tax, tax credit and benefit reforms introduced by the Budget, and at previous fiscal events, we will see, as I said earlier, that the top decile has the largest losses. That is the case across the income distribution, in cash terms and as a proportion of net income. The same results apply across the expenditure distribution. When we also factor in public service changes, the top 20% of households will make the greatest contribution towards reducing the deficit, because a percentage of their income benefits in kind from public services. The Government are trying hard to ensure that we do this fiscal consolidation in as fair a way as possible.

The hon. Member for Gateshead raised the issue of bringing together national insurance contributions and income tax. The Chancellor made a statement that we are looking at the operation of those two revenue sources to see whether there is a way of improving them and operating them together. However, he also made it absolutely clear that the two taxes would continue to exist and that national insurance contributions would not be levied on over-65s or on any other sources of income, such as savings and dividends. I want to make that clear in case Members have people visit their constituency surgeries concerned that they are about to be hit by a significant increase in tax because they believe that national insurance contributions are going to be levied on pensioners’ incomes. That is not the Government’s intention and I am sure that all hon. Members will provide appropriate reassurance.

Ian Mearns (Labour, Gateshead)

I am grateful to the Minister for that, but will he go further and include occupational pensions?

David Gauke (Conservative, South West Hertfordshire)

Yes, that is also part of the plan. We do not intend to extend national insurance contributions to additional sources of income, so I can provide that reassurance.

The hon. Member for Edinburgh South made a point about the indexation of tax increases and the argument that, somehow, the personal allowance increase will be taken away by changes to indexation. Across this Parliament, the combined effect of personal allowance increases this April and next April will be worth significantly more than any losses from the switch to CPI. We also have to bear in mind that there will be further significant progress in future years and Budgets towards our target of a £10,000 personal allowance. The costs for future above-RPI increases in the personal allowance are not included in that calculation. I hope that that provides reassurance.

In conclusion, this is a very worthwhile step. We are making significant progress in helping a lot of low earners. As I said, 23 million people in this country will benefit from the increase at a time when we have to make difficult choices. We do not deny that, but we are providing support to those people who are struggling, getting out to work and putting in the effort. It is unfair that people who earn relatively small amounts of money should be caught up in the income tax system. The clause enables us to reduce that pressure and take substantial steps to help those people, and I hope that it will stand part of the Bill.

David Hanson (Labour, Delyn)

I want to put to rest some myths. This change benefits low earners, but it also benefits everybody in this room. It benefits high earners. It benefits everybody.

David Gauke (Conservative, South West Hertfordshire)

That is not the case. As the right hon. Gentleman made clear earlier, clause 3 is intrinsically linked to clause 2, which reduces the basic rate limit. That means that those of us who are higher rate earners, including all members of this Committee, will not benefit from the personal allowance increase set out in clause 3. It is targeted at basic rate taxpayers only.

David Hanson (Labour, Delyn)

I accept what the Minister says, but the measure effectively benefits people other than those on low incomes. The people who will benefit from the legislation are not those earning £6,000 or £7,000 but have higher incomes. The increase in the personal allowance is offset by the rise in VAT and other taxation measures across the board that have been brought forward by the Minister in other legislation.

Bill Esterson (Labour, Sefton Central)

The other point that my right hon. Friend might come to concerns the link between clauses 2 and 3. Although low-income earners will benefit from clause 3, which is important to help people out of tax, for members of the Committee and anyone who earns more than the higher rate tax threshold, the link between clauses 2 and 3 will have no effect because they will not lose out through the changes in clause 2. The measure affects many people, but the only losers are those at the threshold of the measures in clause 2. It is important to recognise that that group in the middle is disproportionately affected by the legislation.

David Hanson (Labour, Delyn)

In my view, the measures we are discussing will impact strongly on people in the middle income group. We are not, however, going to oppose clause 3 today.

Stephen Williams (Liberal Democrat, Bristol West)

The right hon. Gentleman seems to be getting confused, as are some of his colleagues, about tax bands, average earnings and the squeezed middle, and he seems to be having some problem with his definitions. Average earnings in our country are £23,348—that is in the private sector, which is lower than the public sector. We are talking about a higher rate tax band that starts at £43,000. That does not affect the squeezed middle.

David Hanson (Labour, Delyn)

I am sure that many people in the hon. Gentleman’s constituency will be very interested in what he has said. My point is that the changes in clauses 2 and 3 should not be taken in isolation from each other or other changes made to taxation. The savings that people will make through the higher threshold will be offset by other changes to taxation, although that has not been mentioned in detail by the Minister.

Those changes include the increase in value added tax, to name but one—the hon. Gentleman stood in the election on a platform of not raising VAT, but he has voted to raise it, which may not help his bid for re-election. In part, he has achieved his objective of a trajectory towards a £10,000 threshold, but at the same time he has broken election pledges on other matters such as value added tax, which are worthy of discussion as part of the package surrounding clause 3. The Minister will not face a Division on clause 3. I am grateful for his comments and for the discussions that we have had about the clause.

Clause 5

David Hanson (Labour, Delyn)

I beg to move amendment 4, in clause 5, page 2, line 24, at end add—

‘(4) The Chancellor shall, before 30 September 2011, lay before the House of Commons an assessment of the impact of this section on—

(a) banks (as defined by section 2 of the Banking Act 2009);

(b) all other sectors to which corporation tax applies.’.

Jimmy Hood (Labour, Lanark and Hamilton East)

With this it will be convenient to discuss clause stand part.

David Hanson (Labour, Delyn)

Last week on the Floor of the House we debated the reduction in the main rate of corporation tax from 27% to 26% for the financial year 2011. Clause 5 sets the level of corporation tax for 2012 at 25% on profits above £1.5 million, following the announcement in the 2011 Budget of an additional 1% cut. The amendment is important, because it reflects many of the concerns that have been expressed to me about the impact of corporation tax on businesses, particularly on banks. Most analysts believe that banks will gain most from the move to cut corporation tax further.

We had a discussion last week on the Floor of the House, in which we said that we believed that we should have a competitive tax regime and that the corporation tax cut will help to achieve that. However, as we said then, we have concerns that that tax cut is being paid for in large part by the slashing of the investment allowances by £2.6 billion. That is an issue that we will return to when we discuss later clauses. Of course, we will not discuss clause 10, which we discussed on the Floor of the House last week.

I want to discuss this change in corporation tax with the Minister, because it could penalise companies, particularly manufacturing companies, that invest, so as to offer tax cuts that will disproportionately benefit the banks. We discussed that issue last week and amendment 4 is designed to give the Chancellor an opportunity to consider the impact, especially on banks, of clause 5 in particular and, more broadly, the impact of the corporation tax cut.

The Institute for Fiscal Studies has said:

“The largest beneficiaries from the package of measures will be high-profit, low investment firms”.

Such firms include financial services firms. We will discuss the cuts to allowances later, but the IFS said that they

“will have the largest impact on those firms with capital-intensive operations”.

Such firms include manufacturers. Those quotes are from the “green budget” for 2011 that the IFS produced.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

My right hon. Friend makes a valid point. Later in the Bill, there are clauses that show that capital allowances to manufacturers are being cut. But there are not just those cuts to consider. The Government have their carbon floor pricing agenda, whereby £2 billion will be raised from manufacturing—at the expense of the steel and chemical industries, for example. The Government are currently lauding those industries as this period’s great economic success even though that success is largely due to foreign consumption and a low-value pound.

Does my right hon. Friend agree that by imposing such a price on carbon and unilaterally undermining our own manufacturing sector in comparison with the rest of Europe, we are on dangerous ground in terms of protecting this country’s manufacturing future?

David Hanson (Labour, Delyn)

I agree with my hon. Friend and I am grateful to him for his intervention on that point.

Through the amendment, I want the Minister and his colleagues to make an assessment of the impact—as a whole—of the corporation tax measures in clauses 4, 5 and 6 on the various sectors of the economy, so that we can see what impact those changes have on manufacturing, financial services and other sectors. There is a real need for us to kick-start the economy and we must ensure that we use corporation tax in a way that does that.

Last week, the Minister had my support for the measures in clause 4 that relate to the cut in corporation tax, and he has my support for measures that will encourage growth. However, the OBR has now revised downwards its November 2010 forecast for growth in the near term, so the growth figure forecast for 2011 is now 1.7% rather than the original forecast of 2.4%. The OBR is saying that we have higher levels of inflation and greater squeezing of consumers’ disposable income, and therefore we have weaker consumer growth.

Nicholas Dakin (Labour, Scunthorpe)

I want to reinforce the point that my hon. Friend the Member for Middlesbrough South and East Cleveland made about manufacturing. Tax is all about choices. My right hon. Friend the Member for Delyn is calling for a review of corporation tax. It would be interesting to see how corporation tax can benefit—or fail to benefit—manufacturing. We need our manufacturing base to develop and there are choices to be made in that regard, so I welcome what my right hon. Friend is saying.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend for that intervention. What I want from the Minister is a justification of these rates and some indication to the Committee about how the proposals in clause 5 for charges to corporation tax for next year will help to improve the economy’s potential for growth, to get us out of the situation that we are in now after the Government have introduced measures such as the increase in VAT, the huge cuts in public spending across the board and the squeeze on incomes both this year and next year, including further squeezes on child benefit, working families tax credit and other benefits. How will the measures in clause 5 help economic growth? The measures on corporation tax rates for next year will arrive in the middle of the major cutbacks that the Government are making in public spending across the board. We will see continued reduction in demand from those who work in the public sector, because of job insecurity and a lack of spending into the private sector. We need to look at how we use the measures to create a strategy for future growth. When we consider the clause, I want to hear from the Minister how we can develop that strategy for growth and how the measures in clause 5 for next year indicate that we will do that. They are inextricably linked with the later detrimental measures on capital allowances, which I want to discuss in due course.

The latest Office for National Statistics release states that GDP fell by 0.5% in Q4 of 2010, and we face a situation where we have higher levels of inflation and lower levels of growth, VAT is up and oil prices are rising. I need to know from the Minister how the measures in clause 5 will impact on those issues in the future to ensure that we help to generate the necessary employment in the private sector to compensate for the public sector job losses that we will face in regions of the members of the Committee and beyond.

The OBR’s March 2011 forecast has provided an overview of its labour market forecast. This is a direct quote from the report, which states that

“the labour market is likely to weaken further over the next few months before strengthening as economic growth picks up”,

but unemployment is still

“forecast to rise from its current 8.0 per cent to 8.3 per cent of the labour force by the second quarter”

of this year, and it could rise still further. The report continues:

“The claimant count rises from 1.45 million to 1.56 million by the second quarter”

of this year, with the potential to fall back to 1.18 million by 2015. I need to know from the Minister how the corporation tax rates in clause 5 are likely to impact on that economic situation.

Ian Mearns (Labour, Gateshead)

My right hon. Friend makes an interesting point, because earlier today we were discussing different impacts in different regions of the country. We have already seen—this is before the impact of significant cuts to public expenditure in regions such as the north-east has actually kicked in—a situation where unemployment in the north-east of England increased by 11,000 against a national reduction of 17,000. That is clear evidence of the differential impact of Government policy.

David Hanson (Labour, Delyn)

My hon. Friend again raises an important point. As we discussed under clause 4 last week, if we look at the levels of unemployment in regions across the United Kingdom, I can tell him that his region of the north-east sadly still has the highest level of unemployment in the country at some 10.2%. Again, as under clause 4, I need some indication from the Minister as to what his assessment is of the rates of corporation tax in terms of helping to secure growth in the economy, particularly in regions such that of my hon. Friend and my hon. Friend the Member for Middlesbrough South and East Cleveland. The corporation tax cuts under clause 4 and the rates of corporation under clause 5 are an important tool that the Government have to help encourage businesses to invest and create jobs in the United Kingdom. The level of unemployment is 10.2% in the north-east, 9.9% in the west midlands, a staggeringly high 9.4% in London, 9.3% in Yorkshire and Humberside, which is the area of my hon. Friends the Members for Sheffield Central and Scunthorpe and 8.7% in my region in Wales. Those are very high levels of unemployment. I need to be aware of what the Government’s growth strategy is in relation to clause 5 and the amendment, which analyses whether the corporation tax rates that are being set under clauses 4 and 5 are helping businesses and will secure growth in the areas where we believe it is needed to create the jobs of the future.

An assessment should be made, so that the Chancellor can put to rest my fears that many of the corporation tax breaks in clause 4—and, as we come on to them, clauses 5 and 6—will go to the financial services sector and support businesses that are not creating the manufacturing jobs and growth we need for the future. I hope that the Minister will put those fears to rest. I am sure that he will do so in due course. However, it is worth while exploring the matter, which is why the amendment says that “the Chancellor shall” make an assessment

“before 30 September…of the impact of this section on—

(a) banks (as defined by section 2 of the Banking Act 2009);

(b) all other sectors to which corporation tax applies.”

I accept that some of these changes are being introduced for the year 2012. However, with the OBR, the Chancellor can look at corporation tax rates under clauses 4, 5 and 6 to see whether those clauses will help the growth in manufacturing jobs that we need in society at large to meet the levels of unemployment in my hon. Friends’ constituencies, particularly in the north, Yorkshire, Humber, Wales and, indeed, Scotland.

For the purpose of clarity, we are not opposing clause 5; we are simply asking for an assessment to be made of the growth strategy in the round as it relates to the use of corporation tax as an economic tool to help growth in our community at large. We need to look at the measure crucially and supportively. The provision comes at a time when the Government are making changes to corporation tax. However, they are also removing the regional development agencies from colleagues’ constituencies in the north-east, the north-west, the west midlands, the east midlands and, indeed, other regions of England. The measure comes at a time when the Scottish Parliament will have make major cuts to its capital public spending programmes—as, indeed, will the Welsh Assembly. Difficult decisions are being made regarding the creation of jobs. The corporation tax proposals before the Committee are but one tool in a growth strategy. I want to hear from the Minister how he sees those measures fitting into the Government’s wider growth strategy.

Ian Mearns (Labour, Gateshead)

I am glad that my right hon. Friend has come on to the issue of corporation tax and the abolition of the regional development agencies in different parts of the United Kingdom—certainly in England—because that will clearly have a differential impact. In the north-east, the regional growth fund was more than ten times over-subscribed for the first-round bid. Parts of the north-east did gain from the regional growth fund—although, sadly, my constituency did not. In terms of the Government’s economic policy on corporation tax, we are yet to see how they will grow the economy in regions such as the north-east. If we do not get some definite indications from the Government about how that will be done, I will start to wonder whether unemployment in such regions is considered to be the price worth paying for growth in the south-east.

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. I was tempted to interrupt the hon. Gentleman to remind him that interventions are interventions, not speeches. I invite hon. Members to make their interventions a bit shorter.

David Hanson (Labour, Delyn)

My hon. Friend makes an important point. Considering the high levels of persistent unemployment in certain regions such as the north-east, we need to know and be assured by the Minister that the corporation cut strategy that is elucidated in clause 4, which we dealt with on the Floor of the House last week and which also relates to the level of corporation tax for next year in clause 5, is designed to help to develop a growth strategy in areas such as the north-east.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

We are getting to the nub of the matter on how the corporation tax cut is to be paid for. Later in the Bill we will see provision for reductions in capital allowances for manufacturing; we will also see £2 billion being raised from manufacturing and carbon floor pricing. However, it is interesting to note that only a few regional growth fund bids were linked to the RDA funds, and that the Treasury can claw back almost double the amount. A lot of money that would have been spent on the regions will go straight back to the Treasury.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend for that observation.

Reports in April show that 186,554 UK businesses have been experiencing critical or significant financial problems—a rise of 26% over three months and of 15% in the previous 12 months. Companies that rely on discretionary spending are suffering particularly badly, as consumer spending falls. Corporation tax is critical for growth in our communities.

Julian Smith (Conservative, Skipton and Ripon)

Has the right hon. Gentleman read the recent CBI report on inward investment, which states that Britain needs a competitive headline corporation tax rate to compete globally?

David Hanson (Labour, Delyn)

Yes, I have. I take the view that we should support the corporation tax cut. I was clear about that on the Floor of the House last week, and I have no compunction about reiterating the fact. However, I seek some clarity from the Minister on how it fits into the wider economic strategy for growth, and how it will impact on areas such those represented by my hon. Friends in the north-east, and in Scotland, the east midlands and London, where there are high levels of unemployment. Will it be part of a wider growth strategy?

As I said last week, I wish for some clarity on the outcomes. We were being asked under clause 4—we dealt with it in Committee in the House—to forgo a significant amount of corporation tax income as a result of the reduction in the headline figure. Under clause 5, we are now being asked to approve figures on corporation tax for next year. I did not get any satisfaction from the Minister last week, but I hope to get some clarity today on how he expects those measures to impact on jobs and growth—and on inward investment, the point raised by the hon. Member for Skipton and Ripon—so that we can judge the Minister against them in due course.

Ian Murray (Labour, Edinburgh South)

A key aspect for the small and medium-sized enterprises that visit my surgeries is that the corporation tax reduction, although welcomed by all sectors, will not impact immediately on their businesses. At the moment, they are more concerned with creating consumer confidence and profitability. Although the corporation tax cut is welcome, they will not pay less of it until they are profitable, and they will not be profitable until the economic conditions are in place for them to become profitable, which requires consumer confidence. However, the packages, tools and measures that the Government have put in place have shattered consumer confidence and lowered people’s disposable income, and that has hit the profitability of businesses quite hard.

David Hanson (Labour, Delyn)

That is a most important point. It goes back to what I said a moment ago about insolvency and the number of distressed companies in the United Kingdom.

From my perspective, the amendment seeks clarity from the Minister on who will benefit from the corporation tax proposals and about whether, as we suspect, the gain is still skewed towards the financial services sector in terms of the benefit obtained by the cuts.

Nicholas Dakin (Labour, Scunthorpe)

My right hon. Friend makes a pertinent point, particularly when one considers the Institute for Fiscal Studies green budget for 2011. It draws attention to the fact that cuts in corporation tax will benefit financial sectors disproportionately, whereas capital and investment allowances tend to benefit manufacturing. The nub of this is how to check that the Government have a policy in place that stimulates manufacturing growth—as well as growth for small and medium-sized enterprises, as my hon. Friend the Member for Edinburgh South said.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend, because that is the nub of the amendment. We want the measure to be assessed in the round.

Last week, we tried to have a similar discussion about assessing the outcomes of the corporation tax proposals. I emphasise that we do not, and will not, oppose the measures before the Committee today. None the less, it is incumbent on the Minister to look at where that benefit goes. We still believe that the benefit will, in significant part, go to the banks and financial institutions. When it is coupled with a cut in allowances, which we will discuss later in the Bill, it will disproportionately impact on manufacturing. I had hoped that it would stimulate manufacturing to attract businesses to the United Kingdom.

Ian Murray (Labour, Edinburgh South)

My right hon. Friend is generous. There is no doubt, given the current make-up of the UK economy, that the benefit of the corporation tax cut is to the financial sector. To highlight the point that he is making, let me outline what the Scottish National party is pushing for in Scotland. It wants control of corporation tax so that it can slash it for the financial sector. It does not want the banks and financial institutions to pack their bags and move south of the border in response to the threat of independence. It wants to use the corporation tax system and cut it dramatically for the financial sector to keep it in Edinburgh because the financial sector is frightened about Scotland divorcing itself from the rest of the United Kingdom.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend for that. As we are discussing rates of corporation tax and the charge and main rate for the financial year 2012, it would be interesting to know whether corporation tax changes will be brought forward to give different rates in different parts of the United Kingdom. We might even find some unity and synergy on such points. My hon. Friend has just mentioned that the Scottish National party has set as one of its main tasks a derogation from corporation tax so that it can set its own tax in Scotland. There is pressure from our colleagues in Northern Ireland to match the rate of corporation tax in the Irish Republic. If the hon. Member for East Londonderry were here, I am sure that he would raise the issue as well. Perhaps the Minister could take the opportunity to comment on those issues as part of the discussions on our amendment. Will he tell us whether those assessments will impact on the changes?

The rest of the debate is in Hansard.