FINANCE (NO. 2) BILL

Public Bill Committee, 23 April 2013.

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

David Crausby (Labour, Bolton North East)

Before we begin, I have a few preliminary announcements. First, Members may remove their jackets during Committee meetings. Please will all Members ensure that mobile phones, pagers and so on are turned off or switched to silent mode during Committee meetings. Document boxes are provided for Members to keep their Bill papers in between meetings. It would be much appreciated if Members could return the boxes to the cupboard at the end of the meeting.

As a general rule, I and my fellow Chair do not intend to call starred amendments which have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days. Therefore, amendments should be tabled by the rise of the House on Monday for consideration on Thursday and by the rise of the House on Thursday for consideration on Tuesday. Not everyone is familiar with the procedure in Public Bill Committees so it might help if I briefly explain how we will proceed.

The Committee will first be asked to consider the programme motion on the amendment paper, debate on which is limited to half an hour. We will then proceed to a motion to report written evidence. Then we will begin line-by-line consideration of the Bill. The selection list for today’s sitting, which is available in the room, shows how the amendments selected have been grouped together for debate. Amendments grouped together are generally on the same or a similar and related issue. The Member who has put their name to the leading amendment in the group is called first. Other Members are then free to catch my eye in order to speak to the amendments in that group. A Member may speak more than once, depending on the subject under discussion.

At the end of the debate on a group of amendments, I will call the Member who moved the lead amendment again. Before sitting down, they will need to indicate whether they wish to withdraw the amendment or to seek a decision on it. If any Member wishes to press any other amendment in the group to a Division, they need to let me know. I will work on the assumption that the Government wish the Committee to reach a decision on all Government amendments. Please note that decisions on amendments take place not in the order in which they are debated but in the order in which they appear on the amendment paper.

Where the group includes clause stand part, Members should make any remarks they wish about the clause during the debate on the group and there will then be no separate debate on the question that the clause should stand part of the Bill. Where it is not already indicated on the selection list, Mr Amess and I will use our discretion to decide whether to allow a separate stand part debate on individual clauses or a separate debate on schedules. Clause stand part debates begin with the Chair proposing the question. There is no need for anyone to move that the clause stand part of the Bill.

I call the Minister to move the programme motion agreed by the Programming Sub-Committee.

David Gauke (Conservative, South West Hertfordshire)

I beg to move

That—

(1) the Committee shall (in addition to its first meeting at 8.55 am on Tuesday 23

April) meet—

(a) at 2.00 pm on Tuesday 23 April;

(b) at 11.30 am and 2.00 pm on Thursday 25 April;

(c) at 11.30 am and 2.00 pm on Thursday 16 May;

(d) at 9.10 am and 2.00 pm on Tuesday 21 May;

(e) at 9.10 am and 2.00 pm on Tuesday 4 June;

(f) at 11.30 am and 2.00 pm on Thursday 6 June;

(g) at 9.10 am and 2.00 pm on Tuesday 11 June;

(h) at 11.30 am and 2.00 pm on Thursday 13 June;

(i) at 9.10 am and 2.00 pm on Tuesday 18 June;

(j) at 11.30 am and 2.00 pm on Thursday 20 June.

(2) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clause 2; Clauses 4 to 7; Schedule 1; Clauses 8 to 14; Schedule 2; Clause 15; Clause 17; Schedule 4; Clause 18; Schedule 5; Clause 19; Schedule 6; Clause 20; Schedule 7; Clauses 21 to 24; Schedule 8; Clause 25; Schedule 9; Clause 26; Schedule 10; Clause 27; Schedule 11; Clause 28; Schedule 12; Clauses 29 to 33; Schedule 13; Clause 34; Schedule 14; Clause 35; Schedules 15 to 17; Clauses 36 to 38; Schedule 18; Clauses 39 to 41; Schedule 19; Clauses 42 to 45; Schedule 20; Clauses 46 and 47; Schedule 21; Clauses 48 to 54; Schedule 22; Clauses 55 to 63; Schedule 23; Clauses 65 to 71; Schedule 25; Clause 72; Schedule 26; Clauses 73 and 74; Schedule 27; Clauses 75 and 76; Schedule 28; Clauses 77 to 86; Schedule 29; Clauses 87 to 90; Schedule 30; Clauses 91 to 160; Schedule 31; Clauses 161 and 162; Schedule 32; Clauses 163 to 166; Schedule 33; Clauses 167 to 172; Clause 64 and Schedule 24; Clauses 173 and 174; Schedule 34; Clauses 175 to 182; Clauses 185 to 188; Schedule 35; Clauses 189 and 190; Schedule 36; Clauses 191 to 193; Schedule 37; Clause 194; Schedule 38; Clause 195; Schedule 39; Clauses 196 to 198; Schedule 40; Clause 199; Clause 213; Schedule 42; Clauses 214 and 215; Schedule 43; Clause 216; Schedule 44; Clause 217; Schedule 45; Clauses 218 to 221; Schedule 46; Clauses 222 to 226; Schedule 47; Clause 227; Schedule 48; Clauses 228 to 230; Schedule 49; Clauses 231 and 232; new Clauses other than those relating to tax measures concerning housing and first appearing on the Order Paper not later than Tuesday 16 April or relating to value added tax or the bank levy or air passenger duty or the subject matter of Clauses 1 and 16 and Schedule 3 or the subject matter of Clause 3 or the subject matter of Clauses 203 to 212 and Schedule 41; new Schedules other than those relating to value added tax or the bank levy or air passenger duty or the subject matter of Clauses 1 and 16 and Schedule 3 or the subject matter of Clause 3 or the subject matter of Clauses 203 to 212 and Schedule 41; remaining proceedings on the Bill;

(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 20 June.

I should like to say a few words at the beginning of our proceedings. It is a pleasure to serve under your chairmanship, Mr Crausby. May I also welcome your co-Chairman, Mr Amess. I know both of you are familiar with the impassioned debate that the Finance Bill often generates. I trust that your experience and wisdom will guide us in the coming weeks, if not months, to keep us focused on the matters in hand. May I also welcome the Clerks and Hansard reporters who will be assisting us greatly in the weeks ahead.

It is also a great pleasure that we can look forward to the enthusiastic participation of Opposition Members. I am particularly pleased that we will once again have the benefit of three shadow Ministers in the coming debates. We look forward to hearing their contributions, I fear at some length. They will be ably assisted by their hon. Friends, many of whom spoke eloquently in the debates last week, and one or two of whom have previously taken part in Finance Bill Committee debates. We look forward to their contributions.

I welcome new members of the Committee who have joined the House more recently, and in particular the hon. Members for Cardiff South and Penarth and for Middlesbrough. I look forward, too, to hearing from my hon. Friends—whose contributions are to be judged mainly by quality, not necessarily quantity. I am pleased that my hon. Friend the Member for Amber Valley has once again escaped membership of the library committee, and will bring his expertise, and occasionally independent views, to the deliberations. I welcome, also, as a new Member, my hon. Friend the Member for Eastleigh.

I said in Committee last year that the Bill before us then was the product of consultation, and that is once again the case. Thirty-six formal and informal consultations were launched after Budget 2012 to shape policies legislated for in the Bill. We published more than 400 pages of draft legislation in December 2012, and received more than 400 replies.

The Government have also met interested parties throughout the year so that we could consider their views. I thank the individuals and organisations that took the time to consider the draft legislation and to assist the Treasury and Her Majesty’s Revenue and Customs in preparing the Bill. It has already received a great deal of scrutiny, which I hope will complement the Committee’s work.

The Bill is a substantial one and we should not lose sight of the importance of the measures before us. The work may not necessarily always be exciting, but we are about to undertake an important process. The Bill implements major reforms to cut income tax for 24 million people; to boost competitiveness and attract investment; and to crack down on tax avoidance. It will make a difference to the country. It is an important Bill, and I look forward to some energetic debates over the weeks ahead.

Chris Leslie (Labour, Nottingham East)

Good morning, Mr Crausby. I, too, welcome you to the Chair. We have managed to get a strong turnout on both sides this morning, and it is good to see so many hon. Members in Committee. They should not regard their allocation as punishment for any behaviour of theirs. It is a great privilege and honour to serve on a Finance Bill Committee. I see their enthusiasm and how they relish the prospect of getting comfortable in their seats until well into the second half of June. We look forward to whiling away many happy days and hours with them.

It is interesting that the Minister singled out the hon. Member for Amber Valley in his welcome this morning. I notice that he has already tabled amendments and I think that there was a coded message to him: “Watch it; don’t push it too much.” However, I encourage all hon. Members to scrutinise the Bill in great detail. I am glad to be joined by my Front-Bench colleagues, my hon. Friend the Member for Kilmarnock and Loudoun and my hon. Friend the Member for Newcastle upon Tyne North. We shall try our best to do justice to the Bill’s requirement for scrutiny.

You spoke, Mr Crausby, about how we shall deal with the stand part debates. You have already taken a firm approach to the grouping of debates on clause stand part and amendments. That is a very tight practice—there are no loose ends with debates on amendments and then separate stand part debates. I think that from time to time there is a need for discussion of a particular amendment, followed by debate on the general principle of a clause, but I do not want to question the wisdom of your firm approach, so far, to grouping.

It is curious that the programme motion has a three-week gap after Thursday’s sitting. That is a leisurely pace indeed, possibly because the Government have very little business going on elsewhere. Maybe the Queen’s Speech will be packed with tough and firm legislation that will have the country in absolute rapture. We will see what happens. We will have a three-week lead-in, but obviously circumstances might change during that period, requiring us to table further amendments by the time we get back. If a week is a long time in politics, heaven knows what could happen in three weeks.

As well as drawing the Committee’s attention to the interests that we have set out in the register, I ask for your guidance, Mr Crausby, on what might seem a small matter. The power outage, as the Americans might say, in Portcullis House is still with us this morning. I assure hon. Members that if they want their breakfast, the full cooking facilities are working on the ground floor, but in the offices of Opposition Members, whose job it is to try our best to keep track of what is going on, there are no computers, no printers and no screens on which to watch what is going on.

I do not wish to play my violin and look for sympathy, but there are 400-odd computers—they are odd—working well for the Treasury in Horse Guards road. I am sure that the Minister’s packs are full of paperwork this morning. It would be useful, Mr Crausby, if you could send a message to those responsible for the tripped electricity systems that it would be helpful to have our offices back on line. We have no problems with the old-fashioned paper-and-pen approach to scrutinising a Finance Bill, but it would be useful to have the system up and running. We do not have particular comments about the programming of the Bill other than that we look forward to working with you, Mr Crausby, and Mr Amess over the coming weeks.

David Crausby (Labour, Bolton North East)

I understand that the power cut is being looked into as a matter of urgency, but I will convey your remarks.

Clause 2 - Personal allowance for 2013-14 for those born after 5 April 1948

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I beg to move amendment 7, in clause 2, page 2, line 6, at end add—

‘(3) The Chancellor of the Exchequer shall review the impact of this measure on anyone who reached the age of 65 on or after April 2013, and place a copy in the Library of the House of Commons within six months of Royal Assent.’.

David Crausby (Labour, Bolton North East)

With this it will be convenient to discuss the following:

Amendment 8, in clause 2, page 2, line 6, at end add—

‘(3) The Chancellor shall review the overall impact of the Government’s overall budgetary measures on the living standards of basic rate taxpayers and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.

Clause stand part.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I welcome you and the Clerks, Mr Crausby. It is a pleasure to serve for the first time under your chairmanship. I thank the Clerks in advance for the support that they will undoubtedly provide to me, my colleagues and all Committee members throughout the proceedings. I welcome members from all parties, including those who have served on the Committee previously, but particularly Members who are new to the Committee and newer Members of the House, including my hon. Friend the Member for Middlesbrough and the hon. Member for Eastleigh.

This Finance Bill is not the longest ever. It is 615 pages, which is just short of the 703 that we considered in 2012. The Institute of Chartered Accountants in England and Wales has pointed out in its written evidence on the Budget to the Treasury Committee that a Bill of this length and complexity is hard for Parliament to scrutinise effectively, but scrutinise it we will, particularly what we see as a lack of the bold action that this country needs radically to change the course of the stagnating economy under whose weight we are all struggling. On Budget day, what we really saw was a bit of tinkering around the edges. We hope that the amendments we have tabled will force the Government to rethink their strategy and take the necessary bold action that we—and, more important, people up and down the country—are calling for.

Clause 2 sets the income tax personal allowance for 2013-14 at £9,440. That figure, which was first announced in the autumn statement 2012, is an increase on the £9,205 announced in Budget 2012. The figure for 2012-13 had been £8,105. I am sure that all members of the Committee will have noted that it is not just the level of personal allowance in the clause that has changed from previous years, but the wording used. The key phrase

“personal allowance for those aged under 65”

used in previous Finance Bills has been substituted with the new phrase,

“personal allowance for those born after 5 April 1948”.

Amendment 7 deals with the consequences of that change for anyone who will turn 65 during or after this month and amendment 8 considers the overall impact of the Government’s changes to tax and benefits, including the increase in the personal allowance on people’s incomes. Before we test the Committee’s opinion on those amendments, we will discuss the clause and whether it should stand part of the Bill.

The clause deals with the personal allowance which all taxpayers are entitled to set against their income for tax purposes. As we know—at least, until the beginning of this tax year—individuals aged 65 or over were entitled to receive an additional age-related allowance, commonly referred to as the ARA, with a further allowance made for those aged 75 or over.

Since the Rooker-Wise amendment to the Finance Act 1977 broke through with cross-party agreement, all income tax allowances had been required to increase in line with the retail prices index unless Parliament determined otherwise, to ensure that all changes in these important allowances were subject to parliamentary scrutiny and could not be subjected to tax increases by the back door. The age-related allowance does not apply to the richest pensioners and it has been progressively withdrawn for older people whose incomes exceed a given limit; £25,400 was the figure in 2012-13, for example.

However, as we are all aware, in Budget 2012 it was announced that from 2013-14—in other words, from earlier this month—the availability of the age-related income tax personal allowance would be restricted. The allowance of £10,500 for people aged 65 and over was frozen, the allowance of £10,660 for those aged 75 and over was also frozen and people turning 65 on or after 6 April 2013—those born after 5 April 1948—are not entitled to any age-related allowance. That decision has led to the different wording in the personal allowance clause of the Bill that we now consider, with the usual line on personal allowance for “those aged under 65” changed to

“those born after 5 April 1948”.

In other words, the general personal allowance now applies to all people who have turned, or will turn, 65 on or after 6 April this year.

Amendment 7 calls on the Government to consider properly the impact of that change to the personal allowance system on this particular group of people. We singled out this group because that is what the Government did in their changes. However, before we consider how those turning 65 years old from this month will be affected by the fact that they will be entitled to receive only the personal allowance, it might be helpful to reflect briefly on the reasons for the existence of the age-related allowance, the allowance that the clause will now no longer afford to anyone over the age of 65.

The Office for Tax Simplification’s interim review of pensioners’ taxation published ahead of 2012 noted that age-related allowances, in one form or another, had been introduced to reflect the potentially higher cost of living of older people. Indeed, that is why the then Chancellor of the Exchequer, Winston Churchill, introduced old age relief in 1925. The OTS review of pensioners’ taxation went on to state:

“Older people can struggle to meet living costs. They are often on a fixed income once they have retired, or perhaps on a declining income in real terms where flat annuities have been purchased to maximise income on retirement.”

The age-related allowances came into existence to reflect the fact that many pensioners enjoyed a modest income in retirement because they had savings and relied on those savings. In bringing in the age-related allowance, Winston Churchill explained that he had considered that the savings of old people on a small scale were virtually earned income.

The age-related allowance and its predecessors were introduced because the majority of pensioners are on a fixed income and are, therefore, particularly vulnerable to rises in the cost of living.

John Cryer (Labour, Leyton and Wanstead)

Does my hon. Friend remember that, for many years, evidence has shown that pensioners over the age of 80 often experience much higher levels of poverty than others? That is another reason why the age-related allowance was introduced.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I agree with my hon. Friend, and I thank him for his intervention. What he said is very much the point that I am trying to make, as well as the problem that Winston Churchill clearly recognised back in 1925. It was deemed at that stage that people over the age of 65 and moving into retirement had less control over their income and less ability to react to changes in prices and inflationary costs.

James Duddridge (Conservative, Rochford and Southend East)

Does the hon. Lady believe that Winston Churchill had a proper appreciation back in the 1920s of the welcome increase in longevity and the impact that that has on the debate?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I note that the hon. Gentleman is passing doubt on the wisdom and insight of Winston Churchill but, given that he raised an important issue, it is true that people are living longer and, thus, such a problem is more acute now for many pensioners than it was in 1925. People over the age of 65 are often living longer and having to live on ever-depleting income and resources.

David Gauke (Conservative, South West Hertfordshire)

Does the hon. Lady recognise that the poorest 15% of pensioners do not benefit from age-related allowances? To be clear, does she believe that, as a matter of principle, those under the age of 65 should have a lower personal allowance than those over the age of 65?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I recognise very much the difficulty faced by the poorest pensioners. Did the Government consider that when they reduced the winter fuel allowance and increased VAT, which has hit pensioners as hard as any group in society? One of the particular issues raised by pensioners throughout the country is not necessarily a matter of principle, but the way in which the Government have gone about making such a change in policy.

Sheila Gilmore (Labour, Edinburgh East)

One of the major problems faced by many older people who have savings, and who are perhaps most likely to pay tax, is that the Government’s economic policies mean that the income they derive from those savings has declined considerably in recent years.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Indeed, and we have all seen the rise in the cost of living, with rising fuel bills and rising prices in the shops. For the same amount of money, the petrol in our cars will take us less far than it used to. Pensioners, more than anybody, are feeling that squeeze on their household incomes. We are hearing increasing numbers of stories about pensioners choosing between heating and eating, which not only is detrimental to their health but can mean the difference between life and death for many older people.

Brooks Newmark (Conservative, Braintree)

I have been listening to what the hon. Lady is saying. Obviously, I am very cost conscious, and I appreciate that the new new policy of the old new old Labour party is now not only to borrow more but to spend more. It has finally come out with the fact that it wants to spend more, which is great, because I like honesty in politics and in a debate. I am glad that the Labour leadership has come out and said that it wants to spend more money. However, I am curious: is there any cost associated with the hon. Lady’s amendment, and what might it be?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The hon. Gentleman has got himself terribly confused about not only the Government’s policies but the alternative proposed by the Opposition. Amendment 7 is intended to allow us to assess the impact of the changes in relation to pensioners. Rather than accusing the Labour Opposition of spending more and borrowing more, he should look at the Government’s economic performance. They are borrowing £245 billion more than they planned. Beyond that, their spending choices include handing a tax cut to top rate taxpayers while taking money from pensioners’ extremely modest incomes, which are in the region of £10,000 to £25,000. I seriously question the hon. Gentleman’s clearly vitriolic attitude. People are clearly going to lose out by an average of £300 a year as a result of this measure.

Brooks Newmark (Conservative, Braintree)

I try not to be vitriolic; I like to think of myself as charm personified. The hon. Lady has accused the Government of spending more and borrowing more, as the evidence is. However, in her policies, she is actually calling for more spending and even more borrowing. I suggest that she take the plank out of her own eye before taking the speck out of the Government’s eye. Once again, however, I would like her to answer the question, which she neatly sidestepped. There is a cost associated with the amendments. Can she tell us what it will be over the next year, two years or three years?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I think that the hon. Gentleman has not actually read amendment 7, which would provide for the Government to review the impact of this policy change on pensioners. He is also terribly confused about the Government’s economic policy, which is clearly not reducing spending. The Government are spending more on the benefits bill and borrowing more to pay for the failure of their economic plans.

James Duddridge (Conservative, Rochford and Southend East)

Clearly, the amendments do not touch directly on the question of cost. However, in the hon. Lady’s introductory remarks, she alluded to the fact that Her Majesty’s official Opposition might not allow the whole clause to go forward, in which case there would be a cost implication. My hon. Friend the Member for Braintree is therefore entirely right, and it is entirely spurious to pray in aid the fact that the amendments do not directly throw out the measure, because only a few minutes ago it was said that Her Majesty’s official Opposition might not let the clause stand part.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Might I suggest that the hon. Gentleman read the clause that we are discussing on the increase in personal allowances, which is actually a net cost to the Treasury, rather than a net gain? Our amendment requests that the Government thoroughly review the impact of the changes on pensioners who are impacted by the measures. There is no spending commitment in asking for a review of the impact on particularly vulnerable groups in society. We would hope that if hon. Members are genuine in their stated desire to reduce the deficit and ensure that those with the broadest shoulders bear the greatest burden, they will want to measure the impact on particularly vulnerable members of society and welcome our approach of calling for that today.

Marcus Jones (Conservative, Nuneaton)

The hon. Lady and her party are dancing on a pinhead in their approach. They seem to want the measure to be reviewed, but her argument seems to be that they want it to be stopped and reversed. I would be grateful if she told me whether the Labour party, if it was in government now or indeed in 2015, would reverse the measure or not—yes or no?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We have made it clear from the start—perhaps Government Members have not been listening—that we would make very different choices in going about reducing the deficit. We all agree that the deficit needs to be reduced, that changes need to be made and that the books need to be balanced. The Chancellor’s plan to balance the books by 2015, with borrowing falling as a proportion of gross domestic product, has clearly gone through the roof—

Kwasi Kwarteng (Conservative, Spelthorne)

Gone through the roof?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Sorry, fallen through the floor. Borrowing has gone through the roof; the plan has gone through the floor. Our choices would not impact on the most vulnerable—they would certainly not hand a tax cut to top-rate taxpayers, particularly the 13,000 millionaires—and would have our economy back on track much quicker than this Chancellor is doing.

John Cryer (Labour, Leyton and Wanstead)

The amendment clearly states that the review would be

“within six months of Royal Assent.”

For the benefit of Government Members, Royal Assent means when the Queen approves the Bill and it goes on to the statute book, and the review would be within six months of that.

Sheryll Murray (South East Cornwall) (Con) rose—

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank my hon. Friend for his intervention. Perhaps the hon. Lady wishes to reply to him.

Sheryll Murray (Conservative, South East Cornwall)

I do not know whether the hon. Lady knows, but Members do not respond to an intervention in another Member’s speech. She said that her party would do things very differently if her party were in government. Will she enlighten us on the measures that she would introduce as an alternative?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I would happily provide Labour’s alternative plan for the economy at great length this morning, but you are already looking slightly uneasy, Mr Crausby.

David Crausby (Labour, Bolton North East)

Not within this forum.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

You would quite rightly rule that out of order, Mr Crausby.

David Gauke (Conservative, South West Hertfordshire)

Perhaps I can narrow that. The hon. Lady has said that her party would make different choices. May I seek clarification on one of them? To return to my previous question, does she believe as a matter of principle that those under 65 should have a lower personal allowance than those over that age?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

For many years, it has been an established principle that people over the age of 65 need more help with the pressure from costs and more protection from changes in their living standards. That principle is rightly raised by a number of charities and by pensioners who visit me in my surgery. I challenge the Minister to tell the Committee that no pensioner has been to see him to discuss their concerns about the way the Government have gone about making this change, because it adds financial pressure to older people on very modest incomes. We are not talking about high earners but people on very modest incomes who are without doubt suffering from the current squeeze in spending that everyone is feeling. Pensioners who come to see me are aggrieved not only because they feel that they are being taxed to pay for a tax cut for the top earners—those earning more than £150,000 and especially 13,000 millionaires—but because of the way it has been introduced under the auspices of a simplification measure when all the evidence shows that is not the case.

Fiona O'Donnell (Labour, East Lothian)

My hon. Friend is making an excellent contribution to the debate, despite the actions of the bully boys on the Government Benches. [Interruption.] Mock outrage and cheers. This is not just about the manner in which the Government have introduced the proposals, but about the impact they will have on demand in economies such as mine where there are a large number of retired people. That was money they used to spend on the high streets of my constituency. What assessment have the Government made of that impact?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend makes a powerful point, and it is one that the Government do not seem to grasp. When people’s money is taken out of their pockets, they have less to spend and the economy stagnates, and here we are in stagnation. Furthermore, I cannot let things go without commenting on the fact that there is a predominance of male participants in the Finance Bill Committee. I am pleased that the hon. Member for South East Cornwall is on the Government Benches, but we all wish that the Government had a stronger voice and stronger ear from female Members of the House, because they would not make so many catastrophic errors in policy terms.

Rory Stewart (Conservative, Penrith and The Border)

I am very interested in the hon. Lady’s statement that when money is taken out of people’s pockets, the economy stagnates. She seems to be pushing towards some form of Keynesian analysis of our economic problems. Will she elaborate on her views and explain exactly how the spending package is not working?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his intervention, the substance of which would be an interesting discussion to have right now. It is also a discussion that Government Members, especially those on the Front Bench, would benefit from hearing. However, I see Mr Crausby shifting in his seat—[Hon. Members: Sleep?] I said seat, and I put that on the record for Hansard. Unfortunately, we are debating the particular measures in front of us today and an analysis of Keynesian economics would be ruled out of order.

Mike Thornton (Liberal Democrat, Eastleigh)

I appreciate the hon. Lady’s concern for pensioners who are less well off. Does she welcome the fact that under this Government, under Liberal Democrat direction of course, the personal allowance has been increased for everybody, which helps people who are less well off? Does she also accept that we are considering a more directed form of help? My brother who is retiring as a GP and my father who was a long-term civil servant, and who worked in the House some of the time, are not in need of the age-related personal allowance. Is it not fairer, therefore, to ensure that there is money for those who need it rather than for pensioners who are significantly better off than the average?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The hon. Gentleman makes some interesting points, the first of which is that the personal allowance benefits all those people who are not well off. That is simply not true. It only benefits those who are fortunate enough to earn sufficient to actually pay into the tax system in the first place. Many of those at the lowest end of the income scale do not benefit at all from the personal allowance, but they suffer from the changes the Government have made to tax credits and benefits, and in particular from the VAT increase, which is having an impact on every household and on pensioners to the tune of around £275 a year.

The age-related allowance has always been very much targeted at those on modest incomes of up to £25,000, which is not a huge amount in today’s society, considering the astronomical cost of food and fuel and bills. If the hon. Member for Eastleigh is still concerned about the benefit to people on higher incomes, perhaps he should have a word with his colleagues and ask them to stop supporting the Government’s policies, which reward the highest earners rather than protecting the most vulnerable in society.

Paul Uppal (Conservative, Wolverhampton South West)

It is a pleasure to serve under your stewardship, Mr Crausby. In a genuinely non-bullying, non-vitriolic manner, I note that the hon. Lady accused the Government of not listening. She made the point that the amendments look at the impact assessment. Have the Opposition actually made an impact assessment of their amendments? The hon. Lady has not costed them yet, and I am looking forward to her at some point coming up with a figure of how much they will actually cost.

I represent an urban west midlands seat, where I hold a weekly surgery. Something that comes up again and again for many of my constituents, who are in this age group, is the generational deficit. If we do not live prudently and within our means as a Government it is the younger generation, the children of those constituents, who will have to pay. Have the Opposition done an impact assessment on the people who will have to pay the bill?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate the hon. Gentleman’s intervention, and I take it very much in the spirit in which it was intended. The point he makes is right; we need to live within our means. We need to get the deficit down, we need to reduce the country’s borrowing and we need to balance the books. We have a very reasoned plan to achieve that. The Chancellor has pursued austerity at any cost, and the cost is that his plan is failing completely, as we can see. I do not think any Member on the Government Benches can claim that the Chancellor’s deficit reduction plan is an outstanding success. The International Monetary Fund is questioning the Chancellor’s approach, and the main credit rating agencies are downgrading the UK’s credit status. I do not know what additional evidence is needed to show the Chancellor and Government Members that the plan is simply not working.

While I agree in principle with what the hon. Gentleman says, we fundamentally disagree on how it can be achieved. We proposed alternatives at every stage, and set out what we would now be doing differently. The key difference is that we would not spend £3 billion on giving a tax cut to top-rate earners while taking money out of the pockets of some of our most vulnerable pensioners, who will end up choosing between heating and eating. Ultimately that comes at great cost to society, not only in social terms but also in economic terms.

Ian Mearns (Labour, Gateshead)

It is stunning that Government Members seem to treat the fact that the Government are borrowing £245 billion more than they planned as some sort of trifling sum, and think that they are therefore living within their means as a Government. That £245 billion of additional borrowing is no trifling sum. If we were actually to have a plan for growth, of course we would initially have to borrow more but because of the growth, we would get more back afterwards.

Marcus Jones (Conservative, Nuneaton)

When?

Ian Mearns (Labour, Gateshead)

There is no doubt about it. Recovery will take a damn sight longer the way we are going at the moment, which is having a massive differential impact in different parts of the country. The amendment is apposite, because we need a differential approach for the differential impact in different parts of the country; the whole of the country is not the south-east of England.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank my hon. Friend for that impassioned contribution to a wide-ranging discussion. May I be so bold, however, as to bring us back to pensioners?

Steven Baker (Conservative, Wycombe)

Before the hon. Lady brings us back to pensioners, it seems pretty clear from what she said that the Opposition do not welcome the increase in the personal allowance, so will they be voting against clause stand part? If so, will a future Labour Government reduce the personal allowance? With all that in mind, where are the amendments to bring back the 10p tax rate?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am pleased that the hon. Gentleman has recognised yet another policy Opposition proposal that will ensure that those who can most bear it pay the highest share to balance the country’s books, as the Chancellor promised in 2010, but which he has spectacularly failed to do.

Marcus Jones (Conservative, Nuneaton)

The hon. Lady is being generous in giving way. On the basis that 34,289 people in her constituency will benefit from a tax cut under the Government changes to the personal allowance and that 3,242 people in her constituency will have been lifted out of income tax altogether by the Government, can she tell us whether her party will support the measures proposed?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We have put forward clear and reasonable amendments to the Finance Bill. As we made clear from the start, backed up by evidence from the Institute for Fiscal Studies, the changes to the personal allowance, which we do not oppose, are a small drop in the ocean, although welcome I am sure to many households up and down the country. The changes, however, are far outweighed by the impact on the most vulnerable households of the overall changes to tax credits and benefits, and the mummy tax and now the granny tax; households will on average be £891 a year or £17 a week worse off in the 2013-14 financial year. The Office for Budget Responsibility report on the Budget made it clear that households will be worse off in 2015 than they were in 2010. That is on this Government’s watch and under this Chancellor’s proposals: households are worse off under the Tories.

Chris Leslie (Labour, Nottingham East)

If my hon. Friend has her iPhone to hand, she will see some shocking statistics from the ONS. It said that the deficit in the 2012-13 financial year, which has just finished, was essentially the same as the deficit in the year before: £120.6 billion on removing the statistical distortions, compared with £120.9 billion. That is a deficit reduction of only £300 million. At that rate, it will take more than 400 years to eradicate the deficit; we would not balance the books until 2415. Does that cast any light on the Government strategy?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It does not come as a surprise, to be honest, because we see the impact of the Government’s measures up and down the country. I hope that such empirical evidence will shed some light for Government Members and show that they need radical change.

Ian Mearns (Labour, Gateshead)

Given the news that has just been imparted to us by my hon. Friend the Member for Nottingham East, what is all the suffering for? If that is how successful the strategy has been, perhaps my hon. Friend the Member for Newcastle upon Tyne North will speculate as to what the suffering is for.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend’s point is not only valuable, but poignant, because people throughout the country are feeling the squeeze. They are choosing between heating and eating, and many families are not taking holidays this year and are getting rid of their cars. They are making household choices that they would not be making if we had an economy that was functioning for the ordinary people in this country, rather than for top-rate taxpayers, who are the last people who need a leg up from this Chancellor at the moment.

Rory Stewart (Conservative, Penrith and The Border)

The hon. Member for Gateshead said in an intervention that it would be necessary to borrow more. Will the hon. Lady confirm that that is the Opposition’s policy?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is interesting that Government Members are obsessed with the Labour party’s policies, yet reluctant to reflect even for a moment on their own. Ultimately, the fact is that they are in government and have the power to make a difference to the economy, but they are, quite frankly, doing the opposite.

My hon. Friend the Member for Gateshead made a valuable intervention in which he set out that the Government’s policies are counter-productive. They are hitting vulnerable people with tax and benefit changes, while paying more for the price of unemployment. Government Members seem to have amnesia about last week’s catastrophic unemployment figures, which showed a devastating increase in unemployment, particularly in regions such as that of my hon. Friend and other members of the Committee, where we have seen a staggering increase of 12,000 in the number of unemployed. The price of that failure is borne out in the catastrophic borrowing figures that have been confirmed today. The hon. Member for Penrith and The Border asks whether the Labour party would be borrowing more, but we would be borrowing less because we would not be pursuing the catastrophic economic policies that the Government are ploughing on with.

Sheryll Murray (Conservative, South East Cornwall)

Does the hon. Lady admit that she is also suffering from amnesia about the debt and the dire economic situation with which her Government left the country? Rather than accusing Government Members of having amnesia, will she apologise for the state in which she left us?

David Crausby (Labour, Bolton North East)

Order. We have done well up until now by staying within the scope of the clause, but we are starting to drift away. Will hon. Members keep their remarks to clause 2 and the two amendments to it?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Thank you, Mr Crausby, for bringing the Committee back into order.

I will make one quick comment in response to the hon. Lady’s intervention. We all acknowledge that we suffered an international banking crisis in 2008. Economies throughout the world suffered the consequences of that, but Labour introduced measures in government that took this country back into growth. Since the present Chancellor took over in 2010, there has been 0.8% growth and a double-dip recession, all of which can be put firmly at the door of No. 11. This Government and their Members need to stop blaming everybody else for the economic mess that they have got the country into.

It is certainly the case that pensioners have not been immune to the Government’s austerity measures, with the winter fuel allowance cuts, pensions indexed to a lower measure of inflation, the unfair acceleration of raising women’s state pension age and, as I mentioned earlier, the VAT increase, which it is estimated has cost the average pensioner £275 a year.

Marcus Jones (Conservative, Nuneaton)

The hon. Lady paints a very dark picture of the effect of the Government’s policies on older people. Will she not accept, however, that the triple-lock guarantee for the state pension, the three-year council tax freeze and the fact that fuel duty is 13p a litre less than it would have been had her party been in government are all policies that are designed to support older people on fixed incomes?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate the hon. Gentleman’s compliment by suggesting that I have successfully portrayed exactly what the policy means for people up and down the country: a very dark picture. I also appreciate what he says but, frankly, the measures he mentioned do not outweigh the overall impact of the Government’s tax and benefit changes. He does not need to take that from me; he can take it from the Institute for Fiscal Studies or the OBR, which shows that people will be worse off in 2015, under his party’s Government, than they were in 2010.

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady cites the Institute for Fiscal Studies, but my hon. Friend the Member for Nuneaton is absolutely right about the Government’s policy with regard to pensioners. It is clear from analysis by the IFS that pensioner households lose out least under the consolidation measures that the Government have undertaken. Does she accept that point?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is interesting that the Minister focuses on who loses out the least, thereby seemingly acknowledging that everybody is losing out, yet some people are actually gaining. The millionaires are not losing out under the Government’s policies; they are gaining £107,000.

David Gauke (Conservative, South West Hertfordshire)

The IFS distributional analysis is clear that the wealthiest are bearing the greatest burden in the consolidation, not just in cash terms, but proportionally.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We know that the reality is very different for people up and down the country. The Government do not need to convince us on this issue; they need to convince members of the public and pensioners who are feeling the squeeze from the VAT increase.

Sheila Gilmore (Labour, Edinburgh East)

Would my hon. Friend like to hear the experience of people in Scotland? We have had a council tax freeze for some five or more years, with the effect that many pensioners are seeing fantastic increases in the cost of things such as payments for care services, so the council tax freeze actually has an extremely regressive effect.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank my hon. Friend for making, as ever, an insightful intervention, which I hope that the Government will take on board.

Nigel Mills (Conservative, Amber Valley)

If the hon. Lady does not want to agree with the IFS, will she agree with the Fabian Society? It has published a report stating it is better for older people to pay tax at the same rate as younger people on similar incomes, and that older people are no longer always poor and so should

“share the pain of deficit reduction”.

It also stated:

“All policies that appear to give special advantages to older people as a category should be reviewed”.

I would not agree with the Fabian Society, but does she?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

As ever, the hon. Gentleman is in fact adding weight to our position of calling for a review of the policy’s impact.

David Gauke (Conservative, South West Hertfordshire)

That is a very helpful observation, because we now know—I must admit that I had not appreciated this—that the purpose of amendment 7 is to bring about a review. Such a review could take account of the Fabian Society’s submission that benefits for pensioners should perhaps be reduced and taxes increased. I am grateful to the hon. Lady for clarifying the purpose of her amendment.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I do not know whether we can read such a level of detail into amendment 7, which asks the Government to undertake a thorough and honest review of the impact of their measure on a particularly vulnerable group: pensioners.

Ben Gummer (Conservative, Ipswich)

The hon. Lady knows this, but I can admit to the Committee that I am a great admirer of the hon. Member for Kilmarnock and Loudoun.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

What about me?

Ben Gummer (Conservative, Ipswich)

Sorry, I mean the hon. Member for Newcastle upon Tyne North—[ Interruption. ] I am about to be led into a very dangerous place.

The hon. Member for Newcastle upon Tyne North is being unnecessarily modest, because she has given us many examples of what the Opposition would do if they were in government. However, she and her colleagues have the ability to table amendments that would actually change the Government’s proposals, as they did during our consideration of the previous Budget, and with some success. On this occasion, rather than tabling amendments calling for reviews, why do not the Opposition say whether they would amend the Government’s proposals in respect of pensioners, which will save £1.2 billion by 2016-17? Do they support raising the personal allowance—yes or no?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his kind words, although the Cathy/Catherine issue raised its head again, and I also thank him for the great faith he puts in us and his desire to see us change Government policy. We would love to have that power but, as the Minister would confirm, Mr Crausby would rule out of order any amendments we tabled that would raise revenue or change the Budget’s fiscal position. That is why we have used a power within our means to call on the Government to review their policy, particularly in this case, and to highlight the detrimental impact of the Government’s measures on members of society.

I will continue to explore the imminent impact of the measures on pensioners using not just my own thoughts and words, but the evidence of Citizens Advice to the Treasury Committee about Budget 2012, which stated that the change to the personal and age-related allowance system

“has to be considered in terms of the cumulative impact.”

Government Members seem to fail to grasp its point that

“Fuel prices continue to rise, and that is a key worry; 43% of the people who come to us are worried that they will not be able to meet their fuel bills. We have examples of people coming into our bureaux who do not heat their homes because they are worried about not being able to afford it... This group of people very often have to rely on their savings in order to live in their retirement, and they are getting very low interest on them.”

The key point about the Government’s change is that the older people on whom it impacts have little opportunity to make up the loss, which came from nowhere. The people affected were taken by surprise, and they now have no means of recompensing their plans for retirement. We have an age-related allowance precisely to act as a buffer against real-terms falls in income, about which most pensioners can do very little because they rely on their savings.

Most people across the country are simply powerless to act in the face of squeezed living standards, rising costs and falling income at every turn. Of course, because of historically low interest rates, savings are being squeezed even further, which means that people with small pensions—those who have made sacrifices throughout their lives to put money aside for their retirement—are being penalised. As the pensions expert, Dr Ros Altmann, said:

“Amid all the talk of tax cuts...the main tax-raising measure”

in the 2012 Budget

“consisted of a stealth tax…on older people who did actually work and save hard for their future.”

Meanwhile, Gransnet warned that

“this tax change offers no incentive to save”.

The National Association of Pension Funds stated that the change would

“come as a blow to millions of pensioners who have paid into the tax system throughout their working lives. Pensioners with modest amounts of pension savings stand to be the biggest losers.”

I note that no Government Members wish to intervene. They may argue with me, but I am quoting spokespeople for the pensioners who are affected by the changes.

Pensioners are being penalised for doing the right thing through the Government’s changes to the age-related allowance. People born after 5 April 1948 will no longer be entitled to that allowance, as set out in clause 2, and we have a good understanding of how many older people will be affected by the changes. Last year’s tax information and impact note on the change states:

“There will be no cash losers from this measure”,

but it goes on to make it clear that in

“2013-14, 4.41 million people will be worse off in real terms with an average loss of £83”,

and of course the loss will be significantly higher for many others. The Daily Telegraph recently estimated that many people could find themselves £479 worse off as a consequence, or £511 worse off if they are aged over 75, so the cost to a couple could be nearly £1,000.

It might be helpful to consider just how many people will be affected by the change, region by region. Opposition Members represent the far corners of the United Kingdom and it is right to recognise the geographical spread of the impact. I am sure that Government Members share that concern. We know from parliamentary answers that Ministers have been unable to identify how many people will be affected by the changes resulting from the granny tax by constituency, or even by local authority area, but despite the Government’s attempts to abolish regions and to deny their existence, they can produce figures showing, region by region, the number of people over 65 who pay income tax. The Library sensibly suggests that those figures

“can be used as a proxy to estimate the number of people in each region affected by the freeze in the age-related personal allowance”.

The Government were unable to provide the figures, but the Library helpfully did so.

Of the 4.41 million people left worse off by the change, 170,000 live in my region of the north-east. Some 480,000 live in the north-west, 340,000 live in Yorkshire and Humber, 320,000 live in the east midlands, 450,000 live in east England and 410,000 live in London. Some 710,000 live in the south-east—that ought to make Government Members nervous—460,000 live in the south-west, 240,000 live in Wales, 370,000 live in Scotland and 90,000 live in Northern Ireland. Several million older people are being given serious food for thought, and I am sure that they will not forget the impact of the change in a hurry.

The strength of feeling and anger throughout the country is clear from a recent e-petition on the Government’s website demanding a reversal of the changes to the age-related allowance. It comfortably attracted more than the requisite 100,000 signatures required to trigger the possibility of it being the subject of a Back-Bench debate. I understand that that debate has been tabled for next week, after it was secured by my hon. Friend the Member for Luton North (Kelvin Hopkins), and I am sure that the Exchequer Secretary looks forward to responding to it, as he does to this debate today.

The e-petition was launched by Arthur Streatfield, a pensioner from Bath. Dot Gibson, the general secretary of the National Pensioners Convention, backed it and said:

“Since the Budget announcement...we have been inundated by pensioners like Arthur who are outraged that the Chancellor is giving a tax cut to those earning over £150,000 whilst pensioners on little more than £11,000 are having their tax allowance frozen. There has been a lot of nonsense about pensioners having been cushioned from the austerity measures, but they’ve already seen cuts to their winter fuel allowance, a reduction of their state pension increase because it’s now linked to the lower Consumer Price Index rather than the Retail Price Index, rationing of care services in the community”—

my hon. Friend the Member for Edinburgh East mentioned that problem—

“closure of day care centres, changes to disability benefits and caps on housing support…The Chancellor’s decision to freeze the age related tax allowance is really the last straw for pensioners who feel they are being asked to pay for the mistakes of the bankers and politicians.”

The Opposition agree, which was why we voted against the changes during our consideration of last year’s Finance Bill. This is absolutely the wrong priority at the wrong time. In the current economic climate, the Government should be prioritising ordinary families, ordinary pensioners and the young and long-term unemployed, not millionaires.

The critical group of people about whom we need to be seriously concerned, as is reflected by amendment 7, is those who are reaching their 65th birthday this year. That group of about 360,000 people will be as much as £322 a year worse off by being excluded from the age-related allowance. That is bad enough in itself, but they have had incredibly little notice of the change. People close to retirement have had little chance to plan, and that is completely unacceptable. Indeed, as late as the time of the 2011 autumn statement, the Chancellor made a categorical commitment:

“As announced in the June Budget 2010, the Government has reviewed how the CPI can be used for the indexation of taxes and duties while protecting revenues. Consistent with this, the default indexation assumption for direct taxes will be the CPI from April 2012. To ensure employers and older people do not lose out, for the duration of this Parliament the annual increases in the employer NICs threshold, and the age related allowance and other thresholds for older people, will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

Let me repeat the most relevant sections of that statement:

“To ensure...older people do not lose out, for the duration of this Parliament the annual increases in the...age related allowance....will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

And when was that statement made? Just four months before the 2012 Budget, at which the Chancellor decided not to over-index the age-related allowance from 2013-14. He did not even increase it by RPI; he permanently froze it for those born before 6 April 1948 and scrapped it altogether for people born after that date. The short notice given for that change was strongly criticised.

Dressed up as a simplification measure, the granny tax was justified by the Chancellor on the back of the Office of Tax Simplification’s interim review of pensioners’ taxation, but he forgot to mention that the review clearly stated:

“We would stress…that the OTS has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations.”

Indeed, in his evidence on the 2012 Budget to the Treasury Committee, the director of the Office of Tax Simplification, John Whiting, said:

“I was surprised that it was taken forward so quickly…The context is that we undertook to do a two-stage review of pensioner taxation. The first would document the problems and codify all the problems…Stage two was to go ahead and look at them and try to work out what might be the best way forward.”

Paul Johnson, the director of the Institute for Fiscal Studies, also gave evidence to that Committee, saying:

“I think there are problems in the way that this was announced, particularly coming in so quickly without giving people much of a chance to plan. To get a sense of the scale here, the group most affected will be those who are retiring next year because they will not gain the expected benefit of it immediately. We think the maximum loss, which is quite significant for that group, might be up to £300 a year.”

That figure has since been revised up to £322. He continued,

“If you are on a relatively modest income, that is quite significant.”

The Institute of Chartered Accountants in England and Wales remarked:

“It is a surprise that the Government should go ahead now with the definite plans to freeze/abolish these allowances, without the more detailed consideration which is planned in the second stage of the OTS project.”

Age UK raised concerns that the short notice of the change gave people

“very little time to adjust their financial retirement plans.”

I refer again to Dr Ros Altmann, who commented:

“It is true that the age-related allowances are very complicated…but the OTS also said that if the age allowance was abolished, the Government would need to find ways to compensate older people for this lost income. It did not do so.”

Of course, we all know why the Chancellor did not bother to wait for the final OTS report, through which he could properly have understood the impact of his changes on pensioners, particularly those who turn 65 this month. He needed what he thought was a soft target for a tax grab to help to fund his indefensible tax cut for millionaires. The measure is dressed up as tax simplification, but it will actually increase revenue to the Government by £360 million in 2013-14, rising to £1.25 billion in 2016-17.

Like so many of this Government’s decisions, the change is completely arbitrary. We have a situation in which somebody who celebrated a 65th birthday on 5 April this year could find that their neighbour down the road with their birthday a week later could well be £323 worse off than them this year and for the remainder of their retirement. That was why the Opposition voted against the proposal during proceedings on last year’s Finance Bill.

Stephen Williams (Liberal Democrat, Bristol West)

Since I came into the room I have listened to a lot of hyperbole from the Opposition, but at last we have some facts and arithmetic. I had to do the calculations on my clunky calculator. The hon. Lady said that pensioners would be worse off by £322. To know whether someone would be worse off when a tax threshold changes, we need to work out the rate of tax. She implies an income of £1,600, yet if the pensioner allowance was to go up with inflation, it could not possibly go up by that amount.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The figure was produced by the Institute for Fiscal Studies. I would seriously question the hon. Gentleman’s desire to jump up and advertise the fact that he seems to forget the drastic impact that the rate of inflation is having on pensioners and their savings. That is another bone of contention for many pensioners who face increasing costs of living and the depletion of their savings as a result of the ongoing economic stagnation, which is very much borne out by the ongoing rise in inflation and interest rates. So I am—[ Interruption. ] Pardon?

Stephen Williams (Liberal Democrat, Bristol West)

Flummoxed?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Going back to my concluding remarks, people who turn 65 in this calendar year but did not have the ability to determine that they were born before 5 April, as a consequence of their parents’ lack of foresight when giving birth to them, will be entitled only to the personal allowance covered by clause 2.

We have also tabled amendment 8, some of the detail of which we have already discussed. We are keen to ensure that the Government come clean to the House and the public about the overall impact of their budgetary measures on living standards for basic rate taxpayers, and that they put a copy of their report in the House of Commons Library. Let me be clear: the Opposition do not believe that the increase in personal allowance is a bad thing. [Hon. Members: “Ah.”] Hon. Members say, “Ah”, but perhaps they were not listening from the start. Taking people on the lowest incomes out of tax altogether and reducing the level of income tax paid by those on low and middle incomes is a positive move. That is why Labour is advocating the reintroduction of the 10p tax to assist further those on low and middle incomes.

What surely matters is not just the level of income tax paid, but the money that ordinary people have in their pocket to spend at the end of the week, and the money they have available, both to support themselves and their families and to have a decent standard of living. As my hon. Friend the Member for Gateshead rightly said, it is important they have some money to spend in the local economy. As we all know—at least those on the Opposition Benches do—times are extremely tough for millions of ordinary people and families up and down the country. Living standards are coming under increasing pressure, with average earnings rising at their lowest rate since the end of 2009 and, more worryingly, the squeeze on annual incomes is estimated to continue for years to come. Recent figures from the Office for Budget Responsibility and from the Resolution Foundation show that the problem will not go away any time soon.

The analysis suggests that the median pay for employees, which stood at £24,800 in 2009, will fall to £21,600 by 2015. After taking inflation into account, that is a drop of 13%, leading the Resolution Foundation’s James Plunkett to comment on Budget day:

“Prior to today’s new OBR data, the projection for 2017 stood at £21,800. Today’s gloomier projections therefore see the ‘wage gap’ (the difference from the pre-recession peak) increasing from £3,000 in 2017 to £3,200.”

At the same time as living standards are squeezed, people see the public services that they rely on being threatened or closed. The effect is greater in areas facing the greatest need. As I said, unemployment is up again, with youth and long-term unemployment reaching extremely worrying levels. We have an epidemic of underemployment and insecure working arrangements, such as so-called zero-hour contracts, which are flourishing in many parts. In short, ordinary people are being asked to pay the price for the Chancellor’s failing economic plan.

While the Government trumpet the increases in personal allowance, the Opposition believe that they need to come clean with the general public about the extent to which they are giving with one hand and taking much more away with the other. Much of the increase in personal allowance for basic rate taxpayers will be clawed back by the further reduction in the starting point for the 40% tax rate. Earnings over £31,865 are now liable to be taxed at 40%, which is a fall from last year’s threshold of £32,010. For many, that is going in the wrong direction. The change is expected to drag a further 400,000 people on earnings that are not astronomical into the 40% bracket. That fiscal drag is on top of the increase we have already seen under this Chancellor in the number of 40% taxpayers, from 3 million to nearly 4 million. That is some feat, given the economic stagnation and the wage freezes or cuts since the coalition came to power. While people are earning less, more and more are being dragged into the 40% bracket.

If we consider the supposedly progressive nature of the personal allowance increase, we see that it is not really progressive at all. It is estimated that 3 million households will see no benefit from this year’s increase in the personal allowance to £9,440, as well as from the promised increase to £10,000 next year, because their income is simply too low to be taxed at all. Rather than reduce the income inequality between those at the bottom and those at the top it may simply serve to increase the gap between those at the bottom and those in the middle, resulting in low-income households falling further behind relative to the middle.

Raising the personal allowance cuts taxes for everyone, since everyone benefits from a higher tax threshold. That point was raised by the Minister for Universities and Science, the right hon. Member for Havant (Mr Willetts), back in 2005, when he commented:

“Increasing the threshold cuts the tax bill for everybody. It takes some people out of income tax, but it is worth most to people who are still paying income tax and get the full benefit of the higher threshold.

When I asked the Treasury last year how much it would cost to raise the personal tax allowance to £10,000, it estimated the cost at £30 billion. Of this, only about £2 billion was spent on people who are taken out of tax altogether and it is worth least to people on low incomes who don’t get the full value of the policy…My conclusion is that we should both reform our tax system and help poor people. But these are different problems requiring different solutions.”

That was a very interesting commentary by the right hon. Gentleman and one that I hope hon. Members in the Government parties take on board.

Jon Ashworth (Labour, Leicester South)

Has my hon. Friend had a chance to discuss the matter further with the Universities Minister? In that same article, which was on his website only a couple of months ago, he said:

“If we really wanted to cut the taxes poor people pay we would be looking at indirect taxation.”

That sounds like an endorsement of our policies.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Indeed. It is useful to draw on the opinion of hon. Members, often learned, on our Benches, but also on some of the wisdom found on the Government Benches. Perhaps some of those voices should get a better hearing, particularly from the Chancellor, who seems to have his head well and truly buried in the sand.

The Low Incomes Tax Reform Group neatly summarised the issue:

“Increasing the basic personal allowance to £9,440 in 2013/14 and again to £10,000 in 2014/15 is worthwhile in the sense that it takes more people on low incomes out of tax altogether. But the benefit of the increases will be distributed in a way that is generally more advantageous to higher earners than to low earners.

Because an increase in after-tax income is clawed back by reduced entitlement to means-tested benefits, most benefit recipients will see only a fraction of any saving in tax. Overall, the household incomes of taxpayers on low incomes are more likely to decrease as a result of cuts in tax credits and benefits, despite any reduction in the tax they might have to pay. Meanwhile, in 2014/15 higher rate taxpayers will gain substantially more than basic rate taxpayers from the increase in the personal allowance to £10,000.”

Opposition Members appreciate that level of honesty. It would be helpful if Government Members could join us in supporting the amendment calling for a proper review of the overall impact of all the Government’s tax and benefit changes. If the Government are genuinely committed to what they set out in 2010, to ensure that those with the broadest shoulders carry the greatest burden and that we are all in this together and the good news keeps coming, which it clearly does not, they should be committed to an honest review of the impact of their tax and benefit changes, on not just millionaires but everybody in this country, and the people who rely on the Government to give them a fair deal.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Does my hon. Friend share my surprise that the Government did not support that proposal when it was put to them at an earlier stage in the Bill’s proceedings? If they have now reflected that they could take that opportunity, would my hon. Friend welcome an affirmative statement from the Minister that he will look at the issue?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I would. We call for that today because we all want the same thing. We want our economy to move back into growth. We want to protect the most vulnerable in society and enable them to live decent lives. Where possible, we want them to have a life in work, but we want to support those who are unable to work. We need an honest analysis of the impact of the measures on the most vulnerable groups that need the most support, to ensure that children do not live in poverty; to ensure that people get the education, skills and training that they need; and to ensure that people have a roof over their head, food on the table and money to buy fuel. It is a hot day today, but we have been through one of the harshest, longest winters that I can remember, and I shudder to think how people across the country must dread the winter’s fuel bills landing on their doormats.

Stephen Doughty (Labour, Cardiff South and Penarth)

My hon. Friend is making a strong and convincing case for the review. Is it not all the more important given the wider economic context and the Government’s no-change approach on the economy? As the Financial Times stated last week, we now face the spectre of stagflation. The economy is stagnating and inflation is expected to rise to more than 3% in the coming months, which will further squeeze incomes and living standards. Does my hon. Friend agree that that is all the more reason to carry out an honest appraisal of the effects that the proposals will have on families across the country?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend has uttered the dreaded word that we all fear will be a prospect for the country.

Paul Uppal (Conservative, Wolverhampton South West)

“Review”? [ Laughter. ]

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We know the reality of the cold economic data for constituents in our surgeries and for those we meet every day who struggle to make ends meet. The Government’s reports on the Budget make it clear that the situation will get worse. I would have thought that the Government would be committed to undertaking a review of the overall impact, rather than focusing on one measure or another and giving only half the story to the British public, who know from their own lives that the reality is very different.

John Cryer (Labour, Leyton and Wanstead)

My hon. Friend is basically talking about society becoming more unequal. Three years ago, David Cameron said that

“more unequal countries do worse according to every quality of life indicator.”

What does my hon. Friend think his assessment would be now?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

That is a powerful intervention. We can rely on quotes from the Prime Minister and the Chancellor to indicate what they have promised to deliver for the country, but the reality of what they are delivering is very different. It is time they came clean and reviewed not individual measures but the overall impact of the tax and benefit changes on ordinary people up and down the country.

Stephen Doughty (Labour, Cardiff South and Penarth)

May I bring another quote to my hon. Friend’s attention? A fundamental problem is the complete lack of coherence in the Government, which is why we need a review to look at the wide range of differing approaches. Last week, the Cabinet Secretary, Sir Jeremy Heywood, told a group of senior bankers that there was a “diversity of views” among the Cabinet and that

“the four most senior members of the Cabinet all champion different projects and policies”,

which stoked fears that the coalition might have lost focus. Is not the nub of the problem that four different Cabinet Ministers are leading us in four different directions? Which one does my hon. Friend think Treasury Front-Bench Members are following?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I do not know which one they are following, but I know that we are not being led anywhere except down the garden path into declining economic growth, double-dip recession and a double-downgraded credit rating. Ordinary people are paying the price for economic failure and coalition disarray.

Rory Stewart (Conservative, Penrith and The Border)

I am a little confused. Will the hon. Lady please help me to understand whether she likes the idea of taking the poorest people out of income tax entirely? Is that something the Labour party sees the point of and endorses? Can the Labour party see that it has psychological and motivational benefits as well as financial ones? Does the hon. Lady defend the concept of trying to lift people out of tax?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am disappointed that the hon. Gentleman is confused, because he seems to be paying close attention to the debate. It may be a reflection of the confusion emanating from the coalition and its lack of cohesive policy and leadership on jobs and growth, which this ultimately comes down to.

I want to advocate a policy for jobs and growth, but obviously within the confines of the clause that we are debating. To explain it in basic terms, we support the increase in the personal allowance, as we have made clear—I said that at the very start—but we doubt the Government’s sincerity in relation to the overall impact of tax and benefit changes. There is an increase in the personal allowance, which will take some people on low incomes out of tax, but many people who pay no tax are still suffering from the increase in VAT, the decrease in support for working tax credits and child tax credits, and the granny tax, which we have already discussed.

Overall, the Government’s tax and benefits changes will have a detrimental impact on the poorest households, as the IFS research has shown. We are therefore calling on the Government to have a proper review of the impact of the personal allowance change. They have briefed Members that it is a good measure that benefits everybody. Although it will impact more on those with higher incomes, in reality, as the IFS and the OBR have clearly said, the Government’s changes to tax and benefits in the round will impact hardest on the most vulnerable. The Government’s promise that those with the broadest shoulders would bear the greatest burden is not borne out in the round.

Of course, we would be happy for the Government to make their case that that is not true, but they would need to conduct such a review to establish that point.

Paul Uppal (Conservative, Wolverhampton South West)

On the point about the broadest shoulders carrying the most significant weight, I would be interested to hear what the hon. Lady’s perspective about that was when her party were in power. Venture capitalists were then paying tax at a rate of 10%. Did she feel comfortable with that, given that the proportion of tax they paid was less than that of the cleaners working in their offices?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

As my hon. Friend the Member for Leyton and Wanstead pointed out, when we have a more equal society, we have better social cohesion and fewer social issues, so I acknowledge the issues raised by him and the hon. Member for Wolverhampton South West.

The hon. Gentleman refers to an historical Labour Government. We are obviously debating the policies of this Government and asking for a review of how they impact on particular members and groups in society. We are now in a very different economic climate, which is one of austerity and deficit reduction. The challenge is to get our borrowing down—the Chancellor is completely failing to do that at the moment—to reduce the deficit and get the economy back into growth. The Government seem to have no focus whatever on that, because nothing or very little in this Budget will stimulate growth. It is a no change Budget that is about the Chancellor avoiding last year’s omnishambles. He is focusing on saving his own political skin, rather than saving this country and taking it back into growth.

Fiona O'Donnell (Labour, East Lothian)

Does my hon. Friend agree that the problem is not just the absence of growth, but the fact that four different Departments are pulling in different directions in their vision for growth, as has been confirmed by Sir Jeremy Heywood, the most senior civil servant in the UK?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I was concerned to read about the report of Jeremy Heywood’s meeting with senior bankers, because it confirmed for me—this is clear to anybody—that this Government have no clear strategy and direction for taking this country back to the economic growth that we so badly need. The amendment provides an opportunity to reflect on the people who are paying the price for that. There are decisions at the top of Government and arguments in Cabinet between coalition Members about what we need to focus on first, but ordinary people are paying the price for economic failure. Although we urge the Government to get a grip and take measures that will stimulate growth, we do not want them to take their eye off the people who are paying the price for a downgraded Chancellor’s plan.

Paul Uppal (Conservative, Wolverhampton South West)

On growth—I am probably veering away from the amendment—Opposition Members used various quotes in many of their interventions. I shall not use a quote. The hon. Member for Leyton and Wanstead mentioned the Prime Minister, whom I was fortunate enough to accompany on his trip to India. Committee members may be aware that Jaguar Land Rover is investing more than £500 million in Wolverhampton, adjacent to my constituency. I met Ratan Tata and he said to me—this is not a quote, but a face-to-face conversation—“We want to invest in the UK, because we like the economic backdrop of what’s going on in the UK.” Rather than use quotes, do not Committee members think that that face-to-face testimony is a powerful argument in favour of what the Government are doing in that respect? That is not a quote; it is a real conversation.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate what the hon. Gentleman says, but he kids himself slightly that that is not a quote. I should be interested to know what conversations he had about obstacles to India’s investing in jobs and growth in this country, particularly the Government’s shambolic immigration policy.

David Crausby (Labour, Bolton North East)

We are veering away.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

That is way off the mark, so I will bring it back in order, Mr Crausby.

An analysis of the figures published by the IFS, taking into account all the changes to tax credits and benefits that have been introduced since 2010, shows that households in the UK will, on average, be a staggering £891—or £17 a week—worse off in this financial year alone. For many hon. Members, that sum might not mean much, but to people struggling week to week to make the small amount of money that they have last, to ensure that they have enough food to feed themselves and their children, £891 is a staggering amount of money to lose from their economy, when their costs are creeping up week in, week out.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Picking up on the point made by the hon. Member for Wolverhampton South West, does my hon. Friend agree that if face-to-face discussion is important to find out what people think, the Government would do well to have a review and to ensure that, as part of it, some of those who are feeling the strain of those cuts in their household budgets were able directly to put those points to Ministers?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend makes a powerful point. That is not to make light of the contribution from the hon. Member for Wolverhampton South West. He is right: it is vital that the Prime Minister, and everybody down from him in this Government, have face-to-face discussions, not just with world leaders and major investors, but with ordinary people who feel the impact of this Government’s policies. I hope that the Government welcome the opportunity to undertake the review and have such face-to-face discussions. The real-terms cuts, as we have said, including to tax child benefit, the mummy tax, the tax credits, and the hike in VAT—we should not underestimate its impact on ordinary people buying their weekly shop—will affect 9.7 million households, of which 7.3 million, or 75%, are working households.

I am keen for Government Members to outline exactly what this means for the average low and middle-income person or family in their constituency. Perhaps the Minister will outline how some of his constituents will be impacted by the changes.

David Gauke (Conservative, South West Hertfordshire)

Given that the hon. Lady has listed the impact of a whole range of Government measures that were introduced in an effort to reduce the horrendous deficit that we inherited, including the VAT increase and tax credits, does she oppose them and would she reverse them?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We have made it clear along the way when the Government have proposed a policy that we oppose. We have supported some measures, but considered that the Government should have given more thought to them, and some measures we have opposed because they had been given the wrong priority at the wrong time.

Sheryll Murray (Conservative, South East Cornwall)

If the hon. Lady opposes some measures and would not implement them, will she tell us what she would do instead?

David Crausby (Labour, Bolton North East)

We do not have the time.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Thank you, Mr Crausby.

If coalition Members paid attention to debates, they would know that we have set out on many occasions what we would do differently, which measures we oppose and which measures we support. They seem not to attend Treasury debates these days. I do not know whether that is because they have lost faith in their downgraded Chancellor or if they have been asked by the Whips to keep quiet. Either way, had hon. Members attended the Treasury debates, they would have heard the alternative proposals that we put forward.

I return to the impact on real people in real places in our constituencies and want to bring home the overall changes made by the Government in their tax and benefit proposals. We are asking for an honest review of the overall impact of the tax and benefit changes. We are not asking the Government to change their policies, but to come clean to the British public about what their overall tax and benefit changes will mean. I know that the constituents of all members of the Committee would welcome such a review. It might show that they are doing better as a result of the Government’s policies than they were previously. I suspect not, but that level of transparency is something that the Government have always trumpeted, so I should have thought that they would take up the opportunity to push the boat out.

Teresa Pearce (Labour, Erith and Thamesmead)

Does my hon. Friend agree that the reason it is particularly important for the group of pensioners whom we are discussing to have their policy reviewed is that they are the people who worked hard, saved hard and did the right thing? Such pensioners have already been adversely affected by two areas of policy, one of which is low interest rates while the other is the decimation of their annuities because of the quantitative easing policy. It is important to consider those who have, perhaps not intentionally, been hit by two policies, and to make sure that they are not hit a third time by the policy under discussion.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am grateful to my hon. Friend for her intervention. We call on the review to consider the impact on all vulnerable groups in society. The IFS study provided a useful insight with such clarity into the impact of the overall tax and benefit changes that the Government’s own analysis fails to provide. Its post-Budget briefing from last month described the average annual loss by household type in the 2013-14 financial year from all tax, tax credit and benefit changes introduced in 2010—when this Government took office. A single person in work will be £438 worse off; an average single parent in work will lose £1,226; a one-earner family with no children will lose £1,630; a two-earner couple with no children will be £672 worse off; a two-earner couple with children will lose an average of £1,869; a single pensioner will be £246 worse off and that a pensioner couple will lose £479. Most staggering of all, a one-earner family with children will lose an average of £4,000 overall as a result of the Government’s tax and benefit changes. Those figures are not mine but were produced by the Institute for Fiscal Studies. Given the Government’s expressed commitment to marriage, to married couples and to supporting couples with children, to hit one-earner families with children by that amount will cause many of the constituents of coalition Members to question whether the Government are acting in their best interests.

Andy McDonald (Labour, Middlesbrough)

My hon. Friend is setting out an excellent case with those figures. It was suggested earlier today that there might be some psychological leap or benefit for someone in work who sees the personal allowance rise. However, if people are poorer, they are poorer; if their disposable income is reduced by the other changes, any psychological benefit brought about by their personal tax allowance is completely and utterly extinguished. There is no joy in the hearts of those going out to work when they look at their disposable income and see it ever reducing. Does she agree?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Inevitably, some people will see the increase in their pay packet between this month and last month—perhaps £10—and it is a welcome boost no doubt for many working people up and down the country. Ultimately, however, they are not daft; they realise that at the end of the financial year they will be worse off and that they will not be able to afford what they used to be able to afford, that they will have to cut down on going out, buying clothes or buying things for their children and that they will have to forgo a holiday this year. All that will impact not only on the household affected but on the local economy, with shops shutting and local businesses going bust. We are in this cycle of economic stagnation, which the Chancellor seems unable to kick into reverse. By undertaking the review on the impact of the tax and benefit changes overall, clever Treasury accounting tricks might have given people a welcome boost for one week in their pay packet but, ultimately, it does not change the reality for households who are facing such losses or for the stagnating economy, and that is borne out by the figures confirmed every quarter—we are just not growing.

Stephen Doughty (Labour, Cardiff South and Penarth)

My hon. Friend is making an important point about the squeeze on living standards. Does she agree that the squeeze should be seen as a spiralling squeeze? The reality for many people, when they see real cuts in their income, is that they must cut back, for example, on their car, so that they cannot travel to a supermarket to get the cheaper deals on food; or on their internet, so that they cannot find cheaper deals for their gas and electricity. We end up forcing people into more and more expensive patterns of behaviour. I do not expect that many Government Members have ever had to experience such choices, but every week I meet constituents in my surgery who face those choices. Is that not what we face: a squeezed middle and a squashed bottom?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We see not only a squeezed middle but a desperate bottom, forced to go to payday lenders. We see increasing numbers of people having to resort to paying extortionate interest rates just so that they can make it to the end of the month, to pay the rent and to keep their heads above water. The Government should take on board the overall impact of their policies on such people, as well as on those at the top.

Marcus Jones (Conservative, Nuneaton)

At the outset of the debate on the clause, I said that the hon. Lady and her party were dancing on a pinhead on this, and that is still the case. They are giving a commentary on what is happening as seen through their red-tinted spectacles, but that commentary indicates that, if their assumptions were correct, they would not need the review that they are asking for. If so, can she suggest some of the policies that her party might pursue to arrest the decline that she talks about, or perhaps she will leave it to the press, who seem to be doing a good job of that at the moment?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We might be dancing on a pinhead, as the hon. Gentleman suggests, but the Chancellor is going around with a sledgehammer in terms of household budgets across the country. I find the attitude of Government Back Benchers odd, because they seem to suggest that it is not within their grasp or power to do anything about the economic mess we are in. We are asking his Government to undertake a review of the impact of their policies on people across the country, and I fail to understand why he thinks that is such a strange thing to do.

Ian Mearns (Labour, Gateshead)

Sometimes I get the impression that Conservative Members think of poverty as though it is an abstract concept and that the poor make a philosophical decision every day not to try to be wealthy. The reality is that the whole range of Government policies acts differentially in different communities and different parts of the country. Unfortunately, where there are clusters of people who are engaged in the process of being poor, just beyond them are many more who are just above the threshold and are in real danger of dipping below that threshold at any time. We have to do something to increase the living standards of ordinary people, which would be good for the economy.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It will be good for the economy, but it will also be good for the future of our country. The Child Poverty Action Group gave some shocking estimations of the number of children who will be pushed into poverty by this Government’s Budget and tax and spending choices. Increasing child poverty is a ticking time bomb, and we might end up with no way out of the current economic mess because we are setting out our stall for the future. We need to give households support to ensure that children do not grow up in poverty but instead grow up in a warm, safe environment with parents who can cope, pay the bills, get them to school, buy their school uniform and do not have to go cap in hand for every bit of help. That has to be good for our country and the future of our country, and I hope that Government Members support a review to ensure that the Government’s policies impact not on the neediest and most vulnerable but on those who can most take the burden. Ultimately, that is what the Government promised in black and white in 2010.

Andy McDonald (Labour, Middlesbrough)

My hon. Friend makes an excellent point. Does she share my sense of disgust and horror that in this day and age, 40% of the children in my constituency are living in poverty while we are giving a tax cut to millionaires? Does she not find that absolutely revolting? Is it not about time that Government Members started to wake up to the fact that those children are deserving of their attention? A review of the impact of their financial policies is much overdue, and the amendment is welcome.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend speaks from a sincere place, because the statistics in his constituency are particularly concerning. That is something that no Government, and no Member of the House, should wilfully ignore.

Another worrying thing is that we have not even seen the worst of the changes—we are only in April. There is time to work out whether the policies will be as disastrous as many fear, and there is time to undertake a review to ensure that the Government’s tax and spending policies are fair and properly thought through. The purpose of the amendment is to consider that in the round. Some of the changes to local government spending are significant and will alter the landscape for many vulnerable people who rely on local authority services. There are also the changes to council tax and council tax benefit: 660,000 people will lose an average of £728 per year as a result of the bedroom tax. Let us not forget that one third of the households hit by the bedroom tax policy are families with children and two thirds include someone with a disability.

Sheryll Murray (Conservative, South East Cornwall)

For clarification, does the hon. Lady not know the difference between a tax and a benefit? A benefit is something that the Government give from the taxes they collect; a tax is something that people physically pay. Will she clarify that it is not a bedroom tax at all because it is not something that someone physically pays out of their income?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is for the hon. Lady and her Government to clarify and spell out for people up and down this country who are affected by the change how they view it and how they see it. It looks like a tax, it smells like a tax and it feels like a tax. Government Members may say that it is not a tax, but that is how people see it.

James Duddridge (Conservative, Rochford and Southend East)

I am glad my hon. Friend put a correction on the record. It is simply not a tax. I am concerned that Hansard properly records these debates so that they are fully understood in the future. Could I suggest, Mr Crausby, that when the bedroom tax is mentioned Hansard should record “spare room subsidy (mistakenly known as a bedroom tax, erroneously called that by the Opposition)”?

David Crausby (Labour, Bolton North East)

Order. I think that will be a matter for Hansard.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is a very dangerous precedent to start censoring the words of Members of the House. That is a deeply concerning suggestion from the hon. Gentleman.

It does not matter what the Government try to brand the bedroom tax as; it does not change the reality of what it is. Hon. Members can get vexed about the terminology, but ultimately it is money that people once received that they now have to pay out of their weekly income. That is the point we are making today. The impact of the tax and benefit changes needs to be considered in the round. This is £14, £16 or £13 that someone has to find out of their weekly budget and it is devastating for many of those affected.

David Gauke (Conservative, South West Hertfordshire)

Just as a matter of logic, if a Government were to increase housing benefits would the Opposition describe that as a tax cut?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am heartened by the Minister’s indication that the Government may be looking to provide some support for those on the lowest incomes who require support with their housing. There is not much hope that the housing measures in the Budget will provide much help to those who are desperate to find housing up and down the country.

Ian Mearns (Labour, Gateshead)

I wonder whether my hon. Friend would mull over the case of a constituent who came to my surgery on Friday. He is in his mid-40s, has three children who are living with his estranged wife and who stay with him at the weekend. He is unemployed but has had 15 interviews in the past two months, sadly all unsuccessful. He will lose access to his children as they will no longer be able to stay at the weekend because of what he called, without any prompting from me, “the bedroom tax”. If the people of this country are calling it the bedroom tax, it is the bedroom tax.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend shares one of the many stories that have come to us about the impact of this tax. I have similar heart-breaking stories from constituents who have come to see me; they called it the bedroom tax, not me. I have seen posters out there not produced by the Labour party calling it the bedroom tax.

Sheila Gilmore (Labour, Edinburgh East)

It would be good to be able to claim total responsibility for a phrase that clearly irritates the Government so much, but my recollection is that it was coined by a lot of the housing organisations who, nearly two years ago, predicted exactly what was going to happen. What really matters is that when my constituent is getting £12 a week taken off £71.70 a week it is a real cut in her income.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

That is a point I am coming to. I have been into social housing, not in my constituency but in other parts of the country, where to be helpful to the tenants there are large posters saying “Are you affected by the bedroom tax?” and listing the criteria for people who will be affected. It is not us calling it the bedroom tax; it is the people who are affected by it who are calling it that.

Ben Gummer (Conservative, Ipswich)

I object slightly to the intervention that the hon. Lady received a few minutes ago from her side, because I too represent a constituency with very serious areas of deprivation. These communities were not impoverished on 7 May 2010; they have been in an area of despair for many decades, which is the fault of successive Governments for not dealing with it. However, the previous Government were in power for 13 years. We are now trying to address the incomes of the working poor. May I direct her again to the intervention made by my hon. Friend the Member for Penrith and The Border? In principle, do the Opposition support raising the personal allowance for the working poor? Will she answer the question put by my hon. Friend the Minister about whether they will vote in favour of the measure to raise the personal allowance for the working poor?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am surprised by the hon. Gentleman’s intervention, which suggests that the Government’s policies are not having a devastating impact on communities such as that of my hon. Friend the Member for Middlesbrough. The data show that significant levels of unemployment and child poverty were very much a legacy of former Conservative Governments who devastated industry in regions such as his. There were many areas of vast improvement, but the Government are taking this country backwards in terms of industrial policy, growth and jobs. We need only look at the unemployment figures; they are increasing. It is shocking that Government Members are indignant at the assertion that their Government are increasing unemployment when quite clearly they are. They are also increasing child poverty.

Brooks Newmark (Conservative, Braintree)

Will the hon. Lady give way?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

May I answer the hon. Member for Ipswich first? I have not finished answering his intervention and his question as to whether we support the increase in the personal allowance. Perhaps he has not been listening; we have said very clearly, and I have said a number of times, that we are not objecting to the increase in the personal allowance. We support it as a measure that will help some low and middle income families. However, the purpose of our amendment is to ensure that we have a more holistic view of the changes. The raising of the personal allowance is not the panacea that the Chancellor and the Prime Minister would like the country to see it as. It will not help families who are worse off overall under this Government; the Office for Budget Responsibility has predicted that they will be worse off in 2015 than they were in 2010 when the Government came into power. If the Government genuinely want to improve the lives of those the IFS shows are affected by their policies, they would welcome a review of not just the one policy that they can trumpet might make a bit of difference, but the overall impact of all their polices on the most vulnerable.

Brooks Newmark (Conservative, Braintree)

I acknowledge the hon. Lady’s point about the unemployment figures, especially on youth unemployment. The other side of that coin, however, is obviously the employment figures. Will she at least acknowledge that today we have more men and women in work than ever before? That is something that should be applauded.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I and all my colleagues will always applaud any increase in employment and the life-changing reality that can bring to somebody who finds work. However, Members on the Government Benches cannot focus on just one aspect of an economic indicator and expect the country to believe that the policy is working. The economic data show the opposite; unemployment figures are going up and productivity figures are down. That shows that many of the so-called jobs created are not necessarily real jobs that increase the productivity of our economy.

My hon. Friend the Member for Edinburgh East gave a clear example on Second Reading, which virtually no Government Members attended, that some of the jobs advertised have no fixed salary, and are zero-hours contracts based entirely on commission, so we have to be careful about applauding jobs that do not resolve the economic difficulties for many people. There is also chronic underemployment: people want or need more hours, but they have to accept fewer hours to stay in work. Those people need housing benefit, working tax credits and other in-work support just to keep in work. That is why the Government’s benefits bill is going up, not down. The Government need to get real and get a grasp on why their economic strategy is failing catastrophically; the review would be a stepping stone to enable that to take place.

Rory Stewart (Conservative, Penrith and The Border)

The hon. Lady is generous in giving way. Perhaps she would like to reflect on why my hon. Friend the Member for Ipswich and I find it so confusing to listen to this debate. Her desire is to focus on the amendment while consistently minimising and denigrating the significant and bold reform introduced by the Government, but her party refused to introduce such a proposal while they were in power for 13 years. That is the fundamental reason why we find it hard to understand why two hours have been consumed on this debate and why she is so reluctant to endorse positively such a constructive measure.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate what the hon. Gentleman says, but I am surprised that that is how he interprets the argument we put forward. That seems to be indicative of the heads in sand approach taken by the Government to the economic steering of the country.

We have said that we support the increase in the personal allowance; we know that people up and down the country will benefit as it will make a difference to their wage packets. However, we are clear that that is not the solution to the difficulties faced by many people in terms of living standards being squeezed, making ends meet, ensuring that their children do not live in poverty and getting into work. One can point to policies being implemented that on the surface will benefit X number of taxpayers, but if the overall impact of everything else done behind the smoke and mirrors makes everybody worse off, it is time for the Government to come clean about that.

The Government may be serious about ensuring that those who have the most bear the greatest burden for reducing the deficit. We all acknowledge that it needs to be reduced, but the only way to do that is to get people into jobs, to get businesses creating jobs, to get confidence in the economy and to get growth back into the economy. The Government are trumpeting one policy, which is the increase in the personal allowance, while on the other hand taking away all of the in-work support and, indeed, out-of-work support as well.

As I have said, 75% of households affected by the overall change in tax and benefits are in work and those people are struggling to make ends meet, to feed their children and to feed themselves. The Government need to get real about the overall impact of their policies on working people and on the most vulnerable, who are unable to work either through disability or unemployment, which we have also discussed. The Government seem to be completely in denial about the unemployment figures, which are blighting communities up and down the country.

Paul Uppal (Conservative, Wolverhampton South West)

As I have highlighted before, I represent a constituency in Wolverhampton, which has a long and proud industrial history. However, nearly a quarter of the residents of Wolverhampton have almost no formal qualifications or skills. The truth is that in the constituencies that the hon. Lady and other Opposition Members represent there is a low skills base, and that is a real issue in terms of getting people out of poverty.

The other point I want to make is about the comments made by three other Opposition Members—I would appreciate your guidance on this issue, Mr Crausby—about Government Members not understanding poverty and being detached from it. I am two generations away from my paternal grandmother, who would sometimes go 72 hours without eating. I was born in a two-up, two-down, and I will take no lectures from Opposition Members about what real poverty is. I am a Government Member because I believe in helping people out of poverty, and that is giving them opportunity and aspiration.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his intervention, which I take in the spirit in which it was clearly intended; he is very sincere. I agree that there is a skills deficit and that we need to invest in skills in the parts of the country that have suffered most from some of the deindustrialisation of the 1980s. However, we also need to grasp some of the economic opportunities that we have as a country. I speak for my own region when I talk about the huge potential we have in the green economy, including windmill production in some of the old shipbuilding yards. That is just one tiny example of a huge array of economic opportunities that are available. We must ensure that the skilled people who worked in industries such as shipbuilding are captured and able to come back, so that we not only retain those skills but “skill up” young people to become the engineers and technicians of the future.

However, I am surprised that the hon. Gentleman takes such an aggressive approach in objecting to what we are asking for, which is a review of the impact of the Government’s tax and benefit changes on people. We are asking for an overall review not only of the poorest, those who are not in the tax system, and those who are on benefits, but of everyone, including people in work.

I wholeheartedly agree with the hon. Gentleman that we need to be a country of aspiration, where people aspire to work, to get on, to better themselves and to do better for their families; that is what this country is built on and that is where our future lies. However, we are baffled by this Government’s approach, which does not seem to take into consideration the fact that their policies are actually having the opposite effect. That is what the request for the review is intended to address. Although the Government say they aspire to those things and they want to help people to get on, they are actually hitting the working people of this country the hardest. The Government are also doing nothing to create jobs for those who are unemployed and cannot get into work. The poor growth figures, the impact on household budgets and the reality of families struggling to make ends meet all bear that out. The Government should welcome an opportunity to take stock of their policies and to assess how those policies are working and impacting on real people up and down the country. They should take the opportunity to vote for our amendment today.

To conclude, one thing we cannot forget, and people throughout the country will not forget, is that the Government implemented tax and benefit changes that impacted overall on the poorest households in the country, and at the same time handed out a tax cut to top rate earners—the people who need it least. Worst of all, 13,000 millionaires received an average tax cut of £107,000. That staggering amount of money might be a drop in the ocean for them, but could have been used for very different purposes. Many people throughout the country believe it should have been.

During the Committee of the whole House, I said that it was ever more worrying that research shows that 94% of the Government’s cuts will directly hit women—94%. Of those on incomes of more than £150,000 who will benefit from the cut in the top rate of tax, 85% are men. That brings me back to my initial point: there are no women in the Treasury. It beggars belief that Ministers could have been privy to that knowledge if they had carried out their own assessment of the impact of the benefit changes on ordinary people, but decided to press ahead with the tax cut for millionaires.

Sheryll Murray (Conservative, South East Cornwall)

Will the hon. Lady give way?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I will gladly give way to the only female Member on the Government Benches in this Committee.

Sheryll Murray (Conservative, South East Cornwall)

Does the hon. Lady not share my view that it does not matter what gender someone is, and that ability to do the job should be first and foremost? I believe that I operate equally with my male colleagues here. It disappoints me that the hon. Lady seems to think more in terms of ticking boxes than of ability to do the job. Would she like to comment on that?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I would, because it is deeply worrying that the hon. Lady believes that neither she nor any of her female colleagues are up to doing the job of a Treasury Minister.

Of course, for most people, the analysis of the changes to tax and benefits will come too late. By the time we realise the true impact of the Government’s measures, many families and households will have been pushed into poverty and we will have to pick up the pieces when we take over the reins of government in 2015. We are asking now for a review, so that measures can be put in place to ensure that the Government are fully informed of the impact of their tax and benefit changes overall and that members of the public are aware of the Government’s priorities. That is what amendment 8 is calling for. It is perfectly reasonable and asks for a review, which the Government should welcome. I call on my hon. Friends to support the amendment and for Government Members to do the same.

Sheila Gilmore (Labour, Edinburgh East)

It is a pleasure, Mr Crausby, to speak in this debate under your chairmanship.

When considering the effect of a Government’s Budget, it is important to consider the overall effects of the measures. It is tempting, particularly for the Liberal Democrats—this is probably the one thing they have to boast about in the coalition—to think that raising tax allowance is in itself enough to help the low paid. A Government may wish to emphasise that their purpose in doing that is primarily to help the low paid, because that sounds good. It is a good soundbite and it makes them sound caring. But any Government must consider the overall effect of their policies. Looking at the measures in the round—

Stephen Doughty (Labour, Cardiff South and Penarth)

Is my hon. Friend, like me, rather bemused that we have heard so little from Liberal Democrat Committee members so far? They made a great point of supporting the rise in the personal allowance—my hon. Friend the Member for Newcastle upon Tyne North was clear about our support for it as well—but we have heard little from them about the rest of it. Does my hon. Friend the Member for Edinburgh East wonder, as I do, whether they will vote for our amendment on a review of the wider impact of their Government’s policies?

Sheila Gilmore (Labour, Edinburgh East)

I rather suspect from my previous experience in Committees that that is unlikely. Indeed, the nearest the Liberal Democrats came to supporting us—in my experience; I think there have been other instances in other Committees—was when we were debating the Welfare Reform Bill at great length and we came to some difficult amendments. I might be wrong in saying that those applied to the bedroom tax. I do not want to mislead the Committee; I have not looked it up in Hansard. However, there was certainly a clause about which the Liberal Democrat Members were clearly having some personal angst, and they were mysteriously absent when we came to vote on that amendment. Both of them, who had been fairly assiduous attenders hitherto, found a way not to have to commit themselves.

I will give another important example of how we are making a lot of choices about how to help different groups, and we must be clear about the trade-offs. The Resolution Foundation recently considered again the question whether tax allowances are the best way to help the least well off or whether there are other ways. In particular, it considered the raising of tax allowances and all the discussion about raising them even further. The foundation carried out an interesting calculation of the inter-relationship between raising tax allowances and the people who will be on universal benefit, which should be in force for at least some people in the financial year 2013-14. The number of people affected by universal credit in this financial year, assuming that it does start, might be much smaller than we have been told.

The Resolution Foundation considered the option of Government deciding to give people on universal credit a higher income disregard. It looked at universal credit in particular, as it is supposed to be coming into force, but I maintain that the same argument applies to tax credits. The income disregard is the amount of income that is not taken into account in how universal credit and tax credits taper off as earnings increase. The level of income disregard is important.

The Resolution Foundation calculates that about 4 million working people currently receive tax credits and would receive universal credit in due course, of whom 3 million pay some tax. It concluded that if the Treasury spent as much on raising the disregard as it will in 2013-14 on raising the tax allowance, those households would gain about £25 a week rather than the £1.80 that they will gain, as a result of the inter-relationship of benefits and tax allowances, from the rise in tax allowance.

No doubt someone will say, “Ah! Are you saying that the tax allowance should not have been raised?” The issue must be that as responsible politicians, we must consider those options and consider whom we want to help most, not simply pretend that raising tax allowances is the best or the only way—

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

Clause 2 - Personal allowance for 2013-14 for those born after 5 April 1948

David Crausby (Labour, Bolton North East)

I remind the Committee that with this we are discussing the following:

Amendment 8, in clause 2, page 2, line 6, at end add—

‘(3) The Chancellor shall review the overall impact of the Government’s overall budgetary measures on the living standards of basic rate taxpayers and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.

Clause stand part.

Sheila Gilmore (Labour, Edinburgh East)

The Finance Bill has to be one of the most important pieces of legislation for the Government in any parliamentary year, which makes it all the more extraordinary that, on Second Reading and in Committee of the whole House last week, Government Back Benchers seemed uninterested in the Bill. That is not the case now we are in the Committee Room, as we have seen from the lively interventions that have been made.

The point I was making before the Committee adjourned this morning was that one thing that Governments need to do constantly, and are urged to do by bodies such as the Resolution Foundation, is to look at the overall impact of what is happening and to ask themselves whether a certain way of proceeding is the best or indeed the only way of helping the people they want to help. We hear from both sides of the House—at least, officially—the profession that we want to help those who are least well off, and that that is the goal of Government policy. The conclusion that the Resolution Foundation reached when comparing and contrasting the raising of the tax allowance with altering the earnings disregard in relation to universal credit—although the same argument would prevail if universal credit does not get rolled out fully this year—was that, simply in terms of helping working families on low and middle incomes, raising the universal credit disregard was 15 times as effective as raising the tax allowance.

If, therefore, we are genuine when we say that our primary focus is on the least well-off—as has been argued in relation to the raising of tax allowances in particular—that sort of comparison is what we need, and what the review proposed by amendment 8 would seek from the Government. They should look seriously at the impact of their measures, not just to review what has been done but, crucially, to look forward to policy in future Finance Bills, and to work out where we are going on the issue of the tax allowance.

One particular argument has been made repeatedly during post-Budget debates, although less so last week, mainly because Government Back Benchers did not speak very much. The Government have been very keen to point to some—not all—parts of the impact assessment carried out by the Institute for Fiscal Studies. In particular, they constantly ask us to look at the fact that the biggest impact of their benefit and tax measures since 2010 has been on the top 10%; therefore, it is argued, the measures must be fair. I have a few problems with that. First—and I have not noticed this point being discussed by anyone else, so I hope the Minister will be able to answer it—when the IFS makes that statement, the calculations used take into account everything that has happened since the pre-election Budget of 2010, including the additional 50p tax rate and the subsequent reduction of that rate to 45p. But we are told constantly by Ministers that the 50p tax rate did not actually raise any money. If it did not raise any money, it could not have had an impact on the income of people at the top of the income scale. Either it did raise money and so had an impact, or it did not raise money and so did not have an impact.

Fiona O'Donnell (Labour, East Lothian)

It is not often I speak in defence of millionaires, but was it not also very insulting to say that the change in tax rate would incentivise the rich to be honest, therefore implying that, as a class, they are dishonest in their tax affairs?

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for her intervention. That justification—that people were not paying the 50p rate—is staggering. If that suggestion were made in reverse about people falsely claiming benefits, a rather different view would be taken. If people were not paying the 50p rate, we should have looked at how it could be improved. We should not have said, “Oh, that’s all right then. It is not getting us any money, so we will just get rid of it.”

Paul Uppal (Conservative, Wolverhampton South West)

Just to enlighten Opposition Members, people who earn that kind of money tend to have quite liquid assets, so they might declare their income shorter on this side and use other income as capital. That is the problem we have with incredibly high net worth individuals.

Sheila Gilmore (Labour, Edinburgh East)

We may be talking about incredibly high net worth individuals, but the 50p tax rate—now the 45p tax rate—does not just apply to the kind of incredibly high net worth individuals who can move away. A deliberate decision was made to pitch it at the level it was pitched. Although it affects only a very small proportion of the population—we know that the median wage sits way down the scale in relation to it—it includes a number of people who cannot simply up sticks and go somewhere else. That argument is put forward—not always with great numbers, but with a few anecdotes—but it is not a good enough reason for saying that we should abandon a tax rate that might be of assistance.

Kwasi Kwarteng (Conservative, Spelthorne)

Is the hon. Lady suggesting that we should increase taxes further because those people are not going to go away?

Sheila Gilmore (Labour, Edinburgh East)

As I said on Second Reading to one of the hon. Gentleman’s colleagues—I am afraid that the audience for what I said was quite small—that is the old Laffer curve argument: if tax rates are set at zero, nothing will be collected; if tax rates are set at 100%, people will be so disincentivised that nothing will be collected. The question is, at what point in between should tax rates be set? That will always be a matter for debate. When I researched the Laffer curve to find out how many people had written on it, I found that there is remarkably little research evidence—far less than I had imagined. It is so often thrown around that I had assumed everybody understood it and it was well researched. When we have that discussion, we could clearly debate at what point in the spectrum it should be set.

Like every Government, we are trying to do various things. We want to deal with a deficit in Government finances—nobody has said that we do not—and we want to make sure that what we do is fair. Those are the balancing factors. Some of us would argue that some of the measures that the Government have looked at are far less fair than they might be.

Rory Stewart (Conservative, Penrith and The Border)

I apologise if I have missed this in the hon. Lady’s speech, but will she clarify the previous Government’s rationale for setting the top rate of tax at 50%?

Sheila Gilmore (Labour, Edinburgh East)

Like the hon. Gentleman, I was not a Member of this House at that time, and I was not involved in the debates and discussions that took place. In my party—I am sure it is the same in the hon. Gentleman’s party—we discuss these issues, and we often disagree. Some of us had views that were not the majority view—even at the time of the previous Government—about how to set tax rates. But it is clear that the big difference that we have been faced with since 2010 is that there is a gap between Government income and Government expenditure. One of the reasons for that is that Government income fell quite substantially as a result of the recession, as we all know. When individuals lose their jobs, they pay less tax, businesses make less profit, and Government income drops. We also believe, though clearly not everybody accepts, that stimulating the economy during a recession is a positive move.

The decision to raise the rate from 40p was taken in that context. However, it is a debate we need to have constantly. We need to think about how we can fund the things we want to do and on whose shoulders the burden should rest. The IFS said that those on the highest income are bearing the greatest proportion as well as the greatest cash amount and that, therefore, that makes the rest of it all right. I genuinely question that. I think the IFS was looking prospectively at what the impact should be of various measures. I wonder what the out-turn might be regarding the impact on that top group. If they are not really being affected by this tax, the impact will not be as the IFS modelled it in advance.

That is another reason for looking in more detail than at the time of last year’s Budget to review the impact of that additional tax rate. It was measured over a very short period. It is always necessary to look at the overall impact of budgetary measures on living standards. We have asked to look in particular at the living standards of basic rate taxpayers. Even if the IFS figure is an out-turn as well as a prospective one, it still remains the case that to lose 10% of an income in excess of £150,000 or £200,000 is very different from losing 10% or even 5% of a much lower income. That is where the cash terms and the impact on spending power matter.

There is also an impact on the wider economy. One thing that is driving the ongoing recession and causing the economy to stagnate is the fall in living standards. People have less money in their pockets to spend in the way they previously did. I was speaking to a constituent recently whose husband is a taxi driver. He is self-employed and they are not particularly well off but they have seen a substantial drop in income, because, as she said, people are not going out as much. When people are not having as many nights out they are not using taxis as often. They have seen a real reduction in their income because other people have seen a reduction in their disposable income. And on it goes. The path we are marching down will take us back to a bad position.

This is not just about fairness, although that is hugely important. There is also the economic impact of what is happening. The spending power of millions of people is powerful in an economy. I am sure others will be able to give local examples, like the one I have given, showing how important it is that people are able to spend.

At the lower end of the income scale, it is not good enough to say that all is fine because we are raising the income tax threshold and that is the best way to make them better off. People sitting at home are not saying, “This is great and fantastic. Look at how much more money I have got.” They know they have not got very much more money. In fact, on average basic rate taxpayers have less money than before due to measures such as the rise in VAT, price rises and the loss of important benefits.

Child benefit, which goes to every family with children except those earning more than £50,000, has been frozen since 2010. That has an impact on the amount of money coming into households with children. Even before the recent changes, about which there has been some debate, tax credits were frozen prior to the 1% increase introduced by the Welfare Benefits Up-rating Act 2013. Despite having said that they were keen to help working families, the Government froze tax credits. If that happens for two or three years on the trot, it will have an impact. Other people have lost considerable amounts of tax credits because they have dropped off the top end. Because the Government have taken the taper down faster than before and taken away part of tax credits with the change from 80% to 70%, many working families have lost considerable amounts over the past three years. That must be weighed against the question of tax allowances.

We are trying to reduce the deficit and get the economy back on track, and the decision to raise tax allowances has a substantial impact on Government finances. Some Government Members have argued, and I respect them for this, that it is morally right to leave people with their income rather than paying out tax credits, so, in one sense, they would make the change anyway. That is a point of view that we can debate and perhaps disagree on. The measure does not simply take out of tax the people at the lower margin; it removes all basic rate taxpayers, so the total cost to the Government, who are strapped for cash, is quite considerable. Presumably, Ministers had that equation in their head when they drafted the proposals. Their view must have been that it was the right thing to do, even though it would cost the Treasury a considerable amount.

Rory Stewart (Conservative, Penrith and The Border)

One argument that the hon. Lady might like to consider is that apart from the revenue implications, the psychological impact of taking low-paid people out of tax is considerable. The sense that going to work will drag them into a tax trap is a serious barrier to getting work for many people in my constituency and, I am sure, in hers. There might be a good argument for raising the level to £16,000, or the average income. The amount of revenue that the Government derive from such taxation is relatively modest, but it puts considerable psychological obstacles in people’s way.

Sheila Gilmore (Labour, Edinburgh East)

I suspect that it is not correct to say that such income is relatively modest. During the 1970s, one issue in the political and financial debate that led, I believe, to the outcome of the 1979 general election was the fact that many people—those on the basic rate of tax as well as those on higher rates—felt that tax rates were higher than they would like. At the time, I criticised the Government for that, because it is very easy to take a penny off millions of people and get quite a lot.

Putting up the tax threshold is an expensive business, and if the Government want to do so, they must take on board the overall costs and balance them against what people are getting. In my experience, tax issues are not the biggest barrier to work for many people. Many other problems affect people considerably, including the cost of rent in the private rented sector and the cost of child care, especially since child care tax credits have been cut. They pose equal barriers to work, and perhaps the Government should tackle all of them.

Ian Mearns (Labour, Gateshead)

When my hon. Friend the Member for Newcastle upon Tyne North made her contribution, Government Members seemed to pooh-pooh the idea that the tax cut created by raising the threshold was offset by more regressive measures such as the increase in VAT. I remind them that in 2009, somebody they know and love dearly said:

“You could try, as you say, to put it on VAT, sales tax, but again if you look at the effect of sales tax, it’s very regressive, it hits the poorest the hardest. It does, I absolutely promise you…VAT is a more regressive tax than income tax or council tax.”

That was none other than David Cameron, now the Prime Minister.

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for his comments, which are helpful in trying to make the assessment we want the Government to make. If we are wrong and the Government are right, any review would presumably show that the overall impact of their Budget measures on the living standards of basic rate taxpayers was positive. They will have a good news story to tell if they are correct, so their resistance to a review is not clear. It may be because they suspect that the studies that have been done by the IFS and others are right, and that basic rate taxpayers, particularly those at the bottom of the income scale, have not benefited as much as they would like people to believe.

Every time we say that people have dropped out of tax, we should remember that once they are out of tax, they get no further benefit. It is like the myth of the council tax freeze. The council tax freeze is always supposed to help the most hard-pressed. However, because of council tax benefit, and even with the changes that are coming in England this year—not yet in Scotland—a lot of people in all our communities are not paying any council tax because we previously considered that they did not have enough income to do so. They get no benefit whatsoever from the council tax freeze. In Scotland that is almost six years of the people on the lowest income having no benefit whatsoever, including a lot of pensioners because many of them receive council tax benefit. Because they are the greatest users of council services, they have seen the downside of all that, which is that councils find it more difficult to provide the level of service they would like to provide. In some cases, they are putting up charges. Social care has been reduced in quality and time. That is happening in Scotland as well. Anybody who believes that we have somehow cracked the issue of social care in Scotland is completely and utterly wrong, and if this was a debate on social care I would go on down that line.

We have a situation where something regressive is being portrayed as a great benefit to everyone. If people do not pay council tax at all—no benefit. If they are on the lower bands of council tax they get proportionately much less benefit than people on the higher rates of council tax. If we really want to help the worst-off who depend most on council services, the council tax freeze is not a progressive way of doing it. However, if the Government keep saying it, perhaps people will think it is. Sometimes those who do not pay council tax say how wonderful it is in the same breath as complaining about some aspect of council services that is letting them or their families down.

That is why we need to look at a much wider picture of how all these measures interrelate. We can have a philosophical discussion about whether it is better for people to receive effective assistance from the state through the level where we pitch tax allowances, or whether it is better to target people who are in most need. We can have, and have had on a number of occasions, debates about whether tax credits are a good or a bad thing; they were certainly a good thing for many single parents who were able to get back to work as a result.

There are philosophical differences, but in the end, what really matters to people is the money in their pocket, and their income and living standards. If you are worse off, it is not enough to say “We’ve empowered you. We’ve left you with your own income.” It is nice to feel empowered, but many people are simply being empowered to be worse off than they were before. A lot of people would prefer to have the money in their pocket.

I hope that the Government will review their policies, as they surely want to do. Ministers often tell us that they are reviewing policy all the time and do not need an amendment. We do not want something that goes on in the Treasury with an inconvenient outcome that is not published. Taxpayers generally, and basic rate taxpayers in particular, deserve a proper analysis and the outcome reported, so that future decisions will be well informed and not made on the basis of prejudice. We all have prejudices about what we think are the best measures and levers. The only way to test them out is in reality. We know from our constituents where people are finding it difficult. Study after study has shown that living standards are falling for many people.

The argument is always thrown to us that people who are much better off are taking a bigger hit. I find that slightly strange. In order to balance my newspaper reading, I buy The Sunday Times. I do not normally buy The Times but we buy the Sunday edition. We buy The Guardian during the week and think we should give ourselves a different point of view so that we can educate ourselves. I was interested to see in the business section of The Sunday Times this week that David Smith, the economics editor, said that perhaps low wages had gone too far. As I am sure most Committee members know, David Smith is on the whole supportive of Government policy, but even he was beginning to think that driving down wages and living standards may be harmful to the economy.

In the same edition of The Sunday Times we had the rich list, with the rich getting richer. They are not taking a hit; they are getting richer. In the homes section—I read a lot of The Sunday Times—there were two or three pages describing how property at the higher end of the market was taking off again. Prices are rising and houses that stuck on the market a couple of years ago are now selling more quickly and for higher prices. It appears that some are not suffering in this recession.

Kwasi Kwarteng (Conservative, Spelthorne)

Does the hon. Lady want to see house prices fall?

Sheila Gilmore (Labour, Edinburgh East)

We could get into a debate about how we provide housing and whether rising house prices have been a boon. For many people on the housing ladder the price they sell and buy at is artificial. As part of a wider housing package, we might want to stabilise house prices rather than see another housing bubble. The point I was making was that people are able to pay over the asking price at higher sums than houses were reaching over the past few years. That suggests they have the income and assets to do so.

Unlike the family of the taxi driver I spoke about, those people do not have to pull in their horns because their income is falling. People whose income is falling not only cannot buy a house; soon some of them will not be able to rent one. Government Members hate us talking about the bedroom tax, but they should consider someone on £71.70 a week and nearly 60, when the job market is not easy for people of that age, as we have known for many years. My constituent wants a job and has done loads of training courses to get back into work—retraining, keyboard skills, and all the things that people are now supposed to do to get a job—but has not got one yet. She will have to pay £12 of her £71.70 a week towards her rent, which she did not previously have to pay. That is certainly a drop in her income, regardless of whether hon. Members deny it is a tax.

Sheryll Murray (Conservative, South East Cornwall)

Does the hon. Lady agree that if a person does not get so much back as a benefit because they choose to live in a house with extra bedrooms, they have the opportunity to downsize?

Sheila Gilmore (Labour, Edinburgh East)

I am delighted that the hon. Lady has given me the opportunity to talk about the difficulty of downsizing and the ludicrous nature of the word “choice”. I would like to take Government Members to my constituent’s mansion, which has two bedrooms, although one is quite small. She has lived in it for 18 years. She has put effort into her house, as did her husband when he was alive, but he is sadly no longer with her. He died, so she is on her own. People have suggested that she get a lodger to fill the spare room, but as her kitchen comes off her living room that would mean sharing her life with a stranger.

Two weeks ago I checked the availability of one-bedroom social rented houses in my city: 24 houses were advertised—that is all the social landlords in the city. Five of them were sheltered housing for people over 60 or 65. My constituent would not have qualified for those houses even if she wanted sheltered housing, which is usually reserved for the most frail, not for somebody who has not quite turned 60. There were 19 houses left that she could have applied for. The highest number of applications for one of those properties was 950, and the lowest number was 52. They were ordinary council properties—not bad, but not fantastically good. The property with 950 applications was admittedly on Edinburgh’s Royal Mile, where there are still some council properties, although not many; they come up once in a blue moon and are always in high demand. Even a property in my constituency, which I would describe as a pretty average council property—not particularly wonderful, but not in a very bad area—attracted 850 applications. A multi-story flat in what I would describe as a difficult block, which has a lot of problems and a lot of people with social problems—a lot of my constituents would say, “Oh, I wouldn’t go there”—attracted 170 applications. To suggest to people that it is easy for them to downsize is insulting and unreasonable.

One of the amendments suggested by the House of Lords is that if the Government want to introduce the bedroom tax, although it is not a particularly good idea, they could say that if somebody refused a reasonable offer of a downsized property, the bedroom tax would come into play. But that is not what is happening. My constituent might have to wait for two years, two and a half years, or three years, and even then she might not succeed. In my city—perhaps this is not happening in some constituencies—between 3,000 and 3,500 people every year present as homeless and they have to be housed as well. There is that group as well as the group trying to downsize, so it might not be two or three years; it might be five years. That is not choice.

Other people have been housed in two-bedroom houses by their landlord specifically not by choice, but just because their family is growing up. If we want people to downsize and not to be subsidised, we should at the very least be saying, “Come back when you refuse a reasonable offer, and we will think about it.”

Stephen Williams (Liberal Democrat, Bristol West)

The hon. Lady is giving us good facts from her constituency. Let me give her some from mine, where 21,538 people rent in the private sector, the second highest proportion in the country—ironically, I think the highest is in the constituency of the Government Whip—and 5,209 rent from the local authority. The rules that the hon. Lady described pertained throughout the entirety of the previous Labour Government. At the most recent election, I do not recall any of the three Labour MPs in Bristol, or the candidate who stood against me, campaigning against a bedroom tax. Did the hon. Lady?

David Crausby (Labour, Bolton North East)

Order. I gave the hon. Lady some licence as a result of the interventions, but I think she should struggle back to clause 2 and amendments 7 and 8.

Sheila Gilmore (Labour, Edinburgh East)

There is genuinely a big difference between people in the private rented sector and those in the social rented sector, not least because we are talking about people’s permanent homes. In the private rented sector, rents are already extremely high. I would like to see far less money going out on housing benefit in the private rented sector, because that is where we got into problems with housing benefit, rather than forcing people to take a substantial cut in their income with no realistic way—

Sheryll Murray (Conservative, South East Cornwall)

It is their choice.

Sheila Gilmore (Labour, Edinburgh East)

I find this incredibly offensive. Someone who has been living for 18 years in a home they have put effort into, in their own community, will suddenly be told that they have to find extra money or make a choice that does not exist. I have demonstrated that it does not exist. Although it is pretty hard all round to get accommodation in Edinburgh, the one place a one-bedroom property might exist is in the private rented sector. In that case, the amount of housing benefit paid out in respect of that person will be a lot higher, but her security will have disappeared. I spoke recently to an 82-year-old constituent in the private rented sector who has just had a notice to quit from a landlord who wants to sell, so I know what insecurity in the private rented sector looks like. If the hon. Member for South East Cornwall wants to come to my constituency and tell my constituents that it is their choice, she is welcome to do so and I will be happy to welcome her.

Stephen Doughty (Labour, Cardiff South and Penarth)

I wholeheartedly associate myself with my hon. Friend’s comments and the passion with which she delivered them. We have also heard about the squeeze on living standards for people on middle incomes. I met a constituent the other week who, like me, wanted to see the benefits bill come down. She had been in a reasonably well-paid job in the construction industry but lost it because of the Government’s complete failure on infrastructure, and she is now struggling to stay in her home on benefits. She had applied for 100 jobs but had not been able to find a single one; she certainly would not recognise the figures that the Government are constantly giving about the million private sector jobs that have been created. Does my hon. Friend agree that we are seeing a squeeze not only at the bottom, on some of the poorest in society, but on people on middle incomes who are doing the right thing and trying to get by, but failing because of the Government’s economic policies?

Sheila Gilmore (Labour, Edinburgh East)

My hon. Friend is right to highlight that, because many people have taken reduced hours and reduced wages to stay in work and they are also experiencing severe difficulties with living standards. Because most of my audience on the Government Benches did not hear this last week, I will describe again the sorts of jobs that are available in Edinburgh. One of my constituents wanted to work a few extra hours to pay his bedroom tax. He did not choose his two-bedroom home, but that is what he has; it is in a high-rise block. He works 15 hours a week for a supermarket. He asked for more hours but they said no. That may have been because 15 hours a week on minimum wage is below national insurance level and it would be easier to employ two people than give him more hours. If he were offered more hours, I suspect somebody else would get fewer.

I then thought about other jobs my constituent might be able to get in the area. I went on to the Government’s new universal job match website. I do not know whether anybody else here has looked at it. I typed in “Edinburgh” and “shop assistant”, as that is what he is. I got quite excited. I was going to phone him and tell him it claimed to have 100 jobs, although it was only 76 as the last page only had one on it. There were 76 jobs he could apply for—fantastic. Fifty-seven of those 76 jobs under the heading of shop assistant, most not in Edinburgh but in the surrounding area, were for self-employed catalogue distributors and sellers. If those are the kind of private sector jobs that have been created, we have to ask some serious questions. There was a warning that the person would be self-employed, would have to pay for transport and £250 up front to start work. That is the reality that a lot of people face.

My constituency—and city—is not one with the highest unemployment in the country. It is not an unemployment blackspot. In Scottish terms it is seen, after Aberdeen, as one of the more prosperous parts. Yet even there the jobs simply are not available. If the jobs that are there are like the ones I described they are not going to give someone such as my constituent the living wage that he needs.

If we are not boosting the economy, if we are not taking measures to stimulate the economy, it is not surprising that growth is stagnating and the deficit not reducing. I can see lots of activity across the room. I suspect hon. Members are all looking up universal job match to prove me wrong. That would be interesting. When I told my hon. Friend the Member for Makerfield (Yvonne Fovargue) about it, she looked up her area and discovered to her horror that it was exactly the same. She thought I might have been slightly exaggerating.

If we want to know what is happening and to look at what effect the rise in the tax allowance has compared to other measures that have been and are being taken, we need a review. I strongly urge hon. Members to agree to the amendment and to have the review. As I said earlier, if the Government are right and we are wrong, they will be only too pleased to tell us so.

Fiona O'Donnell (Labour, East Lothian)

It is a pleasure to serve again under your chairmanship, Mr Crausby, and to follow my hon. Friend the Member for Edinburgh East. During the break, I thought of little else but what she might offer in her contribution and she has not disappointed. I rise to speak in favour of the two amendments tabled by my hon. Friends to review and to assess the impact of two specific proposals in the Budget.

This is the first time I have served on a Finance Bill Committee. The Whip for the Treasury team was surprised by my enthusiasm, as I was keen to serve. However, I am disappointed by the offerings of the Chancellor in his Budget. There is not a great deal to discuss. Last year’s might have been more interesting for Opposition Members to debate. It was like an extravagant banquet that gave quite a few people tummy aches. This time we are getting more of a packed lunch of a Budget. If anyone were to blind-taste this Budget they would not believe it was in response to the difficult times the country faces.

I want to talk about the granny tax—what some Members call the age-related allowance; I hope that keeps Government Members happy. That is how it has been colloquially and affectionately called by many. That again shows how out of touch Government Members are.

Sheila Gilmore rose—

Kwasi Kwarteng rose—

Fiona O'Donnell (Labour, East Lothian)

I will first give way to my hon. Friend, but then I will, with great glee, give way to the hon. Gentleman.

Sheila Gilmore (Labour, Edinburgh East)

I think the first place I saw the term “granny tax” was on the front page of the Daily Telegraph the day after last year’s Budget.

Fiona O'Donnell (Labour, East Lothian)

We are getting more and more interesting revelations about my hon. Friend’s reading habits.

Kwasi Kwarteng (Conservative, Spelthorne)

We have sat a long time and what we have heard from the Opposition Benches has not been a rigorous scrutiny of the Bill; it has been a litany of complaints about Government measures to reduce the deficit and to reduce spending. We have not heard one constructive idea. This is not constructive opposition, by any stretch of the imagination, and it is terrifying that the people on the seats opposite seem to think that they are going to waltz into Government. The country does not find them credible; it is not going to turn to this rather childish and constant carping at serious attempts to reduce the deficit.

Fiona O'Donnell (Labour, East Lothian)

In that case, Mr Crausby, I very much hope that one Government Member will make the effort, stand up and give us a constructive and well thought out defence of the Government and their proposals in this Finance Bill. I am sure the country’s heart is bleeding that the hon. Gentleman has had to sit for hours to suffer the slings and arrows of outrageous claims from the Opposition. Welcome to Government. If he wants to swap sides, that is fine. I am sure, Mr Crausby, that you would be the first person to tell me, if I were to launch into a wide-ranging scrutiny of this Bill, that the purpose is to speak specifically about these two amendments. I will now do so.

I want to discuss the impact of the granny tax, as it was affectionately named in the pages of the Telegraph. Government is all about making choices, and we know that the Government find these choices tough—they are constantly telling us just how tough they are. The fact is that they faced a choice; whether or not to give a tax break to the wealthiest members of society. Let us remember that we are talking about pensioners on modest incomes. We are not talking about millionaires in this case. The Government have made a choice and they need to defend that. We are seeking to assess the impact of that and what the impact will be of taking away £322 a year from those people reaching retirement age on 6 April. Government Members have defended their record and the choices they have made, talking about the fact that the richest 10% of society are paying more under this Government. However, when the Government take away £322 a year from someone on a modest income who is retired, it has a far greater impact than taking away similar amounts from those who are in work, below retirement age and with very healthy incomes.

Stephen Williams (Liberal Democrat, Bristol West)

I do not know whether the hon. Lady was here or listening this morning when I challenged her Front-Bench colleague about that figure. If someone has lost £322 a year—if more tax has been paid to the tune of £322—we can times it by five to get the gross income. That is £1,600. The allowance cannot have been changed by inflation. That bears no reality whatever to the freezing of the age-related allowance. If she is going to cite figures, she ought to look into them in more depth.

Fiona O'Donnell (Labour, East Lothian)

I would say in response to the hon. Gentleman that he has already had a perfectly satisfactory explanation. Perhaps he would like to offer me an alternative amount. How much is this going to take away? Does he wish to intervene and give me an accurate figure?

Stephen Williams (Liberal Democrat, Bristol West)

What has not happened is the uprating of the allowance by the rate of inflation, which is about 3% at the moment. If the allowance had gone up by inflation, that is the amount of tax-free income that someone would have received. It is not £1,600.

Fiona O'Donnell (Labour, East Lothian)

The Government claim that they are doing this to save money and to reduce the deficit. I am still waiting for the hon. Gentleman to tell me how much the measure will take away from people’s disposable income. The Opposition have put forward the excellent idea that we should assess that and make the figures available in the House of Commons. I just do not understand the hon. Gentleman’s logic. Given that retired people are on modest incomes, we know that they would spend that money in their local communities, which would help struggling businesses.

The second amendment asks the Government to take a broader look at the overall impact of the changes that they have made to benefits and tax since they came to power. The Liberals seem to be fixated on the much trumpeted reduction of the level at which income tax kicks in, probably because it is the only thing they really feel they have got out of the coalition so far. We need to look, in much broader terms, at whether people are better or worse off. That is why it would be useful, if the aim of at least one member of the coalition is to improve the lot of those who are in work and on low pay, to see whether those people are better off. What problem do the Government have with publishing those figures and having an assessment so that we can see whether it is working? I suspect it is that, if we look more broadly at what has happened in other areas, we will see that money has been taken away from hard-working families.

That fact has been borne out recently. The hon. Member for Nuneaton spoke about the impact of freezing council tax, and said it would benefit those on low pay or unfixed incomes. But my hon. Friend the Member for Edinburgh East has already pointed out the dangers of going down that road. We have seen the danger in Scotland, where services for vulnerable people have been cut as council budgets have dropped in real terms.

Marcus Jones (Conservative, Nuneaton)

The hon. Lady makes a very interesting observation about council tax. I can tell her that most of my constituents are extremely happy that council tax has been frozen for the past three years. Is she advocating that we go back to the custom and practice of the previous Labour Administration and double council tax, as they did in government?

Fiona O'Donnell (Labour, East Lothian)

At least then there was a real degree of localism and local democracy. Voters had the option to vote out the administration in their area. This Government, by centralising control, are taking away democratic choice at a local level. I wonder what the hon. Gentleman’s constituents would say about the report from the Joseph Rowntree Foundation, which shows that almost 2.5 million families on low incomes will be paying £138 more in income tax?

John Cryer (Labour, Leyton and Wanstead)

Like my hon. Friend, I wonder why nobody on the Government Benches is prepared to stand up and make a speech, rather than an intervention, to set out a critique of why there should not be a review. I know what happens in Government parties: the Whip tells hon. Members to just stay there and shut up. When we were in government, I took no notice of the Whip and spoke in every Committee I was on. To be honest, I did not take a lot of notice of the Whips in general when Labour was in government, as some hon. Members know. Why do Government Members not show a bit of backbone, stand up and defend the Government’s position?

Fiona O'Donnell (Labour, East Lothian)

It is too much of a stretch of the imagination to believe that this is just a curious incident. I sat though the debates on the Floor of the House, and the Benches were empty. I managed to rouse one hon. Member from not a sedentary position, but a prone position. At the beginning of this sitting, Government Members were so noisy that I thought the Whips had fed them E numbers or something, but even that seems to have abated.

Stephen Williams (Liberal Democrat, Bristol West)

This is a triangular intervention because I will try to answer the point made by the hon. Member for Leyton and Wanstead. The probable reason why no one on these Benches wishes to say why the Government should not do a review to help out the Labour party is that the Government publish reviews all the time. They publish a Red Book for the Budget and a Green Book for the autumn statement. The Office for Budget Responsibility and the Office for National Statistics do reviews. All of those reviews are on the record.

Since the general election the Labour party has pocketed £13 million from taxpayers of Short money to help with policy development and analysis while in Opposition. Perhaps they could spend some of that money and publish some reviews themselves.

Fiona O'Donnell (Labour, East Lothian)

That is quite incredible; I am genuinely stumped by that intervention. It is not about helping the Labour party; it is about reviewing the impact on people across all the Government’s policies of the changes made. That is not just for the benefit of Opposition parties, it is for the benefit of many campaigning groups across the country. That was not a helpful response. Perhaps the hon. Gentleman will show that there is not a Whip keeping them on their seats just grumbling, by making a positive contribution to the debate. We can then have a more reasoned discussion.

We are talking about the total impact. One measure in particular is the freeze on child benefit. I remember, when the Tory Government fell in 1997 and I was struggling with a family of four children and not in work, that the biggest change came when child benefit was increased and I could spend it directly on my family.

Returning to the subject of age-related tax relief, Age Concern UK is now increasingly trying to work with food banks across the UK, offering to provide them with funding. That is not just about the poorest pensioners; it is again across society. Food poverty and insecurity are at times in places we would not expect. That is certainly the case for a family with four children I visited in my constituency. I spend some time in the company of the hon. Member for South East Cornwall and that is always pleasant, but I was astonished by her remark about people choosing to live in properties that are bigger than they require. The family I met had been on the housing waiting list—

Sheryll Murray (Conservative, South East Cornwall)

Will the hon. Lady give way?

Fiona O'Donnell (Labour, East Lothian)

I will give way, but I would like the hon. Lady first to listen to this example of what is actually happening to families. The family has four children and had been living in an over-crowded house for more than eight years. That might be the fault of the SNP Administration in Scotland. The first house they were offered was a four-bedroom property. I do not think it is unreasonable that after eight years of being over-crowded they chose to take that property.

The husband, the father of the four children, has just found a job. I have concerns because there is a self-employed part to it and he has had to fork out money to buy equipment to clean windows. I hope he does make a living that makes his family better off. What they had not expected was to be hit by the bedroom tax. Money is going to be taken away from a family that has already seen child benefit frozen in a most difficult situation. They had to turn to a local food bank to put food on the table for the family.

Sheryll Murray (Conservative, South East Cornwall)

I am grateful to the hon. Lady for giving way. Mr Crausby, through you I would like to ensure that there is no misunderstanding. What I said was that people had a choice to downsize if they so wished. If I found that I could not afford to stay in my three-bedroom house, I would look to downsize. That is what I said. I did not say that they had to stay there and pay the additional money.

I understand the hon. Lady’s specific point about one constituent, but people have the choice to downsize if they are living in a house that costs more than they can budget for. The same principle applies in the private and the public sectors. There is no difference. It is a choice we all have.

Fiona O'Donnell (Labour, East Lothian)

It is not a choice that we all have, and that is exactly the point. It puts an end to any idea that we are all in this together. What choice have the family I mentioned got now that they have been moved? There is no smaller council house available for them to move into, so the choice that the hon. Lady suggests they have is between continuing to live in an overcrowded property, suffering the impact of the strain that was putting on their family’s life, and taking the four-bedroom house—the only route out of overcrowding that they were offered—which they will eventually not be over-occupying. That is not a choice.

There is no choice for that family, because there is nothing available in the social rented sector for them to move into. The hon. Lady will say that the private rented sector is an option, but educationalists in East Lothian to whom I have spoken say that moving children to a different school is one of the most disruptive things that one can do, and it causes problems for teachers who have to support children through that process.

Ian Mearns (Labour, Gateshead)

I really think that the hon. Member for South East Cornwall needs a reality check when it comes to life on the ground for families in areas such as the north-east of England. In my own local authority area, between the registered social landlords and the local authority housing stock, 4,000 families are affected by the spare room subsidy, or the bedroom tax, as we prefer to call it. What choice do families in Gateshead have? They could go to the private rented sector, where, on average, rents for similar or even smaller properties can be 25% to 40% higher. Where is the gain for the Treasury in moving families from a sector with lower rents into one with higher rents to circumvent the bedroom tax? In addition, every other housing authority in the area—in Tyne and Wear, in Northumberland and in Durham—is in exactly the same boat. Families would have to get on their bikes and go an extremely long distance, possibly to the south-west of England, to exert the choice that the hon. Lady has talked about.

Fiona O'Donnell (Labour, East Lothian)

The Government have not simply made a bad choice; this is actually a bad policy, because we may find that it does not save money in the way in which the Government had hoped.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank my hon. Friend for the powerful case she is making for the review. I also want to express my concern about the attitude that people have a choice about whether to pay the bedroom tax or spare room subsidy. I am pleased that my hon. Friend mentioned the instability that the policy will cause to children, because one of the most worrying cases that I have encountered was that of constituents who have three children: a little boy aged three, a boy aged 13 and a little girl aged eight. They live in a three-bedroom property, and they have been told that the 13-year-old boy has to share with his three-year-old brother until he is at least 14, so they have to find extra money for one year to pay the bedroom tax. [ Interruption.] The problem is not that the children will have to share, but that the family will have to pay the bedroom tax. The children are in local schools, and if the family have to move, they will have to uproot the children and the three-year-old will probably have to go to a different school. Families cannot manage to send their children to three different schools across the city. The policy is uprooting a family who are in a secure home and whose children are in secure education, and that is just one family. The long-term damage to ordinary families is deeply worrying, and they do not have a choice because they do not have the money to pay the bedroom tax.

Fiona O'Donnell (Labour, East Lothian)

I thank my hon. Friend for her contribution. I will give way to the hon. Member for Braintree.

Brooks Newmark (Conservative, Braintree)

Before I respond to the hon. Lady—I want to have a slightly more mature debate about this—I want to acknowledge that there is a housing shortage. About 20 years ago when I did not have a job, I lived on Camberwell New Road. I had five children under the age of 12 at that time, and I had a two-bedroom house. I had five children in two sets of bunk beds. Yes, I am wealthier now and I have been successful, but that is a choice that I made; I chose to have a number of children and we had to make ends meet the best we could. My children were not unhappy in that situation; they were not damaged by it at all and they were four boys and one girl.

I want to get on to what the hon. Lady said and acknowledge that there is a housing shortage, but I would point out that under the Labour party, the amount of social housing built was the lowest in almost 50 or 60 years, and that is what has created the problem today. I would like the hon. Lady at least to acknowledge that. I admit that there is a housing shortage, but I want her at least to acknowledge that Labour presided over one of the lowest levels of social housing building on record.

The second point that I want the hon. Lady to accept is the principle. Does the Labour party admit that people who are on benefits should behave like people in the private sector; that if housing is available for them to downsize to, then they should downsize? Thirdly, if they cannot downsize, should they not take in a lodger? That is what people in the private sector have to do.

David Crausby (Labour, Bolton North East)

Order. First, interventions should be short; they are not speeches. Secondly, I have tried to give a bit of licence as far as the so-called bedroom tax is concerned—I cannot remember the other description—but I am definitely clinging to amendment 8, which will review the overall impact of the Government’s Budget measures on the living standards of basic rate taxpayers. I do not believe that the bedroom tax is linked to those Budget measures; it is part of the Social Security Act. While I have been happy for this debate to expand a little, we should pull ourselves back to clause 2, which is about personal allowances for those born after 5 April, and the two amendments.

Fiona O'Donnell (Labour, East Lothian)

Thank you very much for your wise words, Mr Crausby. If Government Members want to make interventions that are so lengthy that they almost constitute speeches, perhaps they should make individual contributions, because the hon. Member for Braintree made many points.

I am talking about people who are on the basic rate of income tax, which would hopefully be the case of this family, if they achieve a certain level of income. I was not aware that income tax was a barrier to them finding employment, as was suggested by the hon. Member for Penrith and The Border.

I absolutely do not think that Labour Members have a monopoly on compassion and understanding. However, there is an attitude from Government Members who have experienced poverty and learned from it that is twisted, in a Thatcherite way, into saying, “Well, if I could get myself out of it, why can’t they?” That shows a complete misunderstanding and a lack of acknowledgement of what poverty can do to people—it can grind them down. Many of us will have struggled on lower incomes with large families, but do we want future generations to face the same difficulties just because it was good enough for us? I certainly want my children to have a better life and a better story than I did, and my grandchildren even more so.

Let me move on to the amendment. The hon. Member for Penrith and The Border spoke about income tax as being a barrier to employment. In general terms, people want to know that they will be better off in employment than if they are living on benefits. When we look at the overall impact of all the changes the Government have made, and put that together with the increase in the cost of living—whether that is putting fuel in a car or food on the table, or having any kind of leisure activities—the cost of living has gone up. The OBR has made it clear that people will be worse off at the end of five years of a Conservative and Lib Dem Government than they were at the beginning.

John Cryer (Labour, Leyton and Wanstead)

Is not the biggest barrier to employment a lack of jobs?

The rest of the debate is in Hansard.