Finance (No. 2) Bill

Public Bill Committee, 29 April 2014.

(Except clauses 1, 5 to 7, 11, 72 to 74 and 112, schedule 1, and certain new clauses and new schedules)

Martin Caton (Labour, Gower)

Good morning. I have a few preliminary announcements. Members may remove their jackets during Committee sittings, and no refreshment, other than water, may be consumed. Will Members please ensure that mobile phones, pagers and so on are turned off or switched to silent mode? Document boxes are provided for Members to keep their Bill papers in between meetings. It will be much appreciated if Members could return the boxes to the cupboard at the end of the meeting.

As a general rule, my fellow Chair and I do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days, so 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 which debate is limited to half an hour. We will then proceed to consider a motion to report written evidence, after which we will begin our line-by-line consideration of the Bill. The selection list for today’s sitting shows how the selected amendments have been grouped for debate. Amendments that are grouped together are generally on the same, a similar or a related issue. The Member who has put their name to the lead amendment in the group is called first. Other Members will then be free to catch my eye to speak to the 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 again call the Member who moved the lead amendment to speak. Before they conclude, they will need to indicate whether they wish to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendment in the group to a Division, they will 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 that they are debated, but in the order in which they appear on the amendment paper. Decisions on new clauses will therefore be taken at the conclusion of our line-by-line consideration of the Bill.

When the group includes the words “clause stand part”, it means that Members should make any remarks they wish to make about the content of the clause during the course of the debate on that group, as there will be no separate stand part debate. When there is no indication on the selection list, Mr Streeter and I will use our discretion to decide whether to allow a separate stand part debate on individual clauses or schedules. Clause stand part debates begin with the Chair proposing the Question, That the clause stand part of the Bill, so there is no need for the Minister or any other Member to move a motion. I now call the Minister to move the programme motion in the terms 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 9.10 am on Tuesday 29 April) meet—

(a) at 2.00 pm on Tuesday 29 April;

(b) at 11.30 am and 2.00 pm on Thursday 1 May;

(c) at 3.30 pm on Tuesday 6 May;

(d) at 11.30 am and 2.00 pm on Thursday 8 May;

(e) at 9.10 am and 2.00 pm on Tuesday 13 May;

(f) at 9.10 am and 2.00 pm on Tuesday 10 June;

(g) at 11.30 am and 2.00 pm on Thursday 12 June;

(h) at 9.10 am and 2.00 pm on Tuesday 17 June.

(2) Proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 2 to 4; Clauses 8 to 10; Schedule 2; Clauses 12 to 15; Schedule 3; Clauses 16 to 18; Clauses 20 and 21; Clause 19; Clauses 22 to 41; Schedule 4; Clauses 42 and 43; Schedule 5; Clauses 44 to 48; Schedule 6; Clause 49; Schedule 7; Clause 50; Schedule 8; Clauses 51 to 53; Schedules 9 and 10; Clauses 54 to 56; Clause 284; Clauses 57 to 64; Schedule 11; Clause 65; Schedule 12; Clauses 66 to 68; Schedule 13; Clauses 69 to 71; Clauses 75 to 80; Schedule 14; Clauses 81 to 85; Schedule 15; Clauses 86 to 93;Schedule 16; Clauses 94 and 95; Schedule 17; Clauses 96 to 100; Schedule 18; Clauses 101 to 106; Schedule 19; Clauses 107 and 108; Schedule 20; Clauses 109 and 110; Schedule 21; Clause 111; Clause 113; Schedule 22; Clauses 114 to 170; Schedule 23; Clauses 171 to 189; Schedule 24; Clause 190; Schedule 25; Clauses 191 to 202; Schedule 26; Clauses 203 to 208; Schedule 27; Clauses 209 to 221; Schedule 28; Clauses 222 to 226; Schedule 29; Clauses 227 to 230; Schedule 30; Clauses 231 to 267; Schedule 31; Clauses 268 to 274; Schedule 32; Clauses 275 to 283; Schedule 33; Clauses 285 to 289; Schedule 34; Clauses 290 to 295; new Clauses other than those relating to tax relief in connection with the costs of childcare or income tax allowances for parties to a marriage or civil partnership or air passenger duty or the rate of the bank levy or the subject matter of Clause 1 or the subject matter of Clauses 5 to 7 and Schedule 1; new Schedules other than those relating to tax relief in connection with the costs of childcare or income tax allowances for parties to a marriage or civil partnership or air passenger duty or the rate of the bank levy or the subject matter of Clause 1 or the subject matter of Clauses 5 to 7 and Schedule 1; 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 Tuesday 17 June.

I welcome you, Mr Caton, to the Chair, as well as Mr Streeter, who will also chair the Committee. I am sure it will be a pleasure for all of us to serve under your chairmanship. The Finance Bill debates downstairs have shown once again the excitement that such Bills often generate, so I am sure that we will benefit from your wisdom and guidance in keeping our deliberations focused. I also extend my welcome to the Clerks and Hansard Reporters who will assist us over the coming weeks. It is also a pleasure that we shall experience the enthusiastic participation of Opposition Members.

I am especially pleased that we will be joined by not just three but four shadow Ministers. I am sure that they will be served admirably by their fellow Opposition Members, some of whom have served on Finance Bill Committees before and have been persuaded to return. I congratulate the hon. Member for Scunthorpe on his success in achieving that. I am also delighted that our side we will have the benefit of contributions from my hon. Friends the Members for Spelthorne, for Fylde and for Rochford and Southend East. Clearly, their experience of last year’s Committee only wetted their appetite for Finance Bill debates. I am delighted that, over the course of our proceedings, we will be joined by the Financial Secretary to the Treasury and the Economic Secretary. I am sure that they will also want to welcome our hon. Friends.

This substantial Bill has already received a great deal of scrutiny. Some 30 informal and formal consultations have been launched since Budget 2013 to shape the policies for which the Bill legislates. We published more than 300 pages of draft legislation in December for technical consultation and received more than 300 responses. I thank the individuals and organisations that worked with the Treasury and Her Majesty’s Revenue and Customs in the preparation of the Bill, which is all the better for their comments.

We are about to undertake an important process. The 2014 Finance Bill is a significant measure that delivers reforms to help to lift 3 million people out of income tax, to boost savings, to make pensions more flexible, to promote growth and investment, and to crack down on tax avoidance. I am sure that hon. Members will approach our discussions with dedication and enthusiasm, and I look forward to engaging in the valuable and at times enthralling debates that we will have over the next few weeks.

Chris Leslie (Labour, Nottingham East)

Good morning, Mr Caton. May I echo the Exchequer Secretary’s welcome to you and Mr Streeter? We have many fun hours ahead of us—I can barely contain my excitement—and thank goodness that the tube strike did not prevent such a fantastic turnout this morning.

This is something like my 10th or 11th Finance Bill, and I know that the Exchequer Secretary waits all year for this particular moment. It is a pity that we have not been joined this morning by the new Financial and Economic Secretaries. I understand that the Economic Secretary had a very important meeting in Brussels at a key juncture yesterday evening, so I hope that she will manage to get back in time for Treasury questions.

The Bill is conspicuous for those things that are absent in it. We will try our best to persuade Government Members to make the changes that are necessary to alleviate the cost of living pressures that many of our constituents face. After all, this Bill is one of the only things going on in the House of Commons—or in Parliament generally—at this particular time under this zombie Government.

It is all very well my standing up here at the beginning of our proceedings and saying a few words of welcome, but it will fall mostly to my hon. Friends the Members for Birmingham, Ladywood, for Kilmarnock and Loudoun and for Newcastle upon Tyne North to carry out most of the detailed line-by-line scrutiny and set out how the Government need to improve their Bill, so I put on record my thanks to them. However, it would not be proper for us to start these proceedings without thanking the unsung heroes: not just the Treasury officials—I also thank them for their diligence—the Clerks, Hansardand all the others who help to keep our proceedings flowing smoothly, but the Whips—[Interruption.] Yes indeed, Mr Caton; the Whips are much maligned, but are often important to keeping the show on the road. There was a moment before the sitting started when I wondered whether we would have more Members on our side of the room than the Government, but the hon. Member for Hastings and Rye has a firm grip of her responsibilities and ensured that everything was correct. Looking at the Government Benches, I see that she has quite a difficult job on her hands, especially given the presence of the hon. Member for Elmet and Rothwell, who has a tendency for mischief. On our side, my hon. Friend the Member for Scunthorpe has everything planned and raring to go.

I want to reassure hon. Members that while serving on a Finance Bill Committee is a duty, it is also a privilege. It is not in any way a punishment for things that they might have failed to do, and nor is it that the Whips have got them here as penance in any way, shape or form. That is not why we are here this morning. I hope that we will scrutinise the Bill properly and methodically.

Martin Caton (Labour, Gower)

Copies of memorandums that the Committee receives will be made available in the Committee Room.

Clause 2 - Basic rate limit for 2015-16 and personal allowances from 2015

Martin Caton (Labour, Gower)

With this it will be convenient to discuss the following:

New clause 1—Lower rate of tax—

‘(1) The Chancellor of the Exchequer shall, within six months of Royal Assent, lay before Parliament a report containing proposals for an income tax rate of 10 per cent on a band of income above the personal allowance.

(2) The report mentioned in subsection (1) above shall provide for the full benefit of the 10 per cent. rate not being available to taxpayers paying the higher or additional rates of tax.’

New clause 2—Higher rate of tax—

‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the number of people paying the 40 per cent rate of income tax in the years—

(a) 2010-2011;

(b) 2011-2012;

(c) 2012-2013; and

(d) 2013-2014.

(2) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.’.

New clause 3—Personal allowance for those born after 5 April 1948—

‘The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the impact of the removal of the age-related personal allowance on anyone who reached the age of 65 on or after April 2013 and place a copy in the Library.’.

Shabana Mahmood (Labour, Birmingham, Ladywood)

It is a pleasure to serve under your chairmanship, Mr Caton, and that of your co-Chair, Mr Streeter, when he joins us for later sittings. I associate myself with the remarks of the Exchequer Secretary and my hon. Friend the Member for Nottingham East in welcoming the Clerks, the Hansard Reporters and others who will assist us in the long weeks ahead. I also welcome all members of the Committee. Had they had been here, I should have liked to welcome the Economic Secretary to her new post and congratulate the new Financial Secretary on her promotion. The Secretary of State for Culture, Media and Sport might feel that he had a well-timed promotion, but it is he who he is missing out on the lengthy debates we will have about the Bill. As my hon. Friend said, serving on this Committee is an absolute privilege and in no way a punishment.

I also welcome to our proceedings a new Member of the House: my hon. Friend the Member for Wythenshawe and Sale East. This is his first ever Bill Committee. It is also my first ever Finance Bill Committee, so the two of us are newbies together. Many Members who are here this morning are Finance Bill veterans who have been delighting me with tales of previous Committees and their lengthy and enthralling debates. We will scrutinise the Bill thoroughly, as is our duty. As lengthy as the Bill is, it is not quite the longest ever—[Interruption.] My hon. Friend the Member for Newcastle upon Tyne North tells me that that might have been last year’s Bill. While this Finance Bill is lengthy, however, it includes no measures that will do much to help the millions of people throughout our country who are struggling with a real and deep-seated cost of living crisis.

Despite recent welcome changes on inflation and wages, the intersection of the right lines on the right graph do not wipe out the impact of the Government’s policies on ordinary people on lower and middle incomes, and the things that they are struggling with, whether they are energy bills, child care costs or other things that make it hard for them to make ends meet from day to day. Ordinary people are worse off. The recent figures are welcome, but a positive intersection of figures on wages and prices does not overnight make the gas bill easier to pay, and nor does it ensure that the recovery that is finally under way benefits people on lower and middle incomes.

Clause 2 increases the personal allowance for those born after 5 April 1948 from £10,000 to £10,500 with effect from 2015-16. It reduces the basic rate limit by £80 to £31,785 for the same year. The personal allowance has been much discussed in the House. It was a flagship policy in the coalition agreement, and it is such a powerful policy for both coalition parties that they often fight each other to take credit for it. I am sure that Liberal Democrat Members would love to say that the policy was their idea and always had been, while their Conservative colleagues will say that it could never have been implemented without their support. We watch that internal coalition fight with interest. However, the Opposition have also supported the increase in the personal allowance, and we will support clause 2 and the rise in the personal allowance to £10,500 in 2015-16.

The Government would have us believe that, thanks to this policy—they often refer to it when they are in difficulty with other issues affecting people on lower and middle incomes—ordinary people are not suffering. They claim that the policy has effectively wiped out the consequences of other decisions that they have made or failed to make. The Government could have taken other practical measures in the Finance Bill, but they have not, thus rendering ordinary working people worse off under this Government.

Despite the changes to the personal allowance, people on lower and middle incomes are worse off. According to the Office for Budget Responsibility, they will be worse off at the end of this Parliament than they were at the beginning. Government Ministers have repeatedly ducked the opportunity to admit under questioning on the Floor of the House that the OBR says that wages will be 5.6% down in 2015 from where they were in 2010. I understand why the Government do not want to admit that central fact. They do not want to admit that people will be worse off in 2015 because they fear that, when people are asked at the general election in 2015, “Are you better off today than you were when this Government came to power?”, they will say, “No, we are not better off.” As the Government know that people will not be better off, why do they not want to admit what the OBR has clearly stated—[Interruption.] I note that Government Members do not like to hear that, but I refer them to the OBR document that makes it clear in black in white that people will be worse off in 2015 than they were in 2010.

Iain McKenzie (Labour, Inverclyde)

It is a pleasure to serve under your chairmanship, Mr Caton. Does my hon. Friend agree that the demands on the incomes of lower-paid people cannot be avoided? Those demands are due to the increasing costs of food, energy and fuel, with the Government putting extra VAT on that.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to my hon. Friend for his powerful point. It is the day-to-day cost of living—the bills that land on the doorstep—that makes my constituents, and I am sure those of others, desperately worried about how to make ends meet. The pressures include gas and electricity bills, child care costs and VAT, which has had a big impact by adding to fuel costs, although the Government do not like to admit that. The huge impact of the VAT changes is that families are thousands of pounds worse off over the life of this Parliament.

Chris Evans (Labour, Islwyn)

It is a pleasure to serve under your chairmanship, Mr Caton. I visited your constituency over the bank holiday weekend and you represent one of the loveliest parts of Wales. Is that going to help me to get called in future?

Martin Caton (Labour, Gower)

Certainly.

Chris Evans (Labour, Islwyn)

Does my hon. Friend agree that surely the Government should shoulder some of the blame for the pressure that hard-working families are feeling? For example, if someone is earning above the £10,500 tax threshold, the Government’s cuts to Sure Start and the maternity grant will affect them deeply. The Government should apologise for those cuts.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes a powerful point. I would not hold my breath for an apology from Government Members, but he is absolutely right.

The Opposition have supported increases to the personal allowance and we will do so again today. However, it often seems that the Government think that the increase in the personal allowance, which enables them to say that they have taken a relatively large number of people out of paying tax, alone automatically makes everything else they have done okay, whether increasing VAT, changing maternity grants in the early part of this Parliament or other measures. Many such changes have had a huge impact on the ability of people on low and middle incomes to make ends meet. To that extent, the Opposition’s position regarding the personal allowance is that it is a classic case of the Government giving with one hand but taking away a hell of a lot more with the other.

Ian Mearns (Labour, Gateshead)

I am delighted to serve under your chairmanship, Mr Caton. Does my hon. Friend remember who, in 2009, said:

“We will not have to raise VAT to deliver our promises. The Conservatives will. Let me repeat that: Our plans do not require a rise in VAT. The Tory plans do”?

Could that have been the leader of the Liberal Democrats?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I believe that it was the leader of the Liberal Democrat party—the current Deputy Prime Minister. I suspect that he will once again have a little bit of amnesia when it comes to what he said before the general election and the changes he has gone on to support in government as Deputy Prime Minister. Of course, that sits alongside pledges on tuition fees and other things that the Liberal Democrats promised. Their promises were worth absolutely nothing and they quickly forgot them as soon as they got to share a bit of power in the coalition.

Ian Mearns (Labour, Gateshead)

Does my hon. Friend also remember what the current Prime Minister said about VAT in a speech in Exeter in May 2009? Did he not say that it is a regressive tax?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend’s memory of what the Prime Minister, the then Leader of the Opposition, and the Deputy Prime Minister, the then leader of the Liberal Democrats, said before the previous general election is better than mine. I salute his memory. He is absolutely right—that is exactly what the Prime Minister said. It is something that he conveniently and quickly forgot as soon as he came into government. That is an important point. It shows that, regardless of what those parties said in opposition, the promises and assessments of where we would stand if either of them was elected—in the end we ended up with both—were not worth anything. It is not as if neither party knew that there was a large deficit that would require some difficult choices. That deficit was going to require some difficult choices, and at the previous general election the parties set out different approaches to how they would go about reducing the deficit. In that context, presenting a different picture of what would be needed to achieve the scale of deficit reduction that everyone felt was needed was simply wrong.

Chris Williamson (Labour, Derby North)

May I, too, say that it is a great pleasure to serve under your chairmanship, Mr Caton?

My hon. Friend makes a cogent argument. Does she agree that, in addition to the impact that the rise in VAT has had on low and middle-income families, members of both the Liberal Democrat and Conservative parties have effectively launched a wholesale assault on the working people of this country by the huge increase in the number of people paying the 40p tax rate? Does my hon. Friend agree that that is a shameful attack on the squeezed middle and low-income people in our country? Will she remind the Committee of the additional number of people who are having to pay the 40p tax rate because of the Government’s assault on the working people of Britain?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend is absolutely right. Many hundreds of thousands more people have been drawn into the 40p tax band. I will come to that later in my remarks on new clause 2, which specifically calls for a review that would give us an idea of the changes to the number and proportion of taxpayers caught within the 40p band and enable us to have a much more open and honest debate.

Ian Swales (Liberal Democrat, Redcar)

Will the hon. Lady confirm that new clause 1(2) would lead to even more people paying the 40% tax rate?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I will come on to new clause 1 and our policy on the 10p band, which focuses specifically on lower and middle-income earners.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Will the hon. Lady please explain to the Committee why, when the Labour Government were running an £80 billion deficit in 2006, they did not feel the need to bring in a 50% tax rate?

Shabana Mahmood (Labour, Birmingham, Ladywood)

We introduced a 50% tax rate and, more importantly, have said that an incoming Labour Government in 2015 would restore it. The bigger question for the hon. Gentleman, if he is such a fan of the 50% tax rate, is this: why is he supporting his Government, who have seen fit to give a £3 billion tax cut to some of the richest people in our country? Will he support our policy of restoring the 50p tax rate?

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am delighted that the hon. Lady has let me come back on that point. I want to see the biggest amount of revenue coming into the Exchequer, and that is best done through a 45p rate rather than a 50p rate. Pragmatism over dogmatism wins every time.

Shabana Mahmood (Labour, Birmingham, Ladywood)

If only the numbers were as certain as the hon. Gentleman thinks they are. They are not that certain. Everyone who has modelled numbers on a 45p rate and a 50p rate accepts that there is a high degree of uncertainty on the amount of revenue raised. He is forgetting that the figures we have do not give a full picture. Before the Labour Government introduced the 50p rate, there was a huge amount of income shifting so that people could avoid it. When the Government announced that they were cutting the rate to 45p, lots of people delayed taking bonuses so that they could benefit from that lower rate. We saw a lot of income shifting to avoid the 50p rate, which made the figures extremely uncertain.

Kwasi Kwarteng (Conservative, Spelthorne)

It is important in these debates that we put on record what has happened in the recent past. Labour was in government for 13 years and for 95% of that time, the top rate of tax was 40%. For all that time, the Labour Government did not see fit to raise the top rate of tax beyond 40%. It was only in the final three months of that Government, when they knew that they would lose power, that they increased the rate to set a political trap for the incoming Government. It was purely cynical and had nothing to do with fiscal responsibility or raising revenue. As a consequence, the Government cut the rate to 45p and have seen dramatically increased tax revenue as a result. It is very irresponsible for the Opposition to be playing politics in that way.

Shabana Mahmood (Labour, Birmingham, Ladywood)

First, the setting of tax and the rate at which people pay tax will always be a political decision, so I am surprised that the hon. Gentleman says the Opposition are playing politics. The key point on what we do in politics—

Kwasi Kwarteng (Conservative, Spelthorne)

But you did not change it for 13 years.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Let me finish my point. This will always be a highly politicised discussion. I am surprised at the hon. Gentleman’s closing remark. I do not know why he is so exercised by that part of what I said.

Kwasi Kwarteng (Conservative, Spelthorne)

Will the hon. Lady give way, since she made a direct point about my remark?

Shabana Mahmood (Labour, Birmingham, Ladywood)

If the hon. Gentleman will let me finish my point, I will happily give way. This will always be a highly politicised debate. It is about the key function of government, and of course it will raise lots of questions, and passions, too. In answer to his points, the Labour Government introduced the 50p rate as part of an explicit strategy on deficit reduction. That accounts for the fact that we did not introduce it for most of the time we were in government. There was a deficit reduction strategy—

Several hon. Members rose—

Shabana Mahmood (Labour, Birmingham, Ladywood)

Let me finish. Our commitment to increasing the rate from 45p to 50p was based around the need to get the deficit down in a fairer way. We do not believe that the current figures are an accurate picture of what could be raised from the 50p rate, especially if we take into account, as the hon. Member for Spelthorne failed to do, the income shifting that took place, which is the basis for those figures.

Christopher Pincher (Conservative, Tamworth)

Will the hon. Lady give way?

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Will the hon. Lady give way?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I will give way to everybody in a moment, when I have finished my point. Please be patient. The income shifting has given us some very uncertain figures, but we have made an explicit pledge to get the deficit down in a fairer way. If we are the incoming Labour Government in 2015, we anticipate it will take us most of the next Parliament to get the deficit down, and the rate will be in place to help us do that.

Several hon. Members rose—

Shabana Mahmood (Labour, Birmingham, Ladywood)

Four Government Members want me to give way. I will give way first to the hon. Member for Spelthorne, because he wanted to come back at me.

Kwasi Kwarteng (Conservative, Spelthorne)

My point regarding the political nature of the move was not a general comment about taxation. Of course, all taxation issues are political. My point was on the timing of the measure—the previous Government were in government for 13 years before they did anything about the rate. In fact, they were running deficits for nine years, from 2001-02 through to 2010, before they saw fit to raise the rate. To say that it was a deficit-reducing measure is ridiculous, given that they had been running a deficit for eight years when they introduced it. It was purely an electoral trap and I am very pleased that the current Government have cut the rate.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I simply disagree with the hon. Gentleman. We had a global financial crisis in 2008, which had a huge impact on the nation’s finances. We came up with a deficit reduction plan, based on halving the deficit over four years—a different pace to that followed by the current Government. As part of that strategy, we felt it appropriate to increase the rate to 50p for the highest earners in our country. We will return to that if we form the Government in 2015, and we will get the deficit down.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

The hon. Lady’s argument simply does not add up. She says that the 50p rate was introduced to tackle the deficit after the banking crisis, but there was a deficit long before the banking crisis. The deficit was £80 billion in 2006, so why did the Labour Government not deem it fit to raise the rate to 50%? As my hon. Friend the Member for Spelthorne said, it was a political move. The Opposition have constantly said that we made too many cuts too far and too fast, and yet today we have the strongest growing economy in the G7, with predictions of almost 4% a year GDP growth. I shudder to think what will happen to that if we start taxing the golden goose again.

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman knows that the real problem in relation to the size of the deficit occurred after the global financial crisis of 2008. Up to that point we were in a different place. Given the circumstances post the collapse of Lehman Brothers in the States, we were absolutely right to make different choices and take different measures. We did not make those choices lightly. Towards the end of the previous Labour Government, we felt it appropriate to raise the rate to 50p to ensure that we were able to get the deficit down in a fairer way. We have come back to that commitment.

Christopher Pincher (Conservative, Tamworth)

The hon. Lady is making a bold attempt to plug the hole in her bucket. She says that the previous Labour Government did not act lightly, but they certainly acted very slowly. As my hon. Friends have pointed out, and the hon. Lady has admitted, the economic crash, for which her Government must take part of the responsibility, took place in 2008, so why was it not until 2010—just a few weeks before the general election—that they chose to introduce a 50% tax rate?

Shabana Mahmood (Labour, Birmingham, Ladywood)

We have already covered this point. The global financial crisis hit and a number of difficult decisions had to be made. In the normal run of things, one would not want to make such decisions. That was why we took a careful approach and came to the view that putting in place a 50p rate was an appropriate way to try to get the deficit down. That was the clear position that we had, as the Government, up to 2010, and it is what we will do when, hopefully, we return to office in 2015.

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady is being generous in taking interventions. Some moments ago she said that the numbers we have in front of us regarding how much the 50p rate would raise are wrong. Why does she think that the HMRC analysis, which is supported by the independent Office for Budget Responsibility and broadly accepted by the Institute for Fiscal Studies, underestimates the amount that would be raised by a 50p rate? Several independent organisations have concluded that the Government’s numbers are accurate.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I said that the numbers were uncertain—I hope that we can agree on that point. With regard to independent analysis, the IFS says of HMRC’s analysis, in the report preceding the cutting of the rate from 50p to 45p, that, on a normal margin of error, the measure could either raise £600 million or cost £700 million, so we cannot get away from the uncertainty inherent in some of the numbers. The overall value of the tax cut has been £3 billion and that is the starting point we have.

I take on board the point about tax avoidance that has been made by the Government and the Exchequer Secretary—it was also made in the HMRC report ahead of the 2012 Budget—regarding people avoiding the 50p rate and behavioural changes. It is difficult to put a number on behavioural changes and they are all very uncertain. It is my contention that rather than the Government immediately jumping to cut the 50p rate to 45p, which was a highly political decision, it would have been better to look at the potential of targeted avoidance measures to stop some of the behavioural changes that might limit the amount raised by the 50p rate.

It will now be perfectly possible for HMRC to make a deeper analysis because it will be able to look at a further year’s records to assess what has happened. The decision to cut the rate to 45p in 2012 was the wrong one, however, as the 50p rate had not been in place for long enough. The Exchequer Secretary is right that there is huge uncertainty in the figures about how much is raised, and the margin for error also adds a huge uncertainty. The Government say that they want to support people on lower and middle incomes, but we have a position in which such people—according to different measures—are £1,600 a year worse off, £974 a year worse off, or have wages that are 5.6% down in 2015 compared with 2010. When that is the situation for millions of people in our country, a tax cut for millionaires of more than £100,000 was not the right priority and not a fair way to get the deficit down.

David Gauke (Conservative, South West Hertfordshire)

I apologise if I thought that the hon. Lady had said that the numbers were inaccurate. If she is saying only that they are uncertain, I withdraw that remark. However, I am struck by what she is saying. She rightly makes the point that there is a degree of uncertainty. It is possible, as she says, that an increase would raise more, but it is also possible that an increase to the 50p rate would reduce revenue. Does she accept that an increase from 45p to 50p, given the uncertainty that she acknowledges, could end up costing the Exchequer money?

Shabana Mahmood (Labour, Birmingham, Ladywood)

It is my view that revenue from the 50p rate would be protected if we dealt with capacity in HMRC and had targeted measures to tackle avoidance. This is simply a point on which the Exchequer Secretary and I will disagree. I accept that the numbers that we have to play with are in the public domain. Of course, HMRC has access to much more data than even independent analysts, and it certainly has more than the Opposition. I believe that the 50p rate has the capacity to raise more money than the Government have said that it would. On the behavioural change that limits, so the Government say, revenue from the 50p rate, I think that targeted measures would protect that revenue and contribute towards getting the deficit down more fairly.

Chris Williamson (Labour, Derby North)

I do not know if my hon. Friend agrees with me, but I am astonished that the Minister, supported by his Back Benchers, seemingly wants to pander to tax fiddlers, as that is why they say that they cannot possibly countenance a 50p tax rate. Does she agree that it is illustrative of the paucity of the Government’s argument that their Back Benchers are falling over themselves to talk about the previous Government’s record, rather than trying to defend the indefensible record of this Government, with their decision to cut the 50p tax rate?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes a characteristically powerful contribution, and he is absolutely right. It is interesting how exercised Government Members are when discussing the 50p rate, because that is less the case when it comes to trying to deny the fact that ordinary working people are worse off—perhaps because that is an undeniable truth of what has happened under this Government.

Richard Fuller (Conservative, Bedford)

I want to be absolutely clear—if that is possible—about the Labour party’s position. I think that the hon. Lady said that the Labour party would go into the election promising to raise taxes with a focus on restoring the 50p rate. If I heard her correctly, Labour has made an explicit pledge to get the deficit down in a fairer way. She says that the figures are uncertain, so if they show that the tax take—that is how to get the deficit down—actually reduces if the tax rate goes up to 50p, does she foresee that Labour would reduce the tax rate back to 45p or 40p?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to the hon. Gentleman for his intervention, but I disagree that the tax take will decrease. I believe that the measure would raise revenue. On the analysis that the Government have accepted, it would raise £100 million, and I think that it has the capacity to do more. A set of measures on HMRC’s capacity and targeted anti-avoidance measures to protect revenue could have an impact on getting the deficit down. In terms of getting the deficit down more fairly, it is important, given that ordinary working people are £1,600 a year worse off since the general election, that we send a signal about our expectations when it comes to who bears the greatest burden as we get the deficit down. After all, the Government are not averse to sending signals through the tax system, as they recently did with the tax allowance for marriage. Millions of ordinary working people are struggling to pay their gas and electricity bills and are worried about paying for child care—they may even have to choose not go to work because child care is so expensive—so it is completely the wrong priority to hand some of the richest people in our society a tax cut worth up to £100,000. That sends the wrong signal and the Government should not have done it, so we will reverse it.

Kwasi Kwarteng (Conservative, Spelthorne)

I just want to clarify the hon. Lady’s position. My hon. Friend the Member for Bedford asked what the Labour party’s policy would be if raising the tax rate to 50p meant a reduction in tax revenue. We heard nothing from her about that, just a dogmatic assertion that the 50p rate was right. If increasing the rate to 50p raises more revenue, at what point should we stop raising the tax rate? Should we do what they did in France and raise it to 75p, on the basis that raising tax rates increases revenue? Is that her plan?

Shabana Mahmood (Labour, Birmingham, Ladywood)

We have a clear policy on the 50p rate, and we have said that it is part of a policy for a fairer deficit reduction programme. We anticipate that that deficit reduction programme will take most of the next Parliament, so the 50p rate will be in place for that period. It could not be clearer.

Iain McKenzie (Labour, Inverclyde)

Is it not the case that while we hear continually from the Government that those with the broadest shoulders will bear the greatest burden, they are giving tax breaks to millionaires and are happy to move people from the 50p rate while pushing more people into the 40p tax bracket? We have seen more taxes from this Government than I care to mention.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes a powerful point and I agree with him. The decision about the 50p rate was made very soon after the rate had been put in place at a time when we knew that income had been shifted to avoid the rate. After it was reduced, the Government congratulated themselves on the basis that revenues appeared to go up, but they ignore the fact that most of the increase is accounted for by the delaying of bonuses and income shifting in the other direction. The Government’s whole approach has been wrong.

To go back to my earlier discussion with the hon. Member for Spelthorne, this was a highly political move. The Government were ideologically committed to the cut and they read the evidence in a way that allowed them to make the case to cut the rate on the basis of revenue. They claim that it has raised £100 million, which is not to be sniffed at, but they forget that while they focus on those at the very top, millions of people on lower and middle incomes are worse off because they are being drawn into the 40p band or because of the combined impact of all of the Government’s other measures—even though they might benefit from the increase in the personal allowance—and the lack of action from the Government on issues such as energy and child care. The Government are also using hundreds of millions of pounds to send signals through the tax system about the importance of marriage, but we believe that that money could have been put towards establishing a 10p starting rate of tax for people on lower and middle incomes. The Government’s whole focus has been wrong by prioritising the wealthiest ahead of people on lower and middle incomes, who are ultimately worse off as a result of all these changes.

David Gauke (Conservative, South West Hertfordshire)

It seems that one of the hon. Lady’s arguments against reducing the 50p rate was that, notwithstanding the numbers that have been signed off by the OBR, there was a degree of uncertainty about the fiscal cost; yet the centrepiece of the hon. Lady’s deficit reduction policy appears to be a specific policy that has no certainty of raising any revenue whatever. Does she think that there is certainty in this area or not? If she thinks there is uncertainty, does she not accept that this uncertainty applies to Labour’s policy of increasing the 45p rate to 50p?

Shabana Mahmood (Labour, Birmingham, Ladywood)

If we want to air these issues in greater detail at the next general election, the Government should sign up to our proposal to allow the OBR to audit manifesto commitments. That will elucidate for the public exactly where the different parties are going with the choices they make. We have nothing to be afraid of. We believe that our choice is a revenue-raising measure. We will set out more about protecting revenue from the 50p rate towards the general election. We believe it is a revenue-raising measure and that it could contribute to getting the deficit down in a fair way.

We have nothing to be afraid of. We are quite happy to allow the OBR to look at every commitment that the Labour party makes, whether it is our proposal on corporation tax and business rates—switch spend, which uses all the money from a 1% increase in corporation tax for larger companies to help smaller and medium-sized companies with their business rates. We are happy for all those figures to be looked at. They are already in the public domain and their essence has not been challenged by the Government. We are happy for the OBR to look at all those things.

The Exchequer Secretary should join us in supporting our OBR proposal. It is a good proposal and would really help to illuminate public debate on all the issues, particularly taking into account our earlier discussion about what the parties of Government said when they were in opposition, whether in relation to VAT or other taxation measures. If parties have their manifesto commitments on spending independently audited, it puts greater pressure on them to make promises that they absolutely intend to keep, rather than soundbites designed to deflect debate or misrepresent what then quickly becomes the Government’s intended action once those parties get into power.

Ian Swales (Liberal Democrat, Redcar)

In the light of the hon. Lady’s comment, I just point out that neither party on the Government Benches actually won the last election. In the absence of the OBR looking at these proposals, the IFS, which Labour Members often like to quote, says a move to 50p would raise “little revenue” and would make a “marginal contribution” to deficit reduction.

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman is right that neither of the Government parties won the general election. Let us hope that neither wins next time as well, and we have a majority Labour Government instead. I recognise his point about the IFS’s comments, but as I said, this is a decision that we have made. We believe it is a revenue-raising measure and could be used to get the deficit down in a fairer way. In fact, with some targeted measures we could protect revenue from the 50p rate. I take on board the point about behavioural impacts; they are real but they can be challenged.

This is one area where tax avoidance has led to a tax cut, rather than anti-avoidance measures. This flies in the face of what the Government themselves say about their record on tax avoidance. It seems unfair to members of the public, who will think, “Well, if you’re are well off enough to pay for decent advisers who can tell you how to avoid this higher additional rate of 50p, and you’re well organised and can lobby the Government of the day to get rid of it, you are up for a tax cut.” Everybody else will be worse off, because either their wages will be £1,600 a year down, or the combined impact of tax and benefit changes will leave them nearly £1,000 worse off.

Mike Kane (Labour, Wythenshawe and Sale East)

I am grateful to my hon. Friend for welcoming me to the House and the Committee; I am not so grateful to the Whip for getting me on to this Committee. May I say, Mr Caton, that it is a pleasure to serve under your chairmanship?

It was in 2012, I think, that HMRC said that cutting the top rate from 50p to 45p would cost the Exchequer £100 million a year. The OBR said that was a reasonable estimate. What does my hon. Friend say to that?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to my hon. Friend for his intervention. It highlights the point that I have just made. We believe that this is a revenue raising measure. That revenue can be raised to get the deficit down in a fairer way and other things can be done to decrease the impact of the behavioural changes that we have seen and we would expect to see again if the rate were to go up. The first bit of tax avoidance should not mean that somehow we automatically move towards cutting that rate. The Government have trumpeted their record on tackling tax avoidance, yet when it came to the 50p rate, they put their hands up very early on and said, “Oh no, we can’t possibly deal with this. We are just going to cut the rate and get it down to 45p.”

Indeed, many people, particularly in the Conservative party, are lobbying hard for the 45p rate to be eliminated as well. Reports at the time suggested that that was very much in the Chancellor’s mind as well. In the end he did not go down to 40p again, but he will not rule out a move from 45p to 40p, despite being asked to so a number of times. The Prime Minister has been asked about this a number of times at Prime Minister’s Questions, but he has always ducked the opportunity to rule out the cut, perhaps because he knows that the politics of that message would be very difficult. Once again the wealthiest in our society would get a huge tax cut while everybody else was worse off—another fact that Government Members and Ministers have ducked the opportunity to admit on a number of occasions.

Chris Evans (Labour, Islwyn)

Is there not a simple solution to this argument? Why do we not allow the manifestos to be costed by the independent OBR? Our proposal to do that has been met resistance from the Government.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes a good point. He is absolutely right. One way to bring alive some of these arguments to the public would be for all the parties to submit their manifestos to the OBR. There is broad support for such a move. The OBR has indicated that it would happily do this if given the mandate. Lots of people from across the political spectrum think that it would be a very good thing. As I said in response to an intervention from one of my hon. Friends, it would prevent parties from saying things in opposition to fudge an issue, or not to admit their plans and then changing their minds, or doing something completely different when in government. Our policy would be a way of holding parties to account for what they say in their manifestos. I hope that Government Members would see that. It prevents difficulties for all political parties.

Without all of the infrastructure and support that the Government get, the Opposition have to work doubly hard to ensure that our figures are correct and that they are independently checked before we make any commitments. The commitments that we have made already are what we describe as switch spends. We have said that we will stick to the coalition Government’s overall spending envelope for 2015-16, but we will make some different choices within that to bring forward our priorities.

Whether in relation to corporation tax and business rates or scrapping the marriage tax allowance and using that money for a new 10p starting rate, we will make different choices. We have set out how we will pay for those within the overall spending envelope and we are happy for the OBR to look at that. To give the OBR that function would allow for much deeper public debate and put greater pressure on all political parties to do their sums and get their figures right. We could then challenge each other on figures from a position of independent authority, rather than, as at present, our political assumptions on parties’ commitments. That would be a good thing and it is a shame that the Government have not taken the opportunity to allow that. We have attempted to put such a measure in previous Finance Bills and other legislation brought forward by the Government, but we have not been ruled in order. I hope that the Government might take that on.

Chris Williamson (Labour, Derby North)

I entirely agree with the point my hon. Friend makes about the importance of the OBR scrutinising the propositions of the Opposition as well as the Government of the day. Does she agree that if we had had a version of the OBR back in 1979, perhaps the course of history would have been changed? We know that at that time the Opposition Conservative party was making all sorts of grand promises, but Labour pointed out that VAT would double, which was portrayed as one of Labour’s dirty dozen on the infamous front page of the Daily Mail. Six months after coming into power, what did the Conservative Government do? They doubled VAT. Had their proposals been subject to a version of the OBR, perhaps the course of history—[ Interruption. ]

Martin Caton (Labour, Gower)

Order. That was a very long intervention.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend certainly knows how to get under the skin of Conservative Members. He makes a characteristically powerful intervention. I confess that I am not well versed in that history lesson as I was born in 1980, so that was a year before I was born. He is right to bring the events of 1979 to the Committee’s attention. That is exactly that kind of about-face we sometimes see from Opposition parties when they come into government that would be, if not eliminated, decreased significantly by independent audit and the subsequent public debate. Parties would find it less possible to fudge their way around commitments they were making.

David Rutley (Conservative, Macclesfield)

Given today’s GDP figures, why do Opposition Members seem to draw inspiration from the 1970s or President Hollande and not the Government side?

Shabana Mahmood (Labour, Birmingham, Ladywood)

Perhaps that is because they feel that little inspiration is to be had from Government Members, who are in denial about ordinary people on lower and middle incomes being worse off as a result of the Government’s decisions. I am not surprised that Opposition Members, or indeed those elsewhere, are not willing to take inspiration from the Government.

To get back to the personal allowance, I was making the point that the Government give with one hand but take a lot more away with the other. We hear much from Government Members about what they are giving—the personal allowance is the flagship policy that is always referred to—but the Government do not admit to taking things away. Although we welcome the increase in the personal allowance—we have seen big increases—it is important to remember that those costly measures in and of themselves are not doing enough to counteract the things being taken away, which leave people worse off.

Nicholas Dakin (Labour, Scunthorpe)

I thank my hon. Friend for giving way, and I am pleased to serve under your chairmanship, Mr Caton. My hon. Friend brings us back to the position that she carefully outlined earlier. The OBR has described the situation in which living standards are being increasingly squeezed. That reflects exactly what we are finding on the doorsteps as we talk to people around the country, and that is why my hon. Friend is completely on the money in what she says.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to my hon. Friend for that intervention. He is absolutely right about what we hear on the doorstep every day.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

His doorstep!

Shabana Mahmood (Labour, Birmingham, Ladywood)

All doorsteps. Doorsteps in Ladywood, in Scunthorpe, and I am sure in the constituency of the hon. Member for Elmet and Rothwell as well. He must accept that ordinary people on lower and middle incomes in his constituency will be worse off in 2015 compared with 2010. That is an undeniable fact. Perhaps he will be the first Government Member to admit that people will be worse off in 2015 than they were in 2010.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am more than delighted to point out to the hon. Lady that people in my constituency are terrified of how much worse off they would be if the Opposition were in power. That is what they say on the doorsteps. They accept we are in a terrible financial situation, but they do not want the Labour lot back, because they caused it.

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman accepts that people will be worse off in 2015. Saying that the situation would be worse under Labour does not get the hon. Gentleman off the hook when it comes to his own Government’s record. It comes back to the point that I have been making. The Government use their flagship policy of the personal allowance to behave as though that has made everything A-okay, but it has not. It is a good measure and it has helped, but the Government have taken away a lot more with one hand than they have given with the other hand that has raised the personal allowance. That will be as true for members of the public in the hon. Gentleman’s constituency as it is for everybody else.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am genuinely grateful to the hon. Lady. She is being extremely generous in having a proper debate. I will simply say that I am not reflecting my own view, but the view of the people in Elmet and Rothwell, as proved by the YouGov opinion poll that came out this morning. It shows that, on economic competence, the Conservative party has increased by a further three points to give us a 14% lead over the Labour party.

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman will not mind my quoting back at him that a recent ICM poll found that only 26% of people believe that the recovery, such as it is, is benefiting them or their household. A very low number of people in this country feel that they are benefiting. He will no doubt put across what he believes to be the views of his constituents. I am sure they will make their feelings felt at the general election. That will be the arena in which we will ultimately test public opinion on this point.

The question is whether the recovery is benefiting people on lower and middle incomes. Do they feel as though they are benefiting? Are they seeing the difference in their daily lives? Are they no longer putting their heads in their hands when the gas bill comes through the door because they are worried they cannot pay it? I do not believe they are in a position of comfort and not worrying about the measures. Although the changes to the personal allowance are welcome and have been supported by all parties, they do not, as I have said, get the Government off the hook on this central charge that they give with one hand, but take away much more with the other.

On clause 2 and the personal allowance and before I move on to new clause 1 more specifically, can the Minister help with the point raised by the Chartered Institute of Taxation on the position of low-income taxpayers who also claim benefits? It tells us that the position is somewhat more complicated. To anyone on most means-tested benefits, any tax saving from the raised tax threshold will be offset by a diminution in their entitlement to benefit, because means-tested benefits are based on net income after tax. Accordingly, any reduction in someone’s tax bill results in an increase in net income and so reduces benefit entitlement. Will he speak to that point specifically when he eventually gets the opportunity to wrap up this clause stand part debate? It is important that we try to understand the impact on that nexus of low-income taxpayers who also receive benefits.

It would also be of benefit to the Committee if the Minister said something about the interplay with universal credit, once that is eventually, probably, hopefully and possibly fully online. We wait to see when that might be, but assuming that it will be fully up and running, it would be helpful if he set out some detail on that. Will lower income taxpayers receiving in-work benefits be worse off and, if so, by how much? What do the Government propose to do to assist with that picture?

New clause 1 would require the Chancellor of the Exchequer to

“lay before Parliament a report containing proposals for an income tax rate of 10 per cent on a band of income above the personal allowance.”

The report

“shall provide for the full benefit of the 10 per cent. rate not being available to taxpayers paying the higher or additional rates of tax.”

The report would look at the impact of a 10p rate, which is a specific bit of Labour party policy ahead of the next general election. We have supported the changes thus far with the increased personal allowance, and we will do so again when we come to clause 2 stand part, but in addition to those changes, we believe it important, right and fair to reintroduce the 10p starting rate of income tax. We would use money raised from a mansion tax on the most expensive properties—those worth £2 million or more—to pay for that. More recently, after the Government managed to find between £500 million and £800 million for its marriage tax policy, we have said that we would scrap that and also use that money to pay for a 10p band.

David Gauke (Conservative, South West Hertfordshire)

Just on a point of clarity, will the hon. Lady tell the Committee how much a Labour Government would intend to raise from a mansion tax?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to the Exchequer Secretary for that intervention. We have said that we want to bring in a 10p rate, but we have not said what the size of that band would be. We will set that out closer to the general election. There are a number of different ways in which a mansion tax on properties worth more than £2 million could be structured, and each would have an impact on the amount of money raised. Earlier in this Parliament, the Liberal Democrats proposed a mansion tax on properties worth £2 million or more, which they believed could raise up to £2 billion. There are other figures out there for what it could raise; some are higher, and others are lower. We have not yet said how much we would raise, as we are still working through the structure of the mansion tax that we would introduce, but we will set that out before the general election. That would, of course, have an impact on the size of the 10p band as well.

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady is giving a straightforward answer to the question. I quite understand that the Opposition have not set out the parameters. My memory is that, this time last year, Opposition Front Benchers were talking specifically about raising £2 billion from a mansion tax. However, the hon. Lady has made it clear to the Committee that the Opposition are not at this point committed to a mansion tax that will raise £2 billion. I think that is a change from the previous position of the Labour party.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I do not think it is a change. We have never said that we anticipate that the measure would raise £2 billion. We have referred to others who have said that it would raise £2 billion, in particular the Liberal Democrats. We have never put a figure on exactly what we think a mansion tax would raise. The £2 billion figure has been used by commentators, and it has been the working assumption of many people when discussing the mansion tax. However, we have deliberately not said—because we were not in a position to say—that it would raise £2 billion. We anticipate that it would raise sufficient revenue to give a decent 10p band. We will set out our proposals regarding the size of that band and what revenue we think would be raised nearer the general election.

We have, since the Government introduced the married couple’s tax break, which was debated in Committee of the whole House just a couple of weeks ago, said that we would scrap that and use the money towards the 10p rate. That would change some of the potential figures. We will set out in greater detail exactly what the shape our mansion tax policy would be as we get closer to the next general election.

As I have said, a mansion tax could be implemented in several ways. The Government already have some infrastructure in place, due to their annual tax on enveloped dwellings, and even within that structure, a number of variations could be adopted. As I said, we will set out greater detail on our proposals in due course.

The Opposition believe that bringing back a 10p rate, in addition to the increases that we have seen in the personal allowance, is an important step. On the macro-economic side, we have said that we would have made different choices in 2010 regarding the pace of deficit reduction—choices that we believe would have meant a more balanced approach to deficit reduction. However, we also think that we need to make different choices, with new priorities to turn our economy around. We want to protect the incomes of working people with a new priority in taxation, which is why we want to introduce the starting 10p rate.

As I have said, in order to pay for that policy, we would introduce a mansion tax on houses worth more than £2 million, combining it with the scrapping of the marriage tax allowance recently introduced by the Government. We would use all that money to cut taxes for working people. As I have said, the size of the band would depend on the amount that would be raised from the tax on homes worth more than £2 million. However, the change would ultimately benefit 24 million basic rate taxpayers, which gives a clear signal of what we want to do to help people on lower and middle incomes.

I will focus for a moment on the marriage tax allowance, which was introduced recently by the Government.

Ian Swales (Liberal Democrat, Redcar)

I am listening carefully to the hon. Lady’s arguments. Before she moves on to the higher tax allowance, has her party calculated whether it is worth adding more complexity with another band, rather than simply increasing the zero-rate threshold by half as much and achieving pretty much the same effect?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I will come to the substance of the hon. Gentleman’s point later in my remarks, but in essence we think that reintroducing the 10p rate would provide people with a stronger work incentive. The steadier incline is preferable; rather than going from 0% to 20%, the climb to 10% first and then from 10% to 20% does more for work incentives than a simple jump from zero to 20%.

The marriage transferable tax allowance introduced by the Government will ultimately help only one third of married couples, or 4.1 million couples; it will not help the other two thirds. Eighty-four per cent. of those who gain from the policy will be men and only one in six families with children will benefit. As we have previously pointed out to the Government, if they are trying to send a clear signal about the importance of marriage through the tax system, even according to their own analysis, the policy is not helping two thirds of married couples. The fact that it benefits so many more men than women, given how much women have suffered from the cost of living crisis and the squeeze on living standards, and only one in six families with children, also seems somewhat perverse.

In the Committee of the whole House, many Members who spoke in favour of the policy talked a lot about how marriage gives a stable environment for children and how the children of people who are married and stay together do better on various measures, such as school attendance and behaviour. I was struck by that. We therefore expected the policy to help families with children the most, but it does not; it helps only one in six such families, which seems perverse, given the case made by the Government for introducing the policy. A measure that is supposed to be sending a strong signal about the importance of marriage helps only one third of married couples, which is not even half of those who are married, and that seems somewhat perverse.

The policy costs the Exchequer £500 million, rising to £800 million in later years, which is not an insignificant sum. Instead of using it to send that signal, which I suspect is more for Conservative Back Benchers than for people out there in the country—I do not see a huge clamour for the £3.80 per week for couples who qualify—the money would be better put towards a 10p rate, which would help 24 million basic rate taxpayers and send a much stronger signal than the marriage tax allowance. Such a signal would be welcomed by ordinary working people who are, in my experience, less obsessed about whether they are married or single than about making ends meet and the tax system working for them and being fair.

The wealthiest have been given a huge tax cut by this Government, while people on lower and middle incomes are worse off, feeling the squeeze and struggling to pay their bills and make ends meet. The policy is in effect purely symbolic—even the Government say it is there to “send a signal”. Why not do something more practical? Use the money to get genuine, practical help to 24 million people rather than one third of married couples and one in six families with children. Why not do something that would go much further? We would be happy to work with the Government, if they wish, to get the numbers right for a starting tax rate of 10p.

If they were to scrap the marriage tax allowance, that would immediately raise £500 million. If we wanted £2 billion to put a 10p band in place, that would leave a further £1.5 billion to find. I would happily work with the Exchequer Secretary to find that money. We could send a clear signal to people on lower and middle incomes, who are desperately struggling and would love a symbolic pledge from the Government that would mean something to the pound in their pockets and how much further it could go. That would be a better and fairer measure.

As I said to the hon. Member for Redcar, a starting rate would be a better work incentive. The policy would reduce taxes for those on lower incomes and strengthen work incentives. I take the broader point that some argue that 20p is an adequate starting rate, but as I also said to the hon. Gentleman, a steadier incline from 0% to 10% and then to 20% could act as a stronger bedrock, sending a more progressive, clear signal. Signals are deemed important in the taxation system, and this one would be that tax cuts for all working people on lower and middle incomes are a priority. The policy would help us achieve that.

To make a comparison with the marriage tax allowance, that could be seen as a symbolic gesture designed to incentivise the social behaviour of staying married. That is difficult for Government to incentivise because it is not possible to get involved in personal relationships. People in bad relationships can, by splitting, often do better for their children and family life than they can by staying together for the sake of being married. Personal choices are difficult for Government to incentivise through symbolic gestures in the taxation system. When it comes the decisions people make about work, there are more practical life changes that are easier to incentivise and encourage people to nake. It is possible then to help them make the best of their choice.

At a time of economic difficulty, when although a recovery is under way, it follows three damaging years of flatlining that have had an impact on ordinary people, the Government’s priority, if they have money to send signals through the taxation system, should be to incentivise a type of behaviour that is easier to affect and better for the lives of ordinary working people. That behaviour can be incentivised and introduced through a steady increase, so that work incentives are improved. That would be better than addressing people’s personal and social relationships, which will always be difficult for Government to encourage or prevent. That is much trickier terrain for a Government, regardless of how strongly we support marriage.

I speak as a practising Muslim whose religion places marriage at the central focus of family, religious and spiritual life. I am therefore a strong supporter of marriage and I think that the trend in divorce rates and so on has had a big impact on our country, and particularly on outcomes for children. However, it is not for policy makers in this place to tell people what personal decisions to make in their lives, whether that be getting married in the first place, or staying married when a relationship gets difficult. Of course, many relationships have encountered great difficulty in the past few years, because economic circumstances have been challenging for families, which makes it harder for couples to stay together.

We should not try to send a signal about those things through the taxation system. That is the wrong priority, and I do not think that the policy would be successful in achieving the aims that the Government might want to set. According to their own figures, this tax allowance would not help the vast majority of married couples and it is not worth a huge amount of money to those couples. It would be far better to make it part of a broader and wider policy around a 10p starting rate, which would help millions more people.

Ian Swales (Liberal Democrat, Redcar)

To return to the 10p tax rate, the hon. Lady has been careful not to set out bands, but let us say that we had a 10p tax rate for a band of £2,000, rather than a zero rate for a band of £1,000. The impact of her policy would be that people in that first £1,000 would pay tax, when they would pay none under a zero rate policy.

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman is tempting me down a road that he will not be surprised if I choose not take. The reason for that is that we will set out, as I have said, what we anticipate the size of the band will be, depending on the ultimate shape of our mansion tax policy. The structure that we adopt for levying a tax on properties that are worth £2 million or more, in addition to the money that we would raise from scrapping the marriage tax allowance, will dictate the size of the band that we can ultimately introduce.

If the hon. Gentleman will forgive me, I will not take him up on that question today. However, when we have set out the precise numbers of our policy and worked out how big that band can be, we will be happy, as I have said, for the OBR to look at and audit those figures, because they will part of our manifesto for the general election. Even if the hon. Gentleman and the Government do not take us up on the proposal concerning the OBR and manifesto auditing, we will be happy to discuss with him or anybody else the numbers in our policy once we have worked through the detail.

Christopher Pincher (Conservative, Tamworth)

The hon. Lady has just said that she is not able or prepared to give any firm details about Labour’s mansion tax or 10p tax policy at the moment, but the hon. Member for Newcastle upon Tyne North appeared to do so during a debate on the mansion tax, when she said:

“We say that it could be used to fund a 10p tax band of up to £1,000, benefiting 25 million basic rate taxpayers to the tune of £100.”—[Official Report, 12 March 2012; Vol. 560, c. 210.]

By my maths, that is a cost of £2.5 billion. Was the hon. Lady wrong to make that statement in the Chamber, or has Labour’s policy since changed or disappeared?

Shabana Mahmood (Labour, Birmingham, Ladywood)

The policy has not changed; it is exactly as it has always been. We have always been clear that we want to reintroduce a 10p starting rate, which we believe will help 24 million basic rate taxpayers. We think that that is a better work incentive. For that policy, we will use a mansion tax levied on properties worth £2 million or more. We have not said that our numbers will yield £2 billion, although we know that other people—particularly the Liberal Democrats, whose policy was underpinned by the figure—have said that a mansion tax would raise £2 billion. I think that was based on an assumption that there are 70,000 properties in the country worth £2 million or more. Those are not our numbers, however. We have been clear that we will further define the shape and structure of our mansion tax and the amount of money that it will raise as we approach the next general election. Since we put forward our policy, which has not changed—it has always been our clear position—we have also, now that the Government have introduced the married couple’s tax allowance, said that we think that is the wrong priority. We would scrap that allowance and put the money towards our 10p policy.

That is the only change that has been made to our policy. That has always been the position. We have reflected on the married couple’s tax allowance and reached the view that it does not even do what the Government want it to and that, even if it were to achieve some of that, it would be the wrong priority. It does not help enough people.

As for incentives, marriage is not the type of behaviour that is easy for Governments, policy makers and legislators to incentivise. Also, I do not think it is our place to try to tell couples what they should do. If £500 million, rising to £800 million in later years, is available, we should use it for something that will have practical benefit for working people. A 10p rate would do that.

Mike Kane (Labour, Wythenshawe and Sale East)

I concur with my hon. Friend’s sentiment that marriage should be at the heart of civil society. As a practising Catholic I understand where she is coming from when she talks about her faith, but the married couples tax allowance is a completely unprogressive tax measure. It disincentivises people to get on in life. It is unaspirational. It affects only those who are basic rate taxpayers with a partner who does not work. Therefore, people who could go above the £42,000 threshold into the higher bracket may be disincentivised to do so. Does my hon. Friend agree?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes an important point, on which we agree. Many MPs support marriage, but it would be difficult for the Government to incentivise what we think of as the “right” behaviour, even if we all thought it was right to try. I am not sure that the case has been made for such Government interference in people’s personal affairs.

Setting that aside, and assuming for a moment that the case for that approach has been won, it is difficult to incentivise marriage, because from what I have seen of the world, people base choices about it on love, or how irritated they are, and whether both want a divorce at the same time. Marriage is a difficult thing, and a long haul. My parents have been married for more than 30 years and have a strong marriage, and it takes a lot of hard work. I have a firm personal, spiritual and religious belief in marriage, and hope one day to be married myself, but do I think it is my place as a legislator to go into people’s personal relationships and tell them, or suggest to them, the right way for them to live their lives? I am not so sure about that.

As a member of a religious minority, I am protective of the space that individuals have to make personal choices based on their conscience about how to live their lives. It is not the role of the Government to dictate how we make personal choices. It is not right in matters of personal faith, conviction or spirituality; equally, it is not right in matters of love or the heart, or practicalities to do with having children and setting up family life. I do not think the Government should be in that space, and even if they try to enter it they cannot succeed very well.

Ian Mearns (Labour, Gateshead)

I have to admit to not being married, although I have lived with my current partner, Anne, for 26 years, but I think it is a little perverse that we are seeing a Government policy on a married couple’s tax allowance that is not about reinforcing the great institution of marriage. I know that marriage is a great institution, because I was married to another lady in a previous existence. As Groucho Marx said, marriage is a wonderful institution if you want to live in an institution all your life. I think it is perverse, though, that the policy put forward by the Government is about affordability within the particular parameters, rather than about reinforcing the institution of marriage per se. Only if people fit into a very narrow band of criteria will they benefit from the policy.

Martin Caton (Labour, Gower)

Order. This subject—the married tax allowance—was debated at some length in the Floor of the House. I would hope that we could move on fairly swiftly now.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful for that indication, Mr Caton.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Will the hon. Lady give way? The issue that I would like to raise is slightly different.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I will give way to the hon. Gentleman, but I promise you, Mr Caton, that I will very quickly move off this subject.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am most grateful to the hon. Lady and apologise to her for not intervening slightly earlier. I want to go back to the mansion tax. Is the hon. Lady’s party proposing, as part of the mansion tax, that all properties will have to be reassessed as to their value? I ask that because I am slightly unclear on how we can determine, without doing a reassessment, that a property is worth more than £2 million. Would we have to reassess all properties in order to be able to classify which properties were liable for the mansion tax? I seek clarification on that from her.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My response to the hon. Gentleman will not get me in trouble with Mr Caton, so everyone is a winner. I simply say to the hon. Gentleman that, as I said earlier, there are a number of ways in which a mansion tax on properties worth more than £2 million could be structured. We are looking very carefully at the different permutations and the ways in which that could be done and we will bring forward our proposals in due course. We will happily submit them to scrutiny by the House, by the Government parties, and also by the OBR, because we believe very strongly that it is good policy to audit parties’ manifesto commitments. I am sorry that I cannot as yet give the hon. Gentleman more detail on the precise shape of the mansion tax. We have said that it would apply to properties worth £2 million or more. As I said, with regard to the precise structure of the tax, there are a number of models out there and we have not yet come to a view about the precise structure that we will adopt and put in place if we win the next general election, but we will do so in due course. That is something we are looking at very carefully.

Chris Williamson (Labour, Derby North)

Is my hon. Friend as curious as I am about the interventions from Government Members? It seems, from the tenor of the interventions that we have heard from them, that they have given up on winning the next general election and are assuming that Labour will be in government, because they want to scrutinise Labour’s proposition rather than speak to the amendment. The amendment is very clear and simple, yet they do not want to talk about it. All they want to talk about is what Labour will do when we win the next general election in just over 12 months’ time. Is my hon. Friend as curious as I am about that?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I enjoy my hon. Friend’s interventions. He has a knack for getting under the skin of Government Members and is absolutely right to do so. I am glad that once again he has excited the passions of those on the Government Benches. I was fearful that my speech was not having that effect on them, but my hon. Friend came through and once again woke them all up. I am grateful to him for that.

A reintroduction of the 10p rate is not being discussed exclusively by the Labour party in relation to our policy proposals. Government Members, including the hon. Member for Harlow (Robert Halfon), have also called for the reintroduction of the 10p rate. From what he has said in Westminster Hall—I hope I get this right—his primary concern is that more increases in the personal allowance will be paid for by dragging more people into the 40p tax band, which I will address when we discuss new clause 2. His worry is that we will soon have families who do not have high wages but who pay the 40p rate. Those families will potentially include senior police officers and senior NHS nurses. He is a Government Member who supports the reintroduction of the 10p starting rate. He perhaps enters the debate from a slightly different position to us, but the net effect is further support for the 10p rate. I do not think he is alone in wanting more thoroughly to ventilate the starting rate and its relationship with personal allowance increases and the 40p tax band.

Both the personal allowance increases that we have seen and the 10p starting rate have pros and cons, and the review called for by new clause 1 would allow us to illuminate public debate on the relationship between personal allowance increases, the 10p rate and the increasing number of people being brought into the 40p tax band. We tabled new clause 1 because we have a policy on the 10p rate, but the relationship between that rate, the personal allowance increases and the 40p rate has an impact across the country, and hon. Members are alive to that issue. New clause 1 simply asks for a review of the impact of a 10p rate, which would go some way towards assisting public and policy debate.

We are asking for a review, which is one of the few things for which we can ask in a Finance Bill Committee. I am told by veterans of Finance Bill Committees that people feel “reviewed out” by the end of Finance Bill Committee sittings, but reviews are important and are one of the few changes that the Opposition can propose to a Finance Bill. Leaving that aside, reviewing taxation policy and calling on the Government to publish such reviews has a positive impact on public debate, particularly as we get towards manifesto commitments—as I have said, Labour will have a manifesto commitment on the 10p rate. Even if the Government do not bite on the policy of the OBR auditing parties’ manifestos, a review would be of assistance.

Before I conclude my speech, I welcome the new Economic Secretary to the Treasury to her position. The shadow Chief Secretary to the Treasury and I welcomed her in her absence during our opening remarks. It is good to see another woman on the Treasury Bench. We still have one more woman, but the Government are doing better than before, which is welcome.

Ian Mearns (Labour, Gateshead)

I am grateful to my hon. Friend for proposing a review under new clause 1. This is my fourth Finance Bill Committee of the Parliament, so I know that Ministers have always been generous in acceding to our requests for such reviews, and I expect such generosity on this occasion.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to my hon. Friend for his intervention. Having briefly looked at Hansard reports of debates when the Exchequer Secretary was in opposition, when he made frequent requests for reviews, I take on board the fact that making such a request is one of the few tools that Oppositions have. While we may engage in a little political knockabout in Committee around endless requests for reviews, reviewing the impact of taxation measures, as we envisage under new clauses 1 to 3, is important. If we are not going to get a formal OBR audit of parties’ manifesto commitments, that would be the next best thing. It would not be quite as independent, because it would come from the Government, but it would at least put figures into the public domain that could be tested and scrutinised and, as I said before, that could illuminate public debate. I hope that Government Members will support us when we vote on new clause 1.

New clause 2 would require the Chancellor of the Exchequer to undertake a review of the number of people paying the 40% rate of income tax in each of the years of this Parliament to date. We tabled the new clause because the question of how many people are within the 40p tax band has become ever more cogent and important as more people have been dragged into that band as a direct result of choices made around increases in the personal allowance and the basic rate. The new clause asks for a report because we know that those numbers have gone up. As is the case for new clause 1, such a report would allow for more public discussion around the relationship between the personal allowance, the basic rate limit and the Government’s choice on the 40p limit.

When I discussed the campaign of the hon. Member for Harlow on the 10p rate, I said that he wanted not further increases in the personal allowance, but instead to look towards introducing a 10p rate of tax, precisely because of his concern that the increases in personal allowance had been paid for by bringing more people into the 40p band. He worries that the 40p band covers many more people than ever before.

Ian Swales (Liberal Democrat, Redcar)

Will the shadow Minister confirm that the proposal set out in new clause 1(2) would drag more people into the 40% band?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to the hon. Gentleman for his intervention. The report for which new clause 2 requests would illuminate the debate around how many people are in the 40p band, and give space for a public discussion about the size of that band and how many people should be caught by it. The IFS analysis of the Budget noted:

“Putting up the higher-rate threshold by 1% in 2015-16 means that there will be around 5.3 million higher-rate taxpayers in 2015-16.”

That figure is up from 4.7 million this year and 3.3 million in 2010-11. Whichever way we look at it, that is a significant change. Whether we think it is right or wrong, it is a big change, and it has occurred without a huge amount of public debate about the 40p rate—about what people think and feel, intuitively, that it represents, and about the number of people now caught by it.

Nicholas Dakin (Labour, Scunthorpe)

According to the figures that my hon. Friend cites, about 2 million more people have started paying the 40p rate since the previous election. I agree that a review would be a sensible way of examining the policy’s impact to determine whether it is the right way forward. It would also go a long way towards meeting the concerns of the hon. Member for Redcar.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I agree with my hon. Friend. We have had a big shift, given that 2 million more people are caught by the 40p tax band. People with what we would instinctively feel are relatively modest incomes are now paying the 40p rate, but we have not had any public discussion or debate—in this place or elsewhere—about whether that is the right direction to go in, or where the policy might ultimately lead. A review would create space for such a debate.

I am sure that many people feel perfectly relaxed about more individuals being caught by the 40p band, but I would like a more thorough understanding of the impact on those people who are now caught by it. If people on more modest incomes—for example, middle-ranking or senior NHS nurses—are now suddenly paying the 40p rate, that is an issue for public discussion, as those groups are not who people envisage when they think of 40p rate payers.

Our taxation policies have to take account of people’s behaviours and expectations, and how they respond to changes in the system, but this significant change has happened with little debate. We have had lots of discussion about the increase in the personal allowance, and I spent so much time on that earlier because the trumpeting of that increase has meant that the Government have tried to get off the hook about what they have taken away from people, yet people have been left worse off. We have had almost no debate about what is happening with the 40p rate—the Government are certainly not shouting about it from the rooftops—so it would be worth having a review to examine what is really going on.

Iain McKenzie (Labour, Inverclyde)

My hon. Friend makes a good point about the additional people pulled into the 40p bracket, but this is a question of not only the numbers, but the professions that find themselves in that category. As she indicated, nurses now find themselves in that tax bracket, and bus drivers in my constituency do as well, which is alarming.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes an important point about the change that has led to 2 million people being brought into the band—people who would never have expected to be in it. People’s emotional instincts about and reactions to the taxation system are important, as are their expectations of how the system should work and of the points at which they will be caught by certain tax bands. Levying taxes is a key part of the Government’s role, but taxes concern people’s money and their expectations of what will happen when they earn certain amounts. What has happened with the 40p band has changed the expectations of nearly 2 million people who might not have expected to be in that band.

The fact that so many more people are now covered by the 40p band raises genuine questions for policy makers about our view of the proportion of people we would expect to be caught by it. If I am right, about 15% of the tax-paying population is now caught by the 40p rate. In the ’80s, I think that the figure was 5%. Whichever way one looks at it, that is a significant change. Without getting into whether it is right or wrong, there is clearly a lot of revenue attached to the 40p rate, so any Government wanting to do anything about increasing its threshold would have to raise a significant sum. That would be a big spending commitment for whichever party wanted to go down that road.

A review would allow us to ventilate these issues better in public. There has been a vigorous campaign by The Daily Telegraph, which has led with a lot of stories about the 40p rate, but this issue has not really filtered into the consciousness of the public. It is important that it does, however, because it raises a legitimate question for the tax-paying public. What do the Government think is the right proportion of people paying the higher rate, and do they want that proportion to go up or down? How do they see this panning out in the future? Whichever way one looks at it, the fact that 2 million more people are covered by the rate is a big deal. Regardless of politics, it is right that we try to have this debate with the public or, ultimately, more people will be caught. New clause 2 would be a sensible step towards achieving that.

Chris Williamson (Labour, Derby North)

Does my hon. Friend agree that those 2 million people feel a sense of resentment about being hit by this Conservative-Liberal Democrat double whammy of being forced to pay the 40p tax rate while seeing their public services decimated? It seems that people in the 40p tax rate see their money being used to provide tax cuts to the super-rich in our country. Is not this Robin Hood in reverse?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend again makes an important point. He is right that people who have now been brought into the 40p rate, who would never have imagined themselves as 40p rate payers, will look at the cumulative impact of all the Government’s other changes and feel that they are pretty badly off. That is why a review into the impact of the 40p rate would be an important first step towards a broader political debate about the rate’s future and where people see it going. The right hon. Member for Wokingham (Mr Redwood) has a strong view, which is well known to all in the House, about taxation. He comes to the debate from a clear position that is different from that of many Members on both sides of the Committee. He believes that income tax, in and of itself, is dangerous, and he is worried about the 40p rate. He is on record as wanting to cut the 45p rate to 40p, and he would probably ultimately want to get rid of the 40p rate and do something entirely different.

Clearly a debate about the 40p threshold is taking place within the Conservative party, if media reports are to be believed and the policy positions of some of its members, including the right hon. Member for Wokingham, are to be taken at face value. The Daily Telegraph reports:

“Senior Conservative backbenchers will over the coming months publicly push Mr Osborne to include a pledge to increase the 40p threshold dramatically in the next Conservative manifesto”.

In the lead-up to the last Budget, there were many media reports, and a lot of debate and discussion, about what the Chancellor intended to do about the 40p rate. The process started with a debate about whether the 45p rate might be cut to 40p, which the Government have not ruled out, but there is a separate debate about the fact that many more people have been dragged into the 40p bracket. We heard reports of the Chancellor saying that people who pay the 40p rate feel that they are a success because they have joined the aspirational classes—they have arrived—and everything is great. Many of those caught by the 40p rate will probably take a different view.

Aside from the political knockabout that we might have about whether the Chancellor said that and what his exact words were, the bigger point made by that remark, if it is accurate, is what I said earlier about people’s emotional and instinctive expectations of and reactions to the taxation system. I do not think that many nurses or bus drivers expect to be higher rate payers. That does not reflect how they view their income, which is in relative terms quite modest, and certainly does not stretch as far as making them feel comfortable and secure, which is an emotional thing. Those people who feel they are a success if they are paying the 40p rate will probably think that because of the greater security that they would expect to have after they hit that rate, and because of their expectations of what their earnings would be and how they would be able to use their disposable income to meet their day-to-day living costs and enable them to save. Those things go hand in hand, but that is probably not the position of all the 2 million additional people who, since 2010, are now paying the 40p rate. We need to create a public space for a debate on whether the idea that paying 40p makes people a success, full members of the aspirational classes and secure in life still holds true in 2014-15, and whether it has held true for the last few years—or, indeed, the last decade.

There have been big changes for ordinary working people. We have discussed many of them in as much as they impact on those who do not pay any tax, such as because they are out of work, or those on lower and middle incomes. However, in this bracket, there are people who probably feel as though they are on middle incomes, yet are paying the higher rate. The fact that we have not had this public discussion about such an important aspect of the tax system is damaging for the strength of public debate. As parliamentarians, we have had a lot of discussion about the additional rate—50p, 40p and the wealthiest—but we must not forget the many millions more who are in this middle section of society and felt a real squeeze on their living standards, but are now in a bracket that they never expected to be in and, I imagine, feel very sore as a result.

New clause 2 would at least kick-start a more open, honest and public discussion. If it is true that there is an impassioned debate happening behind the scenes in the Conservative party about the 40p rate, let us bring it into the open. I hope that Government Members feel that they can support new clause 2 and thus enable all hon. Members to test the public’s feeling about this issue. We should know precisely the size and shape of the burden, and how it affects those people who are now caught by it. If possible, we should try to understand whether it has an impact on aspiration, as the right hon. Member for Wokingham might suggest. Changing the proportion of people who are covered would represent a big spending commitment that has not been discussed at all by any of the political parties. At least talking about the numbers of people affected would create decent public space around the issue and, again, allow us to ventilate more thoroughly how it sits with what has happened with the additional rate—the cut from 50p to 45p—and, at the other end of the spectrum, with personal allowances, including our proposal for a 10p rate. When the Committee takes a view on new clause 2, I hope that Government Members will feel able to support our suggestion.

New clause 3 relates to the personal allowance for those who were born after 5 April 1948 and would require a review of the impact of the removal of the old so-called age-related allowances for those who turned 65 last April and thereafter. The new clause refers to the so-called granny tax, a phrase that was coined immediately after the Chancellor’s 2012 Budget. This granny tax has been debated in detail in previous Finance Bill Committees, but given that the change for those who turned 65 last April and thereafter is having an impact one year in, it is important that we press the Government again. They were rightly and heavily criticised for dressing up the change to the age-related allowances as a simplification, but it is more accurate to describe it as a stealth tax. Poorer pensioners have paid a price, so it is right for us to press the Government again, because although they weathered the storm about the granny tax, they have refused to budge on the impact on poorer pensioners, and the issue has not gone away.

David Gauke (Conservative, South West Hertfordshire)

On a point of clarity, does the Labour party intend to reintroduce a different personal allowance for people over the age of 65?

Shabana Mahmood (Labour, Birmingham, Ladywood)

The Exchequer Secretary knows that we have not made such a commitment, and it is not one that we are able to make. If Labour forms the incoming Government in 2015, we will have to deal with a deficit that is still large and borrowing that is much higher than this Government said that it would be. We will have to make difficult public spending choices. We have committed to stick to the coalition Government’s overall spending envelope for 2015-16, although we will make different choices within that envelope, some of which we have already set out in detail. We will continue to bring forward proposals, but we will not be in a position to reverse all the decisions made by the coalition Government. We simply cannot do that, because this Government’s so-called long-term economic plan—[Hon. Members: “Hear, hear!”]

I am so glad: it is 11.24 am and Government Members have woken up. They have, however, woken up to a delusion on their part, because although they trumpet their plan, it is one that has failed on its own terms. The Chancellor said to the electorate in 2010 that his choices on the pace of deficit reduction, spending cuts and so on would result in the elimination of the deficit in 2015, but that pledge is in absolute tatters. Such a thing will not happen until well into the next Parliament. However we look at it, the Chancellor’s central premise—take all the pain now and quickly, and all will be okay in five years—has fallen apart. We welcome the Chancellor’s growth figures, which are starting to move in the right direction, but it is worrying that the Office for Budget Responsibility expects growth to slow next year.

(Except clauses 1, 5 to 7, 11, 72 to 74 and 112, schedule 1, and certain new clauses and new schedules) - Clause 2 - Basic rate limit for 2015-16 and personal allowances from 2015

Gary Streeter (Conservative, South West Devon)

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

New clause 1—Lower rate of tax—

‘(1) The Chancellor of the Exchequer shall, within six months of Royal Assent, lay before Parliament a report containing proposals for an income tax rate of 10 per cent on a band of income above the personal allowance.

(2) The report mentioned in subsection (1) above shall provide for the full benefit of the 10 per cent. rate not being available to taxpayers paying the higher or additional rates of tax.’

New clause 2—Higher rate of tax—

‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the number of people paying the 40 per cent rate of income tax in the years—

(a) 2010-2011;

(b) 2011-2012;

(c) 2012-2013; and

(d) 2013-2014.

(2) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.’.

New clause 3—Personal allowance for those born after 5 April 1948—

‘The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the impact of the removal of the age-related personal allowance on anyone who reached the age of 65 on or after April 2013 and place a copy in the Library.’.

Shabana Mahmood (Birmingham, Ladywood) (Lab) rose—

Shabana Mahmood (Labour, Birmingham, Ladywood)

It is a great pleasure to serve under your chairmanship, Mr Streeter. We all welcomed you in your absence this morning and look forward to serving under you and Mr Caton for the duration of this Committee. I am delighted that Government Members were so warm in welcoming me back, so that I can continue my remarks on clause 2 and the three new clauses we have tabled.

I will not go into detail on the matters we discussed this morning, but our discussion ranged around clause 2, in particular the increase in the personal allowance, which we have said we will support. The mere fact of the increase in the personal allowance does not, I am afraid to say, get the Government off the hook when it comes to the wider impact of their economic policies.

We saw a clear indication of that at Treasury questions, which directly followed our morning sitting. Once again Government Members repeatedly ducked the opportunity to admit what we all know and what the Office for Budget Responsibility has told us, which is that people will be worse off at the end of this Parliament than they were in 2010.

David Rutley (Conservative, Macclesfield)

You will come to find, Mr Streeter, that that is a common theme. It is worrying that we are hearing it again after lunch. I thought that, after lunch and Treasury questions, the shadow Minister might be a bit more reflective. The truth of the OBR report is clear. The OBR says fundamentally that, following 2010, it was surprised at how deep the impact was of the mountain of debt created by the Opposition when they were in power. That is the reason for the challenges we face. Anything else that the hon. Lady puts to the Committee underplays the negative contribution made by the Labour party in government.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful to the hon. Gentleman for his intervention but, as I have said, it does not get Government Members off the hook of their own record and what they said would happen if we followed the plan they implemented in 2010. The deficit was supposed to be eliminated at the end of this Parliament—that is what the Chancellor of the Exchequer said would happen if we followed his plan for deficit reduction—but it has not happened. The deficit will not be cleared until well into the next Parliament.

Ian Mearns (Labour, Gateshead)

I am surprised that the hon. Member for Macclesfield talked about a mountain of debt. Would my hon. Friend remind Members how much has been added to the national debt under this Government?

Shabana Mahmood (Labour, Birmingham, Ladywood)

The Government have borrowed about £190 billion more than they said they would at the start of this Parliament. Many of the predictions that were made about what would happen under their plan for deficit reduction have proved incorrect, whether growth, borrowing or the central question of eliminating the deficit, which has not happened.

Gary Streeter (Conservative, South West Devon)

Order. It is important that interventions do not lead the hon. Lady astray from addressing either clause 2 or the three new clauses. This is not Second Reading. I am sure we can now confine ourselves to the clause and new clauses.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Thank you, Mr Streeter. I would never want to be led astray or get on your wrong side. I shall be more careful in my response to interventions henceforth. The fundamentals of the points I was making on clause 2, on the personal allowance, remain. We saw greater evidence of that in Treasury questions earlier today.

Before we adjourned, I introduced new clause 3, which relates to the personal allowance for those born after 5 April 1948 and asks for a review of the impact of the removal of the old age-related allowances for those who turned 65 last April and thereafter. I reminded the Committee that the Opposition proposal relates to the infamous 2012 Budget and the so-called granny tax—a tax change dressed up as a mere simplification but which has had a very real and deep impact on many pensioners. It was wrong of the Government to try to dress that up as a simplification. Although the issue was debated in previous Finance Bill Committees after the 2012 Budget, it remains significant. It is a significant change for those who reached the age of 65 in April last year. It is important that we continue to interrogate the Government on the impact of the measure. That is the thinking behind new clause 3.

The age-related personal allowance was a long-standing aspect of the tax system. The idea was that the age-related allowance would be given to elderly people on modest incomes to help with the additional expenses faced by older people who have greater day-to-day living costs, such as heating. It was introduced in 1975, but was modelled on an exemption for elderly people on small incomes dating back to 1957, and previously on an old age relief that went back to the 1920s. It was therefore a long-standing, well established feature of the taxation system, taking into account the different ways in which elderly people are able to react to changes in the cost of living. It was designed to help them because they are less able than working-age people to go out and change their circumstances. They are dependant on their retirement income and have very little room for manoeuvre when costs fluctuate. That feature of the taxation system assisted with those problems.

It was always based purely on age. It was an age-related allowance, claimed at the age of 65. There was an additional higher age-related allowance for those aged 75 and over, taking into account their even more difficult circumstances, when costs fluctuate but incomes remain broadly the same. Eligibility was never assessed on whether somebody had retired or not. The rationale for not going for a retirement basis but for an age basis was the idea that those on fixed incomes could not compensate for the additional pressures when the cost of living increases.

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady continues to be very generous in giving way. As a matter of principle, does the Labour party think that those under the age of 65 should have a lower personal allowance than those over the age of 65?

Shabana Mahmood (Labour, Birmingham, Ladywood)

This has been well discussed in previous Finance Bill Committees. That very long-standing feature of the tax system had a genuine rationale behind it. That rationale probably still applies with as much force today as it has in the past. The way in which the change was made—it was dressed up as a simplification and hidden under the carpet—was wrong. If we are going to make such changes to the taxation system, we should do so in a much more open and transparent way. There is no doubt that the change has had an impact. It is right that we continue to press the Government on the scale of that impact, as we would under the new clause.

I take the point that the taxation system treats those aged under 65 differently from those aged over 65. However, my view is that the age-related personal allowance had merit and was based on a genuine rationale, so it should not have been done away with without greater public debate about what the change meant. It was never a simple simplification; it was a significant taxation change that should not have happened without an open and honest debate on who would lose out, why the change was being made and whether there was merit in the original rationale of helping older people whose fixed incomes make it hard for them to deal with the increased cost of living. We should have had greater opportunity to think about the impact that the change would have on people in that position.

Ian Mearns (Labour, Gateshead)

The Government have trumpeted their tax changes with the strapline that those with the broadest shoulders should bear the greatest burden. Do we honestly believe that Ministers intended pensioners with a modest occupational pension of £300 or £400 a month to be hit by the change, bearing in mind that strapline and the fact that the change was to hit better-off pensioners?

Shabana Mahmood (Labour, Birmingham, Ladywood)

The way in which the change was made certainly showed up the hollowness of the Government’s claim that those with the broadest shoulders would bear the greatest burden of deficit reduction, as did the reduction in the 50p tax rate, about which we have had a lengthy debate. We did not hear that claim for a long time after Budget 2012, although I think it has crept back in since then, and measures such as the so-called granny tax prove how hollow it is. If the Government are going to have an about-face on who bears the burdens of deficit reduction, they should at least own up openly and transparently to what that means. It was quite insulting to say that the change was a matter of mere simplification.

Ian Mearns (Labour, Gateshead)

When Ministers introduced the measure, I wonder whether they speculated that it would be a lot easier to gather tax from those aged over 65 on modest incomes with occupational pensions than from those with good means who would escape from the reduction from 50p to 45p. We have heard from the Government that they anticipated that the latter would be difficult to collect. I assume that the former is easy to collect by comparison.

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend makes an important point, which goes to the heart of our discussions on the clause. Those who are well off and adept at taking the right kind of advice to avoid, for example, the additional 50p rate are rewarded with a tax cut worth more than £100,000 on average. Those at the other end of the income scale have no such luck. That is an important point, especially in relation to what has happened with age-related personal allowances.

Duncan Hames (Liberal Democrat, Chippenham)

The hon. Lady is omitting to mention the clawback mechanism that applied to the age-related allowance. As a result of the age-related allowance being clawed back, many pensioners —albeit not those on the lowest incomes, but none the less those with lower-than-average incomes—were paying an effective marginal income tax rate of 30%. Does she believe that that level of income is an appropriate one at which to experience income tax rates as high as 30%?

Shabana Mahmood (Labour, Birmingham, Ladywood)

The hon. Gentleman was not present this morning, so I welcome him to the Committee. I take on board the point he makes. There was a long-standing debate on the tapering of the age-related allowance. In fact, as I was just about to say, the Government, having established the Office of Tax Simplification, asked it to review pensioner taxation. The way in which the change was made meant that there were no proposals to deal with some of the more negative sides of the old age-related allowance. We did not get to have that debate because the Government commissioned an OTS review and made a decision when it had effectively produced only its interim report. The OTS had not made its final recommendations—it never got the opportunity—and the Government jumped the gun.

The Government clearly had in mind an idea of what they wanted to do with the age-related personal allowance—all of the other measures were going into the mix for the famous 2012 Budget. They simply did not allow public debate—the debate could have been had if the OTS had been allowed fully to report on its review of pension taxation. As it was, when it made its final report, it did not come back to those issues in quite the same way, saying that a decision had already been made, which is a shame. That has prevented thorough and full debate and scrutiny of the measure and is one reason why there was such an outcry. Calling it a simplification was an insult, but in addition, there was a review process in place looking at how things might be done differently and more fairly. Perhaps there were other ways of structuring the age-related allowance.

Even before we got to have that debate and to see what the OTS thought, the Government went ahead and made their decision to phase out both age-related allowances. From April 2013, the age-related allowances have been frozen at their 2012-13 levels. Only existing recipients of both allowances have been able to claim them. Given the relationship with the personal allowance, which in 2015-16 will rise to £10,500, the first of the age-related allowances will now be subsumed within the increased personal allowance. The higher age-related allowance for those aged 75 or above is not far behind—the difference remaining is only about £100 or so.

The Treasury analysis showed that 4.41 million people would lose out in real terms as a result of the measure, with an average loss of £83. In addition, the individuals who turn 65 in 2013-14 will lose out the most as they will no longer be eligible for the higher allowance, but will receive the same personal allowance as those aged under 65. On average they are £285 a year worse off. That is a significant change, particularly for that cohort of 65-year-olds as of April last year. It impacts on their ability to meet their day-to-day costs. If the OTS had been able to do its final report, and if we had had greater consultation and discussion on the measure, there would at least have been an opportunity for that cohort to change their plans, or at least to account for the fact that the change was on its way. The way in which the change was made prevented them from having that opportunity. It put a great number of people at significant disadvantage. It was a significant change and it was strongly criticised at the time.

Age UK has argued:

“Someone with an income as low as £10,500 who reaches 65 from April 2013 could be £259 a year worse than under the current system with very little time to adjust their financial retirement plans.”

The director-general of the Saga group, Dr Ros Altmann, has said a lot of things about the current Budget in relation to pensioners and savers. She powerfully made the point about the change that it has left middle class pensioners suffering a significant “stealth tax”.

That point about a stealth tax is important. Again, the change was introduced without the opportunity for the Office of Tax Simplification to produce its final report, and without the opportunity for greater public debate. Pensioners were not put on notice that something like the measure was on its way, and so could not start taking advice about how it impacts on their arrangements. It was brought in as a simplification, designed to hide the fact that it was a stealth tax. It was rightly criticised and rightly it continues to be criticised.

Ian Swales (Liberal Democrat, Redcar)

I was not a Member in the previous Parliament and I do not think that the hon. Lady was either, but is she aware of how much notice pensioners were given about the freezing of the age allowance for 2010-11?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I was not in the previous Parliament, like the hon. Gentleman, so I cannot answer his point off the top of my head. I am sure that he is making a point about a Labour party policy with which he disagrees.

In relation to this change, a process was in place to look at pensioners and the Office of Tax Simplification’s report. However, there was a political decision to override the thorough review of these issues that the Government themselves put in place, which was absolutely the wrong move. They created an office to look at these matters and asked that office to commission a review, so not to bother with the results of that review just defies common sense—what a big fat waste of time. Would it not have been far better for the Government just to come forward and say that they wanted to get rid of the age-related allowances, and so they would phase them out, link them to the increases in the personal allowance and hey presto? I am sure that the Office of Tax Simplification could then have gone on to look at the simplification of other aspects of the taxation system. The Government’s approach defies common sense. There was no point in having the process but not following it up. To add insult to injury, not only was a whole bunch of time and money wasted on a review that the Government ultimately did not really care too much about, but it was deeply insulting to hide the political decision at the heart of the policy by attempting to say it was mere simplification and a little standard change that would have no real impact on anyone at all.

The Government’s approach sent out completely the wrong message and lots of those people affected were, rightly, very angry about it. The Minister knows that the policy continues to have an impact on pensioners and it is regularly debated in the House. I believe it is one of the few issues to lead to a debate in the House on an e-petition, when my hon. Friend the Member for Newcastle upon Tyne North took part in a lengthy discussion about the change. The matter still really offends and angers those who have been affected, so it is right that, through new clause 3, we further attempt to get the Government at least to review the policy so that we can have the public debate that was wrongly denied to begin with.

I hope that Government Members at least take into account the way in which this change was made, and the fact that many people have been affected and there is still much public discontent and anger. I hope that they will support new clause 3 when we come to vote on it, because it is right that we continue to press the Government on a significant change that has had a lasting, deep impact, but has not received the effective, thorough scrutiny that should have taken place. Through a review, we might at least be able to give it such scrutiny, and therefore to speak up for a group of pensioners who have suffered as a result of this stealth tax but have no other means, at this point, of holding the Government to account.

Following those remarks, it is with regret that I shall bring my comments on clause 2 and our three new clauses to an end. When we vote on the new clauses, I hope that Government Members will feel able to support them and the reviews that we have asked for. As I said earlier, we support clause 2.

Sheila Gilmore (Labour, Edinburgh East)

Through my hon. Friend’s presentation of the new clauses and the interventions that she has taken, we have had quite a wide-ranging debate. One Government Member—I cannot recall who—said how important it was to get matters on the record so that issues to do with the deficit and the financial position under the previous Government are understood. I was slightly surprised to hear that Member’s absolute confirmation that he was, without a doubt, putting on record what was right—that the deficit had been rising throughout the period of the previous Labour Government—because that does not appear to be the case. For example, in the years 2003, 2004, 2005, 2006 and 2007, the deficit—the difference between the Government’s income and expenditure—was falling. It fell right up to—[Interruption.] That is correct. The problem was that we then ran into the beginnings of the economic crash. Government Members say that that was entirely the fault of the Labour party, but saying that we created an economic crash in not just the UK, but various countries throughout the world, suggests that we possessed an amazing power that I did not think we had. Many Governments would have sought such influence and power.

Richard Fuller (Conservative, Bedford)

As the hon. Lady wishes to clarify the issue of deficits, has she included in her analysis the massive increase in off-balance-sheet financing under the previous Government? Has she also included the vast increase in the pension liability which, when they left office, was in excess of £1 trillion?

Sheila Gilmore (Labour, Edinburgh East)

It is unhelpful to start throwing in additional things that are not necessarily—

Richard Fuller (Conservative, Bedford)

To start throwing in facts.

Sheila Gilmore (Labour, Edinburgh East)

No, things that are not necessarily part of the normal definition of whether a Government were or were not running a deficit. We have to consider some of the off-balance-sheet measures as investments.

We know that, despite all the talk, debt rather than the deficit is rising and continuing to rise. That is an important issue for all of us, and I want to put on record that it is not just the deficit. There is constant reiteration that the entire problem was caused by the Labour Government spending too much, but they spent much of their time in office making substantial reductions to the deficit that were inherited in 1997.

Kwasi Kwarteng (Conservative, Spelthorne)

The hon. Lady kindly referred to my remarks, as I was the Committee member who suggested that we put these things on record, because it is important that we get the facts right. I was not alluding to the fact that the deficit was increasing in the period I mentioned; I was saying just that there was a continuous deficit from 2002 right through to 2010—from even before the financial crisis. That was why, when the financial crisis hit, our deficit was worse than any other western European and OECD country.

Gary Streeter (Conservative, South West Devon)

Order. Before Sheila Gilmore resumes her speech, I remind the Committee that we are, of course, on clause 2 and the three new clauses that relate thereto.

Sheila Gilmore (Labour, Edinburgh East)

We are indeed, Mr Streeter. I will just say briefly that a falling deficit—the deficit was, of course, inherited in 1997—is something to be proud of.

It is important that Members on both sides of the Committee consider the level at which people begin to pay tax at the 40% rate. In their heart of hearts, many Government Members will be concerned about fiscal drag, which is one effect, albeit perhaps slightly hidden, of some of the measures that the Government have implemented. Clearly that can become an important issue for individual households.

I would be surprised if Government Members did not want that issue to be properly looked at so that decisions could be taken about the appropriate way to deal with it. I would not be at all surprised to hear that they have been discussing it among themselves and, no doubt, with the Chancellor and members of the Treasury team, given its importance to many people who are trying to sustain their employment and progress in it.

We all say that we want people to be incentivised to work and earn. After all, we are told that it is important that people at the lowest level of income are incentivised and that universal credit will do that, although I have my doubts. The issue of tax rates is also important. The review is really a simple ask. We are constantly criticised in Finance Bill Committees and at other times for not putting our policies on the table, although I am not sure that the parties in government acted any differently when they were in opposition. We have an opportunity to consider whether this aspect of taxation could be done differently, whether people are suffering due to fiscal drag, and whether we should do something about it.

Iain McKenzie (Labour, Inverclyde)

It is a pleasure to serve under your chairmanship, Mr Streeter.

I shall restrict my remarks to the 10p starting rate of tax and how that would benefit my constituents, many of whom work in industries that confine their salary range to that from which there would be most benefit in avoiding stepping off the cliff from not paying tax to paying the 20p rate. As one of their employers is always saying, every little helps, and a 10p tax rate would certainly help my constituents. They would see it as much fairer that they could take a more measured step into taxation, rather than going straight to paying the 20p rate.

Although I welcome the raising of the tax threshold, which also helps my constituents, given the salary range in which they find themselves, it would be beneficial if they could step into a 10p tax bracket first. It would encourage most if not all of them to take on further opportunities and to develop their career with their present employer, without having to worry, “If I step up that bit in salary, I am going to pay a lot more tax. Is it worth taking on responsibility?”

Ian Mearns (Labour, Gateshead)

I apologise, Mr Streeter, that I did not say what a pleasure it was to serve under your chairmanship —indeed it is.

Will my hon. Friend reflect on the fact that although, at the time of the Budget, Government Members were celebrating the fact that 3.5 million people had been taken out of taxation altogether due to the raising of the threshold, that meant that 3.5 million people were earning only £200 a week? I am not convinced that that is something we should be celebrating in this day and age.

Iain McKenzie (Labour, Inverclyde)

I thank my hon. Friend for that intervention. He has set out the added impact on people earning that salary of the cost of living crisis that is faced throughout the country. As we have said, a 10p starting rate of tax would benefit 24 million people in the United Kingdom. We could raise the money required to implement it through the mansion tax and by scrapping the marriage tax allowance.

I am sure that Members from other parties would like the lowest-paid to be given the greatest opportunity to improve their living standards. Labour Members are especially on the side of working people, so we would like such a measure to be put in place and we ask the Government to consider it. I do not know whether Conservative Members have discussed this with their coalition colleagues, but perhaps the Liberal Democrats in the coalition need to discuss the mansion tax and the Conservatives need to discuss the 10p tax rate. We have heard that even the Prime Minister has raised the prospect that the Conservatives might reintroduce a 10p band, but that did not get very far. Perhaps it was lost somewhere in the coalition agreement, but we would like it to be discussed further. We hope that the Government will adopt our proposal for tackling the crisis in this country by allowing the lowest-paid a further opportunity to step up on the ladder and improve their living standards, and that is why we are asking Government Members to adopt our position on the 10p starting rate of income tax.

Chris Williamson (Labour, Derby North)

It is a great pleasure to serve under your chairmanship, Mr Streeter. I believe it is for the first time, although I might be wrong about that—I might have served under your chairmanship in a Westminster Hall debate—but whether or not that is the case, it is a great pleasure.

I hope that Government Members will find it within themselves to support those eminently reasonable, moderate and sensible new clauses tabled by my hon. Friend the Member for Birmingham, Ladywood, the reasons for which she coherently and persuasively set out in her three and a half hour contribution. The 10p tax rate to which new clause 1 refers is clearly a sensible proposition, especially because it would benefit some 24 million workers, as my hon. Friend the Member for Inverclyde said. Compare that with the millionaires’ tax cut imposed by the Government that was extremely beneficial to 14,000 millionaires. That measure clearly illustrates that the Government are for the few, whereas we represent a party for the many. The 10p tax rate would go a long way towards addressing the cost of living crisis for which this Government are absolutely and entirely responsible.

The hon. Member for Macclesfield made a point about the mountain of debt allegedly inherited by the Government. The truth of the matter is that it was merely a foothill of debt compared with the mountain that this Government have been ratcheting up since they came to power. I do not know whether his view has been obscured by the clouds in cloud cuckoo land, which is where he seems to be living if he thinks that this Government have been carrying out good economic stewardship.

David Rutley (Conservative, Macclesfield)

I am pleased to be serving on this Committee with the hon. Gentleman. We had the honour and privilege of serving together on the Deregulation Public Bill Committee, when I remember that he was very good at providing genuine entertainment value for not just that Committee, but his family members, although we will not go into that now.

It is clear that although we are working very hard to get debt under control, the hon. Gentleman’s party let the mountain of debt rip—it became even higher and bigger. If Labour were still in power, that mountain of debt would be even bigger, as is absolutely clear from all the forecasts that have been put forward by respected bodies.

Gary Streeter (Conservative, South West Devon)

Order. That long intervention takes us well away from clause 2 and the three new clauses, so I am sure that Mr Williamson will not repeat the error of going down that route when he responds.

Chris Williamson (Labour, Derby North)

Certainly not, Mr Streeter, suffice it to say that the hon. Gentleman has confirmed that he continues to live in cloud cuckoo land.

It is important that we remember that the Government inherited a growing economy. The economy has been flatlining and we have had the longest recession in history, so we desperately need measures that will get our economy growing again and address the cost of living crisis. We need the economy to grow in a way that benefits the vast majority of the public, but that is certainly not how most people experience the growth that we see at the moment.

A 10p tax rate would be a sensible way forward. New clause 1 is very reasonable as it simply calls on the Chancellor, within six months of Royal Assent, to

“lay before Parliament a report containing proposals for an income tax rate of 10 per cent”

and sets out additional requirements in relation to people on the higher tax band not benefitting from that. I cannot understand why Government Members—they claim that they want to address our current economic difficulties, although they are the architects of them—will not support that proposition, the reasons for which my hon. Friend the Member for Birmingham, Ladywood coherently set out.

Richard Fuller (Conservative, Bedford)

I am following the hon. Gentleman’s speech closely. I think that the policy is intended to improve the living standards of people on low incomes but, as he recognises, the Government have limited amounts of money. Does he not think that a better approach would be to encourage employers to pay higher wages by offering reductions in the jobs tax to businesses so that they can pay the living wage as a minimum for their employers?

Chris Williamson (Labour, Derby North)

Obviously we favour a living wage; indeed, we have talked about proposals that would incentivise employers to pay the living wage. I look forward to the hon. Gentleman supporting those proposals when the Labour party puts them forward.

Let me turn to the fact that the Government have brought 2 million people into the 40p tax rate. New clause 2 is also a moderate and reasonable proposition, so why would Government Members object to it? It would simply require the Chancellor, within three months of the passing of the Bill, to

“undertake a review of the number of people paying the 40 per cent rate”

from 2010 through to 2013-14. Surely that would facilitate a proper discussion about the tax burden in our country. A lot of people would be surprised to discover that people carrying out really important roles in our community to deliver those public services that make our society a decent place in which to live, such as bus drivers and nurses, find themselves in the higher tax bracket.

Duncan Hames (Liberal Democrat, Chippenham)

I am slightly puzzled by the hon. Gentleman’s concern about the number of people paying the 40p rate of tax, as he will know that the measure proposed in new clause 1 would specifically guarantee an increase in the number of people paying tax at that rate. Some people in the professions that he outlined would be brought into the 40p rate under the policy set out in new clause 1. Does he think that that would be a good thing or bad thing?

Chris Williamson (Labour, Derby North)

Given what the hon. Gentleman says, I look forward to him supporting new clause 2, which simply calls for a review of the figures. It would not be unreasonable to establish the position.

My hon. Friend the Member for Birmingham, Ladywood set out effectively the rationale for new clause 3. Given that the Government have pressed ahead with their policy without considering its full implications, the review proposed in the new clause would be a way to hold them to account. We have seen with other pieces of legislation that the Government seem to introduce policy in a vacuum. They like to indulge in an evidence-free policy process. New clause 3 would drag the Government back and make them justify their policy. The review would inform future policy discussions and decisions when, hopefully, there is a change of Government at the next general election.

I do not wish to detain the Committee further, but I certainly look forward to the hon. Member for Chippenham supporting new clause 2. Given that the new clauses are such sensible, reasonable and moderate proposals, I hope that all Members will agree with them so that we can ensure that we get the information that the public deserve.

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to serve under your chairmanship, Mr Streeter, and to respond to the debate as well as to follow the hon. Member for Derby North, who is clearly here in the role of enlivening of proceedings, one previously taken by the hon. Member for Bassetlaw (John Mann). He is stepping into those considerable shoes to enliven events, while it is my role to calm things down subsequently.

Clause 2 sets the income tax personal allowance and the basic rate limit for 2015-16. Let me first turn to the personal allowance. Clause 2 increases the personal allowance to £10,500 in 2015-16, in line with the Chancellor’s announcement at the recent Budget. That increase will take around 290,000 low-income individuals out of income tax altogether, and make more than 25 million taxpayers better off overall. Those 25 million taxpayers will on average see real terms gains of £61 in 2015-16 alone. Typical basic rate taxpayers will see their annual income tax bills cut by another £100.

That further increase to the personal allowance enables hard-working people to keep more of the money they earn to buy the things they and their families need. It supports the Government’s aims of making the tax system fairer and supporting those on low and middle incomes.

Chris Williamson (Labour, Derby North)

The Minister says that the measure will reduce the tax burden on many taxpayers. Does he accept that on average people are £1,600 a year worse off as a consequence of his policies?

David Gauke (Conservative, South West Hertfordshire)

I do not accept those numbers, but there is a point that we should all acknowledge, which is that the economy shrank by 7.2% and that has had a significant impact on our nation and the people of this country. The Institute for Fiscal Studies has been clear that the effect of that reduction, which does not occur over night in people’s household budgets but over time, is significant. The Government recognise that and that is why we have in place a long-term economic plan that is bringing growth and employment. It is why, when we can afford to do so, we have taken measures such as in clause 2 to reduce the burden of taxation on the British public. We would all like to be able to do more, but the fact is that we inherited the largest deficit in our peacetime history. In the boom years, when the economy had an unsustainable bubble, we still had a deficit. That meant our public finances were essentially wrecked, and it has been the role of this Government to try to put the pieces back together again.

Chris Williamson (Labour, Derby North)

I am grateful to the Minister for giving way a second time. If I may push him a little further, he claims again that they are reducing the tax burden. He talked about the economy shrinking, but we will not go into his party’s responsibility for that. Does he accept that his Government’s decision to increase VAT had a disproportionate impact on people on lower incomes than it did on the better off in society?

David Gauke (Conservative, South West Hertfordshire)

No, I do not, because of the way in which VAT is structured in this country, where there are significant zero rates. Food takes up a larger proportion of the budgets of those on low incomes, so the VAT increase was the right response. It is the least damaging tax in terms of damage to growth in the economy, and the Opposition did not oppose the VAT increase, which was in the 2010 Finance Bill.

Sheila Gilmore (Labour, Edinburgh East)

The Minister’s explanation of everything is to do with necessity, but within necessity there are choices to be made. Does he accept that the decision to raise the tax threshold is of significant benefit to people on above average incomes and very expensive in tax forgone to the Treasury? That is a choice that was made. Other choices could have been made that concentrated help on the lowest earners.

David Gauke (Conservative, South West Hertfordshire)

To be fair to the hon. Lady, I think she is consistent. She has always opposed the increases in the personal allowance. [ Interruption. ] Her argument is one of priorities. She would not have increased the personal allowance in the way in which the Government have done. My point is that increasing the personal allowance provides a significant tax cut for 25 million people. It sends a clear signal that we want to encourage work and employment, and also work incentives. It cannot entirely be a coincidence that we have seen significant performance in the labour market in recent years, at a time when we have also been able to increase the personal allowance and encourage those work incentives.

I do not think I will be able to persuade the hon. Lady, but her arguments against the personal allowance apply, as she knows, just as strongly against the policy of a 10p rate of income tax as put forward by her Front Bench. The same argument applies. We have debated this before and she has successfully managed to avoid dealing specifically with that question, but her arguments could be applied to her own Front Bench in a slightly different policy. I will turn to that in a moment.

I will explain the Government’s rationale behind the personal allowance increase in 2015-16. We have already debated clause 1 in the Committee of the whole House. Clause 1 confirms that the Government are meeting their commitment to raising the personal allowance to £10,000 a year ahead of schedule. Clause 2 means that we go even further with our plan to cut income tax for the hard-working people of Britain. We can go further than our original target of £10,000, because our economic plan is working, and we are tackling the deficit that the previous Government left behind. As the Chancellor said in his Budget speech,

“We will fix the roof when the sun is shining”.—[Official Report, 19 March 2014; Vol. 577, c. 784.]

Allow me to stress again that, when this Government came into office, the personal allowance was only £6,475. Everyone, including those on low incomes, had to pay at least 20% income tax on whatever they earned above that threshold. What our increases to the tax-free personal allowance have meant to ordinary people becomes clear if we turn our attention to minimum wage earners. In 2009-10, income tax reduced take-home pay for someone working full time on the October 2009 national minimum wage by over £800. This was an income reduction of around 8%. In contrast, the same person working full time on the October 2014 national minimum wage will pay only £266 income tax next year. That is nearly 70% off the income tax bills of national minimum wage workers thanks to our increases to the personal allowance. And that is in the context of a higher national minimum wage than in 2009-10.

Ian Swales (Liberal Democrat, Redcar)

Does the Minister agree that the figures he has presented show that people on the minimum wage have had a large, real-terms increase in their take-home pay since 2010?

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend is absolutely right. That is why we are proud that the Government have delivered the progress we have in increasing the personal allowance. It compares favourably with a Government who increased the rate of tax paid by low earners.

Chris Williamson (Labour, Derby North)

The Minister paints a very rosy picture as if somehow the people living on low incomes, people earning the minimum wage, are enjoying a huge upsurge in their standard of living. How does he explain the fact that the biggest growth in poverty is among those who are in employment? How does he explain the massive increase in the number of people in employment using food banks if life is so rosy under this Government?

David Gauke (Conservative, South West Hertfordshire)

My argument is not that life is rosy. The reality is that we face significant difficulties as a country. The economy shrank by more than 7% and that is what we are recovering from. As a Government, we have been able to take some action to help those households. That is an action that I hope the Committee would support.

I have discussed the example of someone on the national minimum wage but the personal allowance increases do not just help minimum wage workers. In 2015-16, the Government will have cut typical taxpayers’ income tax bills by up to over £800. In other words, more than 26 million taxpayers will be up to £570 better off in real terms as a result of this Government’s changes. Altogether, this Government will have taken more than 3.2 million people out of income tax by April 2015. This Government have cut the number of income taxpayers more in five years than any other Government since records began. Finally, a personal allowance of £10,500 also allows the Government to simplify the tax system by merging the personal allowance with the allowance for those born between 5 April 1948 and 6 April 1938.

New clause 3 requests a review of the impact of the removal of the age-related personal allowance on anyone who reached the age of 65 on or after April 2013. As we heard, Opposition Members wanted to highlight our decision to withdraw age-related allowances for new recipients made in the 2012 Budget. It is true that those turning 65 last year would previously have qualified to receive an age-related allowance. However, given our commitment to increase the personal allowance to £10,000, there is no need to have separate allowances for people over the age of 65. These reforms will simplify the system, bringing thousands of people out of self-assessment once all the allowances are aligned. More than 5 million of the poorest pensioners will not be affected by the changes in any way because they do not pay income tax.

Furthermore, the Government remain committed to supporting pensioners in other ways. Our triple lock means the state pension will be uprated each year by the highest of earnings, consumer price index inflation or 2.5%. As a result of the triple lock, the full basic state pension in 2014-15 will be around £8.50 a week higher than it would have been had it been uprated only in line with average earnings growth since 2011-12. We have protected key pensioner benefits, including winter fuel payments, free prescriptions and eye tests, free bus travel and free TV licences for older pensioners.

Let me briefly explain the change to the income tax basic rate for 2015-16 set out by this clause. This is the income on which 20% tax is due. The autumn statement 2012 announced that the income tax higher rate threshold, which is the sum of the personal allowance and the basic rate limit, would grow at a rate of 1% in 2014-15 and 2015-16. Above this level, 40% tax is due. For 2015-16, this means that the higher rate threshold will rise by £420, to £42,285. Together with the personal allowance increase to £10,500, this requires a reduction in the basic rate limit by £80, to £31,785. Clause 2 sets the basic rate limit at precisely this level and, as in previous years, the national insurance upper earnings and upper profits limits will remain aligned with the higher rate threshold in 2015-16. These changes mean that everyone earning up to £120,000, whether they are basic or higher rate taxpayers, will fully benefit from the personal allowance increase in 2015-16.

I turn to new clause 1, on a report on the proposal for an income tax rate of 10% on a band of income above the personal allowance. Opposition Members have proposed reintroducing a 10% rate of income tax and have tabled new clause 1 calling for the Government to produce a report on the impacts of this proposal. Let us not forget that the 10% rate is a policy they have already introduced and then scrapped once before—to the cost of many of the individuals further down the income scale whom they claim to want to represent and help. Fortunately, this Government have a much more coherent income tax policy.

Our increases to the personal allowance have replaced the 10% rate that they doubled, with successive increases to the tax-free personal allowance—effectively creating a 0% band. This is considerably more than the width of the former 10p starting rate band and means that this Government’s policy has been considerably more supportive than a reintroduction of the 10p band. As a result, these increases mean that all those who lost out when the 10% rate was abolished have already been more than compensated by this Government. Therefore, a report on this proposal is simply not necessary. I also have to say that in a lengthy and thorough speech from the hon. Member for Birmingham, Ladywood, I am not sure that I heard a convincing case why a 10p rate was better than a further increase in the personal allowance.

Moving on to higher rate taxpayers, clause 2 means that after a first increase this year, the higher rate threshold will grow in 2015-16 for the second time in this Parliament. However, the increase is lower than inflation, and as such, this raises money. The 1% growth cap for the higher rate threshold in 2014-15 and 2015-16 raises £785 million in 2015-16. However, typical higher rate taxpayers will still pay less income tax. Combined with the personal allowance increase, the changes to the higher rate threshold in 2015-16 mean that typical higher rate taxpayers will pay over £140 less income tax than in the current year, and in the current year they already pay over £150 less than in 2013-14.

This brings me to new clause 2, tabled by Opposition Members. This is designed to highlight the number of higher rate taxpayers and the fact that this number has increased over this Parliament. However, it seems pretty clear to me that the most important question is not the number of higher rate taxpayers, but changes in the amount of tax that a person pays. That is the relevant test whether they are basic rate or higher rate taxpayers. Typically, those who have become higher rate taxpayers in this Parliament will be better off compared with the previous Government’s plans. Furthermore, the personal allowance will reach £10,000 this April, a key coalition commitment that has benefited higher rate taxpayers, and will continue to do so. For example, the recent Budget included a further increase in the personal allowance to £10,500 next year. Higher rate taxpayers will benefit by £100 from those changes.

The Government have set out the impact of their tax changes as part of the Budget documentation. The report suggested by Opposition Members is therefore again not necessary. I also reiterate the point made by my hon. Friends the Members for Redcar and for Chippenham that, at the same time that the Opposition are raising this concern, they have tabled a new clause that suggests that the benefits of a 10p rate should not be passed on to higher rate taxpayers.

I can only assume that that reflects the Opposition’s policy regarding the 10p rate. The automatic consequence of that would be to drag more people into the higher rate band. While we are on the Opposition’s policy regarding the 10p rate, which is related to new clause 1, we had a fairly lengthy debate this morning on the Opposition’s plans to fund a new 10p rate. We heard from the hon. Member for Birmingham, Ladywood that their position was to introduce a mansion tax but they had not set out how much they were going to raise from it. I have had an opportunity to look at that further since our debate, and it seems pretty clear from comments made by the shadow Chancellor in interviews on 14 February 2013, with ITV and “The World at One” on BBC Radio 4, that their intention is to raise between £1.7 billion and £2 billion from the measure.

We have heard in parliamentary debates from the hon. Members for Nottingham East and for Newcastle upon Tyne North of a desire to raise £2 billion. This flagship policy of a 10p band for £1,000 funded by a mansion tax was launched with much fanfare in the constituency of my hon. Friend the Member for Bedford just over a year ago. I am struck today that the Opposition no longer hold to that commitment and are backing away from raising £2 billion.

Shabana Mahmood (Labour, Birmingham, Ladywood)

As I made clear in our discussions this morning, the £2 billion figure was not based on numbers prepared by us. It was already in the public domain as a result of number work done by Liberal Democrats and others who suggested that a mansion tax could raise around £2 billion. What I made clear was that we would set out the shape and structure of the mansion tax that we propose to bring in for properties worth £2 million or more. That will dictate the amount of revenue that can be raised. We have not yet set out the structure of that mansion tax, which could take a number of different forms with potential for mitigation for people who are asset-rich but cash-poor. That will dictate the amount of money that will be raised. For clarification, that is the point I made this morning and it has not changed, having always been our position.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for that, although I am reminded of comments made by the hon. Member for Nottingham East on Report of last year’s Finance Bill, when he said,

“We have looked carefully at the well-crafted and evidently well-thought-through proposal from the Liberal Democrats.”—[Official Report, 1 July 2013; Vol. 565, c. 648.]

He went on to say that that could net about £2 billion. I have had some dealings with the hon. Member for Nottingham East so I know it is possible that he was being sarcastic. I think that was a pretty clear position that the Opposition were going to raise £2 billion from a mansion tax but I do not think that is the case anymore.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Perhaps I can help my hon. Friend. The reason we cannot find any flesh on the bones is that there is unlikely to be any, because there would have to be a re-banding and many people would end up paying a lot more council tax. That is the hidden nature of the proposal. Does he find it incredible that, as was revealed this morning, the hon. Member for Birmingham, Ladywood does not think that an £80 billion deficit is anything to worry about?

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend makes a good point. He also makes a good point about the absence of flesh on bones; he knows a lot about flesh on bones.

Christopher Pincher (Conservative, Tamworth)

It does seem that Labour Members are rather shaky on their figures. Not only are they unsure about how much they would raise through the proposal, they are unsure about how many people they would help. We heard today that 24 million people would be helped, but the shadow Chancellor has said that 25 million people would be helped, in that organ of record, The Guardian. A million people here, half a billion spent there; soon we will be talking real money and real people.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to my hon. Friend. Let me make one last rub: it seems that this flagship policy is not as worked out in detail as when it first appeared over a year ago.

Richard Fuller rose—

David Gauke (Conservative, South West Hertfordshire)

As the policy was announced in my hon. Friend’s constituency, I will give way to him.

Richard Fuller (Conservative, Bedford)

Just to update the Minister, another sign of the deft approach of the shadow Treasury team is that the business at which that policy was announced has gone bust. If I may say so, he is falling into a trap by calling the Opposition’s policy a mansion tax. It is not; it is a property tax. Mansions are things that people like him and I do not have, but properties are things that everyone has. The Opposition are trying to play the politics of division, setting large businesses against small businesses, and rich people against poor people. The terminology ought to be correct. Call something what it is.

Gary Streeter (Conservative, South West Devon)

Order. Before the Minister responds, I do not see that phrase mentioned in any of the new clauses. Perhaps we can now wind up the debate on clause 2 and the new clauses, and then we can move on.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Mr Streeter.

If, as the Labour party indicates in new clause 1, it wishes to implement a 10% rate, it seems fairly clear that there are no well-developed plans at the moment to fund it. Until such well-developed plans are in place—indeed, the plans seem less well developed today than they did over a year ago—we shall look at them with some suspicion. As I said earlier, the Government consider that the best way of addressing the issue that a 10% rate would try to address is to increase the personal allowance.

Chris Williamson (Labour, Derby North)

If the Minister thinks that the Opposition’s figures are so shaky, will he support the Office for Budget Responsibility running the rule over our position, so that we can all be clear whether they stack up?

David Gauke (Conservative, South West Hertfordshire)

One point that becomes clear is that the poor OBR would have an enormous amount of work, because every week there seems to be a different policy. Until such things settle down, and given that it is not clear what Labour Members think, I am not sure that the OBR is in any position to make a judgment.

Let me conclude. Clause 2 helps the Government achieve their aim of a tax system that is fair while rewarding those who want to work hard and progress. We will achieve those goals by cutting income tax for the vast majority of income tax payers, including those in greatest need of support. I therefore hope that clause 2 can stand part of the Bill, and request that new clauses 1, 2 and 3 not be pressed to a Division.

Shabana Mahmood (Labour, Birmingham, Ladywood)

We have had a thorough and lengthy debate. I will not rehearse all the arguments, save to say to the Minister, and to place on the record, that nothing we have said about the 10p rate and mansion tax has changed since we made the announcement. We are happy to put out the details of our proposals in due course and for them to be audited by the independent OBR, because we have nothing to hide. When our numbers and the shape of our mansion tax are ready, we will happily share them with everybody.

We have heard a number of contributions on the three new clauses. I understand that new clauses will be voted on at the end of our proceedings. At this stage, I am probably minded to press them to a Division and will do so in due course.

Gary Streeter (Conservative, South West Devon)

I clarify for the Committee that we will vote on new clauses at the end of our proceedings in a few weeks’, or months’, time.

Clause 3 - The Starting rate for savings and the savings rate limit

Shabana Mahmood (Labour, Birmingham, Ladywood)

I beg to move amendment 2, in clause 3, page 3, line 8, at end insert—

‘(6) The Chancellor of the Exchequer shall undertake a review, within six months of the passing of this Act, of the impact of the reduction in the starting rate for savings and the increase in the starting rate limit for savings, with particular reference to—

(a) the impact on the household savings ratio, as measured by the annual assessments of the Office for Budget Responsibility;

(b) the impact on the annual saving rate, including changes in housing equity, by—

(i) age; and

(ii) income decile.’.

Gary Streeter (Conservative, South West Devon)

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

Shabana Mahmood (Labour, Birmingham, Ladywood)

The clause is about the starting rate for savings, which broadly applies where an individual’s income from employment, self-employment or pension income is less than the starting rate limit for the tax year, after taking the personal allowance into account. It increases the starting rate limit to £5,000 in 2015-16 and reduces the starting rate for savings to 0%. It also allows individuals to request that no withholding taxes are applied to savings by banks or building societies, where it is anticipated that no tax will ultimately be due on those amounts.

Our aim in asking for the review in our amendment is to get some additional analysis of how significant the measure in the clause will be for many people on lower incomes, given that the cost of living crisis has led to savings being eroded or not made at all. In Treasury questions this morning, I put it to the Chancellor that, although he billed the Budget as a Budget for savers, the OBR has said, and we have seen in the Red Book, that the savings ratio has been revised down for every year until 2018.

The truth is that the recession has caused a long-term squeeze on real incomes. People are struggling to pay their bills, and in those circumstances the capacity of individuals to save greater amounts of money is severely limited. When the Chancellor made his Budget statement, I was struck by the way in which he billed his Budget. He spoke of it as a budget for the makers, the doers and the savers, but my feeling about the Bill as a whole is that it does not have much in it for those who are making do—those who are merely surviving day to day, week to week, as their incomes have taken a huge hit and they have ended up worse off as a result of the choices made by the Government since they have been in power.

For people who are making do, just getting by and surviving day to day, trying not to be too terrified each time a bill arrives, how do they save? That is the thrust of the amendment. How do they get into a position where they can afford to put aside even a few pounds a week in order to build up their savings and take advantage of the measures in the clause? The truth is that, at the moment, saving is a luxury for many people in our country. It is a luxury that is far out of reach for people who struggle with a real and deep-seated cost of living crisis which, despite recent changes in wages and prices, shows no sign of abating and will still be felt for some time to come.

Let us look at the facts. The savings ratio itself has fallen in recent months. The ratio—the amount that is put away as a percentage of after-tax income—is lower than in many other wealthy countries, raising concerns about the sustainability of our economic recovery from the financial crisis. Official figures show that the UK’s household savings ratio—the percentage of disposable income put aside for a rainy day—fell to a near four-year low during the final three months of 2013. At just 5%, it was the lowest rate since the 3.1% rate in the first quarter of 2010. A survey by the charity Shelter of working adults who pay rent or a mortgage found that, with little or no savings to fall back on, 3.8 million families could be just one pay cheque away from losing their home. That throws into sharp relief the way in which people are struggling at the moment, how near to the edge many people live every day, and how just one change—one pay cheque not coming in—can push people over the edge.

Savers withdrew money from their accounts last year at the fastest rate for nearly four decades, according to Bank of England figures. Britons took around £23 billion out of long-term savings in 2013, so for all those people who have been able to save and put aside money for a rainy day, many more have been dipping into their savings just to make ends meet, again highlighting the very real impact of the cost of living crisis. The Money Advice Service has said that 16 million Britons are “living on the edge” with zero savings. Its surveys from the beginning of this year show that 27% of people say they can save money each month, and 37% say they have less savings than last year. It also found—some of these figures are very striking and bring home the issues that we are dealing with—that 71% of UK homes are caught out by unexpected bills.

The average unforeseen cost, according to the Money Advice Service, is about £1,000 per household. It also found that loans to loved ones are the largest unexpected cost for households, with the average loan to family members nearly £2,500. Again, one sees the interplay between families and individuals struggling to make ends meet and pay the bills, and either dipping into the small amount of savings that they have been able to make or having to go to loved ones—the famous bank of mum and dad in many cases, or other relatives and friends —to ask for help to meet some of these unexpected costs.

Mike Kane (Labour, Wythenshawe and Sale East)

It is a pleasure to serve under your chairmanship, Mr Streeter. Would the savings ratio also indicate to my hon. Friend why, with people unable to save, the cost of living crisis and wages on average £1,600 down, there has been a proliferation in the last few years of payday lenders charging usurious rates and changing the nature of our high street?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My hon. Friend is right to draw the Committee’s attention to payday lending, which has been a big issue on which a number of powerful campaigns have been run, particularly in this Parliament. It has been a growing issue. It is another symptom of what is happening out there in the real economy. What happens to those who find themselves with wages that are £1,600 a year down and, even with tax and benefit changes, nearly £1,000 worse off? Many do not have the luxury of savings, and those who can save very little. What happens after that?

As I said in the earlier debate, many people live in perpetual terror of the size of their gas or electricity bill. When there is not enough money to pay it, they have to get the money from somewhere. If they are lucky enough to have any savings, they will dip into them; if not, they turn to loved ones who may be able to help—knowing people who can lend significant sums is in itself a luxury. The Money Advice Service said that the average loan to loved ones is £2,500. That is a huge sum, not a trifling amount by any measure. It just goes to show how significant the issues are when it comes to people being able to make ends meet. For those who do not have a loved one who can loan anything like that amount—I do not know many people in my constituency who could find a spare two and a half grand to give to a family member to help them cope—where else do they go? That is why we have seen this huge increase in payday lending, which has led to many people simply being abused by the system.

It is also why we have seen so many people turning to food banks. Again, we had the recent media reports of almost 1 million food parcels being handed out in our country—a shocking figure. There has been a huge growth in food banks in my constituency. That is what happens when people cannot make ends meet. They deal with the necessities. They deal with the payday lender who may be on their back and try to stop the interest getting ever more out of control. They have managed to borrow as much as they could from loved ones. They do not have any savings, so they have nothing to dip into, but if they had had savings, they would have exhausted them. They then have to start making choices about going hungry or keeping the lights on at their house, feeding their children three meals a day and perhaps going hungry themselves and eating just once in the evening. I know families in Ladywood who make that choice.

The recent welcome upward trajectory of the relationship between wages and prices—one intersection on the graph that went in the right direction in the last set of figures—does not wipe out the huge impact there has been on families and their incomes. That directly relates to their ability to save, which is what the clause deals with. The Money Advice Service ran a campaign urging households to save £3 a day to help cover unexpected bills during the year. I was interested by that £3 a day: it seems like quite a small sum, but it is a significant amount for my constituents. It is the difference between being able to have lunch, for example, and going hungry. For people in such dire circumstances, even that suggested £3 a day saving to cover unexpected bills is far out of reach.

That brings me to the reasons why people are in a position where they cannot save that much money. There was a lot of debate about some of these issues in the Committee of the whole House, but I will touch on some of them briefly. One is energy bills: gas and electricity bills have risen by about £300 since 2010, such that the average energy bill for heating is about £1,300 a year—a huge increase since the general election. Even with the change in how fuel poverty is measured, that has resulted in significant fuel poverty. It is a real problem: most families who come to my advice surgeries find the gas and electricity bill to be the biggest obstacle to their being able to make ends meet. If people find themselves in that position, saving any money at all is a luxury that is far out of reach.

Other factors prevent people from being able to save. A significant one is the cost of rent. We have seen many more people who are unable to get a foot on the housing ladder and have to rent for longer than they anticipated. Rents, which have increased more than twice as much as wages, form a significant part of any household’s expenditure. If rent is increasing and people find themselves in rented accommodation for ever longer periods, saving any money to meet the much higher expectations for getting a mortgage to buy a house is out of reach for many ordinary people.

The cost of child care is another reason why people either cannot save at all or can save only small amounts. Child care costs have soared: we have seen the cost of nursery places increase by 30%, which is five times faster than pay. The cost of a nursery place is now the highest in history. The average bill for a part-time nursery place of 25 hours a week has increased to £107.

Why does child care feature so highly in the list of things that people worry about and that prevent them from doing other things with their money that the Government would like them to do, such as putting some money aside for a rainy day? Child care has a direct impact on the ability to go to work, particularly for mums, but both parents are affected. If child care is unaffordable, people will have to make other choices about whether they can afford to work. No Government wants people to choose not to work because they cannot afford child care, as that is not good for those individuals or the economy. However, child care is having that significant impact on individuals throughout the country and forcing people into making what the Government and all policy makers would consider a bad choice that we would not want them to have to make: not to go to work. Those people will not be in a position to put anything aside to save. The central point I come back to is that, for the people who are in a position where they are making do, surviving on a day-to-day basis, saving is, I am afraid to say, a luxury that is far out of reach.

My final point about why people are in such difficulty and not able to save is on the huge increase in insecure employment. Among those lucky enough to be in work, many more are in part-time work, desperate for more hours but unable to get them. We have also seen a huge increase in zero-hours contracts. That increase in insecure employment has a powerful impact on that individual’s ability to make their income cover their day-to-day costs and puts saving far out of reach. How can people put money aside if they do not know how many hours they will be working from one week to the next?

I know of cases of constituents who have been on jobseeker’s allowance who have managed to get jobs on zero-hours contracts but are not offered any hours. Every week, they are told that they still have that contract but will not be offered any hours. When one constituent decided to resign because he was offered no hours, he was penalised and sanctioned by the jobcentre. It is a completely ridiculous position for someone to find themselves in, but that is the impact of some of these arrangements on a practical level. If someone simply does not know if they can make ends meet from one week to the next, because they have no idea whether they are going to get five, 10, 12, 16 or more hours a week, how are they able to save any money?

Saving is a luxury for millions of people at the moment, even if they are able to eke out a small amount to save. This is a very real problem and the Government should have taken the opportunity to include measures in the Bill to help to tackle some of those practical issues, particularly energy and child care costs. If they had, people would be more able to meet day-to-day living costs so that they could then take advantage of the changes in clause 3 that seek to improve the position of those with small savings.

Amendment 2 would enable us to keep an eye on the savings ratio in particular. As I noted, according to the Budget Red Book, that ratio is forecast to go down every year until 2018. If it was indeed a Budget for savers, it should encourage people to save more and help more people to afford to save in the first place. If someone is simply keeping their head above water, there is no way that even £3 a day is within their reach. That is the thinking behind our amendment, which I hope Members will support.

As in the previous proposed new clauses we debated, we have asked for a review, because we fear the direction of travel of the savings ratio and the position that people find themselves in with the deep-seated cost of living crisis. At least it would force the Government to review the impact of what is happening to the savings ratio in relation to the changes in clause 3, and that would be a positive step.

I have a couple of more general points about clause 3. The proposed changes under the clause are expected to help pensioners in particular. A number of taxation experts have made an argument about making pensioners aware of how to benefit from the changes. When, later and elsewhere in the House, the pension changes are debated, it will be important to emphasise independent advice and how to get the message to pensioners about their entitlement and how they can take advantage of the changes, including those in clause 3. I would be grateful if the Minister shed more light on how the Government intend to get the message out about the clause and the benefits of the changes for pensioners in particular. Will he also say whether HMRC has thought about how a similar result to that achieved by the changes in the clause could be achieved through individual savings accounts? Should the Government do more to ensure that all sections of society have access to and knowledge of tax-favoured products?

Lots of people know about ISAs, but they also need to know the details of how they work and the fact that this is deliberate Government policy, designed to give a tax-favoured product to ordinary people. It should not just be the preserve of the wealthy or the financially aware. Will the Minister say something about the Government’s thinking on not only the measures in the clause, but how they will interplay with existing measures such as ISAs?

The Chartered Institute of Taxation raised a couple of technical points in relation to the clause. I think the point about the R85 form was made to the Minister in its commentary on the clause. Although the institute welcomes the changes in the clause, it points out that people will complete form R85 only if they know about it and if they understand that they are eligible, so it goes back to the point I made about getting the message out and making sure that people understand how the systems work, and then making sure that they are able to take advantage of them. The Chartered Institute of Taxation stated that the onus is on banks and building societies and HMRC to ensure that the R85 system is better publicised. Clearly, if we want people to be in a position where they can take advantage of the measures, they will need to know about them and understand them. Will the Minister set out the Government’s thinking in relation to the role that HMRC can play in getting the message out?

The institute also raised a technical point on gift aid liability, which is something for us all to be aware of every year when the personal allowance is increased. It states that the issue will be particularly acute with the change in April 2015, when the first £5,000 of savings becomes income-tax-free, taking many more people, particularly pensioners, out of income tax overall. There is an interplay with gift aid, which could catch out some pensioners who made an enduring gift aid declaration. Will the Minister highlight the Government’s thinking about gift aid? How do they intend to make sure that pensioners do not get caught out when they have made an enduring declaration to a charity? Should individuals be made more aware, or should charities do more to help people who might accidentally get caught out by the measure?

Nicholas Dakin (Labour, Scunthorpe)

I welcome the opportunity to serve under your chairmanship, Mr Streeter. I wish to speak briefly to support my hon. Friend and the case she has made for a review. She has underlined the importance of savings to individuals, families, communities and the overall economy. The Chancellor’s 2014 Budget revealed that the economic recovery, though welcome, is still reliant on consumer spending. Although it was billed as a Budget for savers, it is actually forecast that the savings ratio will fall each year for the next five years, as hard-pressed households draw down their savings and increase borrowing, with the implications that my hon. Friend has so admirably spelt out.

Britain needs balanced investment and an export-led recovery—I think we all agree with that—but consumers can dip into their savings only so far. The independent Office for Budget Responsibility has stated that growth may slow when savings peter out, so the issue is serious. That is why a review is a sensible way to ensure that we get the best possible outcome for individuals, families, communities and the economy as a whole.

David Gauke (Conservative, South West Hertfordshire)

Clause 3 reduces the starting rate of tax on savings income, such as bank or building society interest, from 10% to zero, and increases the starting rate band significantly, from £2,880 this year to £5,000 next year. It is part of a broader package of measures announced by my right hon. Friend the Chancellor in the Budget earlier this year to support hard-working people who are saving or have saved for their future.

The clause will benefit savers with low overall incomes. We estimate that around 1.5 million savers could benefit, over 1 million of whom will no longer be required to pay tax on bank or building society interest. As well as enabling many more savers to keep more of the interest they earn on their savings, the provisions represent a major simplification of the starting rate for savings, which has been identified as one of the most complex provisions within the tax rules.

The current rules involve a series of complicated eligibility calculations, taking into account a person’s total non-savings income and their total overall income. They also require all eligible savers to reclaim tax from HMRC if they are to benefit. The Office of Tax Simplification suggested that the starting rate was too complex to be understood by many savers; that explains the low levels of awareness and take up.

The clause sweeps away that complexity for most of those eligible for the starting rate. Instead of the current complex calculation, the message is that if someone’s taxable income next year is less than £15,500 they will be able to register their account to have interest paid without any tax deducted. There will be no need for a reclaim process. Different figures will apply for those savers who have dividend income or additional personal allowances, or those who choose to transfer some of their allowance to a spouse or civil partner. We will make sure that detailed guidance is available in good time for the implementation of the change in April 2015. I am grateful to the hon. Lady for raising the issue of gift aid. We will ensure that the guidance, which we will produce later this year, will address the point she raised.

The Government want to ensure that as many eligible people as possible register their accounts to receive interest without tax deducted. That can be done by the completion of a simple certificate, the R85, or by giving a declaration to the account provider online, by telephone or face to face. There is no need to contact HMRC. The regulations governing the R85 form will be changed under powers within the clause to enable every eligible person to use the process. The Low Income Tax Reform Group has paid tribute to recent progress made by HMRC, the British Bankers Association and the Building Societies Association in improving the operation of the R85 procedure and communications with customers about it. In addition, following a recommendation from the Office of Tax Simplification, the R85 help sheet has been improved. I welcome that progress. However, it is important that work continues so that as many eligible savers as possible are aware that they can register their accounts and can do so easily and simply—the hon. Lady was right to raise the issue of awareness—and HMRC and the Treasury will therefore work closely with account providers and their representatives in the run-up to the implementation of the change to make sure that that happens.

I acknowledge the point the hon. Lady made about general awareness of the provisions. It is important that there is that awareness. Clearly, it is in the interests of banks and building societies to ensure that their customers are aware of these opportunities and of the way that the system works. She also mentioned ISAs. The Government are making changes to the ISA rules. ISAs are a long-standing success when it comes to awareness. Over 5 million adults currently subscribe fully to the cash ISA limit. They will benefit from the equalisation of and increase in cash in the overall ISA subscription limits as a consequence of our measures.

It is also worth pointing out, as the hon. Lady touched on in her remarks, that we should not think that savers are simply the very wealthy. Three-quarters of those who subscribe to the maximum for their ISAs are basic rate taxpayers. It is also worth noting that one third are pensioners. Returning to the steps that we are taking for the savings rate, this measure will predominantly help those with relatively low incomes.

Amendment 2 commits the Government to a review of these changes to the starting rate within six months of the passing of the Bill. The changes in question are not scheduled to come into effect until 6 April 2015. Therefore, the amendment envisages a review of the changes being undertaken before they have come into effect. For that reason alone, I am not inclined to accept amendment 2. However, even leaving that drafting flaw aside, the amendment is unnecessary. The OBR, the Office of National Statistics and HMRC will continue to publish details about the savings ratio, savings levels, the amount of savings by particular groups and the amount of savings income. All those data contribute to a greater understanding of developments within the savings market, savings income among particular groups and the amount of savings income received by individuals. The hon. Lady said that we need to keep an eye on the savings ratio. Well, the savings information will be available regardless of the amendment.

We want to make this change simple and, as far as possible, light touch for savers and account providers. For most, it will operate through the simple and long-established R85 registration process, with gross payment of interest, which is already used by thousands of savers. The amendment would require additional information gathering and greater administrative burdens for eligible savers and account providers, which the Government believe would be inappropriate and disproportionate for this simplifying measure.

The hon. Lady digressed in her speech on to wider issues about help for low incomes, which is an important point. Although I do not intend to engage with every point that she raised, it is very clear that if we want to help those on lower incomes, we need to have a strong and growing economy. I am pleased that we have made the progress that we have over the past year with the economy growing by more than 3%, but we recognise that there is further to go. However, we cannot get away from the fact that the only sustainable way to raise living standards is to tackle the country’s economic problems head on—something that this Government have been prepared to do.

Clause 3 provides targeted support for low-income savers and ensures that they can get much more from their savings. It also removes a major complexity in the tax system by extending and simplifying the starting rate for savings. I believe that the amendment is unnecessary and could make this change more burdensome for savers and account providers. I therefore hope that the clause will stand part of the Bill and that the hon. Lady can be persuaded to withdraw her amendment.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Clause 3 has the Opposition’s support. I am grateful to the Minister for what he said on gift aid. I note that guidance is forthcoming and I look forward to reviewing that when it is available. I also welcome his comment in relation to the R85 help sheet and the ongoing work in simplifying that process. I am minded to press amendment 2. A review of the type that we have called for, particularly in terms of what we know is happening to the savings ratio this year and every year until 2018, is important. It will help us to understand better what is happening to savers and the ability of people to save.

Clause 4 - Indexation of limits and allowances under ITA 2007

Shabana Mahmood (Labour, Birmingham, Ladywood)

I beg to move amendment 3, in clause 4, page 3, line 25, at end insert—

‘( ) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the expected impact until 2020, of changes to indexation limits and allowances on—

(a) the numbers of those not paying income tax in 2014 who begin to be eligible for basic rate income tax over that period;

(b) the numbers of basic rate income tax payers in 2014 who begin to be eligible for the higher rate over that period;

(c) the overall receipts from those paying income tax over the period broken down—

(i) for the average UK household;

(ii) for the average single-earner UK household with two children;

(iii) for the average UK household with two earners and two children;

(iv) for the average single person.’.

Gary Streeter (Conservative, South West Devon)

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

Shabana Mahmood (Labour, Birmingham, Ladywood)

Clause 4 changes the basis for automatic indexation of tax allowances and limits, such as the personal allowance and the basic rate limit. It means that from 2015-16, any automatic increase in those allowances and limits will be made by reference to changes in the consumer prices index rather than the retail prices index. The change is measured over 12 months to the September before the relevant tax year. The automatic indexation can be overridden, as it has been, for example, in 2014-15, when the personal allowance was set at £10,000 and the basic rate limit was decreased.

Amendment 3, again, seeks a review into the impact of the changes to the indexation limits and sets out some of the things that should be assessed for the impact that the change will have, including the number of people not paying income tax in 2014 but who will be eligible for basic rate income tax over that period; the number of basic rate payers who begin to be eligible for the higher rate over the same period; and the overall impact that the change in indexation has and the overall receipts from those paying income tax—again broken to down to help to illuminate debate in this area—for the average UK household, single earners with children, the average UK household with two adults and two children, and for the average single person as well.

This change from the RPI to the CPI measure of inflation is not new for a Finance Bill Committee. It has been discussed in previous Finance Bill Committees and by Work and Pensions Ministers and shadow Ministers in relation to Bills connected to welfare and pensions uprating. This issue has been debated at length by hon. Members ever since the first set of changes to indexation were made by the Government with this move from the retail prices index to the CPI measure of inflation. The change is significant. The thrust of our amendment 3 is to get some additional analysis of the impact of that change on indexation. Some have labelled it a stealth tax and there has been a lot of debate about it previously in this Parliament. It is important that we understand exactly what the impact of the change from RPI to CPI has been.

Both RPI and CPI measure inflation by taking a basket of goods—food, clothes and petrol—looking at what they cost last year, what they cost now and finding the proportional difference. The CPI differs from the RPI because it leaves housing costs out of the basket of goods that it measures, so rises in mortgage payments, rents and council tax are not reflected within the CPI measure of inflation. The retail prices index, however, takes those housing costs into account. So there is a difference between the two in terms of what they measure and what is in the basket of goods that gives the overall calculation for the value of both those indexes.

There is also a mathematical difference in the way the retail prices index and the consumer prices index are calculated. The RPI calculates what is called the proportional difference, using the arithmetical mean between the old price and the new. The CPI does not use the arithmetical mean but the geometric mean, which gives a different set of figures. That mathematical difference between calculating the RPI and CPI means that the RPI almost always gives a bigger figure for inflation. Each year, the RPI rises on average by 1.2 percentage points more than the CPI.

There is a whole set of issues around the differences between the two measures and around which best and most accurately reflects inflationary pressures when we look at uprating benefits and, as envisaged in clause 4, the indexation of limits and allowances under the Income Tax Act 2007. Using the consumer prices index means that allowances and tax rate limits would increase at a lower rate than under the retail prices index, therefore raising greater revenues. The effect of that change over a much longer period could be very significant, given the compounded nature of the change. The reason why that has been an issue of debate throughout this Parliament is because of the significance of that change, the fact that it is compounded over time and the big difference between the numbers that result from indexing according to RPI and those that result from indexing according to CPI. That has a large impact on Government revenues, which in turn has an impact on individuals either through limits in allowances and taxation, or through benefits that they miss out on. The amendment is designed to try to get better analysis about the impact of the changes and what they will mean for different rate payers in our current taxation system.

In this place, there is a lot of debate around RPI and CPI, and we bandy those measures about in the Westminster village, in the conversations we have with journalists and in the interviews that we give. However, I do not think that they are well understood by ordinary members of the public. I sometimes think that the terms that we use in this place as part of our normal discourse, when we talk about indexation, uprating and so on, must seem impenetrable to ordinary people. Those people are significantly affected by the changes, but they do not necessarily understand from our discourse here in Westminster what is going on or why certain choices have been made. For that reason, despite the fact that the move from RPI to CPI has been discussed several times in previous debates, we must continue to press the Government on that point.

Clause 4 changes things in relation to taxation. Previous debates have been about pensions and benefits uprating, but broadly the same sorts of issues apply. In the public debate that we have with ordinary people who are drawn into different tax brackets because of the difference between indexation under RPI and indexation under CPI, we must be better able to explain exactly why the changes are being made and what their real impact will be. That could illuminate debate well into the next Parliament.

When the Government made the change from using RPI to using CPI in the uprating of benefits at the beginning of the Parliament, there was a suggestion that they would look at the change again if a significant case was made and the arguments were strong enough. We will not know whether a significant case has been made or whether the arguments are strong enough to consider indexing differently without better analysis of the impact of the change. It would be helpful, through a review such as we propose in the amendment, to see the impact of the change on basic rate taxpayers, to see who gets drawn in, and on higher rate taxpayers.

We do not intend to vote against clause 4, but we will press the amendment to a vote because we think that the matter requires greater analysis and greater public debate. It is important to shine a stronger light on what the change means. Many people have described it as a stealth tax. As we discussed earlier, there will be significant changes in the implementation of taxation, and it is important that they do not seem impenetrable or out of reach for ordinary members of the public. They have the right to understand exactly what the changes mean and what impact they will have on them. The change will have a significant impact on the Government’s revenue, and that of course is the reason for the change. It should be spelled out clearly to the public who will end up paying more. We will support clause 4, but we will probably press amendment 3.

David Gauke (Conservative, South West Hertfordshire)

Clause 4 makes changes to the indexation basis for income tax allowances and limits, and it may be helpful if I set out a little of the background. It was announced in the 2011 Budget that, in response to an independent review by the Office for National Statistics, CPI inflation will be the standard indexation assumption for direct taxes from 2012. However, it was also announced in that Budget that all RPI-indexed income tax thresholds would move to CPI indexation in later years, and that the personal allowance would move to CPI indexation after reaching £10,000.

For simplicity, we decided to deal with all income tax indexation changes in a single piece of legislation. Income tax thresholds closely connected to the personal allowance are the basic rate limit and the higher rate threshold. The basic rate limit sets the width of the 20% basic rate tax band above the personal allowance. The higher rate threshold determines the starting point of the 40% higher rate tax band, and is the sum of the personal allowance and the basic rate limit.

The announcement in the 2013 Budget on the personal allowance meant that it would move to CPI indexation in 2015-16. To ensure that the income tax system remains consistent, we decided that the indexation of the basic rate limit should move to CPI indexation at the same time as the personal allowance. That ensures that the higher rate threshold will also grow in line with CPI inflation in the absence of policy changes. Clause 4 implements that switch.

Clause 2, which we debated earlier, sets the personal allowance and basic rate limit for 2015-16, and means that the Government will override CPI indexation for the personal allowance and the basic rate limit in 2015-16 in line with the Chancellor’s announcements at last month’s Budget.

The remaining RPI-indexed income tax allowances and limits, including the adjusted net income limit, married couples allowance and blind persons allowance, will be increased in line with RPI inflation in 2015-16 by overriding the annual indexation order for that year. That will ensure that no one will be worse off as a result of changes to indexation in this Finance Bill compared with our previous plans.

Amendment 3, tabled by Opposition Members, would require the Government to carry out a review, projected to 2020, of the impact of moving to CPI on the number of basic rate taxpayers, higher rate taxpayers and certain types of households. The purpose of the amendment is, as we have heard, to compare the changes to income tax personal allowances and rate limits under RPI and CPI indexation. The amendment essentially misses the point. We are moving to CPI for three reasons. First, it is calculated using a formula that better reflects the way people shop around in response to a change in price. Secondly, it forms the basis of the Bank of England’s inflation target. Thirdly, it is more consistent with the European Central Bank’s harmonised index of consumer prices than RPI. In March 2013, the UK Statistics Authority, following a review, judged that

“the methods used to produce the RPI are not consistent with internationally recognised best practice”.

On that basis, I do not believe that the amendment could achieve anything useful, and I ask the hon. Member for Birmingham, Ladywood to withdraw it.

I am grateful for the hon. Lady’s support for clause 4, which helps the Government to achieve their aim of a tax system that is fair and easy to understand. I hope that amendment 3 will be withdrawn and that clause 4 stands part of the Bill.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful for the Minister’s comments on clause 4 and the amendment. I am minded to press the amendment to a Division. It is very important. I take on board what the Minister has said, but the change from the RPI measure of inflation to CPI for indexation of taxation limits and allowances is significant. Regardless of where one sits in relation to whether that is a good or bad thing, it is worth having the review so that we can assess the impact of the change and more thoroughly ventilate those issues in public debate.

Clause 8 - Annual exempt amount for 2014-15

Gary Streeter (Conservative, South West Devon)

With this it will be convenient to consider the following:

New clause 4—Capital gains tax and employee shareholders—

‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the impact on tax revenues of employee shareholder status as defined by section 205A of the Employment Rights Act 1996, and set out the conclusion of the review in a report.

(2) The report referred to in subsection (1) above must in particular set out—

(a) the impact on total capital gains tax receipts paid to the Exchequer arising from the capital gains exemptions under section 236B of the Taxation of Chargeable Gains Act 1992;

(b) the estimated value of shares owned by employees working in employee shareholder jobs and the number of such employees.

(3) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.

(4) Subsequent reviews must be completed before the end of each period of 12 months beginning with the date on which the previous review was completed.’

Clause 9 stand part.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Clauses 8 and 9 set the annual exempt amount for capital gains tax at £11,000 for 2014-15 and £11,100 for 2015-16, so there is an increase of £100 a year. The clauses therefore override the automatic increases in the annual exempt amount provided in law, which are based on the change in CPI over the 12 months to the September prior to the tax year in question.

The annual exempt amount sets the limit to the chargeable gains that an individual can make in a tax year before becoming liable for capital gains tax. Unlike the personal allowance, that amount is not phased for higher earners, but is not available at all for non-domiciled individuals who claim the remittance basis of taxation. The effect of the clause is that the annual exempt amount will increase at a rate less than CPI inflation for 2014-15. CPI in the 12 months to September 2013 was 2.7%, which would have led to an increase in the annual exempt amount of £300. That is also likely to be the case for 2015-16, when the relevant measure of CPI inflation would have to fall to 0.9%.

New clause 4 focuses on the relationship between the Government’s scheme known as shares for rights and capital gains tax. That Government policy has created a status of employee shareholder—someone who works under an employee shareholder employment contract. The employee shareholder must receive shares in the employer’s company or parent company, and the shares must have a minimum value of £2,000 on receipt. There is no upper value for the shares. The taxation benefit from the policy is that there is no capital gains tax charged on the profit made when disposing of shares.

There have been a number of debates on the policy in other Committees, for example when Department for Business, Innovation and Skills matters have been discussed—it has been the lead Department for the policy change. The Opposition have always felt that that was a very peculiar form of contract. At the end of the day, rights at work are rights. We have always raised deep concerns about the impact that the policy could have. Many have described workers’ giving up significant employment rights for shares in the company that may not be of value to them as the legitimised exploitation of workers. The rights given up under the policy, such as those relating to unfair dismissal, are significant. Apart from the automatically unfair reasons—when dismissal is based on discriminatory grounds or in relation to health and safety—all other reasons are caught by the scheme. Those rights are given up.

Other rights to be given up include the rights to statutory redundancy pay, to request flexible working except in the two weeks following return from parental leave, and to request time off to train. Those are expected to be given up for an employee to be able to take advantage of the policy. When it was announced, the Chancellor said that it was a new voluntary three-way deal, where the company gives the employee shares in the business, and the employee replaces their old rights regarding unfair dismissal and redundancy with new rights of ownership. I would challenge that phraseology because rights at work are not the same as the rights of ownership. The Government say that they will not charge any capital gains tax on the profit made on the shares.

When the policy was announced, the then Minister for employment relations and consumer affairs, the hon. Member for East Dunbartonshire (Jo Swinson), who was responsible for piloting the so-called shares for rights scheme said:

“I have every expectation that when we look back at 2013 we will recognise it as having laid the foundations for a thriving and growing employee ownership sector in the UK.”

The HMRC document that accompanied the shares for rights scheme noted:

“As it is entirely new, predicting the take up of the new employee status is highly uncertain. It is broadly expected that 20,000 to 40,000 individuals a year may eventually benefit from the CGT exemption on disposal of the shares.”

It is fair to say that not only Members on this side of the House raised serious concerns about this policy. John Cridland, director general of the CBI, said:

“this is a niche idea and not relevant to all businesses.”

A number of other business organisations felt that this was not the right kind of policy to pursue or that its impact on the number of businesses that would adopt the scheme would be very small. The criticism from business was significant, but the Government pressed ahead with their scheme and I think it fair to say that it has been a flop. We learned that BIS received just 19 inquiries for the scheme in the six months to the end of December, according to figures obtained by the Financial Timesin response to a freedom of information request.

Many Members from across the House have been trying to get some of the facts and figures underlying the shares for rights scheme from the Minister through parliamentary questions, but have not been able to make a huge amount of progress. However, at least the freedom of information request told us that only 19 inquiries were made. That is very low and shows that, even given the pitch that was made to businesses, they have not been interested in it and have not taken it up.

The other problem with the scheme—something that a number of commentators have focused on—is its capacity to foster tax avoidance. The OBR’s policy costings document said that the cost of the policy was expected to rise towards £1 billion by the end of the forecast period. It was very illuminating that it also said:

“It is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning.”

Even from the outset, the ability of the scheme to be manipulated for tax avoidance purposes has always been very real and stark and potentially very large in terms of revenue. It is interesting that the scheme was launched at a time of concern about tax avoidance and that still remains the case. Last summer, we had the whole raft of stories about Google, Starbucks and others. Concern about tax avoidance is extremely high. Ministers are continually falling over themselves to condemn such behaviour and to say that they have the right policies to tackle tax avoidance. At the same time, the Government bring forward a new tax policy that

“looks like it will foster a whole new avoidance industry”.

That is what Paul Johnson of the Institute for Fiscal Studies wrote when it considered the OBR’s costings document and the £1 billion cost that was expected at the end of the forecast was hidden away in an annexe .

It is interesting that we have this policy in place which has not been popular, has only raised a small number of inquiries, but has potentially opened a huge avenue for tax avoidance. The thrust of our amendment is to continue to press the Government for greater detail and more analysis of the impact of this policy and what it has done in relation to the exemption from capital gains tax. The Opposition have committed to scrapping the scheme, not only because we feel that it is a flop, but because we are concerned about its tax avoidance implications. I will therefore press new clause 4 to a Division.

David Gauke (Conservative, South West Hertfordshire)

Clauses 8 and 9 set the capital gains tax annual exempt amount for 2014-15 and 2015-16 respectively. The annual exempt amount is the amount of capital gains an individual can make each year tax-free and is automatically indexed every year by reference to inflation, as measured by the consumer prices index, unless Parliament sets a different figure.

In the autumn statement of 2012, the Government announced that the annual exempt amount would rise by only 1% in both 2014-15 and 2015-16 to £11,000 and £11,100 respectively. We understand that the change will affect some people near the threshold, but the reality is that tough decisions need to be taken on both tax and spending in order to tackle the budget deficit and ensure that everyone pays their fair share of tax.

New clause 4 asks that the Chancellor review the impact of the new employee shareholder status on tax revenues and lay a report that sets out the impact on capital gains tax receipts, the estimated value of shares owned by employees with employee shareholder status and the number of such employees. As the hon. Lady pointed out, we have debated the subject on a number of occasions.

The Government believe that such a review is neither necessary nor appropriate at this stage. The employee shareholder employment status has been available only since 1 September 2013. The Government have published the impact on tax revenues in the tax information and impact note, and there are currently no data available to allow that to be updated. Companies are not required to submit details until later, as part of normal share scheme reporting from employers. That is consistent with the fact that the status has been carefully designed to be light touch and accessible. Employers will be required to submit details on employee shareholder shares as part of the normal share scheme reporting cycle. However, the proposed review would require enhanced information gathering and increase the administrative burden for businesses offering employee shareholder agreements.

The hon. Lady highlighted tax avoidance. There are safeguards in legislation to prevent the CGT exemption from being abused. Only gains on the first £50,000 of shares received will be exempt from CGT. There are rules that prevent the repeated consecutive use or multiple simultaneous use of the employee shareholder status to get around the limit. In addition, an individual’s shares will not be CGT-exempt if they, or anyone connected with them, have a material interest in the employer company or its parent, or acquire such an interest. That is because a person with a material interest may also be able to influence the actions of the company and so affect the value of the shares.

New clause 4 is unnecessary. HMRC publishes a significant amount of data annually about the tax-advantaged employee share schemes. At the appropriate time, the Government will consider what to publish on the employee shareholder status. I therefore ask the hon. Lady to withdraw new clause 4, and hope that clauses 8 and 9 stand part of the Bill.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I am grateful for the Minister’s comments regarding clauses 8 and 9, and the new clause, to which we will return towards the end of our sittings. We will not oppose clauses 8 and 9.