STARTING RATE LIMIT FOR 2001–02 (Hansard, 24 April 2001)

§ Mr. Flight
Although the increase in the band by £360 per annum will be welcome to all citizens who benefit, and the Government boast that they have increased it by more than the statutory indexed increase, it is worth pointing out that it is equivalent to 69p a week. At the same time, the increase in the upper limit for national insurance from £535 to £575 a week has resulted in an additional national insurance bill of £2.09 a week for 2.9 million people.
The Chancellor did not announce that in the Budget; in retrospect, we knew that another stealth tax was on the way. Therefore, nearly 3 million people are £2.09 a week worse off and 69p per week better off. There may be justifiable reasons for such redistribution—it depends on one's view of what is best for the economy. However, the Chancellor's failure to make it clear that, for 3 million people in the middle, more was being taken away with one hand than given with the other shows a lack of transparency and is simply electioneering.

§ Mr. Edward Davey
I want briefly to put on record my concern at the continuing complexity in the tax system 237 that the 10p band represents. The arguments against the 10p band are as powerful as those that were used against the 20p band when it was introduced as an election gimmick by the former Chancellor, now Lord Lamont, just before the 1992 election. The problem with these bands of lower tax over a small amount of income is that they do not target the most tax relief on the poorest people. They also add unnecessary complexity to the tax system.
If one is trying to target precious resources on those who need them most, one should always increase the allowance. That takes people out of tax altogether. The Institute for Fiscal Studies has been arguing this for years, and it has been right for years. One used to hear from many Labour politicians—including some very reform-minded politicians—when they were in opposition, that they understood that argument. Simple arithmetical calculations can be made to show that, for every extra £1 million that the Government have to spend, it is always better for the poorest people if that money is spent on increasing the allowance because that takes the poorest people out of tax altogether.

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

§ Mr. Davey
I am sure that the former hon. Member for Dover, to whom the hon. Gentleman refers, will be pleased that his election expenses have now been started by the hon. Gentleman.
It is rich for the hon. Gentleman to accuse another Member of the House of having a brass neck. He raised the issues of the level of taxation and of the simplicity of the system. I make no bones about the fact that the Liberal Democrats have argued, continue to argue, and will argue at the forthcoming election that the basic rate of income tax and a new top level of tax for incomes above £100,000 a year should be raised to provide revenue to fund our public services and to ensure that pensioners have a better deal. However, I shall not continue down that line, Mr. Lord, because you will rule me out of order.
I was making a point, separate from the hon. Gentleman's argument, about complexity. Whatever one's view on the overall burden of taxation, surely there can be consensus on the need for simplifying the system and getting rid of bureaucracy and unnecessary costs, whether in relation to individuals or the corporate sector. New tax measures such as this add extra complexities.

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

§ Mr. Davey
The point that I was making was that if one increases the personal allowance—the 0 per cent. band of 238 taxation—one gets the benefits of both worlds: the benefits of greater fairness and of greater simplicity. That is the whole point of the argument made not only be party politicians but by academics, accountants, members of the tax profession and members of the business sector.

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

§ Mr. Davey
The hon. Lady is making a similar mistake to the one made by the hon. Member for Buckingham (Mr. Bercow), which, to her credit, is very unlike her. The Liberal Democrats have always made it clear that marginal rates of tax should go up to fund essential expenditure. That is completely different from the argument that I am making, which is that if the Government have a certain amount of money to spend on making the tax system fairer, as sure as night follows day it would be a better use of that money to increase the income tax allowance, the 0 per cent. tax band. That would have the added advantage of not adding these unnecessary complexities to the system.
That is a simple point that has been made many times by hon. Members in all parts of the House. I want to use the opportunity of this clause stand part debate to make the point again. We have a tax system that is far too complicated, and we should argue at every opportunity for simplifying it. One of the Government's major economic mistakes has been to make the tax system far too complex, and I hope that, as they think again about tax policy, which they may or may not have the chance to implement in a future Parliament, they will understand that reducing complexity is an important issue. It is important in the personal sector, in the move to greater self-assessment, and in the reduction in complexity for the corporate sector. This is a microeconomic issue that has macroeconomic outturns, and the Government should take it very seriously.

§ Dawn Primarolo
The clause fulfils the Government's commitment to introduce a 10p starting rate of income tax—the lowest rate of income tax since 1962–63. We are also introducing a range of other measures, on income tax, national insurance contributions and tax credits, to encourage people into work and ensure that they keep more of what they earn. The allowance with which the clause deals is part of that package.
Both the hon. Gentlemen who have spoken in the debate seem fundamentally to misunderstand the purpose of the Government's policy, particularly when it is coupled with the new deal. One of the Government's many tasks is to assist those who are unemployed into paid employment. That requires us to ensure that there are low marginal rates of tax, so that those people can move from unemployment into employment and then up the ladder, earning more and more.
The hon. Member for Kingston and Surbiton (Mr. Davey) makes a simple point, and he makes it regularly. He wants things simple, simple, simple. However, a balance has to be struck in policy objectives 239 between fairness and simplicity. We have had the discussion a number of times in the House, in Committee and in Select Committees about how the Government should balance their objectives and keep the tax system as simple and as clear as possible.
If the hon. Member for Kingston and Surbiton looks closely at his proposals he will realise that, if implemented, they would cut directly across the objective of moving people from unemployment to employment—an objective that I believe his party shares with the Government, but which he is in danger of undermining. That is what the hon. Gentleman has seemed unable to grasp during our discussions about the 10p rate and the 10p band rate.

§ Mr. Edward Davey
I thank the Paymaster General for giving way so generously, but can she explain how a policy objective of moving people from unemployment to work is better served by a 10p rate band than by a 0p rate band?

§ Dawn Primarolo
I do not think that the hon. Gentleman was present when I explained to his hon. Friend the Member for Truro and St. Austell (Mr. Taylor), who had spoken to a Liberal Democrat amendment, about the importance of giving unemployed people incentives to move from benefits to work and ensuring that they keep more of what they earn. The desirability of reducing, wherever possible, the marginal rate of tax in order to maintain that process is the rationale of the 10p rate and the 10p rate band. I know that the hon. Gentleman thinks that the Government have other motives, and that our proposal is not part of the welfare-to-work programme and is not related to our objective of securing full employment. If he examines the full range of our policies, however, he will see that they are all targeted in the same direction.
This has been a short but interesting debate on a very narrow clause. I commend the clause to the Committee.