Labour rebel MPs fail to secure amendment to Finance Bill on 10p tax

July 8, 2009 at 5:33 pm Leave a comment


by Tony Grew

A group of Labour MPs failed to pass an amendment to the Finance Bill yesterday that would have forced the goverment to ensure nobody is financially worse off as a result of the abolition of the 10p rate of income tax.

Frank Field, a minister under Tony Blair, moved the amendment.

It aimed to stop the Chancellor from collecting income tax until he “lays before Parliament a statement that, in his opinion, measures have been taken to ensure that no person is worse off by reason of the person’s income not being sufficient to secure that the effect of the abolition of the 10p starting rate has been entirely offset by the reduction of the basic rate, which took effect in the tax year 2008-09.”

Mr Field told MPs:

“I have been in the House for 30 years, and have moved many motions on new clauses and many amendments.

“I have always taken real pleasure in doing so, but I cannot say that I take much pleasure in moving this new clause, or from the feeling that we are somehow on course for a collision with the Government over the treatment of many people in our society who earn low wages.

“Political parties, whatever part of the House they occupy, are broad coalitions, containing people of diverse views, but they also have core values which keep them together.

“There is clearly a huge divergence of views on the Labour Benches among Members who have been in the House for some time and those who have arrived more recently, and among those who think of themselves as traditional or old Labour, those who think of themselves as new Labour, and those who simply think of themselves as Labour.

“However, the golden thread that links us together is that, when push comes to shove, we are all on the side of the poor.”

Mr Field complained that the 2p reduction in the standard rate of tax was largely—although not totally—paid for by the abolition of the 10p starting rate.

“The cost of the 2p reduction was about £9.5 billion; the extra revenue from abolishing the 10p starting rate was about £8.5 billion,” he said.

“We found ourselves for the first time that I can recall advocating a measure that increased the tax burden on the lower paid and made it easier for people such as me, other Members and millions of people outside the House of Commons.”

Mr Field said that 500,000 households “will still be losers from this abolition, within those households there will be about 1.3 million individual losers, and the average sum that they will lose will be between £2 and £3 a week.

“I hope that most of us would think that £2 or £3 a week is a substantial sum for us, but it is huge for people whose earnings are low.

“I am humbled when constituents come to my surgery to tell me that they are on £11,000 a year, they have two children they are bringing up brilliantly and they are being messed around by tax credits, yet they still survive.

“If this House ever wants to know how to manage the national accounts, it could look to Birkenhead, where quite a few people could teach us a thing or two.”

Mr Field mocked claims that if his amendment passed, “the Government will not be able to raise revenue after 6 o’clock tonight and that tomorrow morning the currency will collapse—with all the horrors that would stem from that.”

“It would be ludicrously irresponsible if the Government did not have a plan 2 ready.

“The 10p proposal is a denial of all that we came into public life to achieve, and this is our last chance to rectify the situation before the general election.”

Another former minister, Mark Fisher, said the government is in denial on the issue.

“They do not recognise that they have caused a problem and say that they cannot identify the people who are losing out,” he told MPs.

“I look forward to hearing from Treasury Ministers; I hope that we hear them say this evening, ‘Yes, we admit that there is a problem and that there are losers. These are the people, and this is how we will solve the situation.’

“This debate goes right to the heart of what Parliament is about.

“The essence of what we do is to raise grievances and, in return for the right to do so, vote supply to the Government.

“I think that not only Labour Members but Members in all parts of the House want the Bill to go through: the Budget has many good things in it, and we want to vote supply to the Government.

“However, we want to raise what is a serious grievance for many of the poorest people in our society.

“Poverty does exist.

“It is a low-level condition but a very painful one, and it is Parliament’s responsibility to try to put it right, not to make it worse.

“The 10p change undoubtedly made it worse for many people.

“Tonight is the time when the Government have to face up to that and recognise that they have got this slightly wrong and can put it right.”

Northampton MP Sally Keeble had signed the rebel amendment.

“Although I have a great deal of sympathy with and am grateful to my right hon. Friend the Member for Birkenhead (Mr. Field) for introducing the new clause, I will not vote for it tonight,” she told MPs.

“I wanted to raise this issue and discuss it because it has not been properly debated so far.

“Furthermore, I do not think that my constituents would thank me for the unforeseen difficulties that the Budget would face if the new clause were passed.

“We have to look at the practical side, as well as at the issue of what happens to women pensioners.”

Kate Hoey said she had signed the amendment and would be voting for it.

“Notices have been delivered, and the Government Whips have told us how terrible it would be if the new clause happened to be passed,” she said.

“I find that strange.

“We have been told that the new clause is dangerous: that it would restrict the Government from collecting any income tax for 2009-10, with an estimated cost of £140 billion.

“We have been told that the services on which the public depend will be put at risk.

“Do we really believe that if this measure were passed, the Government could not go off and do what they did when the banks were collapsing?

“The Chancellor was up all night—all weekend—sorting things out and finding a solution. Are we really saying that that could not be done if this measure were passed this evening?

“I hope that if my right hon. Friend the Member for Birkenhead (Frank Field) presses his motion to a Division and the new clause is accepted, the Government will sit up all night and, indeed, for the next 24 hours.

“We have until 5 August in any event, and there is no huge impetus for the problem to be solved in the next 24 hours, but it could be none the less.

“Let us sort the problem out.

“Let us show that we realise that the poorest people in our country are being hit and that that was a mistake, or, if not a mistake, the wrong decision.

“Let us show that we want to change it—and the only time when we can change it is tonight.”

Diane Abbott was critical of the position that the government would have trouble functioning if the amendment passed.

“There has been some talk in the past 48 hours that if this new clause is passed tonight, the following morning the Government will not be able to collect taxes, the markets will crash and Government will grind to a halt … these are tales to frighten children and people should decide to vote tonight on the merits of the arguments and not on implicit threats from Treasury Ministers.”

David Drew was unhappy with his government’s response.

“We are at a difficult stage now,” he said.

“We need to recognise that the hurt among core Labour supporters remains.

“Some of us will find it very difficult not to want to go back to where we were, which was to recognise that these are the people whom we cannot afford to be made worse off.”

Stephen Timms, Financial Secretary to the Treasury, set out the background.

“At Budget 2007, the Government announced the abolition of the 10p rate and changes to personal tax and tax credits,” he told MPs.

“Most households were compensated by other parts of the package, but my right hon. Friend the Member for Birkenhead (Mr. Field) and others argued forcefully and successfully that more needed to be done.

“The Government accepted that and on 13 May last year my right hon. Friend the Chancellor announced an increase in the personal allowance. Most people began to benefit from that from last September by a total of £2.7 billion.

“Some 22 million people on low and middle incomes saw their tax reduced by £120 in 2008-09 and 4.2 million of the original 5.3 million households who lost out from the abolition of the 10p rate received as much or more than they originally lost, but not higher rate taxpayers.”

He said that along with other measures, “those changes now fully compensate over 90 per cent. of the 5.3 million households who would otherwise have been paying more, reducing the number to around 500,000 households in 2011-12.

“The maximum individual loss is now £92 a year, or £1.77 per week, if there is no offsetting tax credit gain.

“The average loss for a household is now less than £1 a week.

“I agree with those who have said that even a loss of that size is significant for some of the people we are talking about, but it is important to make it clear that we are not talking about average losses of £2 or £3 as has been suggested.”

Mr Timms was challenged over whether or not the government’s tax-raising powers would end if the amendment passed.

“Well, the power to collect income tax ahead of Royal Assent is founded on the Provisional Collection of Taxes Act 1968, section 1 of which provides that a resolution under the Act has statutory effect for a specified period,” he said.

“One of the things that brings that specified period to an end is rejection of the provisions of the Bill reflected in the resolution, so we would not have until 5 August to carry on collecting income tax.

“As I have said, there would have to be some rather novel legislative interventions rather quickly.”

Winding up the debate, Mr Field said the issue was simple.

“Of course, the Government have taken some measures, but they have not taken a single measure that specifically helped those who lost out by the abolition of the 10p rate,” he said.

“The Government have taken other measures that have benefited taxpayers generally, including those who were losers from the abolition of the 10p rate, but they have taken no specific tax measure to compensate that group.

“Tonight is our last opportunity to say to the Government that they need to renew their faith and our faith in the tradition that sent us here.”

MPs rejected the rebel amendment – Ayes 268, Noes 311.

The Finance Bill passed its final Commons stages this evening.

photo: Royal Mint


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