Browne on the Budget

1.50.01pm UTC (GMT +0000) Sat 3rd May 2008

[Apr 30] Jeremy Browne (Taunton, Liberal Democrat): Let's get this show on the road.

We all remember 21 March 2007, the final Budget delivered by the longest serving Chancellor of the Exchequer in the last 100 years. Labour Members behind him waved their Order Papers and celebrated the fact that they would finally be rescued from the torment of Tony Blair's leadership, to go instead into a sunlit upland of socialism with a leader who both connected with their base and understood, uniquely, and even better than his predecessor, the instincts of middle England-a leader who would return them for a fourth term in this Parliament. They all went off excitedly to the Tea Room to discuss the triumph that was inevitably theirs.

The leader of the largest Opposition party in the House got to his feet and said, "At last, we have been given a tax cut." He completely failed to notice that the trade-off was that millions of the poorest people in this country, far from getting a tax cut, would see their taxes rise substantially.

The one eminent figure in that debate-the one party leader-who spoke most clearly on the subject was the then Liberal Democrat leader, my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell), who pointed out precisely the point that has concerned so many Labour MPs in the past few weeks. It just goes to show that there is nothing like an opinion poll or two to concentrate the minds of Labour Members of Parliament. The warning was there and had they stayed to listen to the speeches made by the Liberal Democrats, they would have known that their constituents would be the main losers from that Budget.

Lyn Brown (PPS (Rt Hon John Denham, Secretary of State), Department for Innovation, Universities and Skills; West Ham, Labour): Does the hon. Gentleman not accept that the number of people who will lose through the cutting of the 10 per cent. band has been over-hyped? Does he accept that some of the poorest people in this country are those who are on low wages but fall outside the benefit banding? The cut from 22p to 20p helps that most vulnerable group.

Jeremy Browne: I do not accept that argument. If the hon. Lady had been present for our extended debate this time last week-she was not, and I appreciate that she has been brought in as the one person on the Labour Benches who is willing to defend this policy, apart from the Parliamentary Private Secretary, the hon. Member for Sheffield, Hillsborough (Ms Smith), who does so under duress-she would know that the Labour Chairman of the Treasury Committee made the point that more than 5 million taxpayers would be net losers as a result of measures in the Budget and that the 2p cut in the basic rate would not be sufficient to offset the doubling of the 10p rate. We must not make the mistake of ever talking about the abolition of the 10p rate as, for our constituents, the rate has doubled.

John Gummer (Suffolk Coastal, Conservative): Is it not obvious that the hon. Member for West Ham (Lyn Brown) is wrong? If she were right, the Government would not have been panicked into making the decisions that they have made.

Jeremy Browne: The right hon. Gentleman attributes a degree of rational and strategic thinking to the Government that probably does them an exaggerated service.

Stephen Dorrell (Charnwood, Conservative): Is it not remarkable that the hon. Member for West Ham (Lyn Brown) should say that the figures are inaccurate, as they come from the Government themselves at column 1267 on 18 October last year?

Jeremy Browne: Indeed; the Institute for Fiscal Studies and the Treasury's own answers have both confirmed figures in the region of 5.3 million losers. I do not think that that is a matter of debate; what we are discussing is how those people can be assisted and how the Government got into this mess in the first place.

Jo Swinson (East Dunbartonshire, Liberal Democrat): Does my hon. Friend agree that it was entirely unjustified of the Government and, indeed, of the vast majority of Labour Back Benchers completely to ignore and deny the impact of the doubling of the 10p tax rate on the incomes of the low-paid, when the hardship that the measure would cause was crystal clear a year ago?

Jeremy Browne: I very much agree. It does not seem difficult to work out that for people who pay 10p in the pound as a marginal tax rate, a doubling to 20p would end up costing them more in tax than if the measure had been left in place, but it obviously took 13 months for that finally to become clear to Labour Back Benchers, which is highly regrettable.

The Prime Minister is a man of massively diminished authority. Last week, he was pacing around the White House pleading with the hon. Member for Sheffield, Hillsborough, who is appropriately dressed in black for this occasion, urging her not to resign from her post as PPS and further humiliate him. Last week, one can only imagine the atmosphere in his private meeting with the right hon. Member for Birkenhead (Mr. Field), who has a long track record of making keen observations about his qualities or otherwise. Who can forget the observation:

"Allowing Gordon Brown into No 10 would be like letting Mrs. Rochester out of the attic"?

The right hon. Gentleman went on to say:

"He has no empathy with people."

[Hon. Members: "More."] There are many choice observations by the right hon. Gentleman on the subject. He told ePolitix website a year or so ago:

"One of the reasons I favour a leadership contest is that once you're in a contest a person's full qualities can be judged in a way that they never are in normal circumstances...A contest would enable us to judge people's competence not just as Chancellor of the Exchequer but as Prime Minister, which is a totally different position."

That has been shown to be very much the truth, so I can only imagine how the Prime Minister responded to that intimate and cosy chat when a gun was held to his head by the right hon. Gentleman, who threatened to humiliate him.

I imagine that the atmosphere was less than perfect, but that does not justify the euphoria in the Labour ranks. Perhaps something happened in that conversation, and the right hon. Gentleman may tell us what it was when he gets to his feet. I read the letter from the Chancellor of the Exchequer to the Chairman of the Treasury Committee, and I could not understand why Labour MPs were in such a buoyant and euphoric mood last Wednesday afternoon. There are many questions-and many of them have been touched on by the hon. Member for Runnymede and Weybridge (Mr. Hammond)-that remain unanswered, and I shall go through some of them.

First, what is going to be backdated in this package of proposals? As I understand it, the specific measures aimed at trying to assist pensioners between the ages of 60 and 64 will be backdated, but there is dispute-and it remains unresolved-as to whether other people will receive backdated compensation. Indeed, the right hon. Member for Birkenhead said that the Chief Secretary was "badly briefed" on the backdating of the compensation package. I wonder whether the right hon. Lady, even though she is not speaking for the Government in this debate, has had time to swot up. It is extraordinary that she should have to be briefed at all on these matters, as one would think that she was at the centre of trying to decide the Government's taxation policy.

Secondly, even if those measures are backdated for everybody, there is the issue of cash flow. There are many people on low and low-to-middle incomes, and if they receive money in November that is backdated six months, it will not pay today's supermarket, gas or council tax bill, and those are the problems that the Government have not identified or addressed.

Annette Brooke (Mid Dorset & North Poole, Liberal Democrat): I should like to take the example of one of my constituents, who is £30 worse off, and is already facing mortgage arrears. Just what are people like my constituent going to do?

Jeremy Browne: My hon. Friend makes an excellent point, which no Treasury Minister has so far adequately addressed, but we await with interest to see whether a rabbit will be pulled out of a hat. We were told to watch this space. We are still watching, but the picture is yet to become fully clear.

Susan Kramer (Richmond Park, Liberal Democrat): Has my hon. Friend seen in any of the Government responses a solution for my constituent, a young, single, working mother, who has vowed never again to claim tax credits because of the cycle of overpayment and clawback, who now sees that there is no way out from paying a higher tax rate on her very meagre income, and who may not work again?

Jeremy Browne: My hon. Friend makes a valid and related point about the fiasco and complication that is the tax credit system. One of the issues that the Government will have to address is that they are replacing a simple mechanism to reduce the tax burden on people on low incomes with a series of far more complex and complicated alternatives. Many of those people may not be adequately compensated, but some will be theoretically compensated, because I will bet the House that the Treasury will budget so that the take-up is not 100 per cent. for those who are eligible to be compensated as a result of the 10p rate being doubled.

Frank Field (Birkenhead, Labour): rose-

Jeremy Browne: I give way to the star of the show.

Frank Field (Birkenhead, Labour): Do the Liberal Democrats propose to reintroduce the 10p rate, and if so, where will they find the £7 billion?

Jeremy Browne: It is our intention to reduce the tax burden on people who earn the lowest salaries, and we will do that in a number of ways. We propose to reduce the basic rate of income tax, and I would like to see us bring forward measures for the next general election that will also raise thresholds in a progressive way. Tax-cutting can be extremely progressive if the taxes cut are for those on the lowest incomes, who at the moment pay tax to the Government even if they are on the minimum wage and then become eligible to try to claim large parts of it back in the form of various credits and other rewards from the Treasury, which is extremely bureaucratic and inefficient, and many people fall through the net. Our objective is to try to make it both simpler and fairer.

Frank Field (Birkenhead, Labour): The hon. Gentleman is making a good speech, but there was a simple question to answer so that the country would know where the Liberal Democrats stand. It is clear that, while the Liberal Democrats might want to introduce all sorts of things to make our tax system fairer, there is no commitment to reintroduce the 10p rate. The message goes out from the debate that none of the major parties is proposing its reintroduction, so we are looking at compensation packages.

Jeremy Browne: Let me make this clearer. The Liberal Democrats' objective is to ease the tax burden on people with very low incomes who cannot afford it at present. The Government propose to double the 10p rate to 20p for those people, going completely in the wrong direction. We could choose to use the 10p mechanism to assist those people, or it could be done some other way. A millionaire pays less as a result of the 10p rate decision, so I appreciate that it is not a very focused tax reduction for people on low and low-to-middle incomes, but it is a hell of a lot better than what the Government are proposing, which is that that tax burden should be doubled for those people.

Frank Field (Birkenhead, Labour): rose-

Jeremy Browne: I have given way twice, so I will try again. It is nice to have a question and answer session on Lib Dem policies, but we are meant to win a general election first. I will give way for a final time.

Frank Field (Birkenhead, Labour): So although there are all sorts of measures that the Liberal Democrats may introduce, reintroducing the 10p rate is not on the cards-yes or no?

Jeremy Browne: I have explained so many times. We will vote against the clause this evening, and I hope that, if the right hon. Gentleman shares our instincts to help some of the lowest income households, he will join us. I see that many, many Labour Members have come here, I hope for the same purpose.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat): I have been enjoying my hon. Friend's vivisection of those on the Treasury Bench. I brought up this matter in the Treasury Committee, particularly with regard to pensioners in my constituency, because they have the double whammy of not only losing out on tax but facing increased costs against which they can do nothing. Is not the fairest way to deal with those pensioners and others who lose out in that way to raise tax allowances, so a policy that we may well contemplate might be the raising of tax allowances, combined with a lowering of the basic rate, which would achieve as good, if not better an objective than simply putting back the 10p rate?

Jeremy Browne: I am grateful to my hon. Friend, who has made an extremely attractive proposition. We already know the parameters of the debate at the next general election: the Labour party is committed to its tax and spend proposals and the Conservative party is committed to matching them entirely. The Liberal Democrats belong to the only party with the freedom of manoeuvre to consider exactly the sort of progressive and attractive tax policies mentioned by my hon. Friend. However, let us not get too diverted.

We have talked about some of the unanswered questions, such as who will get the backdated proposals and those about the issue of cash flow, and we have not yet heard an answer, although we hope that we will later. Furthermore, we have not heard about how long the compensation packages will last. Will they apply for one year only, as some Government measures do? For the people affected, losing the 10p rate is not just for Christmas, but for life.

Not only low earners are involved. Many in the London media commentating classes make the mistake of thinking that anybody who earns £14,000 to £17,000 a year is a low earner. For many constituents of mine, that is a typical wage. People who work as hotel receptionists or on farms or who have secretarial jobs do not regard themselves as low earners or as people who need to be beneficiaries of the largesse of the state. They want to get on with paying a reasonable proportion of their salaries in tax to fund public services, but they also want to be able to provide for themselves and their households. The issue affects millions of people-including, but not exclusively, the poorest.

Stewart Hosie (Dundee East, Scottish National Party): I thank the hon. Gentleman for giving way; he is being very generous. He has been talking a lot about Liberal Democrat policy and what might happen at a general election in two years' time, but my constituents are struggling now. The reason for the concern on the Labour Benches and elsewhere was that all our constituents are struggling now. No one is going to reinstate the 10p band at a cost of £7 billion; we are looking for mitigating procedures that cost about £700 million. Will the hon. Gentleman support the Conservative amendment, which seeks a guarantee that the right hon. Member for Birkenhead (Mr. Field) got the guarantee that he thought he got, and that as much as possible is done as quickly as possible for the people who are struggling today?

Jeremy Browne: Yes, is my answer to that. [Interruption.] Well, I have never claimed anything else. People were asking what the Liberal Democrats were going to propose at a general election in two years' time, and I was doing my best to say that our instincts are that people with low earnings should be assisted and pay a lower proportion of their wages in tax than they currently do.

The Government have not addressed a fourth point to our satisfaction. They have all this talk about compensating people who are "average" losers, which seems an entirely nebulous concept. If one person has no money and another is a millionaire, their average wealth is £500,000, but that figure does not reflect the circumstances of either person. The Government talk about "average" losers, but some people may be overcompensated and end up with more money as a result of the package than if the 10p rate had been kept in place. Other people will not be adequately compensated. We need to hear further details about precisely how the compensation will work.

Furthermore, we need to know how the mechanisms will work-full stop. We seem to have a new concept for compensating pensioners called the summer fuel allowance, which will run from April until September or October and make sure that pensioners stay warm enough in July and August. That seems a strange and blunt instrument. The minimum wage is talked about as a way of addressing problems, but that is not necessarily entirely in the Government's hands to deliver. The Low Pay Commission has a say, and the burden is borne by employers and not by the Government in the form of the taxpayer.

On face value, the package of proposals put before us as a result of the lively meeting between the right hon. Member for Birkenhead (Mr. Field) and the Prime Minister leaves far too many questions unanswered to be satisfactory to any self-respecting Labour MP.

David Howarth (Cambridge, Liberal Democrat): Another problem with using the minimum wage is that it will not help two obvious groups of people: first, those whose overall pay is low because they are part-time, even though their hourly rate is greater than the minimum wage; and secondly, self-employed people such as jobbing builders and low-paid freelancers of various sorts-window cleaners, for example-who will not be benefited by an increase in the minimum wage.

Jeremy Browne: My hon. Friend is right in both regards. The hundreds of thousands of people who fall into those categories will not be satisfied with the proposals that have been put forward, despite the fact that so many Labour MPs instantly leapt at them as the solution to all their woes.

Ian Taylor (Esher & Walton, Conservative): The hon. Gentleman is making a good case against the Government. Does he accept, first, that movement of the minimum wage would not have an impact until 2009 in any event; secondly, that it is an unwarranted interference with the Low Pay Commission by the Government; and thirdly, that it is an attempt to make industry pay for the Government's cock-up?

Jeremy Browne: I will make this short by saying that I agree with all three points that the hon. Gentleman makes.

Susan Kramer (Richmond Park, Liberal Democrat): Is my hon. Friend aware that the proposal will not help many people in London, because firms have gradually been encouraged to move to the London living wage of just in excess of £7? A movement in the minimum wage does nothing for those people, who are in effect living close to the poverty line because of London prices.

Jeremy Browne: My hon. Friend makes an excellent point. The national minimum wage has less effect in London, where wages and the economy as a whole are geared at a higher level because the cost of living is greater. Raising the minimum wage by, for example, 50p will therefore have a less profound impact in this part of the country than it would elsewhere.

Many questions remain unanswered. The truth is that Labour MPs have been fooled twice on the 10p rate. They were fooled on 21 March 2007, when they waved their Order Papers and decided that the Prime Minister was somebody they could place their faith in to lead their party, and they were fooled again last Wednesday when the Prime Minister wobbled in the face of their threats and they thought that they had achieved a victory, which has turned out to be built entirely on sand.

Two claims were made about the Prime Minister prior to his taking office, one of which was that he cared deeply about the poor. We now discover that his main obsessions are positioning and political manoeuvring. He is making fumbling attempts to appeal to middle England, which he does not understand. Let us have no doubt about this. After all, what was the motivation for cutting the basic rate from 22p to 20p, paid for in large part by doubling the 10p rate? It was so that the Prime Minister could say to the Daily Mail and to other representatives, as he saw it, of middle England, "Don't believe for a moment that Tony Blair leaving as leader of the Labour party means that new Labour is dead as a concept. I am still able to carry new Labour-the election-winning coalition which has got us through the last three general election and which can still be held together with me as leader of the Labour party. My demonstration of that is that I am able to trump the Conservative party on the basic rate of tax." That was the motivation-it had nothing to do with the poor.

David Taylor (North West Leicestershire, Labour): Will the hon. Gentleman carefully consider what he has just said and retract it in the interests of accuracy? He is repeating what the hon. Member for Runnymede and Weybridge (Mr. Hammond) said a few days ago-that the cost of reducing the standard rate from 22p to 20p was being met largely by the impact of the reduction of the 10p rate on the less well-off. That is not the case. The cost of reducing the standard rate is £7,000 million or thereabouts; the cost, and the impact on the 5.3 million people affected, is £600 million or thereabouts, which is less than 10 per cent. of that.

Jeremy Browne: I am grateful for the hon. Gentleman's intervention, but it is based on an inaccuracy. It is not often that I stand up for those on the Conservative Front Bench, but their analysis is right. The people who are net losers from the doubling of the 10p rate-

David Taylor (North West Leicestershire, Labour): indicated dissent.

Jeremy Browne: Listen, and I will explain. Compensating only the people who are net losers because of the doubling of the 10p rate would cost something in the region of £700 million-the figure mentioned by the hon. Gentleman. The total increase in revenue from doubling the 10p rate is far greater than that because someone who is earning £100,000, £150,000 or £200,000 a year will also be affected by the 10p rate. We are talking about two separate measures. The 2p reduction in the basic rate was paid for in large part-I did not say entirely-by the doubling of the 10p rate. A lot of people are net beneficiaries of that change because the 2p reduction in the basic rate more than compensates them for the doubling of the 10p band, which is quite narrow. However, some people on lower incomes-those who are, depending on their circumstances, earning up to £18,000-are net losers. The hon. Gentleman is confusing two separate points.

I will, however, meet the hon. Gentleman halfway on this point. I find it galling to listen to the Conservatives professing great concern about the poorest in our society. We remember, in March 2007, the current Prime Minister's final Budget as Chancellor of the Exchequer, and the misplaced euphoria of the Labour MPs who thought that this was a man capable of winning a general election. We remember the heightened excitement in the autumn of last year, when there was a possibility that a general election would take place and when it still seemed plausible that the Prime Minister could deliver a victory for the Labour party. The Conservatives had their conference at that time, and the shadow Chancellor made a speech that was extremely well received by large parts of the media.

George Osborne (Shadow Chancellor of the Exchequer, Treasury; Tatton, Conservative): And the Treasury Front Bench!

Jeremy Browne: I am being generous to the hon. Gentleman-to some extent his speech changed the political dynamic. Many people felt that it had a significant effect on the Prime Minister.

The shadow Chancellor identified in his speech what the priorities for the Conservatives would be, were they able to cut taxes. We have to cast our mind back and ask ourselves who the beneficiaries of the Conservative tax-cutting package were. Were they the people I mentioned a while ago-those on typical wages, such as people working on farms, hotel receptionists or secretarial staff? No, they were completely overlooked. Were they pensioners on modest incomes between the ages of 60 and 64? No, they were completely overlooked. Were they people on low wages under the age of 25 without children? No, they were completely overlooked, as well. The people whom the Conservative party thought had the most acute needs in our society, and were therefore most deserving of an easing of their tax burden, were people who lived in houses worth somewhere in the region of £1 million, who had entirely paid off the mortgage on their house. I regarded that as an extraordinary prioritisation, although I do not doubt that it was effective in preventing the Prime Minister from calling a general election.

George Osborne (Shadow Chancellor of the Exchequer, Treasury; Tatton, Conservative): I am grateful to the hon. Gentleman for giving way, and for talking about my conference speech. One of the consequences of that speech was the introduction by the Labour Government of clause 8, which increases the inheritance tax allowance available to married families. I presume that since the hon. Gentleman has mounted such a vitriolic attack on helping people with inheritance tax bills, his party will vote against clause 8.

Jeremy Browne: I am not launching a vitriolic attack on anything. I think that there is a place for inheritance tax, as does the hon. Gentleman, because he does not want to abolish it altogether. At the moment, because of rising house prices the threshold at which people start to pay inheritance tax is too low. The point of dispute is whether it should be raised as high as the hon. Gentleman is proposing, or whether there are people who need that assistance more. I would argue that my constituents and others who earn £11,000, £12,000, £13,000 or £14,000 a year are more deserving of Government assistance than those who live in houses worth £1 million who have paid off their mortgages entirely. We shall have to agree to differ on that.

Mark Lazarowicz (PPS (David Cairns, Minister of State), Scotland Office; Edinburgh North & Leith, Labour): In the interests of clarity, do the hon. Gentleman's colleagues who represent London constituencies agree with his views on inheritance tax and the limit at which it should come into effect? Do they agree-

Alan Haselhurst (Saffron Walden, Deputy-Speaker): Order. It is an interesting little diversion, inheritance tax, but we should return to the subject of the amendment before the Committee.

Jeremy Browne: I have not checked with all my hon. Friends, but I am sure that they agree with me on the matter. Given that our position is logical, consistent and principled, it would be odd if a lot of logical, consistent and principled people did not agree with it. However, I shall move on, as instructed.

There were two myths about the Prime Minister before he took office and was exposed. The first was that he put the needs of the poor at the top of his agenda. That has been proved emphatically not to be the case. He is far more interested in political positioning and manoeuvring, especially if he is trying to outmanoeuvre the Conservative party, even if some of the poorest people in our society constitute the collateral damage.

The second myth about the Prime Minister was that he was the master strategist, a chess player who thought several moves ahead. That claim now appears laughable. Indeed, the Secretary of State for Justice, who was the Prime Minister's campaign manager when he stood in the uncontested election for leader of the Labour party, now apologises for the Prime Minister's errors. He said-in a way that I suspect has led to another icy meeting behind the scenes-that the Government's "best brains" had not managed to work out that there would be more than 5 million losers as a result of doubling the 10p rate. The best brains are clearly not good enough to help those on the lowest incomes.

At the weekend, Lord Levy told us that Tony Blair is alleged to have said that the Prime Minister did not have the necessary skills to win a general election and that he lacked the personality and the strategic skills necessary to be in No. 10-

The Chairman: Order. The hon. Gentleman has been dilating considerably beyond the terms of the amendment. He has been speaking for more than half an hour in a debate, for which the time, I understand, is likely to be limited. Perhaps he will now conclude.

Jeremy Browne: I am sorry, but I was distracted in part by a wide range of interventions. The point I was seeking to make about the motivation behind the doubling of the 10p rate was that we have a Prime Minister who lacks the necessary moral compass and strategic skills to have a policy that is consistently able to help-

The Chairman: Order. I thought that I had encouraged the hon. Gentleman to desist from that line of debate. We must come back to the substance of the amendment.

Jeremy Browne: I will conclude, Sir Alan, by saying that Labour Members have an opportunity to show this evening that they have not been fooled by the concessions that were made on Wednesday, which will not achieve what the Government claim: that millions of people on low to middle incomes who have been adversely affected by the doubling of the 10p rate will be compensated. Those hon. Members who have expressed their concerns through early-day motions, media interviews and other forums need to put their money where their mouth is and vote accordingly.