Budget - March 2007

Since the Budget in March 2007, a number of constituents have raised concerns with me about the abolition of the 10p tax rate.  In responding, I explained that I am concerned that the Budget did to some extent neglect poorer people who have no children and this is something that needs to be put right in the long term.   There are people who are single who are struggling on very low incomes who have not benefited from the more generous increases in benefits given to families with children.

My personal view, which is contained in the copy of the speech I made during the Budget debate (reproduced below) is that we should raise substantially the threshold at which people begin to pay taxes, taking many people out of the income tax bracket altogether and reducing the need for so many people to claim complicated tax credits.  This would mean we would have to make adjustments at the higher levels but it would create a far simpler and fairer system.

I have lobbied Ministers on this issue and continue to do all I can to press the Government to implement a simpler tax system which recognises the need to support all those on low incomes.

 

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6.27 pm

Lynne Jones (Birmingham, Selly Oak) (Lab): I come from a different political philosophy from the hon. Member for Cities of London and Westminster (Mr. Field). There was much in his speech with which I disagreed, but there was also much with which I agreed—particularly his point about means-testing and the level that tax credits go up the income scale. I will make some comments about that. I congratulate him on giving credit to the Chancellor where it is due and not indulging in political point-scoring.

 

The last measure that the Chancellor announced was the reduction in the basic rate of income tax. I have not seen the news, because I have mostly been in the Chamber, but I suspect that that is what has grabbed all the headlines. I believe in a progressive, fair tax system that is as simple as possible. In so far as the measures announced today have moved towards a simpler system, I welcome them. I am not intrinsically enthusiastic about cuts in the basic rate of tax, but I think that it is right to go to a 20 per cent. rate, if only because it is simple. However, we must not forget that—as the right hon. Member for Wokingham (Mr. Redwood) quite rightly pointed out—that has been primarily paid for by the abolition of the 10p tax rate. I shed no tears over that either, because I thought that it was a gimmick when it was introduced. I am worried that far too many people are paying tax. The Red Book refers to a single-earner couple without children on half-median earnings of £13,500 a year who are in receipt of working tax credit being £175 a year better off. It is good that they are better off, but why are they paying tax in the first place?

 

The Chancellor has brought the national insurance and personal tax allowances into line and raised the threshold for the higher rate of tax. That is a welcome simplification, but I would like him to move down the radical road of raising substantially the threshold at which people begin to pay taxes. Such a measure would take many people out of income tax altogether and reduce the need for so many people to be in receipt of tax credits. I am unhappy with a system that takes on the one hand and gives on the other to make a neutral transaction. Such a process is unnecessary.

 

I accept that if we were to raise the threshold at which people started to pay tax, we would need to make adjustments at the higher levels. That could be achieved by introducing a 30 per cent. rate between the 20 per cent. and 40 per cent. rates. It is right that the threshold for the 40 per cent. rate should have been substantially increased because I have always been worried about people on moderate incomes paying the same rate of tax as millionaires.

 

Kelvin Hopkins: Although I agree with my hon. Friend about raising thresholds, has not the focus in recent years been on the lower end of taxation, rather than the higher end? Does she agree that we need to re-examine the whole income tax system and to reform it thoroughly to make it much more dramatically progressive?

 

 

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Lynne Jones: I do. Perhaps I am not being very clear, but that is what I am trying to say. When the Chancellor becomes Prime Minister, perhaps he will be bold enough to go down the route of developing a fairer and simpler system that people can understand. My problem with tax credits is that while we will always need to give help to low-income families, especially those with a large number of children, any system that is so complicated that people cannot understand it is not sustainable. It would be easy for future Governments to allow the largesse that we are seeing to wither on the vine. If we want a long-term legacy, we need a robust tax system that is fair and that people understand. When people receive benefits, they should understand what they are getting so that they can defend themselves against any attempts to cut them.

 

For children, the bedrock of such a proposal would be a high-value child benefit system. I know that that would reach better-off families, but if we had a progressive tax system, it would be clawed back from their other income. The advantage of child benefit is that it is reliable and understood, so people know what to expect. Although I welcome the Chancellor’s proposed increase in child benefit for the first child to £20 by 2010, I do not think that it goes far enough. The same amount of benefit should be received for second and other children. However, the Budget is good for families. I especially welcome the commitment to the continued expansion of the Sure Start scheme.

 

I also welcome the Chancellor’s commitment to invest in our science base, which is crucial if we are to compete against the tiger economies. We will have to compete on value-added and innovation. The investment that we put into our higher education and research institutes pays for itself and encourages private investment in research and development. If I have had criticisms of the Chancellor over the past 10 years—I suppose that I have just mentioned some of them—my biggest has been the lack of investment in our physical infrastructure, especially in our transport and housing infrastructure.

 

The hon. Member for Cities of London and Westminster seemed concerned about levels of debt. The Chancellor has a prudential rule—I do not think that it is a golden rule—under which a total debt of more than 40 per cent. of gross domestic product is unacceptable. I have asked many questions to try to elucidate the reasons for that arbitrary 40 per cent. figure, but I still cannot get a logical explanation. As hon. Members may recall, the Maastricht criterion for total Government debt was 60 per cent. of GDP. That is rather too high, and it is good that we are well within that. However, if we are keeping our debt artificially low by allowing our public infrastructure to decay, and if we are not investing at least the amount that is necessary to enable us to compete with other countries, not borrowing is imprudent, and borrowing is the prudent thing to do.

 

Mr. Newmark: Perhaps I could help the hon. Lady. The Chancellor is in a difficult position, because he has set an artificial level of 40 per cent., as she says, but the problem that he faces is that he has put twice as much money off balance sheet. In fact, the real level of debt is 105 per cent. of GDP. The bind that he faces is that he can either continue to put things on the balance

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sheet, and breach the mythical 40 per cent. mark, or he can put more and more money off balance sheet, which will take us way over 100 per cent. of GDP.

 

Lynne Jones: I do not accept those figures. I am not a fan of private finance initiatives, but they are a relatively small proportion of overall investment. The figures are in the Red Book; they are relatively small compared to overall debt, and indeed compared to capital spending. Current annual capital spending is about 1 per cent. of GDP, which takes us back to the levels of 1992.

 

I am pleased that the Chancellor has announced a substantial increase in capital spending, which will go up to £60 billion in 2011-12. I accept that we cannot dramatically increase spending if we do not have the capacity to do so, so it is excellent that, under the Budget, there is to be a sustained increase in capital expenditure, which will rise from £43 billion in the current year to £60 billion in five years’ time. I hope that that will mean that we can start to catch up in the areas of investment that are of great concern to me. I mentioned transport and housing, and I shall first deal with housing.

 

When I first became involved in politics, it was in local government. I was elected as a councillor for Birmingham city council in 1980. At the time, the housing investment programme was about £100 million a year—and that was at 1979-80 prices. Birmingham city has had a total of £80 million over the past two years for investment in new social housing, and that figure includes the housing associations. Investment in council housing stock is about £20 million. It does not take a financial genius to realise that although those figures sound large, the sum is only a minor proportion of the investment that was being made under the previous Labour Government. We are now seeing the effects of that; in Birmingham, thousands of council homes have been demolished. There used to be 150,000 council homes in Birmingham, many of which, particularly houses, have been lost as a result of the right to buy, so the majority of stock consists of the less popular apartments and flats. Only about 70,000 homes are left in council ownership, and there has been inadequate investment over the years to maintain them properly. However, investment is needed to meet the decent homes standard, so the response under the previous Labour council, which has continued under the so-called progressive alliance of Conservative and Liberal Democrat councillors, was simply to knock down large numbers of houses. As a result, we have a dreadful housing problem in the city. In the past, we never used temporary or bed-and-breakfast accommodation, but now there are several hundred families in temporary accommodation. It takes two months to obtain a decision on homelessness, and even longer to secure permanent accommodation.

 

Anyone living in unsatisfactory council housing—perhaps a family living in a flat that is not on the ground floor and does not have a garden, or someone with disabilities or suffering from ill health—has virtually no chance of being rehoused. I make regular inquiries on behalf of constituents with housing needs, and the council regularly sends me letters giving their position in the queue. Usually, they are well down in 200th or 300th place, and only one or two properties in that category become available every year. The market

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in social housing has seized up, and people are thought to be lucky if they have any accommodation at all and are not homeless.

 

The use of the private sector is growing. Proper investment in council housing would save us money spent on housing benefit and subsidies for privately rented accommodation. It is particularly odious that former council properties are let back to councils at double or treble the council rent so that they can house homeless families. We have not come close to implementing the recommendations of the 2004 Barker review for an additional 17,000 social housing units a year. A further 9,000 units are needed to deal with the backlog of need, and I very much hope that the promised investment in social housing that we were led to expect in the comprehensive spending review will be fulfilled. In announcing the increase in capital spending, the Chancellor has provided the money.

 

David Taylor: Like my hon. Friend, I entered politics because I realised the value of affordable, decent housing provided by accountable landlords. Does she accept that the pressure for coerced stock transfers away from local authorities flies in the face of those objectives, and does she hope that the next Prime Minister will encourage his Chancellor of the Exchequer to take a more flexible approach to the direct provision of housing by local authorities?

 

Lynne Jones: The Government say that they believe in choice, so council tenants who wish to remain council tenants should not be penalised for their decision.

 

The recent Eddington report concluded that there was a strong economic case for investment in transport. Rod Eddington said that transport projects can offer benefits that are worth four times the cost of investment. He discussed the huge cost to businesses if we fail to check the growing problem of congestion, which, he said, will cost £10 billion a year by 2025, and an additional £12 billion in wasted time for households. In the west midlands, it is reckoned that our economy suffers a loss of £2.3 billion a year as a result of congestion. Since I became a Member of Parliament in 1992 and have regularly attended meetings of the chamber of commerce and other business organisations, there has not been one meeting at which the need for greater investment in transport has not been mentioned. I hope that some of the additional capital spending will go into transport.

 

Recently the Environment Committee visited Baden-Wñ/4rttemberg in Germany. One of the cities that we visited was Freiburg. When we asked people there whether they were thinking of a congestion charge, they looked at us completely nonplussed. They said, “Why should we need a congestion charge? A third of our journeys are by bicycle and everybody else uses public transport. People only use their private cars for recreational journeys, because our public transport is so excellent.” In Baden-Wñ/4rttemberg €1.25 billion a year goes into transport investment, and one can see the impact of that in a city such as Freiburg.

 

 

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Sadly, we have not put in that investment, and the only option is to move to road pricing. The sooner we do that, the better for the health of our economy. I have often congratulated the Mayor of London on the brave move to introduce the congestion charge, which shows that when politicians are brave and do the right things, they get the reward. We are now in the position where we will have to invest in the implementation of a road pricing scheme. Had we been putting the money in over the past 10 years, perhaps that would not have been necessary.

 

On environmental issues, I agree with the points made by my hon. Friend the Member for Nottingham, South (Alan Simpson). The Chancellor announced today an additional £6 million for the low carbon buildings programme and tax relief on renewable obligations certificates. These are minuscule measures. At present, in the low carbon buildings programme there is a monthly allocation and it runs out within 75 minutes. The Chancellor has put in an additional third, so perhaps the money will not run out for 100 minutes.

 

About tax relief on renewables obligation certificates, I am rather sceptical. It has all the hallmarks of a gimmick. The system of ROCs was set up for larger generators of renewable energy. It is an extremely bureaucratic process to obtain the certificates and the transaction costs will heavily outweigh the benefits for small developments. My hon. Friend the Member for Nottingham, South was right to commend the German system—and it is not just the German system; most other European countries operate the feed-in tariff.

 

The proof of the pudding is in the eating. With our system of renewables obligation certificates, renewable generation has increased from 2 per cent. in 1990 to 4.22 per cent. in 2005. In Germany the increase has been from a slightly higher base, 3.2 per cent., to 10.2 per cent. The costs of the measures are similar. It costs the consumer in Germany about £12 a year, compared with £7 in our system, but obviously the German system is much more successful. I hope the Government will move away from the renewables obligation method to the feed-in tariff. That will be a sign that they are taking their obligation to tackle climate change seriously.

 

If we had good feed-in tariffs, the grants would not be nearly as relevant. There would be every incentive for local communities to set up community renewable energy schemes. We saw that in Germany, in a village with its own combined heat and power system, which was set up by two farmers who wanted another means of selling their arable crops. They were able to get investment on the back of the amount of money that they obtained from selling the electricity they generated as a by-product of the heat that heated the village.

 

Similarly, they had a photovoltaic system on the roof of the building where they stored their tractors, and I reckoned that that was bringing them in about €30,000 a year as a result of the feed-in tariff. That tariff also encourages innovation, because although the payment received from a particular investment is consistent over 20 years, a new investment the following year gets a lower payment. The big plus of that system over ours is that it is reliable. People know that they are going to get that income over the 20-year life of a project.

 

 

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I disagree with my hon. Friend the Member for Nottingham, South about the emissions trading scheme. I would like to suggest a trading scheme for aviation. The proposal made by the Leader of the Opposition on aviation taxes has been rightly pilloried. An idea that has been suggested to me is that every individual should be given a personal air miles allocation equivalent to, say, a return trip to Spain, which they would be able to cash in for a holiday. People who do not travel abroad because they are too poor or think that it is better to holiday in this country would be able to trade their unused permits for income. That would benefit poorer people. If we had such a system, we could tax aviation more highly.

 

Finally, I should like to mention mental health. I am very pleased that on page 97 of the Red Book there is mention of the review of mental health and employment outcomes. It talks about an holistic approach to helping people with mental health problems who are in employment, on incapacity benefit, or out of employment and trying to get back into work. I look forward to the additional spending in the comprehensive spending review on talking therapies, counselling and other tried and tested support for people with mental health problems.

 

Overall, there are many welcome and positive features in the Budget, particularly on capital expenditure. However, in some measures, particularly on climate change, we are seeing no more than token gestures. If we are to meet our climate change targets, the Government will have to be much more radical in future.

 

 

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