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Income Tax

Volume 475: debated on Tuesday 13 May 2008

With permission, Mr. Speaker, I would like to make a statement on how I propose to deal, this year, with the consequences of the withdrawal of the 10p starting rate of income tax.

In the Budget last year, my right hon. Friend the Prime Minister, as Chancellor, introduced just two rates of tax with the basic rate of tax cut from 22p to 20p—the lowest rate for 75 years. At that time, allowances for pensioners over the age of 65 were increased; and recognising that, as the tax credit system became more developed and more generous, we were better able to target resources on low-income households, we increased the working tax credit and the child tax credit, as well as child benefit.

As a result of those changes, more than 16 million households have gained and 600,000 more pensioners pay no income tax at all. Because of the changes announced in 2007 and in this year’s Budget, half a million children will be lifted out of poverty—a record that no other Government have ever matched.

In my letter to the Chairman of the Treasury Committee three weeks ago, I said that I would set out our proposals to help those who lost out as a result of the withdrawal of the 10p starting rate of tax for the longer term in the pre-Budget report later this year. As I said in my letter, my focus would be on changes to offset the average loss of £120 per household and that whatever conclusions we came to, the changes would be backdated to the start of this financial year. But I also said that I would not wait unnecessarily until November before setting out how we intended to proceed.

I said that I would look at the administrative practicalities of other options that some right hon. and hon. Members have suggested, including a one-off rebate or compensatory payment, as well as changes to the tax credit system to allow the average losses to be offset. Having looked at this further, I believe that a rebate scheme would be complex and expensive to administer. It would also take time to set up and, in any event, changes to the eligibility for tax credits could not be introduced this year.

However, I can bring forward a proposal for this year that will offset the average loss and that will provide financial support more fairly, quickly and efficiently than any one-off rebate scheme—provided we legislate for it now in this year’s Finance Bill. For that reason, I am proposing to bring forward one measure from the pre-Budget report now.

I want to help families on low and middle incomes as soon as possible. But my proposal for this year will not only help those on low incomes who lost out, but do more to help all basic rate taxpaying families at a time when oil and food prices have been rising in every part of the world. So, at a cost of £2.7 billion, I will increase the individual personal tax allowance by £600 to £6,035 for this financial year, benefiting all basic rate taxpayers under 65.

That will mean that 22 million people on low and middle incomes will gain an additional £120 this year. It will mean that 4.2 million households will receive as much, or more than, they originally lost. The remaining 1.1 million households will see their loss at least halved. In other words, 80 per cent. of households are fully compensated, with the remaining 20 per cent. compensated by at least half. In addition, 600,000 people on low incomes will be taken out of income tax altogether.

People aged between 60 and 64, whose average loss was £100, will also get the advantage of the increased personal allowance worth up to £120. They will also receive the additional £50 winter fuel payment for this year, which I announced in the Budget. The increased personal allowance will apply to all income for this tax year and so will be backdated to 6 April. As a result, from September, basic rate taxpayers will see a one-off increase in their monthly income of £60 and then an increase of £10 per month for the rest of the financial year.

Higher rate taxpayers were largely unaffected by the reforms that were announced last year. So it is fair to focus this additional support on basic rate taxpayers only. However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am reducing the threshold at which an individual starts to pay tax at the higher rate by £600.

The net effect of these changes is that the tax liability of everyone who currently pays tax at 40 per cent. will be unaffected by the increase in the personal allowance. Those brought into the higher rate will gain by up to £120 this year.

I propose to legislate for these changes in this year’s Finance Bill so that taxpayers will get the benefit of the change from September. Raising the personal allowance is simpler than other solutions, and also retains the benefit of a simpler tax system and allows basic rate taxpayers to see the benefits as soon as possible, and for the whole of this financial year.

My proposal will also provide additional support for individuals and families this year, including those on middle incomes who have benefited from other reforms announced in 2007. We are providing that support at a time when they are facing additional costs. I have brought forward this measure from the pre-Budget report in order to ensure that people get the benefit as soon as possible. I shall set out proposals for next year and beyond at that time.

As I made clear at the time of the Budget, it is right and sensible to allow borrowing to rise and investment to be maintained as the economy slows. Debt is lower than it was in the past and low by international standards. Our fiscal policy, like our monetary policy, is designed to support stability in these uncertain economic times generated by the turbulence in world financial markets and global commodity-price inflation. I am able to finance the proposal through borrowing this year, ensuring that we do not take money out of the economy at this time.

I will, of course, set out my fiscal projections and decisions in the pre-Budget report as usual, consistent with the fiscal rules and in line with the requirements of the code for financial stability. For future years, our aim is to continue the same level of support for those on lower incomes and I shall bring forward proposals to do that in the pre-Budget report.

The change that I am announcing today represents the fairest and most effective way to help all those affected as a result of the changes proposed last year. In addition, this family tax cut provides support this year for those on middle incomes at a time when they face increased bills, so supporting the economy. I commend the statement to the House.

This is, of course, the 10th emergency statement in the 10 months that the Chancellor has been in office. How humiliating for him to come to the House today with a mini-Budget to clear up the mess made by the Prime Minister in his last Budget as Chancellor.

Unlike in the case of the Minister for Housing today, we have not seen an advance copy of the statement. The Chancellor will forgive us if we look at the small print of his Budget announcement—after all, this lot cheered when he announced the last changes, which then unravelled.

Let me also make it clear that we will welcome anything that can be done to help the millions of low-paid people hit by the regressive tax rises of this Government. We will support any genuine compensation that is offered. The Prime Minister, muttering to his Chancellor, might remember that he spent months before the last general election arguing against increases in personal tax allowances, saying that they were not a particularly well-targeted measure.

Surely the lesson is that this sounded less like a considered statement from a Chancellor and more like a cynical press release in a by-election campaign. First we got the tax con, and now we are getting the compensation con, for it is clear that this help is for one year only. It is a one-off payment—a one-off solution to tax rises that hit every year. The Opposition remember the one-off council tax rebate to pensioners before the last general election. We will look carefully at what the Chancellor promises. We will ask him what the long-term plans are to help people and to compensate them. The Government are treating people like fools.

The Chancellor said in his first interview in his job, with the Financial Times, that tax changes should only ever be announced “at the proper time”—at the Budget or the pre-Budget report. Since then, he has announced U-turns on every single original tax idea that he has had. And here he is, in the middle of May, reopening last year’s Budget’s changes in income tax and attempting to clear up the mess of the man sitting next to him. It comes on the same day that inflation numbers have soared and his plans to tax foreign profits are unravelling. Surely whatever remaining reputation that the Prime Minister had for economic competence has evaporated today.

This is the Prime Minister who, on the plane back from America, said that there were no losers from his Budget, but was then forced to admit that there were millions of losers. He said that he would not rewrite his Budget but he now sits as the man next to him rewrites the Budget that he gave. He said that in-year payments were impossible, but now the Government are making in-year payments.

Let no one be fooled—[Interruption.]

The right hon. Gentleman should be listened to, and I do not expect a Parliamentary Private Secretary, Mr. Robertson, to be shouting across the Chamber. It is just not the done thing.

Why do they not save their fury for the internal Labour party rows that are happening?

Let no one be fooled about why the Chancellor is making this statement today. It is not because he wanted to, or because of any sense of guilt at hitting the low-paid, or because the Prime Minister thinks that it is the right thing to do. It is because this divided, dithering and disintegrating Government are panicking in the face of the Crewe and Nantwich by-election. The Prime Minister, who once commanded so much respect from friends and foes alike, now looks like the unelected leader who is desperate to save his skin, cowering before every electoral challenge and insulting the intelligence of the very people whom he has hurt.

This is a one-off change only, for this year only. The Chancellor serves up a compensation con after a tax con and expects people to believe it. What utter cynicism, what total incompetence—and what a complete humiliation for this Chancellor of the Exchequer.

Three weeks ago, when the hon. Gentleman stood at the Dispatch Box on the first day of consideration of the Finance Bill, he led us to believe that he had very strong views and that steps should be taken immediately to deal with those people who lost out as a result of the withdrawal of the 10p rate. Yet today he cannot tell us whether he is for or against what we are proposing.

Once again, as on every issue, we see that there is nothing here of substance. The shadow Chancellor cannot say whether he is for the proposal or against it. The Conservative party was in favour of withdrawing the 10p rate when the proposal was first made. When my right hon. Friend the Member for Birkenhead (Mr. Field) put forward his amendment last year, the Conservatives abstained. Three weeks ago, they wanted to reinstate the 10p rate. Their position has been completely confused and it is self-evident today that they have no idea whether they are for or against what we are proposing.

We are making proposals that will help 80 per cent. of those who lost out as a result of the changes. They will gain up to £120 a year, and that will go a substantial way towards helping people. I am sorry that the Conservative party could not bring itself to welcome what we are doing.

I welcome the Chancellor’s statement today. I have to say that it is nothing but churlish and mean not to welcome a statement that benefits everyone on basic rate taxation and which takes 600,000 people out of tax altogether.

Given the Chancellor’s welcome for the Treasury Committee’s inquiry, which was focused exclusively on the low-paid, will he continue to work with us to monitor the effects of the Government’s policy on ensuring the reduction of child poverty, the elimination of fuel poverty and the increase in the labour market participation of those on benefits? That inquiry will ensure that we work towards the PBR and get something done for people—not just for this year, although what my right hon. Friend has done is welcome, but for future years as well.

I am grateful to my right hon. Friend for the welcome that he has given. He is right that today’s proposals will benefit many people in this country. Yes, the Treasury will of course continue to co-operate with the Treasury Committee and its inquiry. I think that I am still looking forward to appearing before that Committee at the beginning of June.

I of course welcome measures to lift low earners out of tax, and for a few hours this announcement may well get the Chancellor out of the difficulties that he created for himself. How many of the 5.3 million losers will be fully compensated by the measure? A quick back-of-the-envelope calculation—that is all that he has allowed us to do, because he is hiding behind market sensitivity—suggests that to compensate the losers, he would have needed to raise the threshold by £1,000. Clearly the Treasury has done the sums and has looked at the various categories, including pensioners, low-paid workers, and part-time and full-time workers. Can he tell us precisely how many of the 5.3 million losers will be fully compensated within the year?

Secondly, the Chancellor has imposed an apparent levy on high earners; the money will be clawed back from them. How long will that measure be in place, and how much of the £2.4 billion cost will be paid for by that route, rather than through additional borrowing?

Can the right hon. Gentleman also explain in a little more detail his reasons for rejecting the idea of a tax rebate? Over the past few days, I have had discussions with tax practitioners, including people from the low incomes tax reform group, which I know he relies on very heavily. That group suggests that it would be perfectly simple for the Inland Revenue to calculate the tax that people would have paid under the old 10p/20p system, and rebate them fully for their losses. The group will come forward with a proposal to that effect in the next few days. Why is the measure that he described more complex than that, and why does it do less to guarantee payments?

Finally, the Chancellor is quite right to focus attention on the low-paid workers, many of them earning well below the minimum wage, who pay tax. It is welcome that he is moving in the direction of lifting them out of tax. All of us will have to focus on how that is done and how it is paid for. I hope that today’s measures are not just another short-term gimmick, but the beginning of a process through which the low-paid pay less tax.

The hon. Gentleman raises four perfectly pertinent questions, which I shall answer. May I acknowledge his welcome for the measure that I am proposing?

First, I said in my statement that 4.2 million households will receive as much as, or more than, they originally lost. The remaining 1.1 million householders will have their loss at least halved. In addition, those people might be benefiting from tax credits and other measures. I set out to try to offset the average loss; I think that that is what the majority of people in the House wanted us to do. The hon. Gentleman also asked how the measure is being paid for. This year, it is being paid for by borrowing. As for what I have done in relation to higher rate tax payers, under the tax system, every single taxpayer gets the same personal allowance, but because I wanted to ensure that the help went to basic rate taxpayers only, I made a change there. People who currently pay the 40 per cent. rate will not pay any more, so the cost is covered by borrowing.

The hon. Gentleman also asked why I did not use a rebate. I looked into that very carefully. I had always thought that the Liberals’ policy was to use allowances. He is nodding; it is not clear why he is wishing on me something that he does not want himself, but there we are. I considered the issue of rebates, and I saw that that would be horrendously complicated. We would have to set up a new system. In addition to that, the Inland Revenue tells me that every year about half a million people move, and the Revenue does not know their addresses, so their cheques would go missing. When I looked at the proposal, and at the comparative costs, which are not actually that different, I decided that it would be far better to do something simpler and easy to understand. It is easy to understand that personal tax allowances will be raised by £600 a year. Basic rate taxpayers will therefore get £60 in their pay packet from September, and £10 a month thereafter.

The hon. Gentleman’s final question was what would happen in future years. I have said that I will set that out in the pre-Budget report, but I repeat what I said in my statement: in addition to helping those people who have an income of up to £20,000—those whom people were principally concerned about—we are helping those whose incomes go up to £40,000. Given the current circumstances, in which people face increasing bills because of what is going on in the world commodity markets and the financial markets, this year it is right to do more to help people on low and middle incomes—in other words, all those on the basic rate tax—as other countries have done. That is why I think that my proposal is far better and far more effective, and goes far further, than the measures that many people were asking for just three weeks ago.

I congratulate the Chancellor on putting an end to the issue. I hazard a guess that the pleasure being expressed from the Labour Benches will be widely expressed in the country as well. As the Prime Minister is in his place, may I add that over the weekend I allowed my campaign to become personal. I much regret that, and I apologise without reservation.

I am grateful for what my right hon. Friend said in both respects. It is not every day that hon. Members have the courage to say what he said, and it is appreciated. In relation to his comments on tax, I hope that most people, not just in the House but outside, will welcome the announcement as a substantial step in helping people on low incomes as well as those on middle incomes, especially at a time when they rightly look to their Government to support them in very difficult and uncertain times in the world economy.

The Chancellor has not spelled out where he will obtain the welcome £3 billion, almost, that he was not able to find at the time of his Budget. In the past he has always said that any tax cut translates automatically into a reduction in the number of nurses, doctors and teachers. If he is not saying that that consequence follows in the case of his tax cuts, why does he say it of other tax cuts?

I am glad the right hon. Gentleman does not want to see any reduction in the numbers of doctors, nurses and teachers. As I said in my statement, I promised the Select Committee that I would return to the matter in the pre-Budget report. The reason that I am announcing the step today is so that we can legislate in the Finance Bill that is before the House, to get the changes in place so that the extra money can be in the hands of taxpayers from September onwards.

I thank my right hon. Friend for his patient efforts to tackle and resolve the matter. That clearly demonstrates that even in difficult circumstances, it is this Chancellor, this Prime Minister and this Government who are clearly on the side of the people on low pay and middle incomes. Will my right hon. Friend also deal with the abysmally low take-up of tax credits? Could his Department initiate a take-up campaign so that people get the income that is justly theirs?

On the point made by my right hon. Friend the Member for Leeds, West (John Battle), I agree that we need to do more to encourage the take-up of the working tax credit. The take-up of the child tax credit is quite substantial. I am grateful to my right hon. Friend overall for the welcome that he has given.

Mr. Speaker, if my statement is not now in the Vote Office, it ought to be, and I will take steps to make sure that it is.

It has been put to me, Chancellor, that those in the Press Gallery have the statement—[Interruption.] Order. I take a dim view of the Press Gallery having information before the House. I hope that that information is wrong.

From the moment I sat down, my statement should have been available. Steps are being taken to find out why it is not in the Vote Office, because it ought to be there.

Can the Chancellor confirm that the 1.1 million losers of whom he spoke earlier are from the lowest income brackets—those earning between just under £7,000 and £8,000 a year? Those people will lose up to £120. Will he confirm that that is the case? Will he now take the opportunity to apologise to them— as his right hon. Friend the Member for Birkenhead (Mr. Field) has done—right now at the Dispatch Box, for all the trouble and fear that he has caused them?

As I said in my statement, the overall effect of what I am proposing is that 4.2 million households will receive as much as or more than they lost. The 1.1 million people to whom I think the right hon. Gentleman referred will see that their losses are at least halved. He asked about the distribution of those people. The position is that there are people at different stages of income who do not benefit as much as others. I said that I will return to that matter at the pre-Budget report this autumn.

I most sincerely congratulate the Chancellor on the steps that he is taking today. I do not wish to be pedantic, but I sincerely hope that in the pre-Budget statement he takes steps on the issue of families who still find themselves £2 or £3 a week worse off; £2 or £3 a week is precious to people on extremely low incomes. I hope that he will further rectify the situation with a second announcement in the pre-Budget statement.

I said in my statement that I wanted to concentrate help in future years particularly on those with lower incomes. Today I have been able to propose a measure that will benefit not just people on low incomes, but a substantial number of my hon. Friend’s constituents and others who face increased bills at this time. It is right to do that, having regard to the current uncertainties in the world economy and the rising prices that people face here at home.

In his statement, the Chancellor said that he would deal with the issue this year, that he would offset the average losses and that he has brought forward the increase in the allowance to £600. I give that a very, very guarded welcome—first, until I read the small print, and secondly, because 1 million-plus individuals will still be worse off.

Will the Chancellor confirm, however, that the change to the allowances on earnings will have no bearing on the abolition of the 10p rate on savings income, and that those households that may lose up to £460 a year in additional tax because of the abolition of the 10p tax rate on their savings income will not be compensated in any way as a result of the measures announced today?

Last year, when the changes were proposed, the savings rate was not changed at all. If the hon. Gentleman was raising a slightly different point or I misunderstood him, I will be happy to deal with that in correspondence. However, I think that he will find that the savings rate was not changed.

I join other hon. Members in welcoming the Chancellor’s statement. The remedy that he has announced today is clearer and has come earlier than previous statements had indicated. As well as the welcome remedy that he has provided for the 4.2 million households—in some cases, it is better than a remedy—will he give us an assurance that the figure of 1.1 million in respect of those who will see their loss reduced by at least half is accurate? Will he tell us who, typically, those remaining losers are and why they could not be better helped?

As I explained in my statement, I am proposing to increase the personal tax allowance that everyone gets. To that extent, the benefit is a flat-rate one that will go to all basic-rate taxpayers. As a result, 80 per cent. of people will find that their loss is completely offset or that they will do better than that. There are others whose loss is at least halved. At the pre-Budget report, when I set out proposals for future years, I want to do more, particularly for people on low incomes.

When I looked at how we might deal with the problem, I saw that the difficulty of trying to isolate actual losses or set up a rebate system that took account of individual circumstances was such that doing those things would have taken a very long time. I also suspect that it would have been a very blunt-edged instrument. The approach that I have set out is more straightforward and simpler and has the benefit of getting money into the hands of people at an early opportunity, rather than our having to wait right up until the end of this financial year.

But why should 1.1 million still be losers? At a time of rising prices, why should any low-paid people pay more tax?

I said when I wrote to the Select Committee—and this was certainly a theme taken up by many Members of the House—that what I wanted to do quickly was offset the average loss that was sustained by people following the withdrawal of the tax rate. That is what I sought to do, and that, I think, is the right thing to do. If the hon. Gentleman thinks that we should be doing something different or more, then no doubt he will advocate that course to his own Front Benchers. As far as I can see, however, they have no intention of doing anything more, just as I suspect, if left to their own devices, they would have absolutely no intention of helping people on low incomes at all.

I very much welcome the statement, because it would be very cumbersome to try to recalculate for individuals. It also recognises that although taking children out of poverty has been very welcome, those without children or whose children have grown up have lost out because of this. Will my right hon. Friend still consider some of the proposals that he previously suggested he would consider, such as the minimum wage for young people and the tax credits system generally, in looking forward to the next pre-Budget statement?

Yes, I can. I said that one of the things that we needed to consider was the minimum wage and its inclusion of younger people. Equally, in relation to tax credits, I think, unlike the Conservatives, that tax credits have gone a long way towards boosting the incomes of people on low and middle incomes and have made substantial changes. As my right hon. Friend the Member for Leeds, West (John Battle) said, we need to ensure that take-up of the working tax credit is improved, but tax credits are a much better way than we have had in the past of helping people who particularly need help. The answer to my hon. Friend is that those are both areas to which I will return.

There are still 1.1 million low-income households that will lose out as a result of today’s announcement, even though all the people who had previously been paying the basic rate of tax will gain. Why does the Chancellor consider that this group remains the least deserving poor, in his opinion?

As I said earlier, I wanted to introduce a system that was simple, that was quick to get on to the statute book, and that, above all, was quick to get the money into the hands of as many taxpayers as possible. The problem with the sort of scheme to which the hon. Lady refers—a rebate scheme, because that is the only way in which one could do individual calculations—is that it would be cumbersome and complicated. I suspect that if we set it up, she and her party would be the first to criticise it.

The Chancellor will know that in my constituency there are many former miners who took early retirement in the 1990s, mainly because the Tories closed all the pits in south Yorkshire. Many are now above pensionable age and have been adversely affected by the removal of the 10p income tax rate. What are the implications of the Chancellor’s statement for constituents of mine who fall into this category?

As I said in my statement, the changes that I propose affect people over the age of 60 to 65. That is why I decided that the personal tax increase should apply to them rather than making a payment through the winter fuel payment mechanism. In 2007, when my right hon. Friend the Prime Minister made his original proposal to reduce the basic rate of tax to 20p, he raised the age-related allowances for the over-65s in order to look after them. The answer to my hon. Friend is that his constituents of pensionable age will benefit from this in the way that I described.

I welcome the Chancellor’s statement. For the future, will he consider introducing a fairer, simpler flat tax system removing 4.5 million low-income people from paying tax, which is another sound UKIP policy?

I am grateful for the hon. Gentleman’s welcome, but I cannot go along the road with him in relation to his flat tax proposal, although it was at one time the stated policy of the shadow Chancellor.

May I recall to the Chancellor’s mind the noble Lord Lamont? When Lord Lamont pushed interest rates up to 15 per cent., Britain was required to withdraw from the exchange rate mechanism and it took us years to recover, which we did only with the onset of a Labour Government. I congratulate the Chancellor on assisting low and middle-income earners and all tax-paying families, as we have done over the past 11 years, in contrast with the record of the Tory Government from ’92 to ’97.

My hon. Friend is quite right. The whole country has benefited from high levels of employment, and from the fact that we have historically low interest rates and—even given today’s figures—historically low inflation rates, which are lower than those in America and Europe. During the past 11 years, because we have had such a strong and stable economy, we have been able to do far more to lift children out of poverty, lift pensioners out of poverty and help people on low incomes as well as those on middle incomes. I believe that my announcement today will go a long way in helping people who do not have children, or whose children have grown up—a group of people whom many in my party feel strongly we ought to support, especially at the moment.

I am somewhat disappointed that we cannot have an accurate profile of those who will still lose out, apart from describing them as having their average losses halved. The Chancellor says that he has used a system that is simple and quick—some might say he has done so for expediency—but that indicates to me that those lowest-paid workers will have a system that will be slow and complicated, in which case they will be hard to target and to recompense, and my constituents will not find that acceptable.

My proposal means that through the tax system, assuming the House agrees to the amendments that I have proposed, from September taxpayers will receive a payment of £60, followed by a monthly payment of £10 for the rest of the financial year. I would have thought that that was pretty simple. The hon. Lady would be on stronger ground if she were putting forward an alternative, but as I understand it, the Conservative party does not have a position. It has no idea what it would do.

Credit where credit is due: people often say that politicians do not listen, but the Chancellor has shown that he has listened and he has acted very quickly to help low-paid people in my constituency. I am very grateful for that, but does he agree that it is difficult out there at the moment? People are struggling with the rise in food prices and the price of fuel, which are due to world economic circumstances. Will he give me an assurance that he will continue to look out for the interests of those on modest incomes?

I strongly agree with my hon. Friend, which is why this year my proposal will help not just people on low incomes—below £20,000—who were affected following the withdrawal of the 10p rate, but crucially, people on middle incomes of up to £40,000 as well. I agree with her that people, especially those without children, are finding it difficult. They have to meet higher fuel and food bills because of what is happening throughout the world, and it is right that we should help them. That is why my proposal is deliberately designed to help a far wider range of people than was anticipated when we were simply talking about the starting rate of tax. I welcome what my hon. Friend says; I am sorry that the Conservatives cannot do so.

I welcome the Chancellor’s partial attempt to undo the damage caused by the previous Chancellor to the poorest earners. I regret, however, that more than a million, including many in my constituency, will still be losing out. I ask the same question that I asked three weeks ago: why did it take 13 months for the Government to realise what their policies would do? Did they not analyse the figures 13 months ago and realise what the impact would be on the poorest, or did they have a cynical belief that they could do this to the poorest because they would still vote Labour?

Last year, my right hon. Friend introduced a number of changes to the tax credit system, raising the age-related allowances, but it is clear that others had lost out and we needed to help them. I am sorry that the hon. Gentleman cannot welcome what I am proposing today, but it is infinitely better than what I am beginning to detect might be the Liberal Democrat policy, at least for today, which is a policy relating to rebates. I do not think that that would be the right way to proceed.

I welcome the simplicity of the scheme that the Chancellor announced because it will enable a speedy response, which is what my constituents want. They want the money in their pocket as soon as possible. Will he therefore tell me how he intends to let them know about this good news? Sadly, there are many 60 to 64-year-old pensioners and people on the lowest of incomes who do not read newspapers and who do not see television news. Will he write to them directly or work through the voluntary organisations that have links with them to let them know that relief is at hand?

There is always a chance that my hon. Friend’s constituents will read about the announcement in the newspapers or see it on the television, but I will consider ways in which we might better tell people what is happening. The advantage of my proposal is that the payments will be made through the PAYE scheme, with which most people are familiar and which is simpler and easier to operate.

May I ask the Chancellor to check whether the Government’s announcement of a one-year tax rebate during a by-election is consistent with electoral law?

I think that my proposal is entirely sensible and the right thing to do. I am sorry that the right hon. Gentleman, who I am sure is concerned about people on low and middle incomes, cannot welcome it.

I welcome my right hon. Friend’s revised proposals for the 10p tax rate. When might the House expect him to introduce revised proposals for vehicle excise duty rates for next year?

My announcement today was entirely about income tax. All other matters will be dealt with in the usual way.

Does not the Chancellor admit, even to himself, a twinge of embarrassment that instead of coming here as a great reforming Chancellor, he has produced a shabby deal which is designed to get himself, the Government and his right hon. Friend the Prime Minister out of a fix of his own making? Does he believe for a moment that anyone beyond those on the Benches behind him will not see this announcement for exactly what it is: the most shameless attempt to buy a by-election since the Humber bridge?

A few weeks ago, the hon. Gentleman was, I assume, ready to follow the rest of the Conservatives into the Lobby, wanting us to take action to help people on low and middle incomes. We are taking action to help people on low and middle incomes, and it is clear that the Conservatives have no idea how to provide that help or about their position on this issue.

Does my right hon. Friend share my astonishment at the Conservative party’s new-found, synthetic concern for poor people? Will he remind the House that, during the last recession, the Conservative crunch left millions of people on the dole, more than 10 million senior citizens without any help with their fuel costs, people with negative equity and record numbers of repossessions?

I agree. Many people in this country remember what happened in the 1980s and 1990s, when people lost their jobs and received no help from the Government to help them get back on their feet. They also remember a time when interest rates were in double figures and people found themselves in substantial difficulties. They received no help because the then Government’s position was so weak that they could do nothing to help them.

Will the Chancellor make it clear, since he knows the answer to this question, whether it is his understanding that the people who will continue to lose out through the abolition of the 10p rate are those at the bottom of the income scale—in other words, the Government’s very own poverty line?

No. I said in an earlier reply that we have been able to help 80 per cent. people whose loss will be fully compensated or even more than that. There are about a million people whose losses will be halved. I said that I wanted to revert to that in the pre-Budget report. As a result of the announcement, 600,000 people will be taken out of tax. That shows our intention, which is a little more than the Conservative party would do if it were presented with the opportunity to do anything about helping people on low incomes.