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Low-Income Households

Volume 478: debated on Thursday 10 July 2008

A single-earner family with two children on earnings of £16,750 per year, which is half male average earnings, will pay no net tax in 2008-09 because tax credits and child benefit more than offset income tax and national insurance liabilities. In 1997-98, that family’s net tax burden was 9.3 per cent. of gross income; in other words, they would have been £1,557 a year worse off.

The Chancellor left 1 million people uncompensated even after he tried to clean up the mess following the abolition of the 10p tax band. Can the Minister confirm that the people in many of those households, who drive older, often larger cars and have children, will be precisely those hardest hit when his changes to vehicle excise duty are forced through? Why is it that every time the Chancellor fiddles with tax rates the working poor are the hardest hit?

I completely disagree with the hon. Gentleman. He knows that my right hon. Friend the Chancellor will consider all these matters for the pre-Budget report. He should have a look at the transformation that low-income families have seen in their incomes and their share of the nation’s wealth since 1997. It was a completely different experience when his party was in government.

The Treasury Committee report on the 10p tax issue noted that the 13 May announcement ensured that fewer low-paid people will be paying income tax, and we described that as bringing simplicity, transparency and greater incentives to work. The Government must ensure that every effort is made not to return those people into the tax system. In that respect, the Committee recommended a poverty commission in which an analysis of the root causes of poverty would be made for the Government to consider so that we can make advances in slashing poverty and ensure that the 2020 abolition targets are achieved.

My right hon. Friend knows that we welcomed his Committee’s report, and we are considering all the recommendations that he made in detail. I hope that he accepts that we will make a full response in due course.

Does the right hon. Lady know how many low-income households will be affected among the 45 per cent. listed in The Daily Telegraph this morning who will, based on Treasury figures, suffer as a result of the vehicle excise duty hike?

Clearly, low-income families who have motor vehicles will be among those affected, but I do not have exact figures for the hon. Gentleman today.

My hon. Friend will be aware that in recent years many low-income households have been those of pensioners, so may I on behalf of pensioners pass on my thanks to the Government not only for the winter fuel allowance and for pension credits, but for raising the threshold to £9,000—which is more than 87 per cent. higher than it was in 1997? Having used that route to raise those households out of poverty, can we please now look at non-child households, and consider using the same strategy with regard to their tax threshold?

The tax burden for single-earner families without children on half of average male earnings—the figure that I used earlier—is still less than it was in 1997-98. Those families are £167 a year better off than they were. I am grateful to my hon. Friend for his comments about pensions, and I was pleased that this year’s Budget was able to increase the full basic state pension by £3.40 a week to £90.70 a week, which is the biggest increase in the basic state pension since 2001.

Does the Financial Secretary realise that many people are baffled by the Government’s policy towards low-income households? Did the Prime Minister intend to damage their interests in last year’s Budget? How many of those families remain disadvantaged, and how many does she think live in Glasgow, East?

Thank you, Mr. Speaker.

As a result of our reforms to the tax and benefit system since 1997, households are better off, on average, by £1,250 a year, and the poorest fifth of households are better off, on average, by £2,575 a year. Those figures may not feature in the headlines today, but they are important and make all the difference to families on low incomes.

Some 1.1 million households will end up paying more tax this year simply because the Prime Minister, to use the words of the Treasury Committee report, wanted to pull a rabbit out of a hat in his last Budget. Under this Chancellor and the last one, is not the lesson of the 10p rate fiasco, the climbdown on capital gains tax reforms or the botched changes to non-dom rules that short-term political hits and fixes take priority for this Government over making the right decisions for the country’s future?

The short answer is no. I invite the hon. Gentleman to consider the comments of the International Monetary Fund on the economy in the UK, which were published in May and strongly endorse the approach that the Government have taken. I commend those comments to him.