I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following:

New clause 8—Biodiesel—

‘(1) With effect from 1 July 2012 the fuel duty payable under the Hydrocarbon Oil Duties Act 1979 on biodiesel produced from waste cooking oil shall be 10 pence per litre less than would be payable apart from this section.

(2) The Commissioners for Her Majesty’s Revenue and Customs may by order made by Statutory Instrument repeal subsection (1) on or after 1 January 2014 or when the Renewable Transport Fuel Obligation has come into effect, whichever is the earlier.’.

New clause 9—Taxes on road fuel—

‘The Chancellor of the Exchequer shall conduct a review into the relationship between fuel duty, other taxes charged on road fuel and the cost of road fuel, and lay a copy of the report before the House of Commons before 1 August 2012.’.

New clause 11—Fuel duties: rates—

‘(1) The Hydrocarbon Oil Duties Act 1979 shall have effect as if the amendments made to it by section 20 of the Finance Act 2011 (Fuel duties: rates of duty and rebates from 1 January 2012) had not been enacted.

(2) This section will have effect from 1 August 2012.

(3) The Treasury may by order made by Statutory Instrument repeal subsection (1), and any such order shall be subject to annulment in pursuance of a resolution of the House of Commons.’.

I share the concerns that many have raised about driving, the cost of living, and the challenges of running a business. Although the cost of fuelling a vehicle has recently eased as global oil prices have fallen, it is still a very important part of the overall cost of living. That is why the Government have announced that we will provide further support to motorists regarding the cost of fuel by deferring the 3p per litre duty increase that was planned for this August until January next year. That will mean that this Government will have kept fuel duty frozen for a total of 21 months since our decision in the Budget 2011 to cut fuel duty by 1p per litre.

I am grateful to the Government for moving on this issue, as will be many motorists across the country. Will my hon. Friend confirm that, because of what the Government have done, fuel duty will be 10p lower than it would have been if we had followed Labour’s plans?

I shall certainly confirm that. It is testament to the repeated action that this Government have taken to support motorists that that is indeed the case.

Does my hon. Friend agree that this reduction in fuel duty is vital not only for motorists but for small businesses such as those in Cornwall that have long distances to take their goods to market, and that it shows that this Government are listening and are on the side of hard-working families and small businesses?

I am grateful to my hon. Friend. She is not only in fine fettle, as she is standing without crutches, but rightly points to the effect that we know this will have on households and businesses.

I, too, welcome the decision. This Government are certainly on the side of rural motorists. Will my hon. Friend confirm that as well as fuel duty on the mainland being 10p a litre lower than it would have been under Labour’s plans, on the islands it is 15p a litre a lower thanks to the Government’s adopting the island fuel discount—a policy that Labour refused to adopt?

I am pleased to confirm that. I am glad to hear my hon. Friend’s welcome for the scheme on behalf of his constituents and others in rural areas where we are piloting it.

Like other Members, I welcome the Government’s U-turn on petrol tax—another U-turn on the omnishambles of the Budget—but does the hon. Lady recognise that the increase in VAT means that the cost of petrol has increased during the time of this Government, and not decreased as one might imagine?

I shall say two things in response to that. First, as a result of all the actions that this Government have taken, including what we have had to do on VAT, the price of petrol and diesel at the pumps is still lower than it would have been under Labour—whose Members are, on the whole, absent today. Secondly, the decision that we are legislating for today combines our determination to help families with the necessity of keeping Britain safe in the global storm and with our credible plan to deal with the country’s debts.

Does my hon. Friend agree that the Opposition’s support for a cut in VAT is rather a misnomer, because not only would it cost £12 billion, but the vast majority of businesses who need to get their petrol prices down do not pay VAT?

My hon. Friend is an ardent voice on behalf of small businesses in his constituency and elsewhere. He is right to point to the nuances in the costs of running a business.

Deferring the August rise will cost about £550 million this year. We will finance that through greater than expected savings in Government spending. That will avoid increasing the national debt, which is vital to our country’s well-being. That is our tough but fair plan to deal with Britain’s debts. Our actions to reduce the deficit and to rebuild the economy have secured interest rates at near record lows, benefiting businesses and families and keeping mortgage rates low.

This morning, my hon. Friend and I were together on the train pressing the case for investment in rail. Are the Government, of whom she is a proud member, not showing the right example to the country by taking their foot off the accelerator and driving more economically? Will this measure bring the growth that the FairFuelUK campaign said it would?

This morning, I was indeed speaking in my constituency capacity about my wish that our regional economy will not be left in the sidings. The same is true of our national economy. We must ensure that Britain remains competitive. Our actions, which are part of a credible national plan, have kept Britain safe from the global turmoil around us. It is within that plan that we have listened and acted.

New clause 1 will defer the fuel duty increase that was planned on 1 August this year to 1 January 2013. As the Chancellor said last week, and as my hon. Friend the Member for Harlow (Robert Halfon) has noted, this decision means that pump prices are 10p a litre cheaper than they would have been if we had not abolished the previous Government’s fuel duty escalator. It is a real help for families, businesses and motorists across the country. The AA has said that it is

“great news for all motorists”.

The RAC Foundation has said that it is

“good news for drivers and good news for the country.”

The Government have taken action upon action to support motorists and have done more than any other Government. We have avoided the two years’ worth of increases planned by the previous Government. More than that, last year we abolished Labour’s fuel duty escalator, which increased fuel duty by above inflation every year until 2013. We have successively cancelled and deferred duty to deliver the longest period of unchanged fuel duty for more than five years. As a result of that repeated action, average pump prices are now approximately 10p a litre lower than they would have been. To put that in context, a typical Ford Focus driver will be £159 better off and an average haulier £4,900 better off between 2011 and 2013 than they would have been under the plans left by the previous Government.

This support for motorists is part of our broader plan of helping with the cost of living and promoting business growth, while reducing the deficit and rebalancing the economy. That has included freezing council tax and raising the personal allowance.

I, too, congratulate the Government on this decision, not least because it saves me from making a speech on an amendment that we had planned to table on this issue. Considering the gloating of the official Opposition last week, does the Minister recall the Labour party at any stage on Second Reading or in Committee making the case for this 3p cut?

The hon. Gentleman has given me the perfect opportunity to note that, regrettably, the official Opposition’s Benches are astoundingly empty. The stance that they took last week showed astounding political opportunism, given that they had 13 years to support the motorists but did not, and that they left behind a depth charge of increases. I regret that I shall not be able to hear him put the case in his own words. Perhaps I may explain to him more of the actions that we are taking to support the motorist and businesses.

Businesses are seeing successive cuts in corporation tax, coupled with an extended business rates holiday for small businesses until April 2013. In passing, I should note that the high pump prices of recent years are causing real difficulties in ensuring that motoring remains affordable. However, pump prices have fallen by nearly 11p a litre since their peak in April. That said, at a time when money is tight, deferring the fuel duty increase from August to January will provide further support to motorists.

This is a Government who not only have a credible plan to support motorists, but are dealing with the debts created by the previous Government. A responsible Government are able to listen to, consider and respond to the concerns of motorists. Compared with the plans that we inherited, we have cut fuel duty, cancelled the previous Government’s escalator and introduced a fair fuel stabiliser.

I understand that we will also be discussing what the Opposition have planned for motorists, perhaps in some detail. I also look forward to hearing from my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) on biodiesels. I look forward to responding on those matters. This Government are on the side of motorists and our measures will support them when times are tight.

On Second Reading, we were given to understand that the fuel duty rise was essential to the Government’s proposals and a key piece of the jigsaw in resolving the deficit. For many weeks, that has been the clear message from the Government. I understand that Government Back Benchers were exhorted to write to their constituents to tell them why—regrettably, no doubt—the rise would have to happen and there was no alternative. It therefore comes as rather a surprise to hear that it is not quite so essential to the Government’s plans after all, but is a dispensable piece of the jigsaw.

This is probably the most expensive of the U-turns that have been performed over the past few weeks. It dwarfs many of the others in terms of revenue forgone. It is all very well for the Minister to tell us that it has happened because we have a listening Government, but they must also listen to what they have been saying. On that basis, they must explain how they have come to this position.

Does my hon. Friend have any idea how much the U-turns have cost collectively so far?

I understand that it is in the region of £725 million. That is quite a large hole in what was presented in March—it seems a long time ago now—as a balanced Budget. That was one of the Chancellor’s key themes in his Budget speech. We now appear to be faced with something of an unbalanced Budget.

Because the Government have made savings in other areas, the Budget is still balanced. The hon. Lady was elected on a manifesto that supported the fuel duty escalator. When did she change her mind?

It is clear from the pattern of fuel duty rises under the last Government that such things were never set in stone and were not intended to be so. One has to look at the situation with which one is faced.

The hon. Lady has a touching faith in the previous Government’s ability to stick to a course. Does she support Opposition new clause 11, which has a price tag of about three times as much as the new clause that she is attacking?

We have very different views about how to stimulate and boost the economy. The Government have run demand into the ground, for example by raising VAT to 20%, which has had an effect on fuel. Ministers are reluctant to talk about that in any detail. It has to be remembered that prior to the election, the Conservatives were going around telling us that there would be no increase in VAT, and their coalition partners liked to stand in front of huge billboards saying that they feared there would be a VAT bombshell but were completely against it.

Has my hon. Friend noticed that oil and petrol prices have dropped by 28% over the past three months? That is not reflected at the petrol pumps, and surely the Government should do something about that.

My hon. Friend makes an important point. When the raw product goes up in price, the pump price goes up very quickly, but a downward turn seems to take a great deal longer to reach the consumer. We have made similar arguments about other energy price rises.

The hon. Member for Argyll and Bute (Mr Reid) suggested that it was all right for the Government to make U-turns such as this, because they had found savings elsewhere. That is nice to know, but if such savings could be found so easily, maybe the Government could have avoided some of the other things they have done. After all, we spent a lot of time in the Budget debate and before talking about the plight of couples who were losing tax credits because they were deemed not to be working enough hours. That change affects a small number of people—from memory, I believe it is about 500,000. We were told that if it were not implemented, it would cost the Treasury £500 million. We were told that it was impossible to go back on that decision, because money was so tight.

Like all Governments, the current Government are making choices. In the past two years, they have said that certain things have to be done and are not choices. They have said that they have been forced into them. However, all Governments make choices—that is part of governing.

Does my hon. Friend recognise that the Government have chosen not to do a U-turn on the granny tax, which is aimed at the people who are least able to pay, but continue to reduce the top rate of tax?

Indeed, and a lot of people would be glad to see the Government make U-turns in other areas, and in fact in their entire economic policy. It has been misguided, and the Opposition were clear from the start that it was the wrong way to reduce the deficit.

Does my hon. Friend agree that one of the biggest problems last week was that we were not told where the new money had come from to fund the Government’s U-turns? Does that not show the Conservative party’s economic incompetence? It is very worrying.

That is a very important point. We had a semi-answer from the Government saying that savings had been found, but they seem to be somewhat mysterious savings. We had not heard about them before, and we still do not really know where they have been found.

Has the hon. Lady not read the Office for Budget Responsibility’s forecasts or the reports identifying about £4 billion of underspend in each of the past four years?

If the Economic Secretary is so clear that there is money to be used, I once again have to press her on some of the choices that the Government have chosen not to make. From what she has just said, it seems to me that there may be scope for her to reconsider some other matters.

I have a constituent whose employer, a big national department store, recently told her that she had to go completely flexible with her working hours. That meant that her shifts could vary from day to day. When she said that that could be very difficult for her, because she had child care arrangements to make and could not simply change things at short notice, she was told that she could reduce her current 18-hour week to a 12-hour week. We are told that such people should easily be able to find more hours of work to get around the problem of having their tax credits removed. If there is so much underspend, perhaps the Government should think beyond their proposals on fuel duty. It does not give us a great deal of confidence when they are adamant that they are not going to change things, but then do so before thinking about where they are going to find the money.

My hon. Friend rightly identifies the fact that the Government have found additional money all of a sudden to fund their U-turns. Does she think that that money could have been used to create employment in areas with significant unemployment levels?

It could, and there could also have been significant investment in the building of affordable housing, which is dear to my heart. That would not just give people houses but create jobs and apprenticeships and boost the local economy. The Government could have done that if they had really wanted a Budget for growth. Our criticism of the Budget was that however balanced it may have seemed—it now turns out not to have been quite so carefully balanced as we were told—it was not a Budget for growth. Very little was put into building up jobs and growth. Perhaps it was only a practice Budget, although I always thought that was what the autumn statement, which used to be called the pre-Budget report, was for.

Fiscal responsibility is clearly an overriding priority, but does the hon. Lady agree with President Hollande, who recently said that

“national debt is the enemy of the left and the enemy of France”?

It is also the enemy of the United Kingdom.

National debt is sometimes essential. After all, I seem to recall that it was very much higher at the end of the second world war than it has been at any time since. There were reasons for that, and I believe we finished paying it down only a few years ago. Sometimes, we have debt because we have made essential or useful investment, and of course it is not the same as deficit.

My hon. Friend is making a very good point. We have heard one of the comments of the new President of France, but does she think the Government will agree with his opposition to the austerity measures that have been put in place across Europe?

I do not dissent from my hon. Friend’s view. The new President’s general intention is indeed to break away from the fixation with austerity measures. That is not the same as saying that we do not want to deal with the deficit. The question is how to do that successfully and ultimately reduce borrowing.

The last Government have been misrepresented as having constantly increased the national debt. That is simply wrong. It was substantially reduced under the Labour Government, but what caused that process to go into reverse—I am not going to say it did not—was the recession and the economic stimulus that was put in to get us out of it. Our view remains that had the policies that were in force between 2008 and 2010 been continued, rather than going into a double-dip recession we would have begun to climb out of the recession.

Does my hon. Friend agree that we had growth in the British economy at the time of the general election, but we now have a recession made totally in Downing street? If the Government have such a big underspend, why on earth do we face a double-dip recession, and why are ordinary people suffering so much at their hands?

rose—

Order. In replying to that intervention, I hope the hon. Lady returns to the subject of the debate, which is fuel duties.

I do not want to dissociate those things—they are linked in lots of ways. Initially, we were told that there were constraints on the Budget, including not postponing the increase in fuel duty. What happens in a few months’ time? The measure is a deferral—we are not forgetting about it for ever—but what financial complexities will that create?

It is heartening that the Government’s motivation seems to be their recognition that people are suffering from a general reduction in their standard of living. As many commentators have pointed out, many working families are experiencing real reductions in disposable incomes such that they have not experienced for many years. That is part of the serious position in which people find themselves. It is good that the Government have understood that and want to act on it, but I would like them to act on some of the other issues that Opposition Members have constantly raised. I want them to understand that people are suffering not just from fuel prices, but from a number of other measures. The Opposition’s five-point plan would have reduced VAT and enabled investment in job creation. Perhaps it is not too late even now for the Government to U-turn on that.

I am happy to speak in the debate on new clause 1, which was moved by the Economic Secretary on behalf of the Government; on new clauses 9 and 11, which are in the name of the Labour Opposition team; and on new clause 8, which is in my name.

I support new clause 1. I am not against responsive government—indeed, there is a duty to be responsive in government. I therefore welcome the fact that the Chancellor announced that the Government had heard the concerns of ordinary people, families and businesses that cost of living pressures continue to be difficult on them. The cost of fuel at the pumps affects people in rural areas, but it also affects people in suburban and urban areas, and people running both small businesses and larger firms. For some people, there is an inescapable obligation to drive—they drive for their families and businesses, and in emergencies. Therefore, the price at the pump is a hugely important part of their weekly budget.

People made the case, and the Government, including Treasury Ministers from both parties, first agreed to delay the increase scheduled for earlier in the year until August, and last week announced a further delay until the end of the year. That is welcome. It is fair to say that the announcement came slightly out of the blue and yellow last week—it took a few people by surprise—but it clearly has not been met with opposition from those on the Opposition Benches, because a grand total of six Labour Members, including the Whip, have been present in the Chamber for this debate. There is clearly no great furore at this concession to the needs of the consumers.

Will the right hon. Gentleman give way?

No, I will not give way. The hon. Lady spoke for a very long time, as she often does, and I will not concede. This is a short debate—it goes on only until 7 o’clock—and I want to allow other colleagues to speak.

I want to make a specific plea on biodiesel. I should declare my interest: as some colleagues know, I sometimes drive a London taxi, which has often been powered by biodiesel bought from Uptown Oil, a firm in my constituency that collects used cooking oil from local firms—a chain of good environmental practice ends up in my cab and other vehicles in south London.

I have had discussions with the Economic Secretary and the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), and I asked colleagues—my hon. Friends the Members for Bristol West (Stephen Williams) and for Redcar (Ian Swales)—to argue the case in Committee last week. We have so far not persuaded the Government to change policy, but I wanted to put the case as to why the industry needs continuing Government attention and to ask that they do not turn their back on the industry, even if they are not willing to concede to my requests now.

I remember a case reported in the papers some while ago. A gentleman in Wales was arrested by customs officials for not paying duty on the cooking oil in his car. He was traced by the smell. Can the right hon. Gentleman confirm that cooking oil fuel no longer smells, and that customs officials should not arrest people found with it in their cars?

I confirm both.

Biofuel is produced from waste vegetable oil and collected locally. This has been going on for a century or more—the first diesel engine ran on peanut oil. Colleagues may not know this, but the idea was that biodiesel vehicles would be used by farmers, who could use their crops effectively. The Department for Environment, Food and Rural Affairs is clear that the huge numbers of blockages caused by pouring oil down drains are not a good thing—it is better to put it somewhere else, which costs money for companies and local authorities.

Biodiesel also means that such waste does not go into landfill sites, which produce 40% of our methane emissions and 3% of our country’s greenhouse gas emissions. The product therefore helps us to meet our renewable energy targets. We produced something like 35 million litres of biodiesel from used cooking oil sourced in the UK for road transport two years ago, which meant a carbon saving of 82 million kilograms of CO₂.

There are about 30 to 40 producers—not just Uptown Oil in my constituency, but companies all over the UK. They are generally small firms, employing about five to 20 employees. They are confronted by a severely difficult economic situation. We could lose them, which would mean a loss of employment, a loss of revenue to the Government because they pay their taxes, and a loss of the source of the product, which would be a very bad thing.

In April 2012, following a decision by the previous Government, the differential fuel duty on biodiesel was taken away—it was put in place to support the industry—as the system of support across the EU changed to a new one. The derogation was originally meant to end in 2010, but it was extended by two years by the previous Government, because the implementation of the renewable energy directive was delayed—perfectly legally. There was therefore an attempt to ensure that the industry in the UK had continuing support on the basis that when such support ended—it was planned to end in spring 2012 —the new renewable transport fuel obligation certificate system would bring in the revenue.

Sadly, that was delayed—it was due to be implemented in December 2010, but in the end, it was implemented in December 2011. The new system has therefore had only a few months to bed in. The problem—bluntly—is that the price of the certificates is nothing like what the industry expected. Let me give a couple of quotes from people on the front line. This is from a firm in Feltham:

“I have found biodiesel road sales fall through the floor since the removal of the tax differential. 80% of my biodiesel sales now are for use as heating oil at a considerably reduced margin and overall volume of sales. I have had to lay-off my production manager and am working 7 days a week just to try to keep the business going.”

Edible Oil Direct Ltd of Rye, East Sussex says:

“We had to keep our prices at the pre budget price. Our On-Road customers who most makeup ‘saves money’ as opposed to the ‘green impact’ stated that if the price was increased in line with mineral they will switch back to mineral.”

Convert2Green of Middlewich, Cheshire says:

“"On average Convert2Green…received last year 20p tax differential and 17p Renewable Transport Fuel Certificate…revenue per certificate i.e. 37 pence per litre. With this, the company made an operating profit of £290k. Currently, the best offer we have for RTFCs up to April 2012 is 7 pence per litre and from April 2012 onwards 10 pence per certificate. At two certificates per litre”—

the new system—

“we estimate we will get 9 pence per certificate or 18 pence per litre on average. This is a reduction of 19 pence per litre. We sell approximately 3.75 million litres of road fuel per annum. Our profit reduction is £712,500 per annum or £59k per month. This takes us into significant loss. We will have to consider our future.”

Finally, the firm from which I bought my biodiesel, Uptown Oil, just over the bridge in Southwark, says:

“So far it has had a disastrous effect on our sales of Biodiesel for road use....Down 75%. Before the change we were receiving…around 17 pence…and 20p from the government. Now we receive 7p x 2 RTFC so 14 pence. So having increased our price we are worse off by 13 pence a litre. If we were to increase our price by 13 pence our fuel would be marginally more expensive than fossil fuel and sales would virtually cease.”

Those figures speak for themselves.

It is a pleasure to speak on this important issue. Notwithstanding the fact that few Opposition Members are present, I hope that Government Members will recognise the quality of the contributions, if not their weight in numbers. Neither should anyone believe that the fact that there are relatively few Labour Members in the Chamber suggests a lack of interest or concern about this issue, which matters to every one of our constituents.

Two weeks ago, on 20 June, an article in The Daily Telegraph reported the Prime Minister as warning motorists that there was

“no bottomless pit of money”

to fund a fuel duty cut. We were led to believe that this was dampening speculation that the Treasury would be able to afford the £1.5 billion needed to cancel the extra duty for one year. On 24 June, the Transport Secretary, also in an interview in The Daily Telegraph interestingly, indicated that she was not prepared to lobby the Treasury to delay or abandon the 3p increase in fuel duty due this August. She was also reported as saying that her focus was instead on “challenging” petrol firms to cut the cost of fuel at the pumps to reflect the falling cost of oil globally.

We have no problem with that. Many people are concerned that prices at the pump do not change as the oil price drops, although we know that it is difficult for small independent petrol retailers who have to buy at a particular price and might not have the same volume going through as some of the large supermarkets. We have to understand that. However, the Transport Secretary’s comments chimed perfectly with the words of the Economic Secretary in a recent Westminster Hall debate:

“Calls for the August increase to be scrapped raise an important question, because we would need to consider how to replace the £1.5 billion it would cost. That money would need to come from higher taxes or lower spending elsewhere.”—[Official Report, 23 May 2012; Vol. 545, c. 143WH.]

Every time the issue was raised, then, Ministers made it absolutely clear that if they were to do it, they would have to come up with a way of paying for it—stating the obvious, perhaps, but I shall return to that point later, if I have the opportunity.

It might be a cliché to talk about a week being a long time in politics, but a week after the 20 June article, the shadow Chancellor, in an article for The Sun—that newspaper, like FairFuelUK, had campaigned on the issue—called for the August duty increase to be dropped, and made it clear that he wanted it to be dropped at least until next January. Government Members seemed to suggest that this was opportunistic and done on the spur of the moment or for purely political reasons. Nothing could be further from the truth. We have consistently made it clear that action needs to be taken, especially given that times are tough, with higher VAT generally and prices rising faster than wages.

Everyone knows from their constituents—I am sure that Government Members receive the same representations as Labour Members—that filling up the car is now a big drag on family budgets. Indeed, a nurse in my constituency who was not on a high salary told me that filling up her car to get to work cost her so much that it was like having another mortgage.

The hon. Lady is making heavy weather over who should take the credit and whose idea it was. Is it not great news, first, that prices at the pump are falling, and have been falling in recent weeks, and secondly that the Chancellor has been able to freeze fuel duty?

I welcome the fact that it will make a difference for constituents, but once again, unfortunately, the way it was done did not suggest a Government who were organised or knew that they were going to make the announcement at that particular time. That is important in the context of how it will be paid for, but I shall come to that.

At the time, we expressed concern that the Chancellor’s Budget plan would mean a 3p hike in fuel duty in just five weeks. Previously, we had called for the Government to cut VAT, which would have knocked 3p a litre off fuel prices, as well as helping hard-pressed household budgets in other ways. We called for the August rise to be dropped because we believed that increasing the fuel duty at this time would have sent the wrong signal to retailers, who would have had to pass every penny on to drivers and put prices up just when they should have been cutting them.

We also made the point that with Britain now in a double-dip recession, the last thing our economy needed was another tax rise adding to the squeeze on household budgets and to the difficulties faced by many small businesses. The Government’s priority should have been to boost the economy, rather than to clobber families, businesses and pensioners just when they were feeling the squeeze the most. That is why we called on the Chancellor to stop the August fuel duty rise, at least until next January. We said that we would put that issue to a vote in Parliament, and that is why we tabled new clause 11.

One question that has never been answered is why the fuel duty decision was not taken in the Budget. Does my hon. Friend agree that the Government rushed into this without thinking about the consequences?

Indeed; my hon. Friend makes a good point. The way in which the decision was announced, and the aftermath of that announcement, does perhaps suggest that the Government were rushed into this. Also, many Government Back Benchers agreed that the fuel duty increase should be dropped. A number of them made that clear in a good Westminster Hall debate, and others publicly signed up to support the FairFuelUK campaign.

We tried to be helpful. We suspected that Ministers might say—as, indeed, they did—that they could not afford to stop the increase, even though they had found the money to give a tax cut to millionaires. As has been suggested, if there is money available, it ought to go to those whose household budgets are being squeezed the most. It is still astonishing to me that the Government seem intent on punishing families—especially those with children—while at the same time giving a massive tax cut to millionaires. [Interruption.] Government Back Benchers can shake their heads and look at the ceiling, but real people are being affected by this Government’s Budget, and those who are benefiting are the best off.

We suggested some ways of raising the necessary funds. We said that the Government could perhaps consider closing the tax loopholes that the Prime Minister had been condemning, and stopping hundreds of millions of pounds being lost through offshore tax havens. We also suggested that they might want to reverse the pension tax relief boost that they have given to people who are already well off—namely, those earning more than £150,000—and that they might want to use the £500 million underspent in the Olympics budget.

We were not being opportunistic. We understand that difficult decisions have to be made if we are to get the deficit down, and as a responsible Opposition we looked at the figures. We also recognised that, at difficult times in the past, Labour had put up fuel duty. On many occasions, however, we also delayed or cancelled planned fuel duty rises in the light of the circumstances at the time—including at the height of the global financial crisis —because it was the right thing to do to give assistance to the people who needed it most and to ensure that we balanced and grew the economy.

We know—and more and more commentators are agreeing with us—that raising taxes and cutting spending too far and too fast have backfired. Britain has been pushed into a double-dip recession, more people are out of work, and the result is a bigger benefits bill and £150 billion of extra borrowing. That is why we need a fairer and more balanced plan for our economy that will get people back to work, and why we are calling again for the Government to change course and put their efforts into tackling youth unemployment, as well as using the skills of people who have been made redundant, and who have something to give back, to support young people into the jobs market.

We agree with the Government that stopping August’s 3p rise in fuel duty is the right thing to do for British businesses and families. I do not know whether the Prime Minister and the Chancellor have ever had to worry about the cost of filling up their cars in the way that the nurse in my constituency does. She works night shifts, and she does not know whether she will have enough money left at the end of the month to fill up her car so that she can get to work. In response to the hon. Member for Dover (Charlie Elphicke), we are glad that the Government have at last started listening to those who face those difficulties, and we will therefore be supporting the Government tonight on this issue. As I said earlier, however, the manner in which the announcement was made raises a number of questions. It looked as though the issue had brought about the quickest U-turn in politics. The new benchmark for “a long time” in politics is no longer a week but overnight, with changes being made 24 hours after the initial announcement.

I am delighted that the hon. Lady has given way. I wonder whether she could bring her speech to a close, so that we might hear from someone who really does have some authority on this subject and who has so ably led the campaign to bring about this change.

I acknowledge that the hon. Member for Harlow (Robert Halfon), to whom the hon. Gentleman is referring, did a lot of work on the campaign. However, given the earlier suggestions that there was a lack of interest in this subject on the Opposition Benches because of the lack of numbers here tonight, I felt it important to lay out our case fully. I hear what the hon. Gentleman is saying, however, and I will bring my remarks to a conclusion.

I want to ask the Minister some specific questions. Now that the Treasury has had a week or so in which to do the number crunching—if it had not already done so—what areas of departmental underspend have now been identified to ensure that the decision to delay the August 2012 increase in fuel duty will be met in a fiscally neutral way? Will the Minister also tell us which Departments have, through budget exchange, already surrendered an underspend in advance of the end of this financial year, and which Departments are expected to have greater than originally forecast savings in departmental spending in 2012-13?

I do not have time to comment on the points that have been raised about biofuels. Perhaps I shall be able to do so in another debate. In conclusion, however, I should like to refer Members to new clause 9. We shall not be pressing it to a vote this evening, but it calls for a review of the relationship between fuel duty, other taxes charged on road fuels, and the cost of road fuel. It was made clear in the recent Westminster Hall debate that such a review might reflect the views not only of the Opposition but of many Government Members —I see some of them nodding—and I hope that the Government will be good enough to listen to that proposal, and to come forward with a plan to establish such a review.

I am grateful to have the opportunity to speak, and I support the Government’s new clause. I hugely welcome the support of my colleagues, particularly that of the hon. Member for Dundee East (Stewart Hosie), who did so much work with FairFuelUK and attended the Westminster Hall debate to which the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) referred.

The case for cheaper petrol is economic, social and moral. It is economic because the AA says that keeping 3p off fuel prices will pump £1.8 million into our economy every single day. That supports high street demand at a time when it is collapsing in Europe. It is social, because fuel duty is a tax on everything, and we should be honest about who is paying it. We talk about “motorists”, but they are not a special interest lobby group. As FairFuelUK and many hon. Members have shown, motorists are everyone: mums driving to school, children on the bus, pensioners hit by inflation. That is why this is an issue of social justice. The economy is important, but it is only half the argument.

The case is moral, too, because as I have set out in other debates, fuel duty is regressive. The Office for National Statistics said last year that it hits the poorest twice as hard as the richest. Fuel prices are now, in essence, a poverty trap, adding to our dole queues. The average motorist in my Harlow constituency pays £1,700 a year to fill up the family car—that is a huge amount and clearly unsustainable.

Opposition Members have spoken of a U-turn, but I would say that it is an L-turn, showing that the Government have listened, and I believe that the Government deserve huge credit for doing so. When I spoke to my constituents at the weekend, no one said that this was a U-turn or wondered when it was first mentioned or by what Minister when and why. Rather, they said thank you to the Government for listening to motorists.

The Chancellor, the Economic Secretary and her predecessor, who is now the Transport Secretary, have done more to cut fuel taxes in two years than the Opposition did in a decade. The 2011 Budget saw Labour’s rise cancelled and fuel duty cut by 1p, while in last year’s autumn statement Labour’s January rise was scrapped after the campaign by FairFuelUK and MPs. Then, last week, the Government delayed Labour’s August rise. This is a radical tax-cutting agenda, targeted in a way that helps the poor. It shows that the Government are on the side of the little guy, supporting aspiration and hard work.

I listened to the “Today” programme interview with the shadow Chancellor, and I say to the hon. Member for Kilmarnock and Loudoun that this is not a decision made in a day. I and many others have been to see Treasury Ministers over many weeks and have led delegations to see relevant Ministers. I knew that the Government were considering this issue for a long time.

I thank the hon. Gentleman for making those points. If those discussions were going on for that length of time, would he not have expected the Government to say how it was going to be paid for?

In the Westminster Hall debate, which the hon. Lady mentioned, the Economic Secretary did not give a view either way on the issue and said that the Government were looking at it. Ministers then came to the House for Treasury questions. What better way of informing us that they were going to stop the August rise?

Returning to the “Today” interview with the shadow Chancellor, he said that Labour had “acted” on petrol prices, but a House of Commons Library note says:

“From 2000 the Labour Government increased road fuel duties...In its 2009 Budget the Labour Government announced that in future years fuel duties should rise by 1p a litre above inflation.”

In the next Budget, they

“proposed that the escalator should apply at least until 2014/15”,

and that

“the increase set for 2010/11 would be phased in over the coming tax year in 3 stages...fuel prices continued to rise strongly, driven by this increase in duty rates”.

That is the record we inherited, and which we are now having to unwind.

Will my hon. Friend give way?

I apologise, but I cannot, as I have to allow time for the Minister to respond.

There are still problems: fuel is still at around £1.30 a litre, which is unsustainable. As the RAC has said, duty revenues are shrinking every year, as people are driven off the roads. We must stop seeing cars as a cash cow.

I accept that the Government can only do so much. We are always held hostage by the international oil price. As has been noted, however, pump prices are quick to rise, but it feels as though we need a court order to get them down. Evidence shows that from May to August last year, oil prices fell by 5.5%, but petrol and diesel stayed high, falling by just 1.5%.

The Office of Fair Trading has said it will not investigate the UK oil market. I am petitioning the Backbench Business Committee to table a motion so that Parliament can urge the OFT to investigate that market, which clearly looks uncompetitive and unfair to many people.

Finally, there is the problem of local variation in petrol prices, especially in rural areas, but also in towns like Harlow. Harlow residents often write to me, saying that fuel is 5p cheaper only a couple of miles down the road, and there is no explanation for it, other than a lack of competitiveness. Germany, Austria and America have initiated fuel price regulation to limit price rises. We should be doing the same thing.

In conclusion, the Chancellor and the Economic Secretary have given Harlow families and many millions of motorists across the country at least six months’ breathing room, and I welcome that. I urge the Government to look seriously at the long-term cost of fuel and petrol, and see what else they can do. I also urge them to put pressure on the OFT to do a market study. I will vote wholeheartedly for the Government’s new clause, and I urge the House to join me.

With just a few minutes remaining, I would like to respond to a few points—in some detail, if I may, in relation to the Government new clause.

I shall take up some of the themes raised by my hon. Friend the Member for Harlow (Robert Halfon), who has indeed campaigned assiduously on this issue to the benefit of his constituents and others, but first let me first tackle some of the points—frankly, mainly about process—raised by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). After our time in Committee, when we interacted very reasonably, I regret to say that the hon. Lady focuses on points that do not matter to constituents not only in Harlow but up and down the country. I know from conversations in my constituency and elsewhere that people soundly welcome the news that fuel duty will be frozen for the 21st month in a row. It is important that the Government are able to listen and respond in that way.

Let me answer the hon. Lady’s specific question—I have done so already, but I am happy to repeat it. The funding for this measure has been found from within existing spending plans. We will set out the details in our autumn statement. I know that my constituents—and, I suspect, hers as well—welcome a Government who take every opportunity, when underspends are found, to make life easier for households and for businesses. That is what we are doing with this measure. I am glad that the hon. Lady welcomes the impact of this measure on households and businesses, and I hope she leads her colleagues, who appear rather thin on the ground, to join us in the Lobby tonight in favour of the Government new clause.

Briefly, new clause 9 calls for, if I am not mistaken, the 29th report for which the Labour party has called during the course of Finance Bill 2012. I do not think such a report is necessary; it rather misses the point, which is that we are taking action to help motorists in businesses and in households. I wonder what the hon. Lady makes of new clause 11 and the costings implicit within it, as cancelling the 3p increase would cost around £1.4 billion next year. If I am not mistaken, that is just as unfunded from Labour’s point of view as is their five-point plan. I have already explained the action this Government are taking to support motorists and how we are going to fund it.

New clause 8 was proposed by my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes). He has campaigned assiduously on this matter, and I recognise that. He and I have spoken about it in meetings in the past. He laid out what his new clause is designed to achieve—to introduce a 10p duty differential from 1 July for biodiesel derived from used cooking oil. This would carry on where the sunset relief of the previous Government left off. That was designed to end on 31 March this year.

Let me make a few brief points to my right hon. Friend. The last Government’s differential was very costly. It cost £80 million in 2010-11, and the amount subsequently rose to £160 million. Most of the supply was imported, as international producers took advantage of the UK’s unlimited relief. Analysis by the Government indicates that if a 10p-per-litre duty differential were introduced, the cost could rise to £90 million in 2013-14. Rather than subsidising importers, that money could be spent on key public services. This Government believe that the renewable transport certificates—

I beg to move amendment 1, page 2, line 6, leave out paragraph (c).

With this it will be convenient to discuss the following:

Amendment 2, page 2, line 7, leave out subsections (3) to (6).

Amendment 23, page 2, line 36, leave out clause 4.

The amendment deals with an unfair situation that I mentioned earlier. People who are already earning considerable amounts, millionaires and others receiving the highest levels of pay, will benefit from the Government’s proposal to reduce their tax rate to 45%. We had a good debate on the subject on Second Reading, but were not able to discuss it in Committee. At that time we wanted the Government to reconsider, and not just because millionaires were set to receive something equivalent to a £40,000 per annum tax cut.

My hon. Friend may be interested to learn something that I myself learnt from a television programme that had no direct connection with economics. It was part of a series about London streets. A banker who was talking about his home in Portland road said that prices there had risen considerably since the taxpayer had bailed out the banks, and that far from suffering from the current financial situation, people seemed to be benefiting.

Order. I must inform the hon. Member for Harlow (Robert Halfon) that only one Member should be standing on the Floor of the House at any one time. Welcome to the Opposition Benches, Mr Halfon.

I was not sure whether the fuel duty debate or the intervention from my hon. Friend the Member for Edinburgh East (Sheila Gilmore) had exercised the power of persuasion that led the hon. Member for Harlow (Robert Halfon) to cross the Floor and spend some time on the Opposition Benches, Madam Deputy Speaker, but I shall now return to the subject of the amendments, which are fairly simple and straightforward.

Amendments 1 and 2 would remove the cut in the top tax rate for people earning more than £150,000 a year, and amendment 23 would prevent the abolition of the age-related allowance that would increase the tax on millions of older people—the so-called granny tax. As we said in the earlier debate, the amendments are based on the straightforward principle that when times are tough and there is less money around, we must ensure that the burden of deficit reduction is fairly shared. That theme of fairness will be a feature of the contributions of Labour Members this evening.

As I said at the outset, however, the Government have chosen to cut taxes for the richest 1% of the population, and that tax cut is worth £40,000 to those who earn more than £1 million a year. At the same time, they are raising the taxes of 4.4 million pensioners by, in some instances, hundreds of pounds a year. Most of those pensioners are living on less than the average taxpayer.

Did not the Budget also raise the personal allowance for income tax by a record amount, thus cutting the tax for many people and taking many out of it altogether?

I hear what the hon. Gentleman says, but many people will be about £511 a year worse off. Many, particularly those on the lowest incomes, will not benefit from the rise in the income tax threshold, and a large proportion will be part-time workers who cannot work for the extra hours that they have been told will enable them to continue to qualify for tax credits.

Does the hon. Lady not welcome the fact that 2 million will be taken out of tax altogether, and that most basic rate taxpayers will be better off to the tune of, I believe, £220?

The problem is that the Government are giving with one hand and taking away with another. According to the Institute for Fiscal Studies, many people will be £511 a year worse off. That may not seem a lot of money to one of the millionaires who will benefit from that £40,000, but it will make a big difference to a low-paid worker who is struggling to make ends meet and is feeling the pinch because of rising prices for food and other commodities.

Not only have the Government cut the rate of tax at the top—admittedly there is a welcome relief for people near the bottom, although of course those at the very bottom will not benefit at all—but the squeezed middle are being hammered in all directions. Because the threshold at which people will start to pay the higher rate has fallen, more people will be dragged into it, and people are also being affected by the tax credit and child benefit measures.

That is absolutely true. As I said earlier, that is exactly what happens to those who cannot work for the extra hours that would increase their working time to the 24 hours that would entitle them to maintain their working tax credit. These are people who want to work and pay their way—they want to do the right thing—but for some reason the Government have chosen to clobber them the hardest at the same time as giving millionaires a tax break. That makes no sense to me, although Government Members may say that it is a point of principle.

A commentator—I think that it was Fraser Nelson of The Spectator—recently suggested that the best definition of “Osbornism”, if there can be such a definition, had been provided by Groucho Marx:

“These are my principles. And if you don’t like them—well, I have others.”

I hope that the Government have received the message loud and clear from the Opposition and from the British public. We do not like the principles that are at the heart of the Government’s economic policy. We do not like, or accept, the principle of asking millions to pay more so that millionaires can pay less. That is why we are giving the Government the opportunity to put their well-practised U-turning skills to good use once again.

Should they not go further than that? Should we not deal with the amendment to existing legislation allowing the use of foreign countries as tax havens to avoid paying the debts of the developing countries, which can cost £4 billion a year?

My hon. Friend has made a good point. We will have an opportunity to discuss that subject in more detail tomorrow.

The Government once made much of their commitment to fiscal responsibility. Deficit reduction was to be their defining mission. Today, however, that task has been made even harder by the failure of their own economic plans, which involve £150 billion of extra borrowing. Their pledge to clear the deficit by the end of this Parliament has been blown to pieces, yet they still find the money for a tax giveaway to the top 1%.

rose—

Perhaps the hon. Gentleman would like to comment on that in his intervention.

Am I right in thinking that the impact of amendment 1 would be to take away the 45p rate and leave the highest rate at 40p, thus in effect giving a double tax cut? Can the hon. Lady explain the technicalities of how her amendment works?

I am a relative newcomer to this place, and I sometimes find its procedures and conventions bemusing. I have learned from my time in the parliamentary process, however, to take advice from the Clerks and others who know about drafting legislation, and that is what we did in respect of these amendments.

The Minister will no doubt protest that the higher rate was not raising any money, but the Government’s attempts at justification have not withstood the scrutiny that has been undertaken. The Office for Budget Responsibility, for example, says that Her Majesty’s Revenue and Customs’ estimates of the reduced tax avoidance that would result from the reduced rate are “highly uncertain”. They are based only on the first year’s yield from the new top rate, which was always expected to be artificially depressed by people’s ability to bring forward their income. No real basis is therefore offered for estimating the revenue-raising potential of the 50p rate. It is for that reason that the Institute for Fiscal Studies said that it is

“too soon to form a robust judgement.”

The claims that new funds would flood into the Treasury as a result of people relaxing or reversing their efforts to avoid paying the top rate have been shown to be notoriously speculative. Again, as the IFS explained,

“you’re first giving out £3bn to well off people who are paying 50p tax...you’re banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them less...there is a lot of uncertainty, a lot of risk with this estimate.”

A written answer provided by the Exchequer Secretary to my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary, on 19 June shows that in 2010-11 more than 73% of people earning over £250,000 were paying more than the top rate, as were more than 80% of people earning between £500,000 and £10 million, implying that many tens of thousands of people were paying the 50p tax rate of last year and are now in line for a very large tax cut if this measure comes into effect.

rose—

I will give way to the hon. Gentleman, if he would like to answer that point.

I read the impact statement and the detailed IFS discussion of the so-called ‘uncertainty’. Its premise was that the avoidance would end because people would pay themselves out, regardless of how they had parked and deferred the revenue, and would therefore pay the tax at 50p. The problem is that people who have a personal service company—as so many Labour MPs and Labour supporters, including Ken Livingstone, seem to have—can defer for a very long time. They can pay themselves a beneficial loan and almost avoid tax altogether. That has also been a scandal in recent days. It is therefore not true to say people cannot continue deferring.

I will answer that point in more detail later. I am a little disappointed, however, as I thought the hon. Gentleman was going to make a different point. He seems to be suggesting that only people with a connection to Labour had been avoiding or evading tax, which is, of course, absolutely not the case. I hope Members across the House will ensure that at every stage those who are due to pay their taxes should pay them and should do so willingly and properly.

What does my hon. Friend think about the fact that in Committee a Conservative MP, the hon. Member for North East Somerset (Jacob Rees-Mogg), said that in his opinion the actions of a certain Ken Livingstone were in fact very sensible?

I do not wish to return to the lengthy debate that took place in Committee, but we did at various times have discussions about people doing things that were perfectly legal—and which, if they were so advised, might make perfect sense—but the question then arises as to whether they are morally or ethically the right things to do.

Was my hon. Friend as surprised as I was when the Government refused to release the tax details of their Front-Bench Members?

Again, I do not want to focus on such issues at this time. I am sure that Government Front Benchers will want to take responsibility for their own actions.

I now want to address some points that Ministers may make about the Bill’s measures to reduce tax avoidance. The IFS has again been very busy and has made some extremely helpful and interesting points. It says this Budget compared poorly with Labour Budgets, which cut tax avoidance by more than £12 billion between 2002 and 2009—an average of more than £1.3 billion each year. This Budget, however, is estimated to have cut tax avoidance by just £800 million. Closing loopholes to prevent avoidance should be something that every Budget does, and we should not be required to compensate the very rich for the inconvenience.

The Government’s last line of defence will no doubt be that cutting tax for those who already have the most will unlock investment and kick-start economic growth, but that is pure ideology, with no evidence to back it up. The OBR documents accompanying the Budget show a continued pattern of the promised recovery of business investment being postponed. An 8% increase was promised for 2011, but the amount actually fell by 2%. A further 10% increase had been projected for this year, but the forecast is now less than 1%. The role of such investment in driving growth for future years has been significantly written down.

As for growth, again the OBR is clear. It states in box 3.1 on page 46 of its latest economic and fiscal outlook, which is headed “The economic effects of policy measures”, that the only policy with a measurable effect is the cut in corporation tax. It says that that will lead to an increase in GDP of

“0.1 per cent by the end of the forecast period.”

Beyond that, it says in the policy costings document:

“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”

Therefore, according to the best evidence and the advice of independent experts, this is a tax change that will have no discernible impact on our economic prospects and, at a time of tight public finances and tough decisions on deficit reduction, it could cost billions of pounds, making it harder to deal with the deficit and necessitating harsher sacrifices for others in society.

The granny tax is addressed in another of our amendments, which would reverse the Chancellor’s shameful raid on pensioners’ incomes. We must give the Government a chance to make amends for what is essentially a broken promise, and for their shabby attempts to sneak this past Parliament and the public. We call on the Government to cancel this unfair measure for a number of reasons. First, the Government made a commitment as recently as last year that the age-related allowance would be uprated each year of this Parliament in line with the retail prices index. It is there in black and white on page 35 of the 2011 Red Book. Recently it has been reported that the Prime Minister is resistant to suggestions from the Secretary of State for Work and Pensions that he break pre-election promises on benefits for older people. Yet here is a promise made only last year that the Government have consigned to the dustbin. Instead of acknowledging this most disreputable of U-turns, the Chancellor actually sought to conceal it, dressing a crude tax grab up as a “simplification”.

According to the House of Commons Library, by far the majority of those being asked to pay more live on incomes that put them in the bottom half of taxpayers. The crucial point—again, I am sure that Government Members will have heard this—is that having a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put someone in line to lose under this measure. We are talking about the people who did not earn big salaries in their working lifetimes but managed to save so that they could provide for themselves. These are more people doing the right thing; they avoided the means-tested benefits. So yet again I say: why are the Government so keen on policies that penalise the people who are doing the right thing? Why do they penalise the people who are trying to work—the low-paid, part-time workers who lose their tax credits—and the pensioners who have tried to avoid the means-tested benefits and have saved for their retirement and done the right thing?

There is no doubt that pensioners have been hit hard by this Government’s decisions: winter fuel allowance has been cut; pensions have been indexed to a lower measure of inflation; the increase in the state pension age for women has been brought forward; last year’s VAT rise added £275 to the cost faced by an average pensioner couple; and cuts have been made to services such as the NHS, social care and local transport—all the things that matter on a day-to-day basis for pensioners. So pensioners have been hit hard by this Government’s decisions and policies, yet with this Finance Bill the Government are coming back for more. They are not content with all those things and are coming back for more. In total, this measure will raise more than £3 billion pounds over the next five years.

Is it a coincidence that the tax cut to the rich costs £3 billion, which is exactly the same as the tax increase for elderly people in society?

My hon. Friend makes a very valid point. That must be purely coincidental, because surely no Government would want to take that amount of money from pensioners simply to give it to the richest. Perhaps this Government would though; perhaps we have the same old Tories with the same old policies, yet again. The pensioners who have been hit hardest by this Government’s decisions are seeing them coming back for more. That £3 billion raised over the next five years is the biggest revenue raiser in the whole Budget, and it is coming from the pockets of pensioners with modest incomes. And it is all going towards what? Is it going to paying down the deficit? No. Is it going to help young people get back to work? No. Is it going to help the poorer pensioners? No. Instead, this money is being taken from millions of older people living on modest pensions and redistributed to a few thousand individuals with incomes of more than £150,000 a year. What an absolute disgrace: taking from the pensioners to give to those already on those high earnings.

The Government were said to be surprised by the anger this tax change has aroused. If that is the case—if they were surprised—that shows just how out of touch they are with the values, principles and priorities of the British people. At the time, the response of Age UK was very clear. It said that it was disappointing that the Budget

“offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes, who are already being squeezed”.

We could not have put it better ourselves. The chief executive of Saga said:

“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”

The National Pensioners Convention said:

“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax—whilst those earning £150,000 or more will see their tax bills reduced.

This is seen by many as the last straw...Pensioners feel they are being asked to bail out the super rich—and it’s simply not fair.”

Pensioners are absolutely right to feel that way.

These amendments are a chance for the Government to rectify one of the most blatant injustices in this Budget. It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less. It is extremely hard to comprehend how the Government could ever have thought that this was fair, or that it would be acceptable to pensioners and to others who care about pensioners, but now they have an opportunity to put it right, and Members from all parts of the House have a chance to show where they stand. They can support these amendments and do the right thing by the people who did the right thing for themselves.

It is a pleasure to follow the shadow Minister, who has set out such a partial view from the Labour party’s perspective on this Budget. I think there is a better approach: the more people we take out of tax, the better, as the administration cost is less and there is less hassle for people, particularly the least well-off. I want to see the personal allowance increased to £10,000 as soon as possible. Good progress was made in the last Budget, but the sooner we take the number to £10,000, by far and away the better. Nevertheless, I welcome the fact that most basic rate taxpayers will see an annual cash gain of £220, and I welcome the fact that this Budget takes 2 million people out of tax altogether. That is important, particularly given that we all remember the fiasco over the 10p tax rate. The more we can look after the least well-off and take them out of the tax system, by far and away the better.

I was fascinated by the whole discussion about the 50p rate. We can see from Treasury figures that we are talking about £100 million. That figure is rubbished by the Labour party, which thinks the figure is completely wrong and cites an IFS report. Let me quote the relevant passage from the IFS report, which is where I think the Labour party draws its approach from. The IFS states:

“The worry for the Chancellor is that the estimate that cutting the top rate to 45% will only cost £100 million is particularly uncertain. It assumes a ‘no behaviour change’ cost of £3 billion offset by a behavioural change of £2.9 billion. The first number we know reasonably accurately; the second number is estimated with great uncertainty. Even if we knew the effect of introducing the 50p rate—which we don’t with any precision—responses may not be symmetric. Those who have got a taste for avoiding the 50p rate may continue to avoid the 45p rate (even if they wouldn’t have done so had the 50p rate never existed). The experiment with the 50p rate does not appear to have gone well.”

My first conclusion is that the IFS is saying that making the rate 50p in the first place was a complete and utter disaster. The second issue raised is the uncertainty over behavioural change. On that, I say that we have empirical evidence on what happens when the rate is reduced. I do not know whether everyone recalls this, but we used to have an income tax rate of about 80%. When that was reduced, first to 60%, there were great cries from the Labour party that it would cause a collapse in the revenues, but instead the revenues rose. Why was that? It was because fewer people avoided tax. The Government of the day then reduced the rate to 40p. Again there were great cries from the Labour party that that would let the rich off the hook, but what happened? The revenues rose. Why was that? It was because fewer people were as interested in avoiding tax and they paid up a fair share.

There are other explanations for the increased tax take during the period in question. One was the general growth in the economy, which generated more income, whereas another was the greater degree of inequalities, which meant that although people were paying a lower rate of tax, the cash take was higher because their income had risen so much. People on very high incomes are still paying a relatively low rate of tax, however. If tax avoidance did not take place previously, why have there been so many examples of it?

I absolutely agree. The 1980s were a time of great economic expansion; a great time of liberalising markets, sound money and sound economic policies that saw that massive expansion. It was also good that the ’80s saw a massive reduction in the rate of taxation, which spurred on growth.

What happened in the last decade was all built on debt. It was all a bubble and it ended in a massive shambles and a massive bust that has brought our country to its knees. We need growth. How will we get it? By reducing the rate. If we cut the rate, we will increase the take and encourage people to invest in UK plc. That is where we need to go.

Proponents of the Laffer curve, which is what the hon. Gentleman is talking about, often say that paying a higher rate of taxation is a matter of personal choice. Does he agree?

As I said, I think the Laffer curve is an interesting principle, but I prefer empirical curves and empirical results from experiments. We know from the ’80s that if the rate is cut, it increases the take. For me, the uncertainty is not about whether reducing the rate from 50p to 45p will cost the Exchequer £100 million, but about whether it will add £100 million or £200 million to the Exchequer as fewer people seek to avoid tax.

Does my hon. Friend think that cutting the rate to 40p or even 35p might have raised even more money? Would not that be a very good thing for the Government to do?

My hon. Friend tempts me, as ever. He knows that my view is that one should reduce the rate and clamp down heavily on tax avoidance. I respect the fact that he does not always share my views on tackling tax avoidance—I recall that in Committee he said that I was going to paint the cliffs of Dover red, so passionate was I that people should pay their fair share—but I do think that if we have lower, simpler taxes and a simple tax system, it will incentivise investment and encourage more economic growth. The argument for reducing the higher rate of tax, which was only a temporary increase in the first place—the Labour party seems to have forgotten that—was to get more investment in our economy and to encourage the entrepreneurs and wealth creators.

Does the hon. Gentleman agree that the major problem we have at the moment is that it is socially acceptable to avoid paying tax and that our job as politicians is to create a social climate where it is unacceptable not to pay what you are due?

I agree. There has been a climate in which it is somehow acceptable to avoid taxation and I made many speeches in Committee about how that culture is unacceptable and needs to change.

It is up to us to send a clear message, as Members of all parties, that tax avoidance is wrong. That was why I intervened on the shadow Minister earlier to say that the message sent by politicians who use personal service companies is deeply corrosive. They should all pay a fair share of taxation and should not try to avoid it in that way, because it sends the wrong message. In all fairness, I say that to members of my own party as much as to Labour members. It is not acceptable in the current age.

The hon. Gentleman and I had some good discussions in Committee—I would not call them enjoyable, but they were good. Does he think it is fair to hit the grannies—to hit elderly people—with a £3 billion loss and at the same time to cut taxes for the richest people in the UK?

I think it is fair to say that we are not cutting taxes yet, because the change would not come through to the next financial year. Hon. Members will correct me if I am wrong, but I believe that that is the case. We must consider the Exchequer numbers, which show that the cost of the cut is very low. I think those numbers are wrong, as they have not taken into account the dynamic effects of the change, which will probably be tax accretive to the Exchequer when all is taken into account.

As for the issue of age-related allowances, the Government’s triple-lock guarantee will mean that the overwhelming majority of older people—in fact, all of them, I think—will be better off and there are no cash losers. Secondly, we are talking about the very richest of the oldest. We are not talking about the oppressed pensioner with no savings but about the richest of the oldest and, as I say, there will be no cash losers. Although it is uncomfortable for many people and has been uncomfortable for all of us, the Government have been doing the right thing by the elderly and have been looking after the least well-off elderly first of all. It is really important to protect them from the difficult economic times we have had.

I ask the hon. Gentleman to correct the impression he gave. The age-related tax allowance does not go to the very richest pensioners; it is the group in the middle who are being squeezed by the proposal.

The age-related tax allowances only kick in to benefit those pensioners who have a substantial income, or a more substantial income, in retirement. We are not talking about the very least well-off pensioners who are affected by grinding poverty, but about pensioners who are better off and who have savings and income. As I said, there are no cash losers and they have had a massive benefit from the pensions triple lock.

When the hon. Gentleman says that there are no cash losers, does that mean that pensioners will not lose out?

That is my understanding, yes. Pensioners will not lose out, there will be no cash losers and no pensioners will be worse off in cash terms, As the hon. Gentleman well knows, we can have the argument about future rates of inflation and future rates of RPI, but one must also take into account the other side of the equation, as pensions and benefits for elderly people will rise in the same way and at the same time. Overall, we are not talking about a great difference; we are certainly looking after the least well-off of the elderly, and we have done so very well indeed. That is an important achievement of this Government. Pensioners have been better off under the Government and have been shielded from the austerity measures.

Let us look across the piece at what the Government have done. We have done the right thing to reduce taxation at the top level, which was meant to be temporary, to encourage investment in our economy and to encourage entrepreneurs. The Government need to take further action to deal with people who abuse personal service companies and other tax wheezes and to ensure that we have stronger measures against avoidance by individuals. We have seen enough of it in the newspapers, so I shall not go into individual cases because, as we know, that ends up in a spat about whether one likes Take That or late-night comedy shows. Nevertheless, it is right that we should ensure that individuals cannot play the system and that the law should be changed. It is all very well for the Labour party to take the moral high ground on the issue of tax allowances, but Labour was asleep at the wheel for about a decade and failed to deal with tax avoidance in the individual and corporate spheres. That was completely wrong.

I would be more prepared to take that from the hon. Gentleman if I had not sat through Finance Bills when we were in government only to see that, time after time, his party tried to stop us closing loopholes that would stop tax avoidance.

I was not there at those times, I did not sit through those Bills and I cannot comment. I am only a newish Member, elected in the 2010 general election, and I have personally been pretty consistent in making the case that we should not have tax avoidance and should be far more vigorous in tackling tax avoidance by individuals and by corporates. Corporate tax avoidance is particularly important, but it is not on the subject of this debate, so I shall move on quickly before you call me to order, Mr Deputy Speaker.

There is an issue and we need to tackle it. Overall, I want the allowances for the least well-off to be higher so that we take more of them out of tax. I think the Government have taken the right Budget decision on the higher rate numbers and have taken a difficult but principled decision on age-related allowances. The Government have struck the right Budget balance.

“No cash losers”: I must say that I think that those are the most disingenuous words that I have heard in this Chamber for a great many years. I remember that in the Budget the Chancellor was not particularly keen to draw the House’s attention to this change.

In the Budget, the Chancellor glossed over the whole issue of the granny tax very quickly indeed, yet only a year before, he came to the Dispatch Box on Budget day and said that he would not hide anything—he would tell it like it was. He would tell the bad with the good. That was just a year before, but in this year’s Budget, he glossed over the granny tax altogether.

“No net losers”—how accurate is that if we look at the total picture for pensioners? For existing pensioners, the age-related allowance will be frozen. It is interesting that the year before, it was not the Chancellor, but the Prime Minister, no less, who promised that the allowance would increase in line with the retail prices index. “No net losers”—those who believed the Prime Minister’s promise to pensioners might be excused for feeling that they were losers under the change. That is what happens. People listen to what the Prime Minister says, and make their financial plans on the basis of it: “The Prime Minister promised me, so of course I can expect to have that.” Well, it did not happen, and I think that is disingenuous.

We heard in this Chamber that there are no net losers, but what about people who are about to become pensioners? Are they net losers? They certainly expected an age-related allowance, but they find that, for them, it is not frozen, but cut. We can stand here and call black white, but it is incumbent on us not to take the public for fools, and I am afraid that the speech from the hon. Member for Dover (Charlie Elphicke) did that. I regret that, because he is not a disingenuous character—he is quite a lovable character in this House—but to say what he did is to treat people with contempt. It is treating them as though they do not understand their own affairs, when it is their own affairs—their own pennies, in many cases—that we are talking about. That hits hard.

Is it not a fact that 4.4 million pensioners will lose roughly £83 a year from next year, and that people who turn 65 next year could lose up to £322 a year? That implies that it is disingenuous to suggest that people are not losing out—

Order. “Disingenuous” is not a word that we should use. I know that it is meant to be an appropriate term, but it is not the sort of parliamentary language that we accept. I am sure that we will not be using it again.

I apologise to you, Mr Deputy Speaker, and to the hon. Member for Dover, if that is unparliamentary language.

Order. In fairness, Mr Gardiner, you said that you did not think that the hon. Member for Dover (Charlie Elphicke)was disingenuous. We were all right up to that point.

Thank you, Mr Deputy Speaker. I absolutely recognise the figures that my hon. Friend the Member for Wansbeck (Ian Lavery) laid before the House, and of course I think that they are accurate. He is right to say that we are talking about a cut—a cut in what people were, with legitimacy, expecting. That is the point. It was legitimate for somebody coming up to pensionable age to expect that their retirement could be based on the figures that they were using. They had a promise from the Prime Minister that that would be the case. That promise was not honoured, and they have experienced real hardship as a result.

I want to focus on one other aspect of the debate: people’s behaviour at different rates of taxation. Let me be clear that I do not, in principle, want a 50p rate of tax to continue in place in perpetuity. Indeed, the Labour party does not want that, as was made very clear when my right hon. Friend the Member for Edinburgh South West (Mr Darling), as Chancellor, introduced the tax before the 2010 election. He made it quite clear that we felt it was necessary in the short term, but would ultimately wish to get rid of it. There is no desire on the Labour Benches to see a 50p tax rate imposed for ever more.

Hear, hear!

From a more-than-sedentary, almost recumbent position, he says, “Hear, hear! Let’s go to 20%!” Does he really think that there is not a limiting point at which the argument tips? Does he really think that there is not a point below which, instead of more revenue coming into the Exchequer, there is a dramatic loss of revenue? Of course there is.

I do indeed think that there is a point at which revenue would drop off, if rates got low, and the Laffer curve shows such a point. However, as a general point, I think that the lower the rates are, consistent with raising the revenue that is needed, the better, and that we have not tested the argument properly to see how low we could go.

Well, there we are: the Great British public are being treated to an experiment. “We want to test how far the Laffer curve theory can go.” Is that really the Government’s policy? Is it really their policy to see how low they can get tax before the economy collapses?

I am grateful to the hon. Gentleman for giving way once again. Sadly, I am not Her Majesty’s Government. He must address his comments to those on the Treasury Bench, rather than to me.

I am sure that it is only a matter of time. In so far as the hon. Gentleman seeks to speak for his party—

Does he?

I do not want to see dissent break out on the Government Benches. No fighting amongst yourselves, please, gentlemen. These are serious matters. They cannot be treated as an experiment because people suffer.

I thank the hon. Gentleman for giving way. He is a courteous and jolly fellow. Let me help him by digging him out of the hole that he is rapidly getting himself into in his exchanges with my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). The point that we are making is simple: reducing the top rate will not change the income and revenue numbers significantly, but it sends a message to wealth creators that their investment is encouraged and will help to grow the economy.

The hon. Gentleman has already said once in the debate that he does not believe the Treasury’s figures. He has now reinforced that. The Treasury has made the calculations. He can choose to say, on a personal level, “I think the Red Book is a load of tosh,” but he cannot say that that is the Government’s position. The Government’s position is that the measure will cost £3 billion a year. [Hon. Members: “No, it is not.”] The Government cannot get out of this one. They say that it will cost money. That money will be taken away from some of the poorest people in our society to pay for it.

That is what people find so distasteful about the way the Government are behaving. They are taking away from some of the poorest in our society, yet feel that it is so important to send that signal out to some of the wealthiest. The people who are being excoriated in the public conversations around the country for what they have done and what they continue to do to our economy—those are the people who will benefit, and it is the poor in our constituencies who will suffer.

Did my hon. Friend spot the illogicality in the position of the hon. Member for Dover (Charlie Elphicke), who made an impassioned claim to be a scourge of tax avoiders, but is in effect endorsing tax avoidance by arguing that we have to reduce the rate of tax because so many people are trying to avoid it? Would it not be better to look at ways of preventing people from avoiding tax?

My hon. Friend, yet again, makes an excellent point. There is an implicit acceptance that people will try to avoid tax, and that therefore it is better to reduce the level of taxation so that there is not the same level of avoidance.

Most of my constituents listening to this debate and to the debate that has been going on since the Budget think the Government do not understand what people are going through, what they are feeling and just how difficult it is for some of them to make ends meet. They do not understand that precisely because of the sort of signals the hon. Member for Dover just mentioned. The Government consider it more important to make those signals to the wealthy. They think it is more important to focus on what they understand about their involvement in society, and they do not give the same attention to getting those messages to the poor in society.

What the Government have done in the Budget is to say, “If you are poor, we know that the best thing for you is to cut your benefits to make sure that you work harder, and if you are rich, we know that the best thing for you is to cut your tax so that you work harder.” People look at that and say, “This doesn’t make sense. It’s one law for the rich and another law for the poor.”

Yes, we do understand, and I in particular understand because my constituency is one of the most deprived in the south-east. The economic numbers are much more like those of a constituency much further to the north of England than the hon. Gentleman’s constituency. We do understand, and we also understand that wages have stagnated since about 2004, on the hon. Gentleman’s Government’s watch. This is not a new problem. We understand that, which is why we need to reduce the top rate of tax to encourage the job creators to create the jobs and the money that will give my constituents more prosperity.

The hon. Gentleman talks about the way in which wages have broadly stagnated. We are now seeing wages going down and jobs being lost, and we are back in recession. He should look at the promises of his Government in that first Budget. The promises, commitments and assertions were that the measures in it would pull us out of the problems that we were in and get the economy back on track. They would deliver growth and prosperity, but they have not. He will remember, because he is an honest fellow, to use his word, that at the time, on the Opposition Benches, people were saying, “No, this will lead to a double-dip recession.” All those on the Government Benches told us in unison that we were wrong and that the Budget would pull us through the problems.

The electorate look at that, see the analysis, see what steps were taken and ask, “Who was right?” They know, because we are back in double-dip recession, that the Government got it wrong. We are at a point where there is £150 billion extra borrowing, the largest single increase year on year in the UK’s history.

Order. I know the hon. Gentleman is painting the big picture, but we need to come back to the relevance of income tax. We have discussed personal allowances. I know he will come back to the point.

I accept your ruling, of course, Mr Deputy Speaker, and you are right. We have strayed wide of the initial focus of the amendment. It was not my intention. All I can say in mitigation is that I was led down the path by the interventions that I took.

I welcome this debate because the decisions that we take on tax rates are critical. We have had a slightly more general debate than I expected. Opposition Front Benchers particularly presume that the Government can somehow control events. However, there is a big wide world out there and anybody watching television or watching what had happened in the eurozone knows that there is a limit to what any Government can do in the present circumstances, when confidence is low, countries are being bailed out and businesses, even those with money, are not investing as rapidly as one would like. All the Government can do within the global context is try to make the best decisions they can on the information that they have. We have a plan, which I think is a good plan, and by and large we are sticking to it. The deficit has come down by 25%. That is a start and we need to do more.

On the subject of income tax rates, I think we tax people at far too small a salary. We do not increase incentives to work. A key point of the coalition programme is to up the basic allowances to make work pay. We all know—I am sure even the hon. Member for Brent North (Barry Gardiner) knows—that the benefits system can be a big disincentive to people taking jobs. People act rationally, and if they are not going to be much better off or if they are going to lose money, they will not take work. A reform of benefits is needed, with the universal credit coming in, and we have to up the income tax allowances for those at a lower pay level in order to increase incentives for people to take jobs. Hopefully that will get more people into work over a period of time.

All the evidence suggests that work is good for people. It is better for their health, including their mental health, and it is a better way to bring up a family, and of course those in work have a better chance of gaining skills, reskilling and getting on in life. That is the key point about what the coalition Government are trying to do. Therefore, I commend them for what they have done to take many millions of people out of income tax and hope that they continue to make progress in that area so that incentives to work increase over the next few years.

The hon. Gentleman is very kind to give way. Does he agree with hitting pensioners hard with the £3 billion tax increase?

About a quarter of my constituents are pensioners, but I have received only three or four e-mails on this subject. It is not a major issue in Poole, where most of my constituents pay tax. I do not think that it is the big issue that Opposition Members claim it is. It depends on how fast the basic allowance for all taxpayers overtakes the age-related allowance, which I presume is logically what the Government want it to do. Of course, it also depends on the level of inflation. If we freeze the allowance and have higher inflation, it will be eroded more quickly than if we have lower inflation. Thankfully, one of the good points about the past few months is that inflation is starting to crash back down towards 2%, and the sooner we reach that rate, the better.

If we look at what the Government have promised in their triple lock for pensioners—the increase in the basic state pension of over 5%—along with the winter fuel allowance, which we continue to pay, and free bus travel, we will see that their priority has been to support pensioners. We have been criticised over the reduction in the winter fuel allowance, but I point out that the previous Government put it up for the election year but made no budget provision for the year after, and we are faced with some very difficult problems. Unfortunately, it is an expensive item and the Government have been unable to keep it at the level it was for one year, but on the whole we have kept it at the level it was for most years at the end of the previous Government’s time in office, and that is a boon to many pensioners. I think that what the Government are doing on the age-related allowance is probably the right thing to do.

I am surprised to hear that only three or four of the hon. Gentleman’s constituents have contacted him on that point—I wish him good luck on that. Various figures have been bandied about and I wonder whether he disputes them. It has been suggested that 4.4 million pensioners will lose up to £83 a year and those turning 65 next year could lose up to £322. Does he support that?

I am not sure that that is a massive loss of income. The most recent issue we debated was the 3p cut on fuel, which will make more of a difference to pensioners in my constituency than this minor change in tax allowances. I think that the Government’s policy towards pensioners is fine.

Let me turn to the top rate of tax. We all know that there is a lot of politics in this. The rate was 40p under the previous Government, except for the last 37 days they were in office, so the 50p rate was one of the wonderful inheritances from them. Clearly, if we want to stop people looking to avoid paying tax, we have to keep a competitive rate. At 40p we have a rate that was competitive with many western European countries, but at 50p we do not. If we have a country without exchange controls, a very mobile population, as we do, and people with highly tradable skills, there is a danger that if we start to put up the rates we will lose revenue and people will go abroad. As my hon. Friend the Member for Dover (Charlie Elphicke) said, having had a 50p rate which meant people started looking at how to avoid taxation, that might stay in the system for some time. I welcome what the Government have done by reducing the higher tax rate to 45p. I think that it is a pity they delayed it, because I suspect that the impact will be to reduce income tax take for the current year, but when the rate drops to 45p for the year after, we will see an increase in the income tax yield.

It is important to give a message. I was in this House when the previous Government put up income tax. In one of his last speeches from the Government Back Benches, Stephen Byers said that he very much regretted that the Labour party had decided to do that. If all the evidence suggests that that has not raised very much this year, it seems to me that it is being done for ideological reasons, rather than practical, economic ones. If nothing else we ought to be practical in how we do things. Therefore, the Government’s reducing the top rate, as a start, is the right thing to do which will have a beneficial effect in the long term. But let us not forget that the allowances for the lower paid have gone up this year. The top rate of tax will come down next year, by which time we will have had another Budget in which I hope the Government will have made more progress on assisting some of those on lower pay and taking more people out of the tax net.

The one thing that can be said about the Government is that their thinking is joined up. We have welfare reform, we are pushing up the tax allowances to increase work incentives, and we are dealing with a whole range of tax rates, including trying to make corporation tax more competitive, and I think that that will make us a much more competitive country in the world. We look like an island of stability, certainly compared with the eurozone countries. Let us hope that they sort out their problems so that we can start selling them our excellent goods, but let us face the fact that we live in a competitive world and unless our taxes are competitive we will not be able to generate the wealth to pay for all the things we want: health, schools, foreign aid, defence and all the things we need to do. I think that the Government are on the right track. Clearly, it is a very bumpy economic environment, certainly rather bumpier than we might have thought it would be when we came into office, but provided we have leadership and vision, we will get through.

It is a pleasure to contribute to the debate. It has been very interesting listening to the debate on income tax for the 2013-14 financial year. Hon. Members already know the position of the Plaid-SNP-Green group; we were among the handful of Members who voted against the inclusion of the new 45% additional rate in the founding principles of the Bill at the conclusion of the Budget debate earlier this year. Indeed, the official Opposition seemed to miss that debate, with the exception of two Labour Members, the hon. Members for Newport West (Paul Flynn) and for Bolsover (Mr Skinner). I also tabled amendments in Committee, which were supported at the time by the official Opposition, including some that they have chosen to table for this evening’s debate, which naturally I will support if they decide to push them to a vote later.

Much of the debate on Second Reading and in Committee focused on differing interpretations of, and often selective quotations from, a series of reports. Hon. Members attempted to argue that their party’s interpretation of the statistics was most valid, and we heard some of that again this evening. They were essentially making economic arguments about taxation—about the Government’s claim that the loss of tax revenue from shifting the 50% additional tax rate to 45% would be compensated for by the stimulus it would provide to the wider economy, and that given the amount of forestalling and income shifting that the 50% rate has apparently generated, we would be better off in future and, ultimately, more tax would be paid. That is the thrust of the argument.

I simply do not buy the idea that a tax cut will make those avoiding the 50% rate choose to contribute to society by paying at the 45% rate. What the Treasury should be doing, rather than giving a tax cut to those earning in excess of £3,000 a week, which is almost twice the average income in two months for most of my constituents, is closing down all the clearly aggressive tax avoidance schemes, some of which have been highlighted in recent weeks, and ending the tax havens that provide a nice bolthole for those who wish to hide their income.

For my party, however, the issue of taxation is one of principle. We believe that people should be proud to pay taxes and contribute to society. It should not be a game in which those who can afford to pay an accountant pay less and then consider it a triumph or a success. As I said during a debate in Committee, the Scandinavian model of taxation and social security is in my party’s DNA. Some might say that that is the difference between ourselves and the Labour party, which announced the introduction of the additional rate as a temporary measure, bringing it in literally weeks before the party left government. Where we believe that the additional rate is part and parcel of contributions to society, Labour remains unclear how long the now official Opposition intended to continue the additional rate.

This tax cut for the mega-rich leaves a bitter taste in the mouth. Public sector workers in my constituency face pension changes, meaning that they have to pay more in, that they get less out and that they work longer—that is, those who still have their jobs after spending several years with pay freezes and the threat of regional pay dangling over them. Living standards for private sector workers in my constituency are being squeezed, and many families struggling to make ends meet are being stigmatised by the Government, while the disabled and the vulnerable face tribunals to decide whether their pain is real. It is not acceptable that we are in a society which tells those at the bottom that they have a culture of entitlement, while those at the top get huge and unnecessary tax cuts. Why do we think that we can cut the poor’s income to make them work harder, but incentivise the rich through tax cuts? That is perverse thinking.

We support the aim of amendment 3, which would give those public sector workers earning less than £21,000 who have had their pay frozen a £250 tax rebate. They deserve it, as do many private sector workers who have lost out because of the Treasury’s austerity economics.

We support also amendment 1, tabled by the official Opposition, despite its effect of wiping out the additional rate altogether for 2013-14. Given their failure to vote on the inclusion of the 2013-14 rate in the Bill at the time of the Budget, we recognise that their intent is to show their belated support for maintaining current income tax rates. If the amendment is successful, we expect the Government to reinstate the top rate at 50%.

With last week’s figures confirming that the double-dip recession is deeper than first thought, and with the cuts now beginning to feed their way through the system, giving a tax cut to the mega-rich is a funny way of showing that we are all in this together.

It is a pleasure to follow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I shall make a few brief remarks on various subjects in the Bill, starting with the granny tax, which I also spoke about on either Second Reading or during the Budget debate—we seem to have been debating it for a long time, particularly those of us who have done a few weeks in Committee on some of these topics.

I was one of those who heard the Budget, heard the Chancellor briefly mention what became known as the granny tax and did realise what it was likely to mean. I was not one of those, like the hon. Member for Leeds West (Rachel Reeves), who claimed that the Chancellor had hidden it in his speech; it was clearly there.

Those of us who, in our short time as Members, have argued that we need to simplify our tax regime face a problem when one way suggested by the Office of Tax Simplification is this very idea. To be fair to the OTS, it did not envisage its idea being introduced quite so quickly. I suspect that generally it would be quite keen to have its ideas legislated on in a matter of weeks, but on this one it intended there to be further consultation and deliberation. It was, nevertheless, one idea that it came up with as a way of removing one of the regime’s complexities, whereby an additional allowance has to be claimed, the policy justification for which was determined a long time ago. It is perfectly reasonable for the Government to revisit it and to wonder whether, of all the groups in society who need such extra help, pensioners earning more than the state pension are one of them.

Those people who have done the right thing and saved, and who now have a little private pension on top of their state pension, are generally the ones in whom we want to encourage pension-saving behaviour, but the basic personal allowance is rapidly heading towards the £10,000 target in the coalition agreement, and the benefit of that higher personal allowance has to be clawed back. We are seeing a complexity with a reducing benefit, and we are perfectly entitled to want to understand the policy justification for it when we spend the limited amount of money that we have. It is not, therefore, an unreasonable or illogical proposal for the Government to bring forward; there was a year’s notice, and there is a chance for consultation to consider its impact.

The hon. Gentleman recognises that we cannot please everybody, but does he agree that cutting taxes for the rich pleases the rich, while the ones who will be less pleased are pensioners, having £83 a week taken off them, and people who turn 65 next year, losing £322?

I am sure that people who benefit from a tax cut will be pleased and those who lose out from a tax change will not be, so I guess I can agree with most of that, but it will be interesting to see in the Lobby later whether the hon. Gentleman votes for his party’s amendment, which would mean the House passing the Bill after abolishing the 45p rate completely and reducing it to a 40p rate.

It is all right saying, “Perhaps we can do that and perhaps the Government will do something different in future,” but we are legislating in Parliament, and if we were to vote for the amendment and remove the 45p rate, it would not actually exist, and I am not sure that those Members who would rather the provision read “50p” than “45p” could in all conscience vote for that. I clearly will not vote for the amendment, because it would be the wrong measure at this time; I will vote for there to be a 45p rate in next year’s tax regime.

When I debate these things, I could take a narrow constituency view. I suspect that very few of my constituents pay the 50p tax rate, as I have many pensioners who are not that well-off and will be adversely impacted by the granny tax, so from a political and personal view I could happily oppose the tax cut and the granny tax, too, but we have to get our economy into sensible working order.

The hon. Gentleman talks about the over-65s, saying that this is all very fair and things will balance out over time. Does he not understand that someone over 65 is likely to be on a fixed income and £323 is therefore considerably more important, whereas if someone earns higher amounts and is taxed at 50%, 45%, 40% or anything in between, whatever it may be, they have the capacity to earn more? Once they retire, it is the fixed nature of their income that makes the Chancellor’s decision so invidious.

I am grateful for the intervention, and of course understand that pensioners living off their savings have suffered terribly during the recession, starting with the raid on private pensions when Labour first came into office, all the way through to the terrible impact of the loss of interest income on savings. I totally accept that that is clearly an issue, but to return to the 45p or 50p rates we ought to be completely accurate. With the 2p national insurance charge, which comes in when someone normally starts paying NI, and which will remain, those rates are 52p or 47p. We should be careful on a matter of principle. I am not sure how many people out there would want to work if the money for more than half an hour of every hour that they worked was not for them but for the taxman. That is what that effective 52p rate does; it means that a person is probably not working for themselves for 31 minutes of every hour.

I am not sure that that is a real incentive for those who have a lot of money. They do not need to carry on working; they could retire to their yachts and sail around the Mediterranean. We want them to come back, invest in another business, have another go and employ some more people. We want that investment to come into the country. If a person is keeping less than half the money they earn, there is a real psychological impact. That is why it is right to bring the rate down.

We are having a long political debate about what was meant to be a temporary tax. The previous Government never had it in place when they were in power; it was set up as a political stunt for the election. It was not expected to raise significant amounts of money. It was there not for an economic purpose, but a political one. It was right for us to say that at a time when we need to get activity going and to attract investment into the country, we need to encourage those who have a choice whether they carry on working and generating wealth or not, to carry on working.

It is right for us to bring the tax rate down. I would have thought that it was better just to do it rather than wait a year, but there are many good economic reasons why we had to wait for that length of time. The fact is that if tax rates are too high, people get much more keen on avoiding tax.

When I was relatively new in my accountancy career, the then Chancellor in effect reduced the capital gains tax rate to 10% tax on the sale of a business asset. The place where I worked then had made lots of money advising people on how to reduce their capital gains tax liabilities when they retired from their businesses. When the rate went down at a stroke overnight from 40% to 10%, that meant that no one was interested in that kind of tax planning; they were perfectly happy to pay what they thought was a reasonable tax bill. But the reverse effect also applies—if the rates go up to a level that people are not happy to pay, they will start to use ingenious methods to avoid the taxes.

The hon. Gentleman is speaking as though his party had always supported the abolition of the 50p tax. However, a couple of months before the Budget, the former Energy Secretary, the right hon. Member for Eastleigh (Chris Huhne), was saying that the 50p tax was here to stay. He told the BBC:

“I think we’ve won that argument.”

What happened?

I guess it is not for me to explain the right hon. Gentleman’s comments. He was clearly misinformed.

However, we have seen that drift towards tax avoidance. I was saying that there was an easy way to avoid paying UK tax—not to be working in the UK at all. People can choose whether to come here or stay here; no complicated avoidance is necessary if they are not here at all. We want to attract the most skilled and able here to earn their money.

My hon. Friend the Member for Dover (Charlie Elphicke) was generous in not having a go at some of the high-profile individuals who have been caught avoiding their taxes. People earning very good livings in this country should pay the tax that Parliament tells them they have to pay—there is no excuse for using complicated routes through Isle of Man or Channel Islands trusts. If they are taking money from hard-working people who go to their concerts, comedy shows or football matches, it is outrageous for them to route it through the Isle of Man. I am not sure that I would choose to listen to their concerts or their jokes.

We should send a strong message that such behaviour is unacceptable. If those people are now feeling a little guilty and think that they have made a terrible error of judgment, it is quite simple—they can re-file their tax returns from recent years, declare all that income and pay tax on it. As Gary Barlow might think, “It only takes a minute” to do that—[Interruption.] We had to get some in. Then that money would be “Back for good”, wouldn’t it? It would certainly be one of our “Greatest day”s. I only “Pray” that he would do that—it would certainly be magic if he did. Those are all the Take That songs that I can remember, so I will not carry on.

The important point is that if we push tax rates up too high, revenues will start to go down and people will start engaging in the behaviour we want to crack down on. The Government are cracking down on it and doing everything they can, but there is a limit to how far ahead they can stay. New things will always come along. Fundamentally, we cannot stop people leaving the country.

Labour Members generally think that Conservative Members cite the Laffer curve; we have heard mention of calculations on fag packets and so on. The theory that revenue falls if tax rates are too high is a lot older than the Laffer curve. I had the pleasure of studying Mr Ibn Khaldun, a Muslim philosopher from the 14th century, who wrote an extensive commentary on what happens with tax rates. When they start low, they generate lots of economic activity. Gradually the Government like the idea of spending money, taxes go up and then the economy fails. If our debate was not programmed tonight, I could read out pages of those quotes, to prove that Mr Laffer’s theories are not new, but I shall resist. The theory is not new; it is an entirely understandable and accurate theory: if tax rates are too high, we end up losing revenue.

Another amendment under discussion would give a £250 tax cut to a public sector worker who had not had their £250 pay rise for the last two years. I am not convinced by that. It would be very generous; presumably, if they had had the pay rise, they would have to have paid tax on it, so they would not have had the full benefit of the £250. The idea is probably tempting, but I will not be able to vote for it.

I do not want to broaden the debate too much, but I say at the outset that we should get back to the basics. Why is it important that people pay tax? I strongly believe that it is important for people to have a stake in society and that paying tax is a big part of that. I may be out of step with a number of Members—including, possibly, my party’s Front Benchers—in believing that the rush to increase the personal allowance and take lots of people out of tax is not necessarily, on its own, a good move. Taking people out of the tax system altogether denies them responsibility for a number of issues to do with public spending and takes away the accountability that we, as elected Members, should have in helping to set those policies.

I agree with the hon. Lady, but does she note that we are not taking people out of national insurance? All those people are still paying the tax most closely associated with the main public spending items.

It is interesting that the hon. Gentleman has managed to conflate tax and national insurance; perhaps he has given away what the Government’s thinking really is.

I am a member of the Public Accounts Committee which has been looking closely at the sometimes interesting tax arrangements of some individuals. We recently went on a study visit and discussed some of the international issues to do with how tax is dealt with. The UK’s is a complicated system and we are not alone in that. This means that, in the corporate world, corporate lawyers can run rings around HMRC and that highly paid lawyers can find ways for some high-worth individuals to work in a more tax-efficient way, to put it politely, and actively to avoid tax—sometimes worse. To a degree, New Zealand has simplified its tax system, although it is difficult to know from a distance how successful that is for people.

If the increase in allowance were genuinely linked to a simplification of the system, I would be much more supportive of it, but it has the feeling of being rather piecemeal, a bit joined together. It is like a dodgy second-hand car—the front bit is welded to the back bit. The coalition feels a bit like that; sometimes I am not entirely sure whether the Deputy Prime Minister or the Prime Minister is at the front or back at any particular time. There is a danger that we are seeing the increase in the personal allowance as a sticking plaster for one element of the coalition, while the cut in the 50p tax rate, which, as my hon. Friend the Member for Ashfield (Gloria De Piero) pointed out, was opposed by the Liberal Democrat half of the coalition—she quoted the former Energy Secretary—is a sop to the other side. We almost have two unjoined-up bits of the system.The hon. Member for Amber Valley (Nigel Mills) talked about tax simplification. If that is the mission, then let us see the overall plan for it, but all we hear about is the increase in personal allowances. I do not sense that there is a big idea, and that is a real worry.

Let me turn to the 50p tax rate cut. Some 300,000 taxpayers will gain £10,000 a year as a result of that policy. These are individuals who earn more than £150,000 a year. The Treasury says that it should do this because £2.9 billion will supposedly come back from the people who are currently avoiding tax. I am not sure that that stacks up. Government Members try to suggest that these earners are all wealth creators, but we need to look a bit closer to home in the public sector. Perhaps the Government of whom I was a part, and the party that I represent, should have been a bit sharper in this regard. Public sector salaries have increased exponentially over the past decade. With the best will in the world, and much as I admire many of the people in my own constituency, and those I have met over the years, who work in the public sector because they genuinely believe in public service, they are not wealth creators, and I do not think they would consider themselves to be so. They may be safeguarding the health of my constituents or enabling the council to deliver excellent services; there are myriad ways that they can help, but wealth creation is not one of them.

I totally agree with my hon. Friend. Ten thousand pounds a year equates to £833 a month, and it is more than hundreds of thousands of people in my constituency make on an annual basis.

Absolutely. If we have a duty in this House, it is constantly to remind ourselves of what life is like for our constituents. We can get lulled into a sense of safety and snugness on these green Benches and enjoy intellectual repartee and debate, but we are here to represent the people who elected us. It is incumbent on us to remember that many people are living on £10,000 a year or less, and it is important that we reflect their concerns in this House. For me, that is a burning issue. I want my constituents to earn more than £10,000 a year, but they will not be able to do so unless we get the economy moving.

Locally, we have real poverty and high unemployment. Youth unemployment has risen to about a quarter of the total number of my constituents aged under 24, as roughly a third of them are, and we are seeing an increase in over-50s unemployment. These are the people who are not gaining but seeing those earning over £150,000 gain considerably. There is a lot that we need to do.

We must look at the unfairness of the cut overall and at the needs of the people who are earning less. I do not think that the money that is supposed to come back will be used to reverse the cuts to further education, to make the banks lend or restore the overdraft facilities of small businesses in my area, or to restore the education maintenance allowance, which had a big impact in helping those in my constituency who wanted to skill themselves up to earn more money—the end of EMA put those people on the back foot. Those matters all impact on the lives of people in Hackney South and Shoreditch today.

A year ago, the Chancellor promised that the measures in the Budget, some of which we are debating today, would boost the economy. What have we seen in the past year? The economy has not just stalled, but shrunk. Again, who suffers the most? It is not the people who have gained from the reduction in the 50p rate of tax, but ordinary men and women up and down the country who are working hard and paying tax. The Chancellor has also had to borrow £150 billion more than planned.

I have mentioned the freezing of the personal allowance overall, but the decision to take away the pensioner element has the biggest impact on those who earn between £10,000 and £29,000 a year. There are not many pensioners in my constituency who earn more than that, although it does have an interesting mix. Being on the edge of a city, there are people of greater wealth in my constituency, but they are not many in number.

Somebody who is due to retire in 2013-14 aged 65 will lose £323 a year, which other Members have talked about at length. It is worth reiterating the point that I made to the hon. Member for Amber Valley: somebody who is on a fixed income or who will be on a fixed income in a year’s time will have to adjust their affairs overall, including their savings if they are lucky enough to have any. That £323 may not seem much to us on our comfortable salaries as Members of Parliament, but for people on low-level fixed incomes of just above the amount where they would get help other than the basic state pension, that will have a real impact on their household income. I reiterate that we must think about the message that that sends out: pensioners are the victims; those earning £150,000 a year or more are the victors. That is unfair.

Thank you, Mr Deputy Speaker, for giving me the opportunity to contribute to this debate in support of the Labour Opposition amendments.

I was a member of the Finance Bill Committee and attended each of the 18 sittings over the past several weeks; obviously I must have been bad in a former life. It was clear to me that the more the Bill was scrutinised in Committee, the more it was revealed that the Bill, and the Budget that it will enshrine into statute, is the omnishambles that many commentators have described it as.

Once again, the Tories are showing their true colours. It was a classic Tory Budget, with millions paying more so that millionaires can pay less. That is evidenced by the fact that, as we have heard throughout the debate, 14,000 millionaires will receive a tax cut of more than £40,000 a year, while 4.4 million pensioners will lose an average of £83 a year. It is a classic Tory Budget, but with the difference that it was possible only thanks to the support of the Liberal Democrats—the Lib Dems who continued publicly to oppose any change to the 50p rate of income tax immediately prior to the Budget statement but then voted for it; the Lib Dems who, before the last election, repeatedly stated their opposition to immediate public spending cuts, only to support a Budget reduction of more than £6 billion within two weeks of forming the coalition; and, lest we forget, the Lib Dems who promised not to raise VAT and then raised it.

The 50p rate raised about £1 billion in its first year and could have raised £3 billion a year over the lifetime of this Parliament and beyond. Its continuation could have been used to cut fuel duty, not just freeze it, as we agreed in the previous debate. Many of my constituents have written to me about that. It could have been used to reverse the Government’s damaging cuts to tax credits or help reduce the deficit. Instead, the Chancellor chose to give the richest 1% of earners a huge payout. People on middle and low incomes are already being squeezed by rising fuel, energy and food prices. Now, their tax credits and child benefit are being cut. Yet again, the Government have made the wrong choice and proved how totally out of touch they are.

The aspect of the Budget that has undoubtedly caused the most anger among my constituents is the decision to freeze the personal allowance for pensioners, which will help subsidise the Chancellor’s bumper tax cut for the rich. That was buried in the Budget’s small print, and the Government tried to make out that it was a tidying-up exercise. However, nobody was fooled by that. It was clear that it was actually a £3 billion tax raid on pensioners. No wonder that was the only aspect of the Budget that was not leaked in advance.

How will the Chancellor’s tough talk about cracking down on tax evasion and aggressive tax avoidance, which he says is “morally repugnant”, be put into action if the resources of Her Majesty’s Revenue and Customs continue to be cut? Some 10,000 jobs will go by 2015, including 240 processing posts at Pentland House in my constituency.

Labour’s five-point plan for growth offers an alternative vision. If the Government followed our advice and implemented a £2 billion tax on bank bonuses to fund 100,000 jobs for young people, we would begin to see some progress on tackling the scourge of youth unemployment. Instead, millions are left to pay for a Budget for millionaires—a classic Tory Budget, but this time supported by the discredited Liberal Democrats.

I should, in the interests of probity, place on record the fact that my wife works for Age Scotland. I declare that interest.

The contrast between the two sums of money that we are debating has been mentioned several times. There is the £3 billion of tax cuts for millionaires’ row, versus the £3 billion by which our pensioners will be worse off as a result of the punitive measures employed by Liberal Democrat and Conservative Members. Personal allowances for the over-65s, our golden generation, are to be cut in real terms in the coming year. As several hon. Members have mentioned, that will mean that a pensioner who turns 65 in the next year will be up to £323 a year worse off. In these hard-pressed times, with the rising cost of living, rising energy and water prices and the flatlining of their savings, they can ill afford to pay that tax. It is worth contrasting their situation with that of the people who will be the greatest beneficiaries of the Government’s decisions.

I know that many Members are fans of a popular US television programme called “The West Wing”. For hon. Members who do not own a television, let me explain that it is about a wonderful Democrat politician, whom Members of all parties might aspire to be, who is pitted against a mad, right-wing Republican Congress that pursues more and more absurd policies. Even “The West Wing” could not countenance the idea that in a time of austerity, when deficits have to be reduced, a right-wing party—or the two right-wing Government parties—would call for tax cuts for the very wealthiest. Even Speaker Haffley in “The West Wing” would not support such ludicrous so-called economics.

Would my hon. Friend care to speculate on how many of the 14,000 millionaires who will be super-beneficiaries of the measures will stop moving the mountains of cash that they currently move to avoid paying tax when the top rate is reduced from 50p to 45p? Surely if they move mountains of cash to avoid paying 50p, they will not move any less to avoid paying 45p.

I suspect the best and fastest way to answer my hon. Friend’s question would be to attend the next Conservative party fundraising drinks event, where I am sure many of those millionaires will be buying the Minister a rather hearty round.

Much has been made of the quad’s all-night drinking session. I am sure they were drinking fine Scotch malts—indeed, no fine malts are made outside Scotland—but they should have spent more time looking at the detail of those two decisions. In direct contrast to the hon. Member for Dover (Charlie Elphicke), I would argue that pensioners on an income of £10,000 a year are not among the wealthiest pensioners in the country. If Conservative Members believe pensioner households struggling to get by on £10,000 are wealthy, it goes to show how staggeringly out of touch they are.

I am extremely grateful to the hon. Gentleman for giving way and am enjoying his wanderings through the drinking habits of certain Members of the House, which I am not sure are directly relevant. Why is it fair that pensioners should have this benefit but not families who have a £10,000 allowance who are struggling with children? Why is it fair that the benefit should be age-related?

I always give way to the hon. Gentleman, who knows more about age than anyone in the House. He needs no history lesson, but the measure goes back to the end of the second world war, and the concept of the greatest generations—those who have given a lifetime of sacrifice. It is worth noting that, just last week, we unveiled a long-overdue memorial to some of that greatest generation. I am sure he would recognise their sacrifice.

The measure was introduced earlier, I believe by Winston Churchill; indeed, an hon. Member asked earlier how we could overturn what the great man had done. The wartime generation are having the benefit frozen; they are not losing it. The people who are not getting it were not born when the war was going on.

I cannot believe the hon. Gentleman’s hearing is going. I began by saying that a cash freeze is a real-terms cut. I am sure he would agree with that.

The Government’s wonderful policies are very successfully bringing down inflation; there has been a substantial fall. In addition, oil prices are coming down and there is a cut in fuel duty. That amazing combination means everything is working very well.

With an intervention like that, it will not be long before the hon. Gentleman is sitting on the Front Bench speaking for the Government on Treasury matters. Perhaps I can help him on another matter, though, because several references were made to Take That. For his benefit, let me say that they are a popular beat combo who can often be found on the wireless. He might enjoy listening to them.

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Order. We do not need to worry about Take That and radios for today. I think that the circus has carried on long enough.

I am most grateful, Mr Deputy Speaker.

Would my hon. Friend care to reflect on the fact that we have just heard from the hon. Member for North East Somerset (Jacob Rees-Mogg) a celebration of stagflation?

My hon. Friend is correct. This is not a time for celebration, as the cost of living continues to rise and the cost of energy and other precious commodities heads in the wrong direction. The real-terms cut faced by pensioners this year will make their lives much harder.

It is also worth reflecting on who will benefit from the proposals outlined by Ministers. We are talking about footballers, pop stars and “Big Brother” contestants. We talk about wealth generation and the value of people. With the greatest respect, I would argue that those three categories should not be given priority over our greatest generation. I know that the Minister is a courageous soul and, for his sins, an Ipswich Town supporter—such as that can be—but I wonder whether he truly believes that the value given by Ipswich Town players last year or this year was greater than the value given by the greatest generation in our nation. Surely, he must reflect on whether Middlesbrough, Ipswich Town, Sunderland, Leicester City or Crystal Palace players should really be prioritised over our pensioners.

Did my hon. Friend notice the inconsistency of the Liberal Democrats on this matter? In January, they said it would be very wrong to reduce the 50p tax, but by March they were briefing that they were not ideologically wedded to the tax. Has this episode not demonstrated their powerlessness in government?

I often think that the Business Secretary would make an excellent contestant on “Strictly Come Dancing”, such is his fleetness of foot. In fact, I am sure that tomorrow morning there will be leaflets out in Brent and elsewhere condemning and disowning this Government policy, as if Liberal Democrat votes had not yet again carried the argument, leaving Ipswich Town footballers and others better off and our greatest generation worse off. This is a poverty of policy. It is the worst example of what happens when the quad sits up drinking and it will leave the country with a dreadful hangover.

The policy on the higher tax rate is, in effect, an endorsement of tax avoidance, which worries me greatly. Some of us sat through the Finance Bill Committee and heard Government Back-Bench Members say how much they disapproved of tax avoidance, but throughout this episode we have heard people argue that because some people have taken steps to avoid tax, we should reduce it. That is highly unsatisfactory to the many people who, on pay-as-you-earn, have little ability to avoid tax. They are gobsmacked by all this.

If part of the problem was due to people forestalling, which is the technical term, in the first year of the new tax, perhaps—and this is a thought for the future too—we should have introduced it with immediate effect, as happens with some other taxes. For example, tobacco duty is generally increased on the day of a Budget, so that people do not rush out to fill their shopping bags—or whatever they do. Perhaps that would have been a way around it. I know it is not traditionally done with increases in tax rates, but if that is how people respond to these things, perhaps we should treat higher earners like we treat people we think will fill their bags with cheap booze or cigarettes, and forestall them, rather than letting them forestall the rest of us—because that is what they are doing to the communities in which they live. Unfortunately, in a year’s time, we are likely to hear Government Members saying “We told you so” even more. The reduction has been postponed for a year, but it will still happen, and a lot of people will no doubt do the same thing in reverse when it does.

It has become something of a mantra to say that no money was ever raised from the 50p rate of tax, but that is not true: £1 billion was raised, even in the year in which people were apparently forestalling. If we had let it run for somewhat longer, the situation could have been even more different. However, as the Institute for Fiscal Studies pointed out, to rush to judgment on this matter so quickly, because that suited the way in which the Government wanted to go, was not justified. We are, in effect, saying to people that it is all right to avoid tax.

I started to tell a little story earlier, and I hope that it will be seen to be relevant. I am fascinated by history, and particularly by housing, and—unusually, for me—I watched a television programme last night. It was entitled “The Secret History of Our Streets”, and last night’s episode was about Portland road, in London. It had been made long before the current debate on the Budget. A young, brash banker got up and said that the value of the property on that street had gone up even further since the taxpayers had bailed out the banks. Did we really think, he asked, that the banks were going to start lending to small businesses? No, they were going to give people like him an increase in income so that they could pay even more for those houses. He might have been one of those boastful types, but that was nevertheless an insight into the mindset of the kind of people in our community who think that tax avoidance is absolutely legitimate. There is a great deal of wealth in this country, as that example showed, and many ordinary people find this whole debate offensive and difficult to swallow.

At the other end of the tax issue, we have the question of raising the tax-free allowances. The Government keep saying how kind they are being to people on low incomes, but we should remember that once those people have had their tax allowance raised, they will get no further advantage in subsequent years because they are already out of the income tax regime. Other people, however, have gained considerable advantages from the raising of the basic tax threshold. Many people on considerably higher earnings—although not necessarily paying higher rates of tax—have gained from the measure.

It has been easy—for the Liberal Democrats in particular, as this is one of their favourite lines—to say that raising the tax threshold is all about helping the very poorest. However, the very poorest were already outside the income tax regime, and people on considerably higher earnings—particularly two-earner families without children—have benefited substantially from the raising of the threshold. We must also take into account what people on the margins who have been taken out of tax have lost. When we look at the details, we see that as a result of the measure, they could lose tax credits and, in some cases, housing benefit. Their gain is therefore very much less than has been suggested.

A lot of the people my hon. Friend is describing are actually in work, and the Government seem to forget that a lot of low-paid workers get housing benefit and other benefits. Does she agree that it is those individuals who will be hit the hardest?

Indeed, people who are working and who are, or were, paying tax stand to lose considerable amounts, particularly in the light of the way in which the tax credit system has been eroded as part of this process.

There are those who say—again, this is one of those things that keeps getting repeated as if it were true—that the Labour Government were not bothered about getting people into work or making work pay, but the whole thrust of tax credits, including child care tax credits, was indeed to make work pay. What this Government have done, by reducing the amount that can be claimed for child care, by taking away tax credits and, most inappropriately in my opinion, by taking away tax credits from some of the lowest-paid couples because they are deemed not to be working enough hours, more than detracts from the gains made by raising the tax threshold. Being realistic, these poor people whom the Liberal Democrats think they are standing up for have, particularly if they have children, lost out because of the combined effect of the Government’s measures.

I suggest that those people are also putting their money into the Conservative party, whose largest donors are often hedge fund managers or financial services companies.

That may well be the case.

What we need to do is to find ways to invest in our economy that will genuinely benefit not just those who are unemployed, but those who are under-employed. The Government like to suggest that the rate of growth in the private sector has increased slightly in the last few months, but most of the jobs created over the last couple of years are part-time jobs. As a result of that, these very people are simultaneously losing tax credits and have to claim other benefits. The housing benefit bill has risen substantially in the last year, despite the Government’s changes, and that is because many people in part-time jobs are having to claim. What we saw in May, for example, was that the tax take had dropped and expenditure had risen, particularly on various kinds of welfare benefits.

Taken as a whole, this policy is simply not working. I would have greater respect for the Government if they were now saying, “We must look at why it is that some people are seeking to avoid the additional rate of tax. We must find ways—perhaps it is nudge, perhaps it is enforcement—to make them pay.” As others have said in this and previous debates, we seem to say to one group of people that if we take their benefits away they will work harder, while we say to another group of people that we have to give them more money through tax breaks so that they will work harder. It does not make a great deal of sense, and it is profoundly unfair.

Some of the differentials in our society now are huge. If the proportion—not necessarily the amount—of tax being paid by the top 1% of earners has risen, it might well be because their incomes have risen so much further than those of the rest of the community. The gap between the top earners and the rest has widened hugely over the last few years, which creates a profoundly unequal society.

I have listened to a good deal of what the hon. Lady has said during our debates, and I have been trying to decide whether or not she supports the raising of the tax allowance. However, I want to ask her about the specific point that she made about the gap between the rich and the poor, which she said had widened over a “few years”. Surely she meant “over the last 13 years”.

As I think the hon. Gentleman knows fairly well, the increase in inequality began far earlier than that. The point in the history of the post-war United Kingdom when the equality gap was narrowest was 1979, which, interestingly, marked the end of a 20-year period during which Labour Governments had predominated. After 1979, the widening of the gap began and accelerated.

I would not suggest for a moment that the party of which I am a member did as much as I should have liked it to do when it was in government, but we did a great deal for pensioners and the least well-off workers in society by, for instance, getting single parents back to work and introducing the minimum wage. It is simply not true that we were not aware of the issues, or that we did nothing to tackle them. The hon. Gentleman may want to return to the heady days of 1979, and perhaps we should all want to do that. Now, however, inequality is breeding a society that poses many dangers, and we want to reduce that inequality, but I do not believe that the Budget does anything to reduce it. We know that the Budget will increase child poverty, and I believe that in three or four years the inequality gap will have widened even more.

It is a real pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore), who made such an enormous contribution to the Public Bill Committee. She enlivened it regularly with her thoughts, with which I have almost invariably disagreed—and today is no exception.

We are now dealing with the best part of the Budget: the heart, soul and even the guts of it. We are doing some big and bold and important things, with which I shall deal in turn. One of them is tough and brave and noble. It is the proper aim of Government to take on difficult things which, although difficult, are right. But I shall start, instead—

Will the hon. Gentleman give way?

Of course I will.

Is it bold and tough to rob the pensioners of £3 billion and give the millionaires a £3 billion tax cut?

The pensioners are not being robbed. The pensioners have been extraordinarily well looked after by this Government, and rightly so. I agree in many respects with the hon. Member for Dunfermline and West Fife (Thomas Docherty), who talked earlier about how important the elderly were to our society. He called them the golden generation. I thought that, out of respect to Her Majesty, we ought to call them the diamond generation, as they are all over 60.

Of course we owe a great deal to the elderly. That is why it is right that they have kept their bus passes—which they are pleased to have, although there are not many buses in North East Somerset—and their winter fuel allowances. If they are over 75, they will also retain their free television licences so they can watch the BBC free of charge. I think that many of them prefer Sky nowadays, but that is a separate issue. The Conservative party, in alliance with our Liberal Democrat friends, has looked after the pensioners.

As for the thresholds, it is absolutely right that they should be evened out. Let us consider the people who are paying tax across the country. How is it fair for those who have retired to be given an automatic tax break, rather than those who are working hard and perhaps bringing up children? They need the income just as much as the pensioners, and in some cases more. That, I think, was bold and brave of the Government, and right.

I want to begin, however, by discussing the easiest step to defend—the one that was so startlingly obvious that it is surprising that the Government did not take it earlier and go further. I am talking about the reduction in the 50p tax rate to 45p. We know well that high taxes drive out enterprise and people, and drive down tax revenues. That is not because of evil schemes of tax avoidance; it is because people simply decide that if they are not going to get paid, they will not work. They remove their labour. Our socialist friends—

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I give way to my socialist friend.

Does the hon. Gentleman really believe our society is enhanced by these pop stars and premiership footballers?

It has to be said that I am not the world’s greatest expert on pop stars and footballers, but none the less I think they bring a richness to our national life that enlivens many people in my constituency, and even in Scotland. They want to watch the highest quality football being played.

This is relevant, Mr Deputy Speaker, in case you think I am going off on a tangent. I have thought that it would be a good idea to remove the limit on overseas players in cricket, because that limit has been removed in association football and it has led to our having in this country the highest quality league football, and in English cricket—

Order. We are drifting away from the topic under discussion—and as somebody who follows cricket and feels that it is to the benefit of the England team that there are not too many overseas players in the county game, I do not want to go any further into this debate.

Thank you, Mr Deputy Speaker, but the reduction of tax is what encourages them to be here and why they do not decide to work in other countries instead.

I am pretty sure, Mr Deputy Speaker, that the England cricket team is very good and the England football team is not very good.

But my concern was about Somerset county cricket club. Football teams such as Manchester United do very well through having more foreign players. Somerset, however, has yet to win the county championship, but this lower level of tax and greater freedom in employing overseas players may lead to its achieving that.

Returning to the question of the 45p tax rate, we have had a discussion about avoidance in that context, and I want to defend tax avoidance. I know this is not the most popular cause to espouse, but I do so because I believe in the rule of law, and I do not believe the rule of law is best maintained by Parliament being arbitrary in its taxation.

We have the power, through our votes this evening, to set rates of tax as we choose—to set schemes that allow people to be charged tax, or not to be charged tax, as we choose. If we in this House are too incompetent to draw up the tax law properly, is it reasonable to say to the taxpayer, “You must work out what Parliament may have wanted. This is not what is said, but Parliament may have wanted you to pay this extra amount on top”? Should we then also say that to people who put money into their individual savings accounts? Should we retrospectively say that they ought to have paid more tax on their ISA sums, or on their pension funds?

Does the hon. Gentleman agree that there is a moral obligation on people to pay taxes, as well as a legal obligation?

No, I do not. I do not believe that taxation is a matter of morality. I believe the law is a matter of morality and it is immoral to break the law, and therefore I divide very firmly between tax evasion and tax avoidance, which is the historical position of this Parliament—and, indeed, of English law. Tax evasion is criminal and should be prosecuted to the full extent of the law. I think the scheme used by a comedian, whose name momentarily escapes me but who is quite famous, was almost certainly unlawful, and that scheme should be prosecuted.

I know the hon. Gentleman lives in a rarefied world, but does he not understand the anger felt not only by low-paid workers, but middle-earners, who pay their tax through pay-as-you-earn and have no opportunity to avoid tax, unlike the footballers to whom he referred? This situation cannot be fair in any society.

It is very important, once again, to differentiate between avoidance and evasion. If we have passed laws that allow people, for example footballers, to sell the rights to their name and corporatise that, we can change the law, and the fact that this Parliament has not changed the law means that people are entitled to do it.

Does the hon. Gentleman get it? Does he not understand the anger of even middle-income earners, who pay their taxes, work hard and cannot use any schemes such as those he has been suggesting which are open to those on ludicrous sums of £250,000 a week? Many people in Somerset must be in this category?

rose—

I give way to my hon. Friend.

Order. It is worth answering that one first.

I am getting so many interventions, and I am always happy to take them all; allcomers are welcome. I do not think that there is this anger; I think that people are very supportive of high earners who earn their money.

Does that not make the point? If there was this anger, thousands of people would not queue in lines to get their season ticket for Manchester United at the beginning of each season and millions of people would not be watching on television, because the strength of anger that Labour Members seem to want to articulate would mean that people would boycott these disgraceful sports and pursuits.

My hon. Friend is absolutely right and he has hit the nail on the head.

The hon. Gentlemen have got it quite wrong. The tribal nature of football is that people idolise their own team’s players and despise the activities of the players from other teams. The bottom line is that the hon. Member for North East Somerset (Jacob Rees-Mogg) would prefer that there was no tax at all.

The hon. Gentleman is wrong on that last point; I recognise that there is a need for taxation, though slightly beyond the clauses we are immediately discussing. However, I will answer the important point that he has raised on the tribal nature of football and why people are willing to see these high salaries paid. It is because they recognise that those salaries get them the best quality players and they want to see the best quality players playing for the team that they so ardently and passionately support—it is an ardent passion that I do not have, but I understand that many people do have it. That requires low taxes, because otherwise these players take their talent abroad.

I come back to Professor Laffer, because his argument is one that is so obvious as to be self-evident: if the tax rate is zero, nothing will be raised and if it is 100%, no sane person will pay it either as there is no point in working or in earning. There is some point along that curve where the least legal avoidance takes place—I emphasise that avoidance is legal—the most amount of working is done and the highest amount of revenue is received. We have seen this. I know that some Conservative Members, myself included, think that there was a golden age when Baroness Thatcher was in charge—

rose—

I give way to another supporter of the golden age.

I intervened just too early, because he mentioned Margaret Thatcher—another issue. Is there anywhere on this curve that the hon. Gentleman continues to mention where morality comes into play?

This argument is not a moral one. We are not the House of Bishops. I am all in favour of the Lords Spiritual having a view on this, but I am not one of them. I did not go into the Church; I went into politics. Politics is about raising the revenue that is needed for the country to carry out its business, and it is not an issue of morality in terms of how we phrase the laws. That those laws are then obeyed is a matter of morality. I can probably quote paragraphs of the Catholic catechism on this, but you are looking fretful at that thought, Mr Deputy Speaker, so I shall move back to the golden age of the noble Baroness Thatcher, Lady of the Garter, Order of Merit.

In 1979, the top tax rate was 98%—83p in the pound on income tax and a 15p surcharge. [Interruption.] I hear Labour Members saying that that was excellent and a jolly good thing. It is rather splendid to know that I am not the only one with dinosaur-style views in this House; there are even greater dinosaurs on the Labour Benches. When those tax rates were reduced they came down first to 60% and then to 40%, to fury from hon. Members. I believe that the House was suspended when the noble Lord Lawson introduced the rate of 40p in the pound; I think the Scottish nationalists got up in a passion of anger, wishing for higher taxation to spread across the realm of the United Kingdom. What did that reduction do? It raised more money for Her Majesty’s Government, which meant that the Government could spend money on their priorities and pay down their debt. We had a golden economic scenario when the noble Lord Lawson was at the helm, because we believed in low tax rates and had the courage of our convictions.

I remember the noble Lord Lawson’s time as Chancellor and the real reason we boomed in that time was that he depreciated our currency by 35%.