Contribution
My Lords, I am obviously not alone in enjoying the period I spent on the Economic Affairs Committee under the chairmanship of the noble Lord. I really enjoyed it—and most of his speech. It was one of the most interesting committees I have served on, but I have to say that no Government of any kind paid much attention to our reports. I am very pleased with the appointment of the Chancellor of the Exchequer and have every confidence that he will obtain growth, but there is a need for some reforms of taxation. I will make three little points before two bigger ones.
First, council tax should be revalued, extended up the scale and absorbed, with an abolished stamp duty, into a land value tax. Secondly, why should small businesses want to remain small? The VAT threshold must be dealt with, because we want growth. Thirdly, why on earth should working over-65s not pay national insurance?
I have a declaration to make in that between 1999 and 2001 I was the Pensions Minister and I was responsible for the 75p pension increase. It was not all bad, as the poorest pensioners on supplementary benefit had an increase of over £3. They do not queue up to the TV cameras to say, “I’m poor and I had £3”. I explained this to the Labour Party conference that year. When I sat down on the platform, Gordon Brown said I should acknowledge the standing ovation. It is how you tell the tale. It was not just 75p—there was more to it than that.
Of course, this resulted in the double lock, leading to the triple lock, and it is now unsustainable—I have said so publicly. What is the answer? My answer is a triple average. It is fairer and easier to explain. I have done some calculations and got the Library to calculate it for me: if it had been used in the past three years, the increases would not have been 10.1%, 8.5% and 4.1%; they would have been 6%, 5.9% and 2.8%. The triple average could work after the next election. It is easy to explain and fair. We have to reset the pension—I am not arguing with my noble friend—but the mechanism for changing it could simply be the triple average, which would remove the major public expenditure obstacles we have.
My second main point—this is the message to this Government—is the need to avoid attacking the poorest low-income pensioners. This will happen unless the Chancellor changes the personal allowances—the tax threshold. It is no longer a stealth tax, following the work of the late Audrey Wise and Nigel Lawson and me in 1977. The law requires a vote in the Commons for the allowances to be raised by less than inflation. On 2 December last year, Labour MPs voted to freeze the allowances until 2030-31. They voted for a tax increase. The manifesto is completely out of the way. Everybody knows they voted for a tax increase.
This Government perpetuated the freezing of the allowances started by Jeremy Hunt and Rishi Sunak, and this policy is now dragging millions of low earners and low-paid pensioners into taxation in the first place and millions more into the higher rates. For anybody interested in the technicalities, these days the 1977 law is set out in Section 35(1) of the Income Tax Act 2007. Taxing the very basic state pension—which is what this Government are going to do unless they change the allowances, because freezing them will cause that to happen—will be very bad news. It will be a lot worse than the abolition of the heating allowance, and it has to be dealt with. It can be avoided, but are they going to avoid it?
I understand the pressures, but it is no good saying, “Oh well, everybody’s got to carry the burden”. I do not believe the poorest pensioners have the broadest backs. Why should they not have the basic state pension? It has never happened before, but it will happen unless the Government do something about the threshold. They can do it in a way that does not affect it for everybody else. I do not agree with freezing the threshold in the first place, but the fact is that it cannot be done, as it used to be done, by stealth. You have to knowingly vote for it. I read the debate, and nobody ever told Labour MPs, “By the way, this is a tax increase, and we have to do this because those three people back in 1977 forced us to; it used to be done without that”. It was all about indexing the allowances. Therefore, they used the law—but without telling people what they were doing. I want to tell Labour MPs: you voted for a tax increase and, unless you do something else in the next Budget, you are going to be responsible for taxing the basic state pension. That is not a good idea.