Sir George attacks Chancellor on Pensioner Rebates
28 Mar 2006
This is the text of Sir George's speech in the Budget Debate:
Sir George Young (North-West Hampshire) (Con): It is a pleasure to follow the hon. Member for Doncaster, North (Edward Miliband), who made a thoughtful speech emphasising the steps being taken to alleviate child poverty. He took us back to the Lawson Budget. I remember that Budget: the top rate of income tax was reduced to 40 per cent., and I think that I am right in saying that there was some movement in the House when that announcement was made. If anyone had said at the time that, nine years into a Labour Government, the top rate of tax would remain at the level fixed by Nigel Lawson, nobody would have believed them.

By committing themselves not to change the standard rate—or, indeed, the top rate—of tax, the Labour Government have got into tremendous difficulties. They have increased expenditure but, instead of raising taxes to meet that expenditure in a fair way, they have put increasing emphasis on taxes that are either regressive—such as the council tax—or difficult to collect, or that have damaged our international competitiveness. I believe that there are many hon. Members sitting alongside the hon. Member for Doncaster, North who would have preferred an honest Labour approach of funding increases in public expenditure by increasing personal taxation, which is a progressive, open, honest and cheap way of funding a Labour programme.

Greg Clark: Did my right hon. Friend notice that, in recalling the Lawson Budget, the hon. Member for Doncaster, North (Edward Miliband) made no reference to another of Nigel Lawson's principles, namely tax simplification? It was his ambition to abolish a tax in every Budget, but the ambition of the present

Chancellor seems to be to add a new tax at every Budget. Does my right hon. Friend agree that that is the wrong direction to take?

Sir George Young: Yes, indeed. There is one minor modification, which I shall come to in a moment, involving a tax that the Chancellor introduced relatively recently and has just abolished in haste.

I agree with those who say that if one considers the conventional economic indicators—growth, inflation, numbers of unemployed—one gets the impression of a benign economy. But I also agree with those like my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and the hon. Member for Twickenham (Dr. Cable), who say that if one looks behind that, there are some worrying signs. For example, much of the current growth is funded by either private borrowing or high public spending, neither of which is sustainable in the longer term. One would have hoped for measures in the Budget to replace those engines of growth with other more sustainable ones, promoting an export-led recovery, private sector investment and an increase in private disposable incomes through productivity. When the hon. Member for Twickenham spoke about an adjustment in a few years' time, when the current engines of growth prove to be unsustainable, he put his finger on one of the more worrying long-term trends in the economy, which, in my view, the Budget did not address adequately.

I agree with the comment of my hon. Friend the Member for Rutland and Melton (Mr. Duncan) that if one wants to understand the overall impact of the Budget, the best thing to do is not to listen to it but to read the economic press about two days later, which gives a much better picture of what is going on. Any Chancellor must make a balanced decision between two imperatives: on the one hand, a pulverising if partial interpretation of the Budget to satisfy the audience in the Chamber; and on the other hand, a calmer more balanced interpretation from the wider world. We have moved too far towards the former. The selective presentation in Budget speeches is one contributory cause of the public's growing cynicism towards politicians, about which we are all concerned.

Yesterday, that point was well made to the Treasury Committee by Robert Chote of the Institute for Fiscal Studies. He rightly identified 45 policy decisions listed in the Red Book on pages 188 and 189. Seventeen of those were listed in the Chancellor's speech. Those 17 total £553 million, either in spending increases or tax reductions—good news. Twenty-eight, however, were either not mentioned or mentioned in passing, and those, totalling £780 million, were the bad news. I want to return to one or two things that the Chancellor did not mention.

When my hon. Friend the Member for Tatton (Mr. Osborne) winds up, I hope that he will say that my party will vote against resolution 26 on income tax and computer equipment, which withdraws the tax allowance to encourage employees to work from home. In the Red Book, that change appears under "modernising the tax system". I am not sure why it appears in that category. If one wanted a justification of the accusation that the Chancellor was an analogue politician in a digital age, the withdrawal of that form of relief would be it. The relief was introduced only three

years ago by the Chancellor, and it hits a number of buttons. It promotes a better work-life balance, reduces the need to commute and travel into the office, and promotes a wider understanding of IT through having more equipment in the home. I cannot understand why, at two weeks' notice, against a background of the Department of Trade and Industry promoting the scheme on its website, it is suddenly to be withdrawn. I hope that there might be second thoughts, and perhaps a postponement of the scheme for two years to allow the benefit to filter through.

I want to focus on one of the items not mentioned by the Chancellor in his speech—the cancellation of the pensioner council tax rebate. That has saved the Government £1 billion, but one will not find that figure in the Chancellor's speech or the Red Book. In the section, "Fairness for Pensioners", I read:

"The Government is committed to tackling pensioner poverty and rewarding saving, and to enabling people to meet their retirement income aspirations in an ageing society."

There is no mention of the cancellation of the rebate in that section, but it does mention the continuation of the winter fuel payments, which are of roughly the same value, and highlights free bus travel. I find it amazing that the Budget decision that perhaps has the greatest impact on the highest number of people was mentioned neither in the Budget speech nor in the Red Book. It seemed to me that the withdrawal of £200 from every pensioner household not on benefit might be worth just a passing reference under "Budget measures and their impact on households", on page 11 of the Red Book, but it is not there. It is glossed over in paragraph 1.36, which looks back to 1997 to give a slightly different perspective of what has happened to pensioners, in contrast to an earlier paragraph on families with children, which compares the position this year as against the previous year.

What has happened since last year for the Government to change their view on the pensioner rebate? In the pre-Budget report before the last election, the Chancellor said:

"A society is judged by its generosity to its children and the elderly, who have served the community all their lives."

He went on to say:

"This Pre-Budget Report therefore announces that, in addition to these existing measures"—

the winter fuel payments—

"the Government will make a payment of £50 to households with someone over age 70 in 2005."

In the 2005 Budget, however, he increased that sum. On 16 March 2005, he said:

"In 1997, there was no winter fuel allowance. This autumn, we will again pay a £200 winter fuel allowance for pensioners—£300 for the over-80s. In the pre-Budget report, I announced a £50 council tax refund. Today, with the resources now available, I can announce that we will pay to every pensioner household, 65 and over, paying council tax, a refund not of £50 but a council tax refund of £200—a measure that is fairer and worth more to more pensioners than all other proposed schemes."—[Official Report, 16 March 2005; Vol. 432, c. 269.]

The Budget 2005 Red Book made it absolutely clear that that was to help with the council tax:

"The Government understands the position of older people on fixed incomes facing pressures such as council tax bills."

The Chancellor went on to announce the additional item.

Last year, council tax had increased by £525 since 1997, when the Government took office. Against that background, it was worth introducing additional help of £200. This year, the council tax has increased by £579 since 1997, but that extra help is suddenly no longer available. The Government boast that the average council tax has gone up by £54, but not if one is a pensioner—for a pensioner, it has gone up by £254. That wipes out the increase in the state retirement pension for a large number of people. People wonder why there is any cynicism in politics. The most cynical decision that the Government have taken is to spend £800 million last year, just before a general election, on a £200 pensioner rebate, and a year later, when the council tax is even higher, to withdraw it and not even announce it in the Budget and the Red Book.

Will the Chief Secretary answer two questions? First, when the Deputy Prime Minister agreed with the Chancellor the sum for block grant for local authorities last December, did the Chancellor tell the Deputy Prime Minister that he planned to withdraw the £200 rebate and therefore make the presentation of the council tax even more difficult? Secondly, was it not the case that, if the council tax was about to be replaced, the Treasury might have been able to afford the rebate for another year or two? It has now realised that the council tax will not be replaced, probably for the lifetime of this Parliament, and for that reason has decided that it simply cannot afford to carry on with the £800 million or £1 billion cost of the scheme.

When the Chancellor gives his next Budget—I think that he will give another one—I hope that it will include a measure to deal with the issue that I have talked about, and to deal with the more strategic issue of what will replace the council tax in the longer term, and how we will come up with a fairer system of funding local government.

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Copyright Sir George Young Bt. 2015