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THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX Presenter: PAUL LEWIS TRANSMISSION: 19th APRIL 2008 12.00-12.30 RADIO 4 LEWIS: Hello. In today’s programme, pressure grows on the Government to help 5 million low income people who pay more tax from this month. The Royal Bank of Scotland will ask its shareholders for £10 billion and admit its true losses from the credit crunch, as the Bank of England steps in with more help. We report on the scheme to make all your money safe, just in case there is a banking disaster. And we debate the moral case for inheritance tax. But first, as we heard in the news, there’s growing unease among Labour MPs about the tax changes which started this month. We have reported several times since they were first announced, more than a year ago, that a cut in the basic rate of income tax will be paid for by scrapping the 10% starting rate on low earnings and pensions. Although most taxpayers will be better off, about 5 million on low incomes will pay more tax after the changes. Labour MPs at last seem to be waking up to the effects of the change. Des Turner is Labour MP for Brighton Kemp Town, one of Labour’s most marginal seats. He told the BBC this week that the 10% tax band had come up on the doorstep during local election campaigning. TURNER: Yes it has, quite understandably, because it has been done in such a way that has exposed a lot of people on low incomes to pay more tax, which is totally inconsistent with everything that we’ve done since 1997 - that every budget has been weighted in favour of the less well off. That is very saddening, to say the least of it. I think some of us are at a loss to understand how this has happened. 1 LEWIS: Last night five ministerial aids, for whom 100% loyalty normally goes with the job, publicly expressed their concerns. Another had threatened to resign, but changed her mind, apparently after a transatlantic phonecall from Gordon Brown. Then, in a move which surprised everyone, Angela Eagle, a junior minister in the Treasury, hinted last night that change may be on its way. Asked about the cut on Radio 4’s Question Time, she initially defended the policy. EAGLE: 16 million households were made better off by the package of tax changes in last year’s budget … DIMBLEBY: I’m sorry … EAGLE: … and the largest gains were made by the bottom 30%. So that is a progressive overall situation and that’s what budgets are about: making those choices. It’s not easy. LEWIS: But then she gave this audience pleasing answer to David Dimbleby’s final question. DIMBLEBY: Is there going to be a compensation package? EAGLE: We’re listening and we’re looking and you must watch this space. LEWIS: Well the Treasury is playing down her statement, but it has given hope to campaigners that the Government may be recognising the strength of feeling among Labour backbenchers. Frank Field MP was the first welfare reform minister under Tony Blair. On Monday he’ll table an amendment to the finance bill as it goes through Parliament to compensate people who’ve lost out. I asked Frank Field what the amendment did. FIELD: Nobody - I hope anyway - I’m certainly not interested in wrecking the budget. Nor is it, I believe, practicable to put the 10p back. What it 2 is practicable to do is to pay those who’ve actually lost out cash payments. What the amendment will do, which I think will be moved on Monday week, will say that the Government is abolishing the 10p, but that clause giving them the power to do that cannot come into effect until the Government has published a package to compensate people who’ve lost out; and more than that - that Parliament approves the package. So it’s after a double lock on the Government. LEWIS: And how would that work? How would you identify those groups and give them the money without giving it to everybody? FIELD: We would actually operate through the Inland Revenue through the records that they’ve got now. They know perfectly well who previously was on 10p and who would, given their level of income, would have benefited from the 10p now and therefore they would single out those, I would argue, 5.3 million. The Government might argue that if everybody claimed the tax credits to which they’re eligible, then that number would fall to somewhat over 4 million. So between those two figures, they need to come up with a compensatory package. It will obviously be crude. If I was doing it, one would come out with average payments, so some would gain and some would lose, but there would be serious compensation for them. LEWIS: And how much would it cost? FIELD: It’s very difficult to do the figures. I’ve been tabling questions over the last year and the Government keeps giving rather bizarre reasons why they can’t provide the information. But if you take that we’ve got 4 million plus and the average payment is around £4 a week, we are talking about a compensation package in excess of £800 million, which is a very large sum of money but substantially less than reintroducing the 10p, which would overwhelmingly benefit those who properly benefit from the cut in the standard rate from 22 to 20. LEWIS: And how long would it last because of course this isn’t a loss just for this year, although people are already now feeling it in their pay package? This is a loss that’s going to carry on forever. 3 FIELD: Well it will carry on for some time for many people. But budgets can only make changes for one year - so the package would run for one year but we would, as you rightly allude, we’d need to return the following year. But as incomes rise, hopefully fewer people would be eligible. LEWIS: But the Government’s made it very clear this week, hasn’t it? Ministers have been almost queuing up to say we are not going to change this. FIELD: Well I beg the Government to just draw back in that I do think what’s different between this and any other dispute that backbenchers have had with their government, this strikes at the very essence of what we joined the Labour party for and that is to protect the poorest and particularly the poorest in work. We’ve made so much about our welfare to work strategy. My guess is that as the days unfold and people make their views known, the Government will see that while they might have got the figures wrong on the losers and gainers over the abolition of the 10p, the sums will be much simpler to do on whether they’ll get a majority the following week when this amendment (I hope) may be called. And in those circumstances, why not come forward with that compensatory package and start claiming some of the credit rather than being pushed into it? LEWIS: Frank Field MP. And earlier, of course, we heard Jonathan Dimblebly on Any Questions, not his brother on Question Time as I said. Apologies for that. Live now to John Whiting, a partner with PricewaterhouseCoopers. John, I hope I’ve got your name right. WHITING: Yes. LEWIS: How practical is Frank Field’s plan? WHITING: It’s feasible. Let’s term it that, Paul. It would require a lot of administrative effort because it’s not a routine that the Revenue & Customs would normally do because, let’s face it, everybody who pays tax benefits to some extent from the 10p rate. You’ve got to winnow through that, try and find out those who 4 are really just losing, look at those on low incomes, perhaps get rid of the 65 pluses who of course are compensated by higher personal allowances. Big administrative effort, no easy answer, and I suspect whatever you ended up doing you’d compensate a few people who perhaps didn’t need it; you’d miss a few people who did it. It’s a rough and ready possibility. LEWIS: Yes. I mean listeners have already been emailing us suggesting that they could raise personal allowances perhaps just for the over-60s. Would that work? WHITING: Well that again would help because one of the cadres of people who do lose out by this are the early retirees - perhaps women who’ve retired at 60, people who’ve stopped working in their late 50s - so you could do that. And, again, you’d have to bring it in on a basis that started to claw back perhaps the higher allowances if your income was raised. Similarly, you could perhaps bring in a 10p band for everybody, but that again was clawed back if the income rose, and that again brings additional complexity. LEWIS: Yes. Could we just have a simpler system where people who thought they’d lost out applied for compensation? WHITING: Well that’s perhaps the perfect solution in one sense because what you do is perhaps potentially march into the Revenue and say, “Here is the evidence that I have lost out.