It is always an interesting and challenging experience to follow Mr. Leigh. May I begin by congratulating my hon. Friend Mr. Anderson, who is not in the Chamber at the moment, on a truly excellent speech? I wish that I had carried out a similar audit in my constituency of what has been gained under the Government, because I am sure that the gains would be as extensive, if not more so, than those in his constituency.
I pay tribute to the Chancellor for the longest unbroken expansion on record, with GDP growing in 58 consecutive quarters, for stability in GDP growth, and for low inflation rates. All those things have put us in a strong position to respond to the global economic challenges that undoubtedly face us.
There are a few points in the Budget that I want to emphasise. First, raising the higher personal allowance for pensioners is extremely important. Pensioners have come to my surgery—and I am sure that this is the case for many hon. Members—as they are concerned about their level of taxation. The measure to take 600,000 pensioners out of taxation is a very good one, as are the measures to increase child tax credit, to increase the threshold for working tax credit and to reduce corporation tax as well as the basic rate of tax. It is important, too, that vehicle excise duty has been increased, although personally I think that the Chancellor could have gone much higher in taxing gas-guzzlers, which have a negative impact on the environment. I am not sure that the current level of excise duty will deter sufficient people from driving them. Lastly, the rise in investment in education by 2.5 per cent. in real terms is an important measure to which I shall return.
I want to stress the importance of science funding. We shall not be able to compete internationally unless we remain at the leading edge of scientific innovation and application, so I very much welcome the investment in knowledge-based and high added value sectors. I am particularly pleased that the 2007 Budget announced early the comprehensive spending review settlement for the ring-fenced science budget for the Department of Trade and Industry and for the Department for Education and Skills. Together, they will deliver annual average growth of 2.5 per cent. in real terms over the CSR period.
My understanding was that it was a real-terms increase, which will, we hope, deliver excellent research.
Our universities need stability in funding to invest in research. We need to increase the economic impact of our science base, and to implement the recommendations of the Sainsbury review, which is looking at the effectiveness of our science base and at the opportunities and challenges of globalisation.
We know from the emerging conclusions of the review that delivering skills to raise further standards in STEM—science, technology, engineering and mathematics—teaching is important. I am extremely fortunate in having a science learning centre in my constituency, which is doing the most amazing work in adding to teachers' qualifications and skills in science teaching. Obviously I want to make sure that the Government continue to invest in science learning centres.
We need more knowledge transfer, so I am pleased that the Budget sets out how the higher education innovation fund can be improved, as it must be if we are to have the better application of science research that we need globally and domestically. However, we do not always manage to make the transition to science-based industries as we should, so I am also pleased that the Red Book mentioned supporting entrepreneurship and industrial development and set out how the regions can be more involved in science innovation. That is particularly important for us in the north-east, where we shall need to rely heavily on a knowledge-based economy if our region is to catch up with the rest of the country, which needs to happen.
Of course we have the Newcastle science city, which is to be applauded. However, Durham university has an excellent science base that is not sufficiently recognised by Newcastle science city, so I hope that the Chancellor and his team will pay some attention to Durham university and its science base, which is important for future economic development because it centres on physics and materials research and has an excellent renewable energy research centre.
Does my hon. Friend agree that although we need that expansion in places such as Durham we do not need the artificial boundaries on development that are outlined in the regional spatial strategy?
I entirely agree, and I shall mention the regional spatial strategy later on.
I am pleased that the Budget encourages international collaboration in advancing our science base. Durham university does that work excellently and I should like further investment in that field.
I want to talk next about education and skills. We need to enhance skills if we are to improve social mobility. The Leitch report was extremely important in drawing attention to the need for higher level 2 and 3 skills and, crucially, for employers to contribute more to the training of their staff. We have the measures to improve the new deal and in-work training, and, in particular, to move from the new deal to in-work training to "train to gain", and to build on the 14-to-19 curriculum. All that has to happen if we are truly to get the skills base up to the level that we need to compete globally.
I am pleased that the Budget announces an early CSR settlement for the Department for Education and Skills, which, again, will see education spending rising by 2.5 per cent. in real terms—up from 4.7 per cent. of GDP in 1997 to 5.6 per cent. in 2010. That is important because it is against a background of spending on education that has almost doubled in the past 10 years. I should tell Mr. Clarke that my experience of education under the Conservatives—I was a vice-chair of education in a large unitary authority and a governor at a school—was one of decreasing budgets, having to close schools and continually having to make cuts. It is only in the past five or six years as a governor that I have seen real investment in our schools. The Government are continuing to invest at record levels. The figures have increased from £2,500 per pupil in 1997-98 to £6,600 in 2010-11.
That is not all that the Government are doing. Sometimes Opposition Members ask us to demonstrate what the money has delivered. Well, it has delivered expanding early years provision, impressive and rising results at key stages 3 and 4, an improvement in post-16 staying-on rates, Sure Start centres, personalised learning, and extended hours and extended schools in every community. Schools in my constituency are simply being transformed, not only by additional teachers and classroom assistants, but in respect of the fabric of buildings and the consumables that schools are able to use.
The next area that I want to mention is regional development and planning. The Budget report mentions city regions. Clearly, cities are important to our future economic development, but I would have liked to hear more about what is going to happen to smaller towns. Page 47 of the Red Book states that
"improving the economic planning and decision-making processes at the regional level" is important, as is
"enhancing the strategic role of RDAs" and improving regional accountability. However, it is not clear how any of that is going to happen. We need to hear more about a regional policy that is going to improve areas such as the north-east and truly invest in them so that all the growth does not go to the south-east—not that I have anything against the south-east, but it does not seem to make sense not to develop massively those areas of the country that are very much in need of improvement.
Does my hon. Friend agree that one step forward would be to abolish the unaccountable regional assembly in the north-east, which takes something like £2 million a year, and to redirect that money into actual community development in constituencies such as hers and mine?
Absolutely—I agree totally and would very much like to see that on the agenda.
I understand from the report that a review of regional development agencies is taking place. I would like to hear from the Minister what role Members of Parliament will play in that review. As I have said, in the report there is a lack of strong mechanisms to reduce regional inequalities. The regional spatial strategy in the north-east is a case in point.
I welcome the fact that the hon. Lady would like to see the abolition of the regional assemblies, which are worthless organisations, but does she agree that, if the regional development agencies are to fulfil any useful function, it is important to have them only in those areas that need them? Having RDAs covering every inch of the country, including the most prosperous parts, by definition means that RDAs in less prosperous parts of the country will not do so well.
That is an interesting proposition and I am sure that Ministers will give it consideration, even if they ultimately reject it. Some redistribution might be helpful to areas such as the north-east.
The regional spatial strategy for the north-east is in danger of emphasising too much growth in the city regions at the expense of areas such as County Durham, the growth potential of which is neglected absolutely in the current strategy. Such areas have seen housing numbers reduced and there has been an impact on significant developments, such as the Tursdale rail freight depot. I hope that the Government will consider the matter again.
It is welcome that there is a section in the report on investing in housing and planning. However, I hope that the new housing and planning delivery grant will pay attention to the quality of housing delivered as well as the amount. We see too often that poor-quality housing is being put up. If we are to meet the targets on carbon-neutral housing, the standards will have to improve.
The report explains how there are improved affordability measures, including shared equity. There is a new competition for producing housing for first-time buyers, which is welcome. However, attention must be paid to the way in which the stock of councils that have not transferred their stock will be brought up to a decent standard. That will require us to build on the decent homes standard. How will councils be able to deliver more rented housing when there is a demonstrable need to do so?
Does the hon. Lady accept that many local authorities have not transferred their stock because there has been huge support from local tenants for it not to be transferred, given the quality of the stock?
That is the case. Tenants in my city voted against a transfer some years ago. However, those tenants desperately need money to be invested in their properties. A lot more affordable housing needs to be delivered in Durham city. The absence of such housing is partly due to the fact that the Lib Dem council has built and delivered little in the past few years. Nevertheless, we must consider improved mechanisms to deliver more social rented housing.
Paragraph 3.130 of the Red Book gives a commitment
"to ensuring that the planning system delivers the housing and economic development the UK needs in a way which is sustainable and consistent with the Government's wider objectives including on climate change".
That is much to be welcomed, as is the support for the Eddington and Barker reports. We obviously need more transport and investment in buses. In areas such as mine, which is a largely rural community, investment in bus services has reduced. Alternatively, investment increasingly goes towards subsidising services that do not meet the needs of the local population. We also need more investment in trains, especially local trains that can transport people throughout the region more efficiently than those on the main line.
I want to pay particular attention to Barker. We are told that there will be a White Paper later in the spring on improving responsiveness and efficiency in land use planning. That makes me very nervous. I realise that it is sensible to take a more strategic approach on economic development and the need for planning. Positive planning for economic development needs to happen and an improvement in the processes of economic development is required. However, planning, by its nature, is a very blunt instrument. Different places have different economic development needs. I hope that the White Paper will acknowledge the difference between areas. My constituency is a historic town, and while it needs economic development, it needs a particular sort of such development to protect and enhance its heritage. Having read Barker, I am not convinced that that will happen. Many people in my constituency are fed up with the increasing number of blocks of luxury flats, which do not meet housing need and impact negatively on the heritage of the city. That movement has to be stopped. Planning policy statement 3 is a step forward, but the regional spatial strategy needs to address that issue in the north-east. We need additional housing if there is to be growth in the north-east, but the area needs to be developed sensitively.
My last point but one is about the planning gain supplement, which is another subject that makes me nervous. I agree that we should have a betterment tax; in fact, I have long argued for one, but I am worried about local authorities being given incentives to approve planning applications. A percentage of the money will come back to them, but that is a dangerous thing to do, because it could allow local authorities to sell every bit of green space and brownfield land that they have for development, as they will get a percentage of the money.
Of course it is important that money should be spent on infrastructure, but I was concerned about paragraph 3.150 of the Red Book, which says that all local authorities and partners will have to work together locally to improve the infrastructure. That does not happen often at local authority level, particularly where there are different tiers of government. It is bad enough if the tiers of local government are of the same political party, but if they are of different political parties, it is just not likely that they will work together to increase infrastructure. I would appreciate it if the Government took that proposal away and looked again at how money from planning gain can be allocated sensibly throughout the country to support development.
My last point is about child poverty. I am proud that the Government have set ambitious targets to reduce it; it is better to have very ambitious targets and not meet them than not to have any targets. Ideally, we would like to meet the ambitious targets, but we should recall that under the previous Government, child poverty more than doubled. It will be difficult to reduce child poverty to the level of the Government targets, but I am pleased that that is firmly on the Government's agenda, and that measures in the Budget will improve the incomes of the poorest families by about £425 a year, and of all other households with children by about £250 a year.
In conclusion, we should applaud the Chancellor for the Budget, which is about investing in education and science and helping us to deliver the skills base that we need for the future if we are to be competitive in a global economy. However, it also looks after the needs of pensioners and the poorest families with children, and we should all welcome that.
I congratulate Dr. Blackman-Woods on her wide-ranging speech. May I say how much I welcomed her remarks on unelected regional assemblies? Her remarks on supplementary planning gain were interesting, and although I, too, have concerns about it, mine differ from hers.
I will not speak on a wide range of subjects. You may be pleased to know, Mr. Deputy Speaker, that I will limit my remarks to the narrow issue of small business and the way in which it has been treated at the hands of the Chancellor in the Budget. I wish to put the case for small business simply and straightforwardly, in the hope that I can create some understanding of that important issue among Government Front Benchers, because I fear that they do not have a great understanding of that area of economic activity. I wish to articulate the concerns of the many people in my constituency of Northampton, South, who have built up businesses that started off very small, as most of them do. They express great concern about the Budget that the Chancellor delivered.
Finally, I wish to appeal to the Government. Although I recognise that the chances of changing the Chancellor's mind this year are not very great, I hope that the Government will rethink their attitude to the issue, not least because they burden even further an area of economic activity on which they, their children and their grandchildren will rely in the years to come. In that context, their actions are extremely short-sighted.
I was about to say that I was a small business man myself, but even with your well-known generosity, Mr. Deputy Speaker, I reckon that you would not have accepted that, so I shall say that I am a business man who founded two small businesses. I shall give a little background about those businesses in order to underline the credibility with which I hope I speak and which I hope those on the Government Front Bench will recognise.
My wife and I started the first business in 1989, and we used the small amount of equity that we had in our own house to start that business. So we know about risk-taking. We know about the worry that risk-taking creates for people who start small businesses. We know the hard work that those people put into the business, not least because their very livelihood is at stake; the very home they live in is at stake, in many cases. Indeed, we knew that we could have lost everything. I am delighted to say that that business now employs about 140 people. We succeeded, and no doubt the Chancellor is delighted that we succeeded, because we collect for him and we pay to him a considerable amount of tax in very many ways.
Let me tell the House about the second business, which we founded with a rather crazy South African in 1993. It was a publishing business, another great risk, and again we put on the line all the gains that we had made from the first business. It may seem that we are gluttons for punishment. We worked hard for many long hours—burned the midnight oil—and spent sleepless hours worrying about cash flow, which is one of the greatest problems for small business. However, we again succeeded, much against the odds, and that business now employs over 80 people.
What are the lessons I have learned from those experiences? What can I bring to the House to help the Government create policies that are friendly to small business and that encourage people to create them in their turn? I will tell the House the lessons that I learned so that hon. Members have an understanding of what small business people think about. The lessons might surprise hon. Members. They are different, I fear, from the lessons that they might think I learned.
I learned that a successful small business is not about chasing volume. Of course one needs to work to earn the money, but volume is not the prime objective. The prime objective for a business man is to look at the bottom line and make sure every month that he is successful with the volume that he creates. The second lesson that I learned is that it is not about sales. Indeed, sales can easily be given away. Unless he is very careful, a business man can easily price his product or service at a level that does not create what he really needs in a small business—a steady, credible, managed cash flow. The third priority that I learned was that running a business is not necessarily about investment in things, such as new equipment—it is about investment in people. Those are the prime concerns when an entrepreneur sets up a small business.
I see that Government Front Benchers are talking among themselves. I hope that that means they have taken my comments on board and will change their view as delivered in the Budget, although I am doubtful.
Does my hon. Friend agree that the hit on small companies in the form of increased taxes in a more complex system could constitute a real blow to local shops, which are already struggling to be viable in a climate of intense competition from the big retailers?
I accept that entirely. Indeed, many of our local shopkeepers now come from another culture, and the Government are making it more difficult for them to run their businesses. I believe that that is of great concern, and I think that the Government do as well. Perhaps they had not thought about it before. I hope that we have put another thought into their minds.
My hon. Friend has told us the compelling tale of the start of his business. I can boast having started mine a little earlier, when I was a student. Like my hon. Friend, I remember the bank envelopes: just the symbol of the bank was enough to start my hands sweating every time I looked at it. Those early years involved very long hours and very tight margins, and the real difficulty of maintaining a business and investing in people.
Is my hon. Friend aware that the three-point rise, whatever it means to Ministers who are so distant from the livelihoods of people running small businesses, constitutes a 16 per cent. increase in corporation tax for the smallest and most entrepreneurial businesses in the country?
I did not know that, but I am delighted to accept it from my hon. Friend, because I know of his concern about these matters and the work that he puts into them.
I am delighted to tell the hon. Gentleman that that is total nonsense. He knows it, I know it and every other Member in the House knows it.
Not once during the first 10 years of either of my businesses did I come near to investing £50,000 in a given year. As I said, the initial equity from our home financed the start-up, and growth thereafter was financed from retained profit. That is another aspect of the creation of small businesses that should be taken into account. However, even with a deliberate policy of controlled growth, we faced serious problems on many occasions: problems caused by customers going bust, by debtors not paying up—not just not in time, but sometimes not at all—and by clients pulling work unexpectedly. Those are all major blows to a new, small, growing, developing business, and they place massive demands on good cash-flow management.
The fourth priority was to make friends with the bank. Had I not done so, the bank would not have been anywhere near as understanding as it was, and my business could have gone to the wall. However, I fear that today many banks are less compassionate. I know people who have tried to start small businesses and have found that aspect much more difficult. I was lucky: I made friends with my bank, which sustained us through some very difficult times. That is the reality of growing a small business. We faced risk, we faced hardship, we faced long hours, we faced sleepless nights—but we grew to a point at which we employed more than 220 people collectively. The Chancellor should be delighted with the work that we have done to service his income. We should be given a medal, but what do we get from him? Tragically, he kicks us where it hurts most, and where it hurts most small businesses—in our ability to manage good cash flow.
What should the Chancellor have taken into account when he made his decisions on this Budget? He should have recognised that small businesses employ more than 12 million people—that is 58 per cent. of the private sector employment figure. He should have recognised that adding that figure to the UK's medium-sized businesses shows that together they will create more than 2 million jobs in a 10-year cycle. When he looks at UK plc, he will recognise that they will, conversely, shed 1.5 million jobs in the same period. One might have thought that he would see small business creators as his heroes—the people whom he needs to nurture, reward and support—yet he adds to our problems.
Why is that? I think that it is because he does not understand the small business sector, which creates jobs at a fraction of the cost wasted by the Government in their failed attempts to help it to do so. Listen to what my hon. Friend Mr. Prisk says about how small business views small business services run by the Department of Trade and Industry. Look at the cost of business support, in which small business plays a part—a staggering £12 billion per year according to the Richard review of small business and Government. Look at the National Audit Office report of 2006, which was scathing about Government support services, comprising 3,000 schemes that the Government now say that they are going to cut down to 100. I could go on to talk about the lack of skills and poor educational training as regards supporting the workplace.
The truth of the matter is that the Government have not been an outstanding success when it comes to small business, and small business is aware of that fact. Is it any wonder that they are not a greater success, given that I go to the Library and find that so few Labour Members have had business experience? Is it any wonder that they do not understand business generally and small business in particular?
I declare an interest as an accountant to small business in a long period leading up to 1997. What the hon. Gentleman has said is a masterclass in how to take the seed of an idea from a micro-business through to a small and then a medium-sized enterprise. Does he accept, however, that a basic element missing from his remarks is that organisations should not choose a business format for fiscal reasons? Is it not the case that artificial incorporation of small businesses has been a costly mistake, and that it was right for the Chancellor to tackle that abuse?
I am delighted to take an intervention from one of those Labour Members who has had business experience, which gives it greater credibility. Nevertheless, he will know that the Chancellor created the situation in the first place. The problem is not that people were taking advantage of a tax loophole—which I do not support, by the way—but that things could have been handled differently, thereby not harming small business in the process.
What has the Chancellor done in the Budget? We all know—he increased the rate of corporation tax for small business from 19 per cent. to 22 per cent. by 2009. He added an extra £820 million to the tax burden that small businesses bear. He claimed that small business would claw that money back by claiming an annual investment allowance of £50,000 and benefiting from an increase in research and development allowances.
It being Ten o'clock, the debate stood adjourned.
Motion made, and Question put forthwith, pursuant to
That, at this day's sitting, the Business of the House: Northern Ireland (St. Andrews Agreement) (No. 2) Bill Motion made be proceeded with, though opposed, until any hour; and proceedings on the Motion in the name of Mr. Chancellor of the Exchequer relating to Ways and Means Amendment of the Law may continue until midnight.— [Mr. Cawsey.]
Question agreed to.
Question again proposed.
I was grateful for the chance to get my breath back.
I want to deal with giving with one hand and taking away with the other. I do not believe that the Chancellor took with one hand and gave with the other. Small business simply does not invest the sort of money that allows it to claim back its costs in extra corporation tax every year. The additional taxation that small business pays will not be offset. The Chancellor simply does not understand small business.
How do I answer that?
Does the hon. Gentleman agree that all the surveys of small businesses show that the most important factor for them is a stable and growing economy? Has not the Chancellor delivered that? Should not the hon. Gentleman therefore say what a good job the Government have done in creating the conditions for small businesses to grow?
Of course we all need a stable economy—every business and every family in the land needs that. However, I equally recognise that the first five years of the long period of stable economy were created by my right hon. and learned Friend Mr. Clarke, who has now left his seat. We need to pay tribute to him, too.
I have said that the Chancellor does not understand small business. However, he fails to understand an even more important factor: small businesses mainly sustain growth from retained profit. It is as simple as that, and I am glad to see Labour Members nodding. Do not they realise that, by increasing the burden of taxation, they limit sustained growth because they limit the amount of retained profit? It is not difficult. Many hon. Members tell me that the Chancellor is the cleverest man to have held the office, so I would have thought that he understood the point that I have just made—but he does not. In failing to do that, he has harmed many small businesses in this country.
The Government have tried to spin their actions as help for small businesses and the wealth-producing sector. Let us consider the genuine reason for the Chancellor's decision to increase corporation tax for smaller businesses. The Secretary of State for Trade and Industry let the cat out of the bag last Thursday, when he was questioned on the matter. Do you know what he said? He said that a
"number of people were incorporating and becoming small companies to avoid paying tax and national insurance."—[ Hansard, 22 March 2007; Vol. 458, c. 933.]
There we have it. It is not about growing small businesses; they have to suffer because one-man operations are using incorporation, as you rightly say, as a loophole.
I accept that and thank you for your guidance, Mr. Deputy Speaker.
There we have it. As I said, it is not about growing business, but closing a loophole. Surely it is not beyond the wit of the very cleverest Chancellor of the Exchequer that the Labour party says it has ever had to create a system that solves that problem without harming small business. The truth is that this very clever man did not think about it; he did not think that it was worth his attention. I find that really rather ironic when this is the same Government who use those incorporations to boast about the growth of entrepreneurial activity. He wants it both ways as well, which is not the hallmark of a very clever Chancellor.
When I heard the Budget speech, I was a bit concerned that I might be over party political. I know that that might be difficult to understand, but I was concerned, so I wanted to check out what other people in business might have said about this Budget. I noticed that Mr. Anderson said that most business commentators supported the Budget. Well, let us test that theory.
Nick Golding, chief executive officer of the Forum of Private Business said:
"The Chancellor has used smoke and mirrors to disguise the fact that there is nothing in this budget to support small business."
The Federation of Master Builders said:
"SMEs have enough to worry about with seemingly endless red tape and its disproportionate effect on small firms without having to stump up extra cash to subsidise a tax cut for the big boys."
The Federation of Small Businesses said:
"After some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses".
"He has also increased the amount of tax that those covered by the Small Companies Rate will have to pay by over £800 million. This is a substantial rise and will hit those looking to grow their businesses... many of our members will feel let down by today's budget".
The best quote of all comes from a gentleman I happen to see in my local public house most Friday evenings—a guy who has run a business for 30 years. What he said to me—I hope that this is parliamentary language, Mr. Deputy Speaker, but I am simply repeating what he said—is: "He's a snake oil salesman who makes out he's doing you a favour when all the time he is covering up his own mistakes". Should I withdraw that, Mr. Deputy Speaker, or is it acceptable?
What could the Chancellor have done to help small business?
The truth is that I did not read the bit to which the hon. Gentleman refers, but after this debate, I will go and look at it. What I do know is that the Institute of Directors complained about the impact of the increase in corporation tax on small businesses.
How could the Chancellor have helped? It is a missed opportunity for a sector that needed his help and understanding, but did not get it. The Chancellor could have reintroduced a new starting band for corporation tax for the first £10,000 of profit, but he did not. He could have introduced a more efficient VAT registration process, but he did not. He could have integrated national insurance with income tax for schedule E taxpayers, but he did not. He could have linked the national minimum wage to the retail prices index, but he did not. He could have given businesses more influence with skills initiatives for small business, but he did not. He could have set aside a percentage of public procurement contracts for small business, but he did not. He simply placed a further £1 billion of extra tax on to businesses next year and more thereafter. "Thank you, Mr. Chancellor, from the business community. You have shown yet again that you simply do not understand the small business sector and, worse still, you have shown that you do not really care about it either."
Small business feels let down. It is the dynamo of the economy, and it will provide jobs and innovation in the future. What a tragedy that this Chancellor does not understand.
It is a great privilege to follow my hon. Friend Mr. Binley, who has given a tour de force on behalf of small businesses that this House needed to hear, because of the impact on small business of this Budget. Too few Labour Members have ever worked in small business or understand small business. They cheered the Budget, which will harm small businesses such as corner shops. My hon. Friend could have mentioned that many post offices around the country will be hit by the increase in tax.
Like my hon. Friend, I plan to be relatively narrow in my focus tonight. I shall focus on the environment, the environmental impact of the Budget and the environmental record of this Chancellor of the Exchequer. I will then go on to discuss some of the local issues in the East Riding of Yorkshire, many of which affect other constituencies.
In 1997, the current Chancellor made his first pre-Budget report, in which he stated that
"nothing is more important than our approach to the environment."—[ Hansard, 25 November 1997; Vol. 301, c. 779.]
This is the last of the Chancellor's Budgets, so it is a suitable time to examine his record on the environment. I hope that I will not bore the House too much, but I shall leave hon. Members to judge that.
I am currently a member of the Environmental Audit Committee, which is a cross-party Committee dominated by Labour Members and which examines this Government's environmental record. The Committee's report on the pre-Budget report 2000 stated:
"The Committee has found no evidence that the Government has carried out a comprehensive environmental appraisal of its Pre-Budget measures which would even satisfy its own guidance in this area...The Government's response to us on VAT and energy efficiency is not persuasive nor even credible."
The Government's failure on energy efficiency is sad. Those of us who want to see the carbon footprint of this country reduced know that the cheapest, most effective and quickest route to reducing emissions from this country is through energy efficiency.
What is the Chancellor's record? The next report by the Environmental Audit Committee appeared in 2001. The Committee included many Labour Members, such as Mr. Meacher, the former Members for Cardiff, Central and for Aberdeen, North, and the hon. Members for Wrexham (Ian Lucas), for Stoke-on-Trent, North (Joan Walley) and for Telford (David Wright). The report stated:
"We regret the fact that the Treasury has retreated from a strategic commitment to environmental tax reform...The Treasury is failing to provide adequate leadership and co-ordination across central Government...We strongly regret the refusal of the Treasury"— this will be familiar to Select Committee members across Government—
"to provide us with the Spending Review main guidance. This...vividly demonstrates that the Treasury will only share what it does not value or consider important."
That report came from a Labour-dominated Committee.
Were things improving in 2002? The 2002 Environmental Audit Committee report stated:
"The Government's Climate Change strategy for reducing greenhouse gases is seriously off-course, and current progress and future projections must be reviewed as a matter of urgency."
The Committee picked up on the Government's failure to transfer tax from "goods" and employment on to "bads" for the environment, which they had originally promised to do:
"The Treasury's strategic objective of shifting the burden of taxation from 'goods' to 'bads' is in danger of stalling. Indeed, we see little evidence of an environmental tax strategy as such."
The pattern is becoming set, and we look each year for some hope and some chance of change.
As for the 2003 pre-Budget report, the EAC—still dominated by Labour Members—found that the Chancellor, though definitely Brown, was far from green. Many articles have been written in newspapers—for instance, by Stephen Tindale of Greenpeace—on the question, "Is the Chancellor green?" The truth is that Brown may be the new Black—Conrad—but definitely not the new green. The EAC stated that
"the Climate Change Strategy is seriously off course. The policy instruments the Government has put in place have yet to make a significant impact on the UK carbon emissions trajectory."
On the 2004 pre-Budget report, it stated:
"It is disappointing that the Treasury, after consulting in both 2002 and 2003 on fiscal measures for domestic energy efficiency, was unable to include in Budget 2004 a more significant package of measures."
In 2005, the EAC came out again to say— [Interruption.] It is worth putting on record the reports of a Committee dominated by Labour Members, because they paint a picture of the Chancellor's total failure to deliver on the environment. I understand why those on the Government Front Bench do not want to hear it. It said:
"PBR 2005 signifies a continued slowing down of the Treasury's momentum in turning its rhetoric on the environment into action".
I recognise that my speech is dirge-like in flavour.
In 2006, the EAC again stated:
"We are very disappointed by this Pre-Budget Report."
I would love to say that the Labour Members on the Committee had some positive news, but I am afraid that they did not. They said:
"The picture is of an ongoing retreat from the Treasury's announcement in 1997 of a policy to shift the burden".
According to the Labour-dominated EAC, the Chancellor's history on the environment is one of failure after failure. He has not delivered as he originally promised when he said that it would be the most important measure for the Government.
I agree with my hon. Friend that the Chancellor only goes green when he sees his poll ratings. Does he agree, however, that our right hon. Friend Mr. Cameron has set the agenda on the environment, and that the Chancellor failed to make a single substantive speech on the environment in the 10 years prior to the end of last year?
I am grateful to my hon. Friend for mentioning that. There have never been more than two references to climate in pre-Budget reports and Budgets in the past 10 years. In 1997, there was none, and there were only one or two every year until the appointment of my right hon. Friend Mr. Cameron as Leader of the Opposition. Suddenly, in 2006, the Chancellor's two major speeches had 16 mentions of climate between them. Suffice it to say that last week's Budget speech alone contained 14 references to climate.
Does the hon. Gentleman admit that the Conservatives are Johnny-come-latelies to the argument for the need for environmental action? Will he comment on whether the proposals that we have heard floated are policy commitments or beliefs? What impact does he think that those measures, if they are adopted as Conservative policies, will have on climate change?
As the hon. Lady well knows, the Conservative Government signed Kyoto— [Interruption.] The noble Baroness Thatcher made the original commitment before it was later signed. She was the first of this country's major leaders to put the focus on climate change. As we can see from the figures revealing the attention that the Chancellor has paid to the issue over many years, the Conservative leadership, particularly that of my right hon. Friend the Member for Witney, has changed the Government's approach and attitude, after the Chancellor's long tale of failure. Does my hon. Friend Mr. Walker wish to make a contribution? I was looking forward to another helpful intervention.
Why has the Chancellor suddenly undergone this Damascene conversion to the environmental cause? It has happened because of the arrival of my right hon. Friend the Member for Witney as the new Leader of the Opposition. Last week's Budget was designed not only to give a false impression of tax cuts, which has been demonstrably torn apart by Conservative Members, but to give the impression that the Chancellor will simplify the tax system—that he is a straightforward Chancellor who can be trusted, and who can tackle the allegations made against him. As we know from a leaked Treasury staffing report, staff who work for the Chancellor recognise his character as being anything but that. More than half of those who left the Treasury cited dissatisfaction with the job as the reason for doing so and almost a third mentioned low morale or cited boredom. The truth is that the Chancellor's character is one of the central issues of the political debate as we move towards having a new leader of the Labour party. Even more than the details of the Budget, it is the Chancellor's character that has been brought into the greatest relief since the announcement of the Budget last week.
In terms of the environment, we need only turn to what has been said by Labour party sympathisers and ex-activists, such as Stephen Tindale of Greenpeace, who used to work for the Labour party. He said that in 2000:
"The environmental movement was blamed inside government, and by Brown in particular, for failing to speak out loudly enough in support of government."
What does this Chancellor do when someone does not speak out loudly enough in support of him or the Government? Stephen Tindale tells us. He said:
"From 2000 until the middle of last year Brown lost interest in environmental issues, and the doors of the Treasury were closed to us."
That shows the character of the Chancellor: as a Chancellor, he has failed to deliver for the environment on every occasion.
Let us go through some of the details of the Budget. Road fuel duty has been increased by 2p per litre. It was said in the pre-Budget report of 1999 that
"the Chancellor has decided that revenues from any real terms increases in fuel duties will, in future, go straight in to a ring-fenced fund for improving public transport and modernising the road network".
Does that promise still hold? Will the money raised from the fuel duty rise go towards improving the transport network? I should like the answer to that when the Chief Secretary winds up the debate.
We know that the increase in vehicle excise duty on so-called Chelsea tractors will impact on people in rural areas, such as those who need such vehicles for farming. There was an opportunity to introduce a new tax category for people who have to use those vehicles for work, which would have made a tremendous difference to those in rural areas who are currently struggling to survive economically, but it was not taken. There was also an opportunity to increase VED to an extent that would lead to a genuine transfer from more gas-guzzling cars to more efficient ones.
Yes, and we all look forward to having a Liberal Government that will actually introduce those changes, of course.
There has been no real movement on VED, but there has been movement in the Budget on waste. The landfill tax escalator has been increased from £3 to £8 a year from April 2008, but why is there not a lower rate of landfill tax for waste that has been biologically treated before landfill? Some waste cannot be dealt with otherwise, and it should attract a lower level of landfill tax. There was also an opportunity to deal with incinerators, which are springing up all over the country—that development is driven by the Government. There should be an incineration tax to maximise the use of greener ways of dealing with waste. Also, what do we find in the Budget on energy efficiency, which is the most critical, and the easiest, means through which to make genuine improvement and change? Absolutely nothing.
The Budget mentions zero stamp duty for new homes that meet the zero carbon standard, which appears to send a signal to the building industry to invest in zero-carbon homes for the future, but no. The Chancellor has put a five-year limit on that zero duty. It will end in 2012, so the likelihood of builders changing the way that they build homes is small to non-existent. [ Interruption. ] Indeed; it is truly a zero-rated Budget. The Government's record in this Budget and the previous 10 is one of failure to put the environment at the heart of their policy, and it is in direct contradiction of the promises made when they came to power.
I turn from the environment to the other issues that most concern my constituents. The last Labour party manifesto promised that the share of national wealth spent on education would increase by the end of this Parliament. I should be interested to hear the Minister confirm or deny that. The truth is that, at 2.5 per cent., it is growing at less than the predicted rate of growth of the economy. [Interruption.] Does the Economic Secretary want to intervene?
I can confirm that, entirely consistent with our manifesto commitment, the share of education spending as a percentage of gross domestic product will rise over the course of this Parliament.
I am happy to agree that if the hon. Gentleman and the Government can deliver that, they will have met their manifesto commitment. Of course, all this depends on the rate of growth of the economy. Bearing in mind the powerful speech of my hon. Friend the Member for Northampton, South on the impact on small businesses, the likelihood of the Government's increasing the share of education spending as a percentage of GDP is probably greater, given that they will reduce the rate of economic growth through the measures that they introduced in the Budget.
That very much depends on the size of the economy at the end of the Parliament, but it would appear that over the next few years, the plan will produce a lower increase in education spending than the rate of growth of the economy overall.
The hon. Gentleman was in the Chamber, as I was, when we first heard the Chairman of the Public Accounts Committee articulate what will in future years be known as the "Gainsborough doctrine". That doctrine moves on from sharing the proceeds of growth to confiscating or hypothecating them: to transferring all those proceeds into tax cuts, thereby denuding public services. Was the hon. Gentleman attracted by that innovation?
I am grateful for that intervention. The vision of removing all those on low pay—I think that my hon. Friend Mr. Leigh suggested the figure of £15,000—from the labyrinthine attentions of the tax credit system, in which half the payments made are wrong and are dragged back from those who have least, is an attractive one. I doubt whether the time frame of five years or one Parliament that my hon. Friend suggested can be met, but I agree with him that when the Conservatives return to power in 2009 or 2010, over the following 15 or 20 years we will see those on low pay removed from that system, a transformation of people's economic activity and, therefore, an eventual increase in the tax take. We could fulfil the vision, which my hon. Friend did not entirely detail, of more investment in public services, while lifting the low-paid out of paying tax. [Interruption.] Dr. Blackman-Woods is bouncing up and down; does she want to intervene?
I am grateful to the hon. Gentleman for giving way. Does he accept that the table on page 158 of the Red Book not only outlines total projected spending on education until 2010-11 but the proportion of GDP, demonstrating that it will grow until 2010-11?
I think that the Economic Secretary has already dealt with that issue . The Budget did not touch on the NHS, which is the predominant issue in the minds of my constituents, as the local primary care trust, appointed by the Government, is setting about closing every NHS bed in my constituency. My constituents are also concerned about social care, about which we heard nothing in the Budget. Social care is a mushrooming problem, as recognised across the House, and it is a pity that the Budget did not take up that issue.
We need a change in the comprehensive spending review and more investment in transport, to provide a fairer allocation of transport investment across the country. It is not fairly allocated to Yorkshire and that has an impact on issues such as the Humber bridge tolls, which remain in place and inhibit economic growth, the improvements to the A1079 in my constituency, and the possibility of the return of a rail link between Beverley and York.
I remind the House of my entry in the register of Member's interests.
It is, as always, a great pleasure to follow my hon. Friend Mr. Stuart, who spoke with his customary passion, especially about the lack of detail in the Chancellor's statement about the NHS. Indeed, he hardly mentioned it.
I intend to talk mostly about small business and to echo some of the comments made by my hon. Friend Mr. Binley, and I shall finish on the environment. However, I wish to introduce my remarks by commenting on the tone of the Chancellor's speech. It was an undeniably political speech, which is no surprise to anyone on this side of the House and probably not to anyone on his own side, given his ambitions, which he obviously hopes will be realised sooner rather than later.
The initial reaction from Labour Back Benchers was positive and the Budget was well received in the Chamber. However, as hon. Members have had more time to reflect on what was said—and, perhaps more importantly, what was not said, but appeared in the detail of the Red Book and the supporting documents—the reaction has been markedly less positive. Indeed, the glee of many Labour Members has started to dissipate.
It was Mr. Field who pointed out the logical difficulty for the Chancellor in criticising, in future, the policy of my right hon. Friend Mr. Cameron and the shadow Chancellor in relation to sharing the proceeds of growth—a point to which I shall return. This evening, we heard from the Chancellor's great friend and former Paymaster General, Mr. Robinson, in a devastating speech that damned the Chancellor with faint praise. The hon. Gentleman called the Chancellor "fundamentally sane"—as opposed to completely sane—which suggests that a large part of him may not be sane. The hon. Gentleman went on to criticise two flagship policies. He criticised the scrapping of the 10p starting rate of income tax—I suspect that he introduced that himself, although I am not familiar with the history of his involvement with the Government—as an inappropriate move for a Labour Chancellor. He also highlighted the problems that will be caused for small businesses by the increase in the rates of corporation tax. It was not exactly a ringing endorsement from one of the Chancellor's closest political friends.
I would characterise the Chancellor's speech as one in which he blew smoke in order to hide—or to use the colloquial term, to bury—bad news. He put up a mirror in an attempt to reflect the policies of my right hon. Friend the Member for Witney and steal his clothes.
I am grateful to my hon. Friend for pointing out the reality of what the Chancellor has done. The Budget was camouflaged as one that would cut taxes for all levels of income, but we understand now that that is not so.
The income tax cut so dramatically flourished at the end of the Chancellor's remarks hid the impact of increasing the starting rate for the poorest members of society, especially those who do not have children. That is an astonishing redistribution from the poor to middle Britain, given that it comes from a Labour Chancellor who has sought to do the reverse during his tenure in office.
I come now to the Chancellor's track record with the public finances over the past 10 years. The chief executive of the Forum of Private Business has talked about "smoke and mirrors" in respect of the Budget, and that metaphor is appropriate. We have heard this evening about the public debt and the Chancellor's stewardship of public borrowing. My right hon. and learned Friend Mr. Clarke eloquently highlighted the problem with the Chancellor's forecasting skills. This is the seventh year in a row that the Budget forecasts for public sector borrowing have had to be increased. In fact, the Chancellor managed to get those numbers right only when they had been set by my right hon. and learned Friend—that is, when the right hon. Gentleman was following the spending plans of the previous Chancellor—and we heard last week that there would be a further £8 billion increase in public borrowing over the next few years.
Tucked away in about four words in the Chancellor's statement was an announcement that although future spending increases had been set out for almost every Department of state—but not for the NHS, as that is still to come—the right hon. Gentleman had decided to delay publication of the comprehensive spending review until October. Why? The political tone of the Chancellor's endeavours suggests to me that he wants to make sure that it will be his hand on the tiller, and not the current Prime Minister's, when the CSR is eventually published. That means that he will be seeking to tie the hands of the Chancellor who succeeds him.
The Budget speech contained a great deal about tax cuts, but a detailed reading of the Red Book makes it clear that the tax burden is rising significantly. Last year it was 39.2 per cent. of GDP, but in 2008-09 it will be 40.4 per cent., an increase of £17 billion. The total of tax and national insurance as a percentage of GDP is now the highest since 1997, and will increase over the next five years. I accept that the Red Book uses the OECD definition of these matters, but it does not include tax credits—another of the Chancellor's smoke-infested attempts to hide the amount of spending undertaken on his watch.
The Chancellor made some big-picture announcements. He said, with a great fanfare that was well received by Labour Back Benchers, that he would be responding to the parliamentary ombudsman's criticism of the Government's pensions mis-selling allegations by increasing the amount available to the financial assistance scheme to £8 billion. A huge cheer went up, and people might be forgiven for thinking that the entire amount would be put to use. However, on making a closer inspection—and as the Secretary of State for Work and Pensions clarified for members of the parliamentary Labour party—we see that the money is to be spread over 60 years. If we apply conventional net present value calculations to £8 billion over 60 years, the total is reduced to £1.9 billion—not quite such an attractive figure to announce. That is another example of smoke and mirrors. The financial assistance scheme has cost almost £9 million to administer, and as of the last month it had paid out the princely sum of £3.2 million to a mere 1,000 of the 125,000 pensioners who have lost their pensions and for whom it was designed in the first place.
May I move on to comment on what the Budget has done for business? Another flourish from the Chancellor was the cut in corporation tax to 28 per cent. That is welcome news, and it almost went as far as my hon. Friend the shadow Chancellor proposed a few days earlier. However, it is still higher than the average for the 25 members of the European Union, which is under 26 per cent. Financial services companies will benefit the most, but capital-intensive non-financial businesses will not achieve the benefits that the Chancellor seeks to introduce. That is curious. Manufacturing industry is under intense pressure as a result of threats from low-cost countries to which manufacturing has migrated in recent years, and profitability in manufacturing is at its lowest level since 1992. The Bank of England recently produced research that described the loss of industrial capacity in this country as the most dramatic of any G7 country. Indeed, the share of the economy taken up by manufacturing has fallen from 20 to 15 per cent. in recent years.
In all the 35-plus years in which I have served in the House, manufacturing industry has been my priority. Will my hon. Friend, who has considerable business experience, describe his concern about the dramatic loss of jobs in the manufacturing sector, bearing in mind the fact that manufacturing is the sole way in which the country can achieve sustainable non-inflationary economic growth?
I am grateful to my hon. Friend, who is a tremendous champion of manufacturing, particularly in his constituency, where he regularly raises those issues. Undoubtedly, manufacturing jobs are something that we should encourage. By penalising investment in capital-intensive goods we will make manufacturers less able to continue to invest and to take on the challenge of the low-wage economies with which they are constantly, and increasingly, competing. The measure is therefore of little help to them. The other losers in the so-called Budget for business are small businesses, which must pay an increased corporation tax rate as a result of the Chancellor's sleight of hand. That tax rate, hon. Members will know, will go up by 3 per cent. over the next three years.
I am grateful for that reminder.
That is damaging, because small businesses are the source of much innovation, employment and growth in the economy. There are 4.3 million small businesses in the UK, and 97 per cent. of firms employ fewer than 20 people. More than half a million people start up a new business every year, and 12 million people work in small firms. One of my hon. Friends mentioned that the number of people who voted for the Labour party in the last two elections is similar to the number of people employed by small firms. Despite what the Chancellor said in the Budget, and despite the attitude of the Treasury and the Revenue, in many respects the Budget undermines some of the most creative and entrepreneurial sectors of the economy. I shall give a couple of examples to show what was happening in the weeks before the Budget.
The Budget included specific measures on venture capital trusts, which are a form of tax-efficient investing that have been successful in raising equity and closing the equity gap for emerging businesses when it is difficult for them to secure capital from other investors, or purely from bank debt. Last year, £750 million was raised for VCTs and more than £500 million was raised in 2004-05. Each year, the Government have tinkered with the VCT regime and I welcome some of the minor measures introduced this year—some in response to points raised by me and by other Conservative Members in the Finance Bill Committee, but rejected by the Government. However, they have now recognised that we were talking sense and introduced some of those proposals. I congratulate the Government on listening to the industry—as will the industry.
Those provisions were completely overwhelmed, however, by the astonishing inclusion of two measures that limit investment in individual companies by VCTs to a mere £2 million, which will create a substantial equity gap between £2 million and £5 million to £10 million, at which level there are more sources available through the City. Even more damaging has been the limit on the number of employees in companies in which VCTs can invest: a mere 50 employees. I believe that is also the case for enterprise investment schemes.
The Government's excuse for that astonishing restriction on the flexibility of those investment vehicles is that it is all down to our friends in Brussels. The European Union, my hon. Friends may not be surprised to hear, has reinterpreted the rules for state aid and decided that any funds raised with the benefit of tax incentives now qualify as state aid, so European definitions of small and medium-sized enterprises need to apply. That move needs to be vigorously resisted by the Government, yet in the Budget they seem to have rolled over with no serious attempt to fight it off. I look forward to hearing their views—perhaps in the wind-ups—of how the position can be restored.
One impact of the clampdown on VCT flexibility has been significant in an industry close to the Chancellor's heart—the film industry. The head of Ealing Studios, Mr. Barnaby Thompson, who was, as it happens, at university with me, said:
"It's a massive kick in the nuts."
I think that must be a film expression. A St. Trinian's remake, starring leading British actors, is in production at Ealing Studios, and after the Budget announcements, two weeks before filming was due to begin, the producer lost £2 million of pledged funding through the VCT route, which amounted to 30 per cent. of his budget. That is an example of the practical impact of the measures.
Two days after the Budget, I received a letter from one of the leading commentators on VCT funding, Mr. Peter Hargreaves of Hargreaves Landsdown, who said:
"In our opinion this means that after
His colleague, Mr. Ben Yearsley, was rather more direct. He said that the Chancellor
"has effectively killed off the sector in two years. In 2006, he wounded them"— the VCT industry—
"with the gross asset legislation, before going for the kill this year".
That is what the industry believes will happen as a result of the measures that the Chancellor has introduced in what was supposed to be an innovative Budget for entrepreneurial small businesses.
The second specific issue arose shortly before the Budget. I have been trying to work out why, on
The measure is estimated to raise £400 million for the Treasury, and £400 million is close to the amount of money that the Chancellor claims that the Budget will produce in the first year by way of a tax cut. If he had not already announced the measure, he would not have been able to say that this was a tax-cutting Budget. He introduced a tax-raising measure three weeks before. Is that smoke or a mirror? I think that it is smoke. A large cloud of smoke has been blown all over the Budget by that measure.
What does this mean? It means that the Chancellor has introduced a measure that will stifle innovation and lead to a significant reduction in investment across a whole range of industries. The original intention, I believe, was to address abuses in the forestry and shipping sectors and latterly possibly also the property sector. Where it is actually going to bite is in the creative industries—the sectors so close to the Chancellor's heart. Film, theatre, electronic games publishing and biotech investments—high-risk genuine venture investments—will find it difficult. The combination of the VCT and enterprise investment scheme rules that I have just referred to and the elimination of sideways loss relief means that investors who have other activities and are prepared to invest, typically in limited liability partnerships, in order to fund those high-risk ventures will no longer be able to relieve the loss.
The Chancellor might say that we have a generous regime for film finance in this country as a result of the measures in the last Budget. I do not deny that the 20 per cent. production credit available to film producers is a useful assistance. However, if the other 80 per cent. is no longer going to be offsetable against other income, that is not going to amount to a row of beans, because there will be no funding available for ventures such as film productions if investors are no longer going to be able to offset losses incurred from those very high-risk, typically binary, investments. Those investments either work or they fail, and if they fail one loses all one's money. If people cannot offset that loss against their other income, in effect productions will not get the 80 per cent. funding to which the 20 per cent. credit would apply.
The instrument needs to be carefully considered by Ministers and their advisers in the Treasury. I hope that when the Finance Bill is working its way through the Committee stage, Ministers will pay more attention to the matter than they are at the moment. [Hon. Members: "Hear, hear."] I am grateful to my hon. Friends for drawing attention to the fact that I am still speaking. It woke up the Members on the Labour Benches.
I want to conclude with a few remarks about the Chancellor's environmental measures. In 1997, the Treasury issued a "Statement of Intent on Environmental Taxation" setting out the Government's aim:
"to reform the tax system to increase incentives to reduce environmental damage"— very noble. They said that they intended to
"shift the burden of tax from goods to bads"—
I think that we have heard that elsewhere recently. They wanted to
"encourage innovation in meeting higher environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone."
For 10 years, the Chancellor failed to provide a green Budget. In the eight years before Labour came to power, green taxes rose as a percentage of overall taxes from 7.8 per cent. to 9.4 per cent. However, by 2005, which is the latest year for which information is available, the Chancellor had allowed that percentage to fall to 7.7 per cent., which was its lowest level since 1987, when the information was first recorded. The Government took just under 2.9 per cent. out of the economy, which was another 18-year low. Mr. Ed Matthews of Friends of the Earth said that he would give the Chancellor
"probably one out of ten. He's got a terrible record".
I agree with him.
I will cite two specific measures in the Budget that were an attempt to demonstrate the Chancellor's green credentials. Under the changes to the rates of vehicle excise duty, the most polluting car will pay £400. Julia Goldsworthy referred to a measure that she and her party tried to introduce during consideration of last year's Finance Bill, which would have made VED increases appropriate for various parts of the country. I represent a rural constituency, and I am chairman of the all-party group on rural services, of which many hon. Members in the Chamber are members. We are extremely concerned that imposing a blanket tax as the Government are doing completely and utterly ignores the needs of rural communities and, especially, people in employment who also happen to be motorists. For example, many farmers drive a 4x4 so that they can do their job.
If you will allow me, Mr. Deputy Speaker, I will give a couple of specific examples. One of my constituents, Mr. Tony Machin, sent me an e-mail in which he wrote that he owned a 4x4 that was a 15-year-old, 3.2-litre, V6 petrol engine vehicle. He said that he realised that it was not the most economical mode of transport, so 18 months ago he converted it to run on liquefied petroleum gas at a cost of £1,900. The emissions of the vehicle are such that it is cleaner to drive than a small car, but it has not been re-rated and consequently it will attract the new higher rate of VED. Is that the intention behind the Government's measures? If not, why did they not recognise that the instrument that they have introduced is blunt and try to think more carefully about it?
Another of my constituents, Richard Hill of Intelligent Energy Systems, has asked whether we could
"have some common sense and increase the fee for 'unnecessary' 4x4s."
He has a 4x4, and I am sure that the Minister will be interested to hear that his business is the installation of intelligent energy systems, such as wind turbines and solar panels. Those things are relatively heavy, so he needs a 4x4 to tow his trailer to transport the equipment around the country. He says that it is quite obvious which vehicles are genuine utility vehicles and which are not. He thinks that the measure should have created a distinction between sports utility vehicles, which, I suspect, are the vehicles that the Chancellor would wish to attract higher duty—I would have no problem with that—and genuine utility vehicles that are used in business. I urge Ministers to rethink the measure before it is considered in Committee.
The president of the National Farmers Union, Mr. Peter Kendall, has said:
"We were extremely disappointed to see that no exemption was made for farmers who rely on 4x4 vehicles for their day-to-day livelihood."
I could not agree more.
Finally, I would like to raise the issue of the Chancellor's stop-start scheme to promote the use of renewable energy in domestic households, a conversion scheme called the low carbon buildings programme, which many hon. Members, including me, have mentioned in recent weeks. The programme is now known in the trade as "fund a fiasco" after the managing director of the Renewable Energy Association used the word "fiasco" to describe the operation of the scheme. The Chancellor has recognised that the scheme was woefully inadequately funded in the first place and was poorly administered. As a result, expectations have been raised among householders across the country: they thought that if they were interested in converting to a renewable energy source, there would be Government money to help them. That is a perfectly reasonable assessment to make, if one reads the Government's promotion of the scheme. However, anyone who tries to use the scheme will find that fewer than 2 per cent. of applicants are lucky enough to get a grant. If the Chancellor were to run the country in the way that he ran the scheme, heaven help us.
To conclude, the devil is in the detail of the Budget. It raises risk, the country is running on a public finance tightrope, and the Chancellor's micro-managing risks damaging innovation, as I tried to explain. The risk for the Chancellor is that he may think that he has shot the Tory fox, when he has in fact shot himself in the foot. He has conceded the argument: Government spending will grow less than the economy, and he will have to share the proceeds of growth.
It is a pleasure to follow my hon. Friend Mr. Dunne, who delivered an incisive analysis of what lies behind the Chancellor's smoke and mirrors. He drew to our attention, if we did not already know it, the fact that the Chancellor is basically once again raising taxes while saying that he is cutting them. My hon. Friend did not go quite as far as my right hon. and learned Friend Mr. Clarke, who said that the Chancellor was making "a blatant attempt to mislead the public" about what he was doing. Those are strong words, but they are highly appropriate in light of what is being done through the Budget, which began unravelling within hours of the Budget statement, and which will be a catalyst in discrediting the Chancellor when he seeks the position of Prime Minister.
In the four hours or so for which I have been listening to the debate, my hon. Friend the Member for Ludlow and others have shown that they have great experience and knowledge of the world of business. My hon. Friends the Members for Northampton, South (Mr. Binley), for Beverley and Holderness (Mr. Stuart) and for Ludlow have demonstrated that they can operate in, and make a success of, business, thereby creating employment and generating wealth for our country. Is it any surprise that when the Government started in 1997, they said, "We're on the side of small business"? As part of their promise, the Government said that there would be an annual debate on small business on the Floor of the House, but is it surprising that that promise was abandoned long ago? Obviously, the only people who know anything about small business and the operation of the enterprise society are the people on the Conservative Benches, and that has been demonstrated in this debate.
The most intellectually stimulating contribution from a Conservative Member this evening was that of my hon. Friend Mr. Leigh. He set out his own alternative Budget, which would involve raising the starting point for paying tax to £15,000 in income. That would take 13.5 million people out of tax. It would also raise the starting point for the 40 per cent. rate to £47,000. That is an aspiration, and it should be a policy for the Conservative party. I am delighted that so many members of our Treasury team are present on the Front Bench, including the shadow Chancellor.
In my remarks I shall concentrate on the issue of air passenger duty. We do ourselves a disservice in the House if we do not show that we are in tune with the concerns of the people out there. There have been full-page advertisements in our popular press over recent weeks expressing concerns about air passenger duty, particularly the increase, which is provided for in resolution 13. The increase will result in an extra £1 billion for the Treasury. What I find particularly offensive is that the increase is retrospective. It goes back to
Anyone travelling by air after
However, there is a significant group of people who do not have that protection. They are the package tour operators. They have taken a financial hit of some £44 million because regulations under the European package holiday regulations prohibit them from passing on the increase to their customers. That is outrageous. Because of the impact on the package holiday industry, when the Conservative Government introduced air passenger duty they gave about one year's notice of its introduction, to deal with those involved in the package holiday business. I am delighted that the package holiday industry is taking the Chancellor to court on the matter, and I wish it well.
Air passenger duty is offensive not just because it is retrospective. It is a good little earner for the Chancellor. He has presented it as a green tax, but we know that it is no such thing. As a result of the change announced on
Fortunately, the demand for aviation is inelastic. That means that however much we charge in taxes on aircraft flights, people will not be deterred from using aircraft. That has become apparent from discussions that have been taking place in the House on the European emissions trading scheme and the proposals to extend that to aircraft. If aircraft carbon were charged at £20 a tonne and average load factors of 70 per cent. prevailed, the result would be increases in the cost of an air journey of between £3 and £25. The growth in aviation by 2020 would be 135 per cent. rather than 142 per cent.: in other words, air travel would be double plus one third. There would be a minimal impact on the large growth in aviation. Why? Because of the inelasticity of this particular economic activity.
The number of passenger journeys from United Kingdom airports is set to increase from 228 million in 2005 to 490 million by 2030. I think that that is jolly good news, because it shows that all those people will be able to enjoy an improved quality of life. They will be able to enrich their experience by travelling and seeing the world. That probably applies to their children as well. Other Members, like me, will have children who, over the coming Easter holidays, will fly to the continent to engage in school exchanges and become more familiar with foreign languages. Why should we think it a bad thing for those children to have the enriching experience of travelling abroad by plane? Why should we tax hard-working families in this way?
Each year, United Kingdom aviation produces 36 million tonnes of carbon dioxide. At a market price of £10 per tonne, which I think is the current basic market price, aviation would have to contribute £360 million a year to meet its environmental carbon costs. But air passenger duty already yields £1 billion, and the increase proposed in resolution 13 would double that to £2 billion. Far from this being an effort to make the aviation industry pay its environmental costs, the industry will be charged more than five times those costs.
The tax burden of air passenger duty is disproportionate, and its impact on the environment is minuscule. Less than 1 per cent. of aviation's 36 million tonnes of carbon will be saved. I welcome the realisation in my party that this is not a green tax, and I welcome the publication of the discussion document "Greener Skies: A consultation on the environmental taxation of aviation". I welcome the assertion that
"The doubling of APD rates... has attracted controversy due to the short notice and retrospective nature of the increase on passengers who had already booked their flights."
And paid for them, as my hon. Friend says. I welcome the statement that the controversy
"has refocused attention on more fundamental shortcomings in the design of APD. In particular as a per-passenger tax it is not directly linked to the carbon content of the flight. As a result it provides no incentives for airlines to use more fuel-efficient aircraft or to increase seat-occupancy rates. It also excludes the fast-growing air freight sector."
I welcome, too, what the document says about the Financial Secretary to the Treasury. It points out that he admits that APD
"is a blunt instrument as far as the environment goes... It is not even the best tax instrument actually to deal with the effects of aviation... In narrow terms it's not specifically a tax that is designed for environmental ends."
It also quotes the Government's 2003 aviation White Paper as saying
"Because of its blunt nature, APD is not the ideal measure for tackling the environmental impacts of aviation."
"Together with the fact that the tax increase announced in the PBR was not offset by reductions in tax elsewhere, these deficiencies help to undermine public support for APD as an environmental tax and feed suspicions"—
I would put it more strongly than that—
"that it is simply designed to raise revenues for the Treasury."
I commend my hon. Friend the shadow Chancellor for that consultation document and his incisive analysis of the defects of APD. When I last heard him speak, I was left in some uncertainty as to whether we would be voting against resolution 13, but I hope that in the light of what he says in the document and our concern about retrospective legislation, he will join me and others in the No Lobby when we vote on it.
Let me refer to the way in which the Budget has covered up the work of Sir Michael Lyons. His commission was set up in July 2004 to consider the whole issue of how we pay for local government. After almost three years, he reported in a way that many of my elderly constituents would find encouraging. He said that 1.8 million people, mainly poor pensioners, are unable to get the full benefit of the council tax rebate and that as a result there is an enormous extra burden on those poorer members of our communities. He suggests that we should bring in new measures to help those people, who are paying £1.8 billion a year more than they should be because of the inefficiency of the council tax rebate system.
Sir Michael came forward with the radical idea—I hope that it will be taken up by my hon. Friend the shadow Chancellor—of raising the upper capital threshold for entitlement to council tax rebate to £50,000.
Indeed, as a minimum. He goes on to say that over time it could be abolished altogether.
If the Chancellor had adopted that recommendation from the Lyons report, we might have been able to take seriously his assertion that the Budget was fair and designed to help pensioners and those who are worst off in our society, but of course the report was an embarrassment to him, which is why it has been suppressed. I am concerned that so many people, even some of my hon. Friends, are not yet familiar with Sir Michael's radical and helpful proposals, which would particularly help hard-pressed pensioners with very high council taxes.
What does my hon. Friend think that his hard-pressed and long-suffering council tax payers, particularly the elderly, would make of the proposals to remove council tax capping or to make additional charges for waste collection, or the proposed tourist tax?
They would be rather less enthusiastic about those proposals; indeed, they would think that they smacked of being additional stealth taxes. They would also note with concern that the Lyons report says that in today's terms a local income tax would result in the basic tax rate going up by 7.7p in the pound.
My last point about Sir Michael Lyons' report is that he suggests the option of helping households that pay an unacceptably high council tax. Paragraph 174 of the executive summary proposes "a circuit-breaker rebate" to ensure that no householder pays more than a set proportion of income in property tax. I have long argued in favour of such a system. An enormous number of pensioners are, for want of a better expression, in council tax poverty. People are described as being in fuel poverty if they pay more than 10 per cent. of their income towards the cost of their fuel. However, many of my constituents pay much more than 10 per cent. of their net income towards the costs of council tax. They are, therefore, in council tax poverty. Limiting the percentage of income that was attributed to council tax would be a helpful mitigation. Of course, the Chancellor took up none of those suggestions in the Budget, because he is more interested in filling his coffers and deceiving the people.
If we were in any doubt about the Chancellor's abuse of the English language, let us consider just two things that he said in the Budget speech. He said that
"the amount of cash that can be saved tax-free from £3,000" will be raised
"by 20 per cent. in April next year to £3,600."
In his last sentence, he stated that
"I will from next April cut the basic rate of income tax".— [Official Report,
"Next April" is later this week. The Chancellor deliberately used language that must have given the impression that we were considering April this year rather than April next year. No wonder that the quality of education in our country is declining so rapidly when the Chancellor sets such a poor example from the top. "Next" means next, not the year after "next" or the April after next. If the Chancellor becomes Prime Minister, I hope that he will pay greater heed to the English language and, in so doing, to the need to increase public confidence in the straight talking of politicians.
It gives me great pleasure to sum up the debate this evening. The Secretary of State for Trade and Industry and my hon. Friend Mr. Prisk began the debate robustly, as one would expect. My hon. Friend spoke about competitiveness and the Budget's impact on small businesses. He raised a range of themes, to which I shall revert throughout my speech.
Mr. Robinson began by defending the Chancellor's sanity and proceeded, slightly oddly, to express some significant reservations about two of the centrepieces of the Budget. Even the Chancellor's friends appear to have reservations about what he produced in the Budget.
Dr. Cable spoke about a range of important issues, including the key fact that the value of take-home pay is now falling in this country. People's weekly wage packet buys them less and less and the retail prices index is at its highest for 16 years.
My right hon. and learned Friend Mr. Clarke produced an analysis of huge insight. The time available makes it impossible to do it justice. He spoke of the benign global economic conditions that the Chancellor has enjoyed and commented on the Chancellor's making a dreadful mess of public finances. He welcomed the Chancellor's recognition that we were right and said that we should share the proceeds of growth.
Mr. Cunningham spoke about his support for restoring the link between pensions and earnings. My hon. Friend Mr. Leigh talked about the importance of efficiency savings in Government and made a strong plea for progress towards lower taxes.
My hon. Friend Mr. Stuart delivered a devastating critique of the Treasury's record on the environment. My hon. Friend Mr. Dunne spoke at some length about a range of issues, including sideways loss relief and the Budget's impact on enterprise. My hon. Friend Mr. Chope expressed his grave concerns about the tax rises that the Government have introduced.
This was not a tax-cutting Budget. The Institute for Fiscal Studies has calculated that 3.5 million families will be worse off because of it. Page 279 of the Red Book reveals that tax will be up by £2 billion once all the Budget measures kick in, on top of the £2.4 billion in tax increases already trailed this year in the pre-Budget report and other measures. The Chancellor has raised taxes 99 times since his first Budget 10 years ago and the IFS tells us that the average family is paying £5,600 more tax a year in real terms. The Chancellor is about as credible on tax cuts as the Prime Minister on weapons of mass destruction.
This Budget was a tax con, not a tax cut. It did not cut taxes on income. Page 208 of the Red Book shows that the £8 billion cost of cutting the basic rate will be more than offset by a £7 billion increase from scrapping the 10p band and a £1 billion increase from raising the national insurance limits. The overall impact of the income and national insurance contributions changes means that working families will be paying £340 million more tax on their income next year.
It is not the rich who are being hit—not the guys in the City who are paid £22 million. People earning between £5,000 and £18,000 will pay more income tax. Nurses, cleaners, care workers, police community support officers, shop assistants, catering workers: those are the sort of people who are losing out. The Budget involves a transfer of the burden of tax from those on middle incomes to those on low incomes. This is the Budget that Labour Back Benchers cheered, by the Chancellor who claims he wants to tackle poverty.
The Chancellor seems to think that hitting the poorest with a higher income tax bill is not a problem, because tax credits soften the blow. What he is saying, in effect, is, "I'll take away more of your money, but you can have some of it back if you wade through these 72 pages of forms and explanatory notes on tax credits." The Budget will drive more people into the benefits system and into dependency.
Let us look at the tax credit system that people are being driven into. We support the use of tax credits—[Hon. Members: "Ah."]—but the tax credit system is broken, with £2 billion lost through fraud, nearly a million people underpaid and 2 million overpaid, meaning that half the payments in the system are wrong. Thousands of the most vulnerable people in our society are in desperate straits, driven into the hands of loan sharks when faced with huge overpayment bills that they cannot afford.
The Budget's increase in the tax credit withdrawal rate will leave many low-income families facing marginal tax rates of 70 per cent. or more as they struggle to lift themselves out of poverty. There are more people in deep poverty now than there were when the Chancellor gave his first Budget 10 years ago. Figures released today show the incomes of the poorest 20 per cent. falling and poverty increasing. How right Mr. Milburn was when he said that poverty has become "more entrenched" under Labour.
This Budget was not about tax reform. No Budget can claim to be simplifying when it increases dependency on highly complex tax credits. There are, it is true, some modest steps in the Budget towards tax simplification. We have put the issue at the top of our agenda and it is good news that the Chancellor has been pulled along in the wake of my hon. Friend Mr. Osborne, but these limited reforms cannot make up for the continual meddling and instability that has characterised our tax system since the Chancellor's first Budget.
We have slipped to 67th in the world league table on simplicity, so 66 countries now have a simpler and more rational tax system than we do—including Cambodia. The length of the direct tax code has doubled—1,000 years of tax law doubled in a little under 10 years. This year's Finance Bill might even see us overtake India and give us the longest tax code in the world.
This was not a budget for business. It is true that we welcome some of the changes made to the taxation of large businesses. We have been examining the case for a reduction in the headline rate of corporation tax, funded by scrapping some of the complex reliefs that have multiplied under the Chancellor. Last week, we called on him to do that and he has responded, but, frankly, the impact will be limited when set against £50 billion in extra business taxes levied since 1997. Overall, taxes on business will be up by £1 billion next year.
The Chancellor may have taken some of our advice on large companies, but he has headed in the opposite direction on smaller companies. He has raised rates and made the system more complicated, so we will be voting against his proposals on small business. After 11 Budgets, six rate changes and a cycle of continuing revolution worthy of Chairman Mao, never mind Stalin, he is almost back where he started on small company taxation, except that small businesses will be paying more tax in a more complex and unstable system.
Small businesses employ 58 per cent. of private sector workers, which is more than 12 million people. Those businesses are not only a crucial source of enterprise and innovation, and the big companies of the future, but the bedrock of our local communities. The people who will lose out in a big way because of this Budget are hairdressers, newsagents, caterers and small retailers, who are already struggling with falling living standards and rising inflation.
Some 10,000 small local shops have closed since 2000. How many struggling suburban high streets will face further decline as a result of this tax hit? How many more village shops and local post offices will face closure? The Chancellor claims that new allowances mean that businesses that invest will not lose out, but how can a small suburban post office shell out thousands of pounds in investment to make up for the Chancellor's tax grab?
The Chancellor has delivered a double whammy with a new tax hit on contractors through managed service companies. David Frost of the British Chambers of Commerce has said:
"This is a substantial rise and will hit those looking to grow their business."
Paula Tallon of Chiltern tax advisers has summed it up:
"Small companies are getting thumped again."
This was not a Budget for enterprise and competitiveness. With the thumping that business has received from the Chancellor in higher taxes, a more complicated tax system and a massive increase in regulation, it is no wonder that business investment has slipped below 10 per cent. of GDP for the first time since records began, that productivity growth has stagnated in Britain, that we have dropped from fourth to 10th in the world league table on competitiveness, that the UK grew more slowly last year than 21 other members of the EU, and that unemployment rose more quickly in Britain last year than anywhere else in the developed world.
This was not a Budget for saving and pensions, either. The Red Book contains the melancholy news that the savings ratio has virtually halved since the Chancellor's first Budget, in which he dealt a body blow to savings in Britain with his £100 billion raid on pension funds. That was followed by recurring and damaging instability in pensions tax, culminating in the predictable mess that he made this year of pensions term assurance.
The Chancellor announced new money for those who have lost their pensions, which we welcome, but he failed to point out that that would be spread over 60 years. The net present value of the new money was barely a third of the figure that he announced with a flourish on Budget day. Ros Altmann's verdict was:
"Today's announcement does nothing for most of those who are struggling without their pensions today...This is typical Gordon Brown—trying to get good headlines when the reality is not good. People are still suffering."
This was not a Budget for education. The promised bonanza for education spending has turned out to be a modest increase of just less than 2.5 per cent. Over-hyped announcements on spending cannot disguise the scandal that one in six young people leave school unable to read, write or add up properly and that 100,000 14-year-olds have the reading age of a seven-year-old.
We are lagging. We are 22nd out of 27 members of the EU in terms of growth, and unemployment grew more quickly in this country last year than anywhere else in the developed world.
Truancy is at record levels. Those children have spent almost their whole education under a Labour Government, who have failed them.
This was not a Budget for the NHS. For the second year in a row, the NHS barely got a mention. With junior doctors facing unemployment and emergency departments and maternity units threatened with closure across the nation—Labour Members know the situation very well—the question everyone is asking is: where has all the money gone? How can this Chancellor have spent so much and achieved so little? He has wasted money on an industrial scale. He has spent £4 trillion of taxpayers' money, which is money earned by hard-working men and women up and down this country. Now, after years of falsely accusing us of wanting to cut spending on public services, he has finally seen the light. He is raising public spending but more slowly than the growth rate in the economy. He is sharing the proceeds of growth.
Given that the hon. Lady says that our public spending projections are consistent with her third fiscal rule, will she commit her party to match them?
We will certainly match the announcement on education. As for the rest, we want to wait for your comprehensive spending review. You must produce the CSR, and we will produce— [Interruption.] I apologise, Mr. Deputy Speaker. When the Chief Secretary produces the CSR, we will produce our spending plans.
This Budget was not about economic stability. It was not about the environment. It was not about bringing people out of poverty. It was not about jobs and enterprise or competing with China and India. It was not about schools or the NHS. It was not about tax reform. It certainly was not about tax cuts. This Budget was all about politics. It was a tax con, not a tax cut. It was a continuation of the spin and dissembling that have characterised the new Labour project from the day that the Chancellor and the Prime Minister first dreamed it up. It was a cheap political sleight of hand and the British people have not been taken in by it. They know that if they want change, they will have to vote for change, and for a change of Government, not just a change of Prime Minister. I believe that one day very soon, they will.
We have had a memorable Budget and an interesting debate, and I thank all those who have contributed to it over the past four days.
The Budget contained personal tax reductions for families and pensioners and to help make work pay, tax simplification and reform to boost businesses, new UK leadership on climate change, and, crucially, additional resources to invest in public services and Britain's future competitiveness.
The package of £2.5 billion worth of reductions in personal taxation to offer more support for families with children, for pensioners and to make work pay, is funded within a broadly fiscally neutral Budget. My right hon. Friend the Chancellor, at the outset of his speech, made the position clear:
"Let me be absolutely clear...changes that I make today will be broadly neutral for the public finances and overall". —[ Hansard, 21 March 2007; Vol. 458, c. 819.]
The Conservative party did not understand it, but everyone else certainly did.
Does the Chief Secretary realise that while the attack on the Chancellor's Budget by both the Liberal Democrats and the Conservatives was almost entirely political, it is nevertheless frightening for those on low household incomes to be told that they will lose money because of tax changes? Can he confirm that, in constituencies such as mine, which have many poor families, no household will lose out because of the Budget?
I cannot say that. I can say, however, that most households are better off. Let me quote what the Institute for Fiscal Studies has said:
"The income tax and NI package has been cleverly designed to limit the number of losers".
Indeed, the gains are particularly concentrated in the lowest income deciles. Our policy is to give extra help to families, to do more to lift children out of poverty and to protect the position of pensioners, and that is what the package does.
What I can confirm is that there are more gainers than losers in every single income decile, and that the position set out by a number of speakers in the debate was very misleading.
Will the Chief Secretary confirm that a single person without children who earns less than £18,000 a year will be worse off as a result of the Budget?
No, that is certainly not necessarily the case. The hon. Lady should support the Budget; under its measures, 200,000 children will be lifted out of poverty. The Budget also strengthens incentives to work, building on past progress—there have been 2.6 million more jobs since 1997.
I will not give way for the moment. In terms of what I was talking about, the increase in the national minimum wage this October to £5.52 per hour will further help.
There was also a fiscally neutral package of simplification and reform of the corporate tax system to boost businesses and growth. [Interruption.] It was a fiscally neutral package. I am glad that the reduction in the main company rate has been broadly welcomed. The increase in the small company rate is balanced by the new £50,000 investment allowances.
But that change is offset. [Interruption.] Small businesses that invest will pay less tax as a result of the package. Figures released today show— [Interruption.] They show that there has been a big increase in business investment, which the Budget will strengthen further. Also— [Interruption.]
Order. I am sorry to interrupt the right hon. Gentleman, but the House should let the debate finish in a dignified manner. The Chief Secretary is winding up the debate; let him be heard.
Thank you, Mr. Deputy Speaker.
The Budget also addressed the challenge of climate change and the increasing pressure on natural resources. I wish to highlight the international aspects of the Budget statement. There will be a new international environmental transformation fund, with a first allocation to tackle deforestation in the Congo rainforest, and we intend to host an international conference this year on global carbon trading, at which we will want to build on London's pre-eminence in that area. Taken together, the Budget will deliver 6 million tonnes of carbon savings while strengthening UK leadership in the very important international decisions on climate change.
The Budget will equip the UK for future challenges with new investment. Mrs. Villiers was unwilling to commit her party to match our public spending projections set out in the Red Book. [Interruption.] Yes, we have; the total envelope of projections was set out in the Red Book. The hon. Lady has declined to match that, and I will return to that point.
The Opposition have said that the Budget is all smoke and mirrors; that point was made in tonight's debate. I am pleased to be able to say that the public have seen through that false claim. What the Budget does is clear, so it is no surprise that a poll in The Independent tomorrow morning shows a precipitate decline in the Tory party's lead.
Of course, the context for the Budget—the reason why it was possible—is the remarkable transformation that there has been in the UK economy over the past decade. Before 1997, we had the least stable economy in the G7 on the inflation measure. Since then, we have been the most stable on every single measure. UK gross domestic product per capita used to be the lowest in the G7; now it is the second highest. This year, growth is forecast to be higher in the UK than in any other G7 country, and employment in Britain is now above 29 million for the first time ever.
It is not necessary just to take my word for all of that. Let us look at what the International Monetary Fund said in its report last month on the UK economy. It referred to a
"decade-long record of strong and steady macroeconomic performance", and it pointed out that
"growth of real GDP per capita was higher and less volatile than in any other G7 country".
Such comments were never made when the Conservative party was in charge. Locking that stability in, avoiding any risks to it and sticking to our fiscal rules are immovable constraints around which the Budget has been constructed.
I am pleased that we have had the opportunity to address sharing the proceeds of growth—although I thought that more Conservative Members would talk about that. The first thing that we need to say about their proposed third fiscal rule is that the renewal of public services that we have witnessed over the past decade would have been completely impossible had it been in place. To insist that, whatever the circumstances, public spending must always and irrevocably fall as a share of GDP is utter folly. That was the policy of the Tory party in 1992. Its manifesto said:
"We believe that government should not gobble up all the proceeds of growth...our policy is therefore to reduce the share of national income taken by the public sector."
It is the same policy now as then—I do not know whether the shadow Chancellor wrote it—and one would think that the Tories would have learned from the failure of their policy in the early 1990s. It put public services on their knees, and it would do the same again if it were tried once more.
The leader of the Conservatives has indicated that he envisages the proceeds of growth being split 50:50. That would mean reducing spending in 2010-11 by £31 billion, below the projection in the Red Book. Perhaps the hon. Member for Chipping Barnet will tell us later whether that is what she envisages.
My hon. Friend is absolutely right about the record of Conservative Governments and the disastrous impact on public services in the UK.
We had a number of interesting speeches during today's debate. Mr. Prisk asked me how many pages there would be in Tolleys tax guide by next year. The Finance Bill, which will be published on Thursday, will be a single volume, and I am sure that he will be able to work out the impact on Tolleys. Dr. Cable helpfully acknowledged, as he generally does, the sound condition of the economy, but his characterisation of the impact of the £2.5 billion personal tax reduction package was very unfair.
In this Budget, the Government have set out their approach to building Britain's long-term future, locking in this decade-long record of strong and steady growth that has so transformed the country's economic prospects.
My hon. Friend is absolutely right. That policy makes no sense at all, and I know that his views will be endorsed across Scotland.
As I was saying, we will lock in this decade-long record of strong and steady growth that has so transformed the country's economic prospects, enhance fairness through the Budget, lift another 200,000 children out of poverty, take 600,000 pensioners out of tax altogether, secure UK competitiveness in investment and employment, build on the record number of people in jobs in Britain today, lead on the worldwide effort to secure a global carbon market, address the challenges of climate change, and invest for Britain's future, particularly in education and in science.
We have set out our figures in the Budget. This year, spending on public services will be £552 billion. I wonder whether the Opposition support that, given that their fiscal rule would have forced spending to be cut by £21 billion this year.
I am extremely grateful to the Chief Secretary for giving way. Independent commentators assess the cumulative impact of the Chancellor's pension tax at £100 billion. Can the Chief Secretary give us his estimate of the pension tax's impact on the savings of hard-working people throughout this country?
I do not agree with the hon. Gentleman's figure. I refer him to Lord Turner's report and I hope that he will support the reforms to the pension system that we will take forward.
Public expenditure next year will rise by £34 billion to £587 billion. Do the Tories support that figure, when they have a third fiscal rule that requires only half of growth to go to spending, and at the same time they want to cut corporation tax further and refund North sea oil companies to the tune of £2 billion? In 2008-09, public expenditure will rise by £29 billion to £615 billion. Do the Tories support that, given that they have said that they would have a cut in stamp duty on shares, worth £4 billion to £5 billion a year on top, of course, of the third fiscal rule and the further corporation tax cut?
All over the world the brave men and women of the British armed forces are serving our country and doing this Government's bidding. Why is it that our privates and troopers, who bear that heavy burden, will have to pay more tax after the Budget? Is that any way to reward them?
I invite the hon. Gentleman to look at the details of the package and see, in particular, how helpful it is in improving incentives to work, and providing extra support for families with children, and pensioners. I notice that the hon. Gentleman has not wanted to support the public spending totals that we published in our Budget Red Book.
In 2010, public spending will rise by an additional £29 billion to £674 billion, as we continue to invest in the future. Do the Tories support that figure, given that they have to meet the third fiscal rule, and pay for corporation tax cuts, stamp duty cuts and a married couple's allowance? If they cannot make a commitment to meet our spending totals, and they have not done so in this debate, we will draw the conclusion that the country will draw—that in every constituency there will be cuts in schools and hospitals.
We will have increased education spending by £14 billion by 2010. We have cut pupil-teacher ratios, we have spent more than 20 per cent. extra per pupil and we have cut the basic rate of tax to 20p. We have delivered stability, affordable tax cuts and increases in spending. This Budget secures those achievements and I commend it to the House.
Question put and agreed to.
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation,
(b) for refunding an amount of tax,
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.
2. Income tax (charge and rates for 2007-08)
That income tax is charged for the tax year 2007-08; and for that tax year—
(a) the starting rate is 10%,
(b) the basic rate is 22%, and
(c) the higher rate is 40%.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
3. Corporation tax (charge and main rates for financial year 2008)
That corporation tax is charged for the financial year 2008; and for that year the rate of corporation tax is—
(a) 28% on profits of companies other than ring fence profits, and
(b) 30% on ring fence profits of companies.
4. Corporation tax (small companies' rates and fractions for financial year 2007)
Motion made, and Question put forthwith, pursuant to
That for the financial year 2007—
(a) the small companies' rate is 20% on profits of companies other than ring fence profits and 19% on ring fence profits of companies, and
(b) the fraction mentioned in section 13(2) of the Income and Corporation Taxes Act 1988 is l/40th in relation to profits of companies other than ring fence profits and 1 l/400ths in relation to ring fence profits of companies.
Question accordingly agreed to.
5. Inheritance tax (rates and bands for 2010-11)
That provision may be made for substituting the Table in Schedule 1 to the Inheritance Tax Act 1984 in relation to chargeable transfers made on or after 6th April 2010.
6. Rates of duty on alcoholic liquor
(1) The Alcoholic Liquor Duties Act 1979 is amended as follows.
(2) In section 36(lAA)(a) (standard rate of duty on beer), for "£13.26" substitute "£13.71".
(3) In section 62(1 A) (rates of duty on cider)—
(a) in paragraph (a) (rate of duty per hectolitre in the case of sparkling cider of a strength exceeding 5.5 per cent), for "£166.70" substitute "£172.33",
(b) in paragraph (b) (rate of duty per hectolitre in the case of cider of a strength exceeding 7.5 per cent which is not sparkling cider), for "£38.43" substitute "£39.73", and
(c) in paragraph (c) (rate of duty per hectolitre in any other case), for "£25.61" substitute "£26.48".
(4) For Part 1 of the Table in Schedule 1 substitute—
|Wine and Made-wine of a Strength not exceeding 22 per cent.|
|Description of wine or made-wine||Rates of duty per hectolitre|
|Wine or made-wine of a strength not exceeding 4 per cent.||54.85|
|Wine or made-wine of a strength exceeding 4 per cent. but not exceeding 5.5 per cent.||75.42|
|Wine or made-wine of a strength exceeding 5.5 per cent. but not exceeding 15 per cent and not sparkling.||177.99|
|Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent. but less than 8.5 per cent.||172.33|
|Sparkling wine or sparkling made-wine of a strength of 8.5 per cent. or of a strength exceeding 8.5 per cent but not exceeding 15 per cent.||227.99|
|Wine or made-wine of a strength exceeding 15 per cent. but not exceeding 22 per cent.||237.31|
(5) The amendments made by this Resolution come into force on 26th March 2007.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
7. Rates of tobacco products duty
(1) For the Table in Schedule 1 to the Tobacco Products Duty Act 1979 there is substituted—
|1. Cigarettes||An amount equal to 22 per cent. of the retail price plus £108.65 per thousand cigarettes.|
|2. Cigars||£158.24 per kilogram.|
|3. Hand-rolling tobacco||£113.74 per kilogram.|
|4. Other smoking tobacco and chewing tobacco||£69.57 per kilogram.|
(2) The amendment made by this Resolution comes into force at 6p.m. on 21st March 2007.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
8. Rates of gaming duty
That provision may be made for and in connection with replacing the Table in section 11(2) of the Finance Act 1997.
9. Remote gaming duty
That provision may be made for a duty on remote gaming.
10. Amusement machine licence duty
(1) In section 23(3) of the Betting and Gaming Duties Act 1981, in the definition of "Category C", in paragraph (ii)(b), for "£25" there is substituted "£35".
(2) The amendment made by this Resolution comes into force on 22nd March 2007.
11. Fuel duty rates and rebates
That provision may be made amending rates of duty and rebate in the Hydrocarbon Oil Duties Act 1979.
12. Rates of vehicle excise duty
(1) Schedule 1 to the Vehicle Excise and Registration Act 1994 (annual rates of duty) is amended as follows.
(2) In paragraph 1 (general)—
(a) in sub-paragraph (2) (vehicle not covered elsewhere in Schedule otherwise than with engine cylinder capacity not exceeding l,549cc), for "£175" substitute "£180", and
(b) in sub-paragraph (2A) (vehicle not covered elsewhere in Schedule with engine cylinder capacity not exceeding l,549cc), for "£110" substitute "£115".
(3) Paragraph IB (graduated rates for light passenger vehicles) is amended as follows.
(4) For the words from "Table A" to "date," substitute "the following table".
(5) For ", or is liable to the standard rate or the premium" substitute "or is liable to the standard".
(6) For Tables A and B substitute—
|CO 2 emissions figure||Rate|
|Exceeding||Not exceeding||Reduced rate||Standard rate|
The table has effect in relation to vehicles first registered before 23rd March 2006 as if—
(a) in column (3), in the last row, "190" were substituted for "285", and
(b) in column (4), in the last row, "205" were substituted for "300"."
(7) For paragraphs ID and IE substitute—
"The standard rate
ID A vehicle is liable to the standard rate of duty if it does not qualify for the reduced rate of duty."
(8) In paragraph U (light goods vehicles)
(a) in sub-paragraph (a) (vehicle which is not lower-emission van), for "£170" substitute "£175", and
(b) in sub-paragraph (b) (lower-emission van), for "£110" substitute "£115".
(9) In paragraph 2(1) (motorcycles)—
(a) in paragraph (b) (motorbicycle and engine's cylinder capacity more than 150cc but not more than 400cc), for "£31" substitute "£32",
(b) in paragraph (c) (motorbicycle and engine's cylinder capacity more than 400cc but not more than 600cc), for "£46" substitute "£47", and
(c) in paragraph (d) (any other case), for "£62" substitute "£64".
(10) The amendments made by this Resolution have effect in relation to licences taken out on or after 22nd March 2007.
13. Rates of air passenger duty
Motion made, and Question put forthwith, pursuant to
(1) Section 30 of the Finance Act 1994 (rates of air passenger duty) is amended as follows.
(2) In subsection (3A) (destinations in EEA States and qualifying territories etc)—
(a) in paragraph (a) (standard class travel), for kt£5" substitute "£10", and
(b) in paragraph (b) (any other case), for "£10" substitute "£20".
(3) In subsection (4) (other destinations)—
(a) in paragraph (a) (standard class travel), for "£20" substitute "£40", and
(b) in paragraph (b) (any other case), for "£40" substitute "£80".
(4) The amendments made by this Resolution have effect in relation to any carriage of a passenger on an aircraft which begins on or after 1st February 2007.
(5) But if the amount of duty due from any operator in the accounting period ending before 21 st March 2007 increased as a result of those amendments, the operator is to pay the amount of that increase as if it became due in the first accounting period ending after that day.
(6) Expressions which are used in paragraph (5) and in the Air Passenger Duty Regulations 1994 have the same meaning in that paragraph as in those regulations.
The House divided: Ayes 296, Noes 84.
Question accordingly agreed to.
14. Rates of climate change levy
That provision may be made about the rates of climate change levy.
15. Rate of aggregates levy
That provision may be made about the rate of aggregates levy.
16. Rate of landfill tax (2007)
(1) In section 42 of the Finance Act 1996 (amount of landfill tax), in—
(a) subsection (l)(a) (the standard rate), and
(b) subsection (2) (reference to the standard rate taken to be £2 in cases of disposals of qualifying material), for "£21" there is substituted "£24".
(2) The amendments made by this Resolution have effect in relation to disposals made (or treated as made) on or after 1st April 2007.
17. Rates of landfill tax (after 2007)
That provision may be made about the rates of landfill tax.
18. Emissions trading
That provision may be made for the imposition of charges by the allocation of Community tradeable emissions allowances in return for payment.
19. Climate change levy (reduced-rate supplies etc)
That provision may be made amending Schedule 6 to the Finance Act 2000 in relation to reduced-rate supplies and exemptions.
20. Landfill tax (bodies concerned with the environment)
(1) In section 53(4) of the Finance Act 1996 (credit: bodies concerned with the environment), after paragraph (c) there is inserted—
"(ca) provision for an environmental body to be and remain approved only if it complies with conditions imposed from time to time by the regulatory body or for the regulatory body to be and remain approved only if it complies with conditions imposed from time to time by the Commissioners (including provision for the variation or revocation of such conditions);".
(2) The amendment made by this Resolution comes into force on 22nd March 2007.
21. Managed service companies (earnings from employment)
Motion made, and Question put forthwith, pursuant to
(1) The Income Tax (Earnings and Pensions) Act 2003 is amended as follows.
(2) In section 7(5) (meaning of "employment income" etc), for paragraph (a) substitute—
"(a) Chapters 7 to 9 of this Part (agency workers, workers under arrangements made by intermediaries, and workers providing services through managed service companies),".
(3) In section 48(2) (workers under arrangements made by intermediaries: scope of Chapter) for the "or" at the end of paragraph (a) substitute—
" (aa) applies to services provided by a managed service company (within the meaning of Chapter 9 of this Part), or".
(4) After section 61 insert—
MANAGED SERVICE COMPANIES
Application of this Chapter
61A Scope of this Chapter
(1) This Chapter has effect with respect to the provision of services by a managed service company.
(2) Nothing in this Chapter—
(a) affects the operation of Chapter 7 of this Part (agency workers), or
(b) applies to payments or transfers to which section 966(3) or (4) of ITA 2007 applies (visiting performers: duty to deduct and account for sums representing income tax).
61B Meaning of "managed service company"
(1) A company is a "managed service company" if—
(a) its business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other persons,
(b) payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services,
(c) the way in which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and national insurance) exceeding that which would be received (net of tax and national insurance) if every payment in respect of the services were employment income of the individual, and
(d) a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals ("an MSC provider") is involved with the company.
(2) An MSC provider is "involved with the company" if the MSC provider or an associate of the MSC provider—
(a) benefits financially on an ongoing basis from the provision of the services of the individual,
(b) influences or controls the provision of those services,
(c) influences or controls the way in which payments to the individual (or associates of the individual) are made,
(d) influences or controls the company's finances or any of its activities, or
(e) gives or promotes an undertaking to make good any tax loss.
(3) A person does not fall within subsection (l)(d) merely by virtue of providing legal or accountancy services in a professional capacity.
(4) A person does not fall within subsection (l)(d) merely by virtue of carrying on a business consisting only of placing individuals with persons who wish to obtain their services (including by contracting with companies which provide their services); but this subsection does not apply if the person, or an associate of the person, does anything within any of paragraphs (c) to (e) of subsection (2).
61C Section 61B: supplementary
(1) The Treasury may by order provide that persons of a prescribed description do not fall within section 61B(l)(d).
(2) An order under subsection (1) may be made so as to have effect in relation to the whole of the tax year in which it is made.
(3) In section 6IB and this section, "company" means a body corporate or partnership.
(4) References in section 6IB to an associate of a person ("P") include a person who, for the purpose of securing that the individual's services are provided by a company, acts in concert with P (or with P and other persons).
(5) In section 61B(2)(e), "undertaking to make good any tax loss" means an undertaking (in any terms) to make good (in whole or in part, and by any means) any cost to the individual or an associate of the individual resulting from a relevant provision, or a particular kind of relevant provision, applying in relation to payments made to the individual or associate.
(6) In subsection (5) "relevant provision" means—
(a) a provision of the Tax Acts,
(b) an enactment relating to national insurance, or
(c) a provision of subordinate legislation made under any such provision or enactment.
The deemed employment payment
61D Worker treated as receiving earnings from employment
(1) This section applies if—
(a) the services of an individual ("the worker") are provided (directly or indirectly) by a managed service company ("the MSC"),
(b) the worker, or an associate of the worker, receives (from any person) a payment or benefit which can reasonably be taken to be in respect of the services, and
(c) the payment or benefit is not earnings (within Chapter 1 of Part 3) received by the worker directly from the MSC.
(2) The MSC is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment ("the deemed employment payment").
(3) The deemed employment payment is treated as made at the time the payment or benefit mentioned in subsection (l)(b) is received.
(4) In this Chapter—
"the worker" has the meaning given by subsection (1),
"the relevant services" means the services mentioned in that subsection, and
"the client" means the person to whom the relevant services are provided.
(5) Section 61F supplements this section.
61E Calculation of deemed employment payment
(1) The amount of the deemed employment payment is the amount resulting
from the following steps—
Find (applying section 6IF) the amount of the payment or benefit mentioned in section 61D(l)(b).
Deduct (applying Chapters 1 to 5 of Part 5) the amount of any expenses met by the worker that would have been deductible from the taxable earnings from the employment if—
(a) the worker had been employed by the client to provide the relevant services, and
(b) the expenses had been met by the worker out of those earnings.
If the result at this point is nil or a negative amount, there is no deemed employment payment.
Assume that the result of step 2 represents an amount together with employer's national insurance contributions on it, and deduct what (on that assumption) would be the amount of those contributions.
The result is the deemed employment payment.
(2) In step 2 of subsection (1), the reference to expenses met by the worker includes, where the MSC is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership.
(3) In step 2 of subsection (1), the expenses deductible include the amount of any mileage allowance relief which the worker would have been entitled to in respect of the use of a vehicle falling within subsection (4) if—
(a) the worker had been employed by the client to provide the relevant services, and
(b) the vehicle had not been a company vehicle (within the meaning of Chapter 2 of Part 4).
(4) A vehicle falls within this subsection if—
(a) it is provided by the MSC for the worker, or
(b) where the MSC is a partnership and the worker is a member of the partnership, it is provided by the worker for the purposes of the business of the partnership.
(5) For the purposes of subsection (1) any necessary apportionment of payments or benefits that are referable partly to the provision of the relevant services and partly to other matters is to be made on a just and reasonable basis.
61F Sections 61D and 61E: application of rules relating to earnings from employment
(1) The following provisions apply for the purposes of sections 61D and 6 IE.
(2) A "payment or benefit" means anything that, if received by an employee for performing the duties of an employment, would be general earnings from the employment.
(3) The amount of a payment or benefit is taken to be—
(a) in the case of a payment or cash benefit, the amount received, and
(b) in the case of a non-cash benefit, the cash equivalent of the benefit.
(4) The cash equivalent of a non-cash benefit is taken to be—
(a) the amount that would be general earnings if the benefit were general earnings from an employment, or
(b) in the case of living accommodation, whichever is the greater of that amount and the cash equivalent determined in accordance with section 398(2).
(5) A payment or benefit is treated as received—
(a) in the case of a payment or cash benefit, when payment is made of or on account of the payment or benefit;
(b) in the case of a non-cash benefit, when it would have been treated as received for the purposes of Chapter 4 or 5 of this Part (see section 19 or 32) if—
(i) the worker had been an employee, and
(ii) the benefit had been provided by reason of the employment.
61G Application of Income Tax Acts in relation to deemed employment
(1) The Income Tax Acts (in particular, the PA YE provisions) apply in relation to the deemed employment payment as follows.
(2) They apply as if—
(a) the worker were employed by the MSC to provide the relevant services, and
(b) the deemed employment payment were a payment by the MSC of earnings from that employment; but this is subject to subsection (3).
(3) No deduction under Part 5 (deductions allowed from employment income) or section 232 (mileage allowance relief) may be made from the deemed employment payment.
(4) The worker is not chargeable to tax in respect of the deemed employment payment if, or to the extent that, by reason of any combination of the factors mentioned in subsection (5), the worker would not be chargeable to tax if—
(a) the worker were employed by the client to perform the relevant services, and
(b) the deemed employment payment were a payment by the client of earnings from that employment.
(5) The factors are—
(a) the worker being resident, ordinarily resident or domiciled outside the United Kingdom,
(b) the client being resident or ordinarily resident outside the United Kingdom, and
(c) the relevant services being provided outside the United Kingdom.
(6) Where the MSC is a partnership and the worker is a member of the partnership, the deemed employment payment is treated as received by the worker in the worker's personal capacity and not as income of the partnership.
(a) the worker is resident in the United Kingdom, and
(b) the relevant services are provided in the United Kingdom, the MSC is treated as having a place of business in the United Kingdom, whether or not it in fact does so.
61H Relief in case of distributions by managed service company
(1) A claim for relief may be made under this section where the MSC—
(a) is a body corporate,
(b) is treated as making a deemed employment payment in any tax year, and
(c) either in that tax year (whether before or after that payment is treated as made), or in a subsequent tax year, makes a distribution (a "relevant distribution").
(2) A claim for relief under this section must be made—
(a) by the MSC by notice to an officer of Revenue .and Customs, and
(b) within 5 years after 31st January following the tax year in which the distribution is made.
(3) If on a claim being made an officer of Revenue and Customs is satisfied that relief should be given in order to avoid a double charge to tax, the officer must direct the giving of such relief by way of amending any assessment, by discharge or repayment of tax, or otherwise, as appears to the officer appropriate.
(4) Relief under this section is given by setting the amount of the deemed employment payment against the relevant distribution so as to reduce the distribution.
(5) In the case of more than one relevant distribution, an officer of Revenue and Customs must exercise the power conferred by this section so as to secure that so far as practicable relief is given by setting the amount of a deemed employment payment—
(a) against relevant distributions of the same tax year before those of other years,
(b) against relevant distributions received by the worker before those received by another person, and
(c) against relevant distributions of earlier years before those of later years.
(6) Where the amount of a relevant distribution is reduced under this section, the amount of any associated tax credit is reduced accordingly.
61I Meaning of "associate"
(1) Subsections (2) to (4) apply for the purposes of this Chapter.
(2) "Associate", in relation to an individual, means—
(a) a member of the individual's family or household,
(b) a relative of the individual,
(c) a partner of the individual, or
(d) the trustee of any settlement in relation to which the individual, or a relative of the individual or member of the individual's family (living or dead), is or was a settlor.
(3) "Associate", in relation to a company, means a person connected with the company.
(4) "Associate", in relation to a partnership, means any associate of a member of the partnership.
(a) a managed service company ("the MSC") is a partnership, and
(b) a person is an associate of another person by virtue only of being a member of the partnership,
the person is to be treated, for the purposes of this Chapter as it applies in relation to the MSC, as if he were not an associate of that other person.
(6) In subsection (2), "relative" means ancestor, lineal descendant, brother or sister.
(7) For the purposes of subsection (2)—
(a) a man and woman living together as husband and wife are treated as if they were married to each other, and
(b) two persons of the same sex living together as if they were civil partners of each other are treated as if they were civil partners of each other.
61J Interpretation of Chapter
(1) In this Chapter—
"associate" has the meaning given by section 61I,
"business" means any trade, profession or vocation,
"the client" has the meaning given by section 61D(4),
"employer's national insurance contributions" means secondary Class 1 or Class 1A national insurance contributions,
"managed service company" has the meaning given by section 61B,
"national insurance contributions" means contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992,
"PAYE provisions" means the provisions of Part 11 or PAYE regulations,
"the relevant services" has the meaning given by section 61D(4), and
"the worker" has the meaning given by section 61D(4).
(2) Nothing in section 995 of ITA 2007 (meaning of control) applies for the purposes of this Chapter."
(5) In section 218(1) (exclusion of lower-paid employments from parts of benefits code: calculation of earnings rate), in Step 1, at the end of paragraph (d) insert
(e) in the case of an employment within section 61G(2) (deemed employment payment by managed service company), the total amount of deemed employment payments for the year."
(6) The amendments made by this Resolution come into force on 6th April 2007.
The House divided: Ayes 293, Noes 234.
Question accordingly agreed to.
22. Managed service companies (other provision)
That further provision may be made in connection with managed service companies.
23. Restrictions on trade loss relief for partners
That provision (including provision having retrospective effect) may be made restricting reliefs for losses made by individuals carrying on trades in partnership.
24. Chargeable gains
That provision (including provision having retrospective effect) may be made amending, or making amendments connected with, the Taxation of Chargeable Gains Act 1992.
25. Life policies etc (effect of rebated or reinvested commission)
That provision may be made amending—
(a) Chapter 2 of Part 13 of the Income and Corporation Taxes Act 1988, and
(b) Chapter 9 of Part 4 of the Income Tax (Trading and Other Income) Act 2005.
26. Avoidance involving financial arrangements
That provision (including provision having retrospective effect) may be made in relation to—
(a) section 347A of the Income and Corporation Taxes Act 1988 (annual payments),
(b) section 660C of that Act (income of settlor),
(c) sections 774A to 774G of that Act (structured finance arrangements),
(d) Schedule 23A to that Act (manufactured payments),
(e) Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships),
(f) section 228F of the Capital Allowances Act 2001 (lease and finance leaseback), and
(g) Schedule 26 to the Finance Act 2002 (derivative contracts).
27. Companies carrying on business of leasing plant or machinery
That provision (including provision having retrospective effect) may be made in relation to—
(a) section 343 of the Income and Corporation Taxes Act 1988, and
(b) Schedule 10 to the Finance Act 2006.
28. Lloyd's corporate members
That provision may be made in relation to corporate members of Lloyd's.
29. Employee benefit contributions
That provision may be made in relation to employee benefit contributions.
30. Schemes etc designed to increase double taxation relief
That provision (including provision having retrospective effect) may be made amending and extending the effect of sections 804ZA to 804ZC of, and Schedule 28AB to, the Income and Corporation Taxes Act 1988.
31. Industrial and agricultural buildings allowances
That provision may be made for the purposes of the Capital Allowances Act 2001 in relation to industrial buildings allowances and agricultural buildings allowances.
32. Insurance companies
That provision (including provision having retrospective effect) may be made about insurance companies, including companies which have ceased to be insurance companies after a transfer of business.
33. Technical provisions made by general insurers
That provision may be made in relation to technical provisions made by general insurers.
34. Friendly societies
That provision may be made amending section 464 of the Income and Corporation Taxes Act 1988.
35. Sale and repurchase of securities
That provision may be made in relation to arrangements for the sale and repurchase of securities.
36. Controlled foreign companies
That provision (including provision having retrospective effect) may be made in relation to controlled foreign companies.
37. Expenditure on research and development
That provision may be made about tax relief for expenditure on research and development.
38. Venture capital schemes
That provision may be made about the corporate venturing scheme, the enterprise investment scheme and venture capital trusts.
39. Loss relief on disposal of shares
That provision may be made about loss relief on disposal of shares.
40. Real Estate Investment Trusts
That provision (including provision having retrospective effect) may be made amending Part 4 of the Finance Act 2006.
41. Alternative finance
That amendments may be made of and in relation to Chapter 5 of Part 2 of the Finance Act 2005.
42. Trust gains on contracts for life insurance
That provision may be made amending section 498 of the Income Tax Act 2007.
43. Offshore funds
That provision (including provision having retrospective effect) may be made in relation to offshore funds and investors in them.
44. Securitisation companies
That provision may be made amending sections 83 and 84 of the Finance Act 2005.
45. Enterprise management incentives
That provision may be made amending Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003.
46. Unpaid remuneration and employee benefit contributions
That provision may be made amending sections 31 and 274 of the Income Tax (Trading and Other Income) Act 2005.
47. Abolition of contributions relief for life assurance premium contributions
Motion made, and Question put forthwith, pursuant to
(1) Part 4 of the Finance Act 2004 (pension schemes etc) is amended as follows.
(2) In section 188(3) (relief for members' contributions: contributions which are not relievable pension contributions), after paragraph (a) insert—
"(aa) any contributions which are life assurance premium contributions (see section 195 A),".
(3 After section 195 insert—
"195A Life assurance premium contributions
(1) Contributions paid by or on behalf of an individual under a registered pension scheme are life assurance premium contributions for the purposes of section 188(3)(aa) if—
(a) rights under a non-group life policy (see subsection (2)) are (or later become) held for the purposes of the pension scheme, and
(b) the contributions are treated by this section as paid in respect of premiums under the non-group life policy (see subsections (3) to (5)).
(2) For the purposes of this section a "non-group life policy" is a policy of insurance under which the only benefits which may become payable are benefits payable in consequence, or in anticipation, of—
(a) the death of the individual or one of a group of individuals which includes the individual, or
(b) the deaths of more than one of a group of individuals—
(i) which includes the individual, and
(ii) the other members of which are connected with the individual.
(3) Contributions paid by or on behalf of the individual under the pension scheme are treated as paid in respect of premiums under the non-group life policy if—
(a) the payment of the contributions constitutes the payment of premiums under the policy, or
(b) the person by whom the contributions are paid intends the contributions (or an amount equivalent to them) to be applied towards paying premiums under the policy.
(4) Where the amount of the premiums under the policy in a tax year exceeds the amount of any contributions treated as paid in respect of the premiums by subsection (3), other contributions paid by or on behalf of the individual under the pension scheme in the tax year are treated as paid in respect of premiums under the policy to the extent that their amount does not exceed the difference between the amount of the premiums and the amount of any contributions treated as paid in respect of the premiums by subsection (3).
(5) But where—
(a) the benefits under the policy relate to the death of one or more of a group of individuals, and
(b) contributions are also paid under the pension scheme in the tax year by or on behalf of another member or other members of the group, the amount of the contributions paid by or on behalf of the individual which are treated as paid in respect of premiums under the policy by subsection (4) does not exceed what is just and reasonable having regard to the operation of section 188(3)(aa) in relation to the contributions paid by or on behalf of another member or other members of the group.
(6) For the purposes of this section an individual ("A") is connected with another individual ("B") if—
(a) A is B's spouse or civil partner,
(b) A is a relative of B,
(c) A is the spouse or civil partner of a relative of B,
(d) A is a relative of B's spouse or civil partner, or
(e) A is the spouse or civil partner of a relative of B's spouse or civil partner;
and for the purposes of this subsection "relative" means brother, sister, ancestor or lineal descendant."
(4) The amendments made by this Resolution have effect in relation to contributions under any pension scheme that is not an occupational pension scheme which are paid on or after 6th April 2007.
(5) But they do not have effect in relation to contributions paid at any time if the contributions are treated as paid in respect of premiums under a policy of insurance which at that time is a protected policy (see paragraphs (6) to (10)).
(6) A policy of insurance within paragraph (7) or (8) is a protected policy but only until a relevant event occurs (see paragraphs (9) and (10)).
(7) A policy of insurance is within this paragraph if—
(a) it is issued in respect of insurances made before 6th December 2006,
(b) the pension scheme became a registered pension scheme before that date, and
(c) rights under the policy became held for the purposes of the pension scheme before that date.
(8) A policy of insurance is within this paragraph if—
(a) it is issued in respect of insurances made before 6th April 2007,
(b) the pension scheme became a registered pension scheme before that date,
(c) rights under the policy became held for the purposes of the pension scheme before that date,
(d) the policy was issued in pursuance of a proposal made in writing (by whatever means) and received by or on behalf of the insurer on or before 13th December 2006,
(e) the amount of the benefits payable under the policy (at the latest of the time when the insurances were made, the pension scheme was registered or rights under the policy became held for the purposes of the pension scheme) is no more than the amount applied for in the proposal,
(f) the period for which benefits are so payable (at the latest of those times) is no longer than the period specified in the proposal, and
(g) the policy is not a protected policy by virtue of paragraph (7).
(9) For the purposes of paragraph (6) a "relevant event" occurs if, after the relevant time, the terms of the policy are varied so as to—
(a) increase the benefits payable under the policy, or
(b) extend the period during which benefits are so payable.
(10) 'The relevant time"—
(a) in the case of a policy of insurance within paragraph (7) which is issued in respect of insurances made before 6th April 2006, is 20th March 2007,
(b) in the case of any other policy of insurance within paragraph (7), is 5th December 2006, and
(c) in the case of a policy of insurance within paragraph (8), is the time when it became a protected policy.
The House divided: Ayes 292, Noes 232.
Question accordingly agreed to.
48. Persons by whom registered pension schemes may be established
(1) Section 154 of the Finance Act 2004 (persons by whom registered pension scheme may be established) is amended as follows.
(2) For subsection (1) substitute—
"(1) An application to register a pension scheme may be made only if the pension scheme is an occupational pension scheme or has been established by a person with permission under FISMA 2000 to establish in the United Kingdom a personal pension scheme or a stakeholder pension scheme."
(3) After subsection (2) insert—
"(2A) Subsection (1) is to be construed in accordance with section 22 of FISMA 2000, any relevant order under that section and Schedule 2 to that Act."
(4) Omit subsection (3).
(5) In subsection (4), omit ktand section 155".
(6) Omit section 155 of that Act (persons by whom scheme may be established: supplementary).
(7) In section 273 of that Act (members liable as scheme administrator)—
(a) in subsection (5)(a), omit "was established by a person or body specified in section 154(l)(a) to (g) (insurance companies etc) and", and
(b) in subsection (7), omit "was established by a person or body specified in section 154(l)(a) to (g) and".
(8) The amendments made by this Resolution come into force on 6th April 2007.
49. Pension schemes etc
That further provision (including provision having retrospective effect) may be made in relation to pension schemes and employer-financed retirement benefits schemes.
50. Stamp duty land tax, stamp duty and stamp duty reserve tax
That provision may be made about stamp duty land tax, stamp duty and stamp duty reserve tax.
51. Stamp duty land tax (exempt interests)
(1) The Finance Act 2003 is amended as follows.
(2) After section 73A insert—
"73B Exempt interests
(1) An interest held by a financial institution as a result of the first transaction within the meaning of section 71A(l)(a), 72(1) (a) or 72A(l)(a) is an exempt interest for the purposes of stamp duty land tax.
(2) That interest ceases to be an exempt interest if—
(a) the lease or agreement mentioned in section 71A(l)(c), 72(1) (b) or 72A(l)(b) ceases to have effect, or
(b) the right under section 71A(l)(d), 72(1 )(c) or 72A(l)(c) ceases to have effect or becomes subject to a restriction.
(3) Subsection (1) does not apply if the first transaction is exempt from charge by virtue of Schedule 7.
(4) Subsection (1) does not make an interest exempt in respect of—
(a) the first transaction itself, or
(b) a further transaction or third transaction within the meaning of section 71 A(4), 72(4) or 72A(4)."
(3) After section 48(3) insert—
"(3A) Section 73B makes additional provision about exempt interests in relation to alternative finance arrangements."
(4) For the text of sections 71A(8), 72(7), 72A(8) and 73(5)(a) substitute "In this section "financial institution" has the meaning given by section 46 of the Finance Act 2005 (alternative finance arrangements)."
(5) This Resolution—
(a) has effect in relation to anything that would, but for the exemption provided by new section 73B inserted by paragraph (2), be a land transaction with an effective date on or after 22nd March 2007, and
(b) applies, in accordance with sub-paragraph (a), to interests irrespective of the date of their creation.
52. Value added tax (joint and several liability)
That provision may be made amending section 77A of the Value Added Tax Act 1994.
53. Value added tax (deemed supplies in case of certain surrenders)
(1) In paragraph 9 of Schedule 4 to the Value Added Tax Act 1994 (matters to be treated as supply of goods or services: application of paragraphs 5 to 8 where land forms part of assets of business etc), there is inserted at the end—
" (4) In this paragraph "grant" includes surrender."
(2) The amendment made by this Resolution has effect in relation to surrenders on or after 21st March 2007.
54. Value added tax (valuation of deemed supplies)
That provision may be made amending paragraph 7 of Schedule 6 to the Value Added Tax Act 1994.
55. Value added tax (transfers of going concerns)
That provision may be made amending the Value Added Tax Act 1994 in relation to transfers of businesses, or parts of businesses, as going concerns.
56. Insurance premium tax (meaning of "premium")
(1) In section 72 of the Finance Act 1994 (interpretation: "premium"), after subsection (1A) there is inserted—
(a) an amount is charged (to the insured or any other person) in respect of the acquisition of a right (whether of the insured or any other person) to require the insurer to provide, or offer to provide, any of the cover included in a taxable insurance contract, and
(b) any payment in respect of that amount is not regarded as a payment received under that contract by the insurer by virtue of subsection (1A) above,
the payment is to be regarded as a payment received under that contract by the insurer unless it is chargeable to tax at the higher rate by virtue of section 52A above."
(2) This Resolution has effect in relation to amounts charged on or after 22nd March 2007.
57. Petroleum revenue tax
That provision may be made amending enactments relating to petroleum revenue tax.
58. Amendments connected with the Gambling Act 2005
That provision may be made in consequence of, or otherwise in connection with, the Gambling Act 2005.
59. Vehicle excise duty (exempt vehicles)
That provision may be made for amending Schedule 2 to the Vehicle Excise and Registration Act 1994.
60. Limitation period in old actions for mistake of law relating to direct tax
That provision may be made disaflplying section 32(1 )(c) of the Limitation Act 1980 in relation to actions brought biefore 8th September 2003 for relief from the consequences of a mistake of law relating to a taxation matter under the care and management of the Commissioners of Inland Revenue.
61. Stock exchanges
That provision may be made in relation to stock exchanges.
62. Mergers Directive
That provision (including provision having retrospective effect) may be made for the purposes of complying with Council Directive No. 90/434/EEC (mergers and transfers).
63. Excise duties (small consignment relief)
That provision may be made revoking the Excise Duties (Small Non-Commercial Consignments) Relief Regulations 1986.
64. Relief from tax (incidental and consequential charges)
That it is expedient to authorise any incidental or consequential charges to any duty or tax (including charges having retrospective effect) that may arise from provisions designed in general to afford relief from taxation.