Finance Bill

– in the House of Commons at 4:23 pm on 6th July 2010.

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Second Reading.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury 4:31 pm, 6th July 2010

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

The emergency Budget takes tough action at a critical time for the British economy. The Bill implements many of the necessary measures in the Budget. As my right hon. Friend the Chancellor of the Exchequer said in his statement:

"The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed." -[ Hansard, 22 June 2010; Vol. 512, c. 166.]

The gap stands at £149 billion for this financial year alone. Yet the previous Government left us with no credible plans to reduce their record deficit. Nothing at this time is more urgent for Britain than setting out a tough, realistic and fair plan that demonstrates how we will regain control of the public finances.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Would not a better plan be for the Government to try to collect some of the taxes that are not paid, rather than cutting the wages and jobs of people in the public sector?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

The right hon. Gentleman just told the House that the previous Government's plans for a reduction were not credible, but how can he say that when the Office for Budget Responsibility's latest independent analysis found that the Labour reduction plan would have more than achieved the target to halve the deficit over four years from 11.1% in 2009-10 to 5% in 2013?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. As the OBR set out both in its pre-Budget forecast and in the forecast published with the Budget, the comparison that the hon. Gentleman is seeking to make is based on interest rate assumptions that took into account market expectations under this Government's measures, not market expectations of the measures that the previous Government were taking. He should read the OBR report if he does not agree, because that is an accurate account of what it says. It is clear that, had the previous Government carried on with their plans, interest rates would have been different. The risks that we are seeking to avoid through the Budget are those of higher interest rates, lower growth and fewer jobs, which I believe would be the consequence.

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Photo of Clive Efford Clive Efford Labour, Eltham

In light of that answer, what are we to make of Sir Alan Budd's resignation today? The right hon. Gentleman puts much store by the OBR's reports, but did they not contribute to Sir Alan relinquishing his post? He said that this was the greatest challenge of his professional career. He must have an extremely exciting career that he can give up that post so quickly.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful to the hon. Gentleman for giving me the opportunity to place on the record my thanks and those of this Government to Sir Alan Budd for his superb work in establishing, in a short period, an independent Office for Budget Responsibility with a strong reputation. It was always known that he intended to move on after a short period-a few months-in his post, and that is what he is doing. In a short time, he has established greater independence of the forecasts that go with the Budget than the previous Government managed in 13 years.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

Sir Alan Budd is leaving the Office for Budget Responsibility, so to ensure that that organisation is seen to be independent, will the right hon. Gentleman give the House of Commons the power to appoint the successor or is he going to keep that for himself as a Minister?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that that power ever rested in the hands of the Chief Secretary but, as the hon. Gentleman knows from the Gracious Speech, the Government intend to implement legislation to put the OBR on a statutory footing. He will have the opportunity to make that point in considering that legislation, and I am sure that he intends to do so.

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Several hon. Members:

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I would like to make progress.

We have considered the plans of the previous Government and it is clear that they left us open to the risk of ending up in an even more serious crisis than that which we currently face. Such a crisis could ask questions of the kind that some other European countries face today, with higher interest rates-I mentioned those to Mr Jones-more businesses going bust and higher unemployment. That is not a risk that we are prepared to take. The Budget takes the tough action necessary, but it does so with fairness, protecting the most vulnerable, including children in poverty and pensioners. In his emergency Budget, my right hon. Friend the Chancellor has set out clearly how we will pay for the bills of the past and start to plan for the future. This has already had an impact on the credibility of and confidence in the British economy.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

On fairness, it is clear that the measures that the right hon. Gentleman is enacting mean that the poorest 10% of people lose in percentage terms twice as much of their incomes as the richest 10%. What definition of fairness is he using when he says that that is fair?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am sorry, but I do not accept the figures that the hon. Lady set out. If she looks at the information presented in the Red Book, she will find that it shows that the richest 10% of the population pay the greatest contribution, both as a share of their income and in cash terms. That is what I mean by fairness, and that is what we have set out. It is worth pointing out to her that this is the first time that a Government have chosen to set out in detail in the Budget documentation the distributional impact of the Budget measures. That is not a measure that the previous Government took, for example, when the 10p tax rate was being abolished.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will give way to the hon. Gentleman and then to the right hon. Lady.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

I know that the right hon. Gentleman is doing his apprenticeship, but does he not understand the difference between the proportion and the actual tax take? Surely for a family in my constituency who are earning the minimum wage, the VAT situation alone will mean that the effect on the proportion of their income will be larger. If he looked at the research paper that has been ably produced in the House of Commons, he would find that it points out that fact.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I ask the hon. Gentleman to look at the tables on page 67 of the Red Book. I draw his attention to chart A2, which is on the

"Impact of all measures as a per cent of net income by income distribution".

He will find that it makes it clear that the impact on the top decile is the highest as a share of income. Other charts make it clear that it is the highest in cash terms and that the impact is broadly progressive across income distribution.

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Photo of Yvette Cooper Yvette Cooper Shadow Secretary of State for Work and Pensions

I am rushing to get to the ballot box -[Interruption.] The right hon. Gentleman is welcome to come to the ballot box too, if he so wishes. He will know that not only does chart A2 include the Labour measures from the March Budget, but it does not go beyond 2012-13 and does not include housing benefit. Is he also aware that the House of Commons analysis has shown that more than 70% of about £8 billion of direct tax and benefit measures introduced in his Budget are being paid by women? What figure does the Treasury put on the proportion of those direct tax and benefit measures being paid by women?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

There were a lot of questions there but not a single apology for the record of the previous Government. The single measure announced by the previous Government that is included in the charts in the Budget Book is the national insurance change. We have chosen to introduce that measure, so it is legitimate that we have included it in the charts. Other measures that affect people on higher incomes such as the increase in capital gains tax for higher rate taxpayers, which the previous Government never chose to introduce, cannot be included in the tables, so the impact on the wealthiest may even be greater than is illustrated in the charts.

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Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

Does not the Minister, like me, find it a bit rich that Opposition Members look only at part of the Budget, not the whole, after 13 years in which they did not once introduce a distributional table?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I agree with the hon. Gentleman. It is a bit rich coming from the Opposition, given that we have set out for the first time in any Budget its distributional impact.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I wish to respond fully to the intervention. I will come to the right hon. Gentleman in a little while.

We have taken a number of measures in the Budget, such as the earnings link with pensions, with a triple lock of earnings, prices or 2.5%, which the previous Government never managed in 13 years. That is a record of which we can already be proud. I give way to the former Chief Secretary.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I wish to pursue the question asked by my right hon. Friend Yvette Cooper. What is the Treasury's analysis of how much of the £8 billion in tax and benefit measures will be paid for by women?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

As I understand it, the House of Commons analysis does not include the impact of all the measures in the Budget. VAT is paid much more in cash terms--that has been accepted by the Institute for Fiscal Studies--so it is paid more by the wealthiest. The analysis that we should rely on is that which is presented in the Budget because it shows that the distributional impact of the Budget measures hits those on highest incomes hardest. That is the relevant measure and the one that I intend to draw attention to.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I commend my right hon. Friend on the fairness that he has ensured runs right through the Budget, especially in respect of pensioners, but may I draw his attention to one small potential unfairness that may have crept in? Pensioners who are on a modest works pension and the state pension will pay £100 more in tax this year than they did last year because of the difference in the thresholds. I am sure that this was inadvertent. Will he look again at that particular issue?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. I am sure that my hon. Friend will have the chance to raise that point either in Committee or on the Floor of the House when the Bill is considered.

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Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Has the Chief Secretary analysed the impact of the Budget measures on women? If not, will he commit to doing so?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I can confirm that we have carried out an analysis of the Budget across the income distribution to evaluate its fairness. We have also conducted an analysis of the impact on child poverty, which is the most important aspect. We have ensured that, even in the toughest Budget since the second world war, there will be no impact on measured child poverty-something that could not always be said of the previous Government's Budgets.

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Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Opposition Members like talking about apprenticeships. I am a relative newcomer to the House so can my right hon. Friend enlighten me? What happened to the gap between rich and poor under the previous Government? For my information, did it get wider or narrower?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Gentleman is clearly not as much of an apprentice in this House as he claims to be. The gap between rich and poor got wider during the previous Government's term.

The measures in the Budget have already had an impact on the credibility of and confidence in the British economy. As the director general of the CBI, for example, has said:

"This budget is the UK's first important step on the long journey back to economic health."

The Fitch rating agency said:

"The path of deficit reduction and public debt projections set out in" the

"Budget statement are materially stronger than that set out in the March 2010 Budget."

On fairness, the chief executive of Barnardo's said:

"we recognise the Government has done what it can to protect the most vulnerable."

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will make some progress and give way to the hon. Gentleman later.

The Bill shows how the Government will carry out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country. The Budget and the Bill stand for three things. The first is responsibility-taking action to eliminate the structural deficit. The second is freedom-helping the businesses on which we all rely to rebuild our broken economy. The third is fairness-protecting the most vulnerable, while ensuring the contribution of all. Those principles are at the centre of the Bill before the House today and I shall address each in some detail shortly.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

The right hon. Gentleman mentioned fairness and businesses, and I would like to draw his attention to rural areas. He will understand that the increase in VAT will affect fuel prices in rural areas. Would it not be right to have a rural fuel derogation pilot in place before the VAT increase takes effect?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am very grateful for that intervention. The hon. Gentleman knows that we are investigating a rural fuel derogation of some sort-that was repeated in the Budget statement. Although I cannot make a commitment on timing, as he knows, I am personally very enthusiastic about such a measure and I will continue to work with my colleagues on it.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I want to say a word or two about the process of the Finance Bill.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I want to make some progress.

The Finance Bill before the House today seeks to ensure that the Government's key tax priorities as set out in the emergency Budget are put on the statute book as swiftly as possible. This year, however, we face exceptional circumstances owing to the timing of the general election, which resulted in a curtailed Finance Bill following the previous Government's March Budget and a relatively short timetable between our emergency Budget and the summer recess. There remain a number of minor and technical measures that we inherited from the previous Government and which must be legislated for before 2011. We shall therefore introduce those measures in a further Finance Bill in the autumn. Consistent with our aim of greater scrutiny of tax legislation, again set out in the Budget, we shall publish all those measures in draft for consultation before the end of July.

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Photo of Chris Bryant Chris Bryant Shadow Minister (Europe)

The right hon. Gentleman says that he is thinking about a derogation for rural areas in relation to VAT on fuel. May I point out that not a single house in the Rhondda is more than half a mile from a farm, so will he include the Rhondda in a derogation not only from VAT on fuel but from everything else as well?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Gentleman has misunderstood what is being discussed, which is no surprise, given the previous Government's attitude to the idea, as Mr MacNeil knows. We are not talking about a VAT derogation; the proposal relates to fuel duty.

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Photo of Angela Eagle Angela Eagle Shadow Minister (Treasury)

I was involved when the Treasury last looked at that idea. As the hon. Member for Na h-Eileanan an Iar knows, there are real hardships and we were very sympathetic. However, the Chief Secretary must admit that there are difficulties with developing such a policy, not least because of the potential for smuggling and fraud.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Lady says she was sympathetic-I attended a meeting where she expressed that sympathy-but no action by the previous Government resulted, despite the matter being pressed for a number of years. I am sure that my hon. Friend the Exchequer Secretary will look at all the issues as the question is investigated.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I hesitate to take further interventions, as we are somewhat outwith the scope of the Bill, but I will give way once more to the hon. Gentleman.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

I ask the Chief Secretary to consider this question. With rural fuel priced between £1.30 and £1.35 a litre, were a rural fuel derogation to apply in Na h-Eileanan an Iar, to where might we smuggle fuel? I would struggle to find anywhere where fuel is more expensive. That smuggling would be a problem is a ridiculous proposition. We had 13 years of nothing but sympathy from the last Government, with absolutely no action. I hope that this Chief Secretary does not make the same mistake.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for the intervention, in both senses.

Returning to the Bill, I should say that our plan stands first and foremost for responsibility, because a failure to deal with the deficit is the greatest threat to our economy and to the well-being of our nation. A failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government's debt. That would mean more business failures and sharper rises in unemployment, and it would risk a catastrophic loss of confidence in the economy. The Budget's forward-looking fiscal mandate will eliminate the deficit in five years and put us on track to have the debt falling by 2015.

The Office for Budget Responsibility forecasts that the measures in our Budget will lead us to meet that challenge one year early and the bulk of the reduction will come from lower spending, rather than from higher taxes. My right hon. Friend the Chancellor announced that the spending review will conclude with an announcement on 20 October and address precisely how we will bring down spending.

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Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

If the Budget is to meet the objectives that the right hon. Gentleman has in mind, where exactly does he expect growth to come from over the next five years?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I draw the right hon. Gentleman's attention to the Budget measures forecast, which the OBR published. It demonstrated significant growth in the private sector, based at least in part on measures, which I shall come on to describe, in the Budget and in the Finance Bill.

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Several hon. Members:

rose -

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I have given way already to the hon. Gentleman.

Let me turn to the first of the measures in the Bill.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall, as I have not yet given way to the hon. Gentleman.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

The Chief Secretary to the Treasury makes the point about growth, but he has not really answered the previous question. The OBR suggests that business investment will increase by 8% to 11% almost every year, but can he tell us of any period of two, three or four years when business investment grew by 8% to 11%-particularly given that we are coming out of the deepest recession that anyone in this Chamber has ever seen?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Those are not my figures; those are the figures that the independent Office for Budget Responsibility produced. By the way, the figures that the previous Government put forward contained hopelessly over-optimistic forecasts for economic growth. In this Budget, we are taking measures to reduce corporation tax, to reduce the small companies rate of corporation tax and to tackle the Labour jobs tax on national insurance, all of which will help to support business development. Those measures, which I shall come on to if I get the chance during my speech, will all help to stimulate economic growth in the private sector, and that is the best way to lead this country out of the economic mess that we are in.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Perhaps I can help the Chief Secretary. There is a precedent for business investment matching the figures in the OBR's forecast: it has occurred once in the past 40 years. That is the rarity of the precedent on which he now relies for his future growth plan.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that the right hon. Gentleman can do anything to help me, given that he left the note saying that there was no money left, and that his decisions led the country to that position. I hope that in response to this debate he chooses to apologise for the mess in which his Government left the country.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall give way once more and then make some progress.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Precisely further to my right hon. Friend's point, can the Chief Secretary point to any five-year period in the past 40 years when 2.5 million private sector jobs have been created-any one period?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

My point is that that forecast was made by the independent Office for Budget Responsibility. In the previous Government's March Budget, their growth forecasts, which were not independent in that sense, were over-optimistic, and I am prepared to accept the forecasts of the independent Office for Budget Responsibility.

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Photo of Derek Twigg Derek Twigg Labour, Halton

Will the right hon. Gentleman give way on that point?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I am going to move on.

Let me turn to the first of the measures in the Bill. Given that the structural deficit is some £12 billion larger than the previous Government told us, we have to make difficult choices-whether to fill the black hole with yet more spending cuts or increase taxes. Further spending cuts would have made it impossible for the Government to protect the country's most essential services in the spending review. The only other option would have been to raise taxes on companies or on personal income, reducing the rewards for work at a time when hard work and endeavour must lead the recovery.

The VAT rise is unavoidable. As I said in the Budget debate, it is Labour's inheritance tax. Clause 3 increases the standard rate of VAT from 17.5% to 20% from 4 January 2011. Everyday essentials such as food and children's clothing, as well as newspapers and printed books, will remain zero-rated throughout the Parliament, protecting those on lower and middle incomes. Domestic consumption of fuel and power will remain subject to VAT at 5%.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall give way to the hon. Gentleman, as I did not do so earlier.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Can the right hon. Gentleman point to any indication in the manifesto of either coalition party that there would be a VAT increase of the type he has just suggested?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No party proposed an increase in VAT at the election, and no party ruled one out. The Liberal Democrat manifesto- [Interruption.] If Opposition Members will listen, I will explain the situation. In the Liberal Democrat manifesto, we made it clear that we would seek to reduce the deficit through spending measures alone, unless, on grounds of fairness, it was necessary to increase taxes. That was a clear statement in our election manifesto. The rationale that I have just set out is based on the decision that we made. We felt that, given the £12 billion of extra structural deficit left us by the previous Government, the right decision was a rise in VAT rather than increased spending cuts.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am grateful to the Chief Secretary for explaining his approach to fairness. Can he explain why it is fairer to cut spending on public services, on which the poorest rely most, than to use a progressive system of taxation? Why does the balance have to be 20% in favour of taxation and a whopping 80% in favour of public spending cuts?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

In a way, the hon. Lady makes my point for me. The point that I just made is that given the additional £12 billion of structural deficit, as revealed by the OBR forecast, that was left us by the previous Government, we had to decide whether to make £12 billion of further spending cuts or to establish a tax measure to fill the gap. We made the right decision. The tables in the Budget book show that the overall impact on fairness-particularly for children living in poverty, which is a long-standing concern of the hon. Lady's and on which she has a strong track record-is minimised.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to make progress for a few moments, or the former Chief Secretary will never get a chance to have his say.

Clause 4 takes further action to tackle the deficit by increasing the standard rate of insurance premium tax from 5% to 6%. The higher rate of insurance premium tax will increase from 17.5% to 20% from 4 January 2011, to bring it into line with the new VAT rate. The increases are both fair and sustainable.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

Is it fair to increase the higher rate of insurance premium tax to 20% on travel insurance, which is vital for many ordinary working people as they take a break and go on holiday? They may be able to do so for only one or two weeks a year. If they do not have travel insurance, that could leave them in significant jeopardy. Will the increase not prevent or deter people from taking out travel insurance?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am sure that the hon. Gentleman is right to exhort people to take out travel insurance. As he will know, when insurance premium tax was established, both its lower and higher rates were linked to VAT. It is therefore right that they go ahead together on the same basis.

We have inherited plans to limit tax relief on pension savings for the wealthiest. We have concerns about the complexity of the changes and their potential consequences for pension saving, UK competitiveness and the complexity of the tax system. However, given the state of the public finances, we cannot be blind to the £3.5 billion of revenue that the policy was set to raise. Therefore we have set out our commitment to protecting the public finances by pursuing an alternative approach that raises no less revenue than existing plans, potentially by reducing the annual allowance. We will therefore engage employers, pension schemes, experts and other interested parties to determine the design of an alternative scheme. To keep our options open, clause 5 provides the power to repeal the regime that was legislated for in the Finance Act 2010.

Secondly, our Budget stands for fairness. This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden. As my right hon. Friend the Chancellor said in his Budget statement, it is a progressive Budget.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I hope that the hon. Gentleman will admit that fact.

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Photo of Derek Twigg Derek Twigg Labour, Halton

As regards fairness, is it fair to my constituents and to the construction industry that the Chief Secretary has already stopped £168 million of expenditure on Building Schools for the Future projects and postponed the Mersey Gateway project? Total expenditure on those projects would have been £500 million. How does that help the construction industry?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I think it was irresponsible to make commitments to those sorts of projects, which could not be funded on the basis of the previous Government's plans for halving capital spending over the next few years while building into their plans ever further, unsustainable commitments.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will press on, if I may.

As my right hon. Friend the Chancellor said, this is a progressive Budget.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to make some progress, but I will give way to the hon. Gentleman in a moment.

The Budget includes progressive measures such as increasing the rate of capital gains tax by 10 percentage points for higher rate taxpayers while keeping it the same for basic rate taxpayers. Clause 2 increases the rate of capital gains tax to 28% for higher rate income tax payers, but basic rate taxpayers continue to pay an 18% rate. The entrepreneurs' relief lifetime limit will be extended from the first £2 million to the first £5 million. That implements the commitment in the coalition agreement to provide generous exemptions for entrepreneurial businesses.

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Photo of Derek Twigg Derek Twigg Labour, Halton

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to finish this section, and then I will give way to both hon. Gentlemen.

These changes-

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Photo of Derek Twigg Derek Twigg Labour, Halton

On a point of order, Mr Deputy Speaker. The Chief Secretary hinted a few moments ago that the money was not available for Building Schools for the Future projects in my constituency, yet the shadow Education Secretary has had a letter from the permanent secretary at the Department for Education saying that the money was available. Also, I know for a fact that the money was there for the Mersey Gateway project, yet the Chief Secretary said it was not. Can we have some consistency in the accuracy of answers?

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

That is not a point of order. If the hon. Gentleman wants to intervene, it is up to the Minister to give way if he wishes.

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Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales)

On geographical fairness, does the right hon. Gentleman agree with the recommendations of the final Holtham report, published today, which calls for an immediate Barnett floor to protect Wales from further convergence, the implementation of transition mechanisms towards a needs-based formula, and a place at the table for the Welsh Government in discussions on fiscal autonomy for Scotland?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. I have not yet had a chance to read the second Holtham report, which is published today. However, in the course of a meeting with the Welsh Finance Minister, I undertook to meet Mr Holtham once he had published his second report, and I look forward to doing so and having a chance to discuss it directly with him. At this stage, I will not make any commitments of the sort the hon. Gentleman wants, except to note that on the path of public finances as they are at the moment, further convergence is not forecast over the next few years.

The changes to capital gains tax help to pay for further progressive measures such as our increase in the income tax personal allowance, which takes almost 1 million of the lowest-earning income tax payers out of income tax altogether. It also increases the incentive for people on low incomes to got a job. That is fairness.

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Photo of Ian Lucas Ian Lucas Shadow Minister (Business and Regulatory Reform)

Will the right hon. Gentleman tell me how many standard rate taxpayers paid capital gains tax in the past year?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Approximately half the people who paid capital gains tax in the past year were basic rate taxpayers-

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I do not have the figure to hand, but I will happily let the hon. Gentleman know at a future date or write to him with the precise figures he is looking for.

The measures that we are taking, rightly, close the avoidance issue that arose under the system put in place by the previous Government, whereby someone who was taking a substantial bonus, for example, in capital gains could pay less tax than the person who cleaned their office. [ Interruption. ] I am being asked if that was fair. I certainly do not think it was fair-it was highly unfair. That is why we have chosen to try to reduce that avoidance risk. Ian Lucas will know that the yield from the measures that we have taken comes in large measure from income tax, which reflects the fact that that sort of avoidance was going on.

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Photo of Yvette Cooper Yvette Cooper Shadow Secretary of State for Work and Pensions

I thank the Chief Secretary for his generosity in giving way. I will give him one more chance to answer this important question: has the Treasury done any analysis of the direct impact of the tax and benefit measures on women, separately from men? Does he know?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that that analysis was carried out under the previous Government. We are the first Government to have published analysis of the impact across the income distribution, and we have conducted specific analysis of the impact on child poverty. It is notable that the House of Commons analysis assumes that women will be the only people affected by changes in benefits that are targeted on families. It does not make any allowance for the way incomes may be shared within the household, and as a result it may well exaggerate the impact of Budget measures on women's incomes.

The Budget includes a number of measures to ensure fairness for pensioners. For example, it locks in an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the highest-the so-called triple lock-to the benefit of 11 million pensioners. It also enables individuals to make more flexible use of their pension savings. The Government intend to end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011. Clause 6 provides interim measures to raise the age at which a person is required to purchase an annuity, or otherwise secure a pension income, from 75 to 77. That is to protect those who might otherwise be forced to annuitise before the new rules that we are seeking to introduce come into place. We will consult interested parties on the detail of that change later this month.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I welcome the age increase to 77 to allow flexibility, but a constituency query regarding that matter has emerged in the past 48 hours. If someone has already reached 75 and their annuity was going to be so miserable that they chose not to buy it yet, will they be covered by the new rules or will they fall in a hole in the middle in which, if there is anything left in their pension pot in the future, it will be subject to inheritance tax?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

If the matter that the hon. Gentleman mentions is a constituency case, I suggest that he write to my hon. Friend the Financial Secretary, who will be able to address the matter in detail.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Andrew Love Andrew Love Labour, Edmonton

I thank the right hon. Gentleman. With regard to the triple lock, does he accept that under the rules setting out an increase of 2.5% or RPI, pensioners will lose out for the first two years? They will actually have a cut rather than an increase.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I do not accept that. In fact, the increase next year will be protected. According to the forecasts for average earnings, the increase in the following year, 2012-13, would have been 2.4%, so our floor of 2.5% will ensure that the increase in the second year is higher than that forecast by the previous Government.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Andrew Love Andrew Love Labour, Edmonton

May I urge the right hon. Gentleman to look at the figures? I understand that under RPI, in both years the increase would be 3.1%. Are pensioners not going to lose out?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I have looked at the figures, and I stand by my previous answer.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I am going to make some progress. I have given way a great deal and an awful lot of questions have been asked, and no apology has been heard from any Opposition Member for the dreadful mess they left the economy in.

Fairness in the tax system is also about ensuring that everyone pays their fair share of taxes due. Too many individuals and firms in Britain today exploit the tax system through tax avoidance, a practice that ultimately means the rest of us have to pay more tax. The Bill puts in place measures to protect about £200 million of revenues per annum from tax avoidance. Clause 8 sets out an anti-avoidance measure to prevent matched income and expenses from being derecognised in a company's accounts. That will ensure that income from financial instruments such as loans and derivatives can no longer be excluded from the accounts and go untaxed.

Clause 9 sets out a further anti-avoidance rule, building on section 47 of the Finance Act 2010 to prevent life insurance companies from avoiding tax on previously unrecognised profits. It will do so by ensuring that section 47 will be effective in cases in which life insurance business is transferred to another company. We will take further measures in future to tackle avoidance. In particular, a consultation on a general anti-avoidance rule was announced in the Budget.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

How will the welcome measures to reduce tax avoidance be squared with job cuts in HM Revenue and Customs?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

On the plans for HM Revenue and Customs, I am confident that the anti-avoidance measures are deliverable and can be expected to yield the amount that I described.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I have given way nearly 30 times already. Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.

We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.

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Photo of Stephen Timms Stephen Timms Shadow Financial Secretary, Shadow Minister (Digital Britain)

Why does the Bill legislate for only one of those changes, not all four?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

It is good to see the right hon. Gentleman in his place; I welcome him back to the House after the experience that he had, for which Members of all parties feel enormous sympathy.

As I understand it, the practice in Finance Bills is to legislate one at a time for the changes that are needed in the following years. The Chancellor's commitment in the Budget speech was for year-on-year reductions, and we will fulfil it.

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Photo of Stephen Timms Stephen Timms Shadow Financial Secretary, Shadow Minister (Digital Britain)

I thank the Chief Secretary for his kind remarks.

I think the precedent was set in 1984, when the now Lord Lawson reduced corporation tax over a series of years, and the Finance Act 1984 legislated for them all. Why is that not being done in this Bill?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for the further intervention and it is interesting to hear the right hon. Gentleman cite Lord Lawson. I am not sure that the Labour party cited that example in its Budgets. There are various technical reasons, which have just been discussed, and which my hon. Friend the Exchequer Secretary will explain in his closing speech. The basic point is that our method is more business-friendly.

As a first step, clause 1 reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. Consequently, the corporation tax of around 47,000 companies will fall. The Budget also supports Britain's small businesses by cutting the small companies rate of corporation tax from April 2011, reversing the previous Government's plans to increase the small companies rate. That will benefit some 850,000 companies. The Budget takes action to stop the previous Government's job tax by increasing the threshold for employers' national insurance contributions, thereby lifting 650,000 employees out of that tax. Of course, a separate Bill will deal with that.

Taken together, those measures offer a stable and consistent platform for a private sector recovery.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will not give way.

Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will not give way on that. The hon. Gentleman can make his points in the debate.

The emergency Budget takes decisive action to tackle the deficit that we inherited and to confront the greatest economic risk to our country. It is tough, but it is fair. We have set the course for a balanced budget and falling national debt by the end of the Parliament. We have to pay the bills of past irresponsibility, but in doing that, we have ensured that those with the broadest shoulders carry the greatest share of the burden.

The Budget and the Bill represent a break with past traditions. They demonstrate a genuine shift in approach from that of the previous Labour Government. Our decisions are in the best interests of the economic cycle; those of the previous Government were dominated by the news cycle. Our actions are based on hard facts and the real world; theirs were based on wishful thinking and, in some cases, complete denial of the economic reality. We have been guided by independent forecast, not political whim. We are acting responsibly; they remain in the mindset of profligacy, which led them to make spending promises that they knew could not be kept while they were in government.

The Opposition now say that they will oppose many of our measures, but without giving any indication whatever of what they would do instead-not a single suggestion. They are in denial; the Government are facing up to reality. The provisions in the Bill are fair. They will help to put our public finances on a solid footing and provide a strong platform for economic recovery. I commend the Bill to the House.

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Several hon. Members:

rose -

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury 5:15 pm, 6th July 2010

May I begin by putting on record the Opposition's thanks to Sir Alan Budd for his excellent work in the short months that he has served the Government? May I also congratulate the Chief Secretary, who is rapidly becoming one of the Chancellor's longest-serving advisers? After his performance this afternoon, I think we can see why that is. He is pursuing what is now a noble Liberal Democrat tradition of fronting up some of the Government's nastiest and most regressive policies in the House. His speech was a Liberal Democrat defence of an emergency Budget-an emergency so great that the Chancellor could not be bothered to join us this afternoon to listen to the House's deliberations.

It is fair to say that since we met last week to debate the Budget, the economic horizon has darkened. British families and businesses fought so hard in the past year and a half for this country's recovery, but the Bill puts all that at risk. We can see from the Bill that the Chancellor would like us to believe that size is not everything-although it is very thin, it is none the less very dangerous.

We all enjoyed the Chief Secretary's summary of business opinion, but Opposition Members thought it odd that he missed some of the news that has appeared since the Chancellor gave his Budget speech. The truth is that, as we warned last week, the dangers in the global economy have become not less visible-they have not ebbed away-but, if anything, become more visible and more dangerous. This week, for example, the news from our trading partners and from the United States, which is our single biggest export market, has not been good. Factory orders in May dropped after eight consecutive months of improvement, and confidence surveys last week showed the biggest falls for some time-far bigger than expected.

Last week, we heard that the number of Americans in work has fallen by almost the largest number since 1995, and new figures for the eurozone show unemployment stuck at more than 10%. The news from new markets is likewise not great. China's stock exchange hit a 15-month low yesterday, and confidence surveys have reported the worst outlook for a year and a half. Therefore, we cannot blame British businesses, investors and exporters for being somewhat depressed. They know that the odds of success in the gamble on which the Chancellor has embarked are slim, and they know very clearly who will pay the price for his failure.

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Photo of John Redwood John Redwood Conservative, Wokingham

The previous Labour Government said that they would halve the deficit in four years. What spending cuts and tax increases would they have introduced if they do not like ours?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

The right hon. Gentleman has today put out a number of very constructive suggestions-for example, urging people hit by budget cuts to wear more clothes, to turn down the thermostat and to eat more vegetables-[Hon. Members: "Withdraw!"] I am merely quoting the Daily Mail, which is a source I trust-it is, of course, beyond reproach.

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. Obviously Mr Byrne used the Daily Mail. I am sure that it was not meant with intent, and that we can be a little more careful in the way that we proceed.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will learn never to trust a word I read in the Daily Mail ever again-

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Photo of John Redwood John Redwood Conservative, Wokingham

The Daily Mail withdrew the article from its website because it was untrue.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Well, that rather proves my point- [ Interruption. ]

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. The right hon. Gentleman should withdraw that comment if it has been withdrawn from the website.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I am happy to withdraw comments published in the Daily Mail.

The point that I was about to make was that the business community, having had a chance to reflect on the Budget, has come to some conclusions, and I was surprised not to hear about them in the Chief Secretary's remarks. A fortnight ago, the Chancellor told us that the Budget was

"a balanced package that will send the signal that Britain is open for business."-[ Hansard, 22 June 2010; Vol. 512, c. 176.]

In the weeks since, it is fair to say that business has not been hanging out the bunting. The stock market has now recorded its worst quarterly fall for eight years, as it fell to its lowest point for 10 months. Goldman Sachs has warned that tighter fiscal policy now

"would make it hard to deliver improving growth for all, or possibly any" country. The chief economist of the British Chambers of Commerce has said that the scale and severity of the Budget

"inevitably increases the danger of an economic setback".

The Chartered Institute for Purchasing and Supply has said that its managers have

"voiced grave concerns that budget cuts and VAT will tip the scales and amplify the likelihood of the UK slipping back into recession".

The confidence of Britain's finance directors has fallen to a 12-month low-just one in four is optimistic, and two thirds say that tighter fiscal policy will hurt their business. Yesterday, the confidence of Britain's supply chain had its largest monthly fall since 1997. It is for those reasons that a wise man once said that

"the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits."

That was, of course, the Business Secretary in April-once a prophet and now a lost cause.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my right hon. Friend agree that one of the important sectors in the economy is the service sector? Has he seen the Markit/CIPS purchasing manager index this month, which has recorded its largest drop in confidence in the last 14 years?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

That news was somehow absent from the Chief Secretary's remarks. He and the Chancellor may now think that everything is fine. I know whose verdict I would rely on, and it is not the Chancellor's.

I do not want to depress the House unduly and I have a little bit of good news-

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Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Will my right hon. Friend confirm that the real point is that if we should slip back into a double-dip recession, the coalition's efforts will be null and void, because they will not have been able to address the deficit as a proportion of GDP?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

That is precisely right and I will have more to say on that in a moment.

I promised a ray of good news among all the bad news and depressed expectations from the business community. A command paper was sneaked out last week. It had barely a press notice-it ran to a grant total of six lines-and there was no written ministerial statement with it. What could justify such secrecy? All is revealed on page 52 of the public expenditure survey, published last week, wherein we discover that Departments under Labour's management underspent their budgets last year by £5 billion. Anyone would think that the Government wanted to keep that news secret. In a knee-jerk response yesterday, they decided to cover it up by announcing another £1.5 billion of spending cuts instead.

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Photo of Derek Twigg Derek Twigg Labour, Halton

In Halton, £168 million of the Building Schools for the Future project was cut yesterday. The Mersey gateway has been postponed, and if it is cut it will take the total loss of investment-in that one area-to £0.5 billion. In an area like Merseyside and Cheshire, which especially needs that investment, that will be a massive blow to the construction industry. Does not it also underline the fact that public expenditure provides private sector jobs?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

One of the great flaws in the Budget is that the Government are relying on a bounce-back in private investment, for which there is barely a precedent, and nor is there any evidence from the business community that it might happen.

Make no bones about it, since the Chancellor sat down a fortnight ago, the gloom has grown. However, the Finance Bill does not adjust the Government's strategy. All we have heard from the Chief Secretary this afternoon is a very clear economic credo: where there is worry, let us spread fear, and where there is risk, let us bring danger. Whereas the Labour Government planned to halve the deficit in four years-a plan that the Chancellor's own independent advisers said we were on track to deliver, and which the G20 said met its timetable-this Chancellor has added nearly £40 billion in new tax rises and spending cuts. He has locked us on a course to slash away come what may, and, in a world full of risk, he is now preaching to others to do the same.

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Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

Do the recent figures for the motor car industry not show that the previous Government were on the right course for an economic recovery, and does my right hon. Friend not agree that a £360 million cut in Coventry's schools programme will have a devastating effect on the schools and construction trade there? I am sure he knows that the construction trade always leads economic recovery.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is right. One reason the British supply chain is now so worried about the Government's intentions is that it has seen these knee-jerk reactions, such as yesterday's decision, of which the Chief Secretary was so proud he did not dare come to the House to say a word about it.

I want to make a point that follows on from what my hon. Friends have said. Rather than balancing spending over the economic cycle, we now have, in the Budget, a plan to eliminate in just five years the structural deficit. However, the Finance Bill ignores the question of what happens if growth is weaker than expected. It is worth for a moment the House exploring the economic consequences of this Chancellor's proposals. If growth fails, the structural deficit as a percentage of our economy goes up, yet the timetable for its elimination remains unchanged, so the Chancellor's only course of action is to cut deeper and deeper. If growth falters or the economy shrinks, the Chancellor cannot stimulate the economy, but can only respond with cuts. It is not a plan to manage the economic cycle; it is a plan for an economic death spiral. Like some kind of self-flagellating penitent who believes borrowing is so morally wrong, he responds to any new urges with another bout of whipping. He might feel it gets him to heaven a little faster, but I am afraid it is no way to run an economy.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I enjoy the right hon. Gentleman's thirst for talking down the economy, but how many independent economic forecasters are predicting the double-dip recession that the Labour party seems to constantly hope and pray for?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I note that the hon. Gentleman was so eager to participate in this debate that he missed the beginning of it. The words I used were not my words, but the words from a wide section of the British business community. [Hon. Members: "Who?"] Well, Goldman Sachs, the Chartered Institute of Purchasing and Supply, and the judgment of the stock market. This is not a perspective held by a narrow corner of the business community. The judgment on this Budget is widely shared across this country.

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Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Will the right hon. Gentleman confirm whether it was Goldman Sachs or the chief economist at Goldman Sachs who made those comments? It is an important distinction.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Absolutely. Jim O'Neill is a very respected economist, he is chief economist at Goldman Sachs, and his opinion was echoed by the chief economist at the British Chambers of Commerce. So this is not a narrow perspective from any one particular corner of the business community. This view is widely shared.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

We have to accept that the Prime Minister has kept one promise. He said that the cuts would affect the north-east of England the most, and that has been proved to be true. The Government have cancelled a new hospital, abolished One NorthEast and stopped nearly 100 Building Schools for the Future projects, which would have created many construction jobs in the private sector. Is it not a shame that the Prime Minister did not keep the other promise, which was that cuts would not affect the front line?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Like so many words that we heard during the election from those now in government, those ones turned out to be rather empty.

Perhaps we would not be quite so worried about what we have heard from the Chief Secretary this afternoon if we did not know that the risk of failure for this Budget was so great. The Office for Budget Responsibility, which is supposed to know, has said that there is just a 40% chance of the Chancellor hitting his growth forecast for next year, yet the VAT increase in the Bill will tax consumption so hard that we will be forced to rely on a history-making burst of exports and business investment. Last week we heard that just once since 1966 have we had the kind of rise in investment and exports on which the Chancellor will be banking in each of the next three years. The House would therefore be right to ask what measures exist in the Finance Bill to help. On close inspection, there appears to be no help at all for exporters, yet the Chancellor needs Britain's exporters to grow their trade abroad by £100 billion for his plan to come true. That is the equivalent of our trade with America rising threefold, our trade with China rising by 20 times or our trade with India rising by 40 times. It is fair to say that that is not a bet that any of us would take.

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Photo of Kevin Brennan Kevin Brennan Shadow Minister (Business, Innovation and Skills)

Was my right hon. Friend surprised when he saw the Deputy Prime Minister in Germany-he is obviously fluent in German, but not in economics-persuading the Germans to cut their expenditure, when Germany is exactly the sort of market that we rely on for export growth?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Precisely. We need the German Government to contribute to growth right across the European area. One would have thought that the Deputy Prime Minister might have a word to say about encouraging the German Government to do more to help British exporters, but there we are-not a word about that from him.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Although the right hon. Gentleman's excoriating attack on the coalition Government is pretty accurate so far, will he confirm that we had a balance of trade deficit in goods last year of some £82 billion, that Labour lost 1 million manufacturing jobs before the recession and that the impact on GDP growth was to suppress it every year since 2000? Just for the sake of accuracy, will he confirm that those figures are right?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I have not brought those figures with me to the Chamber, but the hon. Gentleman will know that exports from this country have grown strongly over past years. That is precisely why, as we came through the crash, we said that we needed to rebalance our economy, which is why we fought so hard for investment in companies such as Sheffield Forgemasters and why we said that we needed new investment in manufacturing-all investment that has now been cut back.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

No, I am going to make another important point, on which the hon. Gentleman might want to comment. The question of business investment is vital-it relates to the argument at the heart of the Budget-and I hope that we will have a good debate on it this afternoon. Business investment is the subject of clause 1, which offers, I am afraid to say, no salvation through investment allowances, which drive up investment and which manufacturers say make the world of difference. This is what the senior economist of the Engineering Employers Federation had to say about investment allowances:

"For smaller companies...there will be cashflow consequences ...that will hurt their ability to reinvest in their own competitiveness."

That is because the Government have withdrawn such allowances.

What, then, of corporation tax? We were promised in the Budget a four-year plan to bring down the rate of corporation tax to 24%, but clause 1 offers us just a one-year plan. We do not know whether that is a wheeze to avoid an unhelpful valuation of deferred tax assets-the Chief Secretary to the Treasury was silent on that point-but is it not more likely that the Treasury is simply hedging its bets? The Government promised us certainty on corporation tax, and all we have got is more risk. The truth is that business is not going to bet on a one-year deal when this country's recovery demands a longer-term planning horizon. The Chancellor might be a gambler, but Britain's business community is not.

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Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The business community are not gamblers. In this Budget, they will see encouragement for the bedrock of our economy-namely, small and medium-sized enterprises. Measures in the Budget such as the small profits rate of taxation will help 800,000 small businesses across London and the south-east, and the small business rate relief will help 48% of the businesses in the region. Is that not the kind of investment that will encourage exports?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

It would be, but it appears to be absent from the Bill.

The economic gamble that the Chancellor has taken in the Budget is quite clear to the business community and, I think, to the House. There is also the question of who pays. The Chancellor is fond of taking the approach that we are all in this together. One writer called that the equivalent of a chorus line from "High School Musical". However, the Finance Bill disabuses us of any notion that that claim might actually be true. It is now quite clear that the price of this Budget will be paid by people's jobs, and that the greatest price will be paid by the poorest in this country.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

For the past five years, the poorest in my constituency were paying the highest level of tax per litre of fuel in the UK. Is the shadow Chief Secretary in any way embarrassed or ashamed that a Labour Government let that happen? Or does he now repent and support a rural fuel derogation?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I look forward to hearing the hon. Gentleman's contribution to the debate a little later. It was not quite clear whether he was talking about marginal deduction rates or other impacts of the tax system but, like me, he will have noticed table A3 on page 69 of the Red Book, which shows that the marginal deduction rates for people on a 90% deduction rate, for example, have not gone down as a consequence of the Budget; they have gone up.

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Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

We know from the note that the right hon. Gentleman left for the Chief Secretary that it clearly would not have been he who paid. Will he tell the House exactly where the £50 billion of cuts would have come from under a Labour Government, and how the deficit would have been reduced? Who would have paid in those circumstances?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Of course-I shall talk about that at length in a moment.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

Does the right hon. Gentleman accept that his attacks might just begin to be credible if Labour's record were not so dreadful? Inequality increased, the link between earnings and pensions was never delivered, child poverty was not reduced over the whole period of the Labour Government, fuel poverty increased and poor people on low incomes were not taken out of tax. Where is the credibility in that? This Budget will clearly deliver a fairer outcome than the one that his Government left us with.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I was empathising with the hon. Gentleman until his final sentence. As he will know, over the past 10 to 15 years up to 2006, just four countries out of the entire 20 or 30 members of the OECD succeeded in reversing inequality. They were Turkey, Ireland, Mexico and the United Kingdom. The attack on inequality was always a central mission for the Labour Government. Yes, of course we wanted to go further, but we were proud of our record of lifting 900,000 pensioners and 500,000 children out of poverty, of legislating to restore the earnings link and of introducing innovations such as tax credits. In constituencies like mine-and, I suggest, the hon. Gentleman's-which suffer from a high rate of unemployment, that help is beginning to make a difference. That is why we are so passionate in our objection to the attack on the poorest people in this country contained in this Budget.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I respect the right hon. Gentleman for his constituency commitment to dealing with the poor. Over the period of the Labour Government-during which not everything was done wrongly-the greatest failure of all was that inequality was not reduced over the entire 13 years; in fact, it increased. The rich became richer, the very rich became very much richer, and the people at the bottom-pensioners in particular-did not have the protection from a Labour Government that history suggests they could have expected.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I look forward to the hon. Gentleman telling us later how the increase in VAT is going to support the argument that he is trying to prosecute. I hope that he will also reflect on the cost of this Budget to jobs. The official figures for job cuts as a result of this Budget are bad enough, but the real figures are even worse. We have already watched the extraordinary spectacle of the Office for Budget Responsibility tell the Chancellor that employment will be 100,000 lower as a result of Budget measures, but then the real figures were published in The Guardian-not in this House, but in The Guardian-from which we learned that secret Treasury papers say that the Budget will cost 1.3 million jobs over the next five years. When the Chancellor stood at that Dispatch Box a couple of weeks ago, he told us that he would not hide things in the "small print" and that he would give it to us "straight"; he was so straight and so open that he kept the Treasury advice out of the Budget altogether. Yet even that picture might not reflect the entirety of the Budget's impact.

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Photo of Toby Perkins Toby Perkins Labour, Chesterfield

Does my right hon. Friend agree that the Liberal Democrats' comments would have more credibility if they had not spent the six or eight weeks before the general election arguing very accurately and articulately against the very Budget they have just helped to deliver?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Some Front-Bench Labour Members believe in redemption, and we have not given up on Simon Hughes. That is why we are looking forward so much to hearing his contribution later this evening. [Interruption.] I hope he is not going to dispel the image I have of his virtue and integrity.

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. I hope that we can stick to the Bill. We are getting carried off in many directions, and I am sure that hon. Members will not want to do that.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

May I say to the right hon. Gentleman and Toby Perkins that the four major proposals on tax, finance and equality with which we went into the election have been delivered in the Budget? The only one that was not delivered was value added tax. The right hon. Gentleman knows that there is concern about its increase, but he has heard me say that I believe that, in the event, rather than making further spending cuts, it was the least worst option.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will cling on to my image of the hon. Gentleman's integrity and await his contribution a little later. I remain convinced that, for him, redemption is still possible.

I was about to say in response to my hon. Friend Toby Perkins that the reality is that the impact on jobs might be even worse than we saw in the Red Book, or even worse than we read about in The Guardian, because the Chartered Institute of Personnel and Development tells us that it forecasts that unemployment could continue to rise up towards 3 million.

This Finance Bill hits growth so hard-this is a point that I hope the hon. Member for Bermondsey and Old Southwark in particular will reflect on-that, buried in the back of the Red Book, we learn that the Chancellor has had to raise £9 billion of extra taxes to pay for the lost growth. That is not cutting public debt, but adding to it-in pounds and pence and in the unquantifiable misery of wasted human lives. It is, I am afraid, a philosophy that is all too familiar. It is a distant echo of 1992, when a Tory Chancellor told us that unemployment was "a price worth paying". Back in 1989, another Tory Chancellor, the now noble Lord Major-

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Quite right. Sir John Major told us:

"If it isn't hurting, it isn't working".

This Bill, and this Budget, will hurt all right-hurt the recovery; hurt families; hurt pensioners; and it will not work, as it will put people out of work.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Perhaps I am just confused, but I am looking at the OBR table C.2 and it seems that ILO unemployment and the claimant count will be falling over the course of this Parliament. Will the right hon. Gentleman confirm if I have misread the table?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In preparation for this debate, the hon. Gentleman will have compared those employment forecasts with those in the March Budget and will have noticed, like the rest of the world, that they are now 100,000 lower.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my right hon. Friend agree that the Chartered Institute of Personnel and Development not only made predictions on unemployment, but also said that the Government's targets for job creation were not achievable? Its chief economist, John Philpott said:

"There is not a hope in hell's chance of this happening."

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Very few people in the country believe the Budget's forecasts for employment growth, which is not surprising given how hard the Budget is hitting growth.

I want to move on from the economics of the Bill, and the possibility that it may work, to a wider question that I know we will want to debate this afternoon.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I refer to the question of fairness, about which the Chief Secretary will perhaps say a word.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The right hon. Gentleman began, quite rightly, by paying tribute to the Office for Budget Responsibility and the work that it has done. Does he accept that the OBR forecasts make it clear that over the period of the Budget, growth will rise and unemployment will fall? That confirms-if we are trading quotes-the view of the secretary-general of the OECD, who has said that the Budget

"provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while... supporting the recovery."

That is what the Budget does, and the right hon. Gentleman should be welcoming it.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

The Chief Secretary is a politician who is paid to go to work to make his own judgments in his and the country's best interests. He will have noted reference to the growth of business investment and exports in the OBR's report and its projections for the future.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In a moment. He will know, too, that in only one year since 1966-which is when the Library started to compile figures for business investment-

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In a moment. In only one year, 2005, did business investment grow by 1.7%.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I ask the Chief Secretary to be patient for a moment. The last year in which exports grew as a percentage of our economy in anything like the way that the OBR projects for the next few years was 1974. The Chief Secretary is relying on a unique combination of the business investment that we saw in 2005 and the exports that we saw in 1974. He is assuming that they will come together in perfect harmony in each of the next three years. I must say to the Chief Secretary, very gently, that that is a bit of a gamble for him to take.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Does the right hon. Gentleman accept that it is the independent Office for Budget Responsibility-which I think he welcomes-that forecasts that growth will rise over the current Parliament and that unemployment will fall? Does he accept that, yes or no?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

It is not a great triumph for unemployment to fall as an economy returns to growth. The point that I was making is that employment in this country is lower as a result of the Chief Secretary's Budget, that growth is lower as a result of his Budget, and that the Budget hits the economy so hard that he must raise another £9 billion of taxes, although the Chancellor refused to admit it at the Dispatch Box.

I now wish to turn to a question to which I hope we will devote quite some time today: the wider question of why this Finance Bill is so unfair. We now have the judgment of the Institute for Fiscal Studies, which tells us that the Budget is so regressive that its only redeeming features are Labour policies. Age Concern tells us-clearly, starkly, urgently-that it will put older people's lives at risk. The Child Poverty Action Group tells us that it will drive poorer parents into the arms of loan sharks. The House of Commons Library tells us that nearly three quarters of the £8 billion tax and benefits bill will be paid by our country's women-and that is before we get to VAT.

Clause 3 is the clause that deals with VAT, and I think it fair to say that it is the clause without a mandate. I have come to learn that, after nearly 30 years in the House, the hon. Member for Bermondsey and Old Southwark did not get where he is today without knowing what makes his party tick. I believe that when he said, a week before the Budget,

"I hope we don't have a VAT increase because it is the most regressive form of tax", he spoke for the majority of his party's voters and his party's members. Before too long, those words will come back to haunt the Chief Secretary and the rest of the occupants of the Treasury Bench.

Back on 7 April, the Deputy Prime Minister warned us about hikes in VAT. He said

"let's remember, it is a regressive tax".

He was right: it is a regressive tax, and we now know that he is a regressive politician for supporting it.

I think that it is fair to say-I feel that I can say this among friends-that I know a thing or two about writing something and regretting it later, but the Liberal Democrats did not just write a silly note. They unveiled a whacking great poster on a lorry saying, "Tory VAT bombshell". Little did we know that they would be the ones not only to prime it, but to set it off.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will in a moment.

If Members go to the Deputy Prime Minister's website-for those who do not have the address, let me be helpful, it is nickclegg.co.uk; it is not a site that I visit quite as much as I used to-they will see that that famous poster saying, "Tory VAT bombshell" is still on the website, available to download. The Liberal Democrats cannot kick the habit of saying one thing and doing another.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Does my right hon. Friend share the astonishment of the 87% of the electorate in the Chief Secretary's constituency who did not vote Tory at the last election but see him fronting up a VAT rise to 20%?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Yes, and the electorate will hold the Chief Secretary to account at the next election.

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Photo of John Redwood John Redwood Conservative, Wokingham

Can the right hon. Gentleman explain why putting VAT up by 2.5% before the recession was scarcely over, as the Labour party did in government, was a good idea and did not destabilise the recovery, but putting it up another 2.5% to pay all the previous Government's bills, which Labour still will not tell us how it will pay for, is a bad idea?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Let me come to that point in a moment because- [Interruption.] I will answer the right hon. Gentleman's question after touching for a moment on some of the questions that we will raise in this debate and in Committee next week. We will want to press the Government on their clause without a mandate. We will want to know what studies have been conducted, as will many Back-Bench Members in the coalition party, on the impact of the new VAT on Britain's poorest families. We will want to know the impact on pensioners, children and child poverty. We will want to know whether all zero-rated goods will remain zero-rated for the course of the Parliament. We will want to know whether all exempt goods and services will remain exempt for the course of the Parliament. We will want to know how much the Chancellor has short-changed our pensioners by uprating pensions this September and then legislating for higher prices in January. We will want to know his estimate of the growth in black market trading through increasing the rewards for unregistered traders. We will press the Government on those questions during discussion of clause 3.

We will also want to know the answers to questions on other clauses. Why does clause 1 make corporation tax less certain when we were promised clarity? Why is the measure silent on the regime for North sea oil? Why does clause 2 complicate the tax system when we were promised simplicity? In respect of clause 4, what assessment has been made of the impact of insurance costs for low-income families? Will the reform of pension tax relief bring in as much as Labour budgeted for? Will the plan be as fair?

The great tragedy of the Budget and the Bill is that there is an alternative, so let me deal directly with some of the questions raised by Government Members. In March, my right hon. Friend the shadow Chancellor set out the fastest and clearest deficit reduction plan of any country in the G7.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I hear what the hon. Lady says, but she has of course read chapter 6 of the Budget of March 2010 and, like me, she will remember that there was £3.5 million in savings by holding down public sector pay; there was £1 billion in savings through the reform of public sector pensions; there was £5 billion in savings through cuts to lower-priority programmes; and there was £11 billion in savings by revolutionising Whitehall. There was also the promise of a benefits bill that would have been £14 billion lower through falling unemployment, which was only possible as a consequence of growth. She will also remember the precision with which we set out £19 billion-worth of tax increases, which unlike this Bill, did not hit the poorest in her constituency or mine.

We know that Governments have to govern, so our opposition to the Bill will be careful, but Labour Members will stand up for jobs and for fairness. That is why we will vote against the Second Reading of the Bill.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party 5:54 pm, 6th July 2010

The Bill is short, and I will keep my remarks short in keeping with the Bill's size. This is a coalition Bill, just as the Budget was a coalition Budget. It incorporates Liberal Democrat policies such as our policies on capital gains tax, raising the earnings threshold and the restoration of the earnings link. It also incorporates elements of Conservative policy, which is right because that is what a coalition does. In some respects it is a bit like Hovis, which calls its mix of white and brown bread "Best of both". That is what we have in the Bill.

Among the Bill's main elements is the capital gains tax increase from 18% to 28%. The Liberal Democrat policy would have taken it further, but we could run into the law of diminishing returns. We need to be not only practical but fair. It is fair because the well-off, who pay less tax than those who clean their offices, will start to pay a lot more tax. That loophole was never closed by the Labour party, and the measure will make a big difference in fairness and in the level at which those well-off people pay tax.

The entrepreneurs relief should be welcomed by hon. Members on both sides of the House.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does the hon. Lady agree with the Deputy Prime Minister, who before the election, on the Radio 4 "Today" programme on 7 April, described VAT as a "regressive tax"?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am grateful to the hon. Gentleman for that intervention. I am dealing with entrepreneurs relief at the moment, but I will be pleased to deal with VAT, which I will speak about quite fully, later. I know that the Labour party has had great fun bashing the Liberal Democrats over VAT, so I look forward to being taken to task on that.

The entrepreneurs relief is the reward that business owners are due. They often put everything into building a business. That should be recognised. We greatly welcome the continuance of the 10% rate and the increase in the lifetime limit for gains from £2 million to £5 million.

On corporation tax, the reduction from 28% to 27% in 2011, the 1% reduction in each of the following three years to 24%, and the small business rate tax cut, contrast greatly with Labour's tax on jobs. It means that we now have the ability to stimulate business, which generates the wealth that we need to pay for the services that we need. We need secure growth for business. Business needs the confidence to invest in that growth.

I come now to VAT. I am sure that the hon. Gentleman-

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Will the hon. Lady answer the question put by my right hon. Friend Mr Byrne, who said that the measure in the Bill is for one year only? How will that give confidence to any business wanting to invest? It will have to take decisions on a one-year basis.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am glad that the hon. Gentleman raised that point, and that I gave way to him. This is a commitment. The four-year commitment is in the statement. It is in the Budget.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The four-year commitment is in the Budget itself. As the Chief Secretary said, the normal way of doing it is one year at a time. The hon. Gentleman can look forward next year, and the year after that and the year after that, to a further 1% reduction.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The hon. Gentleman asked me about the regionalisation of corporation tax, but these are UK taxes so it is inappropriate to regionalise. He makes an interesting point that I have not considered before, but I am sure that my hon. Friends will take an interest in the idea if it has merit.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

My hon. Friend is right. I just wish to say to Jonathan Edwards that, as he knows, my party has been supportive of increasing autonomy and self-government in Scotland and in Wales. That has happened in Scotland and it is on the agenda for Wales, and he knows -[Interruption.] It is on the agenda for Wales; it is not agreed and it is not committed, but it is under discussion in relation to Wales. He knows that my party has always been positive towards the idea of allowing greater self-government, both in Scotland and in Wales, but that is different from the regionalisation of UK taxes such as corporation tax.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

On a point of order, Mr Deputy Speaker. Is it in order that the Liberal Democrats should now have two Front-Bench spokespeople on the Treasury? Is it completely out of order for Simon Hughes to be rescuing and answering on behalf of his party?

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Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

If I had seen anything out of order, I would have called hon. Members to order myself.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Thank you, Mr Deputy Speaker. Mr Jones has intervened on me twice, so perhaps he would like to join me on these Benches and make his contribution. I am sure that he will be making his speech later, and I will have the greatest pleasure in intervening on him then.

VAT is to increase to 20% with effect from 4 January 2011. This is another issue on which the Liberal Democrat bashing by the Labour party has been lengthy.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Perhaps the hon. Gentleman would allow me to make a little progress first. [Interruption.] I am not giving way now, but I promise that I will do so. I might even say something that he likes; one never knows. Like my hon. Friend the Member for Bermondsey and Old Southwark, I do not think that anyone on either the Conservative Benches or the Liberal Democrat Benches is filled with any enthusiasm for increasing VAT. However, I am not going to rehearse all those arguments, because we know that Labour left the finances in a far worse state than we originally anticipated. The structural deficit is £12 billion greater than we were led to believe, so whichever way we look at it, the options are invidious. A VAT increase has therefore had to be the least worst option, as my hon. Friend has said. There are mitigating factors, because the VAT rise will not come into effect until 2011. Therefore there will be a short-term boost; consumers who want to spend money, particularly on large items, will be able to do so before that increase comes into effect.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Is the hon. Lady seriously recommending that to mitigate the impact of the VAT increase to 20%, consumers should wander round Currys and all sorts of other places before Christmas buying up all the washing machines, tumble dryers, fridges and all the rest of it, just to salve her conscience?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The right hon. Lady answers her own question, although I was just coming on to this subject. When I had lunch with the manager of my local branch of John Lewis last week I asked him what difference the VAT increase would make to purchases at his store. He said, "Well, when it went down it didn't make a whole lot of difference to sales. When it goes up we don't necessarily think it'll make a whole lot of difference, either."

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Several hon. Members:

rose -

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I have given way previously, so I ask hon. Members to allow me to make a little progress. A lot of people want to speak -[Interruption.]

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Mr Deputy Speaker:

Order. The hon. Lady is not giving way.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Thank you, Mr Deputy Speaker. The other point that I want to make is that the purchases that represent more disproportionately a part of the income of lower-paid people tend to be zero-rated.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

It is clear that this is the story that we are going to hear again and again: we are going to be told that the items that the poorest need to buy are zero-rated, so the VAT rise does not hurt them. How can the hon. Lady say that essentials for families, such as saucepans and clothes for work, are items that the poorest do not have to find the money for? This is a regressive tax.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The hon. Lady misunderstands me. I understand that people have to buy all those capital items, and I know that this is going to be regressive in that respect. [Hon. Members: "Oh!"] There is no question or doubt about that. I said to the House a moment ago that nobody likes the idea of having to increase VAT.

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Photo of John Cryer John Cryer Labour, Leyton and Wanstead

The hon. Lady says that the VAT increase is the least worst option. Could she list the worst options?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Well, we could have some further job cuts; that would not help. We could just not stimulate business; that would not help. We could charge lower earners more income tax. Hon. Members should not forget that this is the coalition Government who have raised the level of tax for the lowest-paid earners-something that the Labour party did not do in 13 years of government.

Income tax is a very important area in addressing issues that Kate Green and several other Labour Members have raised. We want to ensure that people can keep more of their own money that they have earned. The raising of the income tax threshold towards our Liberal Democrat target of £10,000-it increases to £7,475-takes 880,000 people out of tax altogether and means that 23 million people will gain an average of £176. That is really important to local people.

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Photo of Iain Wright Iain Wright Shadow Minister (14-19 Reform and Apprenticeships)

Does the hon. Lady think that the coalition Government's policy on personal allowances for the over-65s is the right approach?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

As I understand it, they are unaffected. I wish to say a word about pensions: is it not strange that in Labour's 13 years in government the earnings link was not restored? This coalition Government have introduced that in their first weeks in government. We have the triple lock: we have 2.5% or earnings or prices-

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am going to make a bit of progress. Before Labour Members leap to their feet to criticise, they should reflect on the fact that they had 13 years in power and they leave a shameful legacy. It required this coalition Government to come into office to introduce that, and we are doing so in such a short period.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I have given way to the right hon. Lady already, so I shall give way to the hon. Gentleman.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

I have listened to the hon. Lady's arguments for accepting the VAT increase, but over the financial year the projected deficit fell by about £15 billion to £20 billion. Surely that blows apart the Liberal Democrat case for accepting a 2.5% increase in VAT.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Yes, the hon. Gentleman is right in saying that, but at the same time we have since discovered that a lot more money is not available to us for use. It is not there. Therefore, in order to balance the books it has been necessary to increase VAT.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am not going to indulge the hon. Gentleman again, I am afraid.

We also welcome the postponement to 77 of when an individual can take an annuity, and of course we welcome the closing of loopholes and the anti-avoidance legislation; everyone should pay their share. That is something that we as a coalition Government will work hard to ensure.

We need tax to be simple and fair and to help us along the road to recovery. We need the stimulus for business, because business will be the engine that pulls us out of recession. We need fairness on income. We need to close the loopholes; they are already partially closed, although more work needs to be done. The least well-paid will at least be able to spend more of their own money. So we on these Benches support the Bill.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice) 6:11 pm, 6th July 2010

It is a pleasure to be able to speak in this House again after several years of being allowed to say only things like, "Beg to move" and, "Tomorrow". I crave the indulgence of the House, as I am not used to making substantial speeches any more.

I want to go back to what we have heard over the past few months from both the Prime Minister and the Chancellor. It has been a constant refrain of, "We're all in this together." Now that we have seen their Budget and the Finance Bill, we can see how hollow that soundbite was. What is taking place under this Con-Dem Government is very simply an attack on the poorest people in this country conducted by people who think poverty is not being able to afford the uniform for the Bullingdon club. It is an attack on working families on low wages conducted by people who are the inheritors of trust funds. It is an attack on jobs fronted up by two people-a Prime Minister who got his first job after a phone call from Buckingham Palace, and a Deputy Prime Minister who got into the European Commission because his next door neighbour knew the right man to ring. If only it was as easy for everyone else out there.

It is clear from a simple analysis of the Budget that the poorest are affected three times as much by the increase in VAT as the richest; that the poorest 10% of the population lose as a percentage of their income twice as much as the richest 10%. It is significant, when we look at the measures in the Finance Bill, that a private client partner from Ernst and Young was quoted in The Guardian as saying:

"the fiscal impact on the higher earners is largely restricted to the increase in CGT together with some fiscal drag caused by the freezing of the higher rate threshold."

That is what we are seeing in this Bill.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Has my hon. Friend seen the excellent Library note on VAT? Does she agree that the lowest 10% of households are worse off because they pay some 18% of their disposable income in VAT while the richest spend less than 10%?

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. It is often forgotten in the discussion on VAT that much of the spending of the richest households is discretionary, while the spending of the poorest households is necessary. That is what the Government propose to tax.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Given what my hon. Friend has said, and what my hon. Friend Mr Jones said about the Library note, was she not as surprised as I was that when I asked something similar of the Prime Minister, he tried to suggest that somehow the increase in VAT would not disadvantage the poorest 10% and that the top 10% spent more not only in real terms but as a proportion of their income in VAT? That has obviously been discredited by the Library note.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My right hon. Friend is absolutely right. That serves to show us the ignorance on the Government Benches of the lives of some of the poorest people in this country. I could forgive them if their Budget and Finance Bill were simply the product of ignorance, but they are the product of ideology. It is the Government's decision to take £40 billion out of the economy, to raise VAT and to cut investment allowances for business, and it is a purely ideological decision. They pin their hopes on an increase in growth, yet even their own leaked Treasury figures tell us that we will lose 1.3 million jobs as a result of these measures, not only in the public sector but in the private sector.

We know already the plans of the Government parties for jobs. They began early on by cutting the future jobs fund-118,000 jobs for young people, 18,000 in a region such as mine, wiped out. I want to quote what the Liberal Democrat candidate in my constituency, described on his leaflet as the strong local candidate, said before the election. He was so strong that he managed to come third in the parliamentary election and third in what was previously a Liberal Democrat council seat. He said:

"Lib Dems believe that if you are unlucky enough to lose your job you should be helped there and then to get another one."

Yet the measures in the Bill and the Budget will destroy jobs and introduce no measures to create them.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my hon. Friend agree that the problem with the cuts announced yesterday in Building Schools for the Future and the massive cuts in local government is the belief "public sector bad, private sector good"? A couple of weeks ago, I met the Civil Engineering Contractors Association in the north-east, which told me that its members were relying on BSF and investment in roads. The cuts will have an impact not just on their businesses but on jobs in my constituency.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. The Treasury's own forecast shows a huge loss of private as well as public sector jobs. Many private firms depend on public sector contracts to keep going. More to the point, enterprise does not flourish when so much money is taken out of the economy that it becomes devastated. If the Government cut benefits, freeze wages and cut public sector jobs, that does not lead to a vital entrepreneurial culture but to a culture of fear in which people do not take risks.

Let me take one example of the way in which the Government have failed to consider the knock-on effect of the Finance Bill. They propose to increase VAT. That will have a damaging effect on the retail sector, yet that sector provides many entry-level jobs and jobs for women who wish to combine work with looking after children. It provides jobs for the women whom the Government want to get back to work when their children go to school. If those jobs are not there, where will those women go? There is simply no joined-up thinking here.

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Photo of Clive Efford Clive Efford Labour, Eltham

My hon. Friend has moved on from investment in the construction industry, but I wanted to point out that that industry accounts for 10% of our gross domestic product and public sector expenditure accounts for 40% of the activity in the construction industry. That shows up the regressive decisions made by the Government.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I could not have put the point better than my hon. Friend has.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

In a moment-I will make a little progress first.

Something interesting is happening on the Government Benches. We used to hear from the Con bit of the Con-Dem alliance simple, open hostility to the public sector and the welfare state. Now, most of them are becoming a little more sophisticated and wrapping it up a little better. The Chancellor says constantly, "The things I'm having to do are dreadful. I don't really want to make these cuts. However, if I could cut benefits more, it wouldn't be so bad." It is an interesting exercise in shifting the blame. The implication is that responsibility lies not with the Government's decisions, but with those in receipt of benefits.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

In the March Budget, the then Chancellor offered reform of housing benefit that would have saved about £250 million a year. This Government have brought in cuts of £1.8 billion. That is not reform; it is an ideological cut in welfare, which will hit some of the poorest people in this country. That proves that these are cuts of choice-they did not have to make them to cut the deficit.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is absolutely right, and I shall talk about the effect after giving way to the hon. Gentleman.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I did not want to lose the hon. Lady's point about jobs. She is being neither entirely fair nor entirely accurate. If she reads the Office for Budget Responsibility report at the back of the Red Book-the independent assessment-she will see it clearly stated on page 82 that

"the more rapid increase in employment is sufficient to lower unemployment, so that the ILO unemployment rate falls to 6 per cent in 2015. Claimant count unemployment continues to fall throughout the forecast period."

The projection-not Government or party political-is that over that period unemployment will go down and employment will go up.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

If the hon. Gentleman is so confident about that, perhaps he will get his right hon. Friend the Chancellor to publish the Treasury forecasts that he is currently failing to publish. The OBR figures are based on forecasts of growth that I do not believe we will achieve because, to be frank, those forecasts have never been achieved in 40 years.

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Photo of Clive Efford Clive Efford Labour, Eltham

Does my hon. Friend find it as curious as I do that the figures leaked from the Treasury are produced by the same people who produced the figures for the OBR, and yet those figures conflict? Is she confused about that?

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I am extremely confused and rather surprised that, although the Chancellor said that he would make sure that nothing was hidden in the small print and that he would show us all the figures, he declines to publish the Treasury's own forecasts.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I want to finish my point first. We are talking about an attempt by the Government to switch lane by saying that what is happening is not a decision of the Government, nor the fault of the banks, which brought us into global economic meltdown because of their irresponsible lending and reliance on financial instruments that they did not understand. The Government's treatment of the banks compared with their treatment of some of the poorest people is significant.

The Chancellor made great play of his levy on the banks, which will raise £2 billion a year, but the big five banks alone will gain £1.6 billion from the changes he set out to capital gains tax. No attempt has been made to rein in City bonuses-in fact, rather than coshing the banks over the head, he tickled them with a feather duster. So good was the news for the banks that their shares actually went up.

Compare that with the treatment that the Chancellor has meted out to industry. We hear much about the fall in capital gains tax, although the Government are legislating that for one year only. What we do not hear is that that is being paid for by cuts in investment allowances, which hit manufacturing the hardest. There we have it: those who want to invest for the long term and capital intensive industries that want to create jobs in the future will be hit. This is a Bill for industries that are less capital intensive but that are making vast profits-industries that, as the Institute for Fiscal Studies said, are "typified by the financial sector". What we have here is simple: rewards for those wanting to make a fast buck and a hit for those who are interested in long-term investment. It is the Del Boy Bill-it could have been written by Trotter's Independent Trading. I am only sorry that Rodney has disappeared from the Dispatch Box.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my hon. Friend agree that those same banks are continuing to build up their balance sheets by not lending to small businesses-precisely the businesses that need investment now to grow, if we are to achieve the growth forecasts? There is nothing in the Budget that will force the banks to make sure that vital capital is supplied to those growing industries.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

Indeed-that is correct. What is more worrying is that linked with that is the Government's failure to provide in the Bill any hope or assistance for British firms that want to compete in the global market and create jobs in the long term. It is a tale of two cities: on the one hand, there is the City of London; on the other, there is Sheffield-what the Deputy Prime Minister called throughout the election, "my city of Sheffield". Well, we have seen what he plans for Sheffield-absolutely nothing. The Government's attitude can be summed up in two words: Sheffield Forgemasters. There is nothing in the Bill or in the Budget that helps manufacturing industry in the long term.

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Photo of David Wright David Wright Labour, Telford

The problem with the Bill is that it is coupled with the total destruction of regional economic policy. It is not just Sheffield and the north-east that will suffer; every region will suffer because of the virtual destruction of the regional agencies that provide business support and advice and grants to businesses in communities such as Telford.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. The Bill goes with the destruction of the regional development agencies, which were vital to regions such as mine. As my hon. Friend Derek Twigg said earlier, it goes with huge cuts in programmes such as Building Schools for the Future, which were vital to the construction industry in our area.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

As one of the three MPs representing the borough of Del Boy, may I say to the hon. Lady that we on these Benches are clear that the bankers' bonuses need to be curbed and reduced further and we will continue to press for that? The people who contributed hugely to our present troubles should pay the price to a much greater extent than anybody else.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I am grateful to hon. Gentleman for intervening, because I want to say to him that his party is in government. If the Liberal Democrats want to do something about that, they can, but they have singularly failed to do so.

Let us consider the people who are paying the price of this Finance Bill-those who will be affected by the rise in VAT and who are already being hit by the cuts announced by the Government in their Budget. The Chancellor talks a lot about those on benefits. The implication, unstated but always there, is that they are all scroungers. Nothing could be further from the truth. Most people who will be hit by the cuts that he has announced are from hard-working families on low incomes. He has already announced that those on family incomes of a little more than £15,000 will see their tax credits cut. By 2012-13, anyone with a family income of more than £30,000-£15,000 each-will lose their tax credits. Child benefit has been frozen, which is an effective cut of £116 a year, but those people will have to pay the VAT increase that the Government have imposed on their spending.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Is my hon. Friend also aware of the fact-unannounced, I think, because it did not get many headlines-that the Government are going to cap mortgage interest relief for those who become unemployed? That will affect hard-working people who, through no fault of their own, become unemployed, and it will lead to evictions. That is in stark contrast with the previous, Labour Government, who protected those people.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

Indeed, and if my hon. Friend will permit me I shall come on to that issue in a moment.

Before I move on, I want to mention the cuts that will specifically hit families with young children, including the scrapping of the baby element of child tax credits and the scrapping of the new toddler credits for one and two-year-olds. That will cost an eligible family more than £1,000 a year, even before they start paying the price of the VAT rise.

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Photo of Helen Goodman Helen Goodman Shadow Secretary of State for Work and Pensions

My hon. Friend is absolutely right to point out the devastating impact on families. Has she looked at the serious impact of the cuts in housing benefit on households with people who are in work and households with old-age pensioners? From the housing benefit cuts alone, it looks as if 1 million people will suffer further reductions of between £500 and £1,000 in their incomes.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right, because some of the nastiest, meanest cuts in the Budget are to housing benefit and mortgage support. Mortgage interest support will be limited to the average mortgage rate, meaning many families will no longer be able to meet their payments. If someone is unlucky enough to lose their job and be out of work for 12 months, even if they have done their level best to find a job and applied for everything going, and even if there are no jobs, their housing benefit will be cut by 10%. That is not a work incentive, as the Government seem to think; it will lead to a spiral of repossessions, homelessness, family stress and breakdown, which will simply increase the cycle of worklessness.

Is that really what the Prime Minister meant when he said that this Government were going to be the most family-friendly Government on record? They will not be for families in my constituency.

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Photo of Lyn Brown Lyn Brown Labour, West Ham

Does my hon. Friend agree that it is not cost-effective to split up families and treat them in that way? The very circumstances that she describes actually cost the state more money.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. If families have to be split up, put into emergency accommodation or are trapped in the cycle of worklessness and poverty, because not having a home makes it much harder to get a job, that not only inflicts appalling circumstances on them, but costs the taxpayer far more money in the long run.

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Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

I hate to bring the hon. Lady back to reality, but the previous Government halved the amount of manufacturing in our economy, from 22% to 11%. Under them, we built the least number of houses since 1922 in order to support the construction industry, and history will view many of their so-called investments rather harshly and, perhaps, as the biggest Ponzi scheme ever, because they did not stand up for long once the economic winds shifted against them. Will she please remember that? She will be pleased that one thing that we are not cutting is the health budget. As for those suffering from mental health problems, especially selective amnesia, I can see plenty in this Chamber.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

The hon. Gentleman ought to be wary of making jokes about mental health. I entered this House from a constituency where children growing up in 1997 had never known what it was to see someone in their household go to work. A Labour Government changed that and invested in decent homes, but Liberal and Tory councils constantly sold the pass on affordable homes by allowing developers to buy themselves out of their obligations, so we will take no lectures from him on employment or housing.

The National Housing Federation states that the Government's planned housing benefit cuts alone will put 200,000 more people at risk of homelessness and concentrate social and economic problems in the more deprived areas. It is the ultimate Tory nimbyism to want to move people out of city centres. They used to say, "Get on your bike and look for work." They now say, "Get on your bike and get out of my sight, because we don't want to know anymore."

Someone in London with rent of £350 a week would lose £35 in housing benefit if they were unemployed for 12 months. I ask Government Members what is the jobseeker's allowance for a single person? Anyone? No, I thought not. It is £65.45 a week. If those people meet the shortfall in their rent, they will be left with £30.45 to live on, to buy food and clothes and to pay for utilities and the increased VAT rate that this Government will impose on them. Not only is that not the mark of a civilised society, but it leaves those people with less money to live on in a week than many Government Members would spend on a meal-a lot less in some cases.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

My hon. Friend provides the example of London, but on Friday I met the chief executive of a local housing organisation who told me that she is unsure of what the cap will be on rents in Durham. If it is as low as £57 a week, which has been mooted, she says large numbers of individuals will have to make up the difference and some, including pensioners, will be evicted.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. It will also cause huge damage to social housing providers, who will face more and more arrears. That is the problem with the Finance Bill and with the Budget. They do nothing to create the jobs that the Government tell us we need, and they squeeze the poorest.

Let us look at what the Government plan for disabled people. The vast majority of people with disabilities would like nothing better than to have a job, and the previous Government did much to get them back into work. However, this Government plan what they call a simpler process-something that they say will reduce dependency and promote work. But the major flaw is that getting people with disabilities back into work is not a simple process. What happens to those with fluctuating conditions or mental health problems? They cannot be assessed by a simple test; that is exactly the point. We are bound to conclude that it is simply an exercise in cutting the budget by £1.4 billion.

There will be no jobs if we go down the road suggested by the Bill. At the end of that road, we encounter the risk of a double-dip recession, billions being taken out of the economy, the poorest and their spending attacked and reduced, and major cuts in benefits. That will not support the economy; it will undermine the growth of the economy. I say to my hon. Friends that this Finance Bill risks devastating the economy, dividing communities and producing the kind of recession that we saw in the 1980s. That is not a risk that we Labour Members are prepared to take, and that is why we will vote against the Bill.

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Photo of John Redwood John Redwood Conservative, Wokingham 6:40 pm, 6th July 2010

I remind the House that in the Register of Members' Financial Interests I have declared that I offer business advice to an industrial and an investment company.

In this debate, the Labour Treasury spokesman wanted to talk the economy into a double dip. He was trying to create a mood of gloom and doom. He rejected the independent forecasts provided in conjunction with the Budget and the many independent forecasts put together by people outside the House, and sometimes outside the country, which all say that a recovery is expected for the British economy over the next five years and that that recovery will be led by investments and exports.

Obviously, the scepticism among those on the Opposition Benches arises because Labour Members have not understood one fundamental thing. The economy was so badly damaged and devastated by what happened in 2008-09 that it can indeed, I am pleased to tell the House, have a recovery based on higher exports, higher manufacturing output and higher service sector output-because the outputs were so badly hit in '08-'09. That does not mean that we will go into a new utopia or suddenly into overdrive with superbly high growth rates; it means that we will start recovering from a disastrous banking crisis and recession, which some of us felt were made far worse by the policies and antics of the Labour party when it was in office.

To try to buttress its double-dip case, the Labour party is now saying that the true Treasury forecast says that, far from there being a drop in unemployment, there will be 1.3 million job losses and that somehow my right hon. and hon. Friends at the Treasury are trying to conceal that. As I understand it, the leak to The Guardian was misjudged because it was a working paper with lots of errors in it. The proper expression of Treasury opinion was passed to the Office for Budget Responsibility, which is manned by people of independent judgment who could ask the Treasury for all the details that they wanted about its workings, and could use the Treasury's own models. They came to the perfectly sensible conclusion, shared by most other forecasters, that there will be nothing like that degree of job loss and that unemployment will indeed fall over the period of the forecast.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The right hon. Gentleman has paid a glowing tribute to the Treasury. Was it not the Treasury that advised the 1979 Conservative Government, who drove us into a massive recession, with 3 million unemployed? Was it not the Treasury that advised the then Conservative Government to go into the exchange rate mechanism and cause 2 million to be unemployed? Did not the Treasury get things wrong time and again? Is the right hon. Gentleman not praying in aid an organisation that has demonstrated its failure over and over again?

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Given the right hon. Gentleman's admission that the OBR's forecast on job losses may be wrong- [Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast's and the leaked Treasury document's anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman's long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s-and then only through the fiction of the privatisations.

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Photo of John Redwood John Redwood Conservative, Wokingham

The point that I have been making for the Labour party's benefit is that I think it is possible to get a reasonable private sector-led recovery from here, because the private sector was so gravely damaged and battered, and the figures were so awful, in '08-'09. We are talking about rates of change from a very low base, so it is quite possible for things to get going.

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Photo of John Redwood John Redwood Conservative, Wokingham

I should like to finish my point.

At the moment, there are worries, reflected in the comments made by the shadow Chief Secretary to the Treasury, that the clouds may be gathering again in the international community, and we need to watch that. I suggest to those on the Treasury Bench that we need to do more work on ensuring that our banks are capable of lending in sufficient quantities so that all the private sector projects we need and all the private capital we need for the public projects as well can go forward as rapidly as possible.

We can encourage that to happen in many ways. An important part of the policy is that when we get some control over public spending and the public deficit, to instil confidence in the markets, we use those markets for a well financed private sector-led recovery, so that we can surprise on the upside in comparison with the fairly cautious figures given by the OBR. I am certainly not challenging the OBR figures, which are the best available at the moment. I would like to think that we could improve on them over the five years. If we do more about how the banks work and are regulated, so that we can accept that they have enough cash and capital for this stage of the cycle, and if we allow them to get on with the job of lending more money to businesses and worthwhile public projects, we can make progress.

We can also make a lot more progress in the public sector in respect of the public spending plans published in the Budget. Those public sector spending plans show public spending going up every year in cash terms over the five years to which the Finance Bill relates and is trying to finance. The increases are not very big, so if there were lots of wage increases and a lot of price inflation for the things bought by the public sector, and if there were the explosion in benefit claims that Labour is wrongly forecasting, there would of course be a big squeeze on much valued public services. We Government Members do not wish to see that any more than Labour Members do, and I wish that they would not keep pretending that somehow we want to cut the services, because we do not.

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Photo of Grahame Morris Grahame Morris Labour, Easington

Two simple decisions arose from the Budget: the new £464 million hospital north of the Tees and the £500 million Building Schools for the Future projects in County Durham were cancelled. All would have been built by the private sector. How will those cancellations assist the growth in the private sector, particularly in respect of jobs in my constituency?

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Photo of John Redwood John Redwood Conservative, Wokingham

As the hon. Gentleman should be aware, the outgoing Government's capital spending plans have not been changed by this Government. We have to accept the previous Government's plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.

What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers' wages, as the hon. Gentleman wants.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy-specifically, on jobs in construction?

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Photo of John Redwood John Redwood Conservative, Wokingham

Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck-to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster's overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.

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Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

The right hon. Gentleman's fantasy that there will be a continuation of or an increase in capital investment is completely belied by the OBR forecast on page 90 of the Treasury Red Book, which shows that net investment will fall from £49 billion in the current year to £21 billion in 2014-15. That is a colossal drop.

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Photo of John Redwood John Redwood Conservative, Wokingham

Those are Labour's figures for the public sector. I have just told the House that I am talking about total investment across the economy. Overall, the right hon. Gentleman will find in the Red Book that it is anticipated that the rises in investment elsewhere will more than offset Labour's cuts in the capital programme, which we have decided to live with. I should also tell him that he is quoting the net line when he should be quoting the gross line. In other words, he is knocking off the depreciation, whereas we are interested in the total spend-the gross line, which is much higher than the figures that he has inadvertently, I think, given the House in error.

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Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

How can the right hon. Gentleman believe that private investment will remotely compensate for this enormous fall in public sector net investment, given that household consumption is falling, particularly with the increase in VAT, the banks are not lending, and export markets are fading because of the situation in the eurozone? Why should the private sector invest in those circumstances?

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Photo of John Redwood John Redwood Conservative, Wokingham

That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.

It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?

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Photo of John Redwood John Redwood Conservative, Wokingham

A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.

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Photo of John Redwood John Redwood Conservative, Wokingham

I am going to conclude, because many people wish to participate in this debate. Labour Members may want to be here until 3 o'clock in the morning, but they never used to when they were in the dock and did not allow us the time to debate these things properly.

The Budget is a necessary evil to clear up the mess inherited from the previous Government. This is a necessary task to instil confidence and to avoid interest rates going through the roof. Labour Members should look at what has happened in Ireland. Ireland had extremely big cuts-bigger, I am pleased to say, than those in this Budget. In the last quarter, the Irish economy started to grow extremely well, which is exactly what Labour Members are predicting cannot happen if one starts to get control of public spending.

I urge the Government and the whole public sector to work strongly together to ensure that these modest increases in cash spending translate into maintained and improved public services, as they can if we take the right action over pay rates, efficiency levels, improved process, investment in technology and so forth. I hope that we will get the banks working better by creating a more competitive environment so that we can then have the investment we need in the private sector to fill the gap and create the jobs. This is a doable task and a feasible profile, and it is backed by the independent forecaster. We need to be very sure that we are going to pump everything into that task, because recovery is what we all want.

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Photo of Vernon Coaker Vernon Coaker Shadow Minister (Education) (Schools)

On a point of order, Mr Deputy Speaker. Has the Secretary of State for Education indicated to you any desire to come to this Chamber to explain the situation that has arisen? Following the points of order that were made by me and two of my hon. Friends, a further list of schools affected by the Building Schools for the Future cuts was published this afternoon. That third list reflects 22 errors from the first list, which means that a significant number of communities up and down the country have been affected by the chaotic statement about schools made yesterday by the Secretary of State. Are we to expect a fourth list, given that there are still some concerns that even the latest list may not be totally accurate? If not this evening, then tomorrow, we should expect the Secretary of State to come and explain what on earth is going on in respect of the cuts that are being made to a programme that is welcomed in communities up and down the country.

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Mr Deputy Speaker:

I have not received any information as to whether the Secretary of State for Education wishes to make a statement this evening. I remember that in the hon. Gentleman's first point of order for me he said that he had not received any list; he now appears to have three. I understand that the Speaker has already made a ruling on this matter. I am sure that if the Secretary of State does at some stage wish to make a statement, this House will be informed.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury) 6:56 pm, 6th July 2010

I intend to finish my remarks by talking about the performance of the Chief Secretary, but I will start by commenting on what the shadow Chief Secretary said. He rightly pointed out that if the Government did not get the growth forecasts that they expected, the only option that they would have in meeting their deficit reduction targets would be to cut more. However, Labour's policy to halve the deficit, again in a fixed time scale, suffered from precisely the same problem. If the growth forecasts of 3.25% for four of the next five years had not been met-indeed, if there had been a downturn-there would have been no room not only for a fiscal stimulus but, perhaps, for the use of the automatic stabilisers. The Government's plans and Labour's previous plans have that problem in common.

Let me start by commenting on the things that we agree with in this very thin Finance Bill. I am pleased that the Bill seeks to bring down corporation tax. The phased reduction in the headline rate will provide an incentive for businesses to locate in the UK, although I am not convinced that paying for this through the changes to investment and other capital allowances might not yet prove to be a problem for growing businesses. As Helen Jones, who is not in her place, said, this may help businesses that are up and running, but not those that seek to grow. I am disappointed that she is not here, because if she were, I would have the opportunity to ask whether she now regrets the Labour Government's abolition of the industrial buildings allowance-another key allowance to help industrial investment that went some time ago.

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman and I made common cause against the previous Government for not adjusting for the cycle in their Budget plans. I believe that this Government have said that if things were to go wrong and we headed into another global recession, they would adjust the plans accordingly for the cycle.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Indeed. It is worth making the point, though, that on paper there is a rigidity about this. I remain concerned that if growth forecasts, downrated sensibly, are not met, there will have to be these necessary adjustments.

I welcome the phased reduction in corporation tax, but question whether it makes sense to pay for it through changes to capital and other investment allowances. The Road Haulage Association has said:

"We are concerned about the reduction of the investment allowance for small firms to £25,000 from £50,000 which will have a detrimental impact on small haulage companies."

That trade body probably speaks for many in its approach to the change to the annual investment allowance.

I am pleased by the way in which the Government have handled the capital gains tax changes, keeping the rate unchanged for basic rate payers to encourage and allow modest investment but increasing the rate for higher taxpayers. Closing the gap removes a perverse incentive to take income that could be taxed as capital rather than through income tax, but keeps a sufficient distance between the rates of income tax and capital gains tax to encourage real investment. That was handled quite well.

I have a question, though, about the rationale for the increase in insurance premium tax. I heard the explanation that it has previously mirrored the VAT rate, but there is no reason why that should still be the case. It will bring in some £2 billion in additional tax over the next five years, and I can only hope that that decision does not come back to haunt this Government in the way that the abolition of advanced corporation tax on pensions came back to haunt the Labour Government. The Conservative party in particular has made a great many criticisms about how that pension change was made and the impact that it had. Indeed, it was a smash-and-grab raid that the Chancellor described as "disastrous" in Accountancy Age last year. I hope that the insurance premium tax increase will not be described in that way in future.

Incidentally, in the same interview, on 6 October, the Chancellor also stated his aim to get the country saving again, which makes it even more difficult to explain the coalition Government's intention to scrap the child trust funds. We have spoken about savings and savings ratios in the past, and the Red Book forecasts future ratios of just over 5%. However, that is about half the savings ratio that the Labour Government inherited and about the average through the whole of 2004 and 2005. It is not particularly ambitious, if the Government's intention was to get the country saving again.

However, the real damage in this Finance Bill, as many Members have mentioned, is the determination to put up VAT. That directly contradicts the stated intention of both coalition parties to create a fairer society. Although it may well be the case that in cash terms the wealthiest will pay more VAT, it is clear that the poorest 10% will pay nearly three times higher a percentage of their disposable income than the richest 10%. That is all because of the wrong-headed view, to some extent shared by Labour, that deficit consolidation must be achieved quickly. That is based, I believe, on a flawed assessment of the Canadian model, rather than a credible one perhaps based on the New Zealand model, which certainly worked. The consequence of the VAT changes, at least according to Save the Children, is that the VAT bill for the poorest could rise to more than £31 a week.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

The hon. Gentleman mentions the Canadian model, but does he agree that what we are seeing today is very similar to the Canadian model in that it was not necessarily just about deficit reduction, but was ideologically driven to reduce the size of the state in Canada?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I think that was certainly a consequence of the actions that were taken, but the reason I say that the assessment was flawed is that Canada sat on the northern border of a booming American economy, and its recovery was export-driven. That was a sensible approach to take. I would love our economy to be export-driven as well, but given that the European Union is our biggest trading partner with more than 60% of our goods by volume going there, I cannot see how an export-driven recovery can be achieved to the extent that is hoped for. I would love it to be, but from looking at the numbers, I cannot see how it will happen.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman mentioned deficit reduction. Does he recall that in the post-war era successive Governments, Labour and Conservative, maintained a policy of full employment, which saw a gigantic deficit way beyond anything that we are seeing at the moment being seriously reduced? Does he accept that full employment, not cutting spending, is the way to reduce deficit?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I certainly agree that long-term, sustained and sustainable above-trend growth is the real answer, but that is not to minimise the problem of the deficit and the impact that it can have on market credibility and the cost of money. I am not one to say that we need deficit or debt at any cost; I am arguing for a credible deficit consolidation plan as opposed to a fixed-term plan that is inflexible and will not work.

The current situation has led to the VAT increase, and given that the poorest families may now pay more than £31 a week, I want to think about the impact on those families. Their unemployment benefits may be reduced in real terms, their tax credits cut and their housing benefit put under real pressure, particularly in areas where rented housing is expensive. That part of society will suffer most from the VAT rise. According to Shelter, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent. Socially, a VAT increase for people who are that hard-pressed at the moment might be considered unforgivable.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

One of the fig leaves that the Liberal Democrats have used to accept the VAT increase has been the argument that they did not understand the nature or size of the deficit until they got into bed with the Conservatives. However, a glance at the pre-Budget report and the Budget shows that the deficit is actually £20 billion to £30 billion lower, thereby surely blowing holes in the Liberal Democrats' argument for accepting a 2.5% VAT increase, which will hit the poorest in our society.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

That is absolutely correct. It is a pity that there is merely one Liberal left in his place to hear that argument. My hon. Friend makes a very good point that the deficit forecast now is less than that forecast in the Budget and the pre-Budget report. That certainly confirms the case that we made for a fiscal stimulus. Another criticism that comes from his intervention is not simply that Liberals do not understand the numbers but that the Labour Government left the UK as one of only two countries in the G20 without a fiscal stimulus, fully withdrawing it in 2010 before recovery was secure.

To wind gently back to VAT, I said that the increase would perhaps be socially unforgivable. It also makes little sense in economic terms. The British Retail Consortium has described it as "disappointing", which was something of an underestimate given that it went on to state, bluntly:

"We didn't want a VAT increase. It'll hit jobs."

Simon Newark of UHY Hacker Young warned that the rise could push up prices on the high street by about 2%, which could have a significant impact on inflation. He went on to warn:

"Higher inflation could trigger interest rises, risking the spectre of the double dip recession."

Still others are warning that the rise will exacerbate cash flow problems.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

I wonder whether the hon. Gentleman read The Herald of Scotland this morning. He knows that I read the newspapers carefully. It states that because of the VAT increase, the Commonwealth games in 2014 will cost an additional £20 million?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

That is absolutely right, and VAT will not just hit building and the purchasing of supplies for the Commonwealth games or the Olympics, and it will not just hit the private sector and families. It will hit th