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It is a great pleasure to be in the Chamber this evening, Mr Hoyle, for what I hope will be a fruitful discussion on clause 4, on corporation tax. As hon. Members will know, the clause reduces the rate of corporation tax with the aim of reducing it still further over the next few years. That has been done by Ministers because they recognise that there is a need for growth in the private sector, and that is an aim that we would support.
We need to consider growth in the private sector, which is a key issue that we must examine in some detail. If time permits, which I am sure it will, I intend to outline the case for discussing the issues related to the need for growth in the private sector. We must examine how we use corporation tax to deal with unemployment, something that affects the regions quite considerably, and how we compensate with private sector jobs for the Government’s massive cuts in public spending.
Let us look in some detail at the question of the economy and unemployment in general. There is real concern about the level of unemployment in the country at large. The economic indicators show that there are currently ranges of unemployment across the United Kingdom that cause concern in relation to unemployment levels generally. One reason why the corporation tax cut has been brought forward is that the Government recognise that they need to look closely at how they can generate private sector employment by ensuring that we expand the private sector as a whole.
If we look closely at the level of unemployment, we see great disparities across the country. In the north-east region—my hon. Friend Mr Campbell, who is present, is a representative of that region—the unemployment rate is 10.2% and in the west midlands it is about 9.9%. Those high figures show that we need to develop the private sector. In London, the unemployment rate is currently about 9.4%. Looking around the Chamber, I see many hon. Members—
The hon. and learned Gentleman may say that, but this is an argument about corporation tax and if Members wish to participate in the debate I am very happy to stay here for as long as they wish to, because we can discuss this matter in some detail. It is very important that we discuss the circumstances in which we need to ensure that the growth in the private sector is undertaken by the Government—
I mean that the growth is encouraged.
Government Members know that there is a very important debate to be had about whether corporation tax plays a role in helping to grow the private sector. There is some synergy between what the Opposition and the Government believe on this matter, but we need to explore this in detail and I intend to do that. Hon. Members who have supported me in Committees in the past know that I will happily discuss these matters in detail for some considerable time if required. We need to consider what the current situation is, what the levels of unemployment are, what the need for private sector growth is when we are faced with massive public spending cuts and how to deal with those issues.
If one looks in detail, as I intend to, at the statistics for jobseeker’s allowance, one sees that they currently show that the unemployment count increased by 700 in March 2011 and now stands at 1.45 million people aged 18 or over. The unemployment rate for International Labour Organisation-based measures of unemployment was 2.48 million in the period from December to February 2011. We need to look at how corporation tax and the proposed cut in it will ensure that we can raise the level of employment in the regions that have been particularly hard hit.
As I have said, unemployment is 10.2% in the north-east, 9.9% in the west midlands and 9.4% in London. In the Yorkshire and Humber region—I can see Members from that region in the Chamber—the unemployment rate is around 9.3%, whereas in my region in Wales it is 8.7%. That rate is of considerable importance to my constituents and others across north-east Wales.
My right hon. Friend mentions that the unemployment rate in the north-east is in excess of 10%, but does he recognise that that is before the impact of the budget cuts in local authorities and the cuts in public expenditure that have been announced? In a region such as the north-east, which is heavily reliant on the public sector, that 10.2% will rise greatly over the next few months.
I am grateful to my hon. Friend for raising that. One of the themes that I shall develop in our discussions today is the cut in the rate of corporation tax to stimulate private sector growth. That private sector growth is extremely important, particularly at a time when we face massive cuts in public spending across the board. There is a debate to be had, which I am happy to engage in, about why and how those public spending cuts are being made, but my hon. Friend Mr Jones will recognise that in the Budget proposals to date for the period to 2014-15 there are major areas of public spending cuts where the corporation tax cut proposal is being put in place to ensure that we generate private sector jobs to meet the loss of those public sector jobs across the board.
For example, as hon. Members know, we face a 27% reduction in local government spending between now and 2015. We face a 25% cut in Business, Innovation and Skills departmental expenditure between now and 2014-15.
The average cut in local authority grant in the 12 authorities in the north-east of England is 24%, whereas the average cut in local authority grant in the south-east of England comes to no more than 4%. Why is that?
There is a range of reasons for those proposals. As part of the Government’s proposals to cut public spending across the board, there are major cuts which are unfairly hitting the north-east and other regions. I mention these issues because in the Minister’s justification for the reduction in corporation tax in the Budget proposals, he said that the Government were doing that in order to raise the level of private sector investment to attract businesses to the United Kingdom and keep them here through the corporation tax regime. Clause 4 provides the framework for generating growth in the private sector at a time when we face the loss of a possible 500,000 jobs in the public sector and great pressure on private sector industry.
One of the mistakes that the Government make is to think, “Public sector bad, private sector good.” Is my right hon. Friend aware of a study undertaken by Durham university which suggests that as a direct result of the cuts in public expenditure in the north-east of England, there will be between 45,000 and 50,000 job losses, and 20,000 of those will be in the private sector?
I am acutely aware that in my constituency the public sector and the private sector remain intertwined. They are interdependent. The fact that we have public spending cuts does not mean that only jobs in the public sector work force will be lost. The cuts will also have a strong impact on the private sector as a whole, because contracts are won in housing, local government, transport and capital projects, all of which are put at risk by major cuts in public spending across the board. This is an important part of the debate, because in his arguments for the corporation tax cut, the Minister maintains that one of the ways in which we can regenerate the economy to compensate for those public sector cuts is by cutting corporation tax.
In the previous debate it was clear that the Government had embarked on a series of measures arising from arrogance and ignorance. When, for example, £80 million of Building Schools for the Future money is taken away from Gateshead council, that clearly has an impact not just on the public sector but on the private sector. That is the mistake that the Government make.
My hon. Friend’s region, the north-east, faces the highest unemployment in the whole United Kingdom, as I have mentioned, at 10.2%—[ Interruption. ] Oliver Heald says that that is our fault, so I presume that he has missed the fact that there has been a world banking crisis and that unemployment has risen in countries across the board. There are no arguments.
As hon. Members on the Treasury Bench know, the Labour Government and my right hon. Friend Mr Darling had a plan to ensure that we reduced public spending to help tackle the deficit, but the current Government’s cuts in public spending are going too far, too fast and too deep. Their only alternative is to grow the private sector, which is good and positive and we accept that it needs to be done. The corporation tax cut before the Committee is one of the tools for doing that, and clause 4 is key to that strategy. We need to explore in detail what income will be forfeited as a result of the corporation tax cut, how it will attract businesses to the United Kingdom and encourage them to stay, and what the targets are for the creation of jobs on the basis of that cut for the future as a whole.
Government Members say that it is all our fault, but at the same time they say that we are all in this together. The fact that unemployment in the north-east went up by 11,000 at the same time as national unemployment went down by 17,000 seems to escape them. How does that illustrate the idea that we are all in this together?
Clearly we are not all in this together, because even now there are differences in the rate of unemployment across the board in the United Kingdom. As has just been said, in the north-east it is 10.2%. In the region that the Minister represents, and in the region represented in the Chamber today by Members from Cornwall and other parts of the south-east, such as Sarah Newton, unemployment is 6%. There is a discrepancy between the unemployment rate in the north-east, which is 10.2%, and the unemployment rate in regions such as the south-east and the south-west, which is 6%. The question I want to put to the Minister, and the discussion we want to have around this, is about how the corporation tax cut proposed in the Bill is intended to bring jobs to my hon. Friends’ region and other regions with lower levels of unemployment generally across the board. We need to look at the impact of the corporation tax cut generally across the board.
If the hon. Gentleman looks at the Order Paper, he will see that the business may continue until any hour. I can make any argument I wish on these matters, in any order I wish, until such time as he wishes to pursue the matter further. If he wishes to intervene I will happily give way. If he does not, he can sit and heckle from a sedentary position.
I am happy to intervene on the right hon. Gentleman, who has repeated one phrase five times already in his ruthlessly repetitious speech. He rightly links the level of corporation tax to unemployment. Of course the previous Government, like every Labour Government, put unemployment up. Every time it is in power the Labour party leaves the working man on the dole, not in a job, and we are having to put it right. A little bit of recognition from him and the rest of his colleagues, even at this late hour, would be welcome.
If the hon. Gentleman reflects on the unemployment figures for May 2010 and May 2011 he will find that unemployment has risen in the past year.
It has risen because of the policies of the Conservative and Liberal Democrat coalition, which has ruthlessly cut public expenditure over the past year. The strategy on corporation tax before the Committee is one of a range of tools that we need to explore with reference to how the economy is to grow.
It is important that we use this Finance Bill debate to examine the question of growth in the economy. The issue before the Committee is simply a corporation tax cut, which in itself is worthy of discussion, but we need to raise and consider other matters, too.
Mr Stuart is getting a little tired and tetchy—the hour is late—but one should avoid using crude headline statistics. As another Yorkshire MP, I can tell him that when Labour was in power, my city—the city of York—saw the number of people in employment go up from 40,000 to 57,000. One reason why we had that increase in growth was the reductions in business taxation, so this is an important measure and the Committee needs to treat it seriously, rather than just dismissing it with crude and misleading statistics.
Order. May I suggest that we try to stick to the clause? On both sides, we do need to try to stick to the clause before us.
The clause is about a corporation tax cut, and my argument is that because of the Government’s massive public spending cuts, which are designed to tackle the deficit and which we would indeed have made in part, the corporation tax cut is designed to help grow the private sector. We need to look at the impact of that particular cut.
Well, we need to look at the impact of that particular cut, and I will say it eight times for the hon. Gentleman: we need to look at the impact of that cut.
Let me, for example, look at the issue in relation to how the corporation tax cut will affect the private sector. [ Interruption. ]
The hon. Gentleman might like to take the issue more seriously than he is doing, because it is important. [ Interruption. ] My hon. Friends the Members for Gateshead (Ian Mearns), for North Durham and for Blaydon (Mr Anderson) represent constituencies with the highest unemployment in this country, at 10.2%, and they have a right to argue about how the corporation tax cut proposed in the Bill will impact on their constituencies in creating employment at a time of massive public spending cuts. We want to hear from the Minister in due course, when we have finished our arguments—because I am sure that my hon. Friends will contribute to the debate as well, about how the corporation tax cut will impact on job creation in those areas.
I am sorry, but I will take no lectures from the Conservative party on unemployment, which at its lowest point during the Labour Government’s term in office went down to 4% in the north-east. Until we had the crazy austerity Budget—the quick Budget—of this coalition Government, and because of the measures that the Labour Chancellor brought in, unemployment was going down in the north-east. It has gone up only since the ludicrous cuts that the present Government introduced in their emergency Budget, and if the incoming spending cuts then have an impact it will go higher than 10.2%. I know that the Conservative party does not care about the north-east of England, but I do.
My hon. Friend will be aware that in his constituency, as of this month, 2,443 people are unemployed. The question that we want to ask—I will say it again, for the benefit of Mr Stuart—is how does the corporation tax cut impact on that level of unemployment? That is the key issue that we need to explore in detail.
To clarify the point that Opposition Members have made about unemployment being higher in the north-east and north, in my constituency in the south-east unemployment among 18 to 24-year-olds in 2005, 2006 and 2007 was 30%, 30% and 30%. That was under a Labour Administration, but in the past year it has been reduced to 28%, so this Government’s actions have led to a decrease in unemployment down in the south. Will the right hon. Gentleman now apologise to my constituents for increasing unemployment—
Order. The debate is not about unemployment figures under this Government or the previous Government. Can we please try to stick to the clause now? It is very late and the debate is getting tetchy, but if we do stick to, speak to and address the clause, we will make much more progress.
I am grateful to the hon. Gentleman, who will remember that whatever the unemployment figures were in his constituency in 2005, he contested Horsham for Labour in that election and supported the manifesto of the Government of the time. He may have a little egg on his face at this point.
The key issue is the corporation tax cut. An article of
“It remains to be seen how Germany will respond with a rate of 29.4%. The decision” to cut corporation tax
“will please companies that already have a presence in the UK and will help those considering entering the UK market.”
However, his key point was that it remains to be seen whether it will lead to more firms setting up business in Britain. The head of German packaging company Optima, which is based in south-west Germany, has an office in the United Kingdom and is considering setting up a factory here, said:
“Taxes should never be the decisive factor when it comes to deciding where a business should be based.”
I simply put on the table the fact that we need to discuss what attracts business to come to the United Kingdom, to remain here, and to invest. The level of corporation tax undoubtedly plays a part in that, but we need to look at other factors, including major issues to do with skills development, public spending and employment opportunities.
I am glad that my right hon. Friend has raised international comparisons of corporation tax. One of the countries that was lauded until the financial crash was Ireland, which prided itself on very low corporation tax in attracting inward investment. The voices on the Conservative Benches who were lauding Ireland five years ago are now very silent.
Exactly. One of the key issues that we need to consider is the relationship between the north of Ireland and the Republic of Ireland, because that involves important issues to do with the rate of corporation tax.
Laura Sandys is in the Chamber. I would welcome, as an example, a discussion about whether the 2,400 jobs lost at Pfizer in her constituency would have been retained by a lower level of corporation tax now and in future. I have great concern about the fact that those jobs have been lost, as the article in front of me dated
I would like to make it clear that Pfizer has made the specific point to the Government, to me and to its employees that there was absolutely nothing that the British Government could have done, under the last Administration or this Administration, that would have had any impact on its closure decision. I would say, however, that this Government have moved into action extremely quickly to address the situation, to put the right measures in place so that we are, hopefully, at the forefront of achieving enterprise zone status, and to ensure that everybody in my constituency has the support that Government can deliver. The situation was nothing, but nothing to do with corporation tax.
I recognise what the hon. Lady says. My point is not related to that issue. My point is that the change in the corporation tax rate has not impacted on companies such as Pfizer that are investing in this country. I want to know from the Minister how we will replace those private sector jobs, and whether the corporation tax cut, which we support, will achieve those objectives.
We will achieve new jobs in the area by encouraging small businesses to set up, and they are highly sensitive to corporation tax. We can achieve that by ensuring that the private sector feels that Britain is open for business. There is a big challenge in my area and in many other parts of the country. We have to ensure that the corporation tax level is an incentive for new businesses that delivers new jobs in my constituency.
I would not disagree with that. In fact, we believe that the clause is very valuable. The simple point I am putting to the Committee is that when we have a trajectory for corporate tax cuts now and for each of the next three years, which will cost considerable lost income, I want to ensure that it is effective, and that it attracts new businesses to Kent and elsewhere. Importantly, whereas the unemployment rate in Kent is 6%, in the constituency of my hon. Friend the Member for Gateshead, it is more than 10%. I need to know how the Minister envisages that corporation tax cut being effective in ensuring that we increase employment in the private sector in the regions where it is needed.
Will the right hon. Gentleman explain to the Committee what role he thinks corporation tax played in the deindustrialisation of this country, given that 1.5 million manufacturing jobs were lost under the Labour Government, whereas the previous Conservative Government added 400,000 in the last few years before they left office? Why is it that Labour destroyed so many jobs in manufacturing and stopped us from making things?
I pray in aid my constituency, which contains the firm Airbus, which makes world-class planes, employs 6,500 to 7,000 people, and has 50% of the world market. It was supported by investment from the Labour Government through research grants, loan aid and support to develop jobs. I will not take lessons from the hon. Gentleman about the active participation of Government in the private sector to create jobs.
I sympathise with the constituency of Laura Sandys. When such jobs are lost, it is important that Government, local government and others come together to rally behind jobs. In the north-east, there were numerous examples in the 1980s of the Tory Government doing nothing at all to replace jobs. In contrast, does my right hon. Friend agree that Nissan decided to produce the new Leaf generation of vehicles in the north-east at Sunderland not only because of its efficient and good work force, but because of the regional development agency, which the coalition has abolished?
Whatever mistakes the previous Labour Government sometimes made—every Government will make mistakes—they believed in partnership between the public and private sector to create employment. The point is that the extra cut announced in this year’s Budget will cost the Treasury about £425 million in 2011-12 and nearly £1.1 billion by 2015-16. As I have said, we support that general approach to the corporation tax cut, but if we are forgoing income of about £1 billion by 2015-16 through lost corporation tax, we need assurances from the Minister that he believes there will be a trajectory of job creation. We need to know how many jobs will be created by the cut, where those jobs will be, which regions will benefit, how we will develop the public-private partnership through those jobs and how we will develop the private sector for the future.
The Minister has to tell the Committee exactly how the corporation tax cut will benefit the private sector through job creation. If it does not develop and benefit the private sector through direct job creation, we will be giving businesses a tax cut for no subsequent increase in employment.
We heard earlier that the cut would basically give banks a cash hand-out of nearly £100 million, but it will not help the small building companies that are already laying people off in my constituency because local government contracts are being lost and because of the housing market. Those businesses will not be there to benefit from any tax cuts that any Government bring in, because of the local spending cuts that have been made.
My hon. Friend makes the point strongly. The funding for regional development agencies and for training grants, which are being lost, and the £1 billion of public expenditure lost to the Welsh Assembly Government, was money that filtered its way into the private sector. We are now faced with a discussion about the £1.1 billion cut in corporation tax revenues in 2015-16, which is lost income to the Treasury. Ministers say that that will generate private sector employment across the board, with jobs being created and extra investment being brought to the United Kingdom. We need to know from the Minister what the trajectory of that job creation will be, where and how he expects jobs to be created, what his assessment is of the number of new businesses in the regions and whether he expects the corporation tax cut to be crucial in maintaining businesses in the UK.
Does my right hon. Friend recognise that to pay for the corporation tax cut, the Government are having to slash investment allowances by £2.6 billion? That money is needed for the manufacturing industry to create the private sector jobs that this country so desperately needs.
When we originally wished to discuss these matters, we looked into that point, because the corporation tax cut is clearly linked to clause 10, which is about the proposed cuts to plant and machinery writing-down allowances. We will come on to that at a later stage, possibly this evening or possibly tomorrow—who knows? Those matters are inextricably linked.
We wish to explore the impact of the corporation tax cut because we want to hear clearly from the Minister how, where, in what sectors and when he expects it to have the impact that he wants. If we are forgoing a considerable amount of tax revenue, we are presumably doing so because we believe it will help to grow the private sector. I need to know from the Minister this evening, or whenever we hear from him, which sectors he believes are under threat; which ones he believes will particularly benefit from the corporation tax cut; which ones would have left the UK had the corporation tax cut not been introduced; which ones will be attracted to the UK because of the lower corporation tax; and how the change fits into the wider growth strategy of training, investment, university education, public sector investment, skill development, innovation and the development of products for us to manufacture and sell to the world at large.
The abolition of RDAs will be compensated for by the reduction in corporation tax, but how will the Government calculate that? In my constituency of Gateshead, the economy is much diversified compared with the 1980s—there are many fewer large engineering companies and many more technical engineering ones. However, there is no sign that this gift, in comparison with the RDA offer, will bring the regeneration that the area greatly needs.
RDAs are a very important factor in our discussion. The Minister indicated why the corporation tax cut should progress. Simply, he believes that the measure will help to compensate for the loss of public spending across the board. We need to look at that in great detail, and I want the Minister to respond on three particular issues. First, which businesses that would have left the UK will be maintained here by the corporation tax cut? If we forgo that £1.1 billion, which companies would leave if the cut is not undertaken? Secondly, which businesses and sectors can the Minister most attract to the UK from France, Germany and other places abroad because of the corporation tax cut? Thirdly, does he believe that some businesses will not grow in the UK if we do not make that cut?
Those are legitimate questions and legitimate points that we needed to make. The official Opposition support the principle behind clause 4 and we will not oppose it. The clause is the direction of travel that we need to take, but it is incumbent on the Minister to outline to us in clear and detailed terms how those objectives will be met. At a time of massive public spending cuts and growing unemployment in the country at large, and when 500,000 are being made unemployed, we need to know how this corporation tax cut fits into a wider growth strategy in the UK as a whole.
I am grateful to my right hon. Friend for giving way, but I am sure that I could speak for a lot longer if Government Members want me to.
Does my right hon. Friend agree that the Minister also needs to explain, on a regional basis, for example in the north-east, how this corporation tax cut will, in the next 12 months, grow the jobs that will be lost because of the effects of the public spending cuts that the Government have already announced?
That is the key issue. This is why the discussion has strayed into public spending. The Exchequer Secretary has said:
“I make four arguments for prioritising this move to reduce corporation tax. First, corporation tax rates are important in themselves in selling the UK. They are an advert for the economy and for the UK as a good place to do business. By reducing our rate we are sending the strongest possible message that Britain is open for business. Secondly, this cut is a necessary step to help to rebalance the economy”,
which was the very point made just now by my hon. Friend the Member for North Durham. The Exchequer Secretary added:
“As we take tough measures to scale back the public sector, we must provide the necessary boost to the private sector. Thirdly, the OECD’s estimates suggest that corporation tax is an inefficient and growth-damaging tax. Lower corporation tax rates encourage investment, which this country needs to support the recovery. Finally”— in the Exchequer Secretary’s own words—
“far from merely being a tax cut for profitable companies, they will provide the boost to investment that is vital for Britain”.—[Hansard, 12 July 2010; Vol. 513, c. 750.]
We support those four general points. We have no quibble with what the Minister said on those four points.
Well, it is possible to speak until any hour and on any point, and we are trying to do that and explore these issues in detail.
The Minister has an opportunity to flesh out those points in order to give comfort to and reassure my hon. Friends from hard-hit regions that the benefit of the corporation tax cut will impact on their regions as well as those regions in the prosperous south. It is important that we get answers from him on those points. With those few comments, I ask him to respond in due course.
To report progress and ask leave to sit again.—(Bill Wiggin.)
The Deputy Speaker resumed the Chair.
Progress reported; Committee to sit again tomorrow.