I explain for the benefit of the House that the amendment has not been selected.
I beg to move, That the Bill be now read a Second time.
This year’s Finance Bill is the next step in delivering the coalition Government’s core aims of returning this country to sustainable, shared prosperity, dealing with the deficit, supporting the private sector, restoring economic growth and clearing up the mess that the Labour party made of the British economy.
I will take interventions, but I will make some progress first.
This Finance Bill sets out wide-ranging reforms to build a fairer, more efficient and simpler tax system that supports families, rewards hard work, promotes business and ensures that everyone pays their fair share.
I am not aware of the particular issue that the hon. Gentleman mentions. He has not raised it directly with me before, but I am sure he has with my colleagues. I would be very happy to consider it. The issue of cable-powered transport systems has been raised many times by the industry, and a good case has been presented for the change.
The Bill builds on the strong foundations that we have secured in the past two years, safeguarding our economic stability, creating a fairer, more efficient and simpler tax system and driving through reforms to unleash the private sector enterprise and ambition that is critical to our recovery. We will not achieve that by returning to the model of unsustainable debt, irresponsible spending and over-reliance on one sector and one region.
We will not jeopardise the progress that we have made in tackling our debts. We will stick to our plans, because it is fair that we tackle those debts today so that we do not burden our children tomorrow.
No, that is not what is in our mind. It is one of a number of anomalies in the VAT system that we addressed in the Budget, although it is not actually a matter contained in the Bill. My right hon. Friend will be aware of the comments of, for example, the National Federation of Fish Friers, which makes the point that small independent fish shops, of which there are thousands around the country located in the constituency of every Member, have for many years been charged VAT on sales whereas other retailers have not. We are seeking to correct that anomaly.
I will give the hon. Gentleman time to cool down, if he likes. He will know that a draft statutory instrument has been published, which goes into the matter in some detail, and the House may well have an opportunity to discuss it in due course. However, the basic answer is that food that is hot and taken away is taxed as hot takeaway food. It is as simple as that.
We will stick to our plans on the economy because financial discipline is the essential pre-condition for economic growth, even though that requires difficult and sometimes unpopular decisions, and helps provide confidence and the low and stable interest rates that businesses need to invest in growth and job creation. That confidence was shown at the weekend by the reaffirmation of this country’s triple A credit rating by Standard & Poor’s, the same agency that called it into question when Ed Balls was a member of the Cabinet.
We are committed to securing a recovery led by private sector entrepreneurs, wealth creators and export industries—the sort of growth that the Opposition failed to deliver in more than a decade in government. That is why we are going even further in the Bill to boost our competitiveness and ensure that Britain is again one of the best places in the world to do business, reversing our fall down the global competitiveness league tables that took place under the Labour Administration.
This is a Budget for jobs—it lowers corporation tax and takes some people out of tax altogether. That is why it is particularly concerning that it proposes to introduce 20% VAT on static caravans, which are mostly manufactured in east Yorkshire and are deployed in coastal and rural communities throughout the country—the entire supply chain is in this country. The cost of the proposal in jobs will be thousands, and I am grateful that the Government are consulting on it. Does my right hon. Friend agree that Members of all parties are concerned? We need to get that right because the Budget will reverse the destruction of manufacturing that happened under the previous Government, and we do not want to make any inadvertent errors.
I am grateful to my hon. Friend for raising that point. I know that it is a matter of concern to several Members, particularly in his part of the country. The change is, again, intended to equalise the VAT system for caravans that are used for leisure purposes. There will certainly be an opportunity to consider the detail, and my hon. Friend will be free to make representations, along with, I am sure, colleagues from his part of the country. We look forward to hearing what he has to say.
No, I will make some progress, because, as my hon. Friend also said, and as the House knows, the Government have already set out plans to reduce the main rate of corporation tax to 23%, but this year’s Finance Bill goes even further for precisely the reasons that he gave.
Clauses 5 and 6 will reduce the main rate of corporation tax to 22% by 2014—a headline rate that is dramatically lower than that of our competitors, the lowest in the G7 and the fourth lowest in the G20.
On that point, it is incredibly important that the Government are reducing the rate of corporation tax. That is great news for British business. However, British business pays corporation tax. Should not we take proper action against multinationals that rip off our country and do not pay proper taxes, and ensure that they pay a fair share of tax, like every British business, so that we have a level tax playing field for all companies?
I am grateful to my hon. Friend for his support for our measures on corporation tax. The fact that they have been welcomed not just by hon. Members, but by the CBI and a range of business organisations—and, indeed, that they have been shown to increase business investment—will help this country retain its international competitiveness, which declined markedly when the Labour party was in government.
My hon. Friend is right that we must deal with tax avoidance by companies, and there are a number of measures in the Bill that are precisely aimed at ensuring that businesses pay their fair share of tax, which I am sure he would wish to support. Furthermore, through clause 180, we are introducing vital reforms to the controlled foreign companies rules, and, through clause 19, a patent box to allow UK businesses to operate in an ever-more globalised world. Hopefully, we will encourage some of the businesses to which he refers to return to the UK. The latter measure has already secured a major investment in this country by a major chemicals company.
As well as creating the competitive conditions for enterprise to thrive, we must ensure that businesses have the support they need to seize the opportunities in the recovery. That is why we are taking action in the Bill to support the small businesses, the start-ups and the entrepreneurs that are critical to creating new jobs in the recovery. Clauses 39 and 40 increase the annual investment limit for enterprise investment scheme and venture capital trusts to £5 million. In that spirit, through clause 28, we are introducing a new scheme—the seed enterprise investment scheme—to encourage further investment in small, start-up companies, which are the kind of companies this country needs more of as the recovery continues. Those are significant steps to encouraging new growth, galvanising new sectors, and broadening access to finance for UK business, helping to rebalance our economy away from its over-reliance on one sector and one region.
We are committed to supporting a private sector recovery right across the UK. Clause 44 introduces a new, enhanced capital allowance regime for businesses in seven enterprise zones in England, three in Scotland and one in Wales.
My right hon. Friend might have noticed that most of the enterprise zones are in urban areas. We have heard about static caravans and churches, but there is growing concern about rural businesses, which are losing out by not being in areas that will benefit from the schemes that he is announcing.
I recognise my hon. Friend’s concern. On churches, she will be aware that, as we said in the Budget, we will increase the listed places of worship scheme by £5 million a year, precisely to enable churches that have alterations to benefit from the scheme and not to be adversely affected. However, our investment in transport infrastructure and a number of local transport schemes, and the massive investment in broadband in rural areas—we are investing £520 million to ensure that every part of the country has the latest superfast broadband—will make a major difference to rural economies. Along with the increases to the income tax personal allowance, to which I shall turn in due course and which will particularly benefit rural areas, where incomes tend to be lower than in urban areas, there are many reasons why the rural economy will benefit significantly from the measures taken by this Government. Enterprise zones will help to promote growth in every part of the UK.
The Budget included an announcement of a package of measures to ensure that we fulfil our potential to extract the greatest possible amount of oil and gas from our reserves in the North sea through a major package of tax changes. We will end the uncertainty on decommissioning tax relief that hangs over the industry by entering into contracts with companies. We will also introduce new field allowances, including a £3 billion new field allowance for large and deep fields, to open up west of Shetland, the last area of the basin left to be developed. Clause 184 gives the power to introduce new brownfield allowances as and when the industry can demonstrate the need for them in specific areas through the information it shares with the Government through the new processes that we have established. Those measures together are a huge boost for investment in the North sea.
We continue to support economic development in the devolved Administrations. Clause 189 devolves the power to the Northern Irish Assembly to set rates of air passenger duty for direct long-haul flights from Northern Ireland, which will help to protect the vital direct air service to the US, supporting tourism and businesses in Northern Ireland.
The Government will not relent as we seek to restore prosperity across the country. We are committed to promoting business enterprise, investment and exports across all parts of the UK. Securing sustainable growth and creating sustainable private sector jobs are the best ways to support families and raise living standards in the long run. Of course, I understand that these remain tough times for many families across the country. That is why the Bill reinforces our commitment to helping the lowest-paid in the country while ensuring that those with the broadest shoulders continue to carry the heaviest burden.
Some of us have been frustrated in recent weeks that that point has been obscured by bigger press reporting of changes with much smaller consequences for the Treasury. Will my right hon. Friend put on the record the relevant impacts and costs, including the number of people benefiting from the threshold changes compared with the number benefiting from the other, much more marginal changes that matter little to most of our constituents, including, I think, his?
My right hon. Friend is right that the single most significant measure in the Budget was the largest ever increase in the income tax personal allowance. I will dwell on that in detail in a moment but his point—
I shall finish my response to the previous intervention before gladly taking another one.
By far the largest measure in the Budget was the £3.5 billion tax cut for people on low and middle incomes through the largest ever increase in the income tax personal allowance—a massive support to 24 million working people across the country—and my right hon. Friend is absolutely right to draw attention to it.
No, I will not confirm those figures. According to my figures, 23 million individuals will be better off as a result of the personal allowance change—[Interruption.] A number of families are affected by our tax credit changes but many more benefit from our income tax changes.
I assure the Chief Secretary that I have cooled down—I do not take much cooling down. In the run-up to the 2010 general election, he and his Liberal colleagues made abundantly clear what they wanted to do with personal allowances to take some people out of paying income tax. Did they honestly expect to do that off the backs of pensioners?
I am glad that the hon. Gentleman at least recognises that we made clear in our election manifesto our ambition to raise the income tax personal allowance to £10,000. We have introduced the triple lock for pensions that provides for a more generous uprating system, and some 5 million pensioners pay no income tax at all. For those reasons, many pensioners will be better off.
It is right that the richest in the country contribute a fair and growing share to our collective effort to build a balanced and sustainable economy. Clause 209 increases the bank levy to 0.105% from January 2013 to offset the tax saving that the banks would otherwise have made from a reduced rate of corporation tax. That will ensure that UK banks continue to pay around £2.5 billion in this new tax each and every year, which is more than was raised in a single year by the previous Government’s one-off bank payroll tax.
Clause 211 introduces a new higher rate of stamp duty land tax of 7% on properties worth more than £2 million. That is why next year’s Finance Bill will cap the use of tax reliefs that some wealthy people currently use to reduce their income tax rate to single figures. As we made clear on page 59 of the Budget document, however, we
“will explore with philanthropists ways to ensure this new limit of uncapped reliefs will not impact significantly on charities that depend on large donations.”
Our consultation on the detail will be published in the summer.
Many charities, including the Suffolk Foundation, estimate that the cap on tax reliefs will lead to a 20% reduction in their charitable donations. Will the Chief Secretary consider exempting charitable donations to UK charities? It would be comparatively inexpensive but terribly important to the charitable sector.
It is important that the House is clear about what is being proposed. What we are proposing is a limit, on what are currently uncapped tax reliefs, of £50,000 or a quarter of someone’s income, whichever is the higher; so someone earning £10 million a year can still receive tax relief on donations of £2.5 million to charity each and every year. However, as I say, we will discuss this with philanthropists and charities—indeed, those discussions are ongoing. Some features of the American system, for example, may be attractive, which we will certainly examine and consider as part of that process.
The basic principle that the wealthiest in the land should pay a fair proportion of their income in income tax must be absolutely right, not least because last week we published data showing that last year some of the wealthiest people in the country had reduced their tax bills to below the basic rate of income tax. That is the system that was in place when Labour was in power. I think Opposition Members should have a bit of humility about that, because it means that some millionaires are paying a lower rate of income tax than people earning £20,000 a year. That is why it is fair that we cap tax reliefs, and, in the same way, it is right that we cap benefits. It is right and proper to ensure that the wealthiest in the country should pay a fair share of their income in tax, and that is exactly what we will do.
My hon. Friend is absolutely right about that. The figures in the Budget book, certified by the independent Office for Budget Responsibility, show that in each and every year, money raised from the wealthiest in the land will dwarf by five times at least the cost of reducing the 50p rate to 45p. In doing that, we are also, for example, clamping down on the avoidance of stamp duty—something that was left as an open door by the previous Government. They seemed to be in favour of a tax system that encouraged avoidance, rather than clamping down on avoidance, ensuring that everyone pays their fair share and thereby raising five times as much money overall, which we can use, for example, to fund the massive cost of the substantial reductions in income tax for people on low and middle incomes in this country.
With this measure we are trying to strike the right balance between having a proper system of tax relief for charitable donations and ensuring that the wealthiest in this country pay a fair proportion of their income in tax. I would have thought that the hon. Gentleman would support that measure rather than oppose it, particularly when he considers it in the context of the many other measures that we have taken to encourage and support charities and voluntary organisations. For example, we have introduced for the first time gift aid on small donations received by small charities—from shaking tins on the street corner, holding coffee mornings and that sort of thing—which was not done when his party was in office. That will benefit thousands of small charities all around this country, and it is the sort of thing that he should welcome. Likewise, Big Society Capital has been created to help charities and voluntary organisations to raise funds.
Before the right hon. Gentleman moves off the 50p rate completely, can he explain to the House why the numbers revealed by the Treasury this morning seem to show that at least 75% of top-rate taxpayers were paying the full rate of tax? How can he explain to his hon. Friend Penny Mordaunt that so little money—the £100 million that is ostensibly in the Budget—was being raised by the 50p rate?
First, the hon. Gentleman should study the figures based on the tax system from 2010-11, under the tax rules put in place by his Government. They show, for example, that 6% of those earning over £10 million a year were paying tax at under 10%, that 3% were paying it at 10% to 20%, that 8% were paying it at 20% to 30%, that 12% were paying it at 30% to 40%, and that 72% were paying it at above 40%. The figures do not say that they were paying at the 50% rate. The fact is that the independent Office for Budget Responsibility and the HMRC study, which I am sure the hon. Gentleman has reflected on in great detail, show the most reliable, reasonable, central estimates.
No, I am going to press on and address the question of the 50p rate. When I have done so, the hon. Gentleman and the hon. Lady will be free to intervene on me again.
Before discussing the 50p rate, I will refer briefly to clause 8, which will remove child benefit from the highest earners. We will withdraw child benefit from those in households earning more than £50,000 in a way that is gradual, so that only those earning more than £60,000 will lose all their child benefit. The measure will help to ensure that the burden of deficit reduction is fairly shared, and by implementing it as we propose, we will deal with the anomalies that have been highlighted.
I perhaps have more sympathy than many of my colleagues with the idea of the charity tax that is being introduced. Will my right hon. Friend confirm that, in regard to that tax and to child benefit, it is the Government’s intention to try to restore those benefits once the deficit has been paid down and we no longer have to service a debt of £126 billion a year?
I thank my hon. Friend for his support, but I cannot confirm that intention at this stage. We have a major ongoing problem with the sustainability of our public finances. We set out in the spending review last year, and reaffirmed in this year’s Budget documentation, the need for further spending—
I am just responding to the previous intervention, if the hon. Lady will just hold her horses for a second.
We confirmed in the Budget document the need for further fiscal consolidation in the years 2015-16 and 2016-17. We cannot simply promise to reverse measures, although that is the policy of the Labour party, which seems quite happy to return to its old habit of high spending and introducing measures that would return this country to the mess that Labour has already put us in.
Over the Easter recess, did the right hon. Gentleman have a chance to reflect on the question that I asked him during the Budget debate? Why, having listened to people’s concerns about child benefit, was he not prepared to make any concessions to the much poorer group of people who were going to lose their tax credits?
I explained in the Budget debate that reforms to tax credits were necessary to deal with the rapidly growing cost of a system that had started out costing £18 billion a year and was now costing £30 billion. It will still cost about £30 billion, but that money will be more focused on those on lower incomes.
When we first came into office, we inherited a tax credit system that could pay tax credits to people on £50,000 or £60,000 a year—
Let me answer the hon. Lady’s point. Reform of the system was necessary. It was one of the hard decisions that we have had to make in dealing with the massive budget deficit and the huge mess that her party left the British economy in. Recognition on her part that that has to be dealt with would be a welcome way in which to start her next intervention.
This is a matter of fairness. I am not talking about the tapering off of tax credits at the top end, although I might have a view on that as well. I am talking about the changes that came into force the week before last, which are hitting the very lowest earners—people at the very bottom end, who will not benefit from the changed tax thresholds as they already earn too little to pay income tax. Has the right hon. Gentleman reflected on why he is prepared to make concessions on child benefit to the much better off taxpayers when he is not prepared to reconsider the hit that some of the very lowest earners are taking? Those people might end up having to give up work as a result.
I notice from the matters for debate selected by the hon. Lady’s Front-Bench colleagues for the next two days’ consideration of the Bill that restoring child benefit for this country’s highest earners and multimillionaires is a major priority for her party. As for the tax credit changes, in a system where we expect a lone parent to work 16 hours in two days a week to qualify for tax credits, it is reasonable to ask more from a household that has two earners working 24 hours a week in three days. I view that change as reasonable.
I shall return to the subject of tax avoidance and I want to make some progress, as I know many hon. Members wish to contribute to the debate. We are taking decisive action to clamp down on avoidance. It is utterly abhorrent that a minority of the population seek to avoid paying their full and fair share of tax, distorting the tax system to the detriment of the vast majority who pay their fair share of taxes in full. Whereas the previous Government allowed avoidance to grow and spread, we are putting a stop to it.
In total, this Finance Bill contains 15 measures to close loopholes and tackle avoidance. For example, clause 212 introduces a new stamp duty rate of 15% to deter those seeking to put their high-value property into a corporate structure to avoid tax—so-called enveloping. In a future Finance Bill, we will put in place an annual charge on properties that are enveloped in this way. Residential properties should be within the stamp duty system, full stop. It is shocking that the previous Government did so little on this matter. We are not being so complacent about the tax position of the most expensive properties in the country.
The Yorkshire Posthas recently established that the police chief constables’ body ACPO—the Association of Chief Police Officers—has been paying money to ex-chiefs of police forces through special purpose companies. Will the Chief Secretary confirm that the rules on this process will be tightened up under Government proposals?
I certainly can confirm that, and I shall bring some proposals before the House in due course. The hon. Gentleman may recall that it was the case of the chief executive of the Student Loans Company that brought this issue to light. We have conducted an investigation into this practice in and across government, which has highlighted the fact that this process is far too widespread. As I say, I shall announce the details in due course, but the hon. Gentleman can rest assured that the Government take this issue very seriously indeed.
Debt buy-back measures announced last month will raise more than £500 million from banks that tried to avoid paying their due tax. In addition, the introduction of the UK-Switzerland agreement into legislation will help to ensure that we can tackle the tax loss from those who put their money into Swiss banks to evade paying tax.
Through the anti-avoidance measures in this year’s Finance Bill, we are already increasing revenue over the next five years by around £l billion and are protecting a further £10 billion that could have been lost. Going even further, we will consult on the potential for a general anti-avoidance rule—a new rule that will at last put the Government one step ahead of the tax avoiders. It is because of these far-reaching reforms that we will raise £500 million more each and every year from the wealthiest in our society. That is five times more than we lose by cutting the ineffective and uncompetitive 50p tax rate.
The 50p rate raised just a fraction of the amount that the previous Government said it would raise, but by cutting the rate to 45p, the direct cost to the Exchequer is only £100 million—a figure certified by the independent Office for Budget Responsibility, which I thought the Labour party welcomed, which described the figure as “central and reasonable”. Instead, the measures we have announced in the Budget will raise considerably more from the wealthy—five times more in total—allowing us to help millions of people on lower incomes to keep more of their earnings through the largest ever increase in the income tax personal allowance.
Figures released by the Treasury today show that of those people earning more than £10 million, 72% pay the full top rate of tax, so can the right hon. Gentleman confirm that they will be receiving on average sums amounting to tens of thousands and in some cases hundreds of thousands of pounds because of the cut in the top rate of tax?
As the report from Her Majesty’s Customs and Excise, certified by the independent Office for Budget Responsibility, showed, the cost of reducing the rate was small, precisely because the tax did not yield the amounts we were promised by the previous
Government. Instead, by putting our measures in place—the cap on uncapped tax reliefs, clamping down on stamp duty avoidance, the general anti-avoidance rule and many other measures I have mentioned—we will get more money from the wealthiest, who are precisely the people the hon. Lady talks about—
No, I want to make some progress. The hon. Lady has intervened twice on this subject, and her colleagues intervened once, and they have not said anything new.
As a result of the 5p tax cut, the next four years will see a loss of revenue yield amounting to £350 million. About 10 minutes ago, the Chief Secretary himself said that the sustainability of the public finances was a major ongoing issue. Why are the Government prepared to forgo £350 million over the next four years in order to deliver a millionaires’ tax cut?
Very simply, for the reason that I have given several times today. We are raising five times more from the same group of people, which helps us to deliver the policy which we firmly believe is the best way to support working people on low and middle incomes and help them to keep more of what they earn.
No. I have been speaking for a long time, and I am going to make some progress now.
We have set ourselves the goal of raising the personal income tax-free allowance to £10,000. Clause 3 increases the personal allowance this year to £8,105. Together with the previous increase, that will lift more than a million low-income earners out of income tax completely. Moreover, we are going further and faster. In the Budget we announced the largest ever increase in the amount that people can earn tax-free—an increase, from next April, of £1,100 to £9,205. That tax cut will be worth £3.5 billion every year to working families. It will benefit more than 23 million people, and will be worth £220 in cash terms and £170 in real terms to every basic rate taxpayer. That is the biggest income tax cut for a generation. Taken with the previous increases, it means that this coalition Government will have halved the income tax paid by someone who works full time on the minimum wage, and lifted 2 million people out of tax altogether. We are living up to our commitment to support hard-working people and families across the country.
We are also reforming the age-related allowances available to those born before
£127 more than was planned by the last Government and which constitutes the largest ever cash increase. Under our plans for age-related allowances, no pensioners will lose out in cash terms. Instead, given the huge increase in the personal allowance and the reduced difference between it and the age-related allowance, we will simplify the system. Those born before
“complex and hard to understand”.
This is a substantial Bill. It demonstrates the ambition that we need to secure a tax system and an economy that are built on fairness, that reward hard work, and that restore our private sector’s competitiveness. Even with that scale of ambition, however, the Bill makes substantial progress in simplifying our tax system and living up to our commitment to improving the way in which the Government develop tax policy. More than 75% of the measures in the Bill were announced in the 2011 Budget, with more than 400 pages of legislation published for consultation and more than 450 comments received in return. Through that openness, transparency and consultation, we are committed to building a simple and stable tax system that is easy to understand and easy to comply with. That is why we are addressing a number of loopholes and anomalies in the VAT system—introducing an anti-forestalling charge in clause 195—and why the Bill cuts large swathes of the tax code by implementing recommendations from the Office of Tax Simplification. I thank John Whiting and his team for their excellent work in that regard.
The Government are taking decisive action to restore our stability and return the country to prosperity. Our No. 1 priority remains dealing with the last Government’s legacy of crippling deficit and debt in a fair and sustainable way. Through this Finance Bill, we are continuing to ensure that the richest carry the heaviest burden. We are supporting businesses so that they can restore our global competitiveness, and we are supporting hard-working families on low and middle incomes. I commend the Bill to the House.
This Finance Bill is so flawed, so unfair and so inadequate a response to the problems now facing the country that I am surprised that the Chief Secretary does not show a little more embarrassment in presenting it to the House this afternoon. This Government are presiding over an economy beset by rising unemployment, a slump in private sector investment and billions of pounds of unplanned extra Government borrowing, yet he comes to this House with a Finance Bill that does nothing for growth, nothing to get more young people back to work and nothing to help small businesses struggling to stay afloat, and which instead asks millions of hard-pressed families and pensioners to pay more so that millionaires can pay less.
It is less than two years since this Government took office, yet they have already sent our economy into reverse. Business and consumer confidence have drained away, and growth has sputtered and stalled with no net increase in our national output over the past 15 months, and with wages and incomes stagnant or falling even as the cost of food, fuel and fares rise and rise. The Office for National Statistics confirms that last year saw the sharpest annual fall in real disposable income for 35 years. The private sector has been unable to fill the gaping hole left by deep and painful public sector cuts, and as a result overall redundancies have been running at a rate of one a minute since this Government took office.
I believe that a temporary cut in VAT back down to 17.5% and a national insurance holiday for all small businesses taking on new workers are the way to put the economy back on track to recovery.
This Government are borrowing an extra £150 billion because of the costs of their economic failure. The reality is that, with more people out of work and therefore claiming benefits, and with fewer businesses succeeding and paying taxes, this Government are ending up borrowing more, because their risky gamble with their economic policies has failed.
Instead of continuing on the downward path begun under the previous Government, total unemployment has mounted to new highs. It is now at the highest level since 1997. Some 2.67 million people are out of work. More than 1 million young people are out work. We have the highest level of youth unemployment on record. That is a cruel fate to be inflicting on people leaving school, college and university. Instead of going on to get a job or training, they are being left to rot on the dole queue. The truth is that—just as we on this side of the House, along with numerous independent economists, warned—the Government’s attempts to cut too far and too fast have choked off the economic recovery, squeezing households and businesses and sending unemployment soaring, with the result that, as I said to Charlie Elphicke, the Government are now forced to borrow £150 billion more than they had planned.
This lesson is being learned around the world, as over-ambitious austerity plans founder. Last year the OECD warned credit rating agencies which press for rapid fiscal consolidation but
“react negatively later, when consolidation leads to lower growth—which it often does.”
Sure enough, Standard & Poor’s decision earlier this year to downgrade nine of the eurozone’s 17 member states was accompanied by the warning that
“fiscal austerity alone risks becoming self-defeating.”
The International Monetary Fund’s sharp downward revisions of its global growth forecasts—including for the UK—for 2012 was accompanied by a call to “reconsider the pace” of fiscal consolidation. Indeed, the IMF’s chief economist has said:
“Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be…a marathon rather than a sprint” and cited the proverb
“slow and steady wins the race”.
Our economic performance did not have to be this way. We need only look across the Atlantic to see the benefits of a more balanced approach to deficit reduction, with the US now enjoying steady falls in unemployment and accelerating economic growth. Let me quote the opinion of Adam Posen of the Bank of England’s Monetary Policy Committee. His forensic comparison of the US and UK experiences concluded:
“Fiscal policy…played an important role as well. Cumulatively, the UK government tightened fiscal policy by 3% more than the US government did…and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households.”
In other words, by hitting households as hard as they did, sapping confidence and sucking demand out of the economy, the Chancellor and his ready accomplice, the Chief Secretary, have got the UK stuck in the slow lane while other key players in the global economy are overtaking us.
On the subject of others overtaking us, the hon. Lady will be aware that Mr Brown became Finance Minister at roughly the same time as the Finance Minister in Australia, but whereas at a certain point the right hon. Gentleman lost the plot and spent money that this country could not afford, Australia paid down its national debt. Thus, when the financial credit crunch came, Australia was able to stimulate its economy, whereas this country had overspent in the good times and was not able to do so.
Between 1997 and 2007 this country’s debt ratio fell from 42.5% to 36% of GDP, so the debt burden fell; in 2007, our debt-to-GDP ratio was lower than when we came to power in 1997.
What hope did the Chief Secretary and the Chancellor offer in this Budget for the future of our economy? The answer is precious little. The Government’s own Office for Budget Responsibility predicts another year of low growth ahead; it predicts just 0.8% growth in 2012, followed by 2% growth in 2013. That is well below what was promised when the Government took office. According to this morning’s forecasts from the Ernst and Young ITEM—Independent Treasury Economic Model—club, even those dire outlooks now seem optimistic. Ernst and Young predicts just 0.4% growth for 2012, followed by 1.5% growth the year after. Meanwhile, on any prediction, including the Government’s, we will still have at least 2 million unemployed people by the end of this Parliament.
Even those figures conceal deeper failures and more disturbing trends. Some may remember the Chancellor’s promise of a new economic model for Britain, based on lower levels of borrowing, and higher levels of saving and investment. In reality, the promised renaissance of business investment has been repeatedly postponed. An 8% increase in investment was promised for 2011, but investment actually fell by 2%. A further 10% increase was predicted for this year, but an increase of less than 1% is now forecast. The role of investment in driving growth for future years has been significantly revised down, too. Ernst and Young said this morning that business spending
“has picked up nicely in the US” but that UK plcs remain “extremely reluctant” to invest. It continues:
“Consequently, the economy is bleeding cash into company coffers at an alarming rate…This haemorrhage is sapping the strength of the economy, keeping it on the critical list.”
They are not my words, but those of the Ernst and Young ITEM club.
Meanwhile, figures from the OBR reveal that the Government have increasingly become reliant on household consumption for their growth forecasts. That consumption is not being financed by growth in real disposable incomes, which, as I said, have stagnated and which the OBR confirms are set to stagnate for at least another two years. The household consumption growth is being funded by a fall in savings every year from now until 2016 and by a rise in total personal debt of almost 50% over the next few years; it will reach a staggering total of £2.12 trillion by the end of this Parliament.
The point I am making is that the consumption growth forecast for this Parliament is being funded by increased indebtedness. A VAT reduction would boost the spending power of households without their having to take on extra debt. With incomes stagnating and, in many cases, falling, many families are resorting to taking on more debt because they cannot afford to make ends meet—that is the point I am making. That is why a reduction in VAT would help put money into the pockets of ordinary families, who are struggling so much with rising gas, electricity, train, bus and petrol prices.
The right hon. Gentleman would do well to look at the analysis by the Institute for Fiscal Studies, which shows that the increase in the personal tax allowance most benefits those who are in the second highest income decile. Increasing the income threshold is not a progressive policy; in fact, pensioners do not benefit from it at all, and nor do people who are on such low incomes that they do not pay income tax—[ Interruption. ] The right hon. Gentleman says something from a sedentary position. I am happy to take another intervention if he wants to dispute the analysis of the IFS.
Of course some pensioners will not benefit, but some will. Some pensioners receive an income on which they pay tax and the rise in the threshold will benefit them. The hon. Lady has avoided my question about the OECD study, which makes it very clear that if one is choosing between reducing VAT and increasing the threshold and if the aim is to help people on lower incomes and to get money into the economy, one should go for the increase in the threshold.
That is just not true and it is not accurate. A reduction in VAT helps people who do not pay income tax, which includes the poorest people, and benefits pensioners. The increase in the personal tax threshold does not benefit pensioners one jot, nor people who are not earning enough to benefit from a change in personal allowance. A cut in VAT helps all those people, however, including the lowest paid who will not benefit from the changes to the tax threshold. The right hon. Gentleman is just wrong.
The hon. Lady can correct me if I am wrong, but my reading of the IFS’s analysis is that it says that increasing the personal allowance just like that would benefit the most well-off, but it does not take into account the fact that the threshold at the 40% rate is reduced down so that the most well-off do not benefit. That is a slight flaw, by my reading, in the IFS analysis.
The analysis of the measures in the Budget shows that the changes to the personal threshold are not a progressive policy, as hon. Members seem to be claiming. In fact, they benefit those dual income households on higher salaries much more than they benefit the poorest people in society, many of whom do not pay tax. Of course, the changes do not benefit pensioners at all as they are seeing their tax allowance frozen. As a result, many pensioners will lose out by up to £83 whereas people who are coming up to retirement will lose out in the tune of more than £300 a year.
The Chancellor of the Exchequer’s new economic model—this idea that we will have a rebalanced economy with lower borrowing, more saving and more investment—has failed to materialise. Indeed, the precise opposite is predicted. Their plan has failed: the policies are hurting, but they are not working. This Finance Bill, which was a chance for the Chancellor and the Chief Secretary to learn the lessons and to start to repair some of the damage that they have done, has been a huge missed opportunity.
Does the hon. Lady agree that at the moment business confidence is key? I was surprised that at the start of her speech she did not welcome GlaxoSmithKline, Nissan, Sahaviriya, Jaguar and the other international investors that have made a commitment to Britain because of this Government’s policies. Is she not pleased that those companies are bringing jobs and investment to Britain?
The hon. Gentleman said that investment is coming to Britain, but business investment fell by 2% last year, whereas a year ago the OBR predicted that it would grow by 8%. The reality is that the economic data show that investment is falling and the OBR says that nothing in the Budget will materially affect the economic forecast. The proof of the pudding is in the eating and the numbers show that things are moving in the wrong direction. I find it incredibly out of touch for Government Members to try to speak about the economy as if it is booming and creating jobs and as if businesses are investing when all the economic data show just the opposite. Jobs are being shed and investment is falling, rather than rising.
Does my hon. Friend recognise that although the investments mentioned by Julian Smith are welcome, increased growth in jobs will come from the small and medium-sized enterprise sector, where there is a complete depression in confidence and job growth? It is all very well to comment on the large investments, but the stimulation should come from those small and medium-sized enterprises, and they do not feel at all confident.
I thank my right hon. Friend for that intervention. It is good to hear from a Member who is a little more in touch with the realities facing businesses up and down the country. As she points out, many small businesses are being starved of cash because the Project Merlin agreements for bank lending were not worth the paper they were written on, and at the same time the Government have done nothing in this Budget to help small businesses. The Opposition have proposed a national insurance holiday for all small businesses taking on new workers. That would go a long way towards trying to relieve some of the pressure on the small businesses that are struggling so much right now. The Opposition hope to see measures in the Finance Bill and the Budget to get the economy moving again, to give hard-pressed businesses and hard-working families a break and to give young people who are looking for work some hope for the future. We would be cutting national insurance contributions for small businesses taking on new workers, we would be cutting bills for hard-pressed families by reversing the Chancellor’s badly timed VAT increase, and we would be funding new jobs for young people and new investment in affordable house building by taxing excessive bank bonuses.
Hon. Members do not have to take our word for it—the damning judgment of the Government’s own Office for Budget Responsibility should really worry Members on the Government Benches. Box 3.1 on page 46 of its latest economic and fiscal outlook, headed “The economic effects of policy measures”, says that the only policy measure with a measurable economic effect is the cut in corporation tax, which it says will lead to an
“increase in the level of GDP of 0.1 per cent by the end of the forecast period.”
So in the whole Budget there is just one measure that will have any impact on growth whatever, and that is an impact of 0.1% in around five years’ time. Beyond that, the OBR says in its policy costings document:
“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”
When it comes down to it, the measures in the Bill will do nothing to change the gloomy growth forecasts, nothing to ease the squeeze on living standards and family budgets, nothing to get businesses investing at the rate required to regain our place in the global economy, and nothing to create the new job opportunities that are so desperately needed by today’s younger generation. No, instead of taking serious steps that might help to make up the ground our economy is losing, the Chancellor and his Chief Secretary have turned from their failed experiment in expansionary fiscal contraction and resorted to the notorious Laffer curve as their latest excuse for an economic policy which hits hard-working families and rewards those who are already very wealthy. It is the last refuge of a Government who have lost any sense of purpose beyond the protection of privilege.
Those who are unfamiliar with the obscure corner of esoteric economic theory that is the Laffer curve might like to take a lesson from the Business Secretary who recently explained it. He said it was
“an all purpose, but weak, rationale for cutting the taxes of rich people” which has
“been correctly dubbed ‘voodoo economics’.”
Indeed, he told his party conference—perhaps some hon. Members on the Government Benches remember this—that some people believe
“that if taxes on the wealthy are cut, new revenue will miraculously appear. I think their reasoning is this: all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt hole will rush back to pay more tax but at a lower rate.”
As he said to his conference, “Pull the other one!”
“We should remember that in 1981, President Reagan based most of his policies on the drawing of the Laffer curve done on a serviette…President Reagan used that as the basis for his policy of slashing taxes, and the United States Treasury went into huge deficit…The evidence to support the Laffer curve is weak.”—[Official Report, Standing Committee B,
I agree, but those lessons are now being forgotten and we have the same old Tories dusting down the same old trickle-down economic theories. It did not work in the 1980s and it will not work today either. People will see it for what it is: out of touch and the same old Tories.
The hon. Lady talks about the protection of privilege but this Government are increasing stamp duty on homes worth more than £2 million. Does she support that change or would she repeal it?
I support cracking down on tax avoidance, but let us stick with the policy of cutting the 50p rate. The Office for Budget Responsibility shows that 300,000 people who are currently paying the 50p tax rate will get, on average, a tax cut next year of £10,000. For 14,000 millionaires, there will be an average tax cut next year of £40,000. That much we know. What we do not know is whether people putting their money in Monaco or a Caribbean bolt hole, as the Business Secretary described, will indeed rush back to the British Isles to pay the 45p rate of tax. If they do, perhaps some money will come in, but if they do not, we will lose out to the tune of £3 billion. The reality is that the stamp duty changes will affect only the people who are moving home, so the vast majority of millionaires who are happy in their mansions will not be affected by the changes. In fact, numbers published by the Treasury this morning show that tax avoidance measures will bring in around £300,000, but the changes to the top rate of tax will cost £3 billion. That is not fair; it is not the right priority to give millionaires a tax cut while asking millions of ordinary hard-pressed working families to pay more.
Once upon a time, some people argued that the Prime Minister needed a clause IV moment to fully detoxify the tainted Tory brand, but the Government have gone one step further; they have got themselves a clause 1 moment. Clause 1 of the Bill confirms once and for all that the Tory party will never be for the many, but always for the few. Nothing could more clearly demonstrate the Government’s perverse priorities than the fact that when ordinary families are going through the toughest times in living memory, part 1, chapter 1, clause 1 of the Finance Bill gives a £3 billion tax cut to the richest 1% of the population, and the rest of the Bill is peppered with dubious means for making other far less fortunate people in our society pay for it.
The House has already divided on the 50p rate and the Labour party abstained. Was that a deliberate abstention?
The Labour party voted against the entire Finance Bill, including the cut in the 50p rate. On Wednesday and Thursday, we will have an opportunity to vote on the tax cut for the wealthiest 1%, and I hope that Members on both sides of the House will join us in the Lobby to vote against a tax cut for the very wealthiest in society at a time when ordinary families are being asked to pay more.
The hon. Lady was not a Member in the last Parliament, and she used a phrase that I find a bit rich. The Labour Government regularly failed to close the loopholes to deal with tax evasion and tax avoidance, and only in their last weeks in office put income tax rates up to 50p in the pound, yet the hon. Lady now comes to the House saying that she would prefer not to change the top rate of tax even though it might be far less effective than a range of measures that would make the wealthy pay five times more. Does she want the wealthy to pay more? If so, is she willing to support measures that would deliver that?
I want the wealthy to pay their fair share in the deficit reduction, which is why I shall be voting this week against a cut in the taxes for 14,000 millionaires. Figures from the Institute for Fiscal Studies show that in Budget 2002—a Labour Budget—anti-avoidance measures were worth £1.7 billion. In Budget 2003—a Labour Budget—there were £1.7 billion of tax avoidance measures. In Budget 2004, £1.7 billion-worth of tax avoidance measures—I could go on. The point is that in the Budget this year—a Conservative Budget, with a little bit of help from the Liberal Democrats—tax avoidance measures are worth £0.8 billion, lower than in all but two of the last 10 years. The idea that it is a tax avoidance Budget just does not stand up in the statistics. The Institute for Fiscal Studies knows it, so perhaps Members on the Government Benches should look at those numbers. Of course we should cut down on tax avoidance, but we should not then compensate the rich by giving them a tax cut worth £3 billion. If the right hon. Gentleman really wants to cut down on tax avoidance and ensure that the wealthy pay more, I hope he will join us in the Lobby to vote against a tax cut for the richest in society.
In Budget 2011, there was £1.1 billion-worth of tax avoidance measures, which is less than half the amount spent on such measures in Labour Budgets. We want more wealthy people to pay their fair share, but nothing in the Budget ensures that. The Government need to tackle tax avoidance, but they should not compensate for that by giving a tax cut to the wealthiest in society.
The Chief Secretary to the Treasury said about the 50p rate:
“The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land”,
but it turns out that the Liberal Democrats have joined their Conservative coalition partners in cloud cuckoo land. I hope that the Chief Secretary is enjoying himself there, but I am sure he had hoped to cover his humiliating climbdown by pointing to the benefits to lower and middle-income earners from the increase in the personal allowance. However, as I said in my intervention on him, the Institute for Fiscal Studies has made it clear that the gains from the policy are cancelled out many times over by the losses suffered by ordinary families as a result of the Government’s tax hikes, benefit cuts and tax credit changes. The Government are giving with one hand and taking much, much, more from ordinary families, pensioners and young people with the other.
The cover story that the wealthy will pay more in other ways is unravelling day by day. We have already seen that in the House this afternoon. The cost of the cut to the top rate of income tax is 10 times higher than the amount of money raised by the cap on tax reliefs. I hope we all agree that more must be done to reduce genuine tax avoidance, but that should be a standard feature of every Budget and every Finance Bill. I direct the Chief Secretary to slide 9 of the assessment that the Institute for Fiscal Studies has made of the Budget. It shows that between 2002 and 2009, the Labour Government reduced tax avoidance by over £12 billion, while this Budget reduces tax avoidance by a mere £800 million—less than Labour’s annual average, and less than all but two other Budgets in the past decade. That is before one takes into account the fact that included in the Government’s definition of tax avoidance is tax relief for donations to charities including UNICEF, Macmillan Cancer Support, the Royal National Lifeboat Institution, Oxfam and many others. The fact that the Government cannot tell the difference between that and real tax avoidance shows how incompetent and out of touch they are.
I thank my right hon. Friend for that intervention. She is absolutely right: instead of the Government making up policy as they go along, without bothering to talk to anybody who is affected by it, they should have consulted the Charity Commission and the charities affected. The Press Association reports that the Government are doing a U-turn; perhaps we will get clarification on that from the Chief Secretary to the Treasury, if he is bothering to listen to anything that is being said this afternoon. Will he confirm what the PA says—that there is a U-turn on charities tax relief? The fact is that nobody knows: the Government and the Prime Minister do not seem to know what is happening with their own policy, and we have had no clarification in the House this afternoon.
We are serious about cracking down on tax avoidance, but tax avoidance is not the same as giving donations to UNICEF, Macmillan nurses, the Red Cross, the National Trust and thousands of charities in this country that rely on the money they get to do their important work, often supporting some of the most vulnerable people in society. If the Government cannot tell the difference between tax avoidance and doing the right thing and supporting valuable charity work, it shows the extent to which they have lost their grip on reality.
Does the hon. Lady agree that before people give money to charity, they must also fund their obligation to society? They must do that first, before they start funding charity.
If the hon. Gentleman extended that logic, there would be no tax relief for giving to charities. I am not sure if that is what the Government are proposing. People who give money to charities should be supported. We have heard a lot from the Prime Minister about the big society, but all those words about philanthropy and giving seem to have gone out of the window. It would be interesting to know whether the Chief Secretary thinks he has performed a U-turn this afternoon in the Chamber, as is being reported.
As the British Red Cross said, “Not only is such a measure at odds with the Government’s own announced agenda of increasing and facilitating philanthropy, it would reduce our ability to achieve our charitable objectives and reduce our help to people in a crisis.” Is that really what the Government intended when they announced these changes to tax relief in the Budget? Indeed, after the performance of the Exchequer Secretary to the Treasury on the radio this morning, it seems that, along with “expansionary fiscal contraction” and “we’re all in this together”, the latest casualty from the Conservative lexicon is the big society.
Earlier the hon. Lady was extolling the virtues of the United States. She will know that even the US, which is possibly the most philanthropic society in the world, has a cap in place on philanthropic donations, so is she opposed to the principle of what the Government are doing, or does she accept that there is a role for a cap?
In the US there is much more generous tax relief for legacies, for example, so it is a very different tax system. In many ways it is more generous than the system in this country. What I would like to see is policy being made in the proper way, which is by consulting the people who will be affected by it—consulting the charities, which stand to lose tens and perhaps hundreds of millions of pounds and which do such good work. Like the Red Cross, they say that their ability to do their work will be hampered by the changes in tax relief. That consultation should have happened before, rather than after, the Government’s policies were announced and the financial changes to Treasury revenues were introduced.
Calling people who give to charities tax dodgers, as this Government imply, and referring to charities as dodgy, when those charities include Macmillan, Red Cross, UNICEF and Oxfam, is unhelpful. If the Government truly want to increase giving, the language should be tempered and people who try to do the right thing and support worthwhile causes should be encouraged, not insulted, for what they do.
Because the Government have been so keen to gloss over the real revenue-raising measures in the Bill, it is right that we take time this week to examine and evaluate them. This week Labour will give Members an opportunity to debate and vote on specific aspects of the Budget. We will give Members an opportunity to explore the effects of extending VAT, as has been mentioned by hon. Members this afternoon, and putting VAT up to 20% on the price of haircuts, hot snacks, and caravan holidays, although not on the price of ski lifts. VAT has been increased on the regular purchases of millions of ordinary families and is a heavy blow to many small businesses, manufacturers, retail employers and churches caught out by these changes.
My hon. Friend mentioned the lack of consultation with business. Businesses want to plan and are trying to grow, but the sudden imposition of VAT on the caravan manufacturing industry is causing real problems and potentially the loss of thousands of jobs.
I was in Leicester on Thursday last week with my hon. Friend Jonathan Ashworth, speaking to small businesses which will be affected by the changes to VAT on hot snacks. Many businesses are worried, about both the additional tax they will have to pay and the additional bureaucracy of form-filling. As hon. Members said, it is not at all clear at which point VAT will stop being charged. What temperature does the food have to be, or by how much must it have cooled down before the tax rate goes to 0% from 20%?
We will also have a chance this week to debate and vote on important tax simplification measures. Given the generous decision of the Chancellor to simplify the tax arrangements of 4.4 million pensioners, I am surprised that they are not more grateful. That tax simplification will cost pensioners £83 a year on average and will cost hundreds of thousands of people who are coming up for retirement next year up to £322 a year.
The Chief Secretary referred to the Office of Tax Simplification. Its tax director has registered his concern about the changes to the tax allowance for pensioners and has said that the Government’s claim that they were only following its recommendations
“was not 100 per cent accurate”.
Meanwhile, Age UK was moved to write to the Chancellor about the change to tax allowances for pensioners. It stated:
“Age UK supports the OTS review of pensioner taxation and was very pleased to have been invited to be represented on the consultative committee. However given the OTS was set up with the aim of providing” the Chancellor
“with independent expert advice on simplification we are very surprised and disappointed that” he has
“announced a change to simplify the system without waiting for that advice.”
Contrary to coalition spin, this tax simplification will hit not those with big pension pots, but people with personal or occupational pensions that pay around £5,000 a year. It will hit people who worked in ordinary jobs for modest salaries, and who made sacrifices during their working lives to put away just enough to give themselves a small pension, which means that they do not need to depend on means-tested benefits in retirement. It is simply not true that they have been insulated from the effects of the current economic climate and other changes to taxation. Pensioners have been hit hard by VAT, quantitative easing, cuts to services that they rely on—not least the national health service—and massive increases in the heating and electricity bills for their homes. Older people deserve better than this mean-minded, penny-pinching measure. If Government Members agree, they will have a chance to vote down the granny tax later this week.
It tells people all they need to know about this Government’s priorities and the balance of power in the coalition that when the Deputy Prime Minister said that he would agree to cut the 50p rate if it was paid for by a mansion tax and the Opposition said that we would support a mansion tax if it was used to relieve the pressure on ordinary hard-working families, the Chancellor forgot the mansion tax, cut the 50p rate anyway and paid for it with a raid on pensioners’ incomes and a raid on charities.
Finally, we will offer the Chancellor a last chance to make good the great omission of the Bill—its failure to offer a shred of hope to the 1 million young people who are desperate to find work and its failure to do anything about the fact that long-term youth unemployment has more than doubled in the past year. Our amendment will open the way for the funding of a guaranteed job for every young person who is out of work for more than a year—a job that they would have to take up. That is the kind of measure that our country is crying out for. It would change the lives of thousands of young people and transform the prospects for our economy. It could easily be funded by raising new resources from the banking sector, which still squanders billions on bonuses while doing little to support British businesses and families. We will therefore offer Members a chance to vote for the reinstatement of the tax on bank bonuses to fund the creation of 100,000 new jobs for young people and the construction of 25,000 new affordable homes.
As the Chancellor once said, we are all in it together, and if we have a deficit to reduce it is right that those with the broadest shoulders bear a little more of the burden. That was why the former Chancellor increased the top rate of tax to 50p. This Government have reduced it and are instead asking millions of ordinary families and pensioners to pay more so that millionaires can pay less. That is their priority; the Opposition’s priorities are very different.
The hon. Gentleman was not in the House earlier when it was mentioned that between 1997 and 2007, the debt-to-GDP ratio fell from 42.5% to 36%. The debt burden fell in the first 10 years of the Labour Government. I was not in the House in the last Parliament, but I wonder whether any Members can remember the Liberal Democrats asking for lower Government spending then. I do not remember it, but perhaps the hon. Gentleman could enlighten me about when he opposed Labour’s spending on schools and hospitals in Bradford and elsewhere.
My hon. Friend has hit the nail on the head. Government Members talk about the Labour Government’s overspending, but I cannot recall a single occasion in the time I have been in the House when any of them talked about not wanting a hospital or school built in their constituency. They were four-square behind us.
My understanding is that the Government parties matched us on spending and often called for additional spending, but the Liberal Democrats have changed their mind so often that it is sometimes difficult to keep up.
The fiscal challenges that this country faces are real, and we need to deal with the deficit and get our debt on a downward path, but the choice before us is how to do that and on whose backs. The Opposition’s priorities are to get unemployment down, to get our economy growing and businesses investing so that we can reduce the welfare bill and bring in more tax revenue, and to ensure that the biggest burdens of deficit reduction are borne by those with the broadest shoulders.
I thank my hon. Friend for referring to Labour’s idea of increasing jobs for the young through a tax on bankers’ bonuses. Does she agree that that would make a huge difference to young people such as those in my constituency, where long-term youth unemployment has risen by more than 200% in the past year, and send a message to all young people that Westminster and politicians across the country were on their side in these tough times?
My hon. Friend speaks on behalf of the thousands of young people in Feltham and Heston who have been hit hard by the Government’s policies. The Opposition think it would be much fairer to tax bank bonuses at 50% and use that money to create jobs and opportunities for young people, but the priority of the Chancellor and his friend the Chief Secretary is a tax cut for the richest 1%, paid for by ordinary families, hard-pressed pensioners, struggling small businesses, charities and young people. All that pain is not even getting the deficit down. The Government are borrowing £150 billion more than planned—the cost of their failed economic experiment.
Members of all parties have an opportunity tonight to dissociate themselves from this disgrace of a Finance Bill. We have given the Government a chance, and we have also given them a choice. If the Bill goes through unamended, it will go down as one of the most flawed and unfair Finance Bills in history—one that makes millions pay more so that millionaires can pay less, based on a Budget that gives a £40,000 tax cut to 14,000 millionaires while ordinary households fall further into debt and our economy falls further behind. It was not the Budget that Britain needed, and this Finance Bill should be sent back to the drawing board. The Opposition will vote against it, and I urge those with a proper sense of our country’s priorities to join us in the Lobby tonight and vote down the Bill.
I want to make a brief contribution to this important debate. The phrase that comes to mind is “something will turn up”. It is one of the classic stratagems of last resort in politics and perhaps life in general. I suspect that the Treasury’s handling of the UK’s economy owes rather more than it might be willing to admit to the Mr Micawber principle. After all, time often alleviates and sometimes even eliminates what seem like intractably difficult problems. In stark contrast to the first Thatcher Government, who front-loaded much of the economic pain, the modern-day Treasury, while espousing a tough austerity message, has adopted a more pragmatic, steady-as-she-goes path.
Despite the protestations of Rachel Reeves, we must get one thing straight: there is zero veracity in Labour’s contention that the Government are cutting too far, too fast. In the past 12 months, the UK Government’s current spending has totalled some £613.5 billion—the highest figure in history. The Government are still borrowing, even this year, £1 in every £5 that they spend. However, more than half the deficit reduction was predicated on annual compound growth through the Parliament of 2.7% to 2.9%, and it is clear that, for the first half of the Parliament, we shall struggle to achieve growth of even one third of that figure.
Rather than respond to that deteriorating situation by imposing more savings, we have taken the path of ever more debt, courtesy of the Bank of England’s quantitative easing programme. In my view, the real purpose and impact of the UK’s central bank intervention has not been to ease the path of investment borrowing for small business, which is perhaps what it should be. Instead, it has mopped up the substantial proportion of gilts that are being issued. That is where the Mr Micawber principle particularly comes into play. The Bank of England’s actions will not be sustainable in the longer term without a very real risk of inflation. I suspect that global conditions in the years ahead may make it much more difficult to finance our current levels of deficit. That is one reason why we need to get the deficit down as quickly as we can.
Before the Budget, I firmly believed that our focus should rest on some radical supply-side reform to ensure that we get the growth that we need. That would apply partly to the tax system, but also to employment legislation, with forensic attention paid to the impact of high marginal rates of income tax and the disincentives that have crept into the system as a result of both the poverty trap for the low paid and the removal of reliefs for higher rate payers.
I was pleased that a small part of my desire was realised: some progress has obviously been made on taking people out of tax entirely through the increase in the threshold for the basic rate of income tax and the reduction in the top rate tax from 50% to 45%, which is particularly important for entrepreneurs.
I was also personally delighted that, after three years of campaigning alongside the local animation industry in my constituency, the Chancellor announced the Government’s intention to introduce a tax credit for televised animation and video games. I congratulate him and my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport on securing a bright future in the UK for Peppa Pig, Olive the Ostrich and their animated brethren. Finally, we have the level playing field that our creative industries deserve, and the tax credit will help raise the quality of children’s television and retain valuable intellectual property in this country. That is the key reason why I agreed to lead the parliamentary charge on the matter. It is also fantastic news for the vibrant sector in my central London constituency and beyond.
However, rather less progress has been made on arguably the more urgent and important supply-side reform: legislation on employment rights. Once more, the glad, confident morning of June 2010’s Budget has given way to starker reality. It is worth recalling that, at that point, the increasingly discredited Office for Budget Responsibility predicted that unemployment would peak in 2010-11. We now know that it is likely to rise further in the next two years and remain stubbornly high for the foreseeable future. Yet the UK continues to gold-plate continental employment legislation and grant ever more generous paternity and maternity rights. Little wonder that employers are so reluctant to take on more staff.
I disagree with the analysis of the hon. Member for Leeds West about the position in the US. It is instructive to witness how the US has shown signs of turning the economic corner. In simple terms, it is easier to hire, but also to fire staff there. That allows flexibility and supports a rapid readjustment economically.
Does my hon. Friend agree that that does not just apply to the US? Recently, Italy and Germany have exempted their small and medium-sized firms from many of the burdens of employment law.
My hon. Friend is absolutely right, particularly in respect of the German model for the micro-sized businesses that are in the growth phase. There is no doubt in my mind that our recovery phase will commence only when we are able to have that sort of readjustment.
We heard those arguments in the 1980s and they have been looked at many times. Does the hon. Gentleman not know that there is no connection whatever between economic growth, and the economic competence of a country, and employment protection?
I am making a comparison over the limited phase of the past two or three years. Why have we seen the recovery in the USA, to which I referred, and recovery and economic stability in Germany? Given the fiscal stimulus, there is not all that much between the countries, but those employment rights measures have the impact of allowing recovery among small and medium-sized enterprises.
Is the hon. Gentleman not aware that the USA has pursued different economic policies from the UK? It has not pursued the policies of austerity that the Government and other countries in Europe have pursued. There is no connection between attempts to restrict trade union and employment rights and growth.
The important thing that the hon. Lady needs to recognise is that there is a distinction, as I said in the early part of my speech, between the rhetoric and the reality of austerity. We have not really had much in the way of fiscal tightening in this country. We are still borrowing and living miles beyond our means—this is a lesson, I am afraid, for the entire political class—and we will face a huge problem. We continue to pass that burden on to our children and grandchildren, not in any meaningful way for investment, but for today’s consumption, which is not sustainable.
I think I agree with hon. Gentleman on that point. As I understand it, he is saying that he agrees with the point made earlier in the year by—I believe—Standard & Poor’s, which said that austerity by itself does not work and can become self-defeating if it leads to higher unemployment, slower growth, and therefore to higher spending, fewer taxes, and therefore higher deficits. Is that his point?
My point was along the lines of that one. One difficulty occurs if all our trading nations are going through austerity; austerity can be done only by one country in such a group. We need to focus attention on growth. Indeed, the last words of a speech I made in the House almost two years ago, after the June 2010 Budget, were that we have talked about and made the right case for austerity, but we needed attention on growth—I fear that there has been too little.
I agree with the hon. Member for Leeds West in her analysis and on trying to assist small and medium-sized enterprises by allowing them to take on extra employees over the next two tax years without paying further national insurance. Better still, we could extend a national insurance holiday to all employees under the age of 25. That opportunity was missed both in the Budget and in the Bill.
I wish to touch on three specific concerns that I strongly hope will be dealt with in Committee in the weeks ahead. I confess that I am a little uneasy at the prospect of the general anti-avoidance provisions and powers that are heralded in the Bill and to which the Chief Secretary referred. Senior coalition Ministers interchange the terms “avoidance” and “evasion” in a rather casual way, which should be of concern to more than merely the tax advisory community. Individuals and businesses in a free society are, and should be, entitled to organise their affairs in such a way as to minimise their tax liability. I have no problem with that.
Although I sympathise with the Treasury, which is forced virtually continuously to update its rules and regulations, any general powers on avoidance should keep retrospection to an absolute minimum, and should be used only in extreme cases of what is regarded as so-called aggressive anti-avoidance. Moreover, it is surely incumbent on the Treasury, if it moves in that direction, to ensure a comprehensive pre-clearance regime to allow companies and their advisers to road-test their proposed taxation schemes with senior HMRC officials.
I appreciate that banks have few friends—I represent the City of London and am perhaps one of the few left—but the treatment meted out by the Treasury to Barclays bank in February set a very unfortunate precedent, not least because in recent weeks the Treasury has sought to lecture the Indian Government on the undesirability of retrospective tax. Barclays bank had sought and obtained clearance for its £500 million tax minimisation scheme. It was overturned in a blaze of publicity. If we are to raise the substantial levels of taxation that UK Governments of all stripes need, given the electorate’s addiction to public spending, we should be wary of anti-business rhetoric, which will give further encouragement to globally mobile institutions wishing to leave these shores. Being open for business depends on certainty in commercial practice, not simply verbal assurances.
I am not sure I can, to be honest, but suffice it to say it is a significant amount. I can appreciate, though, that in these difficult times it is hard to make the case for the huge bonuses in the banking sector, other than to say that it is a globally competitive industry.
Financial services will be a big industry going forward. Growth in Asia is adding 20 million or 25 million people a year to the ranks of the global middle class in India, China and South Korea. These will be the customers and consumers, not least because of the cultural reasons for saving, of the financial services industry in the future. That is one reason, in the midst of trying to rebalance our economy, as the Chief Secretary mentioned, we should not lose sight of our global competitive advantage. In the financial services industry, in particular, our global advantage is looked upon jealously in France, Germany and other European countries. They often feel that some of the anti-banking rhetoric coming through will be entirely self-defeating.
If the right hon. Lady will forgive me, I would like to make some progress because others want to get in.
The provisions in clause 8 on the high-income child benefit change to income tax will doubtless be the subject of extensive controversy. In spite of the misgivings I have expressed since the scheme was proposed in October 2010—in particular, that it seems to act as a penalty on aspiration and families in which one parent stays at home to rear children—I accept the overriding need to reduce the vast fiscal deficit. However, the tapering of the change to income tax for those earning between £50,000 and £60,000 a year will result in marginal tax rates of 65% for families with three or more children. Conservatives such as me believe in promoting incentives, but it is difficult to reconcile the proposition that those earning more than £150,000 are deemed to require a highest marginal rate of 45%—a proposition that, I hasten to add, I fully support—with the proposal that earners with several children at the level affected by clause 8 must apparently settle for paying marginal rates of up to 20 percentage points higher. I fear that the controversy in middle Britain about these child benefit changes will continue to resonate strongly in the months ahead.
I think that my hon. Friend and I share similar views on this. Does he accept that if, for example, we were to take all people earning more than £60,000, regardless of whether they have children, and charge them £1,000 a year, the yield would be £2 billion in 2013-14—far more than the yield from this complicated tax targeted at those with children rather than those without them?
I worry that too much of this tinkering will be counter-productive in any event and that the tapering of the child benefit system will be hugely expensive. Many people do not know whether they will earn between £50,000 and £60,000. They might work on a consultancy basis or spend a few months a year unemployed or travelling. Trying to unravel all that will be incredibly difficult.
I wish to make a few provisional passing comments on clauses 211 to 213 and 224 relating to the Chancellor’s decision to impose a 15% stamp duty land tax on acquisitions of £2 million and residential properties by non-natural persons—in other words, companies. Although I support the essence of the proposal, it might have the unintended consequence of stalling development, particularly in central London. I appreciate that high-end property developers might not necessarily be seen as deserving of particular Government acknowledgement, but there is no doubt that the property development industry in and around central London generates significant tax revenues and creates jobs. Not only are the profits taxable here but significant amounts of irrecoverable VAT are often incurred on redevelopment projects. Developers will generate SDLT revenue by buying and reselling redeveloped properties.
In the Budget press release, it was noted that the 15% SDLT charge would not apply to developers because they tended to use companies for limited liability rather than tax avoidance reasons, but when the draft legislation was published, the relief for developers was limited to bona fide developers who had been carrying on a residential property development business for at least two years. The two-year requirement may seem eminently sensible as a means of ensuring that short-life development companies are not established by individuals who ultimately wish simply to use the property in question. Nevertheless, I fear that the qualifying period will discriminate against new property development businesses, which cannot show the requisite track record. Indeed, all new entrants into the market are likely to be priced out because their acquisition costs have suddenly become 8% higher than those of their competitors. We therefore risk creating an uneven market—indeed, a market against newcomers.
The 15% charge is also likely to be an issue for experienced developers. The scarcity of bank finance for development properties at the moment means that much of the finance for high-end residential property development is coming from equity investors, who are bridging the significant funding gap that now exists. The requirements of equity investors will often mean that stand-alone special purpose vehicles are established for individual projects, so once again, the statutory test will not be met. If HMRC wants to consider an alternative policing arrangement and seeks to avoid creating a dual market, it might consider imposing a second charge—either another 7% or the balance of the 15%—if the property is used before being sold on by a developer with SDLT. Alternatively, there could be a time-based charge, so that if the property has not been sold after, say, three years, the second charge comes into play.
It is perhaps understandable that this afternoon I have dwelt on some of my concerns about the Bill. Nevertheless, I appreciate the acutely troubled state of the public finances. The Chief Secretary was absolutely right when he said that it was important that we should not pass on the costs of this generation’s excessive consumption to our children and grandchildren. I therefore reiterate my support for the deficit reduction plan that the coalition set out almost two years ago. I trust that the Bill will progress swiftly and smoothly to the statute book.
It regularly seems to be my lot to follow Mark Field. Perhaps that is appropriate in some respects, as he represents a constituency at the other end of the spectrum from mine. He made a typically thoughtful speech, although he set out a couple of priorities that I would not share, and that he would not expect me to share—namely supporting the banking industry, for example through the tax system.
However, one thing that I take issue with is the hon. Gentleman’s assertion about the rights of people in employment in this country compared with those elsewhere. When I speak to employers, as I am sure we all do in our constituencies, one of the questions I often ask is: “To what extent do employment laws have on impact on you? Do you feel they put you at a disadvantage?” Sometimes they will say, “Yes, they do,” but at the margin, if at all. If I ask employers to list their hierarchy of concerns, they put employment rights very low down, while concerns about our macro-economic direction and the way the economy is being run are very much at the top.
My hon. Friend is precisely right. I worked in industry on the shop floor prior to the introduction of health and safety legislation. On another occasion—this is not the appropriate time—I might, if I get the opportunity, describe the conditions in which people worked in a lot of factories in those times. Often they were almost Dickensian.
No one is suggesting that we should try to encourage some sort of sweatshop regime; but equally, during these difficult economic times, there is a tendency for businesses—particularly small and medium-sized enterprises—to batten down the hatches. We want to encourage them to take the risk—“Yes, let’s take on an extra employee. Maybe some more business is coming through”; “Okay, but will we be able to expand in three or six months’ time?”; “Let’s try and take employees on.” The difficulty for small and medium-sized enterprises is not the idea of employment rights, but that the difficulties and costs of taking on new employees—particularly young employees—become so overwhelming that there is a massive disincentive so to do.
I am grateful to the hon. Gentleman for having rebalanced his view slightly, but I still think that he is wrong. When I talk to employers about the difficulties they have in recruiting, they tell me that they have two priorities, particularly in regard to young people. The first is that the young people should have the right skill set and should be capable of doing the job without needing too much training from the employer. The second, which is harder to pin down, is about attitude. Employers are looking for people who are disciplined enough to turn up at the right time and not to take days off on a whim. Such considerations come ahead of the concerns that the hon. Gentleman has described.
I want to talk briefly about the cumulative effect that the measures in the Budget will have on the people in Knowsley whom I represent. I also want to cover the proposals for minimum unit pricing for alcohol, as one of the major employers in my constituency will be affected by them. I have also received quite a lot of correspondence from individual constituents on that matter.
I am concerned about the impact that the working tax credit changes will have on my constituents, in conjunction with the other changes to the benefit system that are already taking place. To qualify for working tax credit, couples with children will now have to work at least 24 hours a week between them, instead of 16, with one of the couple working at least 16 hours a week. There are exceptions for people with a disability or incapacity. There is also an issue with the backdating of the entitlement to tax credit. It will now be one month, instead of three months. A further concern is that the main elements of the tax credit have been frozen for 2012-13.
I am unable to give the House any statistics to show how those changes will directly affect my constituents, but it is clear that changes to tax credits impact most heavily—indeed, entirely—on those on low incomes. That is another contrast between the situation experienced by the hon. Member for Cities of London and Westminster and me. It is estimated that, nationally, 212,000 working couples with children who earn less than £17,000 a year will lose all their working tax credit. Unless those people are able to find someone who will employ them for an extra eight hours a week, that could equate to a loss of £3,870 a year. That will be a substantial loss for the many families in my constituency who will be affected by the change. We must also take into account other things that have been going on. Low-income families are already disproportionately affected by rising fuel costs and rising food bills, for example, and these changes will only add to those pressures.
Child benefit has been frozen for another two years, until April 2014. Before the Budget, there was a lot of negative publicity about the plans to withdraw child benefit from families with a higher-rate taxpayer in the household. The hon. Member for Cities of London and Westminster referred to that in his speech. In the Budget, however, the Chancellor backtracked a little. From January 2013 there will be no loss of child benefit until at least one parent earns £50,000, after which the benefit will be gradually reclaimed through increasing the take up to £60,000. Beyond that, people stop getting the benefit at all. That will be a very complex system to administer, and my major concern is how it will affect people in my constituency. If the benefit had been raised in line with inflation, a couple with one child would have received £88 a year more in child benefit or £145 a year for two children in 2012-13, but now they will simply not get that.
The latest Department for Work and Pensions figures show that in Knowsley 21,185 families were in receipt of child benefit, with 35,725 children between them. That is a substantial number of people who will be adversely affected by these changes in my constituency alone. It is inevitable that I should comment on that, as it is totally unacceptable for those families. I fear that one consequence will be—perversely perhaps, or even unintentionally—that some families that manage to convince the Jobcentre Plus people that they are genuinely unemployed, might decide that they will be better off if they are not working.
Does the right hon. Gentleman realise that something like £100 million will be spent on administering the new child benefit arrangements—a figure very similar to the total amount that the Treasury thinks could be saved by putting a cap on charitable donations tax relief?
The hon. Gentleman makes a useful point. I said that the system would be complex to administer, and complex things cost more, so the hon. Gentleman is right to say that. I had not intended to cover the point, but he is also right to express concerns, as did my Front-Bench colleague, my hon. Friend Rachel Reeves, about the effect of these changes on charities. I happily endorse the sentiment behind the hon. Gentleman’s comments..
I mentioned the maximum pension credit, which is being cut by £1.98 a week for single pensioners and £3.36 a week for couples. The threshold at which people qualify for pension credit has increased by 8.4% to £111.80 for single pensioners and £178.35 for couples. That means that 27,500 pensioners in Knowsley could be affected by these changes. One important characteristic of the previous Government—I do not think it is open to dispute—is that the lot of pensioners steadily increased during the period in which they were in office. What we seem to be confronted with here is the potential for pensioners to get poorer and poorer, as happened under previous Conservative Governments. That is a real concern in my constituency. These changes, taken in conjunction with other changes to the benefit system, will mean real hardship in my constituency, which is one of the poorest in the country.
Let me say a few words about minimum unit pricing for alcoholic beverages. I shall quote a constituent who wrote to me. I shall not name them, as I do not have permission to do so. My constituent wrote:
“The reality is that minimum pricing will affect those less well-off and have little impact on those with a poor relationship with alcohol. It will enrich retailers without creating jobs, reduce investment and damage producers leading to the loss of jobs. The treasury will recover less duty and tax from the sector as a whole.”
I will give my view in a few minutes, but I think that when people write to Members of Parliament expressing such concerns, it is important for us to raise and address the issues.
I have also received some briefing from a company in my constituency, Halewood International. It employs 500 people in the north-west of England, most of whom are in my constituency. It produces some products of which Members may have heard—one is Crabbie’s Ginger Beer, which is a very popular drink; another is Red Square Vodka—and, as well as producing some important brands, it distributes brands for a large number of other companies.
Halewood has made a number of points, to which I hope Ministers will consider responding. First, it says:
“Alcohol consumption has declined since 2004 and more people are drinking responsibly.”
I think that there is evidence to support that assertion. Secondly, it says:
“There is no evidence that minimum pricing will reduce alcohol misuse. It will affect all consumers and punish the majority who drink responsibly.”
That is clearly true: it will affect everyone. The company adds:
“It will hit people on the lowest incomes hardest.”
That, too, is clearly true.
Thirdly, Halewood says:
“Minimum unit pricing is likely to be illegal under European Law. It is inconsistent with the operation of the free market for the state to intervene on price.”
The company is not alone in that view. The Economic Secretary to the Treasury has said:
“the Scottish Government have recently introduced a Bill that seeks to bring in a 45p per unit minimum price… we believe that it could be incompatible with article 34 of the treaty of the functioning of the European Union… That is the position.”—[Hansard, 14 December 2011; Vol. 537, c. 341WH.]
So it is not just companies with an interest in the matter that believe that minimum pricing is likely to be problematic in terms of European law. In December last year, the Government thought the same.
Fourthly, Halewood says:
Finally, it says:
“The drinks industry is committed to helping to tackle alcohol misuse. It is delivering a range of initiatives to encourage responsible drinking, such as through the Public Health Responsibility Deal.”
That is the case being put by the industry, and by some of my constituents. Personally, I have an open mind on the introduction of minimum unit pricing. I recognise that problematic drinking exists throughout the country—not just in urban areas, but in every constituency—and that there is a growing problem of young people drinking too much, too often, and ending up with serious health problems as a result. If I could be convinced that these measures would address that adequately, I could be persuaded to support them, but I do need to be convinced.
I cannot agree with the right hon. Gentleman about minimum pricing, because I think there is a lot of evidence to suggest that the most responsible drinking goes on in our public houses. Although the alcohol manufacturers may have some reservations about minimum pricing, does the right hon. Gentleman agree that low charging by supermarkets, whereby our young people buy alcohol in them and get tanked up before going out, is detrimental both to our society in general and to our pub industry, which I am sure all Members cherish and are keen to see survive?
The hon. Lady makes an effective point. I am tempted to enter into a debate about what has happened to the pub industry over the last decade, but I doubt whether that would be in order. I will say, however, that people’s habits have changed, including in respect of the places they go to for entertainment. That is particularly the case for young people. Many of them no longer go to pubs for entertainment. Some of the new places they go to serve alcohol, but others do not. More is going on here than the hon. Lady suggests, therefore. She is right, however, that some young people buy alcohol from supermarkets and drink it at home, so that they are already half-filled up, as it were, when they later go out to a nightclub. One of the reasons they do so is that the drink prices in nightclubs are so expensive. I hasten to add, however, that I am not an expert on young people’s drinking habits.
Minimum alcohol pricing alone is not a magic bullet. A range of other policies must be pursued, too, including making personal, social, health and economic education mandatory in schools so that young people learn about what happens to them if they drink too much.
I am sure my hon. Friend is right, and, as I have said, I have an open mind on the subject.
I fear, however, that if the alcohol products that young people take home to drink before going to a nightclub—or wherever—are no longer available to buy in supermarkets or other licensed retail establishments, there will be an increase in the sale of illegal products on the streets, and that is also a fear that I have in respect of minimum unit pricing. We have already seen this happening to some extent in respect of tobacco products. Also, such products that are illegally imported and then sold on the streets are not subject to quality controls.
If we do not get the education messages mentioned by my hon. Friend Diana Johnson right, young people will drink anyway, but they will not be able to afford the products on offer in supermarkets and other licensed retail establishments. Instead, they will buy products off the back of a white van outside the park on a Friday night. That is a big fear of mine, and I have yet to hear a satisfactory response to it.
I fear that the overall impact of this Bill will be far worse on the people of Knowsley than on the people of the Cities of London and Westminster. I hope the Government give more thought to the effect these measures will have on poorer pensioners, people on low incomes and those struggling to bring up children on a relatively low income. They are important members of our society. If we do not offer them the right level of support, I fear for the future.
It is a pleasure to follow Mr Howarth. So far, this has been a low-key debate, but I suspect that when the people directly affected by the Bill receive their tax demands, they will write to us in large numbers.
I will concentrate my remarks on clause 8 and schedule 1, which relate to the higher rate child benefit charge. I raised this issue in an Adjournment debate. I am grateful to the Exchequer Secretary, whom I am pleased to see in his place, as the Government have given some ground and have responded to some of the concerns expressed in that debate and more widely, but I remain concerned that we will find ourselves with a lot of aggrieved constituents who will not be persuaded that the proposals in the Bill are fair and equitable.
For example, a single parent earning £60,000 a year will lose all their child benefit, whereas next door there may be two people each earning £40,000 and they will retain their child benefit. Constituents say to me—perhaps this happens to you, too, Madam Deputy Speaker—that they resent the fact that the house next door is almost identical to theirs and yet is in a different band for community charge or, as it is now called—[Interruption.] It is not the poll tax; it is the council tax. If they resent a difference of £100 or £200 in their council tax compared with that of their next-door neighbour, how resentful will they be when they find that they are losing child benefit, which could run into thousands of pounds per annum, as a result of being a single-income family earning more than £60,000, whereas the people next door, who are earning a lot more, are retaining their child benefit? Obviously, such people would not have the same costs associated with earning their income as a single parent family, who would normally have to rely on child care to enable them to make their income high enough to pay the full amount—more than £60,000. So I do not see how this new system will ever be fair or be seen to be fair by the people who will be affected by it.
Today the Government are launching their consultation paper on plain packaging for tobacco products. Some wags are saying that that is promoted by the Treasury, because it will give the Treasury more room on the back of the fag packet to write down its latest policy announcements. I do not know whether or not that is correct, but the proposals in clause 8 and schedule 1 smack of policies conceived if not on the back of a fag packet, certainly on the back of an envelope. We know now that the proposal to take child benefit away from higher-rate tax payers was made at the Conservative party conference in 2010, at very short notice. It was then decided by the Chancellor that it would not be possible to take child benefit away from those with children aged between 16 and 18.
Does my hon. Friend agree that, in principle, it is right that we should not tax people highly then to give them back universal benefits? Does he agree that we want to get away from a system where everyone gets benefits and then has to pay more tax just to get them?
I agree with my hon. Friend that there is a lot to be said for simplification and stopping the churning effect. The late Lord Joseph was a great campaigner on these issues, and other Conservatives in the past have campaigned to simplify the tax system, which is the avowed intent of this Government. I also think it right to recognise in the tax system that when people have equivalent incomes, those with children have higher costs than those without children. If we are to recognise families in the tax system, one way is to have what used to be a child allowance, which is now incorporated into the child benefit.
If parents have higher costs, why should they start to pay tax at the same level of income as somebody who is not a parent and does not have those higher costs? That is where I disagree with the Government on this policy, which I do not think is fair or consistent. When it has been justified by the Prime Minister, the Chancellor of the Exchequer and the Exchequer Secretary, they have argued that it is wrong that people who earn £20,000 or £30,000 a year pay for the child benefit of people like my hon. Friend Jacob Rees-Mogg. The answer to that is that neither my hon. Friend nor other people are being subsidised in that way by other taxpayers, because, as the Exchequer Secretary confirmed in a written answer to me just before the recess, somebody would have to have 10 children and be on the threshold of higher-rate tax before they started to receive more child benefit than they were paying out in tax. The Government deploy a specious argument when they say that someone on £20,000 or £30,000 a year is paying for my hon. Friend’s child benefit.
I think my hon. Friend and I agree that one of the most important tasks for any Government is to get the huge deficit down. One of the single biggest costs is the cost of welfare, which this year, for the very first time, will go through an aggregate £200 billion mark. Does he not accept that reconsidering the universality of certain benefits would be a sensible way to get the deficit down? Although I do not disagree with elements of what he has said about the workings of clause 8, consideration of removing universality from relatively well-off people, not just for this benefit but for others, would be a desirable way forward.
My hon. Friend makes a good point. As I said at a press conference organised by the Child Poverty Action Group, there is a strong intellectual case for saying that we should revisit universal benefits. What is happening here, however, is that one particular universal benefit—child benefit—is under attack whereas others are not. Will we say next that if somebody with wealthy parents presents themselves at a hospital, their parents should have to pay a charge? Are we going to start saying that free dental treatment for children should not be available to the children of better-off families? Are we going to remove a whole load of other universal benefits? If we are thinking of going down that route, we should have a big public discussion and a public debate. We should put all the universal benefits into the melting pot and decide whether we think there would be a big benefit if the number of universal benefits were reduced or eliminated and whether, as a result, the overall levels of tax could be reduced.
I know that my hon. Friend is a very brave man and I recall that Christchurch is the constituency with the largest number of pensioners. Does he think that the universal benefits of the television licence allowance and the winter fuel allowance should not necessarily go to the wealthiest of his pensioner constituents?
My hon. Friend gives me the opportunity to hide behind the manifesto commitments made by the Conservative party and the Prime Minister. I was going to refer later to some of the background, but, prompted by that intervention, I will perhaps say the following. When the Prime Minister was Leader of the Opposition, he said:
“I want the next Government to be the most family friendly Government we’ve ever had in this country”.
“We will preserve child benefit”.
I certainly went into the general election thinking that we would preserve child benefit as part of the universal benefit system in the same way as we would preserve the universal benefits that are applicable to so many of my constituents, as my hon. Friend points out.
My belief was reinforced on
“we have decided to freeze child benefit for the next three years. This is a tough decision, but I believe that it strikes the right balance between keeping intact this popular universal benefit, while ensuring that everyone across the income scale makes a contribution to helping our country reduce its debts.”—[Hansard, 22 June 2010; Vol. 512, c. 173.]
At that stage, everybody thought that that was the end of it. We would retain child benefit, but freeze it for three years, The yield to the Exchequer of freezing child benefit in 2013-14 is no less than £1 billion. Looking back, I think that that was also the point at which the Chancellor should have said that he was going to freeze the age-related allowances. If had that been presented in the same context, with those in receipt of child benefit having their benefit frozen at the same time as those in receipt of age-related allowances had theirs frozen, I do not think that there would have been a row about it as there has been this time.
That is the background, so how were we able to end up with the Government effectively launching an attack on hard-working families with children? The Government have got themselves into a mess because they have not complied with their own policy of properly discussing the issues in advance of introducing measures. An interesting document, “Tax policy making: a new approach”, was produced immediately after the election. It was issued by the Treasury in June 2010 and in the preface, my hon. Friend the Exchequer Secretary said:
“I want a new approach to tax policy making; a more considered approach. Consultation on” tax
“design and scrutiny of draft legislative proposals should be the cornerstones of this approach.”
Does the hon. Gentleman agree that his call for a wider debate is necessary because universal benefits are often not universally claimed? That adds another complication to the issues that he raises. I know of two schools in areas of equal deprivation. The percentage of free school meals at one is 25% whereas at the other it is 53%, yet the levels of deprivation are equal in both areas. The issue is very complicated.
It is complicated, particularly as free school meals are obviously not a universal benefit. Child benefit has a 96% or 97% take-up rate, and the Government’s proposals in the Finance Bill are designed to reduce that take-up rate. A number of people might opt out of receiving child benefit, so it will no longer be a universal benefit. As the hon. Gentleman says, if we want a debate about universal benefits, let us have one, but let us do so in the context of a Green Paper, some draft legislative proposals and so on.
In December 2010, in response to the consultation on the issue of a new approach to tax policy making, my hon. Friend the Exchequer Secretary said:
“This new approach is vital to the Government’s aim of restoring the UK tax system’s reputation for predictability, stability and simplicity.”
There it is: simplicity. We are now talking about employing, on my estimate, between 500 and 1,000 extra staff in order to claw back child benefit to the extent of £1.5 billion from 1.2 million households. How complicated and complex is that? One has only to look at the detailed figures produced by the Treasury in connection with the Budget and to read the report of the Institute for Fiscal Studies to realise that it is incredibly complicated. That is why my right hon. Friend Mr Lilley said in the media not long ago that when he was a Treasury Minister, he was asked to consider this issue on a number of occasions by Treasury officials and he always reached the conclusion that one could do something with child benefit but not in a way that was fair and equitable. The Government have come up with a proposal that is not fair and equitable.
We know that the Government are relying on getting £1.5 billion in income from the measure and I realise that it is very difficult at this stage, when the Budget and the sums have been done, to move amendments that are in order to try to show how an equivalent sum could be raised in an alternative way. If the money was not all being raised from the people being targeted at the moment and there was a proposal to increase the contributions of some other people, such an amendment would be calling for an increase in tax and so could not be tabled by a humble Back Bencher under the Standing Orders of the House. Notwithstanding that, however, I hope to refer briefly to another way in which an equivalent amount of money could be raised by the Exchequer, which would be much fairer and simpler and which might find favour with a surprisingly large number of people if put out to consultation.
Let me conclude my comments on the lack of advance consultation on the child benefit measures. I think that some draft clauses should have been published and discussed. The Government had been thinking about the measures since October 2010 and, contrary to what they had said they would do, they did not produce any draft clauses for consultation, so we are effectively left to scrutinise a Bill that was published during the recess. We have had two weekends to look at it and this Thursday we will have to decide on all the amendments on child benefit in what will probably be, at most, a three-hour debate, under the timetable motion that the Government seek to impose on the House.
I urge my right hon. Friend the Chancellor, when he considers next year’s Budget, to revisit his proposals for having a better system with a lot more consultation. With such a consultation, I do not think we would be in our present difficulties with the VAT on static caravans, the removal of the pensioner age-related allowance, the capping of tax relief on charity donations and so on. The Chancellor and his Treasury team must be pretty concerned about the adverse publicity that has followed the Budget, but all those difficulties could have been avoided if the team had been a bit more trusting of their fellow parliamentarians and had shared information on these measures before the final decisions were made.
The consequence of the proposals on child benefit is that 1.2 million of the 7.9 million families receiving child benefit will lose out. Some 70% of those families will lose the full amount whereas others in the band between £50,000 and £60,000 will lose some if not all of their child benefit. Why do the Government want taxpayers with children to make a greater contribution towards deficit reduction than those on equivalent earnings without children? I have asked that question a number of times in the House but I have never had a satisfactory answer.
I want to put forward an alternative proposal in this public forum. There are about 2 million people earning more than £60,000 a year in this country. I have here some figures from a response to a parliamentary question that was asked on
All those people—the best part of 2 million taxpayers—could each be charged £1,000. That would generate £2 billion and at a stroke we would be free of interfering with the universal child benefit and would be free of being accused of picking on people with children rather than people without children. It would remove at a stroke the need to employ all the extra civil servants needed to administer a system that will be very complex, particularly in relation to those earning between £50,000 and £60,000 a year. It would also remove the administrative burden of having to introduce into the tax system definitions of couples living together—that is already a nightmare in the benefit system, so why introduce it into the tax system? I do not think the measures have been thought through, but rather than being negative about them, I am saying to my hon. Friend the Minister that I hope the Government will reconsider this issue between now and Report and perhaps consult on the possibility of asking, “Why don’t all those people earning over £60,000 a year make a contribution of £1,000 and thereby collectively generate £2 billion in income for the Treasury in the next financial year?” Incidentally, that would also remove the need to interfere with age-related allowances because the yield would be slightly larger.
I do not have any personal interest in this issue now because my two children are past the age at which they enabled their parents to qualify for child benefit, but if we were to bring this down to Members of the House, I ask why a colleague of mine with one, two, three or four children on a parliamentary salary should be forced to forfeit child benefit or have a child benefit charge, which may run to several thousand pounds a year, placed upon them while I, who no longer have the responsibility of having children in school, do not make a contribution. It just does not seem fair to me. There is a fairer way to do this.
When I originally raised my idea with the Chancellor of the Exchequer he said, “Who wants to start increasing the higher rate of tax?” but we do not need to do that because, fortunately, the Treasury has come forward with a form of introducing an arbitrary extra charge—a fixed sum, which is effectively a tax—that comes into play as soon as somebody’s income passes a particular threshold, which would be £60,000 in this case. That would enable us to avoid a situation in which 670,000 households with a family income of more than £60,000 will retain some or all of their child benefit while single-parent households on £60,000 will lose everything. I do not have the figures to hand but there are tens of thousands of single-parent households.
Given the additional disincentives that will result from the introduction of the measure, I hope that Treasury Ministers will think again about the wisdom of what they plan to do. There could be perverse consequences as people try to avoid the charges. There could be all sorts of hard luck stories. A person earning £60,000 or £70,000 might take pity on a widow with several children and go to live in her house. They would then find that they had to pay, because they were earning more than £60,000 and living with someone who was in receipt of child benefit. Is that really the sort of message the Government want to send? I do not think it is. We want to keep the tax system simple. We want to promote the importance of families with children and recognise their extra responsibilities, not penalise them in the tax system.
I want to look at what the Bill does for the economy, the country and the people of our nations. What does it mean in terms of jobs, growth and fairness?
After the global recession, there needed to be tough decisions on tax and spending and how best we pay the deficit down. As was indicated earlier, much has been said about the previous Government spending in an excessive manner, but when my party was in government, those who now find themselves on the Government Benches said nothing at all about programmes for new schools and hospitals. That was not excessive spending; it was all needed after years of lack of investment, and it was welcomed with open arms. Members now on the Government Benches went to official openings, and applauded what was happening in their back yards, yet suddenly it has become “excessive spending” by the Government who were in power at the time.
The 50p top tax rate on the richest was introduced by the previous Government, and it is why we set out the difficult cuts that would be required to police, education and welfare budgets. However, by raising taxes and cutting spending too far and too fast, this Tory-led Government have choked off the country’s economic recovery and put hundreds of thousands more people out of work.
As I have said on many occasions in the House, my constituency is a rural one. The two biggest employers are the national health service and local government, so in the private sector my constituency depends on small and medium-sized enterprises. This afternoon, we have heard what SMEs are looking for. Yes, they want to be able to employ an extra pair of hands—if the work is there—and people have said that should be made easier for them. I am not about making life difficult for SMEs, but I can tell Members who are still in the Chamber that SMEs are looking for a bit of optimism. They want to see the optimism that, when the national minimum wage was introduced, allowed them to invest and employ additional hands; it was a sign of growth or green shoots—call it what we may.
America had the same deficit problem as Britain after the worldwide slump, but President Obama stuck to the plan that we were pursuing when we were in government: supporting the economy until recovery was secure. The US is growing, as we can all see, and unemployment is falling—the opposite of what is happening here. As we have no growth and so many more people are out of work—on the dole rather than paying taxes—the Chancellor’s deficit reduction plan is not working. In fact, as has been recognised on both sides of the House, the Government are set to borrow an extra £150 billion to pay for that economic failure.
The sole Scottish National party Member who was in the Chamber has left his place for the time being. Much was said in the ’80s and ’90s about the abundant revenues that were accumulated in this country from North sea oil and gas, but it was clear even in those heady days that they were being used up in economic failure. We are seeing a repeat of the mistakes of the late ’80s and the early ’90s; we are paying a heavy price for economic failure. That is why to a certain extent it is difficult to oppose some public sector pay restraint when others are losing their jobs, but in tough times, it is even more important to do things fairly. We should freeze wages for top-paid public sector workers to fund bigger pay rises for those on the lowest incomes, because if they have more money in their pocket, they will spend it in our high streets, which will give a glimmer of hope to SMEs.
Ministers simply have not listened, but that is no surprise. Only last week, Mr Davis wrote that with every passing day the Government seem more and more out of touch with people on modest and middle incomes. They are not just out of touch; they are already showing signs of increasing incompetence. Over the last couple of weeks, we have seen half-hearted attempts at U-turns—going back and wishing to consult and reconsider. The next few days will really test this Government and this Chancellor and his Treasury team.
We all witnessed the Government’s incompetence when we read in our newspapers, heard on our radios and saw on our televisions that they had caused panic at filling stations the length and breadth of the country. The Government’s economic policies are failing. Working families are paying the price, and it is a heavy price. We all live in hope of a change of heart. Unless there is one, next year pensioners will be hit hard, as millions are asked to pay more so that millionaires can pay less.
The Budget does nothing to give Britain the jobs and growth we desperately need now, and nothing to support families and pensioners on modest and middle incomes. Instead, it will do the opposite. This month, families are starting to find out what the Government’s decisions will mean for their budgets. As my Front-Bench colleagues have pointed out, according to independent experts the changes coming into effect this month will leave a family with children worse off by an average of £511 a year. To many of us in this place, £10 a week may not seem a lot, but it is to a family merely getting by.
The hon. Gentleman would do well to reflect on one thing that would really hurt families: it would be far more devastating if the Government did not stick to their policies, and there was an increase of 1% or more to the interest rate, and to mortgage rates. Does he agree?
Only in certain respects. The hon. Gentleman talks about mortgage interest rates; I am sure that he does not need me to remind him that not every household has a mortgage. Some families are finding it difficult to pay their rent, let alone a mortgage. That is why I make the point that £10 a week would make a real difference to many families.
I thank my hon. Friend for her intervention. There is no doubt that there are myriad different experiences out there in our communities, towns, cities and villages. To keep their jobs, people are deciding to take pay cuts or to work fewer hours, and that is tragic, because when that happens, household income is affected. That will have a greater impact on some families than on others.
A point was made about the working tax credit. I have spoken to welfare rights services in my constituency, and to Citizens Advice, and only now—since the end of last week, and in the two or three weeks ahead—are we all beginning to see the impact. It had not really dawned on people how much of an impact there would be. I will undoubtedly see some of the 400 families in my constituency who will lose all their tax credits. They do not have a hope of moving from 16 hours’ work per week, for a couple, to 24 hours’ work a week. I just mentioned that some families are working fewer hours to keep their job. The work is not there. For those families, the loss is potentially in excess of £70 per week. In many cases—this has been mentioned to me by two constituents whom I have met—people feel that they would be better off quitting work and living off benefits. That is not to say that benefits are excessive in this country—anything but. People are struggling to make ends meet. How does that square with the idea, which I hope all of us in this House agree on, that work pays? Some families are saying, “It’s a waste of time working; I would be better off on benefits, because I am about to lose my tax credits.”
There are key Budget decisions that it is not too late to stop. The £3 billion tax rises for pensioners—the so-called granny tax that the Chancellor announced last month—does not kick in until next year. That is why I say to Government Members that, to a certain extent, I live in hope that there will be a change of heart over the next few days. Then there is the £3 billion handout that the Chancellor announced for people earning more than £150,000, when he cut the 50p top rate of income tax. That is a tax cut of more than £40,000 for 14,000 millionaires, all on the back of pensioners and working families. How out of touch are the Prime Minister and the Chancellor if they think that millions of pensioners who have worked hard all their life should have to pay more tax next year, so that millionaires can pay less? It does not square. Ministers boast that the state pension is increasing, but when we look at it in more detail, we see that it is only keeping up with inflation.
What is happening in the Budget is not fair or right. That is why, as my hon. Friend Rachel Reeves said, Labour will hold a vote in the House on Thursday to try to defeat the granny tax.
We will ask MPs from other parties to join us. We will also vote to stop the £3 billion tax cut for the richest. We will call for a tax on bank bonuses to fund a guaranteed job for every young person who is out of work for more than 12 months—a job that they should have to take up, and that they will relish the challenge of taking up, given the opportunity.
I shall soon conclude, because my points about VAT have already been made, but I did mention, in the three or four-day debate that followed the Budget towards the end of March, the issue of VAT on caravans. I said that I did not know how many caravan parks I had in my constituency, but I guessed that in no part of my constituency would a person be more than 8, 10 or 12 miles from a caravan park. There are 58 sites in my constituency. The VAT will have an impact on those businesses, and a considerable number of them have contacted me already. It is my intention to meet them to discuss how much of an impact the measure is having.
We have talked about hard-working families; the plea to families is that they should enjoy a staycation this summer—in other words, they should holiday here in the United Kingdom. That is the right thing to do. After October, unless there is a change of heart, there will be an increase in the cost of holidays for hard-working families on many of the sites that I am talking about. It is not just my constituency that is affected; I know from my discussions with Government Members that it is a serious issue for the tourism sector the length and breadth of the UK.
Let me say for the third and perhaps final time that I hope that there will be a change of heart, because we are heading in the wrong direction. There is far too much pain in the country at the moment. There is more to come—I recognise that—but it is not being shared fairly.
Let’s keep football out of this. Coming back to the Finance (No. 4) Bill, it is tremendous to have the opportunity to speak in this important debate. Now that we are nearly halfway through this Parliament, it is important to think about our direction of travel. It is clear that under this Government, Britain has returned to economic credibility, and is laying the foundation for private sector and business-led recovery. Despite views to the contrary among those on the Opposition Benches, my right hon. Friend the Chancellor of the Exchequer has been proved right to chart the course that he did at the beginning of the Parliament. He was right not just to tackle the deficit head on, but to put the private sector at the heart of the growth agenda, where it needs to be. It is a consistent theme that came through loud and clear in the emergency Budget and the 2011 Budget.
Now, in the 2012 Finance (No. 4) Bill, it continues to be pivotal, and at the centre of what the Government are trying to achieve.
There are a number of important proposed tax changes, which we have heard discussed by hon. Members, but I want to focus on the measures that have been designed to support British businesses, which are critical to economic recovery. First and foremost, I welcome the Government’s move to accelerate the commitment to having the lowest corporation tax in the G7. It is strange that no Opposition Members took any time to mention that, because that is where we will create new jobs. Having corporation tax at 22% by 2014 will give us real competitive advantage in attracting the investment that we need for sustainable economic growth. This Government’s plans are bold and ambitious, bringing the effective rate of corporation tax to a level below that of developed countries such as France, where it is currently 36.1%, Germany, where the rate is 30 to 33% and Canada, where the rate is 25% to 31%. I understand that even the Republican party in the United States proposes an effective rate of 25%. The measures set out in clause 5 will help us to increase business investment and will help us on our trajectory. I understand that the forecast by the Treasury suggests £3.4 billion of extra investment by British businesses, which is vital for the country.
Through the Finance Bill the Government have recognised the vital roles that innovation will play in helping to strengthen the economy. That is clearly demonstrated by the Government’s corporate tax road map, which came out in November 2010, with the introduction of the patent box, which features in clause 19 and schedule 2, and by the above the line research and development tax credit, both of which will come into effect in April 2012. Such tax measures complement the work that the Government are doing to support vital innovative businesses and industries, such as pharmaceuticals. The recently launched life science strategy will also help industry in the UK to tackle global challenges that are being faced in the pharmaceutical sector and will help us to keep this important skilled work force in the UK, just as I am working with AstraZeneca to do in Macclesfield.
The Budget sets out important steps to help the small and medium-sized enterprise sector. The SMEs will be the vital engines for growth in the sector, as many of us on the Government Benches are aware. The Budget’s £20 billion national loan guarantee scheme will help to reduce the cost of credit for SMEs, which 60% of small firms believe is unaffordable, and will provide an opportunity for small firms to motor ahead. Both the Federation of Small Businesses and the British Chambers of Commerce have welcomed this important and ambitious scheme.
The reforms of corporation tax and of corporate tax more generally have been welcomed by business. The forecasts suggest that they will save business £6 billion a year by 2015. That is money that will be better invested by businesses in new initiatives, enabling them to get on with the job of creating the work that many of us on both sides of the House are keen to see come to fruition. That is why the Budget has been welcomed by so many business groups and by the business community.
The CBI says that
“by seizing the opportunity to make sure our corporate tax system is more internationally competitive, he”— the Chancellor—
“has sent a powerful signal to companies to invest, do business and create jobs in the UK.”
The IOD goes further and says:
“The reduction of Corporation Tax faster than planned is a positive step in the right direction”.
These are important signals and key messages from the business community showing support for what the Government are doing in this important area.
Although the debate today is rightly focused primarily on the tax-related aspects of the Budget, I shall spend a few minutes considering the supply-side reforms which will also have important impacts on the economy. That is why it is right to acknowledge the work that is being done by the Government in reducing the regulatory burdens faced by our businesses. As Ronald Reagan once said:
“It’s hard when you’re up to your armpits in alligators to remember you came here to drain the swamp”,
but this Government have not forgotten, and are taking action to drain that swamp.
The UK has more than 21,000 regulations on its books, and the Institute of Directors has calculated that the cost of those regulations is approaching £112 billion a year. These figures clearly demonstrate that we will benefit from an approach to deregulation that is every bit as ambitious as the Government’s deficit reduction initiatives and their tax reform strategies that will create the optimal conditions for growth. That is far better and more constructive than the demands from the Opposition for yet more Government spending.
The size of the prize is huge. Cutting the regulatory burden on businesses by just 10% would save British businesses about £11 billion a year. That is the equivalent of cutting corporation tax and the small profit rate by a staggering eight percentage points. Even by the standards of the benefits provided by the Bill, that is a hugely positive contribution to business. That is why the Government are pressing ahead with their deregulatory agenda. The one-in, one-out rule has helped to stem the flow of new regulations, and the red tape challenge is tackling the stock of old regulations. Reforms of health and safety regulations will help to free British businesses from a culture that is damaging the well-being of our economy.
Churchill once said:
“If you have ten thousand regulations you destroy all respect for the law” , and, just as relevant today, destroy a nation’s competitiveness. Working together, the Government and the private sector should continue to seize the opportunity and put the deregulatory agenda in a higher gear. This approach will be critical to complement the important work set out for businesses in the Bill.
Representing the Ribble Valley, Mr Deputy Speaker, you will be aware that many of the pro-business policies in the Bill will help to rebalance the economy in the country and across the regions, including the north-west. We have become too dependent on the public sector to create jobs, and we must change that, as we are doing. Despite much grumbling from the Opposition, there is evidence of success. We see important progress at Jaguar Land Rover, where 1,000 jobs are being created at Halewood by a 24-hour production line, one of the few
24-hour facilities in Europe. BAE Systems has been named a key contractor for the F-35 joint strike fighter, which will bring about £30 billion to the UK economy and safeguard 25,000 jobs, many of which are based in the north-west, near Mr Deputy Speaker’s constituency.
We have seen other positive news in recent weeks. In Crewe, near Macclesfield, thanks to a £3 million regional growth fund investment, Bentley has announced that it will create 500 extra new jobs. All these steps show that private sector jobs are being created. As a result, more employers in the north-west are feeling more optimistic about job-creation opportunities. According to a March 2012 Manpower survey, 6% more employers in the north-west say that they intend to hire this quarter than in the last quarter, which is welcome news for the region.
We have heard much from the Opposition about job creation. My concern as I look at their policies is that, yet again, they are calling for more jobs to be created by the public sector, which are not sustainable. The jobs that the Government seek to create are sustainable. They are based on a private sector-led recovery. As I listen to the arguments from the Opposition, it is ever more clear to me that the previous Government were overspent, overdrawn and over-awed by the challenge that they had helped to create. It has been left to this Government to clear up that mess.
As we approach the halfway point in this Parliament, we can take stock of the progress that is being made to back business. Important strides have been taken to tackle the deficit, to address supply-side constraints and in this, as in previous Finance Bills, to create a truly competitive corporate tax environment. Such changes are much needed. That is why I add my support to the Bill today.
It is a pleasure to follow David Rutley, who made a number of important points. The first of those was that the recovery being sought by the Government is a private sector-led recovery. We would all say amen to that, but what concerns us on the Opposition Benches is the imbalance being created between a private sector-led recovery and the social model that we have espoused and continue to espouse. The Government are somewhat unbalanced when they attack the welfare state while at the same time seeking the recovery.
The hon. Gentleman said that Opposition Members have not referred to corporation tax. Actually, I referred to it when the Chief Secretary to the Treasury wound up the Budget debate, because he omitted to say that the reduction in corporation tax to 22% would not come into effect until 2014. He amended that today and stated that that is the case. The Opposition welcome that, but we wonder whether the benefit of the corporation tax reduction will go into shareholder dividends rather than into growth. Although growth is a major topic in this debate, the Government have yet to say how a measure that will come into effect in 2014, which by my reckoning is two years off, will help growth.
We have heard a lot about growth and, in particular, about national insurance holidays, which were mentioned by my hon. Friend the Member for Leeds West
(RachelReeves). I will come back to that later. The hon. Member for Macclesfield mentioned business investment, which is important. The £20 billion scheme introduced by the Government is very welcome. I will also come to that later.
The hon. Gentleman also mentioned Ronald Reagan. That was the second mention of him today. The hon. Gentleman talked about him in relation to alligators and cleaning the swamp. Earlier, my hon. Friend the Member for Leeds West referred to the Laffer curve, which was written on a napkin. It suggests that if one reduces taxation, one will get growth. It was pointed out on the Floor of the House that that does not really happen. Nevertheless, it is one of those myths that are in the system and that will stay there.
The hon. Gentleman mentioned cutting the regulatory burden. I agree with that. When I was in opposition before, a Minister came to a meeting and showed us the regulations that the former Government had introduced and those that the Conservative Government of the time had introduced. The second pile was twice as high. A great amount of what the Government do increases red tape and the regulatory burden. We are therefore happy that there is an attack on red tape.
The hon. Gentleman also mentioned Winston Churchill. This has been a day of famous names being thrown around the House. I will entertain the hon. Gentleman by telling him something that I imagine he does not know. The allowance that the Government are abolishing with their granny tax was brought in by Winston Churchill in 1925. That fact is little known, but my mind is full of useless and irrelevant information that I wish to share with the House. When Churchill made his Budget speech on that day, he used a whisky flask to replenish himself and, as he pointed out, to replenish the Treasury. The hon. Gentleman is therefore in good company in discussing these matters.
Mr Chope, who is still in the Chamber and following the debate with great interest, made a number of important and significant points. He contradicted Mark Field on the issue of child benefit. Jacob Rees-Mogg also spoke about universal benefits. The hon. Member for Christchurch, who describes himself as a humble Back Bencher, although we would not necessarily agree with that term, said that there is a debate to be had about universal benefits. He mentioned fairness and asked where the fairness is in the system. People who have children receive child benefit and those who do not have children do not. The word “fairness” is in vogue; it is the great word. It is used by Opposition Members and by Government Members. However, unless fairness is linked to values, we have no idea what it means and what it should come to. There is no great appetite among Opposition Members for attacking universal benefits.
I congratulate the hon. Member for Christchurch because for a short while he was Chancellor of the Exchequer—not for a day, not for a week, but for the few minutes in which he made his speech and gave his own proposals. I predict that over the years, universal benefits will be whittled away. We are already seeing it. They will become lower and lower. As I tell taxi drivers when I talk to them about child benefit, free television licences for the over-75s and the winter fuel payment, in the years to come people will look at us in amazement and say, “Did you really have those benefits in the past?” That is the way things are going.
My hon. Friend the Member for Leeds West talked about VAT and my hon. Friend Mr Brown talked about the VAT on caravans. I would like to talk about the sad event of the 5% VAT rate on church repairs ending. The Chancellor called it an anomaly. When I was the Second Church Estates Commissioner, the Church of England worked long and hard to persuade the then Chancellor, my right hon. Friend Mr Brown, on this matter. The former Archbishop of Canterbury took him across to Lambeth palace and offered him a cup of tea or coffee—not the celebrated whisky of Winston Churchill. On the back of that, the then Chancellor understood the importance of the heritage and fabric of our churches, and agreed effectively to reduce the rate of VAT to 5% for three years. When he became Prime Minister, he made the change for the duration of his Government. It is a matter of regret to the Church that the rate has now been called an anomaly and will no longer exist. That is a great pity for the Church and will create problems in maintaining its fabric.
My hon. Friend the Member for Leeds West made a very fine speech. When she was taking interventions, which she handled with great capacity and knowledge, there was confusion among Conservative Members about tax avoidance and tax evasion. Tax avoidance is legal, whereas tax evasion is not. I had the feeling that there was obfuscation among Conservative Members about the taxation regime for contributions to charity. The clear view is developing that the Chancellor will consider that matter again, which we respect and welcome. I will give my age away when I say that in the first Finance Bill on which I sat, which was in 1983, there was a measure that would have liquidated the co-operative insurance company. It would have wiped it out. We took the matter to Lord Lawson, who considered it and removed the measure from the Bill. We welcome the fact that the Government are looking at this issue and I am sure that they will take into account, among other representations, the statement made by the Archbishop of Canterbury.
My hon. Friend the Member for Leeds West talked about the Ernst and Young ITEM Club and mentioned a number of facts from its report today. My hon. Friend the Member for Dumfries and Galloway and the hon. Members for Cities of London and Westminster and for Macclesfield also mentioned it. Its spring forecast makes it clear that this year we can expect 0.4% growth:
“ITEM says that what the economy needs now is for UK companies to invest their substantial cash reserves. The strong recovery in the UK is partly due to buoyant business spending, whereas in the UK investment has fallen to 12% below its 2008 level”.
That is important and serious. There is a lack of investment and companies prefer to hold their money under the bed because of the Bank of England’s concepts of moral hazard and too big to fail, and because of the Basel accords, which have a higher capital requirement. The banks are therefore reluctant to lend and, of course, companies are reluctant to borrow. That is an important and significant fact that we have to deal with.
Ernst and Young also states:
“Ernst & Young’s Eurozone Forecast, Spring edition suggests after a fall of 0.4% in 2012, Eurozone GDP is expected to grow by about 1% in 2013 and some 2% a year in 2015-16. This year, economic conditions will test policy-makers’ commitment and ability to preserve the Eurozone in its current form, with large amounts of public and private sector debt to be re-financed, tighter credit conditions, job losses and further fiscal austerity.”
In these debates, we have been spared an attack on the eurozone and a declaration that the eurozone is responsible for our low growth. The eurozone sorted itself out in December.
The Minister shakes his head, but Italy and Spain were able to raise finance on the markets at a reasonable rate. Since then, a firewall of something like £720 billion has been put in place. Does the Minister really want the eurozone and the euro economies to fail, given that 60% of our trade is with Europe? He is still shaking his head, so I invite him to intervene.
I was able to drink my glass of water during that intervention, so it was appropriately timed.
I presume that the Minister is referring to Spain, where the yields have reached 6% on the open market. That is not the yield that investors are asking for on new issues, so he should settle down a bit—there is no crisis in the eurozone and the euro this week.
A lot has been said about growth in the small and medium-sized enterprise community. My hon. Friend the Member for Leeds West, the hon. Member for Cities of London and Westminster, my hon. Friend the Member for Dumfries and Galloway and the hon. Member for Macclesfield all referred to it. We, and the SME community, welcome the credit easing scheme that the Chancellor has introduced, which will enable the Government to help the banks lend it a further £20 million at 1% less interest than usual bank loans.
I note that although Mr Tyrie welcomed that credit easing in his contribution to the Budget debate, he feared that the money would not go beyond the banks’ balance sheets. My concern is that it will not go up to the Tees valley and other local economies. It has always been a matter of regret to those of us in the north-east that when the Government came into office, they chose to treat all regions equally, failing to understand the vast discrepancy between the south-east and the old industrial heartlands of the north-east.
The hon. Member for Macclesfield referred to the investment in Jaguar. I congratulate the Prime Minister on announcing when he was in Tokyo that a new Nissan model would be manufactured in Sunderland, which followed a similar announcement about another model. Yesterday, we saw the unique event of a blast furnace that had closed two years ago, which everybody said could not be reignited, being reignited under the auspices of a new Thai investor who put £4 billion into buying the plant and £2 billion into getting the furnace going. What does it tell us about the global economy that a Thai investor can come over and invest that money in the north-east, and that steel slabs will be put on ships and sent right across the world to Thailand? We ought to remember that when we criticise the global economy and its impact on our own economy.
As a consequence of the Budget, the local enterprise partnerships in the north-east will receive £10 million of additional funding for the Growing Places fund, to unblock local projects. The hon. Member for Cities of London and Westminster mentioned that investment. We in the north-east, and certainly on Teesside, also welcome the manner in which our local enterprise zone has developed and is succeeding, which is a great tribute to our local community’s belief that there is a future for us.
I have no interest in being negative about the north-east and manufacturing, but as the Business Secretary has said, manufacturing has dropped from 18% to 10% as a share of our economy. He has also declared that he is a social democrat, and we welcome him to the fold. He must be disappointed, as we are, that the Budget does not go far enough or fast enough to increase jobs and growth and offset the pace of the Chancellor’s deficit reduction. The hon. Member for Cities of London and Westminster made that point ably.
I turn to the essence of the debate and of the Government’s proposals, which my hon. Friend the Member for Dumfries and Galloway and the hon. Member for Cities of London and Westminster touched upon—how to achieve growth at a time of steep deficit reduction. The Government could not even carry through their own deficit reduction programme for 2015, and they have had to extend it to 2017. My hon. Friend the Member for Leeds West made the point, which the hon. Member for Cities of London and Westminster took up, that public expenditure is still rising. That cannot be gainsaid.
The hon. Member for Cities of London and Westminster said that we could not live beyond our means. That reminded me of Oscar Wilde, who said when he was in Paris:
“I am dying beyond my means.”
Let us hope that the Budget will prove to be more on the upturn than the Oscar Wilde downturn.
The Opposition welcome any measure that helps manufacturing, reduces red tape and gives our people optimism and confidence. That word was used in an intervention earlier, and we want confidence, but we are not entirely convinced that this Budget will give it.
As the coalition made clear upon its formation back in 2010, the overriding priority of the Government and the House must be the economy. We have heard many comments this afternoon about the difficult financial legacy inherited from the previous Administration, but as we consider this wide-ranging Finance Bill, the focus of my contribution will be on not the past but the future.
In such turbulent and difficult times, we must govern not only for today but, perhaps more crucially, for future generations. Failure to ensure economic recovery, encourage new technological industries and reduce the deficit while simultaneously promoting growth will consign not just one generation but multiple generations to long-term economic hardship and its consequences. The international economic waters make steering such a delicate course difficult, and we should appreciate that everything that the Government do, including in the Bill, is hugely shaped and constrained by international factors. A quick glance at Greece and the eurozone provides a daunting reminder of the long-term economic troubles awaiting our continent.
The general thrust of the Government’s financial policy to date has been entirely sensible—to reduce the deficit while promoting and freeing the private sector. Sadly, that careful approach has pleased few. For some, the idea of any reduction in public spending is completely unacceptable, while for others the Government have failed to front-load the cuts enough or cut deeply enough. Indeed, following the Budget a few weeks ago, a number of media outlets have portrayed their concern, frustration and anger. The focus has largely been on the Government’s proposals to reform child benefit and personal allowances, including those of pensioners, and on the politically questionable crackdown on Cornish pasties.
Lost in the wave of negative press cuttings were some of the positive steps that the Chancellor outlined, which should be highlighted and celebrated, particularly by pro-business Government Members. I truly believe that cutting the main rate of corporation tax to 24% from
Throughout the new Labour years, Britain’s lead on corporation tax was sadly lost. In 1997, we had the 10th lowest main rate among the 27 EU nations. By the 2010 election, we had the 20th lowest. The Government’s corporation tax reforms and other measures will give us the most competitive tax system in the G20.
I will be completely honest: I have always been happy to nail my colours to the mast and declare, as I do again, that I passionately believe in a low tax economy. Low tax economies are attractive places in which to set up, relocate and expand a business. A competitive and vibrant private sector is essential for job creation, economic growth and, by extension, delivering a higher tax take. Ensuring that Britain can offer such incentives to businesses around the world will mean that we remain the No. 1 place in which to do business, and the Chancellor should receive a great deal of credit for putting us on such a pathway, despite the wider constraints of the budget deficit.
Thus far, I have focused on the wider economy and the creation of a private sector-led recovery through providing incentives and tax reliefs. However, I would also like to consider individual households, as the same principle can and should be applied to them. As several hon. Members have said, times are incredibly tough and households face real pressures. I confess that I would have liked some news in the Budget about fuel duty, particularly given the importance of fuel prices in rural areas such as my constituency of York Outer and across north Yorkshire. Yet I recognise that fuel duty will have been frozen for 16 months, thanks to the Government’s actions in the 2011 Budget and autumn statement, and that they also introduced the fuel stabiliser. We must be realistic. Under the current financial conditions, the Government can do only so much in each area. Altogether, we have done more in two years on fuel than the previous Government did in 13.
Does the hon. Gentleman know that when the Government came in, unleaded petrol was 119p a litre? How much is it now and how much will it be after the next increase in October?
I was going on to say that we must be realistic. However, if we had continued over the two years with the rises that the previous Government introduced, fuel would have cost between 9p and 11p a litre more than it does today. Having said that, I still hope that the 3p rise planned in August will be kept under review because we must not forget the impact of high fuel prices on rural areas and the wider rural economies.
Some of my family originate from Copmanthorpe in the hon. Gentleman’s constituency, and petrol is sold there. Today, petrol in his constituency, mine and Mr Deputy Speaker’s is around 143p or 144p a litre, and it is going up. So, 119p and 143p or 144p—how much more is petrol since the Chancellor took office?
I hope that some of the hon. Gentleman’s friends might support me in Copmanthorpe—you never know. He is right that many rural garages in my constituency and throughout north Yorkshire are struggling. Independent forecourts are struggling even more than the supermarket chains. Fuel prices have gone up, but that is due to the higher oil prices, which have escalated dramatically over the past two years. As I said, if we had not stopped the previous Government’s tax increases on fuel in the past 18 months, fuel prices would have been 9p to 11p higher than they are. The impact on rural areas and hard-working families across the country would have been huge.
Obviously, as a north Yorkshire MP who represents a rural constituency, I understand the impact of fuel prices on rural areas and economies, and the Government must consider that. However, as I said, the Government have to consider the wider impact when they make such decisions. They would like to do many things, and I would like them to do a lot of things—I would like the 3p rise not to come in in August, and I hope that it will be kept under review if oil prices continue to rise—but they have to take a balanced view.
My hon. Friend is right that any cut in fuel duty or reduction in potential rises that are coming down the line has a huge impact on the Treasury’s finances, and the money always has to be found elsewhere. However, I go back to my original point, which will have some resonance across the House: rural areas are particularly affected by high fuel prices and that has an impact on the rural economies. I ask the Exchequer Secretary to keep the matter constantly under consideration whenever he looks at increasing fuel prices.
My hon. Friend makes a good case for reducing fuel duty, especially in rural areas. However, I also recognise that the Chancellor has only so much money and that taking people who earn up to £9,000 out of tax will help many lower-paid workers in many rural areas. That will help. We must concentrate our finance on where we can put it to best use.
I agree. Raising tax thresholds will be hugely helpful, and I will speak about that later. My hon. Friend is right that the number of people we will take out of tax has sadly been a little lost in the press and media coverage of the Budget. We must champion and emphasise that policy.
I want to consider another controversial issue at a household level, which several hon. Members have already mentioned: the child benefit reforms in clause 8. In the early consultation on the proposals, I wrote to Her Majesty’s Treasury, asking for them to be reviewed. The amendments in the Budget are clearly positive developments, which brought some fairness back to the policy. My concern now is about how it will be implemented and whether the costs of administering the reduction in child benefit will be worth the benefits. I hope that more light will be shed on that in due course. I would also like to put on record again my support for transferable tax allowances as a way of increasing fairness in the system. I believe that Ministers are still examining that, and I hope that it will get due consideration.
My hon. Friend Neil Parish briefly raised the personal tax allowance changes that the Government have made. Again, I commend the Government for raising personal tax allowances faster to ensure that more of the lowest paid are lifted out of paying tax altogether. That is an excellent policy and a very Conservative principle.
The controversy about the so-called granny tax in clause 4 is understandable. I have great sympathy with those who are unhappy about the changes, but I must make a couple of points. We live in extreme times. The largest budget deficit since the second world war requires a strong Government to make decisions that they would not choose to take in other circumstances. Opposition Members can attempt to make political hay out of such decisions, but they were not charged with the responsibility of cleaning up the current mess. With an increasing state pension, the triple-lock guarantee and the protection of key benefits such as free eye tests, prescriptions, TV licences and bus travel, pensioners remain at the top of the priority list when it comes to protecting individuals from the full impact of the economic crisis.
In summary, the Bill contains a great deal of positive, forward-thinking and private sector-encouraging policies. It deals with the difficult but necessary financial decisions and judgments, which will be truly appreciated and tested only in the fullness of time, and yet the message is almost more powerful than the contents. The Bill is unashamedly proactive in building a more competitive international economy. For that reason alone, I hope hon. Members give it full backing tonight.
Before I begin my remarks on the Bill, may I make one small comment on the contribution of Rachel Reeves, who was a little critical in her speech of the VAT change to ski tolls? Will Owen Smith gently remind her that the systems in Glenshee, Glencoe, the Lecht, Aonach Mor and Cairngorm are important parts of the Scottish winter economy? I am sure she did not intend in any way shape or form to be critical of the many jobs they provide for young people, or of the tens of thousands of working class Scots who loyally use their local ski systems every winter.
Indeed—the caravan sector has my sympathy and support in attempting to change that decision.
There are many other reasons for opposing the Bill, and I shall highlight a number of them. One key reason is the introduction of the plans to reduce the 50p tax rate to 45p for those earning more than £150,000 a year—some of us have already managed to vote against the measure, but I shall say no more about that tonight. According to the Government’s numbers in the 2012 Budget book, the measure will mean that the Government forgo £360 million over the forecast period. It is quite something when a Government are prepared to sanction the loss of revenue yield when the deficit, debt and borrowing forecasts are worse than the forecasts in the previous Budget.
The changes to age-related allowances for older people—the granny tax—will impact on about 40% of pensioners, which is another a reason to oppose the Bill. The measure will affect those who are above the basic state pension and pension credit level, but below the £30,000 a year level—people on that level will not benefit anyway. That will leave some 4.41 million people worse off than they would otherwise have been.
The Budget and the Bill are full of wrong-headed decisions, not least the Government’s determination to increase air passenger duty. Let us look at what they have done. In the Budget, the Chancellor announced that APD will rise by 8%, or double the rate of inflation and confirmed that it will rise again in April 2013 in line with inflation, ignoring the fact that Scottish, Welsh and English people, who live on an island, already pay the highest aviation duty in any country in Europe.
It is therefore no wonder that Scottish airport bosses united prior to the Budget in calling for the Chancellor to rethink the planned hike in APD and give the Scottish operators what they called “a fighting chance” to compete against European rivals. Their joint statement says:
“At a time when the Government talks about creating jobs and growth, its blinkered insistence on further increases in APD achieves precisely the opposite
It goes on to say:
“Youth unemployment is at record levels”,
which should concern us all, and that “inbound tourism” and importing
“is a major employer of young people, but international visitors are being turned off the UK because of the exorbitant level of APD…which is by far the highest air travel tax in the world.”
We are not all in it together, and so much for Britain being open for business, as Julian Sturdy claimed.
Let us analyse what the Government are planning for APD. The £2.2 billion the Treasury collected last year is almost twice as much as every other European country combined. A family of four travelling to Spain will pay a total of £52 in tax. If they travel to Florida, they pay £260, and if they fly to Australia, they pay £368. That is why the Airport Operators Association chief executive said that his organisation will be campaigning against the rise as the Bill progresses through the Commons. The Scottish National party intends to move amendments to cancel the rises and, more importantly, to devolve air passenger duty to Scotland and Wales.
Air connectivity is crucial to the economy. The increase in APD is unhelpful and unwelcome, and will hit the tourism industry and needlessly jeopardise the recovery of the economy as a whole, but the key problem in the Bill is the complete failure, as the hon. Member for York Outer said, to tackle the rising price of fuel. Let us be under no illusion about the significance of that. The Forum of Private Business has said that more than one third of its members cited transport costs—predominantly the price of fuel—as their main cost pressure. When they were asked what would help to improve the business climate in the UK, they said that their main priority was not regulation, but reducing the cost of fuel duty. They were incredibly blunt in their reaction to the Budget upon which this Finance Bill is based, saying:
“Businesses and consumers just can’t afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK is strangled at birth if the Government doesn’t act, and act fast.”
We hope the Government listen to the Forum of Private Business, because the economic plan they are following simply is not working. They are following a path that is failing. Much as I like David Rutley, who is not in his place, I do not recognise the positive progress he said he had seen in the economy. We can see that the Government’s plan is failing because, in the 2011 Budget, the deficit was forecast to be £90 billion for 2011-12 and it is now £98 billion. The 2011 Budget forecast for 2011-12 was that the net borrowing requirement would be £122 billion, but it is now £126 billion. National debt, on the treaty calculation, was due to peak at 87.2% of gross domestic product, or £1.25 trillion, in 2013-14, but on the same calculation, it is now expected to peak at 92.7% of GDP, or £1.365 trillion, in 2014-15.
That means that even the Chancellor’s fiscal rules—that the structural current deficit should be in balance and that debt is falling as a share of GDP in the final year of the forecast—are under pressure, because both objectives are highly dependent on GDP growth, which, according to the OBR, is dependent on incredible rates of business investment, as other hon. Members have said. In 2010, the Government suggested that business investment had to grow by between 6.7% and 10.6% a year every year from 2011, but by the time of the OBR November 2011 outlook, growth in business investment had turned negative for 2011 and the forecasts had been changed to suggest business investment growth from 2012 to 2016 of between 7.7% and 12.6% a year. The Government have now changed that again—they expect business growth at heroic levels of between 6.4% and 10.1% a year between 2013 and 2016.
Nobody wants growth in business investment more than I do. If we can power the economy in that way, it will be fantastic, but there is precisely no evidence that it is happening. Indeed, the downgrade of a previous high estimate tells us that it is unlikely. That should be a concern to all hon. Members, because it makes a negative rate of central Government consumption at the same time more dangerous. There is nothing to offset the lack of growth in the whole economy as a result of lower-than-expected business investment, but that is precisely the risk that the Chancellor has put into his plans.
The Chancellor’s 2011 Budget showed that between 2012 and 2015 there would be a fall in Government consumption and expenditure of 1.2%, 1.8%, 2.4% and 1.8% a year. This Budget’s figures and the Finance Bill that delivers it are no better. They show falls of between 1.3% and 2.6% from 2013 through 2016. At a time when there is no guarantee of growth in business investment, it strikes us as particularly foolish to continue down the path of reductions in central Government consumption and expenditure. The key point is that any Chancellor getting his sums wrong on growth will deliver an economy that has a serious impact on real people, on public expenditure for the services that communities rely upon and on the Government’s ability to grow the economy out of its current stagnation.
In those three areas, because the UK Government’s policy is wrong and is not working, real people are paying the price. But that should come as no surprise. The Government inherited £73 billion of cuts and tax rises every year from 2014 to 2015 onwards. That was a balance of £52 billion in cuts and £21 billion in tax rises. That increased to £113 billion of cuts and tax rises every year from 2014 to 2015 in the 2010 Budget, and went further with cuts and tax rises of £128 billion every year from 2015 to 2016. As the Red Book made clear, this Finance Bill now sets us on a path of fiscal consolidation—cuts and tax rises—of £155 billion every year from 2015 to 2016. And of course the proportion of cuts to tax rises is no longer 3:2 but 4:1. Yet despite brutally cutting so much money from the public services on which people depend, they have still managed to deliver a tax cut for millionaires. In essence, that makes this a Tory Budget, a shameful Budget and one, of course, that we must resist by opposing the Bill.
But the Government have been honest. The 2011 Budget told us that every single population quintile would see a reduction in its net income. So they are at least clear about the impact of their polices. This year’s Budget Book and Finance Bill have delivered no help. Indeed, the Budget Book told us again that every single population quintile would still be worse off.
As I said earlier, however, of everything that ought to have been done but was not, the failure to act on fuel was the most disgraceful. My criticisms of the previous Government are well known. I criticised the fuel duty escalator and their refusal to act on and outright opposition to measures to introduce a regulator. But this Government are no better. Their plan for a stabiliser is no such thing: it will see fuel rise by inflation when the oil price is high and by inflation plus—an escalator—when the price is low. A real fuel duty stabiliser would see the rate of duty fall when the price rises, precisely because the UK Government are already getting VAT on the North sea windfall to pay for it.
No doubt the failure properly to address this issue is why the Federation of Small Businesses has expressed its disappointment that the Chancellor
“did not announce a cut in the level of Fuel Duty”.
It is why the Licensed Taxi Drivers Federation has said:
“rising fuel costs are creating detrimental factors” and leading to businesses being unable
“to invest in businesses as they’d like to.”
It is why bodies as diverse as the Scottish Grocers’ Federation, the National Farmers Union of Scotland and the Road Haulage Association, among many others, all recognise that rising fuel prices are inhibiting economic growth and are calling for Government action to deal with it.
The costs are being borne across business and society. The NFUS has told me that it is
“very concerned about the rising cost of fuel and its effect on rural businesses and communities. This is being felt most acutely in the Highlands and Islands of Scotland, where public transport is severely limited and fuel prices are among the highest in the UK.”
I say to John Mann that if unleaded or diesel was only £1.45 a litre in some of these communities, the constituents there would be absolutely delighted.
The NFUS accepts, as we all do,
“that the global price of oil is beyond the Government’s control, however MPs could help to address this critical problem through introducing a fuel duty regulator to cushion the blow of soaring oil prices. Such a mechanism would benefit not only the farming community, but also Scotland’s rural economy as a whole. Transport is at the core of the rural economy, where there is far less scope to use public transport than in urban areas.”
The NFUS makes a key point:
“The cost of transporting the inputs of feed, fertiliser and fuel is so high, as is the cost of delivering produce to the market, that it is putting Scotland’s already fragile rural communities at a competitive disadvantage with other EU producers. Rural businesses could play a vital role in…economic recovery and high fuel duty is holding them back”.
I would have thought that if the Government recognised anything, they would recognise the drag on growth and recovery that all these trade bodies and others recognise in their day-to-day lives. So we need to take action, and we need to take it now. As the NFUS has said, we cannot mitigate all price rises because they occur for a variety of reasons, but we need to militate against the worse rises, particularly when they are driven by the barrel price of oil.
That was the same fundamental point made by the Scottish Grocers Federation, which also appreciated
“that the rising cost of fuel cannot indefinitely be reduced”,
but which would
“support any measure which would provide more stability and predictability in fuel prices.”
“The rising cost of fuel, along with other significant increases in overheads including energy prices”— again, the fuel dependents—
“continue to erode the viability of many small and medium sized retailers in Scotland… Government should be doing everything it can to support small and medium sized businesses which are fundamental to economic growth and employment. And that is why we are certain that the Government should introduce a proper Fuel Duty Regulator - to smooth out spikes - provide certainty - allow for investment - And most importantly remove this drag on recovery.”
The FSB spoke for everybody when it said it was
“disappointed that the Chancellor has not announced a cut in the level of fuel duty and that the rise deferred to August is still to go ahead. This will still hit small businesses and households hard and so we need to see a long term solution to address high and volatile fuel prices. We remain concerned that the Government’s Fair Fuel Stabiliser will not trigger an actual reduction in the price paid at the pumps.”
Nor will it because it was never designed to do so. That is why businesses such as those in the taxi trade, which are not in control of their own prices—they cannot set their own fees or fares because they are set by local authorities—have to take this hit on the chin. As the taxi industry said, that is leading to many detrimental factors: profit margins cut, people unable to invest in their businesses in the way they would like to, drivers having to put in extra hours and take-home pay for families reduced.
The taxi industry supports our position on the introduction of a fuel duty regulator, but the Government argue that this cannot be done and that there is no yield to fund a cut in fuel duty. They have made that case several times. But how much worse is it without a regulator in place and businesses of all sorts being forced to take these hits—hits that are a drag on economic recovery? The Forum of Private Business has said:
“The pips are squeaking, and everybody is feeling the pain.”
And by goodness they are. Yet action could have been taken. Businesses and consumers cannot afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK will be strangled at birth if the Government do not act and act fast.
With those remarks on fuel and the absence of certain measures in the Bill, plus my other remarks, I hope that I have put our opposition on the record. We hope to return, with appropriate amendments at the appropriate stages, to issues such as the 50p tax cut, changes to age-related tax allowances, APD and, most importantly, the failure to deal with the fuel issue.
I intend to address my remarks not to the Finance Bill generally, but to the part relating to charities. When I put in to speak, I did not realise that would become one of the great cause célèbres of the Budget debate. I feel I have some experience in this field, having in a previous life spent three years as chairman of fundraising for one of the country’s largest children’s charities. Indeed, it got to the stage where people whom I had known for years would cross to the other side of the street rather than say good morning to me, in the certain knowledge that I would get them for a philanthropic donation. In fact, it was very good experience for speaking in the Chamber, as I seem to have the same effect on people in this place.
There is a serious point to make, which is that I do not think this debate is about charities; rather, I think it is about whether, in a sophisticated society such as ours, where 40%-plus of gross national product is spent by the Government, certain individuals should have the freedom to decide, for whatever reason, quite legally, that they will not pay any tax at all. Although we are talking about charities—that is what the recent debate has been about—society has to make a decision on that question. Is it acceptable, under any circumstances, for people obeying the law and earning money—a lot of money—to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income,” in this case because they are giving to charity?
I think back to my 20s, when I started work. People had many different options to avoid paying tax. Pensions were uncapped, so self-employed people could go through their whole lives and pay as much as they wanted into pension funds, cutting their taxes on their salaries in exactly the same way. At one time, there were many investment schemes where the amount of money and the conditions attached were almost open-ended, so that people could legitimately avoid paying tax. There are quite a lot of schemes where Governments—not just this coalition Government, but previous Governments—have decided, for whatever reason, to cap the amount of tax deductibility that is allowed. I know that this is not a popular argument, but I would argue that charities, charitable donations and philanthropy should be no exception to the general rule that everybody earning money in a society such as ours should pay some tax.
I am delighted that the hon. Gentleman agrees with me. It had to happen sooner or later in my political career, and I am delighted that it should be today.
Most of us in this House and in the country generally regard the charitable sector as part of all the wonderful organisations that we deal with in our constituencies. In Watford we have the Peace Hospice, which is probably one of the most important hospices in the south of England, along with homeless charities and Mencap. Indeed, we have many good charities, so it is difficult to be the person standing here today and even putting the thought in donors’ minds that there may be circumstances where what they want to give cannot be a tax deductible donation. However, people should be aware that the tax aspect is not the predominant reason for philanthropy—that is my experience. If it is, there is something wrong.
I totally support the hon. Gentleman and the Chancellor on this specific matter. Does he not find it rather disturbing that one or two individuals are saying that they will refuse to give to charity if the money has come out of their own pocket, rather than being tax deductible?
I agree very much with what the hon. Gentleman says, but when it comes to it, that aspect is not such a defining factor as those statements would suggest. We must remember that this country is very good at philanthropy. Among the developed nations, we are the third highest in the world, after the United States and Israel, in terms of the amount per head of
GNP that we give to philanthropic organisations. I do not accept that that is just because of the tax breaks; I think it is because of a tradition in this country. Trade unions and working people are involved in it, wealthy people are involved in it, and business people are involved in it, just as Victorian philanthropists were once involved. All in all, we have huge tradition of philanthropy.
We are very proud of that tradition, but we have to remember that it is very easy to set up a charity. Even today, the forms are simple to fill in. Within 24 hours it is possible to set up a charity, which is then basically a conduit for almost any form of tax-deductible donation. Many charities are very good organisations—I would be the last person to suggest that there was a predominance of fraud, negligence or dishonest behaviour. However, a lot of charities are charitable to some people, who might think the causes are excellent—for example, I could set up a charity to research the history of Watford, which I might think was an excellent cause, and it may well pass the Charity Commissioner’s barriers to becoming a registered charity, albeit not in any dishonest way, because it would be educational or whatever—whereas a lot of other people might not regard such organisations as very charitable at all. It strikes me as very strange that any such organisation can be set up and, provided it has proper directors and an office—it can also be somebody’s house—all of a sudden it can become a charity to which basically any amount of money can be donated. Such a charity could be based abroad, or it could be for a very narrow sector in this country.
It seems strange that there is a perception that giving money to a charity is a great thing almost by definition, but paying tax is not, yet after all, what does tax pay for? It pays for the NHS and education—indeed, it pays the majority of the money going to many organisations that are perceived as being charitable organisations. For example, many years ago, when my late father was chairman of Mencap—it was then called the National Society for Mentally Handicapped Children, although obviously the organisation has developed a lot since then—5% of its money came from Government sources and 95% came from sponsored walks, charitable donations, rich people, poor people, tins outside shops, or whatever it was. Now it is almost the other way round; in fact, many registered charities depend more on money from the taxpayer than on individuals giving. It seems strange that the media can say that if the Chancellor of the Exchequer wants money for the big public pot, some of which may come from philanthropic giving, one thing is automatically good, almost by definition, and one thing is automatically bad.
As we all know, there is a shortage of public funds, and we cannot—or we choose not to—borrow any more money. I shall not get into those arguments, but I think there is a consensus that public expenditure is fairly high by any traditional standards. The Chancellor is taking a lot of different measures to try to fill a gap. The gap was filled by borrowing, and perhaps it will now be filled rather less than it was by that means—that is what we think will happen. Nevertheless, there is always a gap between what a Government such as this —or, in fact, any Government in recent memory—want to spend and what they can raise. Before the public decide who to criticise, it is important that they should remember where the tax saved would have gone, because were those organisations private, it would be perfectly reasonable to regard many of them—be they schools or things like that—as charities. That point should not be forgotten.
It is perfectly reasonable to say that Governments have to think beyond comfortable, cuddly philanthropy, compared with nasty, horrible public expenditure. Governments have to decide on the balance. We have to remember the fundamental point: is it right that people should earn a lot of money and pay no tax at all? There are ways round this problem, and I am sure that the Government will be looking at that in the consultation on the details. Indeed, I would suggest that they might look at “lifelong gifts”—how much money people give in their lives. If someone has a windfall of £1 million, it might be a wonderful for them they to say for that year, “I’m going to give that £1 million to a charity—I won’t pay any tax, but it’s going to useful causes,” but should they be allowed to do that every year? Should that be their normal way of doing things? Some people may say, “It’s wonderful, because they’re very philanthropic.” Others, if they look it objectively, may say, “Well, each year the state is losing out on £450,000,” or whatever the marginal rate happens to be.
I believe that society has to make a decision on whether people should be able to opt out of the tax system, for whatever reason. I believe strongly in philanthropic giving, in charities and in tradition, but, as with everything else, there has to be a compromise. It is unacceptable that people, irrespective of their income, should be able to choose not to pay tax using a variety of avoidance methods, one of which might be charitable giving.
I found it strange to hear Rachel Reeves criticising the proposals on charitable donations. She should consider whether it is right that some multimillionaires pay no tax at all, and that some people should be able to choose what good causes to support. Should people be able to choose to support, say, the National Theatre, the opera and Christian Aid, while choosing not to support the national health service, education and social services? I ask the Opposition to consider that point before being so critical of the Government’s desire to make tax fair for all and to ensure that very wealthy people no longer pay no tax at all.
It is a pleasure to follow Richard Harrington. He made an interesting speech on an issue that we shall no doubt hear a great deal about in the near future.
The Finance Bill and the Budget are a huge wasted opportunity. So much needs to be done now, with more than 1 million young people out of work and a manufacturing base that is continuing to decline. We are continuing not to see the growth figures that we need if we want even to start talking about paying back the deficit. Many of the contributions from the Government Benches today have shown yet again that the Government’s policies are simply not going to get us out of this mess.
I believe that the Government’s position is ideologically driven. Many of their Members would believe in their policies irrespective of the economic position that we were in—for example, the comments about the need to get rid of employment protections in the workplace and to get rid of red tape would be made irrespective of whether we had 10% growth or negative growth in this country. The debates that we are having here are similar to those taking place across Europe, the United States and the west generally. We face massive challenges, but the answers being provided by Opposition Members, from whatever political party, are very different from those coming from Government Members.
Does the hon. Lady agree that what we are hearing from the Government Benches proves that the political right never lets a good crisis go to waste? Following the downturn in the economy, the Government are looking for further erosions of workers’ rights, which is extremely worrying and typical of right-wing politics.
When we look at history, we see that, during economic crises, those on the right argue for policies that they would not get away with in other circumstances. We have seen that happen time and again. Perhaps the most comparable economic situation is that of the 1930s, and history shows that the policies that worked then were not those of tax cuts, of huge public spending cuts or of rolling back the state; they were the kind of Keynesian policies to which many Opposition Members are now sympathetic.
The policies of austerity that we are seeing not only here but across Europe are simply not working. We require very different policies from those in the Finance Bill and those being implemented across a range of Government measures. My party’s Front Bench has already mentioned the figures from the Institute for Fiscal Studies, which show that the average family is losing between £530 and £551 a year as a result of the measures being brought in now. The changes to tax credits being implemented are a central plank of the policies that will take away money from not only the poorest people, but those on modest incomes as well.
My right hon. Friend Mr Howarth has already talked about the impact of the measures on his constituents. My constituents too are coming to see me to talk about these issues. For example, last week a nurse came to see me: she works 16 hours a week, her husband is retired, and she has a 13-year-old child, and she is losing £3,700 a year as a result of the changes to tax credits. She works 16 hours a week at Crosshouse hospital, and she has asked to increase her hours to 24 a week, but the hospital has not agreed to that. That is the reality of the situation for the many families who are going to be affected by the tax credit changes, including more than 11,000 families in Scotland alone. Unfortunately, in the present economic circumstances, many employers will not be in a position to offer more hours, even if they wish to do so. That is just one example of the way in which the Government’s changes are affecting people.
As I have said, I believe that the Budget is a missed opportunity. We have heard about the Government’s radical proposals for deficit reduction, and indeed we are seeing the impact of those policies in all our constituencies. We are seeing what were considered to be essential public services being cut. We are seeing services being taken away that individuals and communities fought for, generation after generation, and that did not come easily. The incomes of the richest people in this country have increased by about 20% over the past two years, but the incomes and living standards of most people, including the poorest people, are going down.
The Finance Bill does nothing to address any of those issues. It does nothing to address the inequalities in wealth in this country. The Government’s policies simply exacerbate problems that we already have. The Bill will do nothing to bring about the essential increase in jobs and growth that we need. We will start to pay off the deficit only when the economy starts to grow, but the Government are taking money out of the economy and out of communities such as North Ayrshire, which is disproportionately reliant on the public sector because the manufacturing sector that we relied on in previous decades no longer exists. We are seeing money being taken out through cuts in the welfare sector and the welfare state, and through cuts in benefits and tax credits. The measures that are now being implemented are taking money out of the pockets of some of the people who need it most.
I say to the Government that we need policies that will stimulate growth. They should use every financial lever at their disposal for that purpose, rather than introduce tax cuts for the wealthy in the form of a rate reduction from 50p to 45p, and a cut in corporation tax, which is an ideologically driven measure that will have no impact on jobs and growth. My hon. Friend Rachel Reeves mentioned the figures from Ernst and Young which suggest that the Government’s measures could lead to negligible growth of 0.1% and have all sorts of other ramifications.
The Government have talked about being a Government for families and about us all being in this together, but the reality is that the Finance Bill, like many of the other measures that they are introducing in this place, week in, week out, will simply make Britain a less fair country, a less equal country, in which the gap between rich and poor, and between north and south, will become greater as time goes on. Furthermore, this Budget will not help the country to start to reverse its industrial decline. For much of my adult political life, I have been able to talk about us being the fourth richest country in the world; now we are the seventh richest, as we have failed to keep up with other countries that are advancing, failed to value our industrial base and failed to value our manufacturing. The Bill will do nothing to address any of these things. Frankly, this Government should be ashamed of coming forward with these proposals at this time. To a large extent, they are a political fix between two political parties in coalition, and they will do nothing to address the real problems that our constituents are facing.
Everything that Katy Clark says would be fair enough if what this Government were doing were any different from what a Labour Government would have been doing at precisely this time. The public sometimes lose track of the reality of the situation that we are in. We politicians talk in terms of billions or—perhaps soon—trillions of pounds, but a constituent put it to me like this, offering a better way of describing our situation. It is as if we were somebody who had an income of £50,000, who had knocked up a credit card debt of another £50,000, and who had promised to repay £4,000 of it but was actually repaying only £2,000. We are in a dire financial situation. I suggest that whoever were in government at this time would be doing much the same. In fact, I suggest that what the Government are doing is the bare minimum necessary to maintain market confidence.
We have had a lot of debate about the ratings agency, and I am sure that the Labour party is gearing up to tease the Government if there is any decline in our rating score, yet if we did anything less than what we are doing to address this deficit, we would be in dire trouble with the markets, and I have no doubt that interest rates would eventually have to rise, with all the consequences we know about for businesses and for ordinary mortgage payers. I therefore do not accept this apocalyptic view of the Government’s proposals. As I say, the Government are doing the bare minimum necessary to maintain market confidence.
I do not accept either the argument put forward by the hon. Member for North Ayrshire and Arran that there is some sort of right-wing plot—that we have been waiting for years for this crisis in order to take a stab at Keynesian politics and that, really, all we are interested in is a slash and burn of the public services. It is hardly a slash and burn, given the sort of figures we are talking about. In fact, Government spending is as high as it has ever been. All we are doing is trying to get to some sort of grip with the deficit.
Personally, I have always argued that the economy would benefit from deregulation and from simplification particularly of the tax system, leaving aside the total size of the public sector. I would have thought that Members on both sides of the House could accept that what is needed is simplification. How, then, are we going to get it?
I spoke in the Budget debate at about 6 o’clock. Such is the complexity of the modern Budget process that it is difficult for people to get a handle on what is going on as it is being enunciated by the Chancellor of the Exchequer. I was teased by one of the Whips because, apparently, precisely as I stood to say that it was a courageous Budget, coincidentally all the press started turning against the Government—and it has been pretty bad ever since. I say that it is courageous because the Chancellor has started to take some difficult decisions to simplify the tax system. We have heard a good speech about charitable giving. So much of the so-called bad publicity that the Government have attracted over the Easter break—whether it be over the so-called granny tax or charitable giving or child benefit or all the other problematic areas—shows that the Chancellor is beginning to try to address these appallingly difficult structural problems.
There has been a lot of talk about the Titanic this week—nobody should worry, as I am not going to repeat the tired old cliché about deck chairs—and I think that the whole structure of the ship is wrong when it comes to the tax system. The ship is unbelievably badly built, and it is gradually sinking under us. What I have found in listening to 28 successive Budgets in this Chamber is that the tax system has become progressively more complex. It was possible 25, 30 or 35 years ago for a Chancellor to come across as providing a reasonably coherent lecture in his Budget statement—we all used to get very excited because tax on whisky or the basic rate of tax was going to go up or down by 1p—but such levels of complexity have been loaded on to the whole tax process that it has become virtually impossible for any Chancellor to come out on Budget day with any coherent proposal that is not in succeeding days unpicked and trashed because of the hundreds of pages of small print. If the structure is fundamentally flawed—it is, I think, the longest tax code in the world apart from India, and one of the most complex in the world—it is virtually impossible for any Chancellor to get a grip on it. I have never made any secret of my personal belief that we have to be prepared to be radical. We cannot just try to improve the structure; we have to go back to first steps and argue what we really believe in. What I really believe in is a much flatter—ideally, flat—rate of tax.
I have recently read an excellent book written by one of our colleagues, my hon. Friend Mr Cash, about the 19th century statesman John Bright. He was wholly uninterested in politics, but was a substantial statesman, who continually argued in terms of retrenchment, sound public services and a sound financial system. He said:
“Better teach the people something good for the future than resign oneself to work institutions already in existence”.
I suspect that too many politicians—I do not blame those on the Treasury Bench, as I know what they are paid to do—are fundamentally doing what John Bright did not want to do, which is resign themselves to work institutions already in existence. I think that the purpose of politics, certainly for those on the Back Benches, is to try as John Bright said to try to teach the people something good for the future.
I believe that this idea of a much simplified tax system or a flatter and ultimately a flat rate of tax, which has always been dismissed as an idea of the radical right, is of increasing interest to those on the left. Why? We have heard a great deal about tax avoidance, and the more complex the tax system, the easier it is to avoid it. Every time we try to deal with the problem, we create more loopholes and more difficulties, making it easier for the rich to avoid paying tax. With a much flatter—ideally, flat—rate of taxes, there is no possibility for avoidance. The TUC claims—I am sure it is right; it is not known to be a particularly right-wing organisation—that tax avoidance results in a loss to the Treasury of £13 billion a year from individuals and £12 billion a year from corporations.
To make another left-wing point, some politicians have recently had a bad press; they have been standing for various public offices or arriving in this House with good incomes outside politics, but instead of paying tax like the rest of us at the basic and then higher rates, they have put their money into private companies in order to pay much lower rates. Some politicians in America who have huge incomes, including some bidding to become President, have had a very bad press, as we found that they paid minimal rates of taxation. Why is this? It is because the tax codes in both countries are so complex that the rich and the powerful can always avoid paying tax. They cannot do that, however, under a much simplified tax system.
Does my hon. Friend not think that politicians should give a lead? It is not just Ken Livingstone who has been egregiously avoiding paying tax. It is clear from the Register of Members’ Financial Interests that some Labour Members have been routing their funds into private service companies. Should that not be stopped; should not politicians set an example?
I do not want to ruin my argument and I do not want to lose any support that I might have from my friends on the Opposition Benches by recommending a tax on particular Labour politicians. The trouble is that there is always a huge temptation for anyone with a high income—a politician, an entertainer or a business man—to listen to the advice provided by chartered accountants. They will say, quite rightly, “Oh dear, why is a successful chap like you”—a successful chap like, for instance, my hon. Friend Charlie Elphicke, who doubtless has a very large income—“paying all this tax, when you could be setting up a small company and paying about 11%?”
In the past I have argued for a much flatter, ideally flat, rate of tax throughout earned income, but now I will be even more radical, and suggest that there is an increasing case for transposing that to small company income. I am not privileged to serve on the Treasury Bench, and I do not have teams of civil servants to advise me. I constantly come up with ideas such as this during Finance Bill debates, and I can produce figures, but I do not know whether they are correct. I have been told that a flat-rate tax of 22% with a £15,000 allowance would result in a reduction of £63 billion in tax revenue in the first year. Although I believe that the extraordinary savings that would be made through the ending of tax avoidance might well enable us to claw that back, there is no point in my simply going to the Library and then coming up with figures.
I see that the Minister is busily scribbling down every one of my pearls of wisdom at this precise moment. It would be really nice if, rather than just saying at 10 or 10.30 tonight “I thank my hon. Friend the Member for Gainsborough for making such an interesting speech”, he wrote to me in the next week or two, when he has the necessary leisure, telling me—on the basis of the Treasury model—how much of the cost of avoidance could be saved through the adoption of a much flatter, or ideally a flat, rate of taxation, under which it would increasingly not be worth people’s while to try to shift their income from one pot to another. Is that, in fact, such a radical idea? Has it been tried out anywhere else? Well, of course it has.
As I have said, the size of the UK tax code has more than doubled since 1997. The present situation is absurd. The Chancellor is doing his best, but whereas 15% of taxpayers will pay a higher rate in 2012, only 3% paid it in 1978. Graphs showing the rise and fall in people’s incomes according to whether they have one child or more feature extraordinarily sudden and tremendous blips because of the child benefit clawback from people who earn more than £50,000 a year, of which I have been very critical. I do not know whether this is correct, but I have been told that a family with three children and an income of between £50,000 and £60,000 faces an additional effective marginal tax rate of 24%, on top of income tax and national insurance. I cannot believe that the Chancellor wanted to impose such a sudden, steep burden of taxation on middle-income taxpayers.
Many Members favour helping people on very low incomes. I happen to believe that the best way of helping poor people is not to churn more and more tax and benefits in their direction so that they have very high marginal tax rates—as high as 73% in the case of those who increase their earnings if they earn less than £10,000—but to take them out of tax altogether. Let me say to my Liberal friends that the one good thing that they have done in recent years is to present that argument, and I think that they have made their case. An extraordinary burden has been placed on people on lower incomes, who have been taxed far too much far too early.
I believe that my idea of a flat rate of tax is not such a radical or bad idea but one that could appeal across the spectrum, and I urge my hon. Friends on the Treasury Bench to consider it carefully. Otherwise, every time the Chancellor seeks to tamper with the screws and the bolts on the Titanic to ensure that those watertight compartments do not just reach halfway up the forward decks but reach the top so that the thing does not sink, he will produce a Budget that sounds good on the first day but will be unpicked and unpicked.
I think that, rather like John Bright, the Chancellor needs to see that shining light on the horizon. He needs to say “This is my strategy, this is my philosophy, this is what I want to do. I want to say to the British people that ultimately I will take pretty much the same share of the cake as has been taken in recent years.” We all know that, for all Mrs Thatcher’s reputation for being such a right-wing radical Prime Minister, it was only after many years that, by an almost infinitesimal margin, she gradually reduced the extent of the state’s take from ordinary people. It may be impossible for the Chancellor to make a great deal of difference in those terms, but he can say “This is my strategy. I want to be upfront and fair to the British people, so that they know exactly where they stand. If you have an income of £300,000, I will take a third of it: I will take £100,000. If you have an income of £100,000, I will take £33,000—and so on across the spectrum.” Then there will not be all the hillocks and valleys and clawbacks and allowances and churning of benefits and taxation.
I am, in a sense, sympathetic to the philosophy behind what the Chancellor has been trying to do with child benefit. Why should middle-income earners pay tax at a certain level and then be handed it back in child benefit? I agree with the Chancellor that that is absurd. However, he got himself into a dreadful mess by taking the appalling step that meant that the moment there was one higher-rate taxpayer in a family, all that family’s child benefit vanished. I thought that that was very unfair on a family in which one person worked and another, usually the wife or female partner, wanted to stay at home and look after the children. I am not suggesting that such an arrangement is better or worse than the other form of family life, but I believe that it is simply unfair, which is why I have argued for a marriage tax allowance.
I will do a deal with the Chancellor. I will give up my campaign against his reduction in child benefit and my campaign against his continued failure to introduce a marriage tax allowance, despite what he said in his manifesto, if he will say to me “I will get rid of all these allowances, and introduce a greatly simplified tax system which is fair and equitable for all classes of people.”
I agree that there should not be a tax system that distorts people’s choices. I agree that any attempt to influence behaviour through the tax system, whether it affects marriage, children, mortgage tax relief—as in the old days—or, now, charitable giving, will produce perverse incentives. It will cause people to adjust their behaviour to reduce their tax bills rather than doing what is right, and I want people to do what they feel to be right. I want the state to be open, fair and upfront about what it is going to take, and I want the Chancellor to come to the House and say in his next Budget “This is my strategy, and this is my belief.”
I accept that—bravely, courageously, with great difficulty, and in the face of an enormous amount of bad publicity over the last three weeks—the Chancellor has taken the first essential steps towards getting rid of those allowances, and I am prepared to stand by him. I am prepared to be unpopular over the granny tax, because I can see where he was coming from. The Chancellor considered it absurd for people to be paid that allowance. Although it was apparently very popular, when there was talk of abolishing it, no one remembered that it had been introduced by Winston Churchill in 1925. I am prepared to be unpopular by supporting the Chancellor on all those issues if he is prepared to enunciate his philosophy of creating a fairer and simpler tax system. That is a fair deal, I think.
It is a pleasure to follow Mr Leigh, who made a valiant effort to persuade the House that the proposal for a flat tax was something on which the left and the right could agree. It will be interesting to see how Ministers respond to the challenges with which he presented them.
I intend to concentrate on an issue that greatly concerns my constituents and local businesses. I have already raised it in the House several times, and on the day of the Budget, when I was flicking through the accompanying documents, I saw the announcement that VAT would be levied on static caravans. I have noted what the Treasury has said about the effect, and the more I have looked into it over the past couple of weeks, the worse it has appeared to be for my constituents and local businesses. The VAT on static caravans policy is part of the muddled approach that runs through the Budget. The Government are giving mixed messages: they say they want growth, yet they introduce policies that impede growth. There are also many unintended consequences that Ministers and civil servants have not properly thought through, and that is particularly true of the VAT on static caravans policy.
The caravan tax announcement came completely out of the blue. It is currently subject to a belated consultation that will end very shortly, on
My Front-Bench colleagues have tabled an amendment to the proposed tax, which I hope will be selected during our deliberations on the Bill. In common with many Members on both sides of the House, I oppose the Government’s proposals on this issue. The caravan tax was not leaked in the announcements before the Budget at the end of March. Like the granny tax, it was news that was kept back, but which has subsequently caused a lot of problems for the Government.
The confusion over the caravan tax is similar to that over the pasty tax. It is also similar to the confusion over the charity tax measures. Before the election, the Government talked a lot about wanting to encourage charitable giving, and there are provisions in the Finance Bill to offset charitable giving against inheritance tax. However, the proposals to limit tax relief on charitable giving that were also announced in the Budget and that are contained in the Finance Bill appear to contradict those earlier statements.
First, I want to outline some of the arguments in respect of imposing VAT on caravans. I listened with great interest to what the Chief Secretary said in his opening remarks about simplifying tax regimes and ironing out anomalies. We all support that, of course, but we must ensure that there is proper and full consultation in advance of any changes being implemented. My main concern is the effect on the ability of businesses to plan accurately for the future and decide what they need to do—what investments they need to make, and how many employees they need in their company. Investors need confidence, but a key point that comes up time and again is that companies do not currently have the required levels of confidence for the economy to grow.
Recently, the Government have made similar mistakes that have dented business confidence, such as the solar power feed-in tariff debacle. As a result of that mistake, we in Hull have already seen Carillion restructure. We will lose jobs, and Hull cannot afford to lose any jobs.
The caravan industry has spent three years working hard to recover from the problems resulting from the 2008-09 global downturn, when Hull lost more than 1,500 jobs in the industry. Now we have this hammer blow set for October, when thousands more in the caravan sector may lose their jobs. If tax changes are to be made, it would be sensible to give greater warning and to give the industry time to adapt. Instead, the Government appear to be kicking people when they are down, just as the caravan industry was getting back on its feet. Most particularly, this is happening in Yorkshire, and it will have an effect on the entire region. Ministers talk a lot about the need to rebalance the economy in respect of the public and the private sectors and the south-east and the rest of the country, yet this measure will have a disproportionately negative impact on the north and Yorkshire.
Secondly, these changes will not do much to simplify the system. Indeed, we could end up with more anomalies being created, as with the pasty tax. The taxing of sales of static caravans was considered at length and rejected when VAT was first introduced in the UK in 1973. There has not been a proper opportunity to review that decision and to investigate whether the situation has changed in the intervening years.
Thirdly, what if the changes damage businesses and cost private sector jobs, which are supposed to be powering recovery, growth and deficit reduction? Over 90% of the UK’s caravan firms are in east Yorkshire, and they still employ some 6,000 people despite the contraction in the 2008 global downturn. The industry supports a further 15,000 to 20,000 jobs through its supply chain. The Treasury forecasts that the caravan tax will cause a 30% cut in demand. According to the industry, that will result in up to 3,000 jobs being lost from caravan firms and their supply chain.
The situation could get even worse. We are currently facing almost 900 jobs going at BAE Systems in Brough, and our area already has high levels of unemployment. We have already seen jobs go at Warmsure, too, and at Comet and P&O in Hull, and many jobs are going in the public services as well.
My constituency of Kingston upon Hull North and the neighbouring constituency of Kingston upon Hull East are already in the UK top 10 for having the most jobseekers chasing each job. The number of NEETs—those not in education, employment or training—is soaring as the quality and quantity of jobs, apprenticeships and training opportunities have declined. In my constituency, unemployment now stands at about 13% for those aged between 16 and 64.
The next few years already looked like being tough for jobs in Hull, but by introducing this measure, the Government are making the situation much worse. The Government’s “rebalancing” rhetoric that we hear so much does not hold water.
Fourthly, what if the economic damage caused by the caravan tax leads to the Treasury losing revenue overall? The Treasury’s own impact assessment shows that the tax will lead to a 30% cut in demand for static caravans. Consequent job losses on the scale predicted by the industry will result in tax revenue being lost and welfare costs increasing. As Mr Davis said in this House on
The justification for cutting the 50p rate of tax was that it does not raise much money, but according to the Treasury’s own figures the caravan tax will lose revenue overall. The Government also cut corporation tax on the basis that that is good for jobs and growth. By the same logic, how can the caravan tax be good for jobs and growth in my constituency and the wider region?
I realise that the Chancellor is as likely to have had a caravan holiday recently as he is to have eaten a pasty or played bingo, but there is no excuse for introducing a damaging tax that will cost thousands of private sector jobs in the caravan industry and its suppliers, especially as the private sector is precisely where Ministers claim our growth will come from. This measure will lose the Treasury revenue, harm the aspirations of many people saving up for a holiday home, and damage the wider UK holiday industry.
Fifthly, is the caravan tax fair? Given that the Budget did not put VAT on the second homes of the wealthy and did not contain a mansion tax, how is it fair to tax the second homes of those who are not so wealthy and often save for many years to be able to buy a static caravan to use on their weekends and holidays? The Chancellor’s rhetoric is that he is trying to build a tiger economy, but it seems more like just a fat cat economy.
Along with my hon. Friend Mr Marsden, I visited Willerby Holiday Homes Ltd in east Hull on
“We are concerned that the proposed VAT increase on caravan holiday homes that was announced in the Budget last month will have a detrimental effect on the business. We have already had a number of short time working weeks in this tax year and we are concerned that if the level of orders falls, the company may be forced to make people redundant or cease trading.”
In addition, I have received letters from people involved in the supply chain to the caravan industry, one of which came from six workers at 3Core group, which supplies Normandy Holiday Homes. The letter said that the caravan tax would have a “detrimental” impact on them, too. In addition to letters from caravan firms and their direct suppliers, I, like other right hon. and hon. Members, have received an e-mail from May Reader of Heathland Beach holiday park in Norfolk. She says:
“We, as a family, have been running our Holiday Park for 40 years and I personally am Chairman of our local Conservative Association and I am very distressed that it is a Conservative Government that is about to ruin a lifetime’s work.”
That shows the negative impact that the caravan tax would have on the UK holiday and tourism industry, at a time when, as many hon. Members have said, there is a push to get people to holiday in this country and there is a vogue for staycations.
To be fair, some Conservative Members are joining Labour Members in opposing this particular tax; I know that the right hon. Member for Haltemprice and Howden and the hon. Member for Beverley and Holderness are planning to meet the Chancellor on Wednesday. It is being reported on the wires that the Prime Minister is willing to think again on the charity relief tax plan, so I hope that he is also willing to think again about the caravan tax. I am also interested to learn what the response will be from the Liberal Democrat Business Secretary, to whom the National Caravan Council wrote about this issue on
In conclusion, my constituents just want the chance to work, to trade, to earn a living and to spend money locally in east Yorkshire. That is all those workers and business people want. They are not asking for a state subsidy. They are just asking for their industry to be allowed to carry on trading without being seriously harmed by this new tax. That is in the regional interest and in the national interest, and I hope that the Minister will think again. As I said at the start of my speech, Labour has tabled amendments on this issue and I hope that we will have a chance to stop the caravan tax on Wednesday through the amendment to the Finance Bill tabled by my hon. Friend Owen Smith, the shadow Exchequer Secretary. If the Chancellor does not change his mind, I ask hon. Members to back this amendment. Let us kill this caravan tax before it kills thousands more jobs in Hull and the East Riding of Yorkshire.
I wish to make only a short speech in support of giving this Bill a Second Reading, because I made a speech on the broad thrust of the Budget on Budget day itself and because, once again, I have been the lucky winner of the Liberal Democrat Whips Office lucky dip competition and will be serving on the Committee. I therefore have many days ahead of me going through the Bill’s detailed provisions, both in this Chamber and on the Committee corridor upstairs.
One Budget highlight of a month ago for Liberal Democrats was the largest rise in history of the income tax threshold. My hon. Friend Mr Leigh mentioned John Bright, and I am sure that John Bright would have approved of that simplification of the tax system, as it would have disproportionately benefited the thousands of factory workers that he represented in Birmingham. Other highlights of the Budget were the introduction of effective wealth taxes and anti-avoidance measures, and, in order to make the United Kingdom more competitive internationally, the two reductions in corporation tax scheduled for the next couple of financial years.
Taken together, those measures in the Budget involve billions of pounds, but since the Budget we have heard much about the pasty tax, the granny tax, the church tax and the charities tax. Now we hear from Diana Johnson about the caravan tax. I had not heard about that before, but no doubt we will take much interest in it as the Finance Bill progresses. Even though all those measures and all those controversies are important in their own right, the focus on them suggests that the broad thrust of the Budget—rewarding work, taxing wealth effectively and making the United Kingdom economy more competitive—was right and that the Chancellor and Chief Secretary struck the right Budget judgment.
All those measures will, of course, be discussed during consideration of this Bill, which is another behemoth of a Bill. Every year we hear that the Treasury has produced another mammoth Bill and this one seems to be a bit of a record, as it contains 225 substantive clauses and 38 schedules. We can all look forward to dealing with them over the next few weeks.
Clause 1—it is rightly clause 1—is the Bill’s most important, because it announces the increase in the personal income tax threshold that took place on
In business terms, the Liberal Democrats very much welcome the fact that corporation tax will be cut this year to 24% and next year to 23%. We also welcome the introduction of yet another scheme to encourage entrepreneurial activity, the seed enterprise investment scheme. It is a five-year scheme to support small business start-ups. As the Member of Parliament for Bristol West, I particularly welcome the announcement in the Budget of a consultation in order to proceed to giving tax credits to the television industry, and, in particular, for animation, on the same basis as those for the film industry. I met Aardman Animations Ltd, which is based in my constituency, last week and I understand that discussions between the Treasury—with my hon. Friend the Exchequer Secretary and his colleagues—and the animation industry are progressing well. I look forward to the Finance Bill 2013 and to the full provisions for that tax credit to support important British business being introduced in a year’s time.
Given the hon. Gentleman’s interest in small businesses, does he welcome, as I do, the new provision for a cash-based tax return that will make it much simpler for small businesses with turnovers of less than £77,000? Simplifying the tax return and making it cash-based is a real step forward for the smallest businesses.
Yes. I welcome my hon. Friend’s intervention. When I met representatives of the Federation of Small Businesses, they were particularly keen that that measure should be introduced in the Budget and they are no doubt very pleased that the Government have responded to their representations and those made by hon. Members, such as my hon. Friend, on its behalf.
The anti-avoidance measures in the Budget and the Bill are also very much welcomed by the Liberal Democrats, particularly the consultation on introducing a general anti-avoidance and anti-abuse role based on the paper prepared for the Treasury by Graham Aaronson. We will need to wait until the next Finance Bill to see how that pans out. There are also specific anti-avoidance measures in the Bill, such as those to tackle the use of envelope schemes by corporate bodies and unincorporated bodies to acquire properties while avoiding stamp duty. That abuse was overlooked for far too long by the previous Administration and I am delighted that the coalition Government are tackling it head on.
Other more controversial potential abuses are being tackled in the Bill through the limits on tax reliefs that individuals are able to claim. Before the Budget, the Deputy Prime Minister talked about a tycoon tax. Across the Atlantic, President Obama has been talking about a minimum rate of tax, such as 30%, that US citizens should be expected to pay, and Warren Buffett has been making very similar points. We have many reliefs available in our tax code in this country to encourage enterprise, such as the enterprise management incentive scheme, the enterprise investment scheme and the venture capital schemes of which, in my life before 2005, I used to help many businesses and entrepreneurs to take advantage.
The Bill provides another relief, the seed enterprise investment relief, but all the reliefs available at the moment are capped. They are limited as regards both time and the amount that can be put into them, and therefore the amount of tax relief—whether it is on income tax or capital gains tax—that a wealthy individual might be able to obtain. That leaves various uncapped reliefs that are available under our tax code for income tax losses, loan interest and, of course, philanthropy, which is where a lot of the controversy has come about in recent weeks.
From the outset, it is right to say that the extension of restrictions and caps on reliefs, whether they are on gifts to charity or loss reliefs, is entirely logical. When restrictions are imposed on existing reliefs, such as gift aid, the Government and the Treasury must take greater care than when they are imposing reliefs from the outset for a new scheme, such as the seed scheme. The Government and the Chancellor have already said that they intend to work very closely with the charitable sector on the introduction of the restriction on gift aid, and I hope that that will lead to a measure that meets the Government’s objectives of protecting our tax base while ensuring that philanthropy can continue.
It is important, however, to say that, contrary to much of the coverage that we have read about and that constituents have written to us about, the restriction on reliefs is not the same as the abolition of reliefs. The phrase “charities tax”, which has been bandied around the Chamber this afternoon, has left hanging in the air the implication that the Government are somehow withdrawing tax relief from philanthropic activities altogether. That is simply not true. An individual will still be able to donate and receive tax relief on the higher of £50,000 or a quarter of their annual income. Some of us might dream of this, given the salaries that we are on, but if we had an annual income of £1 million, we could still donate £250,000 to charity while receiving full tax relief. I understand from figures that I have seen from the Charities Aid Foundation that the median donation that our constituents make is about £11 a year, so very few people will be affected by what the Government have proposed. It is right that such details should be closely considered by the Treasury and by all of us, as parliamentarians, to ensure that they work.
There are various things that the Government could do. The limits are annual and perhaps they could consider rolling up the annual limits. If you, Mr Deputy Speaker, were to win £1 million on the lottery, you would not be able to donate an amount to charity under the Bill’s provisions while getting tax relief and while, more importantly, the charity got the gift aid matching relief, too. That would be an absurd anomaly and I am sure that it was not intentional.
My hon. Friend talks about someone winning £1 million on the national lottery but a £1 million win on the national lottery is not taxable; one ought not to get tax relief on a gain that is not taxable.
I am trying to think whether my hon. Friend has caught me out on a provision, but I am not sure that he has. The reason there has to be a £50,000 limit on relief is that most people who give large amounts of money do so out of their accumulated wealth and their asset base, which may have come from a lottery win or from an inheritance. It is likely to be a one-off event in their life when they receive a large amount of money and philanthropically decide to give much of it away. It would be absurd if the charity was not able to claim higher rate income tax relief if the individual who received that one-off legacy or windfall gain was not able to claim gift relief.
There is one thing that troubles me. The average income in my constituency is below £20,000 a year, so if one of my constituents gives to charity they are able to tag along the taxpayer to the tune of the basic rate. Is it not a basic unfairness that someone who pays tax at 50% is able to drag along the taxman and the public finances to double the amount that a constituent of mine on an ordinary income is able to? That seems an unfair aspect in the way the relief system has worked in recent years.
I welcome my hon. Friend’s addressing the fact that the tax system should be fair in how different individuals get relief for an activity that is to be encouraged. Perhaps the relief on pension contributions ought to be seen in the same light but I think that would be controversial among many of his colleagues. I suppose that the basic principle of gift aid relief, tax relief and what can be recovered by a charity relates to one’s net income and the money that one no longer has. It therefore has to be grossed up by the rate of tax that has already been taken off one’s income before one chose to give that money to someone else. That is the basic underlying logic.
My problem is that I do not quite understand how it works so perhaps my hon. Friend will correct me. If a philanthropist gives a huge amount of money to a charity, does that mean that he or she chooses who they give the money to and that the only loser is the Exchequer because it does not get tax on that? It is difficult but I rather like the fact that a philanthropist can give all that money and choose what happens to his or her money and that the Exchequer is the only loser. Am I wrong or is that his understanding?
I intended to give a speech on the Bill this evening rather than a broad-ranging tutorial on how the tax system works, but yes my hon. Friend is broadly correct. The basic premise of philanthropy is that one chooses of one’s own free will to whom one gives one’s money, but one gives from one’s net income and the money available—that is all one has to make that donation. The gift aid system therefore works so that the tax that has been deducted from that income already is put back in place and the charity receives that benefit.
I wish to make a second suggestion about how this restriction could be addressed. Perhaps a better way of looking at it would be to exempt large gifts to certain institutions such as universities. My right hon. Friend the Business Secretary has rightly expressed concern about the effect on the alumni fundraising programmes of our universities. The Russell group universities are particularly active in raising funds from members of their alumni such as myself, although I do not think I would be caught by these provisions. Gifts to other institutions such as Cancer Research UK and national institutions and museums such as the National Gallery could also be exempted. Perhaps we need to look again at the Charities Act 2006 and the public benefit test to see which activities and donations are generally of a philanthropic nature and which may fall into the grey area. It may be an individual’s personal choice to donate to a particular cause but that cause might not be something of wider public benefit that deserves tax relief. Whatever system we come up with, whether it is what is proposed in a dry sense in the Finance Bill or one that takes on board the suggestions that I and others will no doubt make as the Bill progresses, it must support genuine philanthropic activity.
My final point is on the rather obscure clause 180, which it will probably take us some time to reach in Committee. It relates to controlled foreign companies and how the UK is changing the taxation basis for companies with activities abroad. The primary duty of the UK Government, and indeed of Members of the House of Commons, is to safeguard United Kingdom taxpayers, and we must always think about that whenever we debate these issues, but we also have a duty to make sure that our Government’s policies are joined up. At a time when despite decreases in budgets elsewhere we are increasing the budget of the Department for International Development, it would be perverse if DFID had to give developing countries more support because of the adverse effects of the tax changes we are making in this country. We cannot address all those aspects now, and we shall look at them again in Committee, but I hope we can find a way of measuring their effects and supporting overseas tax authorities more effectively to collect their tax liabilities so that they are not adversely affected by changes we are making to our basis for taxation.
I said that I wanted to make a short speech. We have long debates ahead of us over several days, both in the Chamber and in Committee. When the dust has settled on the Budget and it passes into the annals of history, despite everything that hon. Members have rightly mentioned today—whether pasties or caravans—I think it will be remembered for the huge increase in personal allowances that raised millions of people out of taxation and provided a broad cut in income tax for millions more. That is the radical measure in the Budget; it is something I am very proud of and it is why I shall support the Bill this evening.
I rise to say a few of the things I was unable to say just before the recess because my speech was limited to about three minutes. I shall make up for it this evening.
It is important to put the Budget in context. No Budget can be considered without the context in which it is to be carried out. My major concern is that it does not address the problems we are facing. Of course, we have a deficit and we need to reduce it, but we can do that only if we make money and there seems to be no strategy to get the economy going. The Government do not even seem to know where to feed money into the economy, and seem to be wasting money by giving it away in the wrong places and not using it to do things that would stimulate the economy.
Let us look at what has happened to date. Since the emergency Budget of 2010, and subsequent measures, the Government have already planned to take a huge amount out of the economy, much of it from people on low or modest incomes—the very people who by necessity have immediate spending on the essentials of life simply to keep their families fed and warm. What seems to have happened in the Budget is that we are seeing money given away to those at the top end of the scale, and there is no guarantee at all about what they will do with their money. They could choose to do all manner of things with it and it may never come back into our economy. The money may go abroad or be stashed away somewhere, but it will not immediately feed back into the economy. The Budget proposals present a serious problem from an economic and a fairness point of view.
Does the hon. Lady agree that, from the point of view of fairness, it is a really good thing to increase the tax threshold for those people who pay little tax? That was well done in this Budget, and it will be better next year. Surely that will help the lowest-paid in our society.
The difficulty with raising the personal tax allowance is, first, that those on very low incomes—those who will have their disability living allowance or housing benefit cut—do not even pay tax. Secondly, those much higher up the scale will benefit from the increased personal allowance. It is often dual-income families, quite high up the scale, who benefit from the personal allowance being pushed up. It is a very expensive way of helping people who are in the position that the hon. Gentleman sets out.
Although people criticised the tax credit system, the whole point of it was that it maximised the amount of benefit that went to the people who really needed it. The irony is that when we were in government, we were often accused of introducing stealth taxes, but look at the amount of indirect taxation now. What people have supposedly been given back through the direct taxation system—that is, through their personal allowance—has already been taken off them through the 20% VAT rate. That is the type of “stealth tax”—the same goes for fuel and so forth—that people resent. They are actually saying that they are paying more tax than before. Even the increased personal allowance will not make up the difference.
The Government propose making a very expensive move that is not properly targeted, and that is worrying, because the money will not feed back into the economy as quickly as it would if it were targeted at those who really need it and would want to spend it straight away. The first problem is that the money is going to the wrong place.
Secondly, we seem to have no growth strategy at all. We are lucky that some of our manufacturers are able to export because they are selling to markets in countries where there are stimulus packages, or strategies to stimulate growth. The fact remains that if we were relying solely on the home market, our manufacturing would be in a dire condition.
With growth flatlining and unemployment rising, the Government, far from bringing the deficit down, are facing the fact that they will have to borrow an additional £150 billion simply to pay people who are out of work. What is the point of that, when we could be paying them to do constructive things such as build council houses or schools? Through employment in manufacturing, they could be learning skills that they could use later. That would keep the skills base going. One of the big problems when there is mass unemployment and a massive drop in the number of people in an industry, whether it is coal mining or building, is that we lose a generation of skills.
People do not want to sit about doing nothing. The overwhelming majority of people whom I meet who cannot find a job are very frustrated at not being able to find work. They are looking for anything and everything. It is often older workers in their 50s and early 60s who particularly suffer. They feel that time and again, they turn up for an interview only to be told that they are too old and cannot be taken on. We want the opportunity for all people—young and old—to get back to work.
Let me give an example of the type of money being taken out of the economy, so that we can see the real problem. In Wales alone, some £6.3 billion will be taken out of the economy over the next three years. We are talking about a very small population of not even 3 million people. The money is coming directly out of the Welsh economy. It is coming from the VAT increase, the loss of jobs in the public sector, and, significantly, most of all, from cuts to the tax credit system and to a wide range of allowances, including the disability living allowance, housing benefit, and council tax benefit. It is coming from a whole range of moneys that were put in to help people who struggle to pay particular bills—people who really could not make ends meet without the money.
As was mentioned, many of the people affected by the housing benefit changes will either find themselves homeless or simply have to use money that they would normally use for food and heating to pay the rent.
Does my hon. Friend agree that part of the problem is that people in that situation have not realised that they are going to be short of money to pay their rent? As they try desperately to keep up with rent payments while their benefit payments are going down, they will find themselves in an awful position, facing debt and having to move home as well?
My hon. Friend is absolutely right. The frightening thing is that we have not seen anything yet. The cuts in the public sector jobs are just beginning to bite, but the cuts in the tax credit system and in the housing benefit system are loaded towards the next two or three years. The worst thing happening this year was the terrible cut in tax credits on
By contrast, our Chancellor lowered the number of hours from 30 to 27 at one point, after the 2008 economic crisis, in order to help people who could not claim working tax credit because they could not get enough hours. We made the reverse decision because we recognised that people were desperate for hours. I met many people who were desperate for any sort of work.
The Government’s policy is very damaging but, as my hon. Friend pointed out, the vast majority of cuts are still to come. The effect on Wales of the tax credit cuts is that £17 million went last year, £148 million will go next year, £188 million the following year, £219 million the following year and £222 million the year after that. Each year the savings are greater, and with every saving there is a bigger cut in people’s income. The same is happening with housing benefit and all the reforms to the universal credit that are coming in.
Those cuts represent a tragedy for each individual family, but more importantly for the whole economy—that is money being taken out of the economy. In other words, it is money that people do not have to spend and therefore money that is not circulating. That will have a devastating effect on our high streets where we are already seeing many well known retailers closing shops. We are lucky in Wales that we had a rescuer for Peacocks. My hon. Friend Owen Smith has its headquarters in his patch and it has been taken over. None the less, more than half the stores are closing, including two in my own town. That is just one example. I could list dozens of retailers, as I am sure all hon. Members could, in towns up and down the UK, each of which tells the same story: nobody has any money to spend.
It is vital that we consider which way round we should be working in order to get money back into the economy, rather than taking it out. We start with the situation in which money is being dragged out of the economy. What do we do to try and stimulate the economy? We could create jobs. One of the things that Labour suggested is a repeat of the bankers’ bonus tax. We could use the money to create jobs for young people and to stimulate the housing industry and other building projects, such as schools or roads. If we did that, we would be repeating a tax which raised a lot more than this Government seem to be prepared to raise from their banker friends. Their present tax proposals would raise a limited amount from the bankers. Believe me, on the doorsteps people say that they still want to see the banks paying their fair share to put right the problems that they put us into in the first place.
We are lucky in Wales that we have a Labour Welsh Government. Welsh Government Ministers are implementing policies specifically to create jobs. We have spoken about creating jobs through a bankers’ bonus tax. The Welsh Government are creating 4,000 jobs with the limited finances that they have. It is specifically a young person’s jobs programme, with an emphasis on the private sector because we recognise that a much greater emphasis on the private sector is needed. We recognise that we are too dependent on the public sector.
May I take it, therefore, that the hon. Lady welcomes the new scheme in this Budget that will enable young people to apply for loans to start up businesses, in the same way as they can to go to university?
I certainly applaud measures to give young people the opportunity to take out loans to start up businesses, but even people with immense experience are finding it incredibly difficult to do that. There is just not the right climate at the moment to start a business. I would like to see more stimulus for the economy so that people who want to establish start-ups have a viable chance of making a success of them. At the moment, it is terribly difficult for anybody to sell anything to anyone or to persuade anyone to part with their money, which is the essence of getting a business going.
In Wales, we are trying to create jobs for young people; we are also investing money in infrastructure projects, again within the limitations of the Welsh budget. The Welsh Minister for Business, Enterprise, Technology and Science is providing grants and loans to companies to help them to expand and get their businesses going, because we are having so much difficulty with the banks. For example, in my constituency, Tallent Automotive has received money to keep workers in work, which people are very pleased about, and EBS Automation, a very enterprising engineering firm, has received money to expand, which means new jobs for young people in a high-skilled field. Those are the sorts of programme that I would like to see from the UK Government. What the Welsh Government can do affects only a small part of the economy in Wales. I would like to see the same kind of stimulus across the UK. First and foremost, my concern is about the lack of a coherent growth strategy.
Consumer confidence remains low. Many people fear that they may lose their job or have their hours cut. People have been hit hard by rising prices, which have been compounded by the VAT rise. Obviously, people on low and modest incomes have little spare income to put by, so their money goes straight back into the local economy. That contrasts with the money given away to millionaires at the top, who do not have to do anything with it immediately and do not know what they will do with it. They know that there is no benefit to them from putting it back into the local economy.
What does the hon. Lady say to the 810,000 people in the eastern region who are better off because their tax allowance has been altered? Those are low-paid working people who have had a stimulus and are spending the money locally as a result of the measures in the Budget.
If the hon. Gentleman had been listening earlier, he would have heard me explain that those people have already lost that money through the VAT increase. That is a stealth tax and a regressive tax, which always affects the least well-off the most. Many of the people who will get a little more in their pay packet because they will pay a little less tax when the personal allowance goes up will find that because of other taxes that have been implemented, they have lost that money already. Sadly, those people will not do so well.
The personal allowance helps people nearly all the way up the income scale, particularly those in two-income families. Frankly, although it is an expensive measure, it is not a well targeted one. As I mentioned, I would have liked to keep the tax credits system, which helped those who really needed it and took account of people’s different circumstances because it was based on the household income.
There is nothing to incentivise people to put their money back into the local economy and nothing to encourage people to unlock their savings and help the economy. We had the car scrappage scheme, so that people who were planning to buy a car that would last them for the next 10 or 12 years would bring the purchase forward by a year or two to take part in the scheme. We did the same thing with the replacement of boilers. Those schemes were introduced specifically to get the economy going. What have this Government done? They have thrown out of the window the one such scheme that they did have, which was the solar panels scheme, under which people were unlocking £10,000, £15,000 or £20,000 of their savings and spending it immediately in the local economy. Even if the panels were not made locally, all the fitting work to install the solar panels was done by skilled plumbers and craftsmen, so the money went directly into the local economy.
The Government completely messed that scheme up and destroyed the industry’s confidence by incompetently changing the rules before the consultation was finished. They did not scale the scheme down in a sensible way, as the industry had asked. People in the industry accepted that the tariff would change over time, but they could not stomach being treated like idiots. The Government just said, “We’re going to change all this,” even though people had invested a lot of money. Some people had spent £3,000 on a course learning how to convert from being an ordinary central heating plumber to a solar panel installer. Some firms had expanded for the purpose, and firms in my constituency are laying people off because of the ridiculous changes.
What other scheme do the Government have in mind to get people to unlock their savings for an excellent investment that is environmentally friendly and provides local jobs? We have not seen such a scheme in the Budget. We have made some suggestions, but it seems that the Chancellor has ignored them. For example, we suggested a cut in VAT on repairs and improvements to houses. With the construction industry on its knees, that would have enabled plumbers, carpenters, electricians, plasterers and so on to find extra work, and people would have been encouraged to take on home improvements. What did the Chancellor do? The exact reverse. He slapped additional VAT on alterations to listed buildings.
I fully support my hon. Friend’s point about a cut in VAT on home repairs. Does she accept that because of the high level of VAT, many repairs are now being undertaken in the black economy? If we could bring VAT down to a level that people could afford, that might have a positive effect on revenue.
That is extremely worrying, because there is not much point in having VAT on anything if it is not collected. Groups in my constituency that want to do up listed buildings, such the Cwrt farm project, with which I have been involved, and the Llanelli Railway Goods Shed Trust, which I chair, care for all manner of buildings in the town. The fact that they will have to pay much more VAT means that they will spend the same amount of money—the amount that they have raised, or that individuals have available to give them—but have less work done. Less of that money will be spent on wages for local people, so less money will be circulating in the local economy. Rather than finding ways of stimulating the amount of work being done, the Government seem to be trying to close everything down and provide fewer and fewer opportunities for anybody to make money.
Practically everywhere I have gone in Llanelli over the past four weeks, I have met people struck by the fact that pensioners are being punished and millionaires are getting away with a tax break. That has incensed everybody from all walks of life.
I can certainly tell the hon. Gentleman that over the whole country, 4.4 million pensioners who earn between £10,000 and £29,000 will be affected, including a huge number in my constituency.
People are incensed—not just pensioners but their friends and relatives. They say, “This is how it’s been since the 1920s, and the change came from nowhere”. Older people like to plan; they tend to be careful and like to know what will happen. In a Budget that was leaked and leaked, this change was just pulled out of a hat like some dreadful spotted rabbit. People were appalled, given all the emphasis that had been put on other measures that might be in the Budget.
Pensioners have to face that on top of losing their winter fuel allowance, which was a universal benefit and very useful for all manner of pensioners. We are talking about pensioners who have put by a little money and made some provision for their old age. They feel aggrieved because they have tried to do the right thing. They have been hit by the VAT rises. They have been lucky that it has been a mild winter this year, but they all tell me, “Look at my electricity and gas bills.” What are the Government doing to control energy prices? Absolutely nothing. Prices have gone through the roof even though the weather has been milder than last year, and pensioners are struggling to pay those bills. Then there is the fiasco at the petrol pumps. People had already been hit by mid-March with very high petrol and diesel prices, when suddenly the Government inflamed the situation by telling everyone to rush out and panic buy. Of course, everyone now faces even higher, inflated prices at the petrol pump.
Pensioners have been hit time and again. For those on a fixed income when interest rates are low, the rampant inflation that we have experienced is particularly hurtful. Again, pensioners have been badly affected. All in all, there is a feeling that the Budget takes from the wrong people. It takes from people who spend their money locally, tend to be careful with their money, and have saved. They spend a certain amount on their grandchildren, but they will have less money to do that—all to fund the cut in the 50p tax rate for those who earn more than £150,000. For some people who earn millions, it will mean that they are not just hundreds but thousands and tens of thousands of pounds better off. That is extremely unfair.
The people I meet ask why that is happening and why we are not all in it together. They ask why the 50p rate is not kept so that there is a fairer distribution of taxes across society.
I must remind the hon. Lady about the deficit. The previous Labour Government ran a structural and a cyclical deficit before the financial crisis. Between 2000 and 2010, they increased public expenditure in real terms by 53%, yet managed to double youth unemployment. The hon. Lady extols the virtue of Keynesian economics and growth management, but we have to deal with the deficit, and that is why we must make such difficult decisions.
The hon. Gentleman knows perfectly well that, until 2008, we were reducing the national debt. Obviously, when a world crisis occurs, a stimulus must be provided. By the time we left government in 2010, the economy was beginning to pick up. It has flatlined since. We gave the Government the opportunity on a plate to try to get things going, but they squandered it and have put us back behind the starting posts. We are now in a truly difficult situation because getting things going again will be much harder.
The Budget has the wrong priorities. We do not seem to be getting the economy going and we are not putting money where it needs to go. Instead, we seem to be giving it away frivolously and stupidly. The money that is used for tax cuts for the wealthy should be put into stimulating the economy so that everybody can have a share of the wealth.
It is a pleasure to follow the detailed and forensic speech of Nia Griffith. However, unlike her, I support the Finance Bill, and hope that it will go further, particularly on business and the reductions in corporation tax. By 2014, corporation tax will be 22%—the lowest rate in the G7. I strongly believe that if the rate is cut, the take is increased. However, in cutting the rate, we also need to take firm action to stop tax avoidance and to have a new tax compact. A low rate means great responsibility, and a greater responsibility to pay the tax that is due. We need business to pay a fair share of taxes, especially multinationals that are located not here in the UK, but overseas. For too many years, they have failed to pay their fair share.
Let me give some numbers. In 1997-98, income tax raised £77 billion a year; in 2008-09, it raised £153 billion a year. In other words, income tax receipts doubled. Let us look at corporation tax. In 1997-98, corporation tax raised £30 billion; in 2008-09, it raised £43 billion, an increase of just a third. How can it be that income tax receipts doubled in the same period that corporation tax receipts went up by only a third? The rate during the period was largely unchanged. The answer is that the Labour Government allowed massive, egregious and unacceptable tax avoidance for a decade on an industrial scale. That is a disgusting record in government.
There was a massive change during that period. With the rise of the internet, tax bases were threatened, but the Labour Government were asleep at the wheel and failed to reform our tax system, and to understand and take into account the new technologies and the new threats to our tax bases.
Let us look at this massive and inexcusable tax avoidance by multinationals. Who am I talking about? I shall give a few examples. In the last financial year, it is estimated that Apple had earnings of about £6 billion in the UK. Apple has an operating margin of some 33%, meaning that profit in the UK would be roughly £2 billion. Tax attributable to UK profits should be roughly £500 million, but how much tax did Apple pay? It paid £10 million—not £500 million. That is unacceptable.
Let us take the case of Amazon. In 2010, Amazon had revenues attributable to the UK of £2.8 billion. It is estimated that it should have paid some £35 million in tax on profits of some £125 million. How much tax did Amazon pay? The answer is nothing.
I am grateful to my hon. Friend for anticipating the next part of my speech, but let me first give some more examples.
Google revenues in the UK were £2.15 billion in 2010. Estimated UK profit was £700 million. How much tax should have been paid? Google should have paid around £180 million, but how much did it pay? It declared a loss of £22 million.
My hon. Friend makes a fair point. The companies would answer that they did pay the tax required by law, but my response is like the one given by their lordships in, I believe, the Aberdeen case some years ago. Their lordships said that a man is under no obligation to allow the taxman to put a greater shovel in his stores than he must by law, but my argument is that tax law should allow the taxman to put his shovel into stores so that people pay a fair and just share of taxation.
The law requires change. The avoidance might be legal, but HMRC is understood to be investigating a number of those companies. Because of taxpayer confidentiality, we will not know for sure until such time as a case comes before a court.
Let us take the case of eBay. Tax of some £50 million should have been paid on UK profits before avoidance, but eBay actually paid £3.4 million. Facebook should have paid £14 million, but actually paid £400,000. That level of avoidance is unacceptable. This poisoned legacy—the total failure to reform our tax system—left to us by the previous Labour Government is unacceptable. I might, if I am generous, put it down to their obsession with pursuing the prawn cocktail circuit for so many years, in the fear that if they took on business and ensured that it paid its fair share of tax, they would be less friendly with business and have less credibility.
I totally agree with every word that the hon. Gentleman has said so far. Does he share my concern that companies operating in developing countries should consider how they pay tax through transfer payments? Developing countries pay more—suffer worse—through not getting those payments from companies that extract their wealth than we get from our ability to tax.
I thank my hon. Friend for her point. My point, in this case, is that we should widen the anti-avoidance measures in the Bill for our own UK territory to ensure that taxes are paid on trading profits made here. I am not making a case for an extension by proxy of the UK’s substantial international aid budget, which is 0.7% of gross domestic product. If one wants to make the case that it should be more than 0.7%, as ActionAid does, I am sure that they will make it, but I do not want to focus on that issue. I am much more interested in securing our own tax base so that we can get our deficit down by widening the tax avoidance measures in the Bill and extending them to a wider and greater reform.
I am following the hon. Gentleman’s argument with great interest. Will he confirm whether he plans to vote with his Government on the controlled foreign companies changes that will give a reduction of about £1 billion a year to UK-based multinationals?
The hon. Gentleman will know, first, that that means that we will get more tax in the UK and, secondly, that we already have a 0.7% commitment to the international aid budget. If he wants to pledge—a spending commitment from Labour of £1 billion or so—to extend that commitment, let him do so. I am sure that the shadow Chancellor would be fascinated.
No, I am explaining to the hon. Gentleman that the Finance Bill, supported by the Chancellor, contains a measure on changes to the controlled foreign companies legislation that will reduce the revenues to the Exchequer by £1 billion per year—companies in the UK avoiding tax. Is he in favour of that?
Aid charities have made the case that corporations headquartered in the UK should be paying more tax overseas. That is not our job. Our job is to secure our own tax base in the UK. That is what I want to focus on, and it is what the previous Government totally failed to do over many, many years. If we put a stop to it and raise the due amount of tax from companies not resident in the UK with anti-avoidance measures and proper tax reform, we could have lower fuel duties for hard-pressed families and a lower basic rate of tax—and goodness knows we could even pay down some more of the debt that the previous Government shockingly, disgracefully saddled this country with.
I hope that the anti-avoidance measures in the Bill will be widened in the following way: the first principle is that business tax rates should be low, simple and attractive. Britain should be open for business, but open for business on a level playing field for national and international companies. Businesses should have a social responsibility to pay a fair share of tax. Some object to the idea of morality in the tax system, but this is an issue of corporate social responsibility. Tax avoidance should be dealt with firmly and rules changed to stop the avoidance. I shall come to specific measures in a moment.
For many years, the European Union has consistently and systematically sought to undermine our tax base in its pursuit of a common corporation tax base. We need the EU to support member states in protecting tax revenues rather than undermining them with so-called anti-discrimination rules.
It is common ground on both sides of the House to support the patent box; in fact, I seem to recall the Labour party scrabbling to take the credit for the Chancellor’s implementing it.
Let me come to the next part of my list. Every multinational should be required to publish an effective rate of tax paid on UK revenues—from UK sources, from UK territory and from its UK trade. No Government contract should be awarded to any company that does not pay a fair share of tax in the UK. We need to get tough on multinationals that have taken us on a free ride by using conduits such as Ireland, Luxembourg, the Netherlands or other European jurisdictions for too long. As a former tax lawyer—a poacher turned gamekeeper —I hope that the House will allow me to put forward some proposals for how to change things. The first is to reform the branch tax rules. Amazon will claim not to be here at all—“We’re in Luxembourg,” it will say—yet it fulfils its obligations here and trades here. The truth is that Amazon does business here. In the internet age, we need to widen the branch tax rules to deem a branch for UK-source profits to be in a UK territory. I hope that Treasury Ministers will consider that.
Then let us look at restrictions on deductions such as interest, royalties or management charges—all sorts of costs that are loaded on to companies and declared as deductible items, but then end up mysteriously in Ireland, Luxembourg or one of these other countries. That method is routinely used to depress UK profits. We should pursue substance over form. We should employ “look-through” rules, so that no deduction should be allowed unless tax is actually paid somewhere else. Companies will claim, “Oh, we’re using the Luxembourg tax treaty,” but we have to ask whether the tax is actually paid—that is, is it repatriated to the states where it is actually paid? Invariably, the answer is no. We need far stronger and tougher “follow-through” rules, to follow through the money chain and see whether genuine deductions have been made or whether companies are just using a money box offshore to rip off not just our system, but the states in their home jurisdictions. Often, they do just that.
Next, we should look at how the rules on personal service companies can be tightened up. As I said in an intervention on my hon. Friend Mr Leigh, politicians should be setting an example. Indeed, there are too many Members of Parliament with personal service companies—lately on the Opposition Benches, I have to say—who have not been behaving properly, but who should behave properly and pay a fair share of tax. When Ken Livingstone is not weeping crocodile tears, he is busy talking about how everyone else should pay tax but him. That is unacceptable. We need some truth, some reality and some leadership in our tax system. We should not just lecture everyone else, but act differently ourselves. We have had too much acting and too many actors; we need more reality, more substance, and more honesty and straighforwardness with the electorate.
We also need to reform the European Union or renegotiate the procurement and discrimination rules, so that we can properly secure our tax base. The way the European Union has systematically colluded with multinationals to undermine our tax base—costing us even more money than we already have to give it every year, in a big fat cheque that we write out for membership of that organisation—is nothing short of a scandal. We need the European Union to be our partner in ensuring that all companies pay a fair share of tax, not just in the UK but across the EU. We need the European Union to step up to the plate in these difficult times and fulfil its responsibility to help re-secure national tax bases—rather than undermining them—not just for our nation, but for all nations across Europe, which are pretty much all running deficits.
Finally, the principle that I am following is that business should pay a fair share of tax. This is about social justice as much as change and reform of the law. The fundamental deal in the tax compact is this: “A lower rate of corporation tax and lower business taxes, but no playing the system. Take corporate social responsibility to include taxation. Pay up and help us grow the economy and repair our deficit.”
It is a pleasure to follow Charlie Elphicke. I am always interested to hear people say that they are a poacher turned gamekeeper, because I always want to know what they did when they were a poacher. The hon. Gentleman laudably admitted that he was a tax lawyer, and it would be interesting to know whether, in giving people professional advice, he ever recommended that they set up tax-efficient systems for managing their taxes. I point out to him that, in more than 15 years in this House, I never once heard a Conservative Member ask the Labour Government to do anything about tax avoidance rules. There is too much piety among Government Members as they try to suggest that we wilfully ignored the matter of tax avoidance. I hope the hon. Gentleman will reflect on what his party was doing during those 15 years, while he was being a poacher, not a gamekeeper.
If my right hon. Friend looks at all the Budget measures put through by the Labour Government, she will see that the average figure achieved by each measure to clamp down on tax avoidance was £1.8 billion. The most that this Government have managed is £0.8 billion.
I want to make some progress.
The test of a Budget is not the easy headlines on the day of the announcements, but how quickly and radically it unravels in the days and weeks after the initial statement. In the case of the 2012 Budget, we did not have to wait long. It was full of political symbolism but it had little substance. The Chancellor said:
“We will…consult on the introduction of a large annual charge on…£2 million residential properties”.—[Hansard, 21 March 2012; Vol. 542, c. 804.]
That was no doubt a sop to the Business Secretary, but the reality is that only 3,000 houses a year, at most, will be covered by the charge, and it will be easy to avoid.
A property valued at £2,000,010 might be made available at a bargain price of £1,999,999.99. A gentleman such as the hon. Member for Dover could drive a coach and horses through such an arrangement. It was a policy that sounded good on the day but it will be no more than warm words when it comes to raising revenue or catching those who seek to avoid paying tax.
The right hon. Lady accuses Conservative Members of not saying anything about tax avoidance, yet I have been going on about the issue of high-value houses for several years. My right hon. Friend the Chancellor also mentioned it before the election. Yes, perhaps we should go further than the figure of £2 million and, yes, perhaps the measures on capital gains should go further than just covering companies, but the Labour Government did absolutely nothing on those issues.
The problem is that the measure was paraded as a bit of camouflage for the reduction in tax for those earning more than £150,000 a year. On the one hand, the Chancellor was reducing tax for the wealthiest, but he was also going to attempt to clobber them. This policy did not come from the heart; it was part of the camouflage being used in the Budget.
There has also been a general sleight of hand over taxation. The Chancellor recently stated that he was “shocked” by how little the wealthy paid in taxes, yet this Budget gives a tax cut to the 14,000 people who earn £1 million a year or more. That will give them about £40,000 each year, while the average family with children earning just £20,000 will lose £253 a year from this April. That is on top of the VAT rise, which is costing the average family £450 a year. Furthermore, another 678,000 people of all ages who are currently paying the basic rate of income tax might feel pretty aggrieved when they wake up to discover that they have been catapulted into the 40p income tax rate, not because they are earning massively more but because the Chancellor has not raised the threshold in line with inflation—[ Interruption. ]I do not know whether I am interrupting a kind of confab of the horizontal speaking to the vertical on the other side of the Chamber, but I will continue, having drawn attention to the significant noise coming from the other side.
The Treasury forecasts suggest that there will be 5.7 million higher rate taxpayers by the end of this Parliament. That is nearly double the 3.1 million at the time of the last general election and treble the number when Labour came to power in 1997. Of course the whole increase in personal allowance that has been paraded here today is outweighed by the VAT rises, the changes to tax credits and the higher petrol duties. As my hon. Friend the shadow Chief Secretary demonstrated earlier, the average family with children will be worse off—not on the basis of our figures, but on the basis of those of the Institute for Fiscal Studies. The Chief Secretary’s answer to my hon. Friend was both evasive and complacent.
According to Citizens Advice, poorer families that get housing and council tax benefits will be just £33 a year better off when the tax threshold rises because as their income goes up, their benefits go down. For every person eligible to pay tax who also receives housing or council tax benefit, the Department for Work and Pensions will claw back some £187 of the £220 notional annual gain. The Citizens Advice chief executive, Gillian Guy, said:
“Raising the personal tax allowance is an empty gesture for struggling families on low wages who get housing and council tax benefits. For these families, the weekly gain is less than the price of a loaf of bread”.
In the name of simplification, the Chancellor launched his £3 billion tax raid on pensioners over the next four years. The freeze in the personal allowance for pensioners will see 4.4 million pensioners who pay income tax losing an average of £83 a year from next April. People who turn 65 after next year will, of course, lose most—up to £322 a year. The additional age allowance was introduced in the 1920s in recognition of the fact that those who have retired do not have the same capacity to increase their income. It is to the undying shame of the current Chief Secretary—a man for whom I once had some respect when he was a Liberal spokesperson on welfare issues—that he came forward today to try to justify taking money from those pensioners who have no other means of increasing their income, telling them that he was doing it in the interest of simplification.
I do hope the right hon. Lady will forgive me for breaking into her ad hominem attacks on just about every Government Member, but I point out to her that no pensioner loses any money whatever under these proposals because of the increase in the basic state pension that the Government have put in place.
Frankly, the increase in the state pension came about because inflation was at 5.2% in September and the Government could not get out of it. I do not know whether the hon. Gentleman worked for Grant Thornton when he was a tax accountant, but Mike Warburton of Grant Thornton said:
“The Chancellor is allowing age allowances to wither on the vine. He is effectively phasing them out but there is always a price to pay for simplicity.”
The burden will fall on pensioners with below average incomes. Those are not our words, but those of an eminent firm of chartered accountants.
No, I have been generous enough with the hon. Gentleman.
Also hidden in the statement was the announcement that there would be a further cut in the DWP’s welfare budget. I do not know how many people heard the Chancellor slide over the fact that there was going to be a £10 billion cut in the DWP budget. He did not say where it was coming from; it was left hanging in the air. He made a passing reference to his colleague, the Secretary of State for Work and Pensions, and to what a wonderful job he would do in cutting £10 billion. Where is that £10 billion going to come from? Will Ministers cut the carer’s allowance? Will they make further reductions in housing benefit for those in work as well as those who are out of work? Will there be a further erosion of support for disabled people, including disabled children? Will the Treasury freeze state pensions? Ten billion pounds will not come out of thin air. It will have to be paid for, but so far we have been given no details, or even a broad-brush indication of where it will come from.
My hon. Friend Nia Griffith made some valuable points about the stimulation of growth. It is worth comparing what the present Government have done with some of the steps taken by our Government when we were faced with a recession—a global recession, not a recession manufactured in this country. [Interruption.] Did I hear a voice from somewhere?
I was reflecting, perhaps a little more vocally than I should have from a sedentary position, on the suggestion that the recession was not of the right hon. Lady’s making, and was not fuelled by debt or anything else of that kind. She seemed to be entirely confident that her party had played no part in the creation of the circumstances in which we now find ourselves, although the former Chief Secretary left the message “There is no money”.
I almost wish that I had not heard the comment that the hon. Lady made from a sedentary position. What I said was that it was a global recession that we faced in 2007-08, not—as the Government would have us believe—a recession that had been manufactured in this country. It spread across the whole of the western world, and I hope that the hon. Lady will reflect on her comments.
As my hon. Friend the Member for Llanelli pointed out, during that dire time the car industry was helped by the scrappage scheme, there were changes in stamp duty and reductions in VAT, there was a future jobs fund, payment of tax was deferred for small businesses, and there were changes in mortgage support for those who became unemployed. The purpose of all that was to ensure that people stayed in their jobs, or, if they faced unemployment, were given the support that would enable them to obtain other jobs. This, however, was a Budget of ill-considered consequences. We have a granny tax that will make some pensioners poorer. We have a charities tax that is so badly thought out that Conservative Back Benchers are holding up their hands in horror. We now have a panicked consultation. We have tax proposals that may ruin the caravan industry, which involves manufacturers in the north of England. Hairdressers face paying VAT on their chairs that they hire for their salons. We have tax proposals that cannot be implemented.
One of the Treasury Ministers must explain to me what an “ambient temperature” is when it comes to assessing the imposition of VAT on savouries, which is almost impossible to implement. Is a pasty or a steak bake or a pie cooling down after it has been baked liable for VAT, or is one warmed up so that it can be sold also liable for VAT? That is a nonsense of a policy, and I hope that Minister will reflect on it as well.
The Budget on
It is a great pleasure to have this opportunity to speak in favour of the Finance Bill, which shows the wisdom of the Government on the key point of reducing the deficit. That was what the Government came into office to do. They set out a course to do that, and they are following it bravely and boldly. It is the essential part of the policy the Government are pursuing.
Very simply, because £150 billion extra has not got to be borrowed. Forecasts of what may happen are fundamentally unreliable. In a large economy, no efforts to forecast a small percentage of growth that there may or may not be have been successful. In the history of economic forecasts both in this country and across the world, there is one thing of which we can always be certain: that they are wrong and that the outcome will be different. This extra £150 billion that is proposed is based on a theoretical level of growth that was never going to be achieved, and that was never able to be achieved.