02:07 - The House divided: - Ayes: 332 / Noes: 230 - Question accordingly agreed to.
The Chief Secretary to the Treasury (Danny Alexander)
I beg to move, That the Bill be now read a Second time.
The emergency Budget takes tough action at a critical time for the British economy. The Bill implements many of the necessary measures in the Budget. As my right hon. Friend the Chancellor of the Exchequer said in his statement:
“The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed.” —[Official Report, 22 June 2010; Vol. 512, c. 166.]
The gap stands at £149 billion for this financial year alone. Yet the previous Government left us with no credible plans to reduce their record deficit. Nothing at this time is more urgent for Britain than setting out a tough, realistic and fair plan that demonstrates how we will regain control of the public finances.
Kelvin Hopkins (Luton North) (Lab)
Would not a better plan be for the Government to try to collect some of the taxes that are not paid, rather than cutting the wages and jobs of people in the public sector?
Danny Alexander
I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.
Mr Kevan Jones (North Durham) (Lab)
The right hon. Gentleman just told the House that the previous Government’s plans for a reduction were not credible, but how can he say that when the Office for Budget Responsibility’s latest independent analysis found that the Labour reduction plan would have more than achieved the target to halve the deficit over four years from 11.1% in 2009-10 to 5% in 2013?
Danny Alexander
I am grateful for that intervention. As the OBR set out both in its pre-Budget forecast and in the forecast published with the Budget, the comparison that the hon. Gentleman is seeking to make is based on interest rate assumptions that took into account market expectations under this Government’s measures, not market expectations of the measures that the previous Government were taking. He should read the OBR report if he does not agree, because that is an accurate account of what it says. It is clear that, had the previous Government carried on with their plans, interest rates would have been different. The risks that we are seeking to avoid through the Budget are those of higher interest rates, lower growth and fewer jobs, which I believe would be the consequence.
Clive Efford (Eltham) (Lab)
In light of that answer, what are we to make of Sir Alan Budd’s resignation today? The right hon. Gentleman puts much store by the OBR’s reports, but did they not contribute to Sir Alan relinquishing his post? He said that this was the greatest challenge of his professional career. He must have an extremely exciting career that he can give up that post so quickly.
Danny Alexander
I am grateful to the hon. Gentleman for giving me the opportunity to place on the record my thanks and those of this Government to Sir Alan Budd for his superb work in establishing, in a short period, an independent Office for Budget Responsibility with a strong reputation. It was always known that he intended to move on after a short period—a few months—in his post, and that is what he is doing. In a short time, he has established greater independence of the forecasts that go with the Budget than the previous Government managed in 13 years.
Chris Leslie (Nottingham East) (Lab/Co-op)
Sir Alan Budd is leaving the Office for Budget Responsibility, so to ensure that that organisation is seen to be independent, will the right hon. Gentleman give the House of Commons the power to appoint the successor or is he going to keep that for himself as a Minister?
Danny Alexander
I am not sure that that power ever rested in the hands of the Chief Secretary but, as the hon. Gentleman knows from the Gracious Speech, the Government intend to implement legislation to put the OBR on a statutory footing. He will have the opportunity to make that point in considering that legislation, and I am sure that he intends to do so.
Danny Alexander
I would like to make progress.
We have considered the plans of the previous Government and it is clear that they left us open to the risk of ending up in an even more serious crisis than that which we currently face. Such a crisis could ask questions of the kind that some other European countries face today, with higher interest rates—I mentioned those to the hon. Member for North Durham (Mr Jones)—more businesses going bust and higher unemployment. That is not a risk that we are prepared to take. The Budget takes the tough action necessary, but it does so with fairness, protecting the most vulnerable, including children in poverty and pensioners. In his emergency Budget, my right hon. Friend the Chancellor has set out clearly how we will pay for the bills of the past and start to plan for the future. This has already had an impact on the credibility of and confidence in the British economy.
Helen Jones (Warrington North) (Lab)
On fairness, it is clear that the measures that the right hon. Gentleman is enacting mean that the poorest 10% of people lose in percentage terms twice as much of their incomes as the richest 10%. What definition of fairness is he using when he says that that is fair?
Danny Alexander
I am sorry, but I do not accept the figures that the hon. Lady set out. If she looks at the information presented in the Red Book, she will find that it shows that the richest 10% of the population pay the greatest contribution, both as a share of their income and in cash terms. That is what I mean by fairness, and that is what we have set out. It is worth pointing out to her that this is the first time that a Government have chosen to set out in detail in the Budget documentation the distributional impact of the Budget measures. That is not a measure that the previous Government took, for example, when the 10p tax rate was being abolished.
Danny Alexander
I will give way to the hon. Gentleman and then to the right hon. Lady.
Mr Jones
I know that the right hon. Gentleman is doing his apprenticeship, but does he not understand the difference between the proportion and the actual tax take? Surely for a family in my constituency who are earning the minimum wage, the VAT situation alone will mean that the effect on the proportion of their income will be larger. If he looked at the research paper that has been ably produced in the House of Commons, he would find that it points out that fact.
Danny Alexander
I ask the hon. Gentleman to look at the tables on page 67 of the Red Book. I draw his attention to chart A2, which is on the
“Impact of all measures as a per cent of net income by income distribution”.
He will find that it makes it clear that the impact on the top decile is the highest as a share of income. Other charts make it clear that it is the highest in cash terms and that the impact is broadly progressive across income distribution.
Danny Alexander
I give way to the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), who tried to intervene first.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
I am rushing to get to the ballot box—[Interruption.] The right hon. Gentleman is welcome to come to the ballot box too, if he so wishes. He will know that not only does chart A2 include the Labour measures from the March Budget, but it does not go beyond 2012-13 and does not include housing benefit. Is he also aware that the House of Commons analysis has shown that more than 70% of about £8 billion of direct tax and benefit measures introduced in his Budget are being paid by women? What figure does the Treasury put on the proportion of those direct tax and benefit measures being paid for by women?
Danny Alexander
There were a lot of questions there but not a single apology for the record of the previous Government. The single measure announced by the previous Government that is included in the charts in the Budget Book is the national insurance change. We have chosen to introduce that measure, so it is legitimate that we have included it in the charts. Other measures that affect people on higher incomes such as the increase in capital gains tax for higher rate taxpayers, which the previous Government never chose to introduce, cannot be included in the tables, so the impact on the wealthiest may even be greater than is illustrated in the charts.
Matthew Hancock (West Suffolk) (Con)
Does not the Minister, like me, find it a bit rich that Opposition Members look only at part of the Budget, not the whole, after 13 years in which they did not once introduce a distributional table?
Danny Alexander
I agree with the hon. Gentleman. It is a bit rich coming from the Opposition, given that we have set out for the first time in any Budget its distributional impact.
Danny Alexander
I wish to respond fully to the intervention. I will come to the right hon. Gentleman in a little while.
We have taken a number of measures in the Budget, such as the earnings link with pensions, with a triple lock of earnings, prices or 2.5%, which the previous Government never managed in 13 years. That is a record of which we can already be proud. I give way to the former Chief Secretary.
Danny Alexander
As I understand it, the House of Commons analysis does not include the impact of all the measures in the Budget. VAT is paid much more in cash terms––that has been accepted by the Institute for Fiscal Studies––so it is paid more by the wealthiest. The analysis that we should rely on is that which is presented in the Budget because it shows that the distributional impact of the Budget measures hits those on highest incomes hardest. That is the relevant measure and the one that I intend to draw attention to.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
I commend my right hon. Friend on the fairness that he has ensured runs right through the Budget, especially in respect of pensioners, but may I draw his attention to one small potential unfairness that may have crept in? Pensioners who are on a modest works pension and the state pension will pay £100 more in tax this year than they did last year because of the difference in the thresholds. I am sure that this was inadvertent. Will he look again at that particular issue?
Danny Alexander
I am grateful for that intervention. I am sure that my hon. Friend will have the chance to raise that point either in Committee or on the Floor of the House when the Bill is considered.
Barry Gardiner (Brent North) (Lab)
Has the Chief Secretary analysed the impact of the Budget measures on women? If not, will he commit to doing so?
Danny Alexander
I can confirm that we have carried out an analysis of the Budget across the income distribution to evaluate its fairness. We have also conducted an analysis of the impact on child poverty, which is the most important aspect. We have ensured that, even in the toughest Budget since the second world war, there will be no impact on measured child poverty—something that could not always be said of the previous Government’s Budgets.
Ben Gummer (Ipswich) (Con)
Opposition Members like talking about apprenticeships. I am a relative newcomer to the House so can my right hon. Friend enlighten me? What happened to the gap between rich and poor under the previous Government? For my information, did it get wider or narrower?
Danny Alexander
The hon. Gentleman is clearly not as much of an apprentice in this House as he claims to be. The gap between rich and poor got wider during the previous Government’s term.
The measures in the Budget have already had an impact on the credibility of and confidence in the British economy. As the director general of the CBI, for example, has said:
“This budget is the UK's first important step on the long journey back to economic health.”
The Fitch rating agency said:
“The path of deficit reduction and public debt projections set out in”
the
“Budget statement are materially stronger than that set out in the March 2010 Budget.”
On fairness, the chief executive of Barnardo’s said:
“we recognise the Government has done what it can to protect the most vulnerable.”
Mr Andrew Love (Edmonton) (Lab/Co-op)
Will the right hon. Gentleman give way?
Danny Alexander
I will make some progress and give way to the hon. Gentleman later.
The Bill shows how the Government will carry out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country. The Budget and the Bill stand for three things. The first is responsibility—taking action to eliminate the structural deficit. The second is freedom—helping the businesses on which we all rely to rebuild our broken economy. The third is fairness—protecting the most vulnerable, while ensuring the contribution of all. Those principles are at the centre of the Bill before the House today and I shall address each in some detail shortly.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The right hon. Gentleman mentioned fairness and businesses, and I would like to draw his attention to rural areas. He will understand that the increase in VAT will affect fuel prices in rural areas. Would it not be right to have a rural fuel derogation pilot in place before the VAT increase takes effect?
Danny Alexander
I am very grateful for that intervention. The hon. Gentleman knows that we are investigating a rural fuel derogation of some sort—that was repeated in the Budget statement. Although I cannot make a commitment on timing, as he knows, I am personally very enthusiastic about such a measure and I will continue to work with my colleagues on it.
Danny Alexander
I want to say a word or two about the process of the Finance Bill.
Danny Alexander
No, I want to make some progress.
The Finance Bill before the House today seeks to ensure that the Government’s key tax priorities as set out in the emergency Budget are put on the statute book as swiftly as possible. This year, however, we face exceptional circumstances owing to the timing of the general election, which resulted in a curtailed Finance Bill following the previous Government’s March Budget and a relatively short timetable between our emergency Budget and the summer recess. There remain a number of minor and technical measures that we inherited from the previous Government and which must be legislated for before 2011. We shall therefore introduce those measures in a further Finance Bill in the autumn. Consistent with our aim of greater scrutiny of tax legislation, again set out in the Budget, we shall publish all those measures in draft for consultation before the end of July.
Chris Bryant
The right hon. Gentleman says that he is thinking about a derogation for rural areas in relation to VAT on fuel. May I point out that not a single house in the Rhondda is more than half a mile from a farm, so will he include the Rhondda in a derogation not only from VAT on fuel but from everything else as well?
Danny Alexander
The hon. Gentleman has misunderstood what is being discussed, which is no surprise, given the previous Government’s attitude to the idea, as the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) knows. We are not talking about a VAT derogation; the proposal relates to fuel duty.
Ms Angela Eagle (Wallasey) (Lab)
I was involved when the Treasury last looked at that idea. As the hon. Member for Na h-Eileanan an Iar knows, there are real hardships and we were very sympathetic. However, the Chief Secretary must admit that there are difficulties with developing such a policy, not least because of the potential for smuggling and fraud.
Danny Alexander
The hon. Lady says she was sympathetic—I attended a meeting where she expressed that sympathy—but no action by the previous Government resulted, despite the matter being pressed for a number of years. I am sure that my hon. Friend the Exchequer Secretary will look at all the issues as the question is investigated.
Danny Alexander
I hesitate to take further interventions, as we are somewhat outwith the scope of the Bill, but I will give way once more to the hon. Gentleman.
Mr MacNeil
I ask the Chief Secretary to consider this question. With rural fuel priced between £1.30 and £1.35 a litre, were a rural fuel derogation to apply in Na h-Eileanan an Iar, to where might we smuggle fuel? I would struggle to find anywhere where fuel is more expensive. That smuggling would be a problem is a ridiculous proposition. We had 13 years of nothing but sympathy from the last Government, with absolutely no action. I hope that this Chief Secretary does not make the same mistake.
Danny Alexander
I am grateful for the intervention, in both senses.
Returning to the Bill, I should say that our plan stands first and foremost for responsibility, because a failure to deal with the deficit is the greatest threat to our economy and to the well-being of our nation. A failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government’s debt. That would mean more business failures and sharper rises in unemployment, and it would risk a catastrophic loss of confidence in the economy. The Budget’s forward-looking fiscal mandate will eliminate the deficit in five years and put us on track to have the debt falling by 2015.
The Office for Budget Responsibility forecasts that the measures in our Budget will lead us to meet that challenge one year early and the bulk of the reduction will come from lower spending, rather than from higher taxes. My right hon. Friend the Chancellor announced that the spending review will conclude with an announcement on 20 October and address precisely how we will bring down spending.
Mr Michael Meacher (Oldham West and Royton) (Lab)
If the Budget is to meet the objectives that the right hon. Gentleman has in mind, where exactly does he expect growth to come from over the next five years?
Danny Alexander
I draw the right hon. Gentleman’s attention to the Budget measures forecast, which the OBR published. It demonstrated significant growth in the private sector, based at least in part on measures, which I shall come on to describe, in the Budget and in the Finance Bill.
Danny Alexander
I have given way already to the hon. Gentleman.
Let me turn to the first of the measures in the Bill.
Danny Alexander
I shall, as I have not yet given way to the hon. Gentleman.
Stewart Hosie
The Chief Secretary to the Treasury makes the point about growth, but he has not really answered the previous question. The OBR suggests that business investment will increase by 8% to 11% almost every year, but can he tell us of any period of two, three or four years when business investment grew by 8% to 11%—particularly given that we are coming out of the deepest recession that anyone in this Chamber has ever seen?
Danny Alexander
Those are not my figures; those are the figures that the independent Office for Budget Responsibility produced. By the way, the figures that the previous Government put forward contained hopelessly over-optimistic forecasts for economic growth. In this Budget, we are taking measures to reduce corporation tax, to reduce the small companies rate of corporation tax and to tackle the Labour jobs tax on national insurance, all of which will help to support business development. Those measures, which I shall come on to if I get the chance during my speech, will all help to stimulate economic growth in the private sector, and that is the best way to lead this country out of the economic mess that we are in.
Danny Alexander
I am not sure that the right hon. Gentleman can do anything to help me, given that he left the note saying that there was no money left, and that his decisions led the country to that position. I hope that in response to this debate he chooses to apologise for the mess in which his Government left the country.
Owen Smith
Precisely further to my right hon. Friend’s point, can the Chief Secretary point to any five-year period in the past 40 years when 2.5 million private sector jobs have been created—any one period?
Danny Alexander
My point is that that forecast was made by the independent Office for Budget Responsibility. In the previous Government’s March Budget, their growth forecasts, which were not independent in that sense, were over-optimistic, and I am prepared to accept the forecasts of the independent Office for Budget Responsibility.
Derek Twigg (Halton) (Lab)
Will the right hon. Gentleman give way on that point?
Danny Alexander
No, I am going to move on.
Let me turn to the first of the measures in the Bill. Given that the structural deficit is some £12 billion larger than the previous Government told us, we have to make difficult choices—whether to fill the black hole with yet more spending cuts or increase taxes. Further spending cuts would have made it impossible for the Government to protect the country’s most essential services in the spending review. The only other option would have been to raise taxes on companies or on personal income, reducing the rewards for work at a time when hard work and endeavour must lead the recovery.
The VAT rise is unavoidable. As I said in the Budget debate, it is Labour’s inheritance tax. Clause 3 increases the standard rate of VAT from 17.5% to 20% from 4 January 2011. Everyday essentials such as food and children’s clothing, as well as newspapers and printed books, will remain zero-rated throughout the Parliament, protecting those on lower and middle incomes. Domestic consumption of fuel and power will remain subject to VAT at 5%.
Danny Alexander
I shall give way to the hon. Gentleman, as I did not do so earlier.
Danny Alexander
No party proposed an increase in VAT at the election, and no party ruled one out. The Liberal Democrat manifesto—[Interruption.] If Opposition Members will listen, I will explain the situation. In the Liberal Democrat manifesto, we made it clear that we would seek to reduce the deficit through spending measures alone, unless, on grounds of fairness, it was necessary to increase taxes. That was a clear statement in our election manifesto. The rationale that I have just set out is based on the decision that we made. We felt that, given the £12 billion of extra structural deficit left us by the previous Government, the right decision was a rise in VAT rather than increased spending cuts.
Kate Green (Stretford and Urmston) (Lab)
I am grateful to the Chief Secretary for explaining his approach to fairness. Can he explain why it is fairer to cut spending on public services, on which the poorest rely most, than to use a progressive system of taxation? Why does the balance have to be 20% in favour of taxation and a whopping 80% in favour of public spending cuts?
Danny Alexander
In a way, the hon. Lady makes my point for me. The point that I just made is that given the additional £12 billion of structural deficit, as revealed by the OBR forecast, that was left us by the previous Government, we had to decide whether to make £12 billion of further spending cuts or to establish a tax measure to fill the gap. We made the right decision. The tables in the Budget book show that the overall impact on fairness—particularly for children living in poverty, which is a long-standing concern of the hon. Lady’s and on which she has a strong track record—is minimised.
Danny Alexander
I am going to make progress for a few moments, or the former Chief Secretary will never get a chance to have his say.
Clause 4 takes further action to tackle the deficit by increasing the standard rate of insurance premium tax from 5% to 6%. The higher rate of insurance premium tax will increase from 17.5% to 20% from 4 January 2011, to bring it into line with the new VAT rate. The increases are both fair and sustainable.
Chris Leslie
Is it fair to increase the higher rate of insurance premium tax to 20% on travel insurance, which is vital for many ordinary working people as they take a break and go on holiday? They may be able to do so for only one or two weeks a year. If they do not have travel insurance, that could leave them in significant jeopardy. Will the increase not prevent or deter people from taking out travel insurance?
Danny Alexander
I am sure that the hon. Gentleman is right to exhort people to take out travel insurance. As he will know, when insurance premium tax was established, both its lower and higher rates were linked to VAT. It is therefore right that they go ahead together on the same basis.
We have inherited plans to limit tax relief on pension savings for the wealthiest. We have concerns about the complexity of the changes and their potential consequences for pension saving, UK competitiveness and the complexity of the tax system. However, given the state of the public finances, we cannot be blind to the £3.5 billion of revenue that the policy was set to raise. Therefore we have set out our commitment to protecting the public finances by pursuing an alternative approach that raises no less revenue than existing plans, potentially by reducing the annual allowance. We will therefore engage employers, pension schemes, experts and other interested parties to determine the design of an alternative scheme. To keep our options open, clause 5 provides the power to repeal the regime that was legislated for in the Finance Act 2010.
Secondly, our Budget stands for fairness. This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden. As my right hon. Friend the Chancellor said in his Budget statement, it is a progressive Budget.
Derek Twigg
As regards fairness, is it fair to my constituents and to the construction industry that the Chief Secretary has already stopped £168 million of expenditure on Building Schools for the Future projects and postponed the Mersey Gateway project? Total expenditure on those projects would have been £500 million. How does that help the construction industry?
Danny Alexander
I think it was irresponsible to make commitments to those sorts of projects, which could not be funded on the basis of the previous Government’s plans for halving capital spending over the next few years while building into their plans ever further, unsustainable commitments.
Danny Alexander
I will press on, if I may.
As my right hon. Friend the Chancellor said, this is a progressive Budget.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Will the Minister give way?
Danny Alexander
I am going to make some progress, but I will give way to the hon. Gentleman in a moment.
The Budget includes progressive measures such as increasing the rate of capital gains tax by 10 percentage points for higher rate taxpayers while keeping it the same for basic rate taxpayers. Clause 2 increases the rate of capital gains tax to 28% for higher rate income tax payers, but basic rate taxpayers continue to pay an 18% rate. The entrepreneurs’ relief lifetime limit will be extended from the first £2 million to the first £5 million. That implements the commitment in the coalition agreement to provide generous exemptions for entrepreneurial businesses.
Danny Alexander
I am going to finish this section, and then I will give way to both hon. Gentlemen.
These changes—
Derek Twigg
On a point of order, Mr Deputy Speaker. The Chief Secretary hinted a few moments ago that the money was not available for Building Schools for the Future projects in my constituency, yet the shadow Education Secretary has had a letter from the permanent secretary at the Department for Education saying that the money was available. Also, I know for a fact that the money was there for the Mersey Gateway project, yet the Chief Secretary said it was not. Can we have some consistency in the accuracy of answers?
Mr Deputy Speaker (Mr Lindsay Hoyle)
That is not a point of order. If the hon. Gentleman wants to intervene, it is up to the Minister to give way if he wishes.
Danny Alexander
I have given way a great deal, and I now give way to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards).
Jonathan Edwards
On geographical fairness, does the right hon. Gentleman agree with the recommendations of the final Holtham report, published today, which calls for an immediate Barnett floor to protect Wales from further convergence, the implementation of transition mechanisms towards a needs-based formula, and a place at the table for the Welsh Government in discussions on fiscal autonomy for Scotland?
Danny Alexander
I am grateful for that intervention. I have not yet had a chance to read the second Holtham report, which is published today. However, in the course of a meeting with the Welsh Finance Minister, I undertook to meet Mr Holtham once he had published his second report, and I look forward to doing so and having a chance to discuss it directly with him. At this stage, I will not make any commitments of the sort the hon. Gentleman wants, except to note that on the path of public finances as they are at the moment, further convergence is not forecast over the next few years.
The changes to capital gains tax help to pay for further progressive measures such as our increase in the income tax personal allowance, which takes almost 1 million of the lowest-earning income tax payers out of income tax altogether. It also increases the incentive for people on low incomes to get a job. That is fairness.
Danny Alexander
Approximately half the people who paid capital gains tax in the past year were basic rate taxpayers—
Danny Alexander
I do not have the figure to hand, but I will happily let the hon. Gentleman know at a future date or write to him with the precise figures he is looking for.
The measures that we are taking, rightly, close the avoidance issue that arose under the system put in place by the previous Government, whereby someone who was taking a substantial bonus, for example, in capital gains could pay less tax than the person who cleaned their office. [Interruption.] I am being asked if that was fair. I certainly do not think it was fair—it was highly unfair. That is why we have chosen to try to reduce that avoidance risk. The hon. Member for Wrexham (Ian Lucas) will know that the yield from the measures that we have taken comes in large measure from income tax, which reflects the fact that that sort of avoidance was going on.
Yvette Cooper
I thank the Chief Secretary for his generosity in giving way. I will give him one more chance to answer this important question: has the Treasury done any analysis of the direct impact of the tax and benefit measures on women, separately from men? Does he know?
Danny Alexander
I am not sure that that analysis was carried out under the previous Government. We are the first Government to have published analysis of the impact across the income distribution, and we have conducted specific analysis of the impact on child poverty. It is notable that the House of Commons analysis assumes that women will be the only people affected by changes in benefits that are targeted on families. It does not make any allowance for the way incomes may be shared within the household, and as a result it may well exaggerate the impact of Budget measures on women’s incomes.
The Budget includes a number of measures to ensure fairness for pensioners. For example, it locks in an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the highest—the so-called triple lock—to the benefit of 11 million pensioners. It also enables individuals to make more flexible use of their pension savings. The Government intend to end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011. Clause 6 provides interim measures to raise the age at which a person is required to purchase an annuity, or otherwise secure a pension income, from 75 to 77. That is to protect those who might otherwise be forced to annuitise before the new rules that we are seeking to introduce come into place. We will consult interested parties on the detail of that change later this month.
Stewart Hosie
I welcome the age increase to 77 to allow flexibility, but a constituency query regarding that matter has emerged in the past 48 hours. If someone has already reached 75 and their annuity was going to be so miserable that they chose not to buy it yet, will they be covered by the new rules or will they fall in a hole in the middle in which, if there is anything left in their pension pot in the future, it will be subject to inheritance tax?
Danny Alexander
If the matter that the hon. Gentleman mentions is a constituency case, I suggest that he write to my hon. Friend the Financial Secretary, who will be able to address the matter in detail.
Danny Alexander
No, I do not accept that. In fact, the increase next year will be protected. According to the forecasts for average earnings, the increase in the following year, 2012-13, would have been 2.4%, so our floor of 2.5% will ensure that the increase in the second year is higher than that forecast by the previous Government.
Danny Alexander
I have looked at the figures, and I stand by my previous answer.
Danny Alexander
No, I am going to make some progress. I have given way a great deal and an awful lot of questions have been asked, and no apology has been heard from any Opposition Member for the dreadful mess they left the economy in.
Fairness in the tax system is also about ensuring that everyone pays their fair share of taxes due. Too many individuals and firms in Britain today exploit the tax system through tax avoidance, a practice that ultimately means the rest of us have to pay more tax. The Bill puts in place measures to protect about £200 million of revenues per annum from tax avoidance. Clause 8 sets out an anti-avoidance measure to prevent matched income and expenses from being derecognised in a company’s accounts. That will ensure that income from financial instruments such as loans and derivatives can no longer be excluded from the accounts and go untaxed.
Clause 9 sets out a further anti-avoidance rule, building on section 47 of the Finance Act 2010 to prevent life insurance companies from avoiding tax on previously unrecognised profits. It will do so by ensuring that section 47 will be effective in cases in which life insurance business is transferred to another company. We will take further measures in future to tackle avoidance. In particular, a consultation on a general anti-avoidance rule was announced in the Budget.
Kate Green
How will the welcome measures to reduce tax avoidance be squared with job cuts in HM Revenue and Customs?
Danny Alexander
On the plans for HM Revenue and Customs, I am confident that the anti-avoidance measures are deliverable and can be expected to yield the amount that I described.
Danny Alexander
No, I have given way nearly 30 times already.
Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.
We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.
Stephen Timms (East Ham) (Lab)
Why does the Bill legislate for only one of those changes, not all four?
Danny Alexander
It is good to see the right hon. Gentleman in his place; I welcome him back to the House after the experience that he had, for which Members of all parties feel enormous sympathy.
As I understand it, the practice in Finance Bills is to legislate one at a time for the changes that are needed in the following years. The Chancellor’s commitment in the Budget speech was for year-on-year reductions, and we will fulfil it.
Stephen Timms
I thank the Chief Secretary for his kind remarks.
I think the precedent was set in 1984, when the now Lord Lawson reduced corporation tax over a series of years, and the Finance Act 1984 legislated for them all. Why is that not being done in this Bill?
Danny Alexander
I am grateful for the further intervention and it is interesting to hear the right hon. Gentleman cite Lord Lawson. I am not sure that the Labour party cited that example in its Budgets. There are various technical reasons, which have just been discussed, and which my hon. Friend the Exchequer Secretary will explain in his closing speech. The basic point is that our method is more business-friendly.
As a first step, clause 1 reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. Consequently, the corporation tax of around 47,000 companies will fall. The Budget also supports Britain’s small businesses by cutting the small companies rate of corporation tax from April 2011, reversing the previous Government’s plans to increase the small companies rate. That will benefit some 850,000 companies. The Budget takes action to stop the previous Government’s job tax by increasing the threshold for employers’ national insurance contributions, thereby lifting 650,000 employees out of that tax. Of course, a separate Bill will deal with that.
Taken together, those measures offer a stable and consistent platform for a private sector recovery.
Danny Alexander
I will not give way.
Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.
Danny Alexander
I will not give way on that. The hon. Gentleman can make his points in the debate.
The emergency Budget takes decisive action to tackle the deficit that we inherited and to confront the greatest economic risk to our country. It is tough, but it is fair. We have set the course for a balanced budget and falling national debt by the end of the Parliament. We have to pay the bills of past irresponsibility, but in doing that, we have ensured that those with the broadest shoulders carry the greatest share of the burden.
The Budget and the Bill represent a break with past traditions. They demonstrate a genuine shift in approach from that of the previous Labour Government. Our decisions are in the best interests of the economic cycle; those of the previous Government were dominated by the news cycle. Our actions are based on hard facts and the real world; theirs were based on wishful thinking and, in some cases, complete denial of the economic reality. We have been guided by independent forecast, not political whim. We are acting responsibly; they remain in the mindset of profligacy, which led them to make spending promises that they knew could not be kept while they were in government.
The Opposition now say that they will oppose many of our measures, but without giving any indication whatever of what they would do instead—not a single suggestion. They are in denial; the Government are facing up to reality. The provisions in the Bill are fair. They will help to put our public finances on a solid footing and provide a strong platform for economic recovery. I commend the Bill to the House.
Mr Byrne
My hon. Friend is absolutely right. Very few people in the country believe the Budget’s forecasts for employment growth, which is not surprising given how hard the Budget is hitting growth.
I want to move on from the economics of the Bill, and the possibility that it may work, to a wider question that I know we will want to debate this afternoon.
Danny Alexander
The right hon. Gentleman began, quite rightly, by paying tribute to the Office for Budget Responsibility and the work that it has done. Does he accept that the OBR forecasts make it clear that over the period of the Budget, growth will rise and unemployment will fall? That confirms—if we are trading quotes—the view of the secretary-general of the OECD, who has said that the Budget
“provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while… supporting the recovery.”
That is what the Budget does, and the right hon. Gentleman should be welcoming it.
Mr Byrne
I ask the Chief Secretary to be patient for a moment. The last year in which exports grew as a percentage of our economy in anything like the way that the OBR projects for the next few years was 1974. The Chief Secretary is relying on a unique combination of the business investment that we saw in 2005 and the exports that we saw in 1974. He is assuming that they will come together in perfect harmony in each of the next three years. I must say to the Chief Secretary, very gently, that that is a bit of a gamble for him to take.
Danny Alexander
Does the right hon. Gentleman accept that it is the independent Office for Budget Responsibility—which I think he welcomes—that forecasts that growth will rise over the current Parliament and that unemployment will fall? Does he accept that, yes or no?
Mr Byrne
It is not a great triumph for unemployment to fall as an economy returns to growth. The point that I was making is that employment in this country is lower as a result of the Chief Secretary’s Budget, that growth is lower as a result of his Budget, and that the Budget hits the economy so hard that he must raise another £9 billion of taxes, although the Chancellor refused to admit it at the Dispatch Box.
I now wish to turn to a question to which I hope we will devote quite some time today: the wider question of why this Finance Bill is so unfair. We now have the judgment of the Institute for Fiscal Studies, which tells us that the Budget is so regressive that its only redeeming features are Labour policies. Age Concern tells us—clearly, starkly, urgently—that it will put older people’s lives at risk. The Child Poverty Action Group tells us that it will drive poorer parents into the arms of loan sharks. The House of Commons Library tells us that nearly three quarters of the £8 billion tax and benefits bill will be paid by our country’s women—and that is before we get to VAT.
Clause 3 is the clause that deals with VAT, and I think it fair to say that it is the clause without a mandate. I have come to learn that, after nearly 30 years in the House, the hon. Member for Bermondsey and Old Southwark did not get where he is today without knowing what makes his party tick. I believe that when he said, a week before the Budget,
“I hope we don’t have a VAT increase because it is the most regressive form of tax”,
he spoke for the majority of his party’s voters and his party’s members. Before too long, those words will come back to haunt the Chief Secretary and the rest of the occupants of the Treasury Bench.
Back on 7 April, the Deputy Prime Minister warned us about hikes in VAT. He said:
“let’s remember, it is a regressive tax”.
He was right: it is a regressive tax, and we now know that he is a regressive politician for supporting it.
I think that it is fair to say—I feel that I can say this among friends—that I know a thing or two about writing something and regretting it later, but the Liberal Democrats did not just write a silly note. They unveiled a whacking great poster on a lorry saying, “Tory VAT bombshell”. Little did we know that they would be the ones not only to prime it, but to set it off.
Mr Meacher
I have never believed what some Laffer economists say, which is that increasing taxes on the rich results in a reduction in the net income. I believe that that is based on a false premise.
The Economic Secretary to the Treasury (Justine Greening)
Can the right hon. Gentleman explain why his Government failed to narrow the gap between rich and poor?
Mr Meacher
I regret that the Labour Government did not succeed in narrowing the gap between rich and poor. However, they did something quite remarkable in reducing the number of children in poverty by 600,000. No, it was not enough, and we fell below our target. I can tell the hon. Lady why the gap widened, however. To cite a phrase that was used early on in the Labour Government, new Labour took the attitude that it was fairly unconcerned about people becoming filthy rich. That was a serious mistake, and the increase in the wealth of the tiny top segment of the population has been enormous. That is the reason that the gap increased.
Gregg McClymont
Keynes famously said that, in the long run, we are all dead. To be fair to the hon. Gentleman, there is a serious point there, to which I was just coming.
As I said, the first superstition encourages a second: that states, like households, must not carry debt over the long term. But if that is untrue for households, it is even less relevant for states, because states are different from households. First, nations do not have to balance their payments over a life cycle as an individual does; unlike individuals, states are here for the long term. That is an important point. Secondly, states’ ability to borrow is much greater than that of any private citizen. States may borrow much more cheaply than any individual, simply because the amount of economic activity within any state’s borders is much greater than the economic activity to which any individual has access. I therefore disagree with the hon. Gentleman on that point.
More important, states have obligations to the societies they serve in a way that households do not. States can use their ability to borrow to support demand at a time of low private sector activity. Pull away that support for the economy and private sector firms are discouraged from investing, the tax take is reduced and spending and unemployment are pushed up; ultimately, the deficit is made worse. That is the paradox of Government thrift. We learned it in the 1930s. The Liberal Democrats warned us of its dangers up until 7 May. Now, that lesson seems to be totally lost on both elements in the Government.
Government Members claim that the fiscal deficit is crowding out private investment by pushing up interest rates and making investment more expensive. Crowding out is not an insignificant issue and it does have some relevance in conditions of full employment when an economy is at full capacity, but we are nowhere near that point. As the right hon. Member for Wokingham (Mr Redwood) pointed out, the private sector has taken a real battering in the past two or three years. Excess capacity is manifest. In my view, there is a much simpler explanation for low private sector investment: the private sector is not investing and banks are not lending because they fear that households will not have the confidence or the ability to buy goods.
What do we use to restore confidence? So far, we have used monetary policy, but it is not clear to me how much further we can take that. Interest rates are already at rock bottom. We cannot reduce them much further if this Budget tips the economy back into recession or, as my hon. Friend the Member for Telford (David Wright) suggested earlier, it has us bumping along the bottom. At that stage, if the recovery does not take place along the lines the Government that claim it will, the only instruments of monetary policy at our disposal would be further quantitative easing or a further devaluation of the pound to encourage exports. That could be dangerous, encouraging exactly the increased inflation and higher interest rates that Government Members fear. In my opinion, fiscal policy continues to have a role to play.
I mentioned two superstitions that I think underpin the Government’s attitude, but there is a third: the idea, repeated over and over, that our national debt is unprecedented historically and exceptional internationally. That is the basis on which the Government claim over and over again that public spending is out of control. They assert again and again that we have left the nation’s finances in a mess, and that is the context for the spectre of a sovereign debt crisis.
Gregg McClymont
Indeed, they assent. My own view is that the political rhetoric is at odds with the economic reality, and I shall tell them why. Several colleagues have noted that the average maturity of British sovereign debt is 14 years—
Helen Goodman
In order to achieve that difference in the debt to GDP ratio four years hence, we will see cuts of 25% across most Departments, four times greater than those that Geoffrey Howe tried to impose on the country in the early 1980s. Even so, the tax burden will also rise by £33 billion. We have to question the judgment of a Government who are taking that amount of money out of the British economy.
Another issue is whether the Budget will promote growth. It is clear that in overall terms it will not do so. That is clear from the revisions to the forecasts made by the OBR, which show that growth is down and unemployment is up. Given the huge cuts proposed in the public sector—we heard about the first slice yesterday to the Building Schools for the Future programme—not only will the number of public sector jobs be reduced, but the knock-on effect will be significant increases in job losses in the private sector. The Government’s contention that 2 million private sector jobs can be created is just not credible. That is far more than was achieved in the 1990s when interest rates were cut aggressively and the pound depreciated by 25%. In those years, it took seven years for employment to grow by 1 million. Obviously, interest rates cannot be cut aggressively in the current situation, and it is highly unlikely we will see a depreciation of the pound against the euro, given that the European economies—our largest market—are in the state they are in. Under the Labour Government, 2.5 million jobs were created over 13 years, but that included extra jobs in the public sector, a housing boom and huge increases in financial services. The Government are now putting forward a prospectus that is simply not tenable. The argument that we have to attend to the level of the deficit because private sector investment is being crowded out by the public sector is also not credible, given that the economy has 4% spare capacity.
I turn to the measures in the Bill. On corporation tax, the coalition Government are cutting the rates—this is a long-standing pattern with the Tories—while cutting the allowances. What will that do for growth? How will that enable the economy to be rebalanced in the way the Secretary of State for Business, Innovation and Skills says is so important? Cutting allowances for investment is bad for manufacturing. The small and medium-sized firms in my constituency, where there is a lot of engineering and small manufacturing, provide several examples demonstrating what the problems are. Over the past month, I have visited two firms that make packaging, which means they supply the retail industry. Obviously, if shops are not doing very well, those firms are not doing very well. Clearly, they need a lot of big machinery to make the packaging, and if they are to continue to have the new, up-to-date machinery to do that, they need investment allowances.
Not so long ago, I visited a building and joinery firm that also has a lot of expensive machinery that it needs to keep up to date, and it also needs these investment allowances. Its contracts are largely dependent on the public sector and on schools and police stations being refurbished, so these cuts in the public sector will have huge knock-on effects in the private sector. Let us take a final example: a chemicals firm making sealant for aircraft. How will it fare with cuts to the defence budget, which is one of the budgets not being protected? Once again we have a complete picture that is totally incoherent. What the Government offer in practice and what they say they want to achieve are two completely different things.
Many hon. Members have commented on the unfairness of the low level of the bank levy and on the fact that the banks will gain more from the corporation tax cuts than they will lose from the increase in the bank levy. However, no one has asked why the bank levy is only being introduced from 1 January 2011. I would like Treasury Ministers to explain why there is a delay in the introduction of the bank levy. Surely that gives the banks a lot of time to move their assets around and avoid this tax, at which, as we all know, the financial services are particularly adept.
The Exchequer Secretary to the Treasury (Mr David Gauke)
indicated dissent.
Helen Goodman
The Minister shakes his head. They clearly do not know the answer.
The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than acting on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.
Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy.
The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.
The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.
The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.
Ms Eagle
If those two parties were so confident that these measures are progressive, they would commit the Government to carry on publishing those tables when the cuts really start to bite.
The huge hike in VAT is the regressive centrepiece of this regressive Budget and it features in the Bill. That is despite the fact that before the election the Prime Minister said on 23 April to Jeremy Paxman:
“We have absolutely no plans to raise VAT”,
and the Deputy Prime Minister fronted a huge VAT tax bombshell poster campaign warning about the dangers of electing a Tory Government, which still featured on his website until 9 o’clock this evening: when alerted to its continued presence by my right hon. Friend the shadow Chief Secretary, someone in the Deputy Prime Minister’s constituency finally did the decent thing and took it down.
Some Liberal Democrat Cabinet Ministers are even now trying to argue that VAT is not as regressive as they thought it was before the election. It seems that there is no limit to the depths that they are prepared to sink to justify the betrayal of their pre-election promises. VAT is regressive. It hits pensioners and those who are too poor to pay any income tax the hardest. Why then have the Government chosen to raise the bulk of their new tax revenue, nearly £13 billion, by using that tax?
We were assured that the cuts would be fairly distributed in a progressive way, but our early experience of the decisions coming out of the Treasury has confirmed our worst fears. The poorest areas have been hardest hit by cuts to discretionary programmes, which were intentionally aimed at areas in the most need.
One of the first cuts that the Government made was to the future jobs fund. That is at a time when we know, thanks to a leaked Treasury document, that the Budget measures alone will destroy 1.3 million jobs in both the public and private sectors and there are 69 students chasing every job. The prediction by the OBR that 2 million private sector jobs will be created in a mere five years is highly suspect, as an analysis by Adam Lent has pointed out. It took seven years after the 1980s recession and nine and a half years after the 1990s recession to create 2 million jobs, and we are expected to believe that the 2 million mark will be surpassed in record quick time despite the global shock of the credit crunch.
What about the sneaky little move from the retail prices index to the much lower consumer prices index as the definition used for benefit indexation? That cuts £6 billion from the benefits bill at the expense of pensioners and the poorest, the most vulnerable in our society. The delay in implementing the VAT increase will ensure that the price inflation it causes—
The Parliamentary Secretary to the Treasury (Mr Patrick McLoughlin)
claimed to move the closure (Standing Order No. 36), but the Deputy Speaker withheld his assent and declined to put that Question
Mr Byrne
On a point of order, Mr Deputy Speaker. May I ask for your guidance under Standing Order No. 15(1)(a), which says that the proceedings on any stage of a
“bill brought in upon a ways and means resolution”
including the Finance Bill, are exempt from interruption and may be proceeded with until “any hour though opposed”.
Mr Deputy Speaker
The right hon. Member is quite entitled to move the closure motion. It is the decision of the Chair whether to accept it, so what I would say is, Angela Eagle, I am sure you must be very near the end of your speech now.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had nine and a half hours of debate, we have heard many speeches from Labour Members—to be precise, I should perhaps say that we have heard one speech many times—and we have heard not one word of apology. We debate this Bill in the context of a crisis in our public finances, yet we do not see the two right hon. Members most responsible for that here: the shadow Chancellor and the right honourable—and absent—Member for Kirkcaldy and Cowdenbeath (Mr Brown). Over the past few years, few contributions have been made by Labour Members on Finance Bills; usually we heard a contribution from the then Member for Wolverhampton South West, Rob Marris, who is a well-respected figure. We heard many speeches from Labour Members today, but I must say that although the quantity has increased, the quality has deteriorated. There was one exception: the hon. Member for Scunthorpe (Nic Dakin) made a fine maiden speech.
We also heard three other excellent maiden speeches. One was made by my hon. Friend the Member for Weaver Vale (Graham Evans), who pointed out that we do not help the poor by piling up debt. Another was made by my hon. Friend the Member for Ipswich (Ben Gummer). I was particularly delighted to hear that, because I grew up in that town and I remember that even in the days of substantial Conservative majorities it was a Labour-held seat. That goes to show what a fantastic effort he has put in there. I was also delighted to hear the maiden speech of my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay), whom I have known for nearly 20 years. I also wish to thank my right hon. Friend the Member for Wokingham (Mr Redwood), the hon. Members for Solihull (Lorely Burt) and for St Ives (Andrew George), and my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Dover (Charlie Elphicke), for their contributions.
We debate this Finance Bill in the context of a need for a further fiscal tightening. This country is borrowing more than at any time in our peacetime history. We have seen real turmoil in the markets, with concerns about sovereign debt contagion and with Spain, Portugal and Greece having their credit ratings downgraded. We have seen the independent Office for Budget Responsibility downgrade our predecessors’ less than independent growth forecasts and increase the estimate of the structural deficit.
May I respond to the point about Sir Alan Budd by saying that the hon. Member for Wallasey (Ms Eagle) may find that if she spoke to her colleague—or perhaps former colleague—Lord Myners, she would find that in response to his freedom of information request we sent him a copy of Alan Budd’s contract, which makes it clear that it was a three-month contract? It also has to be said that in providing credibility for the public finances, he achieved more in three months than the Labour party achieved in 13 years.
It was imperative that the new Government moved further and faster in reducing our deficit and putting the public finances on a firmer footing. What were the risks if we did not do that? At best we would have had a substantial structural deficit at the end of the Parliament, and we would have paid more than £70 billion a year in debt interest. At worst, we ran a risk of the UK being swept up in a sovereign debt crisis, of a downgrading in our credit rating, of a loss of confidence by international investors, of interest rates having to rise in response, and as a consequence, of any recovery being choked off as credit became more expensive and less available. This was a risk that the coalition Government were not prepared to run, even if others were. It was necessary and overdue that we had a Government who were willing to take decisive action, to get a grip of the situation, and to set out a clear and credible path out of this inherited mess. That is what we have done.
Mr Gauke
The hon. Gentleman had nine and a half hours to take part in this debate. I am not going to give way to him now.
It is right that we should focus our attention on spending cuts. That is the best way of ensuring a successful fiscal consolidation; none the less, it was also necessary to raise taxes. Our challenge was to do so in a way that was fair and enhanced the competitiveness of the UK economy, so that we could encourage the necessary private sector growth.
We will open Britain up for business by creating a more competitive system of corporation tax. We will reduce the main rate from 28% today to just 24% over four years. Rather than putting the small profits rate up, as our predecessors planned to do, we will reduce it to 20%. That proposal has been widely welcomed by business groups such as the CBI, the British Chambers of Commerce and the Institute of Directors.
For the first time we have set out the distributional impact of all the Government’s tax and benefit changes that will affect the public over the next two years. It is clear that we have ensured that every part of society will make a contribution to reducing the deficit while protecting the most vulnerable. Even with some tough decisions, we have ensured that child poverty will not increase in the next two years, through a significant above-inflation increase in child tax credit.
We have not heard proposals from the Opposition about how they would raise more tax. To be fair, one or two Opposition Members, even former members of the Government, said, “We should have raised more from the bank levy,” somewhat forgetting that when the Labour party was in government it refused to introduce a bank levy.
I know that there is sincere concern on both sides of the House that those who are materially deprived may have to pay disproportionately more in tax as a consequence of the change in VAT, but I urge all hon. Members to look at the academic debate on this matter. If they want to see a correlation between material deprivation and income, the best way of looking at it is to look at the expenditure basis. The fact is that income distribution will always reflect the fact that there are groups in society with volatile incomes who are not as materially deprived as others, but who will from time to time earn less and at other times earn more. As a consequence—
Mr Deputy Speaker
Order. If the Minister wanted to give way, he would do so. The hon. Gentleman has been in the House long enough to recognise that the Minister is not going to give way.
Mr Gauke
We are not going to take any lectures from the Opposition. Remember, theirs is the party that doubled the 10p tax rate. Of course, at that point the Government did not produce a distributional analysis. I have asked officials to look into this, and if we look at the distributional impacts of the changes in income tax announced in 2007, an interesting fact emerges: the bottom five deciles all lose and the top five deciles all win. That was the consequence of the policy of the right hon. and absent Member for Kirkcaldy and Cowdenbeath, and some of us remember Labour Members cheering when that policy was announced.
What a contrast with the coalition Government. Whereas the Labour Government raised income tax on the poorest, we have taken 880,000 people out of income tax. What a contrast on the deficit, as well. I do not believe that when the Labour Government came to power in 1997 they intended to leave the biggest budget deficit in our peacetime history, but the fact is that they did. We know it, the British people know it, and deep down, Labour Members must know it too, but the more we listen to them—in complete denial, opposing each and every measure to control the deficit, failing to engage in how we solve the problem—the more absurd and out of touch they look. That will not impress many people.
The British people know that this Government are sensibly and pragmatically clearing up a mess left by our predecessors. I say to Labour Members: accept that fact, engage constructively in what we do about it, but above all, apologise for it. It is clear, however, that we will not get any constructive engagement from Labour Members. Instead, we see Labour’s age-old habit of failing to confront the hard truths: self-indulgent, short-sighted, with passion and resolution marching into the wilderness—irresponsible in government, irrelevant in opposition.
This country deserves better than that. The British people know that sorting out the mess will not be easy. Yes, sacrifices will have to be made, but in this Finance Bill we are making tough choices—choices that will restore our public finances, choices that enhance not diminish our competitiveness, and choices that are fair to all sections of society. I commend the Bill to the House.
Question put, That the Bill be now read a Second time.