House of Commons
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Oral Answers to Questions
(13 years, 9 months ago)
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Philip Davies (Shipley) (Con)
1. For what reasons he has ended the Building Schools for the Future programme for Ilkley and Bingley grammar schools.
The Secretary of State for Education (Michael Gove)
As I set out in my statement last week, the Building Schools for the Future programme has been over-bureaucratic and inefficient. I therefore decided that where financial close had not been reached, future projects provided under BSF could not go ahead. Ilkley and Bingley grammar school projects have not reached financial close, and BSF plans for those two schools have therefore stopped. However, we will continue to invest in schools capital projects.
Philip Davies (Shipley) (Con)
In the catchment areas for both Ilkley and Bingley grammar schools, there has been excessive house building, so there is no longer sufficient capacity on their existing sites to meet local demand. Can my right hon. Friend ensure that those schools that need new build to increase capacity to meet local demand will still receive capital expenditure?
Michael Gove
I very much take the point made by my hon. Friend. One of the defects of the BSF scheme was that, in many parts of the country where there was real need as a result of a growing population, the money was not there to provide new school places. As a result of our capital review, we will ensure that where there is additional population pressure and additional basic need, particularly in primary schools, which BSF did not cover, we will provide the support that is necessary. I look forward to working with my hon. Friend to help the parents and teachers in those two great schools.
Ed Balls (Morley and Outwood) (Lab/Co-op)
For parents, children and teachers in Ilkley and Bingley, the initial shock of learning that their new school building has been cancelled will have turned to outrage at the seemingly arbitrary and chaotic way in which the Secretary of State has made and announced his decisions. The right hon. Gentleman must now know that there is widespread anger in all parts of the House. Following weekend reports that he was advised by his officials not to publish a list of schools at all, I wrote to him yesterday to request answers in advance of today’s oral questions. I have received a reply that does not answer any of my questions: it merely attaches a new list—list No. 5—containing 20 additional cancelled schools compared with a week ago.
I shall ask the right hon. Gentleman for a straight answer to a specific question. Did he at any point receive written or oral advice from departmental officials or Partnerships for Schools urging him not to publish a list of schools until after he had consulted local authorities, to make sure that his criteria were sound and his facts were right?
Michael Gove
The right hon. Gentleman says that there was anger across the House. There was—at the way in which the BSF project had been run by the right hon. Gentleman. There was justifiable anger at the way in which a project that was originally supposed to cost £45 billion ended up costing £55 billion, and it was shared by those who were shocked that under the previous Government, one individual received £1.35 million in consultancy fees—money that should have gone to the front line. From the moment that I took office, everyone involved in this process said to me, “Make sure that you ensure that this faltering and failing project ends.” That is what I have done. I inherited a mess from the right hon. Gentleman, and we are clearing it up.
Mr Speaker
Order. Both the Secretary of State and the shadow Secretary of State have had their say, and I know that we will now want to return to Ilkley and Bingley.
Ed Balls
The right hon. Gentleman cannot give a straight answer to a straight question. The people of Bingley and Ilkley will not be satisfied by that answer, and nor are we. Interestingly, his letter today says very clearly that his fifth list has been validated by local authorities—presumably a clear admission that the information should have been validated before the list was published in the first place, including by Bradford authority, in which the schools of Bingley and Ilkley are situated.
Let me ask the right hon. Gentleman another straight question. Is it not the case that he was advised of the risk of legal challenge from private contractors, but that he personally decided to ignore that advice and take that risk with taxpayers’ money? That is a very simple question. We all know that he is on shaky ground, and that he is fast losing the confidence of pupils, parents and teachers. If he had any sense, he would end this shambles, withdraw these error-strewn lists, and let our communities have new schools.
Michael Gove
I am grateful to the right hon. Gentleman for once again stretching so far the geographical definition of Bingley and Ilkley. Let me point out that under him the cost of setting up the procurement vehicle for Building Schools for the Future was £10 million, before a single brick was laid. The taxpayers of Bingley and Ilkley have re-elected a Conservative MP because they are disgusted with the waste and squander of the right hon. Gentleman. There is a dividing line between this side of the House and that side of the House: when mistakes are made, we apologise and we take responsibility. The right hon. Gentleman has never apologised for a single mistake in his life; that is why he is on that side of the House and we are on this side of the House clearing up his mess.
Mr Speaker
Order. I want to help the House. I appreciate the enormous interest in the subject of BSF in Ilkley and Bingley—conceivably also elsewhere—and there will be opportunities, if Members look, to raise these matters later.
Julian Smith (Skipton and Ripon) (Con)
3. How many expressions of interest in academy status have been received from schools in (a) Skipton and Ripon constituency and (b) North Yorkshire.
The Minister of State, Department for Education (Mr Nick Gibb)
So far five expressions of interest in academy status have been received from schools in Skipton and Ripon. Fifteen expressions of interest have been received from schools in North Yorkshire.
Julian Smith
Does the Minister agree that schools with foundation trust status should be given credit for the work they have already done in moving along the path to independence, and can their path to academy status therefore be made slightly easier?
Mr Gibb
May I welcome my hon. Friend to the House and congratulate him on his election? I understand his point. Trust status was a useful form of independence, which is why it surprises me that Labour Members are so critical of our moves to boost the academies programme and to give more schools the independence and the trust in professionals that is inherent in the trust school system. Our concern about the trust school basis is that it did not give sufficient freedoms to schools; we want to ensure that schools have those extra freedoms.
Mr Speaker
Order. May I gently say to Members that Stoke-on-Trent and Chesterfield are a considerable distance from Skipton and Ripon and, more widely, North Yorkshire? This is what we call a closed question, I am afraid.
Esther McVey (Wirral West) (Con)
4. What steps his Department is taking through the education system to assist children from poor families.
The Minister of State, Department for Education (Sarah Teather)
We have made a clear commitment to narrowing attainment gaps between children from disadvantaged backgrounds and their peers through our recently announced pupil premium. This will help us to give more support to the children who are most disadvantaged and who need it most, and to their schools. We will announce more details of our proposals in due course.
Esther McVey
I would like to push the Secretary of State for greater details on the pupil premium and on where the extra funds will be allocated.
Sarah Teather
I thank my hon. Friend for promoting me, but it is a little premature.
We will be announcing more information about the pupil premium in due course. However, to quote the Prime Minister, it will involve a “substantial” extra sum from outside the education budget. We are determined, in particular, to tackle the pockets of deprivation that have not been dealt with by other forms of deprivation funding, ensuring that the funding follows the students and that schools then have the freedom to decide how best to spend the money.
Mr Tom Watson (West Bromwich East) (Lab)
Sandwell is home to some of the poorest families in the country. Last week, officials confirmed that school cuts in the borough were made because the outline business case for their wave 5 bid was not signed off until after 1 January. Can the Minister confirm that no school that retained funding missed that deadline? Does she think that the criteria used for the funding is fair given that children in Labour-controlled Sandwell lose £140 million of support while those in the neighbouring borough, Conservative Wolverhampton, gain £360 million?
Sarah Teather
I appreciate the particular difficulties with Sandwell. However, I remind the hon. Gentleman that BSF was set up by his Government, and it is because of the slowness and inefficiency of BSF that schools in Sandwell were so late in getting anything from the bid at all.
Mr Graham Stuart (Beverley and Holderness) (Con)
Children from poorer areas of Hull have rightly had additional funds come to their local authority to help with their education. However, when those children travelled across the border to be educated in East Riding, the money that was given to support their education in Hull did not follow them. Ministers in the previous Administration, despite repeated representations, refused to make that change. Will the pupil premium follow the child wherever they go to school?
Sarah Teather
The hon. Gentleman makes a very good point. It is precisely for that reason that we need a funding system that follows the student and reflects their individual needs. We see widely varying levels of deprivation funding from one area to another.
Helen Jones (Warrington North) (Lab)
Does the hon. Lady believe that cancelling new schools in the most deprived areas of my constituency will assist poor children with their education? Did she have any discussions with Warrington borough council about deprivation in the borough before cancelling those building projects?
Sarah Teather
Simply because some projects under BSF have been cancelled does not mean that schools will not be rebuilt or renovated in the future. That is precisely the reason why the capital review is happening—to ensure that we have enough money to rebuild and renovate schools in the future. Unfortunately, BSF is such an inefficient way of doing that that there would not have been any money left.
Laura Sandys (South Thanet) (Con)
5. What progress has been made on the Munro review of child protection; and if he will make a statement.
The Parliamentary Under-Secretary of State for Education (Tim Loughton)
Professor Munro’s review, which was launched on 10 June, appointed a top-level reference group to advise her. It met for the first time on 6 July. Professor Munro has issued a call for evidence with a 30 July deadline. We have asked her to report in three stages, the final report being in April 2011. The review has come about because the system of child protection in our country is still not working as it should be, despite the immense dedication and hard work of front-line professionals.
Laura Sandys
Does the Secretary of State agree with me and many children’s charities that out-of-area placements for children taken into care should be considered only in extreme circumstances?
Tim Loughton
I, too, am grateful for the promotion.
I know that my hon. Friend has already established her credentials in this matter. She will be pleased to know that as part of the care planning guidance that came out of the Children and Young Persons Act 2008, which we supported, a new sufficiency duty will come into effect from next April, which should lead to a significant drop in the number of children placed far away from their original homes. I know that that is a particular problem in her constituency, as it is in mine and those of other hon. Members with seaside constituencies in particular.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Would the Minister be concerned if, as a result of the review of the role of the Children’s Commissioner that I understand has been announced, more children who are in care because of abuse were put at risk because no one was there to stand up for their interests? Will he confirm that there will be no dismantling of the office of the Children’s Commissioner prior to the completion of the review that he has referred to and the implementation of its recommendations?
Tim Loughton
The hon. Lady makes a point about the review of the role of the Children’s Commissioner and her office, which is quite separate from the Eileen Munro review. I share her concerns about the rights of children in care, and she will be aware that the children’s rights director has a direct role in that matter, which he has carried out with enormous respect over recent years, ensuring that the concerns and voices of children in care are heard loud and clear.
Mary Creagh (Wakefield) (Lab)
6. Pursuant to the written ministerial statement of 5 July 2010, Official Report, columns 1-2WS, on public spending control, how much of the £1 billion of reductions in his Department’s expenditure in 2010-11 will take effect in (a) Wakefield constituency and (b) West Yorkshire.
The Secretary of State for Education (Michael Gove)
The budgets that will be affected were published on the Department’s website on Monday 5 July. We will shortly write to all local authorities setting out the impact on their allocations.
Mary Creagh
I thank the right hon. Gentleman for that reply, but the promises of rebuilding and repairing schools ring a little hollow in the light of the £1 billion cut to the schools capital programme that he is making in-year. Given that almost a third of the financial year has passed and he has not yet written to Wakefield or any other West Yorkshire authority with the details of how much will be cut from their reparation programmes, is his cut not in effect more like £1.3 billion or £1.5 billion, as the cuts will have to be made in-year?
Michael Gove
I am grateful to the hon. Lady for her question, but I refer her to a letter from the permanent secretary of my Department to the right hon. Member for Morley and Outwood (Ed Balls). He pointed out last week that, last year, the Treasury wrote to clarify its expectations of the use of end-year flexibility capital. The Treasury wanted to limit its use, but the Department refused to acknowledge it. The Treasury said clearly to the right hon. Gentleman that he was playing fast and loose with that capital stream. The issue had not been resolved by the time of the election, and instead of the dysfunctional relationship between the right hon. Gentleman and the Treasury, we now have a proper relationship involving a coalition Government who are clearing up the mess that we inherited from the hon. Lady’s Government.
Mr Iain Wright (Hartlepool) (Lab)
Why was not a single word about that further £1 billion cut in education mentioned in the Secretary of State’s oral statement to the House last week? Will he confirm that the additional cuts in education, at the expense of hundreds of thousands of pupils in Wakefield, West Yorkshire and elsewhere, are being made so that he can open free market schools for the benefit of mere hundreds of pupils?
Michael Gove
I am grateful to the hon. Gentleman, but he made two mistakes in his question. First, in my statement to the House last week, I explicitly mentioned that the right hon. Member for Morley and Outwood had abused end-year flexibility. That is why he was kind enough to write to me, and why the permanent secretary was kind enough to write to put the record straight and to explain that the Treasury was in dispute with the right hon. Gentleman—not for the first, nor, I suspect, the last time. The hon. Gentleman’s other mistake is over the fact that the reduction in the—to my mind—unwarranted exploitation of end-year flexibility has been to restore sanity to the public finances after the mess that the right hon. Gentleman created. The capital allocation for our free schools is just £50 million, and it comes from a lower priority set of IT programmes. The permanent secretary makes it clear in his letter that the previous Government left us in a mess, which we are trying to resolve.
Amber Rudd (Hastings and Rye) (Con)
7. What assessment he has made of the educational achievement of pupils in receipt of free school meals in (a) Hastings and (b) England.
The Minister of State, Department for Education (Sarah Teather)
Information is published on an annual basis on the performance of all pupils, including those eligible for free school meals, and it can be accessed on the Department’s website. We have made a clear commitment to narrowing attainment gaps between children from disadvantaged backgrounds and their peers through the pupil premium. We will announce more details of our proposals in due course.
Amber Rudd
I thank the Minister for that answer. Will she confirm that the children who are eligible for free school meals will qualify for the pupil premium? Those who have high numbers of children on free school meals in our constituencies, as I do in Hastings, are looking forward to having that advantage to help our children do well.
Sarah Teather
We are looking at the best measure to ensure that we can target extra money at students. It is a question of ensuring that we have a system that is attached to the child, the child’s background and the particular school. We will be able to say more about that shortly. However, we are clear that extra money will follow the student.
Emma Reynolds (Wolverhampton North East) (Lab)
Thanks to the previous Labour Government, a further 8,000 pupils in Wolverhampton now benefit from free school meals. As somebody who benefited from free school meals, I know that there is a link between nutrition and the ability of pupils from lower income families to do better at school. Does the Minister acknowledge that link, and will she extend the pilot scheme in Wolverhampton and roll it out throughout the country?
Sarah Teather
I recognise the link, and I agree with the hon. Lady. However, we are in difficult financial circumstances and unfortunately we were unable to extend free school meals simply because it was an unfunded pledge. However, I recognise the hon. Lady’s point, which was well made.
Chris Skidmore (Kingswood) (Con)
After 13 years of the previous Government, only 75 free school meals pupils gained three As at A-level. That is a disgrace. What do the Government propose to do about it?
Sarah Teather
I agree with my hon. Friend that it is a scandal that, after 13 years of a Labour Government, the greatest predictor of achievement at school is still parents’ income. That is precisely why the coalition is so committed to introducing a pupil premium and investing in early years. It is also why the Prime Minister appointed the right hon. Member for Birkenhead (Mr Field) to conduct a review of life chances.
Diana R. Johnson (Kingston upon Hull North) (Lab)
The publication last week of figures showing, contrary to claims by the Health Secretary, the biggest increase in the take-up of school meals, proves that Labour’s policy on school food worked. The work of people such as Jamie Oliver was also successful. Does the Minister wish to reconsider the coalition’s reversal of those successful policies, as the Government let the junk food industry call the tune and snatch free healthy school meals from the poorest half million children in England?
Sarah Teather
I think that Jamie Oliver did the nation a great service in raising the issue of standards in school food, but the next stage is for the Government to take forward, particularly on take-up. I was pleased that take-up of school meals has increased, but there is a lot more work to do.
Margot James (Stourbridge) (Con)
8. What his most recent assessment is of the level of discipline in schools.
The Minister of State, Department for Education (Mr Nick Gibb)
The latest Ofsted reports tell us that in 95% of primary schools and 80% of secondary schools inspected in 2008-09 pupils’ behaviour was good or outstanding, but that means that behaviour in one out of five secondary schools is still no better than satisfactory. To address this, I announced to the House on 7 July a series of measures that will give head teachers and teachers the powers they need to ensure discipline in the classroom and to promote good behaviour.
Margot James
I thank my hon. Friend for his answer. Two teachers from a primary school came to my surgery in despair over school discipline. They and others have advised me that schools are deterred from excluding pupils because they believe that doing so would have a negative impact on their Ofsted score and budgets. Does he agree that discipline and a head teacher’s ability to exclude pupils is being undermined by that and other aspects of schools policy that prevailed under the previous Government?
Mr Gibb
I thank my hon. Friend for that question. I welcome her to the House and congratulate her on her election. She is right: head teacher authority must be absolute in the classroom and we will remove deterrents that may prevent schools from properly exercising their powers to exclude pupils. The vast majority of head teachers intervene early to prevent exclusions becoming necessary, but when they are necessary we need to be sure that any deterrent is removed.
Mr Marcus Jones (Nuneaton) (Con)
9. How many expressions of interest in academy status his Department has received from schools in (a) Nuneaton constituency, (b) Warwickshire and (c) England.
The Secretary of State for Education (Michael Gove)
So far, 15 expressions of interest have been received from schools in Warwickshire, including one from an outstanding school in Nuneaton. A total of 1,836 expressions of interest have been received from schools in England.
Mr Jones
I thank my right hon. Friend for his reply. Several schools in my constituency may wish to become academies. However, after 13 years of the previous Government, they are carrying a tremendous amount of debt, which seems to prevent them from doing so. Will he consider what he can do to make it easier for such schools to become academies?
Michael Gove
I sympathise with my hon. Friend, who was so handsomely elected at the last general election—a fact that reflects how angry people in Nuneaton and across Warwickshire were at the scandalous way in which education was underfunded and managed by the previous Government. Let me assure him that I look forward to working with him and the local authority to ensure that the many outstanding schools and teachers in Warwickshire have the chance to enjoy the benefits of academies.
Vernon Coaker (Gedling) (Lab)
We know that the Secretary of State has had one or two problems with lists of schools in recent days. Is he aware that he has listed a number of schools almost as if they have applied to become academies, when all they have done is request information from his Department? Is he also aware of the comments of people such as Mark Lacey, head teacher of Parson Street primary in Bedminster, who said:
“We responded out of a desire to receive the information in order to keep up with what is happening—not because we want to become an Academy”?
Is that not another inaccurate list that the Secretary of State should now withdraw, just like the inaccurate remark he made earlier? As he will know, the letter from the permanent secretary actually corrected his mistakes, not the mistakes of my right hon. Friend the Member for Morley and Outwood (Ed Balls).
Michael Gove
I am grateful for that “two for the price of one” question from the shadow Minister. The letter from the permanent secretary actually did correct the errors of the right hon. Member for Morley and Outwood. On the question of lists, as I said in my earlier answer, there were 1,836 expressions of interest. As the hon. Gentleman should know, being a former teacher, it is vitally important for people to listen in class before they put their hands up.
Charlotte Leslie (Bristol North West) (Con)
10. What assessment he has made of the effectiveness of local education partnerships; and if he will make a statement.
The Secretary of State for Education (Michael Gove)
As I set out in my statement to the House last week, local education partnerships are part of an over-bureaucratic and inefficient procurement model. The capital review that I announced last week will consider alternatives to ensure that, at last, capital spending achieves value for money, raises standards, and actually helps the most disadvantaged.
Charlotte Leslie
I have raised concerns about the local education partnership in my constituency in relation to the project with Elmlea school. Essentially, money has been snatched from children and schools to line the pockets of contractors and consultants. I am sure that Opposition Members will share my concern about that. Will my right hon. Friend promise to stop this terrible reverse Robin Hood approach to public spending?
Michael Gove
I could not agree more with my hon. Friend. There is a dividing line between this side of the House and that one. As far as the Opposition are concerned, a Building Schools for the Future programme that enriches consultants and ensures that one man can earn £1.35 million is defensible, whereas we believe that that money should be going to the front line to ensure that the most dilapidated schools are repaired as quickly as possible. It is the contrast between a Government who wasted money like there was no tomorrow and a Government here at last who are building a better tomorrow for all our children.
Fiona Mactaggart (Slough) (Lab)
In that capital spending programme, will money be reserved for areas such as Slough, which has a rapidly growing school population and insufficient secondary school places to educate the children?
Michael Gove
I sympathise with the hon. Lady and she is right. One of the reasons why we had to halt the Building Schools for the Future programme was that far too much money was being wasted inefficiently on secondary schools when that money is needed to ensure that children who arrive at primary school in Slough, the south-east and across the country receive the classrooms that they need. Our first priority is ensuring that every child who needs it has a good school place, instead of ensuring that money goes to consultants, architects and the others in receipt of the cash that was being funnelled to them by the right hon. Member for Morley and Outwood (Ed Balls).
Mr John Redwood (Wokingham) (Con)
Does the Secretary of State accept that many of us, and many people outside, would love these quangos that cannot count and cannot provide accurate lists to be abolished, saving the money on salaries to spend on bricks and mortar?
Michael Gove
My right hon. Friend, as ever, is a redoubtable scourge of waste, and it is always a pleasure to hear him as he turns his eye to yet another non-departmental public body.
Ed Balls (Morley and Outwood) (Lab/Co-op)
The letter from the Secretary of State, which was published at 2.35—the fifth list—refers to local education partnerships. It will be no surprise to the House to learn that already, within 25 minutes, the first mistake in this list has been found. The right hon. Gentleman referred earlier to past mistakes and the SATS fiasco. In that case, there was an independent inquiry. If he would like to establish an independent inquiry now into the BSF shambles, he would not find it easy to repeat his failure to answer questions in this House. Is not the truth that he should withdraw this list, apologise to local education partnerships and stop treating children and this House with such total contempt?
Michael Gove
I am grateful once more to the right hon. Gentleman for his question. I would welcome an inquiry into just what went wrong with Building Schools for the Future and Partnerships for Schools under the previous Government. The Chairman of the Public Accounts Committee pointed out in February 2009 that the estimates of progress for which the right hon. Gentleman’s Government were responsible were fanciful, but steps were not taken to ensure that we were moving in the right direction. The list that we have issued today is one that has been verified by Partnerships for Schools and by the Department for Education. The most important thing that we need to ensure is that the waste that characterised the previous Government does not characterise this one. That is why we have taken steps to ensure that in future the public money that should be going to the front line is protected. The mess that the right hon. Gentleman and his team created is being cleared up by this Government—these two parties—who are at last acting in the public interest.
Tracey Crouch (Chatham and Aylesford) (Con)
11. How many expressions of interest in academy status his Department has received from schools in the Kent and Medway local authority area.
The Minister of State, Department for Education (Mr Nick Gibb)
Ninety-five expressions of interest in academy status have been received from schools in Kent, and nine expressions of interest have been received from schools in Medway.
Tracey Crouch
I thank the Minister for his reply, and I am sure that he will be reassured to hear that many of the head teachers I have spoken to are genuinely very enthusiastic about the programme. The Minister will be aware that many of the schools in Kent and Medway that have expressed an interest are grammar schools. Can he assure the House that if they were to become academies they would retain their selective status?
Damian Hinds (East Hampshire) (Con)
12. What steps he is taking to reform early-years provision.
The Minister of State, Department for Education (Sarah Teather)
Last week, the Government asked Dame Clare Tickell, chief executive of Action for Children, to carry out an independent review of the early years foundation stage to consider how the framework could be less bureaucratic and more focused on young children’s learning and development. The review will formally start in September this year, and will report in spring 2011. It is our intention to undertake a full consultation before any changes are implemented. A statement has been placed in the House outlining further details of the scope of the review.
Damian Hinds
We all want to see the very highest standards promoted in pre-schooling, but does the Minister agree that the over-prescriptive, box-ticking approach favoured by the previous Government is likely only to stifle the sector and reduce parental choice?
Sarah Teather
Indeed. This is a question of building on some of the good things about the foundation stage, but ensuring that we can reduce the burden on the sector, and particularly on the smaller providers. In fact, I was in a nursery school in Brent on Friday, and the head teacher said to me that she was grateful that we had begun a review of the foundation stage, because although there were many good things about it, the assessment is bureaucratic and she was hoping for something rather better.
Mr Gerry Sutcliffe (Bradford South) (Lab)
Can the Minister explain why my constituents in Bradford should trust what this coalition Government say on education? We have lost Building Schools for the Future and the free school meals pilot, and we have an education authority that needs to be developed because of the failure of the private sector. Can the Minister tell us that Sure Start in particular will remain a key part of early years provision?
Sarah Teather
The current review of the foundation stage is independent, and we have asked Dame Clare Tickell—who I am sure would command respect right across the House—to conduct it.
Guy Opperman (Hexham) (Con)
13. What recent representations he has received on funding for schools in Hexham constituency; and if he will make a statement.
The Parliamentary Under-Secretary of State for Education (Tim Loughton)
We have received just one representation on the subject of school funding from a school in Hexham. We will bring forward our proposals for school funding in due course.
Guy Opperman
Schools in the Hexham constituency in rural Northumberland all complain of a funding shortfall that was dramatic under the previous Government. What assurances will the Minister give me and the teachers in that particular school that this imbalance will be changed?
Tim Loughton
I am only too well aware of many of the discrepancies in the system that prevailed for far too many years under the previous Government. I am aware that Hexham middle school in my hon. Friend’s constituency has raised concerns about problems in tackling rural deprivation and sparsity of population that have not been dealt with in the past. That is one area that we will be looking at, and the pupil premium will be a priority in ensuring that we recognise deprivation and have effective measures to deal with it.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
14. What steps he is taking to ensure availability of continuing professional development for teachers.
The Parliamentary Under-Secretary of State for Education (Tim Loughton)
I am sorry, Mr Speaker—[Interruption.]
Mr Speaker
Order. I do not need to be advised by the Government Whip on the Front Bench. The hon. Member for Rochford and Southend East (James Duddridge) should remain quiet. We are on Question 14 and we have a Minister at the Box; I require no advice from the hon. Gentleman whatever.
Tim Loughton
Thank you, Mr Speaker. I was expecting some interest in Hexham from the Opposition, but clearly there is none.
I agree with the hon. Member for Huddersfield (Mr Sheerman) that the quality of teachers and professional development is important. International evidence shows that teachers learn from observing good teachers, and this happens best in schools. That is why the Government are committed to encouraging schools to demonstrate a strong culture of continuing professional development, with teachers leading their own development and that of others, and sharing effective practice within and between schools. That is why we are currently reviewing our policies and existing activities to ensure that they focus on that vision.
Mr Sheerman
Is the hon. Gentleman aware that teachers are finding it much more difficult to get out of the classroom to go to good CPD sessions, particularly in places such as the science learning centres in York and elsewhere, because of the way in which the “rarely cover” provision is being interpreted as part of the work force agreement? Not only is CPD suffering; so are kids’ visits to out-of-school facilities.
Tim Loughton
The hon. Gentleman makes a good point. I am aware of the limiting factors of “rarely cover”, which is an area that we will look at in our assessment of the problems facing teachers in getting continuing professional development. Having to pay supply teachers can be an obstacle to getting CPD, which is why this Government want to free up school pay and conditions and give greater powers back to heads to ensure that they can devise the best methods for ensuring that their teachers get the best continuous professional development and training.
Stephen Gilbert (St Austell and Newquay) (LD)
15. What assessment he has made of the educational achievement of pupils in receipt of free school meals in St Austell and Newquay constituency.
The Minister of State, Department for Education (Sarah Teather)
Information is published on an annual basis on the performance of all pupils, including those eligible for free school meals, and these can be accessed on the Department’s website. We have made a clear commitment to narrowing attainment gaps between children from disadvantaged backgrounds and their peers through the pupil premium, and we will announce more details on these proposals in due course.
Stephen Gilbert
Children across the country who are in receipt of free school meals are only half as likely as their peers to get good GCSE results. Does the Minister agree with me that only the pupil premium proposed by this Government will address the educational inequality left by the previous Government?
Sarah Teather
I absolutely agree. The scandal of educational inequality left by the previous Government is testament to their legacy, and I am very sad that they have not been willing to support the pupil premium. I hope that, with their change of leader, they will consider a U-turn on this policy.
Mr Speaker
Order. It is always a pleasure to hear the hon. Lady, but I must observe in passing that Hampstead and Kilburn are some considerable distance from St Austell and Newquay.
Hywel Williams (Arfon) (PC)
16. What recent discussions he has had with Welsh Assembly Government Ministers on teachers’ pay in Wales.
The Secretary of State for Education (Michael Gove)
I met the Minister for Children, Education and Lifelong Learning in the Welsh Executive, Mr Leighton Andrews, on 28 June, as part of a schedule of meetings since taking up my post. I look forward to having an ongoing discussion with him and his colleagues on this and other important issues.
Hywel Williams
I thank the Secretary of State for that answer. What consideration is he giving to introducing regional variation in teachers’ pay outside London?
Michael Gove
As I am sure the hon. Gentleman knows, teachers’ pay and conditions are set by the School Teachers Review Body, which governs England and Wales. I will have ongoing discussions with the Welsh Assembly Government, and it is important that we ensure that teachers have certainty in the future. It is my understanding that the current arrangements are working in the interests of teaching unions and teachers across England and Wales, but I would be very happy to receive any representations from the hon. Gentleman to ensure that the recruitment and retention of teachers in his constituency—in a very beautiful part of north-west Wales—are made as easy as possible.
Barry Gardiner (Brent North) (Lab)
17. What recent representations he has received on the provisions of the Academies Bill; and if he will make a statement.
The Secretary of State for Education (Michael Gove)
Many schools have told us that they welcome the opportunity to acquire academy freedoms through our Bill. Officials and Ministers have had positive meetings so far with teaching unions, the Special Education Consortium, the Church of England and the Catholic Education Service. Alongside these representations, we have also had approaches from individual peers and MPs, which have been dealt with through correspondence and meetings with Ministers.
Barry Gardiner
Why does the Secretary of State continue to call these schools academies? Under the old system, academies were a means of getting extra money from outside the system to children from poor and disadvantaged backgrounds who were not doing well. Under the new system, academies are taking money from within the system away from poor and disadvantaged children and giving it to schools that are already doing very well. Why does he continue to call them academies?
Michael Gove
I know that the hon. Gentleman served with distinction as a Minister in Tony Blair’s Government, and was then defenestrated when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) took over. He should be aware that Tony Blair made it clear, when he was Prime Minister, that academy freedoms should be extended to all schools. In that respect, we are simply carrying on the good work that was begun under the Prime Minister who was wise enough to have the hon. Gentleman on his Front Bench, rather than following the disastrous course that was taken by Gordon Brown and the right hon. Member for Morley and Outwood (Ed Balls).
Dr John Pugh (Southport) (LD)
I have here a press cutting in which a local head teacher in my constituency complains about his school appearing on the Department’s database as “interested in academy status”, when all that he had actually done was to ask for details of a sketchy scheme. He now says that the chances of his school wanting academy status are minimal and that people are “playing politics” with this. How could such things happen? Could it be that the demand for academy status is being overstated? Also, will the Secretary of State correct the database?
Mr Speaker
Order. One question will probably suffice; one answer certainly will.
Michael Gove
I have consistently made it clear that all those who have expressed interest have only ever expressed interest. I am delighted that so many have done so, but as I am sure my hon. Friend knows, our legislation is permissive, and it will be for schools to decide, rather than Ministers or bureaucrats. That will be a welcome change from the dirigiste methods that so scarred education under the right hon. Member for Morley and Outwood.
Lilian Greenwood (Nottingham South) (Lab)
18. What plans he has for support for children with special educational needs.
The Minister of State, Department for Education (Sarah Teather)
I will launch a Green Paper in the autumn to look at a wide range of issues for children with special educational needs and disabilities. Before then I will be looking at the results of the Ofsted review of special educational needs expected later this summer, along with the many other reviews of policy in recent years. I will also be listening to the views of parents, teachers and organisations with an interest in this area.
Lilian Greenwood
Does the Minister agree that children in Nottinghamshire with the most profound special needs deserve to be taught in first-class facilities? Is it not therefore fortunate that the previous Government were committed to investing in their education and that they built the wonderful new Oak Field school under Building Schools for the Future?
Sarah Teather
As I said in an earlier answer, simply because some projects have been stopped under Building Schools for the Future does not mean that schools will not be rebuilt or renovated in the future. This Government are absolutely committed to renovating school buildings, which is why we have had to have a review of capital—to ensure that there is still money for children to be able to learn in decent facilities.
Patrick Mercer (Newark) (Con)
This morning, I met all the head teachers in my constituency, the most vocal of whom was the head teacher of the Orchard special educational needs school. When it rains heavily, the children in this school have to stop being taught in order to hold buckets under the leaking roof. I ask the Secretary of State, or one of his Ministers, to visit the Orchard school and others in my constituency to find out exactly what the situation is.
Christopher Pincher (Tamworth) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Secretary of State for Education (Michael Gove)
As I pointed out earlier, because of the dysfunctional system we inherited, it has been difficult to establish the absolute truth about the number of schools affected by the rules-based announcement I made last week. Today, an hour and a half before the House met for questions, I distributed to the right hon. Member for Morley and Outwood (Ed Balls) and others the latest updated list of the schools affected. This list has been verified by Building Schools for the Future and by my Department, which has contacted every local authority affected. I am looking forward to hearing from the individual local authorities in due course.
May I also take the opportunity to correct the record on one further matter? In last week’s statement, I referred to six schools built under BSF that had suffered from design or construction flaws. On Thursday evening, I was told that three of the schools I mentioned—Carr Manor, Lawnswood and Primrose high—were, in fact, built under a predecessor private finance initiative scheme that sought to renovate the school estate in Leeds. Some of the renovation was financed through BSF; the schools themselves were not procured through BSF, but instead through that predecessor programme. The other schools I referred to in last week’s statement were procured through BSF.
We have also issued a written ministerial statement today, pointing out that we are going to review the Office of the Children’s Commissioner. As I am sure the whole House will appreciate, this is very much a season for ensuring that we get value for money from our quangos.
Christopher Pincher
Will my right hon. Friend confirm that fewer than 100 schools have been rebuilt under Building Schools for the Future, none of which, incidentally, are in Tamworth, where we have been waiting more than three years for this labyrinthine process to happen, but not a brick has been laid? Will he confirm that this is yet another example of the former Government failing to keep their promises?
Michael Gove
I sympathise hugely with my hon. Friend. Only 97 schools were built under Building Schools for the Future during the period when the previous Government were in charge. Now we know that under this coalition Government, 706 schools will benefit from BSF and more than half of those will be new builds. Where the previous Government failed, this Government are succeeding.
Stephen Twigg (Liverpool, West Derby) (Lab/Co-op)
T5. On Friday, I visited Holly Lodge school—one of six in my constituency affected by last week’s announcement. For Liverpool, investment in our schools is crucial to our economic future. Will the Secretary of State undertake to visit Liverpool between now and the end of September to meet schools, the business community, my colleagues and the local council to discuss this crucial issue for the future of our city?
Michael Gove
I am very grateful to the hon. Gentleman, who was a distinguished schools Minister, for that question. I know how hard he works for his constituents and, indeed, for every parent, child and teacher in Liverpool. I am aware that the consequences of the regrettable decision we had to take last week will be felt particularly hard in Liverpool, so either I or a member of my ministerial team will commit to come to Liverpool to talk to him and those affected—by the end of the year, I hope, but certainly as soon as possible.
Damian Collins (Folkestone and Hythe) (Con)
T2. Under the previous Government, 186 special schools closed. On Thursday, I will attend the annual prize-giving at Highview special school in my constituency—one that you, Mr Speaker, have visited. May I take the Secretary of State’s message of support for special education under the new Government as meaning that the school will have a sustainable future and the support it needs?
Michael Gove
I am grateful to my hon. Friend for his question. It is a tragedy that the ideologically driven closure of special schools under the last Government meant that so many children with special educational needs did not receive the education they deserved. That ideologically driven closure will end under this Government, and under the Minister of State, Department for Education, my hon. Friend the Member for Brent Central (Sarah Teather) we will review support for children with special educational needs. Their care should always be our first concern.
Chris Bryant (Rhondda) (Lab)
T9. The Secretary of State will know that one problem in many of the poorest constituencies in the land is the high level of teenage pregnancy in this country—five times higher than in the Netherlands. Before Government Members start blaming Labour—or, for that matter, me personally—let me tell them that the figures rose dramatically under the Conservative Government and then did not fall sufficiently under a Labour Government. The Secretary of State fought hard in the previous Parliament to ensure that we did not have good compulsory sex and relationship education, for every child, in all schools in the land. Will he reverse the argument that he advanced then, because in countries with low levels of teenage pregnancy, the existence of such education is the big difference?
Michael Gove
The hon. Gentleman is a former vicar of the Church of England; he has been accused of many sins, but contributing to teenage pregnancy has never been one of them, to my knowledge. May I say that I entirely appreciate the importance of proper sex and relationships education? My dispute with the previous Government was simply over a question of individual liberty. I felt it important that parents had the right to withdraw their children from sex and relationships education if they thought it inappropriate. I agree, however, that it is vital that all children have high-quality sex and relationships education, in order to ensure that they make the right decisions later in life.
Mr David Burrowes (Enfield, Southgate) (Con)
T3. Further to my right hon. Friend’s answer to the question from my hon. Friend the Member for Shipley (Philip Davies), is he aware of the situation in Enfield, where increasing housing, migration and birth rates are putting acute pressure on primary and secondary school places? Will he ensure that future capital funding focuses more on increasing capacity and less on increasing bureaucracy, as happened under the previous Government?
Michael Gove
My hon. Friend makes a very good point. One of the demographic changes to which the previous Government did not pay sufficient heed was the increase in the number of pupils arriving at primary schools, particularly in London and the south-east. That growth in basic need is our first priority.
Mr Gordon Marsden (Blackpool South) (Lab)
T10. The Secretary of State has already spoken of his great concern about special schools. Has he done any cumulative assessment of the impact on special schools of his BSF cuts last week? The programme for all three such schools in Blackpool—Woodlands, Park and Highfurlong—will be affected and stopped, because they were co-operating with other secondary schools. What assurance will he give the House that he will consider the cumulative impact on special schools, and what assurance will he give me that he will look at the problems in Blackpool in particular?
Michael Gove
I am very sensitive to the problems in Blackpool. I had the opportunity to visit one of the schools that the hon. Gentleman mentions—Highfurlong—with my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard). I appreciate the problems on that site and want to do everything possible to ensure that our capital review guarantees that children attending special schools get the money that they need for the facilities that are crucial to their education, as quickly and efficiently as possible.
Amber Rudd (Hastings and Rye) (Con)
T4. Is my right hon. Friend aware that, under the overly cumbersome Building Schools for the Future, it took on average 13 months from first meeting to first construction of a site? What can be done under this Government to ensure that that does not happen again?
Michael Gove
My hon. Friend makes a critically accurate point. As a result of the massive bureaucracy that used to exist under the Building Schools for the Future scheme, people in dilapidated classrooms were denied the resource that they needed, as it was going into the pockets of bureaucrats rather than into bricks and mortar for those most in need.
Jack Dromey (Birmingham, Erdington) (Lab)
The Secretary of State will be aware that in his announcement to Parliament last week, a special needs school in my constituency of Birmingham, Erdington was listed under two separate titles, “Stopped” and “Unaffected”. Hopes were raised, confusion was then caused, and hopes have been shattered. Will the Secretary of State come to my constituency to meet the head of Queensbury school, which, along with its sister school Kingsbury, has a remarkable vision for a world-class centre of excellence catering for the children of Birmingham with special needs?
Michael Gove
I am grateful to the hon. Gentleman for his question and for showing me the great courtesy of calling me before the weekend to explain precisely the question that he would ask. We will have the opportunity to meet one on one later this week to discuss the precise circumstances of the school that he mentions. I or one of my ministerial team will certainly join him in a visit to that school, to provide the head, teachers and parents with all the information that they need to ensure that in future we do everything possible to help to support them and the great work that they do.
Conor Burns (Bournemouth West) (Con)
T6. I thank my right hon. Friend for visiting St Michael’s primary school in Bournemouth with me last week. If the head teacher of St Michael’s, Mr Bob Kennedy—or, indeed, any other head teacher—were to ask him what excuse could be given for spending £60 million of local authority Building Schools for the Future money on consultants rather than the front line, what on earth would he say in reply?
Michael Gove
It was a pleasure to meet my hon. Friend and the teachers who were doing such outstanding work at St Michael’s. It was a fantastic school, and a pleasure to visit.
If a head teacher were to ask me why the last Government spent so much money on consultants rather than on teachers, for once I would be dumbstruck.
Stella Creasy (Walthamstow) (Lab/Co-op)
I recognise that there are many pressing issues in Ministers’ diaries, but may I beg the Secretary of State to take seriously the request by Willowfield school in Walthamstow to host a meeting for him, for parents from the Walthamstow area, and for parents affected by the decision to stop all the wave 1 school projects in Walthamstow, including those involving William Morris school and Holy Family college? There could then be a discussion about how we can meet our urgent need for school places in the locality, given that all those buildings have been condemned as not fit for purpose—a bit like the present Government.
Michael Gove
I am grateful to the hon. Lady for asking a very good question with a nice scorpion sting in the tail. I appreciate that in some parts of the country, because of the way in which Building Schools for the Future was run, the decision that we had to make bites more sharply. Waltham Forest is one of them, Somerset another, and Liverpool a third. For that reason, I will ensure that one of my Ministers or officials contacts the hon. Lady very quickly to see what we can do to alleviate this necessary blow.
David Mowat (Warrington South) (Con)
T7. Given that last week’s announcement on BSF has had an impact on several schools in Warrington—including Penketh high school, where the need is great—will the Secretary of State tell us when his capital review is likely to report, and what criteria will be used in the review to prioritise schools? Is he willing to meet me and Warrington educationalists to discuss their needs?
Michael Gove
My hon. Friend was good enough to lobby me several weeks ago about the fate of the school that he mentioned, and schools in Warrington overall. He was, as ever, articulate and powerful on behalf of his constituents. I recognise that his constituents have been let down by the fact that Building Schools for the Future spent so much money on bureaucracy, and not enough on bricks and mortar. The purpose of our capital review is to ensure that money reaches the front line more quickly, and that the dysfunctional system that was established under the last Government—which they took no steps to reform or abolish—is transformed. I believe that there will be an interim report in a few months’ time and a final report by the end of the calendar year, both of which will transform school buildings for the future.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Is the Secretary of State aware that figures from his department show that academy schools are, on average, teaching one third less GCSEs in history and geography than schools in the maintained sector, and are often inflating their grades through the use of GCSE equivalents? If that is to be the model for the future, what steps is the Secretary of State taking to ensure that academic subjects are protected in academies?
Michael Gove
Like the hon. Gentleman, I am committed to academic excellence, so I should point out that he should have said “fewer”, not “less”. However, he has made a good point. I am worried about the use of so-called equivalent qualifications instead of academic GCSEs. When I raised the issue from the Opposition Benches, the then Secretary of State said that I was talking achievements down, but I am glad to note that we can now form a coalition for excellence across the Dispatch Box.
Andrea Leadsom (South Northamptonshire) (Con)
Does my right hon. Friend agree that it is regrettable that five secondary schools in my constituency which are in dire need of expenditure on the framework of their buildings have received absolutely nothing under the Building Schools for the Future programme, simply because in theory they are in a reasonable area where children are, in theory, receiving a good education?
Michael Gove
I am grateful to my hon. Friend for her question, which points to one of the many weaknesses in the Building Schools for the Future programme. Because its operation was area-based, some schools which were not dilapidated and which occupied serviceable buildings—not ideal, but serviceable—received large sums of money, while in many other parts of the country children suffered poor education in dilapidated buildings that were not prioritised for investment. That has to change.
Julie Hilling (Bolton West) (Lab)
Will the Secretary of State or a member of his team undertake to meet the pupils of Westhoughton high school, who will be making an educational visit to Parliament this Thursday, to explain to them why they have wasted the last two years designing and developing their programme for their new school and why they will now have to spend the rest of their school career in a crumbling school?
Michael Gove
The hon. Lady is an impassioned advocate for Bolton West, but I have to tell her—and she can tell this to the children and parents concerned—that the reason why this process took so long is because of the bureaucracy her Government put in place. The reason why those children are losing out is because of the decisions made by the right hon. Member for Morley and Outwood, and if she is angry, as I am, that children’s destinies have been compromised, that anger—that righteous anger—should be directed at the right hon. Gentleman, the person who presided over this debacle in the first place.
Graham Evans (Weaver Vale) (Con)
Free schools have the potential to make a massive positive impact on the education of children in my constituency, Cheshire and the north-west as a whole. When does the Secretary of State anticipate that the first free schools will be able to open and begin their vital work?
Mr Speaker
Order. I am grateful to the Secretary of State for that pithy reply, but I am afraid that demand has exceeded supply and we must now move on to the statement.
NHS White Paper
(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Health (Mr Andrew Lansley)
With permission, Mr Speaker, I would like to make a statement on the future of the national health service.
The NHS is one of our great institutions, and a symbol of our society’s solidarity and compassion. It is admired around the world for the comprehensive care it provides and for the quality, skill and dedication of its staff. I begin today by paying tribute to the staff of the NHS and the commitment they daily show to patients in their care.
This Government will always adhere to the core principles of the NHS: a comprehensive service for all, free at the point of use, based on need, not ability to pay. That principle of equity will be maintained, but we need the NHS also consistently to provide excellent care.
The NHS today faces great challenges: it must respond to the demands of an increasing and ageing population, advances in medical technology and rising expectations; it remains stifled by a culture of top-down bureaucracy, which blocks the creativity and innovation of its staff; and it does not deliver outcomes in line with the best health services internationally—many of our survival rates for disease are worse than those of our neighbours. The NHS must be equipped to meet those challenges. We believe it can do much better for patients, so today I am publishing the White Paper, “Equity and Excellence: Liberating the NHS”, so that we can put patients right at the heart of decisions made about their care, put clinicians in the driving seat on decisions about services, and focus the NHS on delivering health outcomes that are comparable with, or even better than, those of our international neighbours.
For too long, processes have come before outcomes, as NHS staff have had to contend with 100 targets and over 260,000 separate data returns to the Department each year. We will remove unjustified targets and the bureaucracy that sustains them. In their place, we will introduce an outcomes framework setting out what the service should achieve, leaving the professionals to develop how.
We should have clear ambitions, and our approach will be set out shortly in a further consultation document. For example, our aims could be: to achieve one and five-year cancer survival rates above the European average; to minimise avoidable hospital-acquired infections; and to increase the proportion of stroke victims who are able to go home and live independently—in short, care that is effective, safe and meets patients’ expectations.
The outcomes framework will be supported by clinically established quality standards, and the NHS will be geared across the board towards meeting them. We will do that by rewarding commissioners for delivering care in line with quality standards; strengthening the regulatory regime so that patients can be assured that services are safe; and reforming the payment system in the NHS, so that it is a driver not just for activity, but also for quality, efficiency and integrated care.
Patients will be at the heart of the new NHS. Our guiding principle will be “no decision about me, without me.” We will bring NHS resources and NHS decision making as close to the patient as possible. We will extend “personal budgets”, giving patients with long-term conditions real choices about their care. We will introduce real, local democratic accountability to health care for the first time in almost 40 years by giving local authorities the power to agree local strategies to bring the NHS, public health and social care together. Local authorities will also be given control over local health improvement budgets. This will give an unprecedented opportunity to link health and social care services together for patients. We will give general practices, working together in local consortiums, the responsibility for commissioning NHS services, so that they are able to respond to the wishes and needs of their patients. This principle is vital, bringing together the management of care with the management of resources. With commissioning support, GPs collectively will lead a bottom-up design of services.
In addition, we will introduce more say for patients at every stage of their care, extending the right to choose far beyond a choice of hospital. Patients will have choice over treatment options, where clinically appropriate, and the consultant-led team by whom they are treated. They will have the right to choose their GP practice, and they will have much greater access to information, including the power to control their patient record. We must ensure also that patients’ voices are heard, so we will establish HealthWatch nationally and locally, based on local involvement networks, to champion the needs of patients and the public at every level of the system.
To achieve these improvements in outcomes, we need to liberate the NHS from the old command-and-control regime, so all NHS trusts will become foundation trusts, freed from the constraints of top-down control, with power increasingly placed in the hands of their employees; and we will allow any willing provider to deliver services to NHS patients—provided that they can deliver the high-quality standards of care we expect from them. Our aim is to create the largest social enterprise sector in the world, but it is not a free-for-all. Monitor will become a stronger economic regulator to ensure that the services being provided are efficient and effective, and that every area of the country has the NHS services it needs to provide a comprehensive service to all. The Care Quality Commission will safeguard standards of safety and quality. An independent and accountable NHS Commissioning Board will be established to drive quality improvements through national guidance and standards, in order to inform GP-led commissioning. The board will allocate resources according to the needs of local areas, and lead specialised commissioning.
In the coming weeks, detailed consultation documents will enable people to comment on the implementation of this strategy, leading to the publication of a health Bill later this year. I recognise that the scale of today’s reforms is challenging, but they are designed to build on the best of what the NHS is already doing. Clinicians are already working to facilitate patient choice, giving patients the information they need to make effective decisions. GP consortiums are already established in some areas of the country and are ready to go. Local authorities in some areas are already working closely with local clinicians to co-ordinate health and social care and improve public health. Payment by results already gives us a starting framework for building a payment system that really drives performance. Foundation trusts are already using the freedoms they have to innovate. We will build on this progress, not dismantle it.
With this White Paper we are shifting power decisively towards patients and clinicians. We will seek out and support clinical leadership. That means simplifying the NHS landscape and taking a further, radical look at the whole range of public bodies. We will reduce the Department of Health’s NHS functions, delivering efficiency savings in administration. We will rebalance the NHS, reducing management costs by 45% over the next four years and abolishing quangos that do not need to exist, particularly if they do not meet the Government’s three tests for public bodies. We will also shift more than £1 billion from back-office to the front line. Form must follow function. As we empower the front line, so we must disempower the bureaucracy. Therefore, after a transitional period we will phase out the top-down management hierarchy, including both strategic health authorities and primary care trusts.
Later in the summer, we will be publishing a report setting out how we see the future of NHS-related quangos. I can say now that this will mean a reduction of at least a third in the number of such bodies. This is part of a wider drive across government to increase the accountability of public bodies and reduce their number and cost. The dismantling of this bureaucracy will help the NHS realise up to £20 billion of efficiency savings by 2014, all of which will be reinvested in patient care. Today’s reforms set out a long-term vision for an NHS that is led by patients and professionals, not by politicians. It sets out a vision for an NHS empowered to deliver health outcomes as good as any in the world. I commend this statement to the House.
Andy Burnham (Leigh) (Lab)
I thank the right hon. Gentleman for his statement and for giving me advance sight of it, although in keeping with the style of this Government, it would appear that this House was the last to find out, behind every media outlet in the land.
Last month, the Commonwealth Fund gave its verdict on Labour’s NHS, saying that it was top on efficiency and second overall on quality compared with other developed health care systems. Today, we have further evidence of progress, with figures from Cancer Research UK showing that long-term cancer survival rates have doubled. This progress was hard won; it took 10 years of painstaking work piecing together a detailed jigsaw. The right hon. Gentleman, with this White Paper, has today picked it up and thrown the pieces up in the air. It is a huge gamble with a national health service that is working well for patients.
The right hon. Gentleman’s spin operation bills this as
“the biggest revolution in the NHS since its foundation 60 years ago”.
That is something of a surprise, given the ink was barely dry on a coalition agreement that said:
“We will stop the top-down reorganisations of the NHS that have got in the way of patient care.”
What has happened since the publication of the coalition agreement to justify a U-turn of such epic proportions? Manifesto commitments have been casually dropped but this must be the first time that that agreement has been so spectacularly ripped up.
This reorganisation is the last thing that the NHS needs right now; it needs stability, not upheaval. All its energy must be focused on the financial challenge ahead. It needs confident, motivated staff, but the 1.3 million people who work for the NHS will not be comforted by this White Paper and they will be alarmed that their systems of national pay bargaining are being torn up. We support a strong say for clinicians and GPs in improving quality. That was the direction that Lord Darzi set out, after broad consultation. We introduced practice-based commissioning within a framework of public accountability and population-wide commissioning supported by primary care trusts. What we do not support is the wiping away of oversight and public accountability, and the handing over of £80 billion of public money to GPs, whether they are ready or not. Michael Dixon, chair of the NHS Alliance, says that only about 5% of GPs are ready to take over commissioning. Sir David Nicholson, chief executive of the NHS, has judged that even the best GP practice-based commissioners are “only about a three” out of 10 in terms of the quality of their commissioning. So what sound evidence does the right hon. Gentleman have that 100% of GPs are ready, willing and able to commission services for the entire population?
The right hon. Gentleman’s statement talked of rewarding commissioners who hit outcomes. Does he mean yet more money for GPs? How much will all GPs be paid for taking on this role? How many jobs does he expect to be lost in the NHS and how much money has he put aside for redundancy costs? What guarantees can he give the House that people will not simply be paid off by the NHS to be re-employed by a GP practice?
How does the right hon. Gentleman think loyal primary care trust staff felt when they read this quote—I apologise, in advance, for the language, Mr Speaker—from
“a senior Department of Health source”,
which was anonymously briefed to the Health Service Journal? It reads:
“PCTs are screwed. If you’ve got shares in PCTs I think you should sell”.
That is no way to treat loyal public servants, who have served the NHS and are now worried about their future. On page 10, the right hon. Gentleman says that the reforms are vital to deal with the financial situation, but is it not the case that there has never been an NHS reorganisation that did not cost money and divert resources in the short term? Is not the handing of the public budget to independent contractors tantamount to the privatisation of the commissioning function in the NHS? Will there be any restrictions at all on the use of the private sector by GPs?
Added to this, the right hon. Gentleman is bringing a series of market reforms into hospitals. He tells us that the first role of Monitor will be to promote competition and talks of any willing provider and freedoms for foundation trusts. Is not that the green light to let market forces rip right through the system with no checks or balances? Are not the hearts of NHS staff sinking as they read the White Paper?
On bureaucracy, we will support the Government where sensible reductions can be made, but what he calls pointless bureaucracy, we call essential regulation. What are his plans for the Food Standards Agency and are the reports correct that he has waived his right to regulate in return for funding for Change4Life? Can he explain how 500 or more GP consortiums, all of whom will need administration and management, can be less bureaucratic than 152 primary care trusts?
Lastly, where are the public accountability and the accountability to this House? How will GPs be held to account for the £80 billion of public money for which they will be responsible and how will the new NHS commissioning board—the biggest quango in the world—be accountable to this House and to Members of Parliament?
In conclusion, this White Paper represents a roll of the dice that puts the NHS at risk—a giant political experiment with no consultation, no piloting and no evidence. It is the right hon. Gentleman at his confused and muddled worst, but the sadness is that he is taking an £80 billion gamble with the great success story that is our national health service today. At a stroke, he is removing public accountability and opening the door to unchecked privatisation. He is demoralising NHS staff at just the time we need them at their motivated best. For patients, it opens the door to a new era of postcode prescribing where services vary from street to street. It turns order into chaos, and we will oppose it.
Mr Lansley
I am just astonished that the shadow Secretary of State seems to have gone to the barricades for the primary care trusts. The primary care trusts and strategic health authorities are organisations that, under his watch as Secretary of State—for about a year—increased their management costs by 23%. In the year for which he was in charge, they spent £261 million on management consultants. Before the election, when it had a majority of Labour Members, the Select Committee on Health said that PCT commissioning was weak and that it was not delivering what was intended. He set up a programme called world class commissioning—it never worked. Central to delivering better commissioning in the health service is ensuring that those people who incur the expenditure—the general practitioners, on behalf of their patients—and who decide about the referral of patients are the same people who, through the commissioning process, determine the shape of the services in their area. It is more accountable.
How often have all of us, on both sides of the House, asked Labour Ministers about what primary care trusts are doing locally in terms of service change only to be told, “It’s nothing to do with us; it’s all happening locally”? We are going to be very clear about the accountability. One thing that the coalition programme has enabled us to do, as two parties bringing our programmes together, is to strengthen the accountability to local authorities. Local authorities, through their strategies that mesh NHS services, public health and social care, will ensure that major service changes and the design of services reflect the interconnection between those things. Those who have complaints and problems will be able to have them addressed through HealthWatch and through their local authority. We will be able, through local authorities, to ensure that the commissioning support to GP commissioning consortiums can be more effective.
The shadow Secretary of State talked about the Commonwealth Fund. I do not know whether he has even read the Commonwealth Fund report, but it said that the UK health care system was the second worst on hospital-acquired infections, that the UK delivers the poorest level of patient-centred care and that, on outcomes, we performed the second worst overall on mortality amenable to health care.
The right hon. Gentleman stood up and said that cancer mortality rates have improved. They have—since the 1970s, and all over the world. However, the issue is where we stand in relation to the rest of the world. If we were to meet the European average on cancer survivals, 5,000 more people would live each year rather than die. If we were to do the best in Europe, 10,000 more would live each year. For stroke, the figure is 9,000. We have to measure ourselves on the outcomes relative to the other health systems that are comparable to ours.
Nine years ago, the right hon. Gentleman’s Prime Minister, Tony Blair, said that we must spend as much as Europe. Through this White Paper and the reforms that we will bring in, we are determined to achieve results for patients that are at least as good as those in the rest of Europe. It is not just about inputs and spending, but about the results we achieve. The right hon. Gentleman, on behalf of his party, has just abandoned the reforms that his Prime Minister, Tony Blair, put forward. In 2006, Tony Blair said that we must have patient choice, practice-based commissioning, the independent sector and foundation trusts—reforms that Labour failed to deliver and, indeed, undermined. We, as a coalition Government, are now determined to put those reforms in place to deliver results for patients.
Mr Stephen Dorrell (Charnwood) (Con)
I congratulate my right hon. Friend on setting out a clear vision for the NHS that is committed to high-quality outcomes for patients and good value for money for the taxpayer. Does he agree that the delivery of that objective depends critically on effective commissioning? Does he recall that the last Labour Government said that engaging GPs with the commissioning process was the key to success? Does he recall that the White Paper setting out the plan for practice-based commissioning said that GP commissioning was not a new idea to the NHS? Indeed, it is not. He is to be congratulated on holding out the prospect that, at last, this idea can be made good and made powerful in the interests of patients.
Mr Lansley
I am grateful to my right hon. Friend for his comments. In his capacity as the Chairman of the Select Committee on Health, we will be responding to him very shortly regarding the Select Committee’s report from before the election on commissioning in the NHS. What he has just said is absolutely right; we have to be able—this is a central task in commissioning—to bring together the responsibility for the management of patient care with the responsibility for the commissioning of services. The current situation is akin to a shopping trolley being pushed to the checkout while the primary care trust is standing there with a credit card, bleating about whether things should be taken out of the trolley. We have to ensure that the design of services follows the best clinical leadership in terms of the services that are required for patients. He and I very much agree on precisely that objective.
Mr Speaker
Order. More than 30 hon. and right hon. Members are seeking to catch my eye. As always, I would like to accommodate everybody, but what is required, both in questions and in answers, is brevity—a legendary example of which I am sure will now be provided by the right hon. Member for Don Valley (Caroline Flint).
Caroline Flint (Don Valley) (Lab)
Thank you, Mr Speaker. Is it not already the case, in PCTs, that it is clinical directors, who are professionally trained as doctors, who lead in terms of providing services in conjunction with GPs at a local level? Can the Secretary of State assure the House that his proposals will make the system any better? I do not think so.
Mr Lansley
I am sorry, but when the right hon. Lady was a Minister, she should have talked to more GPs. Overwhelmingly, they would have told her that they do not feel that the PCTs listen to them. They feel that the PCTs tell them what to do and get in the way. We are going to empower GPs to deliver services for their patients.
David Tredinnick (Bosworth) (Con)
I, too, congratulate my right hon. Friend on his statement. If he is going to get more choice for patients in treatment options, he will have to expand integrated health care so that herbal medicine, acupuncture, back treatments and homeopathy are more widely available across the country. Will he look at the American model of the consortium of 44 academies that has been considering integrated health care? Can he reassure me that his NHS commissioning board will not block options for integrated health care across the country?
Mr Lansley
The job of the NHS commissioning board will be to inform GP-led commissioning through scientific evidence, clinical evidence and guidelines, but it will be for GPs themselves, managing their budgets, to enable patients to exercise greater choice. The working out of what that choice looks like should not be dictated by politicians, but should be determined by patients and their clinical advisers.
Miss Anne Begg (Aberdeen South) (Lab)
The Secretary of State has not answered the question of my right hon. Friend the Member for Leigh (Andy Burnham) about the future of the Food Standards Agency. The Scottish arm of the FSA is based in Aberdeen, and I wonder whether the Secretary of State has had any discussions with the Scottish Government about its future. If not, is this yet another example of the new relationship that is meant to be in place between Scotland and the rest of the UK?
Mr Lansley
The shadow Secretary of State will have had the chance to see that there is nothing in today’s White Paper about the FSA—no such proposal.
Mr Lansley
I have not been briefing anything to anybody. [Interruption.] I have not. It is very straightforward. The FSA, along with other bodies associated with our public health responsibilities, will be the subject of a public health White Paper in the autumn. There is no proposal.
Andrew George (St Ives) (LD)
In seeking to reassure the House that this is not the top-down reorganisation that the coalition agreement derided, would my right hon. colleague reassure my constituents, who are quite excited by the idea of more patient and local authority involvement in local decision making, that where the primary care trusts in which they are going to be appointed will be abolished, there will be more GP commissioning groups than PCTs at the end of the process?
Mr Lansley
Yes, I am grateful to the hon. Gentleman. The number of GP-commissioning consortiums will be determined not least by GPs themselves, deciding what makes sense in their locality. He and his Cornish colleagues have often been frustrated by the way in which a top-down bureaucracy has sought to dictate to the people of Cornwall, often in specific localities, at a considerable distance from their hospital services, what services should be provided locally in places such as Hayle and Penzance. He and his constituents can be really comforted by the thought that their clinical advisers and general practitioners in local consortiums can in future make those decisions about their services.
Hazel Blears (Salford and Eccles) (Lab)
Despite the tremendous improvements that have been made in Salford and Eccles over the past few years in tackling cancer and heart disease, significant inequalities remain that require substantial resources. Will the Secretary of State confirm that in shifting commissioning powers to GPs and allowing the NHS commissioning board to allocate resources, the funding formula will still properly reflect the needs and deprivation factors in areas such as mine and right across the country?
Mr Lansley
The White Paper makes it clear that the NHS commissioning board will be required to allocate resources across the NHS in England on the basis, as far as possible, of seeking to secure equivalent access to NHS services. That will clearly be relative to the prospective burden of disease. In tackling health inequalities, the right hon. Lady will know that we need separately to allocate resources to local health improvement plans, which will be led through local authorities, and which will enable them to create local public health strategies to secure improvements in health outcomes and to reduce health inequalities.
Nadine Dorries (Mid Bedfordshire) (Con)
May I congratulate the Secretary of State on what is a truly exciting White Paper? Will he confirm that in addition to GPs having responsibility for commissioning, there will be the opportunity for them to become actively involved in the provision of care and deciding what care is allocated to which patients?
Mr Lansley
Yes, my hon. Friend understands that GPs are often providers beyond their primary medical services responsibilities. One of the difficulties with fundholding was that there was an opportunity for that conflict of interest to arise and not be properly resolved, so we have made it clear that, in the commissioning framework that we will publish, we will set out consultation proposals on how we ensure that that conflict of interest is not allowed to arise. Where GPs wish to be providers, we do not constrain them, but how that contract is arrived at is transparent and open.
Mr Nick Raynsford (Greenwich and Woolwich) (Lab)
How can the Secretary of State, with a straight face, say that he opposes the culture of top-down bureaucracy and decisions being taken by politicians, when he himself, in the past six weeks, has stopped the implementation of a clinically led and agreed programme for improving health care provision in south-east London, which was going ahead until he stopped it? Does he now accept that his words carry very little force for those of us who know what his actions indicate?
Mr Lansley
No is the answer. I set out on 21 May criteria on listening to patients and understanding what patient choice will be in future; on engaging the public, including local authorities, which are now following through on that accountability; on following the clinical evidence of what can best deliver outcomes; and on ensuring that GPs, as we have made clear, must be supportive and engaged. If any proposal in London is made at local level, such as the one the right hon. Gentleman refers to in Oxleas, that satisfies those criteria, which are bottom-up and locally led, there is no difficulty in its proceeding.
Mr Steve Brine (Winchester) (Con)
I congratulate the Secretary of State on his statement, which many people outside the House will recognise is a breath of fresh air for our NHS, unlike the flagging leadership bid we heard earlier—the second this afternoon—from the Opposition.
Will the Secretary of State confirm that the new consortiums of GPs can regain responsibility for out-of-hours care, the provision of which is a great worry for many of the people I represent across Winchester and Chandler’s Ford?
Mr Lansley
Yes. The commissioning responsibility will include urgent and out-of-hours care. I commend to my hon. Friend what the White Paper says about how we can deliver improvements in efficiency and effectiveness in terms of urgent care, 24 hours a day, seven days a week.
Mr Dennis Skinner (Bolsover) (Lab)
Speaking as someone with a successful outcome, twice, under the national health service in recent times, could the Secretary of State explain to me why these private elements within the NHS—that is, the GP practices—which are getting another £80 billion to spend are not going to be watched over by the primary care trusts or, seemingly, anybody else? Who is going to watch them spend that money—the private sector?
Mr Lansley
I am astonished that Labour Members are still attacking general practice. I thought that shadow Ministers—former Ministers—had had enough of doing that. [Interruption.] I will answer the hon. Gentleman. GP practices will be accountable to patients who exercise choice; accountable to their local authority, through which a strategy is established; and accountable to Parliament and to Ministers through the NHS commissioning board with which they will have their contract.
Jacob Rees-Mogg (North East Somerset) (Con)
In welcoming this statement, I wonder whether the Secretary of State will be able to put in place any interim measures for people such as a constituent of mine who have been prescribed life-prolonging cancer drugs such as Lapatinib but are being denied them.
Mr Lansley
I am pleased to be able to tell my hon. Friend that as part of the coalition programme we have said that we will implement a cancer drugs fund from April 2011. Indeed, my ministerial colleagues—not least the Minister of State, Department of Health, the hon. Member for Sutton and Cheam (Mr Burstow)—and I are looking urgently at what we can do in the meantime to try to ensure that we no longer continue with a situation where patients do not have access to cancer drugs that are routinely available in other countries.
Mr David Lammy (Tottenham) (Lab)
Most people will recognise that GPs are at the cornerstone of the NHS, but also that since 1948 they have been independent practitioners running for-profit businesses. What safeguards has the Secretary of State put in place, and what is he doing about conflicts of interest? He said nothing about that in his statement. Is not what is proposed like asking pharmaceutical companies to be in charge of the NHS drugs bill?
Mr Lansley
I must not be unkind to the right hon. Gentleman, because he has not yet had a chance to read the White Paper—
Mr Lansley
That is my statement. When the right hon. Gentleman reads the White Paper, it will become obvious to him that, yes, we are looking to GPs to take responsibility for commissioning, but, unlike the problems that arose with fundholding, there will not be an opportunity for GPs to generate surpluses on their commissioning budget, and so money in their pocket. It will not work like that: there will be a clear separation between the commissioning budget and their personal budget. We will focus on the thing that really matters, which is GPs taking a commissioning responsibility in designing services.
Nicholas Soames (Mid Sussex) (Con)
I welcome the Secretary of State’s bold and imaginative statement on a White Paper that I am sure will be broadly welcomed in the NHS, not least because it will give people within the NHS the opportunity to give true vent to their creativity. Does he agree, however, that he is setting very demanding targets and challenges; and what time line does he envisage before this is finally implemented?
Mr Lansley
I am grateful to my hon. Friend. I will not go through the White Paper in detail now, but within it he will find that we look towards some GP commissioning consortiums taking an early adopter place from 2011-12, with consortiums generally taking, as it were, a shadow responsibility but not a legal responsibility in 2012-13, and then taking full responsibility, subject to the passage of the legislation to establish that, from April 2013 onwards—the point at which we anticipate that primary care trusts will be abolished.
Liz Kendall (Leicester West) (Lab)
The Minister will know that about 80% of patient contact with the NHS is in primary care. Will GP commissioning groups be allowed to commission GP and other primary care services from themselves, and if so, how will they be held to account for that decision?
Mr Lansley
No, the NHS commissioning board will contract for the primary medical services provided by GPs themselves. GPs will commission for the additional services, including all the community and hospital services. There will be a combination of individual practices taking a responsibility, rewarded through their quality and outcomes framework for the service that they provide to their patients individually, and a general commissioning responsibility for those practices together with others in a local consortium.
Ben Gummer (Ipswich) (Con)
Could the Secretary of State confirm what will happen to those trusts that have not yet achieved foundation trust status and those that are in the middle of applying for it?
Mr Lansley
I am grateful for that question, because what is important is that we have coherent reform in relation to both commissioners and providers. That means that by 2013-14, we should not only have energised the commissioning process and patient choice but set free the hospital providers. My objective, set out in the White Paper, is that by that time all NHS trusts should become foundation trusts. We will need to put in place measures to support them to do that.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Is the Secretary of State aware that those of us who listened to his speeches in opposition were much encouraged, but that with this first statement he has totally disillusioned everybody who believed that he was going to avoid the faults of the past? He has now introduced the biggest top-down, ill thought-through reorganisation that there has ever been in the NHS, and it has about as much chance of success as any previously introduced.
Mr Lansley
I would encourage the hon. Gentleman to go and talk to GPs in Warwickshire whom I have talked to, and to talk to those at Walsgrave about the freedoms that they want to enjoy.
I wish to make it absolutely clear to the hon. Gentleman that there is great consistency between what we said in opposition and what I am announcing today, but that there are some major improvements. Frankly, they have come about because of the conversations that I have had with my colleagues from the Liberal Democrat party. Not least, those conversations have enabled us to focus on the fact that instead of leaving what was a diminishing, residual role for primary care trusts, which withered on the vine, it is better and stronger for us to create a strategic responsibility for local authorities on public health and on joining up health and social care. That will allow us to remove the bureaucracy associated with PCTs, and it is more coherent and stronger than the proposals that we had in opposition.
Dr Sarah Wollaston (Totnes) (Con)
My right hon. Friend recognises how toxic many targets were in the NHS, but they were not all bad. There were some that ensured that standards were maintained—for example the two-week wait for cancer referrals. How will he ensure that standards are maintained when targets are abolished?
Mr Lansley
I am grateful to my hon. Friend, who is absolutely right. That is why, as I said in my statement, not only will we be clear about what we are trying to achieve—for example, where cancer is concerned, one and five-year survival rates at least as good as the European average and hopefully as good as any in Europe—but we will require the NHS to look towards clinically led, evidence-based quality standards that enable those working in the NHS to be clear about what constitutes quality. That will enable us to deliver those outcomes.
Glenda Jackson (Hampstead and Kilburn) (Lab)
Some of the greatest health inequalities occur in areas of the greatest deprivation, which are not infrequently areas that are not attractive to GPs. We also have in London a very large number of people who have never registered, and will never register, with a GP. They tend to use accident and emergency departments. How will their medical needs be presented to this top-down body, the NHS commissioning agent, when there can be no input from GPs? If I read the Secretary of State’s statement correctly, GPs’ recommendations will be disregarded by the NHS commissioning board.
Mr Lansley
I do not recognise the hon. Lady’s latter point. Some 7% of the population in London are not registered with a GP, which is one reason why commissioning consortiums of GPs will take responsibility for their locality, not just their registered patient population.
In relation to hospitals such as the Royal Free, one reason why the hon. Lady, I and other Members were campaigning against her Government before the election was that we recognised that we cannot shut down accident and emergency departments when patients are coming in the door by the tens of thousands because there is no alternative provision. The best way to design services in the community that better meet the needs of patients is through general practitioners designing them around the needs of their patients.
Mr John Baron (Basildon and Billericay) (Con)
I very much welcome the White Paper’s increased focus on improving outcomes, and particularly my right hon. Friend’s comments about the introduction of one-year and five-year cancer survival rates, for which the all-party group on cancer has been pushing. How does he envisage GP commissioning of cancer services improving with the White Paper, given that part of the problem is that a typical GP will see only eight new cancer presentations a year?
Mr Lansley
I pay tribute to my hon. Friend’s work. He will have noted that I deliberately said both one-year and five-year cancer survival rates—he made an important point about that. Clearly, there are many specialist commissioning services, which will become the NHS commissioning board’s responsibility. To that extent, GPs should not be expected to commission specialised services—they have little experience of that. However, GPs as commissioning consortiums, like primary care trusts at the moment, are capable of having a relationship with their cancer networks to establish the services that they need for their patients. Indeed, that applies more to GPs because many of the patients and those who work in cancer services to whom I speak are critical of the lack of awareness on the part of PCT commissioners of the available services. Those who work in cancer services do not believe that PCT commissioners understand the service that they provide. Not every GP understands every aspect of cancer care, but they are much better placed to work with cancer specialists to design the services.
Mr Michael Meacher (Oldham West and Royton) (Lab)
Given the transfer of £70 billion of NHS funds from PCTs to 500 GP consortiums, the vast majority of which have neither the expertise nor the inclination for such a huge administrative task and will have to buy in specialists from the private sector to do it for them, is not it clear that the real motive behind the reforms is to enable US multinational corporations, such as UnitedHealth, or UK corporations, such as BUPA or Virgin, to parcel out health care to the private sector on a vast scale?
Dr Julian Lewis (New Forest East) (Con)
I congratulate my right hon. Friend on his firm grasp of the subject and on taking an axe to the forest of bureaucracy. As he proposes to phase out the strategic health authorities, may I nominate the South Central strategic health authority—he knows what is coming—because that would ensure that it was no longer able to waste hundreds of thousands of pounds of our money on fighting a hopeless legal case to impose fluoridation on a population, three quarters of whom have indicated that they do not want it?
Mr Lansley
Yes, I am indeed aware of precisely what my hon. Friend says and will certainly take it into account.
Jeremy Corbyn (Islington North) (Lab)
The Secretary of State has been asked by many Members about the accountability of GPs, and he has not answered. Some £80 billion is to be pumped through GPs, who will then buy in services. Who manages them? Who monitors them? Who checks on what they are doing? Will we get value for money or, as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) said, will the system in reality be administered by private health companies, just as GPs are private contractors in the NHS?
Mr Lansley
At the risk of repetition, let me say that GPs will be accountable to patients, who will exercise more control and choice. They will be accountable to the NHS commissioning board, which will hold their contracts, for financial control and for their performance, through the quality and outcomes framework. They will be accountable to their local authority for their strategy and for the co-ordination of public health services and social care.
Jason McCartney (Colne Valley) (Con)
Thousands of patients in my constituency are desperate for specialist maternity care to be returned to Huddersfield royal infirmary, which was downgraded under the previous Government. Does the White Paper make the return of consultant-led maternity services to Huddersfield more likely?
Mr Lansley
The White Paper will enable GPs in an area, plus their local public and their local authority, to make decisions about the shape of services rather than its being done by ministerial diktat.
Alex Cunningham (Stockton North) (Lab)
The Secretary of State referred to delivering for the patient. Will he guarantee that patients such as those who need a new knee or a new hip can expect their treatment in 18 weeks, or is it more likely to be 18 months under today’s proposals, as it was under the previous Tory Government?
Mr Lansley
Ah! That was one of the Opposition Whips’ handout questions, wasn’t it? I will tell the hon. Gentleman that actually, patients are more likely to get their treatment more quickly. Let me give him an example. Patients with rheumatoid arthritis need rapid treatment, but they were losing out and suffering as a consequence of the 18-week target, because hospitals were hitting 18 weeks, but not providing the care needed by those patients in the light of their conditions. We must focus on what is in the best interests of patients, not on what is in the best interests of political grandstanding.
Bob Blackman (Harrow East) (Con)
The Secretary of State’s announcement will be warmly welcomed in my constituency. On Friday, I went to see a group practice of 12 GPs who are totally frustrated by the local PCT. They are concerned that when the reforms are introduced, they will also be frustrated by the GP consortiums. Will my right hon. Friend give me some assurances on how the GP consortiums will be formed? What will happen if some GPs disagree with how a consortium is set up?
Mr Lansley
I can tell my hon. Friend that I am looking to GPs in a locality to create GP commissioning consortiums that represent an area. They must decide on the geography of that and make proposals. It will not be possible for GPs simply to say, “This is nothing to do with us,” because in future, we must expect GPs, who are senior professionals in public service and paid appropriately, to be responsible not only for the care of the individual patient in front of them, but collectively for the quality of care provided to their population at large.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
Prior to 1997, there was no cancer strategy and cancer was not a priority. The Secretary of State is absolutely right to make reaching European levels of one and five-year survival rates one of his priorities and an aspiration, but he knows very well that the one thing that is holding us back is the problem of early diagnosis. Precisely how does he think his abolition of targets and his woolly assurances will ensure early diagnosis? I will wager him that under his proposals, we will fall backwards rather than make progress.
Mr Lansley
Let me tell the hon. Lady that only just over 40% of those who were diagnosed with cancer actually came through the two-week wait process at all. She is right that it is very important that patients’ signs and symptoms should be identified at an earlier point and that they should have earlier diagnosis. Whom does she imagine is best placed to identify signs and symptoms and to take action on them other than patients and the GPs who are responsible for their care? [Interruption.] If Opposition Members stop interrupting from a sedentary position, I can continue. Actually, patients need—[Interruption.] The shadow Secretary of State should understand this, having held responsibility for it. For early diagnosis, awareness of signs and symptoms on the part of patients is critical. Only 30% of members of the public had any idea what cancer signs and symptoms were beyond the presence of a lump or swelling. We need to change such things and the responses of GPs to those early signs and symptoms.
Mr Speaker
Order. Members really should not chunter, witter or otherwise heckle from a sedentary position, because they thereby reduce their chances of getting in, or of their colleagues getting in.
Margot James (Stourbridge) (Con)
Older people and people with long-term medical conditions have not been well served by the division between health and social care, which has lasted many years. I congratulate the Secretary of State on his plan to give local authorities control over local health improvement budgets. Can he say any more about how those reforms will break down the barriers between health and social care?
Mr Lansley
I am grateful for my hon. Friend’s question. There is an unprecedented opportunity for local authorities and the NHS to create a much more integrated and effective strategy for health and social care working together. That is partly about focusing on outcomes, partly about listening to patients, and partly about extending personal budgets for patients, so that they themselves can break down such barriers. However, critically, it is also about local authorities exercising the responsibility that we will give them, plus their existing powers in relation to well-being right across their areas, to seal that working together, to deliver better public health and better integration between their social care responsibility and NHS commissioning plans.
Tony Lloyd (Manchester Central) (Lab)
Without any shame, the Secretary of State is introducing an internal market in the health service. In that context, how will he guarantee that GPs will not look for cheaper medicine rather than better medicine?
Mr Lansley
Because patients will have increased choice—[Hon. Members: “How?”] Because patients will make their choices on the quality of service they receive, because the service will be free to them.
Dr John Pugh (Southport) (LD)
The coalition agreement pledges to introduce true local democratic accountability through citizens actually being elected on to a health board. What can the Secretary of State do to persuade me—because he has not so far—that we will have local citizens, not doctors, making any decisions about the shape and configuration of local NHS services other than in public health, and will any of them be consulted about his structural changes or allowed to do things differently locally?
Mr Lansley
Yes. I feel very strongly that we have deliberately set out to improve local democratic accountability and we have found an effective mechanism for doing so. Local authorities will themselves have statutory powers to agree local strategies that encompass not only local health improvement, but the commissioning plans and the social care commissioning strategies locally. If a major service change is contemplated as a consequence, the commissioning consortiums will not be able to proceed without the agreement of the local authority through its joint strategic assessment. The White Paper makes it clear that if they do not agree, the local authority will continue to have the capacity to send the proposals to the independent reconfiguration panel and, if necessary, to the Secretary of State.
Austin Mitchell (Great Grimsby) (Lab)
May I tell the Secretary of State that north-east Lincolnshire has developed an effective care trust plus, which worked with the local authority to link care and health in exactly the way that he proposes, but the effect of his proposals on that trust will be to deprive it of most of its functions and cause it to issue redundancy notices to most of its staff. Has he heard of the old adage, “If it ain’t broke, don’t fix it”?
Mr Lansley
It is broke, and we are fixing it. We are fixing it because primary care trusts have not succeeded in delivering the outcomes that we are looking for, and they have consumed an enormous amount of money. I remind the hon. Gentleman that in the last year, at a time when we knew that there was a financial crisis facing the public sector and that the NHS would have to deliver more for less, the strategic health authorities and primary care trusts increased their management costs—not their spending on patients—by 23% in one year. It was outrageous.
Jeremy Lefroy (Stafford) (Con)
I thank my right hon. Friend for his statement. As he will know, concerns were expressed about the role played by Monitor in the authorisation of the Mid-Staffordshire NHS Foundation Trust. Does he have any plans to beef up Monitor’s role and ensure that it plays a better role in the future in the authorisation of trusts?
Mr Lansley
Yes, and hon. Members will see in the White Paper the way in which we can strengthen the role of Monitor. It is not just about the authorisation processes for foundation trusts, but a continuing responsibility for the quality and standard of care being provided in all our trusts, NHS trusts or foundation trusts. It is important to focus on quality, on what constitutes quality and on ensuring sufficient incentives to support quality. In addition, I hope that some of the lessons that will be learnt from the inquiry being conducted by Robert Francis QC will inform how we can put a better system in place.
Paul Flynn (Newport West) (Lab)
How much will be created in additional bureaucracy and new costs by dumping on GPs tasks for which they are not trained?
Mr Lansley
The hon. Gentleman has not talked to GPs across England who are keen to take on this responsibility. In the process, we will reduce the costs of bureaucracy in the NHS by more than £1 billion a year.
Nick de Bois (Enfield North) (Con)
Does the Secretary of State agree that where moratoriums are in place, practising GPs should be encouraged to seize the opportunity to determine the future of hospital accident and emergency departments, as with Chase Farm hospital in my constituency?
Mr Lansley
Yes, I very much agree. As he knows, his local GPs, patient representative groups and the local authority are already demonstrating how they can come together to devise the right solutions for the people of Enfield and the district around Chase Farm.
Valerie Vaz (Walsall South) (Lab)
The Secretary of State talks about choice in the NHS, but could he confirm that GPs will be given the choice to join a consortium?
Mr Lansley
GP practices will all have to be members of a consortium, otherwise it will not be possible for them collectively to commission emergency and urgent care, and they will need to do that.
Clive Efford (Eltham) (Lab)
The Secretary of State seems to misunderstand one thing. When patients go in to be treated by a GP, they expect to get the best possible treatment available. The Secretary of State said in an earlier answer that he would expect patients to have the knowledge of drugs to be able to determine whether a GP was supplying cheaper or better drugs. What local accountability will there be of GPs, what resources will be put into HealthWatch networks, what resources will be left available for local health improvement budgets, and what teeth will local authorities have to impose local health plans?
Mr Speaker
Order. That was four questions, to which one answer will suffice.
Mr Lansley
The answer is that I said no such thing as what the hon. Gentleman suggested, and the record will show that.
Harriett Baldwin (West Worcestershire) (Con)
I welcome the fact that my right hon. Friend has said that an extra £20 billion will be going into patient care by 2014. Can he clarify how much more that is under our Budget, compared with Labour’s Budget, which would have cut the NHS budget?
Mr Lansley
My hon. Friend is right. It appears that the Labour party’s policy is to cut the NHS. Our policy is to do something that Labour never achieved: deliver greater efficiency and greater productivity in the NHS, not least through the reforms that I have announced. Every penny saved will be a penny reinvested to the benefit of patient care.
Meg Munn (Sheffield, Heeley) (Lab/Co-op)
Sheffield is one of the areas that already has GP consortiums. They have been developing their relationships with the primary care trust and are now starting to make progress. What guarantee can the Secretary of State give to my constituents that today’s unwanted change will not set back that process and not cause significant problems with the progress that has already been made?
Mr Lansley
It is not an unwanted change. All over the country, GPs themselves have resisted the concept that they do what the primary care trust tells them to do, when they are better placed to design services on behalf of their patients. They can, and I know that the GP commissioning consortiums in many places will want to take on board the key teams in primary care trusts that they think would help them deliver commissioning. However, GP commissioning consortiums will not be required to do so, although they will be required to deliver better outcomes for their patients.
Charlotte Leslie (Bristol North West) (Con)
If hon. Members speak to GPs and professionals, who do not just sit here and talk about the NHS, but actually run it, day by day, they will find that it is not change or the White Paper that has caused demoralisation, but the machine-gun fire of targets and the monolith of management. The reason why that has caused so much demoralisation among the work force is that target box-ticking is so often different from the provision of quality care, as we have tragically seen in Staffordshire. Can my right hon. Friend reassure me that his reforms will mean that box-ticking is replaced by quality of care?
Mr Lansley
My hon. Friend is absolutely right and expresses her point superbly. The process is going to be about quality, not tick-box targets, and it is going to enable the front-line staff of the NHS to have not only access to the resources that they need, but the power to use them more effectively.
Fiona Mactaggart (Slough) (Lab)
Who will have the legal responsibility for delivering the Secretary of State’s welcome promise of a health care service free at the point of delivery? If we have expensive patients who are not being well treated by the GPs, what resource do we have, as Members of Parliament representing the interests of those patients?
Mr Lansley
The hon. Lady will see, in the White Paper and the subsequent legislation, the continuation of the existing legal framework, which does not allow additional charges to be levied inside the NHS.
Derek Twigg (Halton) (Lab)
It is interesting that the Secretary of State said in the statement, “We will allow any willing provider to deliver services to NHS patients”. Does he rule out any area of services in the NHS where private providers will be able to provide services?
Mr Lansley
I am adopting an any-willing-provider policy that was the policy of the hon. Gentleman’s Government, until the shadow Secretary of State abandoned it in September 2009 at the behest of the trade unions. I am adopting a policy designed to achieve the best possible care for patients by giving them access to all those who will deliver NHS services within NHS prices.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
Is my right hon. Friend aware that Hartismere hospital in my constituency was closed by Suffolk PCT, while at the same time, the PCT was able to afford to spend £500,000 on opening a new car park for managers? Does he agree that community hospitals such as Hartismere are still a valuable part of health care and that the White Paper might see a return to valuing them once again?
Mr Lansley
I am grateful to my hon. Friend for that question. I did in fact visit Hartismere hospital with his predecessor, and I entirely sympathise with his point. At that time, the primary care trust in his part of Suffolk was regarded as “initiative central”. It had to pursue every initiative from the Department of Health, and the money just went out the door. Those initiatives lasted just a year or two and then disappeared. That is not the basis on which to design the national health service. GPs are an excellent basis for this work because they are committed to their areas, and to the patients they look after, in the long term.
Alan Keen (Feltham and Heston) (Lab/Co-op)
If the Secretary of State is correct in saying that we need clinicians and GPs to have more influence and even control over the commissioning process, will he explain why he does not simply legislate for them to take over the current trusts? That would achieve his aim immediately, and if any inefficiencies appeared and changes to the management commissioning structure were needed—whether in the present PCTs or following reorganisation—they could take place after a period of time. Instead, these slash and burn proposals are going to cost millions of pounds and cause a lot of disruption.
Mr Lansley
The simple answer is because GP commissioners want to create their own commissioning consortiums according to their own needs and local circumstances. They do not want to be saddled with the legislative structures and costs that currently bedevil primary care trusts.
Rachel Reeves (Leeds West) (Lab)
In my constituency, a local charity called Healthy Living Network Leeds is commissioned by the PCT to provide health services in the most deprived areas, including among the Traveller community. What guarantee can the Secretary of State give to my constituents that those community-based health services will continue, and that they will be overseen to ensure that those treatments continue in the most deprived areas?
Mr Lansley
The answer is that GP commissioning consortiums will have a responsibility that goes beyond their registered patient population, and that when they set out their commissioning plans, those plans will have to be agreed by the local authority. In the hon. Lady’s case, Leeds city council will have a responsibility to ensure, through its health improvement plan and through NHS commissioning, that the needs of groups such as Travellers are properly met.
Sajid Javid (Bromsgrove) (Con)
My right hon. Friend will know that community hospitals, including The Princess of Wales community hospital in my constituency, have been under threat because of the policies of the previous Government. Does he agree that these new initiatives will make it more likely that local communities will take back control of their health care?
Mr Lansley
Yes, exactly. Last Thursday I was in Cumbria, and that is exactly what has happened there. The GP commissioners have collectively taken over responsibility for the Cockermouth community hospital. Instead of its being run down, as was intended, they have built it up as a base from which they are providing services for their area.
Andrew Gwynne (Denton and Reddish) (Lab)
Given that not all primary care trusts are coterminous with local authority areas, how will the public health aspect of the reorganisation be dealt with in areas such as Tameside and Glossop? It will not be as simple as just moving functions across to a single local authority in an area where a single health economy is greater than just one district.
Mr Lansley
As I am proposing to abolish primary care trusts, the problem of a lack of coterminosity will no longer apply. Health improvement plans, led by local authorities, will be set out on a basis consistent with many of the other services that make a significant contribution to delivering the kind of health and well-being that we are looking for.
Emma Reynolds (Wolverhampton North East) (Lab)
Wolverhampton primary care trust, working closely with GPs, has been at the forefront of driving improvements throughout Wolverhampton. For example, there has been a reduction in teenage pregnancies and in infant mortality. What evidence does the Secretary of State have that GP-led consortiums will be better placed than primary care trusts to carry forward further improvements in those areas, which affect the poorest communities in my constituency?
Mr Lansley
There is good evidence that physician-led commissioning of services for patients is very effective. Precedents in this country and across the world have shown that. The hon. Lady mentioned teenage pregnancy and infant mortality, and this is principally about the relationship between NHS services and wider public health services. Given such responsibility, I am sure that the local authority will be able to deliver local health improvement strategies that will impact on those factors more effectively than has been possible with the NHS doing it solely using NHS services and resources.
Chris Leslie (Nottingham East) (Lab/Co-op)
If the Secretary of State is going to force GPs to spend all this extra time on bureaucracy and managing the NHS, does it not mean that they will have less time to spend with their patients? Is that the reason why he scrapped patients’ right to see a GP within 48 hours?
Mr Lansley
Many GPs will find that they spend much less time trying to negotiate services for their patients through a PCT and NHS bureaucracy that get in the way. Of course GPs are operating collectively in a commissioning consortium, and I am not going to turn them into individual managers. Some GPs will be leaders—I am looking for clinical leadership—but they will also look for commissioning support. They can derive that from existing primary care trust teams if they think they are doing a good job; they can do it via local authorities or from independent sector providers of commissioning services as well.
Joan Walley (Stoke-on-Trent North) (Lab)
Does the Secretary of State not realise that there are greater health inequalities in some parts of the country, as in Stoke-on-Trent? Can he explain how this new arrangement of GP-led commissioning is going to deal with those health inequalities? Is it all going to be rolled out at one and the same time, or will there be pilot projects as part of a rolled-out programme? How is he going to ensure that health inequalities are dealt with, when local authorities in Stoke-on-Trent have to make £70 million of cuts over the next three years? How is it all going to be provided for?
Mr Lansley
It would be a good idea if Labour Members at least acknowledged that over the last 13 years health inequalities have widened in this country. We have not achieved health outcomes here that are at least as good as the European average, and in some respects regarding some diseases we are among the worst in Europe. We are going to turn this around. In order to do so, we are going to work not only with national strategies but with local strategies that are geared towards identifying those health inequalities and that expressly set out to reduce inequalities by looking beyond the NHS. Local authorities, the NHS, social care, the community and the voluntary sector will work together to make it happen.
Alison Seabeck (Plymouth, Moor View) (Lab)
The right hon. Gentleman talks about empowering GPs—some willingly and some unwillingly, I suspect. Some of them will need upskilling and training in order to understand the new process. What assessment has he made of the time GPs will need to devote to their training, and that of their staff, and of how much it will cost—or will GPs themselves be expected to pay for it?
Mr Lansley
I wonder whether the hon. Lady has met doctors in Devon. I have been to their local medical committee conference and discussed these issues with them. They are keen to go. If there was any difficulty, it was that at least one Plymouth GP had very high referral rates. I do not think he had ever checked those rates with his colleagues. It was interesting to hear them talk to one another. It became perfectly obvious that peer review—that sense of working collectively to manage services in an area—is going to hold GPs to account very effectively within consortiums as well. [Interruption.] The hon. Lady and all her colleagues completely underestimate the capacity of general practitioners, who are responsible for the overwhelming majority of patient contact in the NHS, not only to take on the responsibility of deciding whether they should incur the expenditure for the referrals they make but to have a say in designing those services.
Points of Order
Helen Jones (Warrington North) (Lab)
On a point of order, Mr. Deputy Speaker. You will be aware that the Secretary of State for Education today issued his fifth list of schools affected by the cancellation of the Building Schools for the Future programme. That list was not available to Members until 2.35 pm—after the first question on Building Schools for the Future had been taken at Question Time. Is there anything you can do to ensure that Members have the right information in front of them before we debate these issues?
Mr Deputy Speaker (Mr Lindsay Hoyle)
The hon. Member has made the point that it would have been beneficial if this information had been in place before Education questions. She has now put the point on the record, so it can be taken into account.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
On a point of order, Mr. Deputy Speaker. In the statement on the White Paper, the Secretary of State for Health asserted in response to a question from my hon. Friend the Member for Wolverhampton North East (Emma Reynolds) that there was evidence that GP-led commissioning was superior in outcomes to PCT-led commissioning. Am I right to assume that the Secretary of State will either substantiate that assertion in a letter to the Member concerned or by lodging substantiating information in the Library?
Mr Deputy Speaker
We have already had our debate on that issue and we cannot carry on with it now. It is not a point of order for the Chair.
Finance Bill
(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
20:15 - The Committee divided: - Ayes: 228 / Noes: 318 - Question accordingly negatived.
John McDonnell (Hayes and Harlington) (Lab)
I beg to move amendment 11, page 1, line 6, at end insert—
‘(2) Subsection (1) shall not have effect unless the Chancellor of the Exchequer has laid before the House of Commons a report on the extent of avoidance and evasion of corporation tax and on the measures he proposes to take to ensure the payment of tax which is due.’.
I almost feel like apologising for returning to the issue of tax evasion and tax avoidance, which I have pursued for a number of years since the debate that we had about the merger of Inland Revenue and Customs and Excise to form Her Majesty’s Revenue and Customs. The amendment is fairly straightforward in seeking that a report be prepared by the Chancellor of the Exchequer before corporation tax and capital gains tax measures are agreed by the House. I will not repeat myself in relation to amendment 12 to clause 2, although I will move amendment 12 formally. We have argued consistently about how to tackle evasion and avoidance and the investment required to do so.
Let me explain the rationale behind the amendment. I listened to the Second Reading debate into the early hours, including the discussions about Randalls of Uxbridge, which were enlightening at that point in time—
John McDonnell
As my hon. Friend says from a sedentary position, the discussions were refreshing, to say the least. I think there is another sale on at the moment.
The debate was about how to resolve the deficit that has arisen as a result of the credit crunch and the economic crisis that we face. Clearly, the division was around the level of reductions in public expenditure required and the time scale for their implementation. There was fierce debate about the level of public expenditure decreases and their implications for jobs losses, cuts in services and the impact on communities.
What was absent from the debate was a discussion of increasing tax revenues as an alternative to cuts. Everyone appreciated that the deficit needs to be reduced. There was some agreement, even across Benches, on some cuts, particularly with regard to ID cards and, perhaps, Trident. With regard to cuts in education and welfare benefits, however, there were strong differences. We need to look again at tax avoidance and evasion. There has been confusion about definitions in previous debates. Tax evasion is defined closely as the illegal non-payment or under-payment of taxes, usually resulting from the making of false declarations, or from no declarations of taxes to tax authorities, and can result in legal penalties. Tax avoidance is seeking to minimise a tax bill without deliberate deception, but contrary to the spirit of the law.
John McDonnell
The difference is clear with regard to legality and illegality. The technical implementation of tax legislation can be complex, so people can misunderstand which side of the fence they fall. During earlier debates in the House, the Denis Healey quote was cited that the difference is a prison wall. The implementation of measures to tackle tax evasion in particular is critical to the sound management of public finances and, obviously, to probity in the management of tax resources.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Does my hon. Friend agree that avoidance and evasion are the same to the extent that, in the context of both, it will take a motivated and full work force at HMRC to deliver the benefits that the Government supposedly seek?
John McDonnell
I agree wholeheartedly. I shall say more about that shortly, because it is one of the issues that we raised—I think—four years ago at the time of the merger of the departments. We hoped at that stage for a more detailed report on personnel management and the number of staff who would be employed to deal with tax evasion in particular.
The fact that Her Majesty’s Treasury does not distinguish between evasion and avoidance in its global figures suggests that the Treasury itself finds the distinction difficult to define. I tried to find a clear Treasury quantification of what is generally described as the tax gap in order to draft an amendment that would have some purchase in the real world, especially the world of Treasury practice.
Lorely Burt (Solihull) (LD)
I am interested in the discussion of avoidance and evasion, but does the hon. Gentleman not agree that neither problem has been improved by his own party’s complication of the tax rules, to the extent that ordinary people require a professional to help them to interpret those rules?
John McDonnell
Complication is certainly an issue. That is partly why I want the Chancellor to report to the House on the measures that will be used to tackle tax evasion and avoidance. We need a simplification of the process, but we also need to know how many staff the Government will employ for collection purposes.
Mr Love
I thank my hon. Friend for being so generous in giving way. Does he agree with the Institute for Fiscal Studies that the terms of the Budget are likely to make the tax system more complicated, rather than introducing the simplicity that the Government claim is one of the objectives of their Budget?
John McDonnell
Let me say as objectively as I can that I have not yet seen a Budget that simplified the taxation system, and I have been here for 13 years. I live in hope, which is why my amendment requests a further report that might indicate the path that the Government intend to take. I am merely a humble seeker for truth in this matter, as always.
I investigated various sources in my search for estimates of the tax gap. The latest HMRC estimate that I could find was £40 billion, but there is an element of uncertainty reflected in a reported memorandum circulated to staff in HMRC and the wider Treasury, asking people to come up with ideas for identifying and calculating the gap.
The HMRC estimate has been challenged by others. I chair a group called the Left Economics Advisory Panel, which brings together a number of Left economists including some who have been working with the Tax Justice Campaign. Over the years many Members will have worked with Richard Murphy and John Christensen, who are held in respect across parties because of the work they have undertaken in this sphere, and the advice that they have given to the Treasury and other organisations for a number of years. According to their estimate over the past year, the tax gap could be anything between £70 billion and £120 billion.
Mr John Redwood (Wokingham) (Con)
If the gap is so enormous, can the hon. Gentleman explain why 13 years of Labour government did not close it?
John McDonnell
I can only say that that is one of the reasons why I have raised the issue so consistently. I hope that some Government will address it, and will do so effectively. It is also why I have sought to amend the Bill in a consensual way. All I am asking is for the Treasury to produce a report setting out our best current estimate of the extent of avoidance and evasion, and to propose measures that the Government could take. That would be a way for the Government to demonstrate that they are taking the issue seriously and tackling it.
There have been other estimates of the tax gap that go beyond that of Richard Murphy, some of which are as high as £150 billion a year. Interestingly in respect of the Treasury’s £40 billion figure, it estimated in a table it published earlier this year that corporation tax accounted for 16% of its tax gap and that capital gains tax along with national insurance contributions and so forth accounted for 6%, so the taxes this particular amendment addresses are significant contributors to the tax gap.
I fear that unless this issue is addressed we will continue to have a sterile debate in the House about cuts in public services, whereas if we tackled the tax gap we would avoid a significant amount of the public service cuts that will impact upon all our communities. I therefore urge that we have a serious debate and that the Treasury produces a report quantifying more exactly the levels of tax avoidance and tax evasion, and that we then look at possible measures—including, I agree, on simplification. Issues to do with what resources we apply to tackling tax evasion and avoidance are also of relevance, however, and that comes down to staffing.
Dr John Pugh (Southport) (LD)
Should we not recognise that tax avoidance and tax evasion are two very different things, and that although we can make a rational guess as to the extent of the former, tax evasion that is successful is not detected at all and therefore any estimate of it must be highly speculative?
John McDonnell
I fully concur, which is why I think that HMRC must apply a lot more resources to tackling quantification. The estimates I have been given range widely from the £40 billion from the Treasury for both avoidance and evasion—its figures do not distinguish between them—to the £25 billion from the TUC solely for tax avoidance, to the higher estimates of anything between £70 billion and £150 billion for both evasion and avoidance. I know that Richard Murphy in particular has focused on evasion, which could account for anything between 40% and 60% of the budget deficit—the structural deficit as well—that this House has recently been debating, and dividing on almost unnecessarily it seems to me.
Andrew George (St Ives) (LD)
I congratulate the hon. Gentleman both on raising the issue and on the manner in which he is doing so. He has made it clear that he has raised it under two Governments. Putting aside the tribal aspects of the debate, I agree that we need to bear down on this issue, and I have asked parliamentary questions on evasion and avoidance that are due for answer today. Does the hon. Gentleman agree that it is to be hoped that once we understand a great deal more about this issue, we will be able to close the loopholes, and address other issues such as where Treasury officials go and work after they leave the Treasury?
John McDonnell
I fully agree.
I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.
The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House—to the Chancellor of the Exchequer—on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.
This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.
Mr Redwood
If a constituent of the hon. Gentleman’s had a deposit in a savings product that was paying interest, on which they were paying tax, and they switched that into a tax-free national savings product, would that be tax avoidance or sensible investment?
John McDonnell
That is an interesting point. Tax compliance should be a duty in law, so there should be a requirement on us all to pay our appropriate level of tax. Tax planning is perfectly consistent within the law and is appropriate for individuals and organisations in order to ensure that they pay the appropriate tax. However, such devices should not be used to avoid paying the rightful level of tax and certainly should not be used for the purposes of tax evasion, which is the illegal avoidance of tax.
As I was saying, my concern is that, just when we need staff to tackle tax evasion and avoidance, we are faced with the previous Government’s plan for a further 12,000 job cuts within HMRC. I urge the new Government to review the matter and to look again at the staffing level that will be required if we are seriously to address tax evasion and avoidance. That is another reason why my amendment calls on the Chancellor of the Exchequer to lay before us a report that sets out the measures he proposes to take
“to ensure the payment of tax which is due”.
In devising those measures, appropriate discussions will need to take place about the level of staffing and the qualifications and abilities required of such staff. Such factors will militate against the scale of job cuts that have taken place.
On another issue, but one that has certainly been close to the hearts of several Members over the past two years, such measures will need to take into account not just staffing levels but staff location. The closure in recent times of local tax offices has reduced HMRC’s ability to respond to tax evasion and tax avoidance on the basis of local knowledge, and to assist local companies and individuals in proper tax planning so that they can comply with the law. I request that any report that the Chancellor introduces deal with the implications of the closure of local tax offices and, therefore, the appropriate location of the staff themselves.
I have tabled two amendments, the first of which, amendment 11, deals with corporation tax.
Mr Love
Does my hon. Friend agree that any such report dealing with HMRC must also deal with the difficulties that arose on the amalgamation of Revenue and Customs because of the very different cultures within those organisations? We really must address those difficulties, which still reverberate around the organisation, even at this late stage.
John McDonnell
I appreciate the point that my hon. Friend makes. I accept that there have been issues relating to a new department settling down over time, but I want to pay tribute to the staff involved for the excellent job they have done in the set-up of the new organisation, for the flexible way they have worked and for the co-operation that has worked across past agencies as they have come together. I accept that that might be an issue and it could be referred to.
I will not repeat the same speech when we deal with amendment 12.
Sajid Javid (Bromsgrove) (Con)
May I say that there seems to be a big confusion between tax evasion and tax avoidance? The hon. Gentleman keeps referring to “avoidance and evasion” and treating them in almost exactly the same way. Clearly one of them, avoidance, is entirely legitimate—it is a basic human instinct for someone to try to hold on to more of their own money, which they have earned through their hard work—whereas the other, evasion, is an illegal activity. Would he not do well to focus on what might be the issue, rather than trying to confuse it?
John McDonnell
I understand the point that the hon. Gentleman is making. My amendment tackles tax evasion, which is clearly an illegal activity, but we need to address a wider issue that goes beyond the normal tax planning: tax avoidance beyond the spirit of the law. In previous debates, we have tried to insert into the tax laws of this country a general duty of tax compliance, which exists in other countries. Such an approach puts an onus—as a duty in law—on the individual to comply and to try to emphasise that duty, rather than to look for every possible means to avoid tax. There is a gradation in these matters, but I tackle both these things because they are both legitimate concerns in wider society and will become increasingly pressing ones as individuals experience the public expenditure cuts that will take place as we seek to tackle the deficit.
Stewart Hosie (Dundee East) (SNP)
The hon. Gentleman is making his case extremely well, but surely he should be pushing at an open door, given that the Red Book itself talks about changes
“to prevent avoidance of corporation tax using accounting ‘derecognition’ rules”.
It also discusses tax avoidance involving “the creation” of certain things “for corporate investors”, and mentions alternative investment funds, financial securities, inheritance tax on trusts and so on. There is also the possibility of a general anti-avoidance rule, as this is being considered informally by this Government as we speak.
John McDonnell
That is why I was hoping my amendment would achieve consensus in this House, although that might be a first for me. I was hoping that it went with the flow of Government policy, as well as with past Government policy, if not with past practice under successive Governments. A number of practices of tax avoidance clearly incur public opprobrium. The hon. Gentleman has cited a number that are listed in the Red Book, but there are others. These are seen as instances where people are not doing the right thing within the spirit of the law, which is why, no matter how difficult it can be at times, we can identify practices that fall within either tax evasion or tax avoidance by the practical response from the community.
This is an issue whose time has come, particularly because of the current financial climate. There is clearly a concern among Members in all parts of the House about tax evasion and tax avoidance, and there will increasingly be concern about it in the wider community. Therefore, my simply asking for the Treasury to produce a report before this latest round of taxes are implemented—this would give an element of timetabling and immediacy to the proposals that will be introduced by the Treasury—is nothing but helpful and will be seen in the wider community as actually getting the Treasury to examine this issue with some seriousness in a way that may not have been happening under previous Administrations of all political parties. I cannot see how anybody could vote or argue against this, but I shall sit down and wait for the argument to come.
The Chairman
(Mr Lindsay Hoyle) I call Karl MᶜCartney. May I just remind Members that this is a maiden speech?
Karl MᶜCartney (Lincoln) (Con)
Thank you, Mr Hoyle, in your role as Chairman of Ways and Means and as the House sits in Committee to consider the amendments to this Finance Bill, for allowing me the opportunity to make my first speech in the House.
I intend to comment on two matters of importance today: the amendments to the Finance Bill and Lincoln, the constituency that I have been elected to represent. Before I discuss either matter, however, I want to pause to pay tribute to my parents, John and Brenda McCartney, who are here in the Gallery, along with my wonderful wife, Cordelia. I am pleased that she is still here, as I am indebted to her for so much, not least our two sons, Henry and Freddie.
Let me now return to the Finance Bill. What concerns me most is the lack of support for long-term share ownership that is eminently displayed by the current capital gains tax regime, which, ironically, now seems to be based on principles that are at odds with how we are to treat banker bonuses whereby an increasing proportion of their compensation is compulsorily taken in shares of their employing parent company. That has the quite admirable aim of encouraging actions that have at their centre the long-term interests of the companies for which they work. This is commendable.
Less commendable is the loss of taper relief, which encourages long-term share ownership and investment. Surely many on both sides of the House see the retention of taper relief as desirable. Also less commendable is the loss of indexation relief. Following a change introduced by the previous Government, payers of capital gains tax will continue to be taxed on illusory gains. A simple example might help to explain my concern. Let us say that the average price for a pint of beer is £2.50. Instead of buying a pint, one could invest that £2.50. If inflation averages 7% per annum for five years and the investment keeps pace, the beer will have risen in price to £3.50, as will the value of the investment. The investor would therefore expect that the investment would still buy a pint, except that it would not, because 28% capital gains tax would have to be paid and the investment would therefore be worth only £2.50 net of tax. That is clearly inequitable. Given the widespread acceptance that short-termism from investors is a problem faced by businesses up and down the country that are trying to attract capital for start-up funding, working capital and expansion, surely that is short-sighted.
I know that this matter is important to a number of people who are resident and work in the city of Lincoln. My fellow constituents are industrious and hard-working, and many of them either own their own business, want to start their own business or work for a small family-owned business. They know the importance of access to capital as an owner, a manager or an employee. Enabling measures that encourage investment is surely what this House should be about. What we have in place now enjoys the invidious merit of achieving the exact opposite and I hope that my senior colleagues will rethink these issues at the earliest opportunity. I know that we are where we are because of the utter mess bequeathed to us by Labour in the last Government, so I hope that as soon we have rebalanced the nation’s finances, we can reverse these measures, if we cannot do so now.
Let me now say a few things about the history of Lincoln and some of the main issues that affect the constituency. I shall summarise my thoughts and areas of interest, as well as detailing my predecessors and the military links that the constituency enjoys.
It is a privilege and an honour to represent the constituency of Lincoln. When I first embarked on the long and arduous B-road to selection, reselection and election, I did not imagine that I would have the privilege of representing such an ancient, traditional and famous constituency as Lincoln. I aim to show my constituents that they chose wisely, as a Jedi might say.
Lincoln is not just another name in the list of 650 constituencies. It is a city that plays and will continue to play a pivotal role in our nation’s democratic tradition. Naturally, I am proud to represent Lincoln and, as hon. Members might know, it is one of the oldest constituencies in the country. The Romans quartered a legion in the city and Edward III presided over a Parliament in our cathedral. The cathedral, which is one of the glories of English architecture, dominates the city and a large swathe of Lincolnshire. It is still as impressive today as when it stood as the tallest building in the world for 238 years—the only building in the UK ever to have held that title. If my Government ever feel the need, I am sure that Lincoln will be willing again to host a meeting of Parliament or of the Cabinet at a date of their choosing.
Although I am not an historian, I can safely reveal to hon. Members that the historical evidence for Parliaments before 1295 is quite patchy. Lincoln and York head the list of towns summoned to send Members in 1265 and, with the recent splitting of the city of York into two seats, it would seem that Worcester and Exeter appear alongside Lincoln in having a possible claim to being the oldest continuously existing borough constituencies.
Lincoln has so much more to commend it as a destination and as a place of history and worship than its two equally ancient constituencies. The cathedral is stunning and has proved a welcome sight and landmark for many travellers over the centuries and for our brave airmen in Bomber Command during the second world war. Lincoln is also home to one of only three existing original copies of the Magna Carta, the foundation of British, and therefore world, democracy. With our new Government’s plans for a great repeal Bill, we can see the relevance that the Magna Carta still has today, nearly 800 years after it was signed.
The city’s MPs have included the redoubtable Dick Taverne, who continues to sit in the other House, and the right hon. Member for Derby South (Margaret Beckett), originally Miss Margaret Jackson in Lincoln, eventually Mrs Beckett. More recently, I am honoured to follow in the footsteps of the last Conservative Member for Lincoln, Sir Kenneth Carlisle, who served happily between 1979 and 1997 and for whom there is a mutual, deep affection for and from the city of Lincoln and its people. My direct predecessor was Gillian Merron, who worked hard for constituents and was incredibly photogenic, appearing in our currently daily paper with regularity—something that I fear I will not be able to emulate, not least because many of my friends say I have the perfect face for radio.
The people of Lincoln and Lincolnshire are proud to be yellow-bellies—a hark back to the original Lincolnshire “Poachers” Regiment, which is now part of the Royal Anglian Regiment, some of whom I met earlier today out in Westminster yard. They serve us well abroad and in many fields of conflict, and I know that the people of Lincoln are immensely proud of them and all the armed services associated with our city, which is linked with the RAF and the Grenadier Guards.
As well as the city, my constituency covers the lovely villages of Skellingthorpe, Bracebridge Heath and Waddington, where the RAF is based. RAF Waddington is one of the busiest and most varied operational air bases in the United Kingdom, as well as one of the longest established. It has played an important role in the defence of the country and in supporting and servicing our armed forces. Soon, Waddington is due to become the home of the Red Arrows, who are another well-loved and appreciated aspect of Lincoln life as we are often treated to their practice sessions in the skies above our city.
Despite its wealth of attractions both historical and current, Lincoln has poor transport links that have worsened over recent years. There is now, unfortunately, only a post-election promise of one direct rail link to London and there are inadequate connections to other places. The A46 is soon to be dualled from Nottingham to Newark and the knock-on effect might be that the A46 single carriageway and roundabouts that plague our western, and only, bypass might cope even less well than they do now. The only other route is through the centre of our city, using the single carriageway A15 or negotiating our High street with its famous level crossing.
I am not aware of any other city in our country that is being held to ransom by Network Rail, which is currently threatening the city with the closure of that level crossing for up to 40 minutes in the hour throughout the day to allow freight trains that are of no benefit to Lincoln to pass through. Lincoln needs investment in its transport system that will provide a vital benefit to the long-term prosperity of both the city and the whole county, such as the east-west link road that is currently proposed. On all these transport issues, the Secretary of State for Transport and his Ministers can expect continued representations from me and my fellow Lincolnshire MPs, I am sure.
Many experiences, people and types of employment have shaped my life so far, and I am a great believer in being the owner of one’s destiny. If individuals feel that the world owes them a living, it does not, but if they are willing to believe in their own self-determination, there are no limits to what they can do. Many individuals from both sides of the House are testament to that philosophy. I now have the opportunity and ability to help to make decisions that affect our nation and to question and challenge them properly in the House, with, I hope, the important addition of compassion. It is a privilege to have that opportunity, in tandem with serving the kind and generous people of Lincoln, who did me such a great service in electing me to represent them in this traditional and great place. Doing my best for our city will be a major preoccupation of mine for as long or as short a time as the people of Lincoln allow me the privilege of representing them in this House.
Mr Redwood
Let me start by saying a few words about my new hon. Friend the Member for Lincoln (Karl MᶜCartney). I am sure that the House will join me in praising him for his speech and in wishing him every success now that he has joined us here. It is good to hear someone with a radio face with a passionate voice for his constituency. If he continues that, I am sure that his constituents will be well served. It was great to be reminded of the hugely important Lincoln cathedral, which many of us have visited and admired, and of the fact that Parliaments were once more peripatetic. In those days, there was probably less security and fewer people in the baggage train, so it was probably cheaper to take Parliament around the country than it would be today. I fear that he might have quite a long wait before the next Parliament at Lincoln.
We are here to debate tax avoidance and evasion. I listened carefully to the hon. Member for Hayes and Harlington (John McDonnell), but I think that the Committee is pursuing a will-o’-the-wisp if it seriously believes that there is £120 billion of tax evasion and avoidance generally, and that there is substantial tax evasion and avoidance in particular on corporation tax, which we are debating, that we can tackle and get the money in from. Every hon. Member would like to think that there is an easy way out of the financial crisis. If there were a great pot of money representing tax dodging that we could identify and bring into the Treasury, it would have been done by now. It is not a matter of party dispute. If there are tax evaders out there whom we know about, they need to be brought to book—we all agree with that. Labour spent 13 years trying to do it, but the hon. Gentleman does not think that it did it well enough, and is now urging the coalition Government to do it. The coalition Government will pursue it in similar ways, with similar intensity, to the outgoing Labour Government. I fear that they will be no more successful than the previous Government at finding that £120 billion pot of gold because, in all honesty, I do not think that it exists in the form that hon. Members wish that it did.
Let us take evasion—the more serious case. I am sure that everyone in the House agrees that if someone is deliberately evading tax, it is a criminal offence. The House has said that it is a serious offence, and made it a criminal offence, or series of criminal offences, and we wish to see those people pursued and prosecuted. In the case of corporation tax, for example, if a company deliberately misreports its income, and says that it receives less income than it earned—one way of misleading the tax authorities over corporation tax—the book should be straightened, the record corrected, and they should be prosecuted. If the company deliberately overstates its costs to try to suppress its profits—the other way in which people could evade corporation tax, if they were seeking to do so—that, too, should be something that the authorities can identify on investigation, leading to a correction of the accounts. False accounting would be involved, as well as the criminal offence of tax evasion, and there are methods of tackling it. The state has a range of powers, introduced by Governments of all persuasions, to allow company investigation, including second-guessing the audit, and going in if it is thought that crooked directors are misrepresenting their costs or revenues, and the auditors have missed it. I wish my right hon. and hon. Friends the Ministers in the Treasury every success in trying to capture genuine crooks, because we do not need them in our community, and we need to flush them out.
There is another kind of failure to pay the amount of tax that the corporation tax authorities think is correct which, in some people’s language, could be evasion. A company may report honestly its revenues and costs, but comes to a different conclusion from the Revenue about what the taxable profit should be, given its income stream and costs. It attempts to understand the complexity of the law—it may well have its own tax advisers and auditors in support, because any medium or large company does not do this in isolation; the directors want the comfort of knowing that they have serious tax experts behind them, because of the complications of the law—and it makes its case to the Revenue, which disagrees with them. I do not think that that should be treated as a severe criminal offence leading to the imprisonment of the directors. What should usually happen—and what tends to happen—is a fierce exchange of views between the Revenue, which is trying for one view of the tax, and the company and its tax advisers with a different view. Eventually, agreement is reached. If it is thought to be a bad case, the Revenue has the power to impose financial penalties as well as to secure the tax that it thinks that it is owed.
Clive Efford (Eltham) (Lab)
I am interested in the right hon. Gentleman’s train of thought, but will he clarify something? Is he saying that there is no such thing as avoidance of corporation tax, or is he saying that anything that comes about is just the result of a misunderstanding?
Mr Redwood
Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.
That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man’s avoidance is another man’s sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, “We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product.”
Stephen Timms (East Ham) (Lab)
My hon. Friend the Member for Eltham (Clive Efford) asked a telling question, and I am not sure what the right hon. Gentleman’s answer is. The question is this: does he deprecate any tax avoidance, or is he saying that as long as it is strictly in compliance with the law, anything goes? As he knows, there have been some very ingenious, and indeed expensive, schemes used by companies to avoid paying tax, clearly contrary to the spirit of the law but arguably in compliance with the letter of the law. Does he not deprecate that kind of activity?
Mr Redwood
I do not want to get drawn into the moral issue of deprecating or not deprecating: what I am interested in is the efficiency of revenue collection and the clarity of the law for the people having to meet it. It is the job of this House to have a clear tax law that people have to follow, and we often have these debates to try to carry out that task. Sometimes tax law is so complicated, or people outside this House are so ingenious, that there are ways round it that I might disagree with and the right hon. Gentleman will often disagree with, and that is when we come back to legislate again. We say, “We haven’t done our job well enough. People are avoiding tax more easily than we would like them to be able to, and so we’re going to add another complication”—or sometimes even a simplification or clarification—“to the tax law to try to capture that.” That is the job of this House. The shadow spokesman and I will sometimes agree that an avoidance scheme goes too far and we need to legislate to stop it; on other occasions, we will disagree. I will say, “That’s perfectly rational tax planning—don’t be such a party pooper”, he will say, “I don’t like people getting away with that kind of thing”, and we will have our disagreements.
Mr Love
Given the thrust of the right hon. Gentleman’s remarks, does he agree with my hon. Friend the Member for Hayes and Harlington (John McDonnell) that cutting the number of HMRC employees by 10,000 might not assist in the process that he is outlining of ensuring that those who take part in avoidance are brought to book?
Mr Redwood
It would clearly be a false economy to cut back on the number of staff needed to tackle serious cases of tax evasion; I do not think anybody wants to do that, and I certainly would not recommend it to Front Benchers. It would also be wrong, however, to exempt Revenue and Customs from pressure to improve efficiency and to do more with less at a time of enormous strictures on public spending. I hope that there will be ways to accommodate the hon. Gentleman’s wish for us still to have Revenue and Customs pursuing tax evasion and our coming back to legislate on tax avoidance that it thinks is going too far, as we have under past Conservative and Labour Governments, and that that will be done efficiently and effectively in the way that we wish to see.
John McDonnell
To follow up on the question of my right hon. Friend the Member for East Ham (Stephen Timms), are there any measures that the right hon. Gentleman would consider tax avoidance that should be brought within the purview of Her Majesty’s Revenue and Customs, such as the large-scale offshoring mechanisms that corporations use to avoid tax? All that the amendment asks is for a report to be made about the measures that the Government will take on such issues.
Mr Redwood
I do not necessarily disagree about the need for us to consider another report on tax avoidance and evasion, but I am trying to set some of the parameters for that report and the framework of the debate. This is an opportunity to discuss why the matter is difficult, and why past Governments have not lived up to the hon. Gentleman’s expectations. I have no problem with having a report, although I do not want to link it to the particular corporation tax rate in clause 1, as his amendment would.
John McDonnell
I am grateful for that response. Successive Governments have pragmatically examined the latest tax avoidance mechanisms and then sought to work through them systematically to address them. The amendment is intended simply to bring forward a report on those mechanisms so that the House can have more oversight of that process.
Mr Redwood
As the hon. Gentleman knows, I am all in favour of more oversight by this House, and the more informed a debate we can have about this and other issues the better. Public debate in Britain has been stifled in recent years for all sorts of political reasons that we need not go into. It is better if we can bring such debates out into the open, but we need collectively to think through what avoidance is and what evasion is. If we do not know that, we cannot hope to guess its scale or optimise our measures for dealing with the features of it that we do not like. I am trying to deal with avoidance, on which I believe there is more scope for disagreement than on evasion, which we are all against.
I return to the point that some people’s avoidance is a bad practice and other people’s is common sense. Let us take another example of a matter on which the Government encourage avoidance. I gave one from personal tax, but we ought to be concentrating on corporation tax. The previous Labour Government were keen to encourage avoidance of corporation tax because they wanted companies to invest—a perfectly worthy aim. They said to companies, “If you invest more than you otherwise would do, that is an allowance against your corporation tax so that you will be able to avoid some tax in order to invest more.” One debate that the Committee will have is whether this Government are cracking down too much on investment avoidance by removing some of that allowance and giving everybody the benefit of a lower rate. I hope that Opposition Members will see that they are not as pure as they think they are on avoidance, and that there are certain types of avoidance that they see as a very good thing. It is a well-known feature of many tax structures to encourage avoidance in order to encourage good works or change conduct.
Mark Tami (Alyn and Deeside) (Lab)
The right hon. Gentleman talks about avoidance all the time, but is it not about the Government giving companies incentives to invest, rather than allowing them to avoid tax?
Mr Redwood
The hon. Gentleman has made my point beautifully. I have just said that one man’s avoidance is another man’s tax incentive—that is exactly the point that I am trying to make. There are good types of avoidance and bad types. Sometimes all the parties in the House agree that a certain type of avoidance is bad, and then it is in our own gift, because we are the legislature, to table business on any day to stop that tax avoidance in its tracks by changing legislation explicitly and clearly to send a signal. At other times we come together to legislate in favour of tax avoidance, because there are things that we wish to encourage. As he rightly says, sometimes the best thing to do is to give people a lower tax bill to encourage such procedures. That is surely encouragement of tax avoidance of a benign kind and a perfectly reasonable thing to do.
Mr Redwood
The hon. Gentleman shakes his head, but what else is it? Why are people investing more than they otherwise would have done? Because they are allowed to avoid tax and pay less tax than they otherwise would.
Stephen Timms
The right hon. Gentleman is uncharacteristically abusing the English language. To say that something that is explicitly provided for in the law is tax avoidance is not what most people mean by the term.
Mr Redwood
Fine—that is a very good linguistic point, and if the right hon. Gentleman wishes to define tax avoidance more narrowly as actions that we all disagree with, we can do that and it makes the debate much simpler. However, he has to understand that there are a series of grey areas, and it is not a black-and-white matter. There is not a set of actions that everybody agrees are tax avoidance and another set that everybody agrees are perfectly reasonable incentives or sensible ways of paying less tax.
Let us get on to the more difficult corporation tax cases, having dealt with the investment one—everybody in the House thinks that investment is a good thing and that corporations should therefore pay less tax one way or another, either through the rate of tax or through explicit relief.
Clive Efford
I pay tribute to the hon. Member for Lincoln (Karl MᶜCartney), who made his maiden speech. Many of us remember his predecessor with great fondness, and we certainly notice the difference in appearance to which he referred. She was a popular Member here, as I suspect that she was in her constituency. I am sure that the hon. Gentleman will do an able job in his time as Member of Parliament for Lincoln.
The thrust of the argument of my hon. Friend the Member for Hayes and Harlington (John McDonnell) is that the House should be able to scrutinise the Government’s actions on enforcement of corporation tax to avert some of the severe and harsh cuts elsewhere in public expenditure. The Red Book refers to the need to reduce all sorts of evasion. Indeed, paragraph 1.96 mentions the Government’s measures on corporation tax, which a later group of amendments tackles, and states the need to alter the rate of corporation tax to reduce the avoidance of payment. A practice has been created of people avoiding other forms of tax and paying capital gains tax at a lower rate to minimise the amount that they pay in tax. I therefore agree with the thrust of the point that the right hon. Member for Wokingham (Mr Redwood) made that there are times when we need to tweak the tax system to close down loopholes. In that sense, the tax system has historically been like turning a thermostat up and down. We introduce one set of regulations, that area overheats, the thermostat is turned down, another section of the tax system responds and people move in that direction to avoid paying tax.
With amendment 11, my hon. Friend is trying to ensure that the House can hold the Government to account for what they do to fulfil what they say in the Red Book, and thereby ensure that the Government maximise the amount of corporation tax that is paid.
Kwasi Kwarteng (Spelthorne) (Con)
Will the hon. Gentleman clarify his basic position? Does he believe that in principle corporations ought to pay more tax than they are paying already?
Clive Efford
The point, on which I believe we are all in agreement, is that everyone should pay the tax that they are due to pay. Amendment 11 proposes not that corporation tax should be raised or reduced, but that it should be paid, that the Government ought to take action to ensure that companies that are liable to pay it do so, and that the House should have the role of providing a check and balance to ensure that the Government are carrying out that function.
Clive Efford
I could not agree more. If I were to start listing some of the harsher items in the Budget, such as the £1.9 billion that the Government are trying to take out of housing benefit or the overall £11 billion from the welfare budget, I would risk incurring your wrath, Mr Amess. I would also risk that if I were to point out some of the actions of the previous Government in relation to the medical tests that disability living allowance claimants were forced to go through. The coalition Government, supported by the Liberal Democrats, tell us that things will become even harsher for DLA claimants, so our discussion of minimising avoidance of corporation tax is absolutely relevant.
Stewart Hosie
May I ask the hon. Gentleman to put a number on that? What is his estimate of the value of lost revenue yield as a consequence of the 12,000 Revenue staff lost under the previous Labour Government?
Clive Efford
The hon. Gentleman makes a point that I could repeat. Cutbacks in Her Majesty’s Revenue and Customs staff make more distant the target of maximising the amount of tax taken. He may have joined me on the odd occasion when I voted against the previous Government, so we have been on the same side of such arguments from time to time. Some of us are sinners turned saints, and even as a loyal Labour Back Bencher, I might agree with elements of the criticisms of the previous Government.
We have been given instruction in tautology on the question of avoidance and evasion, but we are quite clear that we are talking about people whose actions are not within the rules. We need to ensure that action is taken so that they pay their fair share, because clearly, the increase in taxation—the VAT increase and other measures—and the cuts will hit the poorest in our communities first. That is why it is absolutely essential that we have discussions such as the one instigated by my hon. Friend the Member for Hayes and Harlington.
Mr George Mudie (Leeds East) (Lab)
Does my hon. Friend agree that it would be a shame to let this debate go by without mentioning the activities of Barclays bank, and particularly its capital section? The head reputedly earned £90 million a year. We should consider that amount of money, because that group was set up to find ways for companies to avoid paying corporation tax, or indeed any tax.
Clive Efford
My hon. Friend’s intervention needs no comment from me, other than to say that it is an excellent example of the sort of practices that we need to bear down on. We pay a plethora of accountants and financial advisers to advise on how to invest our money wisely, and that is a legitimate area of activity. It is right that people may order their finances within the rules to maximise their income, but if that becomes exploitation or unfair in terms of what people are contributing, we have to act. That is where the amendments that we have tabled on capital gains tax, which we will discuss later, come in.
The hon. Member for Dundee East (Stewart Hosie) mentioned the cut in tax staff, and if we are going to see substantial cuts in staff, it will make it even more difficult for HMRC staff to perform their task on whatever tax they are pursuing, be it corporation tax or any other.
The right hon. Member for Wokingham seemed to dismiss the issue of tax evasion, suggesting that we could pursue evaders until the cows came home, but they would never pay the tax so we would not be able to close the deficit by pursuing them. He then went on to talk about the difference between evasion and avoidance, rather than focusing on what we can do—as the people who scrutinise legislation—to ensure that the Government are delivering on their words in the Budget.
Mr Redwood
I wish to correct the record. I made it very clear that if a company were evading tax, we should throw the book at them and get the money back.
Clive Efford
My point is that that was the sum total of the right hon. Gentleman’s contribution on that subject. He then elaborated on other issues. The point is that the thrust of the amendment is evasion—people working the system in a way that breaches the rules and means that they do not make the contributions that they should make. Those are the people we should bear down on. In my intervention in his speech, he accepted that there was such avoidance, and that those people should be dealt with. It is how we scrutinise that that we are discussing now. It is the function of this House to hold the Government to account, and the amendment asks for a report to Parliament on what exactly the Government are doing.
I congratulate my hon. Friend the Member for Hayes and Harlington on his amendment, and I look forward to hearing what the Government have to say in response.
Gavin Williamson (South Staffordshire) (Con)
I shall try to be brief, as I was always told that brevity is a virtue. I am sure that many hon. Members will be brief in all their contributions this evening.
I pay tribute to my hon. Friend the Member for Lincoln (Karl MᶜCartney), who painted such a stirring picture of the city of Lincoln that most hon. Members will be hotfooting it there at the weekend if their constituency duties allow.
I listened with great interest to the hon. Member for Hayes and Harlington (John McDonnell), especially when he said that in his 13 years as a Member of Parliament taxation had never been simplified. I suggest that that is because of the 13 years of Labour Government during his time in Parliament; that is why the taxation system has got so complicated. To reduce tax avoidance we need to ensure that we have a simple and plain tax system. It might be a difficult concept to accept, but the less tax we have to raise, the less chance there is of having tax avoidance. It is beautifully simple, but beautifully true.
Stewart Hosie
The case for a simple tax regime is well made. Had the Government abandoned capital allowances and the annual investment allowance, that would have been simpler, but instead they just reduced and changed them. Can the hon. Gentleman explain how that simplifies the tax code in the way that he has described, rather than otherwise?
Gavin Williamson
I am obviously far below the pay grade of my hon. Friends on the Front Bench, but I am sure that they have great plans to make the tax system much fairer and more equal, right across the board.
One important thing that my hon. Friends have done is reduce corporation tax, which will help so many businesses. Most importantly, they have helped small businesses—it is often small businesses that have had the most difficult time over the past few years—which is something that I warmly welcome.
Gavin Williamson
The hon. Gentleman makes an interesting point, although more people becoming incorporated as limited companies will reduce the amount of tax avoidance from which people could perhaps benefit as sole traders.
Stephen Timms
I join others in congratulating the hon. Member for Lincoln (Karl MᶜCartney) on his maiden speech. He launched some important claims on behalf of his constituents. I was interested in the case that he made for reintroducing indexation and taper relief on capital gains tax. I suspect that these debates will gain a new currency, given the increase in the rate of capital gains tax that the Bill introduces. I also welcome the evidence of independent thinking that he showed the Committee today, and I appreciate, as many will, his generous remarks about Gillian Merron, who was certainly a very popular Member of the House, as well as a popular feature in the local press in the hon. Gentleman’s constituency.
I am grateful to my hon. Friend the Member for Hayes and Harlington (John McDonnell) for raising this issue. He has done us a service by raising some important points. I do not agree with his criticism of the previous Government in that respect, as I shall explain, but it is right that we should have this debate in this part of our consideration of the Bill.
I enjoyed listening to what the hon. Member for South Staffordshire (Gavin Williamson) said a moment ago. What he was saying, I think, was that he was expecting the new Government to simplify the tax system. Well, maybe, although I do not think that there is much simplification in the Bill. In fact, there is a major new complication, as we will see when we come to clause 2. For the first time ever, the rate of capital gains tax is being changed in the middle of a year. That is a significant new complexity that the Bill introduces. Although I am touched by his faith, I suspect that he might find himself somewhat disappointed as time goes on.
My hon. Friend the Member for Hayes and Harlington was right to pay tribute to the work of Richard Murphy and the tax justice campaign. I want to pay particular tribute to Richard Murphy for developing, and first arguing for, the idea of country-by-country reporting. We are debating the avoidance, and indeed evasion, of corporation tax, and of course, that is a matter not only for the UK but for developing countries on a large scale as well. Richard Murphy was the first person to argue that companies should report, on a country-by-country basis, the profits that they make in each country and the tax that they pay in each country, so that everyone can see if there is a mismatch between the two.
The previous Government supported that call, and I am pleased that the OECD is taking the matter up. I think that we are now going to see some progress on that front, thanks to Richard’s efforts. I note from his blog that he has been on the receiving end of some unwarranted online harassment recently on account of his work. I certainly wish him well in what he is doing. However, I am not entirely persuaded by his criticism, or that of my hon. Friend the Member for Hayes and Harlington, of the work of HMRC on the tax gap. As my hon. Friend rightly mentioned, however, it is inevitable that any estimates in this area will be uncertain because no one knows precisely what is being hidden from the tax authorities.
Narrowing the tax gap was an important priority for the previous Government, and I was grateful for the comments made by the hon. Member for Southport (Dr Pugh) and by the Minister in the debate on tax avoidance that was held in Westminster Hall on 14 June. In that debate, my hon. Friend the Member for Wallasey (Ms Eagle) set out the key elements of the progress that the previous Government had made on tackling the problem of avoidance. One of the initiatives that we took was to propose a voluntary code of practice for the banks, and I hope that the Minister will be able to tell us more about this when he winds up the debate. My hon. Friend the Member for Leeds East (Mr Mudie) mentioned one of the banks a few moments ago. The idea was that banks would sign up to the code of practice and, in doing so, would agree to stick not only to the law on the payment of taxes but to the spirit of the law as well.
Having listened to the arguments put forward by the right hon. Member for Wokingham (Mr Redwood), I imagine that he would be opposed to that initiative, because he would feel that it should simply be a matter of asking, “Are you or are you not complying with the letter of the law?” and that, if a problem arose, the Government should legislate to close the loophole. The problem with that approach is that we can get into an arms race, as we have certainly done on many occasions, in which the Government and Parliament agree on changes to the law and everyone knows perfectly well what they mean, but the banks then commission ingenious accountants to find ways round the spirit of the law, even though the letter of the law is being complied with. If we were to stick with the approach for which the right hon. Gentleman is arguing, Parliament would then have to close the loophole, perhaps a year later, and the circle would continue to go round. He made an interesting case, but we have to find a way of breaking that vicious circle, because huge amounts of money are being spent by taxpayers and by HMRC, and, in the end, nobody benefits.
Mr Redwood
The right hon. Gentleman is quite right to say that there can be an arms race, but would he also acknowledge that, while quite a lot of companies accept that they need to pay a fair whack of tax, there are many judgments involved? Those companies seek advice on that judgment, but they do not always get the same advice as HMRC. It is not that they are all trying to cheat the taxpayer; these are complicated matters and a view needs to be taken on cost overhead allocation, transfer prices and so on. Judgments are reached and the Revenue disagrees, but these are judgment matters, and this subject is not easy to handle.
Stephen Timms
The right hon. Gentleman is absolutely right about that. I entirely accept that that often happens, but I hope that he will accept that there are also people who commission very highly paid accountants to find ways of getting round the law. Everyone involved in that practice knows perfectly well that they are going against the spirit of what Parliament intended, and that is the kind of damaging avoidance that we need to bear down on.
Kwasi Kwarteng
Clearly, we have laws, but people are also going to try to pay the minimum amount of tax that they can. That is an entirely rational thing for them to do. It is our job to frame the laws as simply as possible, so that there are no loopholes. As my hon. Friend the Member for South Staffordshire (Gavin Williamson) pointed out, because there is so much more complication in our tax system, there are far more opportunities for loopholes. Surely the way to tackle the problem is to simplify the tax code, rather than pursuing people through the law courts or making the code even more complicated.
Stephen Timms
I am happy to subscribe to the view that the tax code should be as simple as possible, and I look forward to the new Government introducing measures along those lines. Simplicity is certainly a virtue, but, as I have said, those who are pressing for such measures might find that they have a rather longer wait than they would have liked. Let me also make it clear, in agreeing with my hon. Friend the Member for Hayes and Harlington, that there is absolutely nothing wrong with tax planning or with people ordering their affairs in a sensible way from a tax point of view.
Mr Mudie
I thank the Minister for giving way. I am sorry, I should have said “the shadow Minister”—old habits die hard. Does he recall that it was reported last year that the majority of the top 100 companies paid no tax whatever? That was not a matter of the tax system being complicated; it was a simple matter of their going to enormous lengths—working with the worst culprit, Barclays bank—to devise systems and work through offshore companies to avoid paying any tax. Do not Members on the Government Benches get angry that ordinary people work hard and pay their taxes while multinationals and other large companies go to extreme lengths to pay no tax whatever?
Stephen Timms
My hon. Friend is absolutely right. There are some flagrant examples of that, not least in the banking sector. Indeed, some of those examples were very well documented in the excellent series in The Guardian earlier this year. I would particularly welcome an update from the Minister on the progress of the voluntary code of practice for the banks, which could be an effective way of tackling the problem that he is dealing with.
Andrew George
Of course we all agree that we should seek the holy grail of a more simplified tax system, but what assessment did the right hon. Gentleman make of the announcement of 12,000 job cuts in HMRC, which we have discussed, and particularly of the breaking up of the compliance teams that were scrutinising the very areas of tax avoidance and tax evasion that we are now debating?
Stephen Timms
HMRC, for which I was responsible, has a very difficult task on its hands. I was persuaded, and remain convinced, of the case for HMRC being able to discharge its functions a good deal more efficiently in the future, thanks to the use of new systems and to a reorganisation into larger groups. In the past, HMRC was characterised by lots of offices with not very many people working in them. It is now clear that that was not very efficient or effective, and I think that the reorganisation will help. There is no escaping the fact that it has a tough job to do, but I think that it is setting about it in the right way.
The financial crisis since 2008 has led to a big shift in the approach to tax evasion and tax avoidance. Following the crisis, the previous Government made certain that the UK was at the forefront of the drive for change. Internationally, there was recognition that a lack of transparency in the international financial system had presented previously unrecognised but nevertheless significant systemic threats to the global financial architecture, that those threats had to be dealt with and that progress had to be made quickly. In the forum of the G20 and in the aftermath of the credit crunch, good progress was made, but that momentum needs to be maintained. I hope that the Minister will set out for us today how he sees it being maintained.
Gavin Williamson
In 1997, we had the 11th lowest rate of corporation tax, whereas in 2010 we have only the 23rd lowest. Does the right hon. Gentleman believe that that might have some impact on corporation tax evasion?
Stephen Timms
I believe that it is important, as the previous Government made clear was their continuing intention, to have the lowest rate of corporation tax in the G7. That is why we reduced corporation tax when we were in government, and when we come to debate the rate, as we will in a few minutes’ time, I will press the Minister to reiterate on behalf of the present Government the commitment that was made and indeed fulfilled by the previous Government—to have a competitive corporation tax regime.
Gavin Williamson
When global companies are looking across the globe to where they should locate their headquarters, is the right hon. Gentleman not concerned that we slipped so far down the rankings under a Labour Government?
Stephen Timms
No, we were successful in maintaining a competitive business tax system in the UK. It is true, of course, that if a company goes to Ireland, it will pay a much lower rate of corporation than it would in the UK, but that rate of corporation tax in Ireland is lower than in any G7 country. Our commitment was to keep the UK’s corporation tax rate the lowest in the G7, and that is what we successfully did. It was important that we did so.
There is debate about whether the £40 billion figure is correct. I believe that HMRC did a serious and careful analysis. I also think there should be more discussion with people such as Richard Murphy. I believe his figure for the tax gap on corporation tax was about £12 billion—not vastly more than the £9 billion or so in the HMRC figure. Richard Murphy also makes the point that there is uncertainty—perhaps more uncertainty—about that figure than some of the others that he estimates. Continuing discussion between people such as the tax justice campaign and HMRC is important so that we make these figures as accurate as possible. I very much hope that the Minister will confirm that it is his intention regularly to update the analysis that has been published, to be frank and robust in publication and to discuss the issues with the tax justice campaign, which takes a different view, and the TUC, which has also taken a close interest. Ultimately, it is in everyone’s interest to have the best possible information available. I hope that the Minister will reassure us on that.
Matthew Hancock (West Suffolk) (Con)
The right hon. Gentleman has just admitted that since 1997, in respect of avoidance or evasion of corporation tax, the tax gap was reduced by only £3 billion. Does he not agree, then, that it is wrong to go around the country telling people that the entire deficit could be dealt with if we just got to grips with this one issue? It is, of course, important to get to grips with it, but it will not on its own resolve the deficit. Is it not wrong to tell people that it could?
Stephen Timms
I am sorry if I misled the hon. Gentleman into thinking that the figure was reduced by only £3 billion as result of the previous Government’s efforts. I did not say that at all. I would be happy to go through in more detail the efforts of the previous Government on this issue, but the crucial initiative was the disclosure regime, which we introduced in 2004 to great howls of protest, yet it has undoubtedly saved many billions in tax that would otherwise not have been collected. The total figure is certainly a great deal more than £3 billion. As to whether addressing this problem could be the sole solution to the problem of the deficit, however, I agree that it could not.
Stewart Hosie
The shadow Minister makes a point about the success of the disclosure scheme. It has been successful, but does he now regret not implementing a pre-commencement validation system with the Revenue before such avoidance schemes were put in place rather than a post-commencement disclosure, when the money has to be clawed back through retrospective legislation? Is it not better to avoid any avoidance happening in the first place?
Stephen Timms
The hon. Gentleman, who knows a lot about these matters, is right that this is one of the subjects that will have to be considered in looking at a general anti-avoidance rule. The problem, I think, is HMRC having to respond quickly to potentially huge numbers of pre-clearance requests of that kind, which would be a massive additional burden. If I were in the Minister’s shoes, before going down that road, I would press very hard for some cast-iron assurances on the part of HMRC that those clearances could be provided quickly. The problem is that a lot of new bureaucracy would be required.
Stewart Hosie
I understand the argument and I have heard it before—last year, in fact. I welcome what the shadow Minister is saying, but given the concept of promoters or introducers of these schemes—effectively a clear register of people who might engage in this kind of activity—might it not now be easier than it would have been even two or three years ago?
Stephen Timms
I think it would still be difficult, complex and cumbersome. A judgment will have to be made about whether it is the right thing to do—effectively, the benefit of reducing avoidance would have to be worth the additional complexity. I am sure that this debate is still to come.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Before responding to amendment 11, I would like to thank my hon. Friend the Member for Lincoln (Karl MᶜCartney) for making his maiden speech earlier. He is rightly proud to represent that fine constituency, and I am sure that his constituency will be rightly proud of him. I hope he represents his constituency for many years to come. I will deal with the issues he raised about capital gains tax—as already noted, he shows great independence of mind on this point—when I respond to a later grouping of amendments.
I am very pleased to see the right hon. Member for East Ham (Stephen Timms) back at the Dispatch Box. It is good to see him returned here and I hope he is returning to good health. He is certainly a formidable person to face on the other side of the Dispatch Box, as he has great expertise and experience in this particular subject. He was a highly popular and effective Minister, performing the same role as I now perform. His are big shoes to fill and I am sure that there will be plenty of disagreements in the months ahead, but it is none the less a great pleasure to see the right hon. Gentleman back, well and in good form.
Amendment 11 seeks the publication of a report assessing corporation tax avoidance and evasion and setting out measures to ensure the payment of tax before the reduction in the main rate of corporation tax can be applied. The Government are committed to a competitive corporation tax rate, which will show that the UK is open for business and encourage growth. The amendment is narrowly focused on the role of evasion and avoidance, so I shall explain later and in more detail our reasons for the more general changes proposed.
Terminology was a large part of the debate on the matter. As we have heard, tax evasion occurs when someone acts against the law. Tax avoidance involves compliance with the letter but not the spirit of the law, and it is right that the Government seek to minimise that. Tax planning is a case of acting in both the spirit and the letter of the law. There is a distinction, although there will be occasions when the line is a little blurred.
The Government are committed to tackling robustly avoidance and evasion, which undermine the effectiveness of the tax system, distort competition and increase the burden of taxation on those who do comply with the spirit and letter of the law. The emergency Budget clearly sets out the Government’s strategic approach to reducing tax avoidance and evasion. As a number of my hon. Friends have pointed out, some matters relate to how we make tax law, and to ensuring that tax law has as much clarity as possible. At the time of the Budget, we produced a well-received publication setting out a more deliberative and consultative way to make tax law.
There is also a strong case for a more simplified tax code. Too many allowances and reliefs and too much complication within the tax system provide opportunity for tax avoidance, which we seek to address. We will address long-standing avoidance risks, and I have announced an informal consultation on the introduction of a general anti-avoidance rule. I appreciate that there are arguments on both sides, some of which we heard from the right hon. Member for East Ham. We will ensure that we make changes in the law in a way that prevents increasing complexity and reduces the need for frequent legislative revisions. We will also ensure that we build in sustainable defences against avoidance opportunities when undertaking policy reform. The Government have already closed specific loopholes to prevent the avoidance of corporation tax, and clauses 8 and 9 protect about £200 million of tax revenues per year.
The Government fully support the type of transparency for which the hon. Member for Hayes and Harlington (John McDonnell) calls in his amendment. As others have pointed out, that form of transparency already exists. The right hon. Member for East Ham pointed out that HMRC has published an assessment of corporation tax avoidance and evasion, although it deals with not just corporation tax but tax across the board. In December 2009, HMRC published the document, “Measuring Tax Gaps 2009”, which estimated the overall tax gaps across HMRC’s regimes for the first time. Alongside that statistical release, HMRC also published estimates of the tax gap by behaviour, including avoidance and evasion, as well as the actions being taken to reduce the gap. As we have heard, HMRC’s estimate for the tax gap as a whole is £40 billion, and the definition includes evasion and avoidance, debt and legal interpretation—as my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, there are sometimes disputes between two parties, both acting in good faith.
Mr Redwood
My hon. Friend reinforces my point: avoidance covers a variety of different things. In this case, it seems to cover conduct that a Government are trying to encourage, as well as conduct that a Government are trying to repress or stop. That is why the House needs a little more humility instead of rushing into saying, “There’s all this tax being avoided.” Some of it is being avoided for reasons that the previous Government approved of.
Mr Gauke
I am grateful to my right hon. Friend, who brings me to my next point.
The Government see the distinction between tax avoidance and tax planning, but those lines can be blurred, and sometimes use of the terminology is not as accurate as it might be. For example, I quote the “Missing Billions” report, produced for the TUC, which, after setting out a series of numbers leading towards the estimate for corporation tax avoidance, states:
“Much may be due to legitimate tax planning, but by no means all is. Some, undoubtedly, is due to tax avoidance.”
That seems to me to suggest a slight blurring of the lines. Again, I am sure that I will be corrected in Mr Murphy’s blog if I am wrong, but there does appear to be some confusion.
I am not suggesting that tax avoidance and tax evasion do not matter. The £40 billion figure is significant. However, it is also true that we cannot pretend that if we just address this problem, the deficit will go away. Although it is always tempting for a new Minister in a new Government to attack everything that happened before, I must point out—not purely out of fondness for my predecessor, the right hon. Member for East Ham—that, in international terms, £40 billion is not too bad as a percentage of tax revenue raised.
HMRC does not do particularly badly. Indeed, it tends to lead the field in this respect. Nor has it deteriorated during a period in which it has incurred substantial job losses, as a number of Members have pointed out. I believe that it employed 97,000 people in 2005, and the most recent figure is 69,000. It is a question of deploying resources as effectively and efficiently as possible.
None the less, to the extent that it is possible to go further in reducing evasion and avoidance, the Government are keen to do so, and I have set out some of the ways in which we intend to do so. I can tell the hon. Member for Hayes and Harlington that we already assess the amount of tax lost through avoidance and evasion, and that we are committed to reduce those losses as much as possible. We will also continue to publish the tax gap figures as frequently as possible, to provide a focus for HMRC and to ensure that our debate is well informed.
I hope that what I have said gives some reassurance to the hon. Member for Hayes and Harlington. Let me also remind the shadow Minister that HMRC introduced a banking code of practice in 2009, and HMRC’s annual report will provide anonymised statistics on the number of banks that have adopted it. We believe that the code encourages banks not to enter into, or be party to, avoidance arrangements, but we will of course continue to monitor and review its operation.
John McDonnell
I am grateful for the Minister’s assurance that information on the tax gap will continue to be published, but my amendment also deals with when it will be published, and asks for further information to be given on the measures that will be taken to tackle the problem.
Mr Gauke
The hon. Gentleman’s points have been noted. Today’s debate is the second on this matter in which I have taken part in my present post—the first was in Westminster Hall—and I am well aware that it is of considerable concern to Members on both sides of the House. It has also featured heavily in Treasury questions, which will take place again tomorrow. Who knows? There may be a question on this very subject then.
The hon. Gentleman is right to hold Ministers and HMRC to account in regard to how we seek to reduce the tax gap. The Government are taking the matter seriously, and, in the spirit of transparency in which we operate, we will provide as much information as we can so that our debate is as well informed as possible. In the light of that assurance, I hope the hon. Gentleman will accept that the amendment is not necessary and will withdraw it.
John McDonnell
I think that the debate has been helpful to Members on both sides of the Committee. An attempt has been made to get out of the trenches, and to engage in a wide-ranging discussion of how we can proceed in a pragmatic way. I believe that this will become one of the key issues that people will expect us to address as the economic crisis continues. If they see public expenditure cut so that their local schools are not refurbished, and if they see a tax on welfare benefits, they will expect us at least to maximise the revenue from the tax that people and organisations should be paying. Justice and fairness in the taxation system will become critically important to more and more people.
Some of the arguments that we have heard today have been very helpful, and at times they have been entertaining. I am fascinated by the concept that reducing taxation reduces evasion and avoidance: that is almost an argument for no taxation at all, although it may not gain much purchase in the House. We all accept the arguments about simplicity, but the problem with simplicity is that it makes loopholes possible, and we then need complexity to tackle the loopholes. It is a circular problem. However, it is a joint venture for us to try to ensure that the legislation that we draft is appropriately simple.
Kwasi Kwarteng
What was said was that simplicity aided the avoidance of loopholes, and that complexity led to more loopholes. The hon. Gentleman has just contradicted that.
John McDonnell
I was talking about what had been experienced in the past, but we can all sign up to the pious statement that we will achieve as much simplicity as possible. I merely say on the basis of practical experience in the House that, unfortunately, when we have sought simplicity, people have argued for further complexity to tackle the loopholes. However, we will all aim for simplicity, and the onus is on us to try to draft legislation in a way that achieves it.
I welcomed the Minister’s statement about the continuation of, and consultation on, the commitment to the anti-avoidance rule, but I hoped that at some stage a future report from Government would enable us to engage in a wider debate on how we could install in legislation the duty to comply more simply and effectively. As my right hon. Friend the Member for East Ham (Stephen Timms) pointed out, the issue that arises time and again is the ingenious use of devices to avoid the spirit of the law. In other contexts, we draft legislation in such a way that when a device appears it can be seen to be a device, which is patently against the spirit of the legislation and whose effect can therefore be outlawed. I also welcomed the wider debate on the anti-avoidance principle to be installed in legislation.
This has been a helpful debate. I leave the Minister to the savagery of Richard Murphy’s blog: I am sure that Mr Murphy will respond to each of the points that he raised. Let me make this point, however: whether the tax gap is £40 billion or £120 billion, when people out there are experiencing cuts in public services and reductions in their pensions and are having to work for longer, they will expect us to collect those taxes. The subtle distinctions between evasion and avoidance will be lost on them. They will expect the House of Commons to produce legislation ensuring that HMRC is sufficiently staffed and sufficiently resourced to bring in the tax, and to deal with the significant part of the deficit that we have identified in the past few weeks.
On the basis of the assurances that we have had from both Front Benches of co-operative working on this issue, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment 21, page 1, line 6, at end add—
‘(2) The main rate of corporation tax for financial year 2011 will remain at 28 per cent. on the profits of banking institutions as defined by section 2 of the Banking Act 2009.’.
The Temporary Chair (Mr David Amess)
With this it will be convenient to discuss the following:
Amendment 34, page 1, line 6, at end add—
‘(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.’.
Amendment 50, page 1, line 6, at end add—
‘(2) This section shall not come into force until the Treasury has laid before the House of Commons as assessment of the impact of this section on—
(a) the banking sector, and
(b) all other sectors to which corporation tax applies.’.
Chris Leslie
My amendment is quite simple. It does not seek to alter the rate of corporation tax suggested in the Budget, except in one respect: it should not apply to banks and banking institutions. Surely few issues can highlight the unfairness and injustice of the Government’s Budget more effectively than the suggestion that, of all the sets of institutions that should benefit from more advantageous tax arrangements, the banks should be given such a windfall at such a time.
I was prompted to table the amendment by a flurry of reports that appeared immediately after the Budget statement, suggesting that the banks would be net beneficiaries. Deutsche Bank analysts were reported as saying that the Budget was a “good outcome for banks”, and John-Paul Crutchley, an analyst at UBS, expected that Lloyds and HSBC would benefit by 2012 as a result of, particularly, the cut in corporation tax.
We must look at this measure in the context of the other Budget provisions. While the Finance Bill is, I suppose, substantial to a degree, it addresses only one short set of Budget measures that presumably will be brought before the House in different Bills at different times in the coming year, and it is a shame in a way that we will not get a chance to address this corporation tax measure in that wider context. I do not think any Members are opposed in principle to the banking levy that the Chancellor announced, although many might question whether it is tough and stringent enough.
Mr Kevan Jones
Does my hon. Friend agree that this cut will be unfair to small businesses in that while the major banks that got us into the financial mess two years ago will benefit from it, many small and medium-sized businesses will have to pay for it through the cut in the annual investment allowance from 2012?
Chris Leslie
Indeed, I think there is a set of unfairness issues that affect not only public services and our constituents, but business to business. Many small businesses will be incredulous at this giveaway to the banks, which are having their corporation tax cut. HSBC’s own banking analysts agreed that they would be better off. One of them was quoted in the media as saying:
“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-Budget.”
Analysts at Redburn Partners said that Lloyds in particular would see a 3% rise in its earnings per share by 2012, especially as corporation tax is planned to be reduced to 24% over time. The measures in this Bill make only a 1% change in that tax from 28% to 27%, but as the years pass the banks’ gains clearly will accrue and become even greater.
It was no coincidence that the share prices of some of our leading banks leapt after the Budget statement, even though, paradoxically, it included a banking levy that they supposedly feared. Lloyds shares gained 2.7% the morning after the Budget, and others were similarly jumping for joy. The Daily Mail—a journal of great repute—reported that a city insider was privately very happy, saying that
“some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly.”
It will be for the Minister to defend this measure of course, and I look forward to hearing him explain why, of all institutions, the banks deserve this windfall at this time.
The interplay between the banking levy and the impact of the corporation tax cuts must be at the heart of our considerations this afternoon, and I am glad that my Front-Bench colleague my right hon. Friend the Member for East Ham (Stephen Timms) and the hon. Member for St Ives (Andrew George) have tabled amendments that also seek to probe that issue. My amendment would have the effect of not passing on the corporation tax cut, and theirs’ would insist that at the very least the Treasury conduct a review of these matters.
My concern remains that the banking levy was set at far too low a rate—starting at 0.04% and rising to the heady heights of 0.07%. I gather that might even be about half the level at which the Americans set their banking levy. The notion that this was all done internationally at the same level is absolutely not the case. For some bizarre reason, the Chancellor really held back. He made great play of this levy in the Budget statement because he knows the general public are angry about the situation the banks have left in this country. They are furious that the banks were the source and cause of many of our national debt problems and the deficit we face today. I am glad that the Government say at page 26 of the Red Book that they will consult on the final details of the banking levy, and I urge the Minister to think carefully about how that levy will play in relation to the corporation tax reduction, because if the banks are gaining from that, it must be possible to ensure that they pay their fair share at some point .
Matthew Hancock
Does the hon. Gentleman regret his party’s position before the last election, which was that we should not have a banking levy unless everywhere else in the world signed up to it? Does he therefore applaud the current Government’s leadership in unilaterally putting forward a bank levy?
Chris Leslie
I may be wrong, but it is my recollection that a number of countries simultaneously came out with their banking levy arrangements, on the continent as well as America, and it was, of course, the natural point at which to introduce a banking levy. It is a matter of nuance whether we get a collection of large industrial countries to act simultaneously or we act on our own as a country, but I think it is necessary to have a banking levy that recoups all the payments that the banks took from our taxpayers.
Mr Kevan Jones
My hon. Friend refers to page 26 of the Red Book, which states at paragraph 1.63 that
“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage banks to move to less risky funding profiles.”
The paragraph concludes by saying:
“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
Does my hon. Friend agree that that actually supports his amendment, in the sense that we should not take decisions on the banks’ corporation tax rates before this levy is introduced?
Chris Leslie
I could not agree more. It would not be in order to stray too far from the topic of corporation tax, but it is important that we see this change in context. It appears that the Chancellor press-released the fact that he was taking, in some brave measure, an amount of money from the banks through the banking levy, but failed to publicise that he was also giving that back with the other hand through the reduction in the corporation tax rate.
We are talking about significant and serious amounts of money, and the Minister ought not to be so careless with this revenue as it is needed to repair our deficit and to protect our public services. I am very surprised that the Treasury did not take action to plug this loss of revenue, but chose instead to apply the reduction in corporation tax across the board.
We must not forget that the banks have already benefited from an enormous amount of largesse from the taxpayer more widely. The Royal Bank of Scotland and Lloyds Banking Group had £76 billion of their shares bought by the taxpayer. The Bank of England had to be indemnified against losses incurred in providing more than £200 billion of liquidity support. There have been guarantees of up to £250 billion of wholesale borrowing by the banks to strengthen liquidity. Also, £40 billion of loans and other funds were made to Bradford & Bingley and the Financial Services Compensation Scheme. There was insurance cover of more than £280 billion for bank assets as well. These changes were not unnecessary at the time; they were absolutely vital as a way of ensuring that our banking system—our credit system—did not collapse entirely.
Had the coalition parties been in power at that time they would have had to fulfil exactly those same commitments, assurances and undertakings to make sure that our banking system did not collapse. That is why it infuriates so many members of the public to hear Members on the Government Benches claiming that that was a partisan cause or that our spending such a large share of our national income on public services is the real cause of our deficit, when in fact responsibility lies squarely at the feet of our banking sector.
Mr Love
May I correct something my hon. Friend has said? Most of the measures the previous Government introduced to safeguard the financial system were in fact opposed at the time by the Conservative party, although it appears to have changed its mind. I also want to ask about the public concerns about the widespread reports from banking spokespersons in respect of this supposed levy. They are suggesting that there will be an opportunity during the consultation to weaken the legislation and reduce the amount of tax they pay. Does my hon. Friend deprecate such projects, and will he try to ensure that the Government stand firm against any such thing?
Chris Leslie
That is entirely so. Those with significant financial wherewithal—the corporate advisers, the consultants, the accountants—are always exceptionally adept at lobbying Ministers and making their points in their detailed ways, often with the general public entirely unaware that such measures are being put in place to their advantage. Clearly, the banks have been very aggressive in lobbying for these changes. It appears they may well have been successful in watering down the banking levy, while at the same time gaining benefit from this corporation tax change.
The Minister may argue, “Ah well, some of our banks made very significant losses in previous financial years, and because of the complexities of our corporation tax law, companies have certain rights to recoup some of those losses from the corporation tax they paid previously.” In my view, the banks should also be excluded from making such claims—or at least, their ability to do so should be lessened. I was unable to frame my amendment in that way—that takes a certain level of drafting—but we must ensure that the Treasury does not allow the exceptionally clever and highly paid advisers whom the banks can employ to find their way round the provisions and take even more money from the taxpayer.
Mr Kevan Jones
Reference has already been made to Barclays, whose full-year profits increased, I understand, by 92% in 2009 to stand at some £11.6 billion. Does my hon. Friend agree that Barclays will also gain from what is now proposed?
Chris Leslie
That is especially true over the longer term, and, as I was saying, although clause 1 refers only to the financial year 2011-12, the Government clearly intend to go even further even faster.
There may well be a case for saying that all companies need to be treated the same and that it would be wrong to discriminate against a particular class, and the Minister may argue that there are other sets of corporations—large oil companies, the privatised utilities and so on—that the public would frown on if they regained a corporation tax benefit, for example. In my view, the public are getting wise to the cause of the reduction in public spending, some of which, naturally, is driven by Conservative party ideology. However, the reductions that are driven by the existence of the deficit are largely the result of the costs incurred in bailing out the banks and the subsequent recession. Because of the lack of credit available in the wider economy, we had fewer tax receipts. In fact, the real story of the deficit is not that we are spending so much on public services, but that tax receipts are considerably lower.
Ian Lucas (Wrexham) (Lab)
Is my hon. Friend as confused as I am by the Government’s trumpeted aim of rebalancing the economy, while at the same time they introduce a corporation tax cut such as this, which favours companies across the board—from retail to banking—but not manufacturing? In fact, the capital allowances scheme actually penalises manufacturing companies. Does not the generality of the Government’s approach contradict their own headlines?
Chris Leslie
Indeed. This is a very perplexing set of Budget measures and if we have the chance to debate clause 1 stand part, there are a number of other questions we might want to probe the Minister on. For instance, why, inexplicably, are the reductions in the “small profits rate” of corporation tax not in the Bill? It seems that the Government are very adept at putting at the head of the queue the large institutions that will bleat and shout the loudest. It is incredible to me that the Government are giving priority to those institutions, which should be more contrite and should contribute a fair share. It is the concept of a fair share that eludes both the banks and the Government.
Andrea Leadsom (South Northamptonshire) (Con)
Is the hon. Gentleman confusing a healthy banking sector that can contribute to the regeneration of a healthy economy with the issue of banks paying bonuses? I do not see what reducing the headline rate of tax that banks pay, which inevitably leads to healthier balance sheets and greater ability to lend to companies and is good for our economy, has to do with what I think he is talking about, which is the banks’ payments to themselves. I see those two issues as being very different. Perhaps he can explain.
Chris Leslie
I am grateful to the hon. Lady who, I am sure, would have wanted to declare an interest had she been in her previous guise. I understand that she was previously employed in the banking industry, although I may be wrong and I do not want to disparage her in any way. However, it is important to know.
Chris Leslie
I just wanted to place the hon. Lady’s comments in their particular context.
It is certainly true that the general public have a distaste for the excessive bonuses and remuneration of those in the banking industry, but such remuneration would not be possible were it not for the high profit rates that the banks were able to post and report on so many occasions. We are indeed all shareholders in many ways—either directly, or indirectly through our pension funds or as taxpayers—and Members on both sides of the House will hope that, over time, the banks will be returned to some level of normalcy. However, necessarily, they must not, as institutions, evade—or avoid; I want to use the correct parlance—paying their fair share.
Mr Kevan Jones
It is not just the general public who feel that way. On 20 April 2010, the now Deputy Prime Minister—I think he and his party are still one and the same—called bankers “reckless and greedy”, saying that they have been allowed to hold a gun to our heads.
Chris Leslie
My hon. Friend is right. Before the general election, there was a lot of tough talk and rhetoric from both Conservatives and Liberal Democrats. Indeed, The Sun—a journal of great repute—said on 20 March that the then Leader of the Opposition
“singled out the banking industry as one example of ‘vested interests’ he is determined to confront and who he accuses Prime Minister Gordon Brown of failing to stand up to. ‘We had the biggest bank bail-out in the world. We can’t just carry on as if nothing happened’”.
I am afraid we may well be carrying on as if nothing had happened, especially if the banking levy is offset by this giveaway in corporation tax.
Chris Leslie
I would not want to set the hare running across the City of London that the long arm of the law is necessarily about to grab them on the shoulder, but I understand the frustration and anger of the British public more widely, and all politicians in this House should be angry. While it is fun and games for the Conservatives and Liberal Democrats constantly to say, “Ah well, it was the Labour party that left us in this predicament”, they know very well that the root cause was the greed and excess of the banking sector, which ought to pay its fair share.
Andrea Leadsom
The banking sector is far from being given a free ride by this Government. We are absolutely not going to allow it to get away with past transgressions—far from it. In fact, it is this Government who are going to restore banking supervision and lender-of-last-resort powers to the Bank of England. The tripartite system that Labour put in place, and which led to some of the failings of the banking system, was a key mistake. This Government are not going to ignore those issues. We also have a commission to look at competition, which is key, because we have to re-establish fair competition in our banking system and get rid of the tendency towards ever larger and more consolidated banks. I agree, in part, with the hon. Gentleman, in that we have to take the banking system seriously, we have to improve it and we absolutely have to make it more competitive. However, I do not agree that we should consider a differential rate of tax, as that is simply uncompetitive.
Chris Leslie
The hon. Lady makes her case. We can all, in hindsight, say that regulatory improvements should clearly have been made. The British Government could claim that work should have been done to ensure that that was the case in America, in every country in Europe and all the around the world. It is absolutely true to say that the whole worldwide banking system ought to have been more closely regulated, but that was the first time I have heard a Conservative Member defend the reduction in the corporation tax rate—that is the specific measure that we are discussing. There may be a need to debate the regulatory changes that should apply to the financial services industry—I look forward to those proposals being made—but I still do not understand her argument about anti-competitiveness. It is important to hear why the Government believe that the banks deserve this particular cut.
Mr Kevan Jones
The hon. Member for South Northamptonshire (Andrea Leadsom) has just said that we should not have a differential rate of tax, but may I again cite paragraph 1.63 on page 26 of the Red Book, which comments on the introduction of the banking levy? Its final sentence says:
“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
Is that not exactly what we are going to see here?
Chris Leslie
Quite, and this is important. We could send a signal from this House that we, as politicians and representatives of the general public, believe that that particular industry has to pay back the cost it is has left upon the shoulders of the general public. Is it not always the case that the general public—the ordinary working people—have to dig us out of the hole created by those affluent and comfortable individuals who work in the banking system?
Clive Efford
I am grateful to my hon. Friend, because his probing is uncovering who is winning the arguments on the Government Benches. The Liberal Democrats went into the election calling for a 10% levy on banks, but the outcome is that what has been raised in the levy has more than been compensated for by the corporation tax cuts. We are seeing who is winning the arguments on the Government Benches on making the banks pay their fair share.
Chris Leslie
That is the case, and we have seen the glee with which the banking industry reacted after the Budget to this puny banking levy of less than 0.1% on the banks’ profit and asset base.
Chris Heaton-Harris (Daventry) (Con)
A few moments ago, you were talking about the banking industry that had received the “largesse” of the taxpayer, but your amendment deals with the whole banking industry, which includes those banks that did not come to the Exchequer asking for a bail-out. How do you differentiate between the two? Or are you quite happy just to nail the whole thing?
The Temporary Chair (Mr David Amess)
Order. It is “the hon. Gentleman”, not “you”.
Chris Leslie
The hon. Gentleman makes a fair point. I have tried to define “banking institutions” by referring to the Banking Act 2009. I believe that I would thus exclude the building societies and other more mutual, co-operative institutions that I would not regard as being as culpable as the plc-based financial institutions. Irrespective of whether a particular bank received a direct sum from the taxpayer, all those banking institutions benefited from the implicit and implied safety net that the taxpayer provided. Were it not for that underwritten implicit guarantee, banks such as Barclays and others would have been in significant trouble. They may not have taken the handout themselves, but had the markets not felt that the Government of the day were prepared to act were they so requested or had it been necessary to do so, all those banking institutions would have been in an entirely different position.
Ian Lucas
I commend my hon. Friend’s response, because he has just said exactly what I was going to say about the fact that the whole sector, including those organisations that did not receive direct investment from government, benefited from the decisive action taken by the then Labour Government, which, I repeat, was vociferously opposed by the Conservative party.
Chris Leslie
That is absolutely the case, and it perhaps betrays the enlightenment of Government Members on this particular issue. Each and every one of them who votes against my amendment, or even against the other amendments on the Order Paper, will need to go back to their constituents tonight and explain why they feel that the banking institutions deserve this handout. This is an incredibly important point and it is very useful to have the chance to debate it.
Mr Edward Timpson (Crewe and Nantwich) (Con)
I have been considering the hon. Gentleman’s amendment carefully and listening to what he has had to say. What I really need to hear from him is whether he has assessed its impact on the competitiveness of banking institutions in this country and on this country’s competitiveness in terms of attracting banking institutions to the UK to do their business? Without such an assessment it is difficult to know whether his amendment is going to do what I hope it would do.
Chris Leslie
I am delighted that that hon. Gentleman is thinking about supporting the amendment. That is incredibly important and a good step forward. I genuinely welcome his support this evening, because this could be a close-run thing. I have made an assessment, as far as I can as a humble Back Bencher. My assessment is that there are hundreds of millions of pounds at stake here that the banks could be gaining. However, I also support the amendments grouped together under this clause. We need the Treasury to undertake an urgent assessment. If the Minister says that he accepts the principle of my amendment but that he wants to do more work on it to get the details right, I would, like him, be happy to consider my position on pressing this amendment.
Matthew Hancock
Does the hon. Gentleman have any evidence to suggest that the reduction in corporation tax on banks would offset the £2.5 billion to be raised by the bank levy?
Chris Leslie
Yes I do, and at the outset of my comments, I quoted a series of highly professional and well-respected analysts from across the City of London. They were saying that this was a “good outcome”, that there would be “a feeling of glee” about the Budget measures, and that they expected
“most domestically-orientated banks…to be better off after four years”.
It is important to remember that the £2.5 billion supposedly gained from the banking levy is obtained only as it progresses to years four or five. At the outset, it generates an exceptionally small amount of revenue—I believe the figure is less than £1 billion.
Matthew Hancock
Can the hon. Gentleman supply any evidence that the corporation tax cut is larger than the £2.5 billion to be raised by the bank levy, because none of the things that he read out was evidence of that?
Chris Leslie
If some analysts, who on the secondary evidence before me are saying publicly that they believe that the corporation tax—
Chris Leslie
If they are saying that the corporation tax cashback, as my hon. Friend says, will offset the levy, perhaps by less than the banking levy or perhaps by more, then I think this would be wrong. It sounds as though the hon. Member for West Suffolk (Matthew Hancock) is defending the cashback arrangement that he wants to implement—[Interruption.] The hon. Gentleman says he is in favour of cutting the corporation tax rate for the banks. Government Members will vote that way. I am incredulous about that.
Chris Leslie
Indeed. I cannot keep track of the turns and U-turns, with so many permutations, that the Government go through or of the chamaeleon-like arrangements of some hon. Members. There are honourable ladies and gentlemen in all parties—even in the parties opposite—and I appeal to them to consider the amendments carefully. These are incredibly important suggestions. I have not yet heard a case in the interventions—except, perhaps, for the competitiveness argument, which I shall discuss in a moment—for why there should be a corporation tax windfall, this boon for our large banks. Perhaps I shall hear one from the hon. Lady.
Andrea Leadsom
I want to clarify. It is to all our benefit to have a healthy financial services sector. Obviously, all parties agreed, when we had the financial crisis, that we simply could not afford to see our banking system go into meltdown. There is no doubt that that is precisely what would have happened. Nevertheless, through the banking levy the Government are seeking to make the banks compensate the taxpayer for the undoubted support that they received. If there were a reduction in corporation tax alone with no offsetting bank levy, of course the Opposition could say that the banks were getting a free ride. However, the existence of a bank levy means that the banks are paying compensation to taxpayers for their largesse while at the same time ensuring that we retain a highly competitive financial services sector that can encourage and help our economy to recover.
Chris Leslie
I am interested in the hon. Lady’s arguments. She is saying that it would be wrong for the banks to receive a corporation tax cut—that is an important concession—but that it is all right because they are paying the banking levy. As I reckon it, that puts them right back to the standstill that they were at in the first place. In other words, they would not be paying any more and there would be no reparations, as I see it, for the public at large. They would simply be standing still. It beggars belief that the Government, having talked tough before the election, are now going to give a free ride to the banks and offset some of the costs of the banking levy.
The hon. Lady mentioned earlier that there is, of course, the Government’s independent commission on banking. I understand that the Secretary of State for Business, Innovation and Skills is a promoter of it and I would be interested to hear his views on whether we should give a corporation tax cut to the banks. He has gone from saint to axeman in a matter of weeks, but it is the impact on public services that we are worried about most of all.
As I was saying, it is the unfairness of this measure that strikes home most of all. People who are in a comfortable position are lecturing the world about the cuts to our public services that are needed. What really sticks in the craw is the statement, “We are all in it together”, which hon. Members will have heard. Well, that is not the case for the banks. They are not in it with the rest of us.
It reminds me a little of the polite and well-spoken cat-burglar who sneaks in to one’s home as a thief in the night and tries to purloin all sorts of goods and chattels but, when caught red-handed, explains, “No, I’m not stealing from you. I’m just rearranging the furniture and decluttering the house.” It is a grab of the worst possible kind—a grab on the public services on which the poorest in our community rely. The revenue from this measure and from reducing the corporation tax on the banks is needed by our vital public services. I hope that the Treasury will take the amendment seriously. The banks have not earned the right to this windfall. They do not deserve it and I commend the amendment to the Committee.
Vernon Coaker (Gedling) (Lab)
On a point of order, Mr Amess. Has the Secretary of State for Education given you any indication that he wishes to come to the Chamber to explain some of the errors that have already come to light in his fifth list? Additionally, during questions this afternoon, the Secretary of State claimed that one individual had received more than £1 million in consultancy fees. The Department for Education has now admitted that that was £1.35 million of consultancy fees paid to KPMG as a whole over three years. Do you not think that the Secretary of State should be coming to this Chamber and have you had any word from him that he wishes to do so?
The Temporary Chair
I have listened very carefully to what the hon. Gentleman has said, but I am afraid that the point of order is of no relevance to the Committee stage of the Finance Bill.
Andrew George
I want to speak in support of amendment 50, which is tabled in my name and those of my colleagues. I congratulate the hon. Member for Nottingham East (Chris Leslie) on the manner in which he proposed his amendment. The broad thrust of the case that he seeks to probe and possibly to press to a vote later on—we do not know—is, I think, worthy of being probed. The House should obtain a great deal more information on the issue before we make a decision.
I have asked a large number of parliamentary questions on the subject and, more particularly, on the banking levy and the basis on which assessments have been made to set that proposed levy at the level at which it will be set. It is rather frustrating for many of us who wish to engage in the debate on corporation tax and to cross-reference it with the banking levy that both measures are not contained in the Bill. I understand, of course, that there will be a consultation on the banking levy before its implementation in January, and I am sure that the Minister will say that they could not both be contained in the Bill because it was proposed that the arrangements would be undertaken in such a manner. However, leaving aside the politics of the issue, the broad thrust of the argument, on which I understood that all parties were agreed, is that when we came to set the first Budget after the general election, those who dropped this country in it and caused the public finances to be in such a serious state would do most to help us to get out of it and to help to restore our public finances. We should be looking to those sectors that are most culpable to make the greatest contribution.
The Chancellor of the Exchequer was absolutely right to conclude that what we should seek to achieve in the Budget is that those who can afford it most should contribute most, with the vulnerable protected. Although I do not want to return to a Second Reading-type debate and to relate this measure to all the other measures and to the public spending re-profiling or cuts that are due in the autumn, on which we are to get more detail, that is the context in which this issue has to be considered.
Amendment 50 is remarkably similar to amendment 34, tabled by the right hon. Member for East Ham (Stephen Timms). I tabled amendment 50 because we need to probe and fully understand the likely impact of the banking levy and the corporation tax cut on the banking sector. We need a better assessment of that. It was interesting that the hon. Member for Nottingham East, in response to proper and reasonable questions about the relationship between the impact of the bank levy, as opposed to that of the corporation tax cut, on the banking sector was unable to give a quantifiable answer. That is because the Treasury do not provide one. In the responses to the questions that I have asked on the issue, that relationship has not been clear. That is why it would be better for us to say honestly that if we are properly going to come to a measured conclusion, it would be far better to have the best possible estimates of the likely impact of both measures beforehand, so that we can measure one against the other and make a proper, balanced and reasonable assessment of the impact at the end of the process.
I do not wish to delve into the party politics of what people said and did not say prior to the election, although that adds to the excitement and interest in this Chamber, but the Business Secretary, my right hon. Friend the Member for Twickenham (Vince Cable), was right in predicting a lot of what needed to happen and in encouraging the then Government to take the action that they ultimately took on Northern Rock and in relation to other interventions. The hon. Gentleman was wrong to place the Conservatives and Liberal Democrats together in the previous Parliament as taking the same line on the issue. As a candidate in the last general election, I was particularly keen that we went into it seeking to ensure that the banking sector made a significant contribution to restoring the public finances. I was looking forward to that, and I was very pleased to see the banking levy in the Budget, along with a large number of other measures, such as raising personal allowance and the pension guarantee; the Liberal Democrats were pleased to see those. The hon. Gentleman is right, however, that one thing that came out the day after the Budget was the sense that the banking sector was breathing a sigh of relief.
Clive Efford
I apologise to the hon. Gentleman in advance for going back to what was said during the general election, but it is important in this context. The Liberal Democrats said that they were in favour of a banking levy, as he has just said, but they went further and said that it would be in addition to corporation tax. What we are debating is corporation tax that compensates the banks for the levy, cancelling it out. How can he possibly defend that position?
Andrew George
I am a free-ranging Liberal Democrat Back Bencher and I am quite clear that I want to probe this issue. I tabled my amendment because I want to ensure that we have the facts before we make what I hope will be a balanced decision on this important issue. If the hon. Gentleman does not mind, I will sidestep the tribal arguments.
Geraint Davies (Swansea West) (Lab/Co-op)
The hon. Gentleman will be aware that there is a banking levy in the United States. Does he agree that if the banking levy in Britain is offset by the corporation tax reduction, our marketplace will reward bad bankers and encourage them to migrate here? At a time when the rhetoric is about creating a non-financial economy and building new strengths into the economy, we will be encouraging bad practice by rewarding bankers during the horrendous aftermath of what we have all had to witness, the costs of which are being paid by people across the country.
Andrew George
The hon. Gentleman’s point is, in a way, a development of an argument that was made earlier, when he was not here, regarding the contrast between the proposed level of the banking levy in the UK and that in the US. That potential osmosis of banking activity and investment may or may not happen. The hon. Member for South Northamptonshire (Andrea Leadsom) argued that having differential rates of corporation tax would be anti-competitive, but, at the same time, Members on the Government Benches are arguing for differential rates in the sense that the banking levy differentiates between the banking sector and all other sectors. One of the purposes of my amendment is to probe the issue further.
Ian Lucas
I commend the hon. Gentleman on tabling the amendment, but will he clarify the reference to
“all other sectors to which corporation tax applies”?
Does he think it would be helpful if that assessment took into account, for example, the effect of the reduction in capital allowances when making judgments about whether that is a wise course to take?
Andrew George
I am not sure that I am qualified to advise, but I am sure that the hon. Gentleman is right. If the Treasury could be encouraged to adopt this approach, I hope that it would at least ensure that it was sufficiently free-ranging to deal with any of the consequential behavioural activities that might arise as a result of such proposals.
Mr Kevan Jones
Although we are rewarding the banking sector, the proposals on annual investment allowances, which are cut in the Budget from £100,000 to £25,000, will directly affect many small and medium-sized businesses. Surely it is wrong that we are rewarding the people who got us into this mess in the first place, but penalising small businesses, which are getting a double whammy, because they are penalised by the lack of lending from the very institutions that we are rewarding.
Andrew George
Opposition spokesmen and the Treasury Ministers will have heard that intervention, which further embellishes the point that the hon. Gentleman wishes to make. I have no further comments to add, and I look forward to the Minister’s response.
Mr Kevan Jones
It is a pleasure to follow the hon. Member for St Ives (Andrew George), who has become a rather lonely figure on the Government Benches. Last week, he was the only Liberal Democrat who was not defending the indefensible, for which I pay him credit. At least he is prepared to come to the Chamber and argue against the measures in the Budget that will affect his very poor community in Cornwall, unlike some of his colleagues, who make comments in the press, but are absent from debates on the Finance Bill. I hope that on at least one or two occasions he will join us in the Lobby to stop the effects of the measure on his constituents and mine, although I know that he feels uncomfortable about voting against the coalition.
In 2008, in the run-up to the general election, bashing the bankers was something that everyone wanted to do. It is strange that we now have a Finance Bill that will reward them. There has been a change in the past few months from the stance that the Deputy Prime Minister adopted on 20 April, when he described bankers as “reckless and greedy” and holding
“a gun to the head”
of the country.
I support the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) and by my right hon. Friend the Member for East Ham (Stephen Timms), and the amendment tabled by the hon. Member for St Ives. I wish to deal with the effect on other sectors, which that amendment raises. We have discussed the banking sector a great deal, but it is important to look at other sectors, too. There has been a feeding frenzy, which suggested more or less that the previous Government got things wrong, and that we should be penalising the banking sector. That view was reinforced by the Prime Minister himself who, when he was in opposition, said on Channel 4 in December 2008 that
“more senior bankers should be sent to prison.”
On another occasion, he should that they should do voluntary work rather than earn large bonuses in the City. The Conservative party went very quiet at the election, possibly because, as the Deputy Prime Minister said—and I agree with him—it is
“completely in hock to the City”.
We have seen that position defended tonight.
A number of banks have clearly made huge profits. Barclays, as has been mentioned, had a 92% increase in profits in 2009, and stand at £11.6 billion. The Royal Bank of Scotland—remember that?—paid its investment bankers £1.3 billion in bonuses, despite making just £1 billion in profit. Lloyds has made a profit of up to £1 billion. The proposals in the Finance Bill to reduce corporation tax rewards the banks for the mess they got us into, and do not acknowledge the fact that the individuals in question have been carrying on regardless, even though, as several hon. Members have said, the people who have suffered will have their services cut. The members of the public who are the victims are somehow to blame for the financial mess that we are in.
I do not understand how—well, I can, because they are called Conservatives—in the lead-up to the election, people can speak tough words against the banking sector, but one of the first things they do is to reduce corporation tax and reward the individuals who got us into the mess in the first place. Those same Conservatives—this was raised by my hon. Friend the Member for Nottingham East—opposed all the measures that we took not only to ensure that the banking sector did not collapse but to protect the British economy.
Chris Leslie
My hon. Friend is making an extremely strong case for the amendments. Is it not the case that the Government absolutely have to try their best to pin the deficit on the Labour party, rather than, correctly, on the banking sector? If they took the latter course of action, they would have to increase the banking levy and would not make these changes to corporation tax. They are clearly not prepared to see justice done to those truly responsible for the situation we are in.
Mr Jones
That is true. The Government’s drive to reduce public spending has very little to do with reducing the deficit. It is more an ideological move to reduce the size of the state. Unfortunately, like a boa constrictor, they have wrapped themselves round the Liberal Democrats, and will slowly squeeze the life out of them in the coming weeks, months and years. That is dawning on the hon. Member for St Ives, who does not want to be the mouse that gets squeezed at the end of the day. Let us hope that he will escape the clutches of the boa constrictor, which is slowly strangling the lifeblood from the modern Liberal Democrat party. I should not be too sympathetic to the Liberal Democrats, however, because I have spent a lifetime opposing them both in local government and nationally, so their demise might not be an unwelcome consequence of that strategy.
My hon. Friend the Member for Nottingham East has tabled an amendment that suggests that there should be a 28% tax on the profits of the banking industry, as defined by section 2 of the Banking Act 2009. The reason for that is supported very well in the Red Book. Paragraph 1.63 on page 26, which is entitled “Bank levy” says that
“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage the banks to move to less risky funding profiles. The Government believes that the banks should make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. Final details of the levy will be published later this year, following consultation. The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
We have seen a very strange Finance Bill this year, with a very short preamble to be followed later by major changes. If we are going to have a major change which, in the Government’s own words, is going to rebalance
“the burden of taxation between banking and other sectors”,
I cannot understand why they are allowing the reduction in corporation tax for this year to apply to the banking sector. To me, it would seem right to wait for whatever the banking levy comes up with. That fits in very well with what my hon. Friend the Member for Nottingham East is proposing.
Matthew Hancock
I thank the hon. Gentleman for inviting me to intervene. He has just admitted something that the hon. Member for Nottingham East (Chris Leslie) could not deny, but did not admit. After this Budget, because of the banking levy, the banks will be paying more tax relative to other sectors of the economy, and that is stated on page 26 of the Red Book. I am very grateful for that important admission.
Mr Jones
No, I am sorry, we do not admit that. I am not sure what point the hon. Gentleman is trying to make or whether when he went into the general election in May, he had on his election leaflets, “Yes, we will be tough on banks for the rhetoric in the lead-up to the election, but if we get into power we will do a con trick where we take the money with one hand and gave it back with the other.” If, as the hon. Member for St Ives said, we do not know what the figures are, that makes it worse. We are asking the public to take severe cuts in public services and higher taxation, while at the same time the people who are still being paid high bonuses will get money back. That was reflected in a comment made earlier about the increase in bank share prices that took place once the Budget had been announced.
Clive Efford
To correct the hon. Member for West Suffolk (Matthew Hancock), it is just not true to say that the banks are going to pay more. Deutsche Bank has said:
“Taking 2% off the 2012 tax rate for the five banks listed in the UK would increase profit by £1.16bn, that is it should almost offset all of the banks tax. Overall a good outcome for the banks.”
Similarly, HSBC said:
“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.
Mr Jones
I am grateful for my hon. Friend’s intervention, which completely blows a hole in the myth that this coalition Government are somehow being tough with the banking sector. Not for the first time, we are seeing rhetoric overtaking reality. The spin and presentation that is the hallmark of the Prime Minister is clearly catching up with him now he is in power and able to help his friends in the financial sector.
This policy also has an effect in terms of the banking sector itself, because the banks that are being rewarded are the ones that got us into the mess in the first place. Most people will rightly be horrified by that prospect.
Ian Lucas
Does my hon. Friend agree that what makes it even worse is the fact that the banks are still not lending? We all have examples in our constituencies of businesses that have good business cases but are not securing the lending from these banks that are making massive profits.
Mr Jones
That is a good point. We have heard about banking codes and other ways of forcing the banks into lending, but many small and medium-sized enterprises will be paying for this. They are facing a double whammy, because they are paying for it not only through the reduction in investment allowances but, as my hon. Friend rightly says, through not getting access to the lifeblood of working capital that they need.
That brings me to what the hon. Member for St Ives said about other sectors. Amendment 50 says:
“This section shall not come into force until the Treasury has laid before the House of Commons an assessment of the impact of this section on—
(a) the banking sector, and
(b) all other sectors to which corporation tax applies.”
That makes an important point about how this cut in corporation tax is being paid for—that is, through the reduction of the annual investment allowances, which from 2010 will fall from £100,000 to £25,000. That will affect a lot of SMEs in the manufacturing sector. One need only look at some of the comments that were made on Budget day. The Engineering Employers Federation, representing manufacturers, said:
“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”
That reflects a key point made in the amendment—the need to look at the effects on other sectors of the economy and how they are paying for this.
Even members of the coalition are feeling some concern about the corporation tax plans. The Secretary of State for Business, Innovation and Skills signalled a recognition that they could hinder the interests of British industry when he said in the Financial Times on 14 May:
“The one thing I would want to make sure is that the productive parts of the British economy are helped and not hindered by corporation tax changes…I will certainly make an input to the debate defending the interests of British industry and making sure there are proper incentives to invest.”
We are now seeing this time and again in policy areas. The Liberal Democrats can protest all they wish, but they are being overruled on every single occasion, and this is clearly another example of that happening.
The Institute for Fiscal Studies and the EEF have both criticised the Government for reducing investment and capital allowances. The IFS’s post-Budget briefing on business and capital taxes dated 23 June said:
“Biggest benefits go to low-investment, high-profit firms—banks and supermarkets rather than manufacturers”.
The Budget talked about rejigging the economy away from the public sector and the banking sector into manufacturing, but this will not assist the manufacturing sector in any way at all. One can add to that the pressures that are resulting locally from the abolition of the regional development agencies and the nonsense that is going on with the freezing of grants for business investment. For example, Geka Manufacturing in my constituency, which vitally needs such a grant to secure 130 jobs in Stanley, has had it frozen by the Government. Local manufacturing SMEs are not only being hit by the corporation tax changes in the Budget but affected by the winding up of the RDAs in terms of the small business support that is vital for their investment decisions.
If we are to consider the effect on other sectors, as the hon. Member for St Ives suggested, we need to ensure that that includes not only SMEs but the manufacturing sector. If the Red Book is to be believed, I do not understand how the levy will result in a rebalancing of the burden of taxation between banking and other sectors. Clearly the SME sector will pay dearly, and that is in addition to some of the other matters that will affect it.
The cuts in capital allowances will prevent many SMEs from investing in vital equipment. That is no way to grow the economy in the way that the Government are suggesting. Despite the rhetoric that we heard before the election about bashing the bankers—[Interruption.] I say to my hon. Friend the Member for Glasgow East (Margaret Curran), who looks at me in horror, that I said “Bashing the bankers”. Instead, the Government are going to give back to banks the money that they will take from the levy. As my hon. Friend the Member for Nottingham East pointed out, it would have been right to wait for the results of the 1 January review, whenever they come, before introducing the decrease for the banks.
I ask hon. Members to support the amendment, which makes sense. Once the public recognise what the Con-Dem Government are doing, they will be disappointed that the Government are basically letting the banks off scot-free.
Sajid Javid
I shall keep my contribution brief. I congratulate my hon. Friend the Member for Lincoln (Karl MᶜCartney) on making a very good maiden speech, and I draw hon. Members’ attention to my entry in the declaration of Members’ interests.
Chris Leslie
There is not a Register of Members’ Financial Interests currently published, so for the benefit of the debate could the hon. Gentleman inform the House what that interest is?
Sajid Javid
Yes, I am a shareholder in a bank. [Hon. Members: “Which one?”] It is called Deutsche Bank.
Sajid Javid
That is not relevant. The hon. Gentleman can read the entry in the declaration of interests.
If we are to address the amendments properly and consider the changes to corporation tax that the Government have proposed not just for banks but for all companies, we cannot get away from the serious mess that the economy is in. As Members have heard on a number of occasions, as an inheritance from the previous Government, the Government are borrowing some £3 billion a week and our budget deficit is £155 billion, which is 12% of GDP—the highest in all G7 countries and the highest in Europe.
To address the issue, we need to consider how to restore growth to the economy and start paying back our debt. That will not just be through the changes in the Budget, such as raising extra taxes and cutting spending, but through restoring growth in our economy. That is at the heart of the changes to taxation, especially corporation tax, put forward in the Budget. The gradual reduction of corporation tax from 28 to 24% is all about giving business people and entrepreneurs incentives once again to take the risks that are always involved in starting and running businesses. It is such growth that will rejuvenate our economy and create the employment that we need to push up GDP and help us repay the debt that we have inherited.
Mr Kevan Jones
I know that the hon. Gentleman is a banker, and therefore possibly a bit detached from the SME sector and others, but how can cutting the investment allowances of SMEs and rewarding bankers with cuts in corporation tax make sense as a way to generate and grow new businesses?
Sajid Javid
I am not detached from small business, because my father was a small business man, I grew up in a small business and I know what it takes to make a small business grow. As well as hard work, it takes low taxes, less regulation and a desire for Government to get out of the way of business people. That is what this Government are desperately trying to restore after 13 years of the opposite.
Stephen Timms
Was the hon. Gentleman surprised that the Office for Budget Responsibility reduced its estimate of future growth in the British economy following the Budget?
Sajid Javid
That is a misleading question, and it does not go to the heart of the matter. It is a nice try, but the right hon. Gentleman will really have to try harder than that.
To return to banks and how to get our economy going, as well as restoring incentives we need to get banks lending again. That was the only vaguely accurate or factual point that I could pick up from the speech of the hon. Member for North Durham (Mr Jones). If we are to do that, we need to understand why they are not lending at the moment, and the major reason is a lack of capital for British banks. Banks across the world face the same problem. As a Government, we need to work out a way to restore the capital positions of banks so that they are willing to take the risks that are a necessary part of making lending decisions.
There are only three ways for banks to try to raise capital. The first is through the free capital markets, but today those markets are effectively closed to virtually all banks. Prior to the financial crisis, there were many instruments that banks could use to try to raise capital, including types of subordinated debt, hybrid equity instruments, tier 1 and 2 securities and common equity. Not only are those markets closed to banks today, but if Opposition Members have watched carefully what has happened in the financial markets over the past three or four months, they will know that banks cannot even raise senior debt effectively, let alone capital. Banks throughout Europe—especially those on the continent, but British banks included—are in many cases unable to raise that type of debt, let alone equity. The capital markets as an avenue to raise capital are closed.
The second option is for the Government themselves to give capital to banks. After the £70 billion-odd injection made by the previous Government, I do not believe that any Member of any party is advocating the Government injecting more capital into the banking system.
There is one final way left, which is to allow banks to hold on to some of their profits, if they are in a position to generate profits. No matter what Opposition Members would like to think, unless we create the conditions inside a bank that make it want to lend, there is no way to force it to do so.
Stewart Hosie
Technically, those are the three ways in which capital can be raised. Is the hon. Gentleman making a case, then, to oppose the Government’s bank levy, which would keep an extra £2 billion in the banks and perhaps allow an extra £40 billion of lending?
Sajid Javid
No, not at all. We have to separate the two issues. The levy is about working towards a way of taking something back from the banks to build an insurance-type system, so that if things such as happened during the financial crisis happen again, the Government will have a mechanism to withdraw some capital from the banks. However, if we are to cut corporation tax on all companies, it would be madness to leave out the banks. They need to be allowed to build capital, not just for the sake of getting them lending again by putting them in a comfortable enough position to make that decision, but because of the impact on their competitiveness.
Whether we like it or not, our financial sector is a huge part of our economy, and it is much bigger as a percentage of GDP than that of many of our international competitors, even after the financial crisis. It accounts for thousands of jobs up and down the country, not just in the City but probably in each and every constituency. If we are to restore some health to our financial sector, it makes no sense to make it uncompetitive when compared with other sectors in our economy and with other countries. The banking and financing sector is one of the most mobile of all our economic sectors. If we have differentiated tax rates for one sector of the economy compared with others, that will only make matters worse. I therefore oppose the amendments.
Stephen Timms
I am grateful to the Exchequer Secretary for his kind remarks on my return to the Dispatch Box. He, along with many Members of all parties, was good enough to write to me after I was attacked and injured. I greatly appreciated all the messages of good will that I received, and I would like to put on record my thanks to all those from across the House who got in touch; I think that those messages have accelerated my recovery. I am grateful to the Exchequer Secretary for his words.
My hon. Friend the Member for Nottingham East (Chris Leslie), in an excellent speech when moving the amendment, raised some important points. I was also encouraged by the comments of the hon. Member for St Ives (Andrew George). I am pleased that he described himself as free ranging, and I hope that his freedom of ranging includes joining us in the Lobby. I am particularly keen to have the opportunity to vote on amendment 34.
The Chancellor told us in his Budget speech that he was being tough on the banks. Listening to some Conservative Members’ speeches, I wonder whether they heard that part of his speech. He explained rightly:
“The failures of the banks imposed a huge cost on the rest of society, so I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”
At that stage, it could well be that the Chancellor’s words were consistent with the comment in the Red Book, to which the hon. Member for West Suffolk (Matthew Hancock) drew our attention. It states:
“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
Who knows to what a “rebalancing of the burden” amounts? It could mean something pathetic and small. However, the Chancellor went further in his Budget speech. He said that the introduction of the bank levy would entail
“a greater contribution from the banking sector—one that far outweighs any benefit that it will receive from the lower tax rates that I have just announced.” —[Official Report, 22 June 2010; Vol. 512, c. 175.]
The Chancellor told the House that the cost of levy to the banks would “far outweigh” any benefit that the banking sector received. Listening to the speeches of the hon. Member for West Suffolk and the hon. Member for Bromsgrove (Sajid Javid), I do not think that they heard that part of the Chancellor’s speech.
My hon. Friends the Members for Nottingham East and for North Durham (Mr Jones) queried whether the levy, in so far as we know about it—the hon. Member for St Ives told us something about it—would fulfil the Chancellor’s words and far outweigh any benefits that the banks receive from the reduction of corporation tax. It is odd, as my hon. Friend the Member for Nottingham East pointed out, that for all the appearance of toughness in the Chancellor’s speech, bank shares actually went up after his announcement.
Matthew Hancock
The right hon. Gentleman may have misheard my earlier comment. Can he be surprised about the Chancellor’s comments when page 101 of the Red Book states that the bank levy raises £2.5 billion and the corporation tax cut in 2013-14 will cost £700 million? It is therefore no surprise that the bank levy raises more than the cut in corporation tax to the banks. That is precisely the point that I made earlier.
Stephen Timms
I am not sure about the figure of £700 million. I hope that the hon. Gentleman is not telling us that the reduction in corporation tax will decrease that tax take by £700 million. That is incorrect—perhaps he was citing a partial figure. However, that is why we need a report. I would genuinely like to know the impact specifically on the banking sector of a four percentage point reduction—it was not long ago that the banks accounted for a quarter of all the corporation tax receipts that the Exchequer collected—compared with the £2 billion cost of the levy.
Andrew George
The Red Book costings on page 19, in table 3 refer to the yield from the bank levy across fiscal years. In 2011-12, the figure is £1.15 billion, and in 2012-13, it is £2.32 billion. It is important to clarify that for the record.
Stephen Timms
I am grateful for that clarification. However, my hon. Friend the Member for Nottingham East described the background, pointing out the rather surprising fact that, after the tough talk, banking shares rose. He cited some of the analysts and mentioned the note from BNP Paribas, entitled
“UK Bank Levy: Bark Worse Than Its Bite?”
The note explained the reasons for that. It states:
“As things turned out for all the pre-election vitriol aimed at the UK banking system, the impact of today’s measures appears materially lighter than expected.”
The ratings agency Fitch said the levy would have “no impact” on the ratings of any UK bank. FT.com reported ideas being developed by the Swiss bank, UBS, to reduce the impact of the levy through some careful so-called “balance sheet management.” My hon. Friend the Member for North Durham pointed out that the banking levy is supposed to be based on bank balance sheets, so I suppose that it is no surprise that organisations such as UBS are thinking about what they can do to manage to balance sheets in such a way as to reduce the impact of the levy. That takes us back to our earlier debate on avoidance and evasion, and why legislation often turns out to be more complex than people originally intend: it has to address such behaviour.
My hon. Friend the Member for Nottingham East also rightly made the point that several banking analysts were quoted after the Budget as saying that the cut in corporation tax from 28% to 24% would “negate” the impact of the levy on bank profitability. We need to know the truth of the matter, and that is why the amendment calls for a report. It is certain that the amount payable under the levy will be offset—at least in part and possibly wholly—for banks making a profit by the reduction in corporation tax in the next few years. It is entirely plausible for the amount due under the levy to be more than offset for some banks—possibly for all banks—by the reduction in corporation tax under the clause, together with reductions over the next few years.
The Chancellor said in his Budget speech that the contribution under the new levy would “far outweigh” the benefit from corporation tax reduction, but to put it kindly, it is by no means clear that that will be the case. I would not favour a different, higher rate of corporation tax for the banks. That would raise several difficulties, but given that the Chancellor has made clear his view that the banks should make a larger contribution in the light of what has happened, that the increase in the tax they bear should “far” outweigh the reductions they enjoy—of which the clause outlines the first—I hope that the Exchequer Secretary will agree that a report along the lines suggested in the amendment, and in the strikingly similar amendment that the hon. Member for St Ives tabled, would be a valuable contribution to transparency and to understanding the impact of the Budget measures. I also hope that the Minister sets out as much information as possible to illuminate the impact of the corporation tax cut on the banks in comparison with the bank levy.
The nub of the issue is this: can the Minister substantiate the Chancellor’s claim that the impact of the bank levy will “far outweigh” the impact of lower corporation tax? If the Minister is unable to accept amendment 34, I should like to press it to a Division.
Matthew Hancock
I shall keep this contribution extremely brief, given the hour. I was surprised by some of the arguments made by Opposition Members. I am not all that surprised that the right hon. Member for East Ham (Stephen Timms), the shadow Minister, does not support amendment 21, which was moved by the hon. Member for Nottingham East (Chris Leslie), not least because before the election he said we would need any bank levy to be globally agreed. Indeed, the current shadow Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said:
“Countries can’t go it alone. It is very important that we do this internationally”.
Conservatives and Liberal Democrats campaigned during the election for a unilateral bank levy, no matter what happened in the rest of the world, so it is not surprising that we do not listen to Opposition Members who argue that they are now in favour of one. They have performed a U-turn in an extremely short time.
Another point I want to make is that the shadow Minister said that his party’s policy is that corporation tax should be the lowest in the G7, but Italy’s corporation tax is now 27.5% and Canada’s is set to be reduced to 27.2%, which means that Labour’s policy is to reduce corporation tax, including on the banks, as he just confirmed, without the bank levy. A bank levy would more than offset the corporation tax reductions, so Labour Members are in all sorts of a tumble on this.
Everybody will note the difference between the Government, who argued before the election that we needed a unilateral bank levy and who are delivering it within seven weeks, and Labour Members, who argued that we should not have a bank levy, before performing a U-turn within 10 weeks.
Mr Gauke
Amendments 21, 34 and 50 relate to the impact of the corporation tax cuts on the banking sector. Amendment 21 would leave the
“main rate of corporation tax for financial year 2011…at 28%”
for
“banking institutions”, disapplying the 1% decrease, and amendments 34 and 50 ask for an assessment of the impact of the rate reduction on banks.
The proposals are helpful. Understandably, there is a frustration with the banking sector and a desire that it pay a fair share. The Government share that belief. We think that banks should make a fair contribution in respect of the risk that they pose for the UK financial system, which we have seen in the past few years. That is exactly why we announced in the Budget the introduction of a bank levy from 1 January 2011. Tomorrow, my hon. Friend the Financial Secretary to the Treasury will announce a public consultation with a view to implementing the levy on that date, and the measure will be included in next year’s Finance Bill.
The levy is a surgical approach, intended to encourage banks to move to less risky funding profiles, and a contribution reflective of economic risk. A tax based simply on profits, such as corporation tax, is not related to risk and will not create the behavioural effect that we believe the banking levy will achieve.
The overall impact on banks of the proposed reduction in corporation tax depends on a number of factors, and I will provide some details in a moment. None the less, I should like to put it on record that it is entirely right that hon. Members ask such questions. My hon. Friend the Member for St Ives (Andrew George) made a thoughtful and probing speech, and I was also interested to hear the comments of the right hon. Member for East Ham (Stephen Timms). However, I wondered, given his concern about the impact on the banking sector, precisely which angle he was coming from. Those who remember the debate prior to the general election will recall, for example, the remarks of the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling) who, in an interview on “The Andrew Marr Show” on 21 March, argued against proposals for a unilateral bank levy, saying that he thought it could work only if there were international agreement, as my hon. Friend the Member for West Suffolk (Matthew Hancock) said.
Of the Conservatives’ policy of introducing a unilateral bank levy, which was also a policy of the Liberal Democrats, the then Chancellor said that we were taking a hell of a risk, given that the banking industry employs more than 1 million people in this country. He seemed to be somewhat concerned that we were going to far and too hard. I do not know whether the shadow Minister is worried because the proposals are too tough on the banks, or because they are not tough enough.
Chris Leslie
I thank the Minister at least for that recognition, but I wonder whether he could take some time to justify the fact that the proposed banking levy is so low in relation to, for example, the American arrangement. Does he understand the incredulity and frustration that banks should be given this cashback bonus in the form of the corporation tax cut at this particular time? I want to hear him justify that.
Mr Gauke
Let me turn to the heart of this matter, because we have had quite a lengthy debate on it. We have heard concerns that the corporation tax would cancel out the effect of the bank levy or offset it, and that there would be a cashback bonus, to use the hon. Gentleman’s phrase. The shadow Minister asked whether the banking levy will “far outweigh” the benefit to banks of the cut in corporation tax. Perhaps the easiest thing I can do in response—there is much more one could say about corporation tax, and I will in future debates—is to refer to my answer to the right hon. Member for Holborn and St Pancras (Frank Dobson), who asked the
“Chancellor of the Exchequer what estimate he has made of the revenue from the financial services sector to be foregone by the Exchequer as a result of the proposed reduction in corporation tax in each financial year to 2015-16.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]
We have the numbers only until 2014-15, and I should point out that the financial services sector is somewhat broader than just banks. It includes insurance, pension funds and auxiliary financial services, so the numbers refer to the corporation tax cost not only for banks, but for other financial services. However, I will compare those with the bank levy yield. For 2011-12, the corporation tax costs will be £0.1 billion, whereas the bank levy yield will be £1.15 billion; for 2012-13, corporation tax costs will be £0.2 billion, compared with a bank levy yield of £2.32 billion; for 2013-14, corporation tax costs will be £0.3 billion, compared with a £2.5 billion additional yield from the bank levy; and for 2014-15, the corporation tax costs will be £0.4 billion, compared with a bank levy yield of £2.4 billion. Even in this last year, where the differential is at its narrowest, we can see that it has not been cancelled out or offset. There is no cashback, and the banks are not quids in as a consequence.
The test that the shadow Minister gave was whether the bank levy yield far outweighs the benefit of the corporation tax change, and the answer is clearly yes. Given that the proposal for a differential corporation tax rate in amendment No. 21 is not supported by the Front Benchers of the party to which the hon. for Nottingham East (Chris Leslie) belongs, I urge him to withdraw it.
Chris Leslie
The Minister is saying that £400 million is a small amount to be given in cashback to the banks in this corporation tax giveaway, but that sum could offset the necessity to scrap the health in pregnancy grant. It could offset the need to reduce the maternity allowance to just the first child. Those are important for users of public services, and he surely understands that.
Mr Gauke
Our aim was to rebalance the tax system. We are requiring the banking sector to pay at least £2 billion more in tax as a consequence of these proposals. That is not a minor matter. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because we are introducing the bank levy. I urge the hon. Gentleman to withdraw amendment No. 21, given that his Front Benchers recognise the difficulties of a separate corporation tax rate for banks. I believe that I have satisfied the tests set out by the right hon. Member for East Ham, because the bank levy yield far outweighs the benefits of the corporation tax for banks.
I hope that I have satisfied my hon. Friend the Member for St Ives—
Andrew George
The corollary to the corporation tax cut is the banking levy, but although I respect the information that my hon. Friend has given in his reply so far, he has not yet addressed himself to the criteria for the setting of the banking levy and why it has been set at the proposed level—[Interruption.]
The Temporary Chair (Mr Benton)
Order. The background noise is a little high. Will Members please keep it down?
Mr Gauke
Beginning tomorrow, we will consult on the bank levy. The intention is to find a means of discouraging risk, and that is why the targeted approach of the bank levy is appropriate. It will raise additional revenue, and it is right to do so. We think that we have the balance right in raising additional revenue while enabling banks to lend more, and we are also taking steps to encourage that further.
In conclusion, I think that I have satisfied the concerns underlying the amendments and I hope that the amendment will not be pressed to a Division.
Chris Leslie
Having heard what the Minister had to say, I am not convinced that he makes a case for giving away £400 million to the banks, especially as Members on the other side of the House constantly ask us where the money would come from and how we would reduce the deficit. That sum would offset the need to abolish the health in pregnancy grant. It would offset the need to reduce to the CPI the indexation of housing benefit. It would offset the need to scrap the maternity allowance for second children, and so on. I hope that my hon. Friends will remember the £400 million giveaway to the banks in this corporation tax reduction.
I recognise that the consensus in the debate is that it is important to test the right amendment this evening. I therefore wish to withdraw my amendment, but I hope that one of the amendments that would require the Treasury to justify and assess the impact of the corporation tax change on the banks will be tested. That is the least we should be doing.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 34, in page 1, line 6, at end add—
‘(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.’.—(Stephen Timms.)
Stephen Timms
I beg to move amendment 49, page 1, line 6, at end add—
‘(2) In section 2(2)(a) of the Finance Act 2010, after “companies”, add “not meeting the condition in (c) below”.
(3) At the end of section 2 of the Finance Act 2010 add—
“(c) 26 per cent. on profits of companies whose taxable profits will be increased by more than 1 per cent. as a result of changes in investment allowances.”.’.
It is a puzzling feature of the Budget that, on the one hand, the Chancellor is gambling on a big increase in investment, and basing his Budget arithmetic on the belief that investment will grow in each of the next three years at a rate that has been achieved in only one year in the last 40. That is an heroic assumption about investment growth, and if it proves to be untrue, the Budget gamble will fail. At the same time as banking on that huge increase in investment, he has announced that he will drastically cut the incentives for investment. The rates of capital allowances will be reduced from 20% to 18%, and the annual investment allowance will be cut by three quarters, from £100,000 to just £25,000. It is hard to see how the forecast growth in investment can be reconciled with such a big cut in investment allowances. The Budget was billed as Britain being open for business, yet it will clearly reduce the prospects for growth, as the Office for Business Responsibility confirmed in its two projections, before and after the Budget. Indeed, the International Monetary Fund, in its projections last week, also downgraded its growth forecast for the UK economy as a result of the Budget.
We have here a collision of conflicting objectives, which we highlight in the amendment. We propose a lower rate of corporation tax for companies that lose out from the reduction of allowances above a certain threshold. The Institute for Fiscal Studies pointed out before the election that the losers as a result of the Conservatives’ approach would be those making big investments and earning modest profits, notably
“in the manufacturing and transport sectors”,
and that the gainers would typically be in the financial sector.
We do not yet know what the legislation on allowances will say. The Chancellor said in his Budget speech that the change in the rate of capital allowances and the lower annual investment allowance would not take effect until 2012. Will the Minister confirm that the coalition Government are planning no reduction at all in investment allowances in the current financial year? Will the changes announced by the Chancellor in the Budget be in the Finance Bill later this year or will they be delayed until next year’s Finance Bill? I hope that the Minister will also comment on the principles underlying our amendment. How can it make sense to reduce so drastically the incentives for investment in a period in which the Budget depends so heavily on an unprecedentedly large and sustained increase in investment?
Mr Gauke
As I have already explained, the Chancellor or the Exchequer set out a business tax package in the Budget that included rate cuts and reductions in allowances that are good for business and growth overall. Amendment 49 proposes that clause 1 be amended to reduce the main rate of corporation tax to 26% for those companies whose tax bill will increase by more than 1% as a result of the reduction in investment allowances. That is a somewhat complex mechanism, but it provides an opportunity to raise the matter of capital allowances.
As part of a package to improve the UK’s competitiveness, it was announced that from April 2012 there would be reductions in the rates of writing-down allowances for plant and machinery and a reduction in the annual investment allowance. The Government will reduce the main rate of corporation tax to 26% that year—2012—and by that reduction, alongside changes to allowances, we will achieve the results that the amendment seeks. Furthermore, by not implementing the changes to allowances for two years, but reducing corporation tax rates next year, we are giving companies a full year to benefit from the reductions in rates, alongside current levels of allowances. Further reductions in the main rate of corporation tax follow in later years and capital allowances remain broadly in line with average rates of economic depreciation. To answer the shadow Minister’s questions, no changes are made to the so-called investment allowances in this Finance Bill and none is planned for the next financial year.
Barry Gardiner (Brent North) (Lab)
Why does the Minister believe that, if the Budget begins to work and we see businesses begin to pull the country out of recession, that is the right time for the Government to take away the incentive for further investment in business growth? That seems paradoxical to us all and to damage the very prospects of the recovery that he claims he wants to aid.
Mr Gauke
As I said a moment ago, the changes to capital allowances will take effect from 2012, and we believe that there is a substantial benefit for the UK economy in reducing the corporation tax rate. Indeed, it is a direction of travel that our predecessors followed when they reduced the rate from 30% to 28%, but we do not think that that went far enough. The point was raised in earlier debates that the UK has lost its competitive advantage in having a relatively low rate of corporation tax, as a number of other countries have cut their corporation tax rates much further than we have over the last 13 years. We believe that the lower rate sends a very clear signal that Britain is open for business and it is a demonstration of the direction of travel in which we are going. Assessment of the impact of Budget measures on investment over the next few years suggests an increase in investment of £13 billion.
The Budget thus provides a set of proposals and a set of reforms to corporation tax that will encourage further investment. As I say, it is a sign that Britain is open for business and a sign to investors and businesses throughout the world that the UK is a good place in which to do business. We believe that the package as a whole is well balanced and that it will aid a private sector recovery, partly funded through reforms to capital allowances and partly through the bank levy, as we debated earlier. Legislation is not required for the changes in capital allowances in this Finance Bill or indeed in next year’s, but we have set out a clear sense of direction that has been welcomed by business groups as a whole. We therefore urge the shadow Minister not to press the rather complicated amendment 49. It will not make any difference, because we will legislate to this effect in any event—without the complicated mechanism in the amendment. I urge him to withdraw it.
Stephen Timms
I am disappointed by that response. I am disappointed that my hon. Friend the Member for Brent North (Barry Gardiner) did not get an answer to the telling point that he put to the Minister. There is a real issue about how this large increase in investment is supposed to be achieved at exactly the time that incentives for investment are being reduced. Nevertheless, I shall not press the amendment to the vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Stephen Timms
We have had useful and important debates about the amendments to clause 1, but some important points remain to be discussed. I have no wish to oppose the clause, and I will not encourage my hon Friends to vote against it. However, we need to ask some significant questions, in particular about why the clause does not contain items that we might have expected.
Small companies will face a worrying and uncertain time over the next few months, and we would all sign up to the proposition that they are the lifeblood of the UK economy, yet the Bill does nothing to help them. The Budget did not do much either, but at least it included the 1 percentage point reduction in corporation tax. Inexplicably, that measure has been omitted from the Bill. Will the Minister tell us why? What was the basis for selecting the measures in the Bill? Is the Bill’s purpose simply to ensure that the increase in VAT is legislated for before Liberal Democrat Members have the opportunity over the summer to learn what their constituents think about it, or perhaps before their party conference has a chance to express a view in September? Were the other measures included just to make up the numbers and pad out the Bill? Alternatively, is there another criterion—urgency, presumably—for what is included in or omitted from the Bill? If so, why was it urgent to legislate for the large companies rate but not the small companies rate? The more we look at the Bill, the more it appears to be a rag-bag of measures to give an impression of substance, when in reality it is all about railroading the VAT increase through Parliament before the Liberal Democrats wake up.
Businesses of all sizes face a worrying time. As the National Institute of Economic and Social Research pointed out last Thursday,
“Fiscal consolidation, both in the UK and the euro area, will restrict growth”.
The IMF’s startling post-Budget growth downgrade for the UK last week made the same point. The Daily Telegraph expressed it bluntly on Friday, “UK austerity drive threatens to snuff out recovery, IMF warns”, and went on to summarise the IMF message thus:
“Britain’s fledgling recovery may be nipped in the bud by the savage cuts”.
A lot of other evidence points in the same direction. Last Monday, the monthly report on business confidence showed that, far from the Budget placing an “Open for business” sign above Great Britain plc as the Chancellor had hoped, business confidence suffered the biggest one-month fall ever recorded in June, the month in which the Budget announcements were made. With confidence on a sharp downward trajectory, the truth is that the Chancellor is taking an enormous and unwarranted risk with the UK economic recovery.
Our case is clear: in taking such an enormous and unjustified risk with the recovery, the Budget judgment was wrong. Businesses and their employees, as well as those who work in the public sector, will pay the price. As was mentioned earlier, small manufacturing firms will be hit particularly hard by the Budget, as the Engineering Employers Federation pointed out in its Budget response, to which my hon. Friend the Member for North Durham (Mr Jones) referred. The EEF said:
“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies.”
It might be a positive signal for large companies, but not for their suppliers.
Stewart Hosie
I am listening carefully to the right hon. Gentleman’s comments, and I rise to seek the following clarification. Am I right that it was in fact the previous Government who—sensibly—allowed unused tax assets to pay, at least in part, for the asset protection scheme to protect all of us against non-performing and toxic assets?
Stephen Timms
Indeed, and I am certainly not arguing against the long-established mechanism allowing tax losses to be used in that way. I am simply querying, just as a matter of fact, whether that is the reason why this Bill only makes one of the four promised year’s reductions in corporation tax. I have certainly not come across any other suggestions as to why the Bill is doing that in that way. People who have deferred tax liabilities—as opposed to the banks having deferred tax credits—would benefit from early enactment of the lower rate. Typically, that is people such as manufacturers. If that is the reason, this is, sadly, another case of helping out the banks at the expense of manufacturers.
Surely the Institute of Chartered Accountants in England and Wales is right to say that
“to provide better certainty for businesses”
there should be legislation
“as soon as possible for the proposed reductions in the main rate of corporation tax”.
When will the Government legislate for the remaining reductions? Will they do so in the Finance Bill that we have been promised in the autumn? Are we really going to have to wait for four years of Finance Bills to complete these reductions, as the Chief Secretary suggested, or can we look forward to legislation in the Finance Bill No. 3 of 2010? If certainty for business is the aim, it surely must be done this year at least.
When do the Government intend to introduce their changes to the rate of capital allowances and the annual investment allowance? I listened carefully to what the Minister said about that and perhaps I missed the point but I did not quite grasp which piece of legislation he envisaged those changes being made in. Will they be in the further Finance Bill in the autumn or will they await next year’s Bill? By that time, I suppose we might have some further data on the actual change in business investment in the next 12 months and how that compares with the change on which the Chancellor is pinning his Budget arithmetic.
There is something else about which the Bill is silent but on which we might have expected some change: the differential compared with the main rate of corporation tax inside the North sea ring fence. The ring fence for North sea operations rightly prevents taxable profits from oil and gas extraction in the UK and the UK continental shelf from being reduced by losses from other activities or by excessive interest payments. The ring-fenced corporation tax rate was the same as the main corporation tax rate, until the previous Government reduced the main rate from 30% to 28% from 1 April 2008; we left the ring-fenced rate at 30%. Now that the main rate has been announced as falling to 24%, do the Government intend to leave the ring-fenced rate at 30% throughout the next four years, thus trebling the differential from two to six percentage points or is a reduction to the ring-fenced rate being considered, perhaps along with some other changes to the fiscal regime for oil and gas extraction?
Let me finish by asking one further question. As I reminded the House, it was the previous Government’s explicit aim that corporation tax in the UK should be the lowest among the G7 economies, and we succeeded in achieving that aim. That is one of the reasons why the UK has been so successful over the past decade in attracting so much overseas investment into our economy. Do the present Government intend to ensure that we continue to have the lowest rate of corporation tax in the G7? Will that commitment be maintained?
As I explained at the outset of my remarks, it is not my aim to oppose this clause, but I hope that the Minister will provide some explanation for the omissions I have highlighted, and in particular give an account of why the remaining reductions in the rate of corporation tax have been delayed, and say when the legislation for them will be introduced.
Chris Leslie
I am grateful, Mr Benton, that you have seen fit to allow a stand part debate on this important clause, especially at a time when every measure in the Finance Bill and the Budget as enacted needs sufficient scrutiny to ensure that the general public can have confidence in the fact that any revenue forgone is forgone for a good purpose. At a time when our public services are threatened and look set to be cut so significantly, it is very important that, if this country is to give away potential yield through changes such as the corporation tax, this is done for the right reasons.
It is important to note that we want a healthy economy and for our companies, by and large, to be profitable and doing well. I do not, of course, want to revisit in too much detail our debate on the banking sector, but I point out that it is necessary to have an environment in which our companies can be competitive on a global scale, and to ensure that they can succeed. While we want companies to be profitable, we also want them to reinvest a lot of those profits, so that they can improve the capital stock, improve the ingenuity and enterprising innovation that goes on within such companies, and have a longer-term profitability trajectory. It is for those reasons that I am perplexed by the drastic reduction in capital allowances, to just £25,000. Manufacturing companies—the institutions that produce the actual goods we can sell and export abroad—may well be disadvantaged relative to other sectors of the economy.
Barry Gardiner
Is my hon. Friend aware of the predicated growth, contained in the Government’s figures, of the private sector generation of income into the Treasury over the next five years, and does he believe that that is compatible with the reduction in capital allowances that has been announced? In particular, would he care to comment on the timing of that reduction at precisely the moment when—if the Chancellor’s figures were to work out—the economy would be about to see the largest part of its expansion?
Chris Leslie
I am very disturbed that the Chancellor’s measures are coming at a time when our manufacturing industries are potentially just finding their feet and beginning to think about turning the corner out of the recession. Taking away some of those crucial allowances will not only affect those niche companies, which will, in turn, be the producers of the tool manufacturing equipment and the entrepreneurs whose work is so necessary and has perhaps been funded and supported by those allowances, but will, in a general context, potentially reduce the competitiveness of that particular sector of the economy.
It is a more general matter of debate whether some sectors of the economy benefit more than others from the corporation tax change. As I have said in previous debates, I am not sure whether my constituents would feel that the oil companies, the utilities and the banking sector should also have the gains from this corporation tax reduction. As I said in our debate some time ago, I am not convinced that now is the time to be giving away a £400 million windfall to the banking sector in this corporation tax cut.
Jon Trickett (Hemsworth) (Lab)
I am listening carefully to my hon. Friend’s argument. Has not the largest single factor in this recession been, in effect, a private sector investment strike? I am talking about the fact that £6 out of every £10 of the fall in gross domestic product is attributable to a single factor, which is that the private sector some time ago decided not to invest. There are all sorts of reasons why that should be, one of which is the failure of the banks to provide the capitalisation to allow those companies to invest—that touches precisely on the point that he was just making. Given that level of inactivity in investment, are we not facing both an increasingly inefficient private sector and, as has been said, the cuts in the allowances, which will make things worse?
Chris Leslie
Indeed that is the case. I know that my hon. Friend has done a great deal of work on some of the analysis of these points. There are arguments to be made for reducing corporation tax to boost competitiveness, but clearly that is a way of encouraging profit-taking and, in turn, the removal of money from companies in the form of dividends. That, of course, benefits us all in some ways, because we are all members of pension funds and so on. However, if it is indeed the Government’s particular choice at this point in time, as we are coming out of a recession, to try to encourage companies to focus on their long-term profitability, might it not be a better strategy, in some respects, to retain some of those capital allowances to ensure that we can fix our banks such that they are able to supply much-needed credit to small companies, in particular, and to the wider industries across the board?
Barry Gardiner
My hon. Friend rightly talks about the need for companies to pay dividends and the benefits of that for all of us in society, in particular pension fund holders. Does he appreciate that the portfolio of shares that our pension funds all hold can also increase in value by incentivising companies to reinvest in themselves? That happens by the increase in value of the company through the increased investment that it has made in itself. Is that not a more efficient way of doing things than paying out dividends, which may simply go into private pockets for consumption?
Chris Leslie
That is a moot point and I would not go to the wall to argue against reducing corporation tax in this way. All I am suggesting is that there are other strategies that I do not feel that the Government have properly explored. We ought to be focused on growth and on how business can contribute to it. Let us not forget that we have such a deficit situation in this country not because of so-called excessive public service consumption but because tax receipts have been so depressed. That has partly been caused by the credit crunch and the lack of credit available, which provoked the private sector investment strike that has been mentioned by my hon. Friend the Member for Hemsworth (Jon Trickett).
Stewart Hosie
When the hon. Gentleman and his hon. Friend talk about a private sector investment strike, I wonder whether it might not be because there has been negative growth in unused sterling credit facilities for the past 27 months. Businesses, large and small, have simply been unable to get the cash.
Chris Leslie
Indeed. There are liquidity problems across the economy and they remain. There are rumours in the air about the return of quantitative easing and that we might be entering into double-dip recession territory. All these things prove that the so-called independent Office for Budget Responsibility’s downgrading of growth predictions as a result of the measures in the Budget suggests that the Government had a choice in their hands to steer the economy in a particular direction and that they have chosen not the pro-growth path that the Liberal Democrats and the Labour party advocated before the election but, because of the damascene conversion of the Secretary of State for Business, Innovation and Skills the day after the general election, the anti-growth path. They will take a whole chunk of money out of the economy by cutting public services so steeply and so massively in such a short space of time.
Andrew Bridgen (North West Leicestershire) (Con)
Does the hon. Gentleman not appreciate that there is no money for the private sector from the banks because of the legacy of the last Labour Government? The Government are borrowing £3 billion a week—there is no money left for the private sector.
Chris Leslie
I do not agree that the private sector is crowded out in that way. I do not think that there is quite the evidence to suggest that. However, I am not sure that the hon. Gentleman, had he been in government during the crisis that the credit crunch provoked, would have done anything massively different to underpin and insure some of the banks against their losses at that time, purchasing shares in various banking institutions in order to keep the banking system going. I understand the partisan nature of his point, but all parties would have had to create that safety net for the banks at that time. I do not want to dwell on these matters, because time is limited and it is important to make my speech as brief as I can.
I want to ask the Minister specific questions about the absence of the small profits rate cut from the Bill, a matter on which I tabled an amendment. It is important to know why on earth it is not included. Typically, large corporations with their multi-million pound profits are at the front of the queue as far as this Government are concerned, but the real engine of growth in this economy is small firms. When I asked the Federation of Small Businesses about this, Stephen Alambritis, the head of public affairs, said that he was surprised at the signal sent to small businesses by the way in which the Bill is framed. He told me:
“It is important that small business is recognised in discussions about the Finance Bill. There should be a reduction in the tax rate for small business as there is for larger companies. There seems to be some discrimination from the coalition government, in that they are favouring large companies at the expense of small business”.
The Minister might say, “Of course they will get their cut,” but can we really trust the Government to deliver that if they are not putting such a measure in the Bill, particularly if they are not putting in the future years of the main rate cut, too?
A number of questions on this clause are exceptionally important. I obviously do not want to talk for too long, so I shall let the Minister respond.
Mr Gauke
In the Budget, my right hon. Friend the Chancellor announced a programme of measures aimed at improving the competitiveness of the UK economy, including four annual 1% reductions in the main rate of corporation tax, down to 24% in 2014, and a reduction in the small profits rate to 20% from April 2011, in contrast to the previous Government’s plan to increase it to 22%. That will reduce the tax rate for some 850,000 companies. The Budget also included, from April 2012, a reduction in the capital allowances main rate from 20% to 18%, a reduction in the special rate from 10% to 8% and a reduction in the annual investment allowance to £25,000. Despite that, investment allowances will permit more than 95% of businesses to offset completely their annual plant and machinery expenditure. As I said in our debate on amendment 49, by delaying these changes to allowances for two years but reducing the corporation tax rate next year, we are giving companies a year’s advantage.
We have been asked why we are legislating for the 1p cut in the main rate this year. This is the usual convention as the corporation tax main rate is usually set a year at a time. The right hon. Member for East Ham (Stephen Timms) is right to say that there was an exception in 1984, when four years were done together, but the usual convention is to do these things a year at a time. A distinction has been made between the mainstream rate and the small profits rate. The right hon. Gentleman, who was a distinguished Treasury Minister for several years, may have forgotten that payers of the corporation tax main rate are within the quarterly instalments payment regime and so require advance notice of the rate, as they might be making payments of corporation tax liability before 1 April of the relevant year in which profits fall in the next financial year. Payers of corporation tax at the small profits rate do not require advance notice, as they have until nine months after the end of the accountancy period to pay their tax.
Both main and small profits corporation tax rates have traditionally been set in this manner, and what we are doing is consistent with the usual approach. The right hon. Gentleman asked about deferred tax assets, but they are not the reason why we are doing this; we are simply following the usual convention.
Opposition Members have asked whether business can have faith in what this Government do, but they should give us some time and they will see exactly what we will do: we will follow through on these promises. No great concerns about this issue have been raised with us. On deferred tax assets, when I was in opposition, I received representations not from a bank but from a major manufacturer who made the point that the right hon. Gentleman has made, but that is not what has driven our thinking regarding the timing in this area.
Stephen Timms
The Minister says that it is normal practice to do what the Bill does, but as far as I know, there has been only one occasion since this tax was introduced when a series of reductions was announced, and those reductions were all legislated for in the 1984 legislation. I am not sure what precedent he is referring to that suggests that the way things are being this time is the normal way, as that is not the case.
Mr Gauke
The usual approach has been that the Finance Bill sets the small companies rate in-year, just as it sets the rate for income tax; the preceding year sets out the large companies rate. The right hon. Gentleman is right that there is a precedent for doing it another way, but we do not believe that business has any concerns that we will fail to follow through on our promises. There is an argument for doing it the other way, but we are pursuing the approach that has been adopted for a number of years.
Why cut corporation tax? As I have explained in debates on amendments to the clause, this package of measures takes real strides towards restoring the UK’s tax competitiveness, and will support economic growth in this country. It does so in a sustainable way that provides business with a clear direction on our long-term aims—a 1% cut every year for four years clearly demonstrates our position in making the UK open for business. No other legislative changes are proposed in the Finance Bill, although the small profits rate of corporation tax will reduce from 1 April 2011 from 21% to 20%, instead of rising to 22%, as the previous Government intended. I find it somewhat strange that those who were proposing to raise that tax are now outraged that we are not legislating to reduce it, or are calling for us to reduce it even further.
Stephen Timms
Will the hon. Gentleman comment on my question about whether it is an explicit aim of the Government that the UK rate of corporation tax should continue to be the lowest in the G7?
Mr Gauke
Of course, our proposals go beyond that. The explicit aim of this Government is to have the best corporate tax environment within the G20. That is considerably more ambitious, and we think that it will help to lead to the UK developing a stronger private sector that will lead us to recovery. The Bill and the clause represent a step in the right direction that will benefit the UK economy very strongly.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Schedule 1
Rates of capital gains tax
Stephen Timms
I beg to move amendment 30, page 6, leave out lines 13 to 16 and insert—
‘(3) The rate of capital gains tax in respect of gains accruing in a tax year to—
(a) the trustees of a settlement is 28%, and
(b) The personal representatives of a deceased person is 18% for the first £10,000 of gains and 28% thereafter.’.
The Government have decided to raise the rate of capital gains tax for people paying higher rate income tax. We are not going to object to that; indeed, we are interested to know why a higher rate has not been adopted. The rate will be left at 18% for people paying basic rate tax, but the higher rate of 28% will apply to all trusts. Some people with low incomes have their interests represented by trusts, and there is a case that it would be unfair for them to pay the higher rate. However, it has been agreed that the rate of income tax on discretionary trusts will be 50%, so I accept that it is logical to apply the higher rate of capital gains tax to them as well, although I have no doubt that that this is a question to which the House will want to return in future debates.
Amendment 30 applies to one specific situation that has been drawn to our attention by the Low Incomes Tax Reform Group—that is, the position of so-called estates in course of administration, to which the Bill as drafted would apply, in every case, a capital gains tax rate of 28%. In the case of the majority of estates of people who have died and who paid basic rate income tax prior to their death, those people, had they still been alive, would have been entitled to realise at least some capital gains at the lower rate of 18%. The Bill, however, applies a rate of 28% to any taxable gain.
The most common problem that the Low Incomes Tax Reform Group had in mind was a case in which a house increases in value between the point of the owner’s death and the point at which it is sold. Under the Bill as drafted, the whole of any such gain would be taxed at 28%, even if there was no other income or capital gain accruing to the estate at all.
I acknowledge that this is a relatively straightforward problem to identify but rather more difficult to solve. The amendment suggests that to remedy pragmatically what could, as I hope I have set out, otherwise be unfair, the first £10,000 of gains in a year should always be charged at 18%, rather than 28%, with gains above £10,000 being charged at 28%. I accept that that is not an ideal solution, because wealthy estates would benefit as well as the estates of people with low incomes. If the Exchequer Secretary has a better solution, I would be interested and eager to hear it, but I hope that he will recognise that there is a potential unfairness in relation to the estates of people with low incomes that realise capital gains after the individual’s death, typically when the estate includes a property.
If the Exchequer Secretary feels unable to accept the amendment, will he agree to reflect on the matter and consider whether it might be possible to address what would certainly be an unfairness in some cases in the next Finance Bill later in the year?
Mr Gauke
The amendment would set the capital gains tax rate at 18% for personal representatives of the deceased for the first £10,000 of gains, while retaining the 28% rate for gains above that level and for trustees. I am grateful to the shadow Minister for the explanation of the thinking behind it. As he said, the matter was raised by the Low Incomes Tax Reform Group. The Institute of Chartered Accountants in England and Wales made a similar point, stating that it would be appropriate to tax the personal representatives of a deceased person in the same way as basic rate taxpayers because it is a completely different situation to that of a trust.
We believe that the treatment of personal representatives in the Bill is appropriate. The amendment would add complexity and could give rise to unfair results or avoidance opportunities. The function of personal representatives is very similar to that of trustees. They have a duty to realise the assets of the deceased person on behalf of the heirs or legatees, and it should be their primary objective to complete their duties as quickly as possible so that the assets of the estate are distributed to those people without undue delay.
The amendment could provide an incentive for personal representatives to hold on to an asset while it appreciated, so that they could sell the asset and pay tax at 18% on the gain, rather than passing the asset directly on to an heir or legatee with a potential liability of 28%. There is no reason to give that sort of incentive to increase the value of a legatee’s inheritance by reducing the capital gains tax due.
I appreciate the manner in which the shadow Minister raised the matter and identified the problem. Quite fairly, he was somewhat tentative about the potential solution set out in the amendment, which I appreciate was of a probing nature. As I understand it, it is possible for personal representatives to pass assets to the heirs, so they could pay at 18% on the gains if appropriate. I will reflect further on the right hon. Gentleman’s points, but as I believe he recognises, amendment 30 has its weaknesses. It could give rise to avoidance opportunities and some unfair results, and consequently I urge him to withdraw it. However, I am grateful for his comments on the amendment.
Stephen Timms
I am happy not to force a vote, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Stephen Timms
I beg to move amendment 31, page 6, line 16, leave out ‘28%’ and insert ‘25%’.
The First Deputy Chairman of Ways and Means (Mr Nigel Evans)
With this it will be convenient to discuss the following: amendment 32, page 6, line 20, leave out ‘28%’ and insert ‘25%’.
Amendment 33, page 6, line 25, leave out ‘28%’ and insert ‘25%’.
Amendment 10, page 9, line 29, at end insert—
‘, provided that the Chancellor of the Exchequer has laid before the House of Commons a report on the implications of aligning rates of capital gains tax with rates of income tax.’.
Schedule 1 stand part.
Stephen Timms
The amendments are probing amendments. We are keen to understand the thinking that led to the figure of 28% as the rate of capital gains tax. We will not vote against the Government’s proposal or for the lower figure proposed in the three amendments.
I noted that some of my hon. Friends, including some who are in the Chamber, tabled an amendment calling for a higher rate at 40%. I understand why, in accordance with convention, it was not selected for debate. However, I am puzzled that no Liberal Democrat Members put their names to that amendment because it appears to reflect the proposal in their manifesto.
The Liberal Democrat manifesto, which is always an interesting read, sets out, under the slogan, “Change that Works for You”, a series of tax-raising measures, including,
“taxing capital gains at the same rate as income, so that all the money you make is taxed in the same way.”
The document, “Liberal Democrat Tax Plans”, went into more detail. It states:
“We propose to tax capital as income in order to remove this anomaly.”
That presumably means applying a 50% rate to those on the highest income, as well as a 40% rate to those on the higher rate tax. The Liberal Democrat document claims that that would raise £3.2 billion a year. It also argues for reducing the annual tax exempt allowance from the current figure of just over £10,000 to £2,000, thereby raising a further £0.9 billion a year. That is more than £4 billion a year—a significant contribution to avoiding the unfair VAT rise, which is at the heart of the Budget and against which the Liberal Democrats campaigned. If more than £4 billion had been raised in that way, one percentage point of the 2.5% VAT rise could have been avoided.
Some of the thinking in the Liberal Democrat documents survived in the coalition agreement, which states:
“We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income.”
The Liberal Democrats were therefore successful in at least getting the idea into the coalition agreement, but they signally failed to get it into the Bill. The Chancellor in his Budget speech flatly rejected the suggestion of reducing the annual exempt allowance. He said he would leave it at £10,000 and, far from reducing it to £2,000, would continue to uprate it in line with inflation in future.
I am encouraged to see the hon. Member for St Ives (Andrew George) in his place, together with some of his hon. Friends. He has tabled an amendment, about which he will speak shortly, and he may seek to pursue the ideas in the Liberal Democrat manifesto. It would be interesting to know whether Liberal Democrats really supported those proposals when they campaigned on them. Have they been persuaded by their coalition partners that they were naive or unrealistic, or that the proposals were damaging? Have most Liberal Democrats just given up, smothered in the embrace of their new partners and no longer capable of defending the policies on which they were elected?
I am very much looking forward to what the hon. Member for St Ives has to say on that. He has already described himself as a free-ranging Back Bencher, although he was not quite free enough to range into the Aye Lobby with the Opposition earlier this evening. I am keen to hear from him and perhaps from other Liberal Democrats, who appeared to have such distinctive views on capital gains tax during the election campaign but who have since seemingly abandoned them, choosing instead to support what is traditionally the Conservatives’ favourite tax-raising device, namely an increase in VAT.
We also need an explanation from the Minister, because, as I said, the coalition agreement states:
“We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income”.
It is a bit hard to see how 28% can be described as
“similar or close to”
40%, let alone to 50%, and I hope the Minister can offer some explanation for the adoption of 28%, which seems to be at variance with the agreement. Perhaps he could shed some light on how vigorously—behind the scenes within the Government—Liberal Democrat members of the coalition fought for the position that they succeeded in negotiating into the agreement. Alternatively, is the truth that having got that into the agreement, they simply gave up, vacated the field and meekly accepted 28% as the best that the Conservatives were going to offer them? It would be of great interest to many of us if the Minister could shed light on those discussions.
Why was the figure of 28% chosen? It somewhat narrows the differential between tax on income and tax on capital gains, but it does not narrow it any further than the position before the introduction of the 50p rate, and nowhere near abolishes it. Indeed, increasing the rate by just 10 percentage points means that somebody on the 50p rate of income tax has exactly the same incentive to convert their income into capital gains as when they paid tax at 40p in the pound. For those people—the highest earners—there has been no reduction in the incentive, but as I understand it, reducing the incentive was the whole reason for the change.
There was one hint in the Chancellor’s Budget speech on the reason for choosing 28%. He said:
“I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]
I would be grateful if the Minister could confirm whether the Government’s view is that 28% is close to the revenue-maximising rate. Is 28% the rate at which proceeds from capital gains tax are maximised? Is he willing to place in the Library the “dynamic analysis” to which the Chancellor referred that shows how proceeds would decline if the rate were set at higher than 28%, more in keeping with the proposal in the Liberal Democrats’ manifesto?
The Red Book tells us that that change will generate £725 million next year. That is certainly a handy and significant sum, but it is only about one sixth of the amount that the Liberal Democrats wanted to raise from increasing capital gains tax. Can the Minister tell us how much of that £725 million will be raised in capital gains tax, and how much of it will raised in income tax that would otherwise have been avoided by switching to capital gains?
Paul Uppal (Wolverhampton South West) (Con)
I pay tribute to the right hon. Gentleman. It is good to see him in Committee. As a new Member, I was appalled by the dreadful event that afflicted him and it is good to see him in good health and good temper.
From my experience of the working of capital gains tax, and from speaking to constituents, it is a tax that is at the discretion of the individual investor. If prudent investors accrued a capital sum over a period of time, under the old system of indexation they would hold it for a long time and then realise the gains, often paying a minimal amount of capital gains tax. He will remember the 1970s, when CGT was very high and private investors would often ask “Why materialise this asset and pay the tax?” The 28% rate strikes a fair deal, and those of us on the Conservative Benches who come from a real business background understand and appreciate that a deal has to be struck with private investors and business.
Stephen Timms
I am grateful to the hon. Gentleman for his kind remarks, and to the Minister for his generous remarks earlier.
Of course taxpayers have opportunities, for example, to defer payment of capital gains tax and I shall come to such instances in a moment. The hon. Gentleman suggests that 28% is a compromise, but the Chancellor suggested that it might be—or is at least close to—the rate at which revenue is maximised. The Treasury has carried out some dynamic analysis to illustrate that, and it would be welcome if it could be placed in the Library so that hon. Members can see it. We need to know more about the reasons for the choice of rate, and I hope that the Minister will be able to provide us and some of his Liberal Democrat partners with some much needed enlightenment.
I wish to press the Minister on two further aspects of the proposed change—the timing of the change and, on the change to entrepreneurs relief, the reason for the increase in its generosity and the change to the way the amount relieved will be calculated. First, on the timing point, the Minister will be very familiar with the arguments against changing tax rates mid-year. Indeed, when our positions were reversed, he used to rehearse regularly the arguments against the kinds of complexities caused by changing rates mid-year. Indeed, some of his hon. Friends said earlier that they were looking forward to the Government simplifying the tax system. This is their first Bill and they have introduced a new and unprecedented complexity. What is it that persuaded the Minister that this particular complication was worth introducing? I am told that there has never been a mid-year change of rate in CGT since it was introduced in the mid-1960s. Will he acknowledge that this should not be the norm—that sudden and unannounced lurches in tax rates, in the middle of a tax year, are damaging and undermine people’s confidence in the tax system? Can he assure us that the Government will do their utmost to avoid a repetition in future?
The Institute of Chartered Accountants in England and Wales says that there are likely to be a number of practical problems, in particular with changes to the supplementary pages for capital gains for the self-assessment tax return and for filing online. Are the Government aware of those problems, and is the Minister able to tell us how they will be addressed? ICAEW also makes the point that the transitional provisions for the current financial year are insufficient from a technical standpoint. Is it intended to make further transitional arrangements in the third Finance Bill of this year—the one to be brought forward in the autumn? Is the Minister able to confirm that these matters will be discussed with the experts of the CGT liaison group, ensuring through a collaborative approach that the final legislation later this year covers all the issues raised by a mid-year change?
John McDonnell
Following on from my right hon. Friend’s exposition, I want to speak briefly to amendment 10, which stands in my name. Amendment 10 simply calls for a report on the implications of aligning the rates of capital gains tax with those of income tax. I drafted amendments that were not in order, which calls into question the ability of Back Benchers to amend the Finance Bill and is perhaps something that can be discussed at a later date.
When capital gains tax was introduced in 1965, it was an attempt to get some equivalence between income tax and taxation on gains through capital investments. There has been reform since then. It is interesting that, under Conservative Chancellors, capital gains tax was aligned with income tax rates. Then, in the late 1990s, the Labour Government introduced the tapers and the link to the time that an asset was held. In 2007, there was further need for reform when it was discovered that executives of hedge funds were determining carried interest—their bonuses, that is—as part of their capital gains tax relief. As a result, they were effectively paying 10% tax on their income—less than their own cleaners. All parties in the House acknowledged that that was a scandal and recognised the need for reform.
It is accepted that there is an element of compromise between, on the one hand, an equitable tax relationship between income tax and capital gains tax, and, on the other, an arrangement that will support genuine entrepreneurs and business. There has always been an element of fudge, but there was a view that we would try to address the issue in this Finance Bill, whoever was in Government. The previous Government were considering capital gains tax reform, and that was widely supported by the Institute for Fiscal Studies and the Institute of Chartered Accountants. Indeed, Lord Lawson himself made statements about the need for a more equitable relationship between the two, in order to tackle tax avoidance. Such reform was also included in the Liberal Democrats’ manifesto. I do not want to bait the Lib Dems tonight. This is too important an issue for that, although it can be quite entertaining.
In an interview with Andrew Marr, the Prime Minister said:
“I think everyone recognises there is a problem. When you have a capital gains tax rate of 18% and a top rate of income tax at 50%, you’ll find people finding all sorts of ways to treat income as capital gains.”
He went on to say that the new Government would look at taking a different route to help what he described as the fairness agenda. The problem is exacerbated by the 50% increase. With income tax at 50%, even the 28% rate of capital gains tax proposed in the Bill will still leave a 22% differential to encourage further tax avoidance as people designate their income as capital gains.
My amendment simply asks for a report to be produced that will examine afresh the implications of the alignment between income tax and capital gains tax. I believe that we shall return to this issue in further Finance Bills, because I do not believe that this compromise will hold, or that it will be seen to be equitable or fair. I believe that tax avoidance will continue, certainly among the highest paid, who will re-determine their income as capital gains in order to pay the lower rate of 28%. I accept that an increase of 10% is significant, but it is not significant enough to implement the fairness agenda that the incoming Government have proposed.
Andrew George
It is a pleasure to follow the hon. Member for Hayes and Harlington (John McDonnell). I am pleased that, unlike the right hon. Member for East Ham (Stephen Timms), he chose not to bait the Liberal Democrats tonight. At this late hour, it would perhaps not be a good idea to respond to the rather combative approach taken by the right hon. Gentleman in his opening remarks. I shall merely point out that the Labour party, which claims to be the champion of the working poor, created a capital gains tax environment in which the cleaners of wealthy bankers were paying a higher marginal rate of tax than the bankers themselves. That is no doubt a cause of great embarrassment to the previous Government, so I do not think the Liberal Democrats need take any lectures from Labour Members on this issue.
Reducing the capital gains tax rate from 40% to 18% had many unintended consequences for communities across the country, including my own, which sucked in a lot more second home ownership. The more advantageous tax environment enabled more people to purchase second homes, and this made the housing environment, particularly for affordable homes, a great deal worse in many parts of the country. It is worth responding to the right hon. Gentleman: if he wishes to bait, we can certainly fight back. As for the questions he asked, most were directed at those on the Treasury Bench. The intention behind the starred amendments—I cannot refer to those standing in my name—was to probe the Government about the purpose of and background to the decision to set the capital gains tax rate at 28%.
The Exchequer Secretary has done an excellent job of responding to the issues raised this evening. I previously put questions to him—about his Department’s economic modelling to determine the level of capital gains tax; what research or impact assessments he undertook before deciding to roll forward with the capital gains tax proposals; and the Department’s estimates of the revenue accruing to the Exchequer from capital gains tax if the income tax rates for those with an income above the higher rate threshold were set at a range of different levels—which he answered on 7 July. Unfortunately, I was not given the requisite information to make an adequate assessment of the likely impact of this particular measure in contrast to the setting of capital gains tax at another threshold.
I put questions to my right hon. Friend the Business Secretary in the Budget debate—on 1 July, I believe, but I might have to check that. I asked him why the capital gains tax rate had been set at 28% and not a higher rate. The answer was that there is a law of diminishing returns. By the time that level is reached, the return to the Treasury would be significantly less, making it not worthwhile to take it beyond that particular level. Unfortunately, we do not have the statistical or factual basis on which to make that assessment.
Partly in response to the right hon. Member for East Ham, who commented on the Liberal Democrat manifesto commitments in the context of the level at which the threshold should be set, we have to address ourselves to the lack of evidence and information that the previous Government provided. The information on which many policy decisions were taken might well have been unreliable Treasury estimates at the time.
In conclusion, I urge the Exchequer Secretary to provide a little more information in response to my previous questions, which I think would help us all to understand rather better why the capital gains tax rate has been set at 28% and not at some other level. That would help to reassure us that it is not going to attract those who would have had to pay income tax at a much higher level if they had not simply transferred their assets into capital.
Mr Gauke
Clause 2 and schedule 1 introduce the changes to capital gains tax from 23 June 2010, as we have heard. The coalition agreement involved a commitment by the Government to align capital gains tax to levels similar or close to those applied to income, while providing generous exemptions for entrepreneurial business activity.
Within the Treasury team, we looked at various options as to how best to achieve that. The conclusion we reached, however, was that contained in the schedule. For individuals, the rate remains 18% when their income and gains for the tax year do not exceed their income tax basic rate band. Above that level, the rate is increased to 28%. Therefore, someone who is already paying income tax at the 40% or 50% rates will pay 28% on all their gains. As was mentioned in an earlier debate, the 28% rate applies to trustees and personal representatives, who will pay capital gains tax at that rate on all their gains. That ensures that trusts are not used to shelter personal gains from the higher rate of capital gains tax.
Mr Gauke
I believe that the overall effects for this period balance out, but I shall write to the right hon. Gentleman to confirm that.
The right hon. Gentleman asked about the self-assessment return and guidance notes to help people to work out their final liability. For the tax year 2010-11, HMRC has worked to automate more of the online self-assessment processes in order to help customers with the changes. The software will be available for customers to use from 6 April 2011. The improvements will be conveyed to third-party software developers at the usual time, enabling them to modify their products in good time. Full guidance will be available in the self-assessment notes on HMRC’s website and through its helplines.
Andrew George
May I return the Exchequer Secretary to the subject of the “composition of income” behavioural impact that he described earlier? He referred to the tax yield in forthcoming years. Is the tax yield for every reduction of one percentage point assumed as a continuing line beyond the 28%? What happens to the behavioural change after that?
Mr Gauke
The assumption is that there is an ongoing gain—that we will gain more in income tax as a consequence of the rise in the CGT rate.
The reason why there is no yield this year has suddenly dawned on me. We do not get the receipts for capital gains tax through self-assessment immediately; it is only in future that CGT will be paid through the self-assessment process.
Stephen Timms
The Minister has made the point, however, that most of the gain is in fact income tax, which surely would score in the coming year?
Mr Gauke
I think we will see more of that behavioural effect as time goes by, but I am not sure that that will come through immediately. In some cases, it will depend on when the additional income will be crystallised or realised. I think that is the explanation, but if I have anything to add I will write to the right hon. Gentleman.
Mr David Ward (Bradford East) (LD)
There is a time lag, which is why the receipts are not shown for this year. There is also a bringing forward of benefit because, as opposed to the lock-in, there is an advance disposal of the assets which would not otherwise have taken place. Also, of course, there will be a release of income tax, rather than a waiting for a capital tax and putting off the delay that would come from the capital gain.
Mr Gauke
I will write to my hon. Friend to explain further why there is no yield in the current year, but I am very grateful for his expertise in this matter.
Questions were also asked about serial entrepreneurs who cannot claim entrepreneur’s relief and defer gains under the enterprise investment scheme. People can now choose between claiming entrepreneur’s relief and paying capital gains tax at 10% or deferring a tax charge by reinvesting under the EIS and paying 18% or 28% when the postponed gain comes into charge. If they claim entrepreneur’s relief they can still invest in EIS companies. The CGT deferral relief will not be available, but income tax relief under the EIS could still be available if the conditions are met. Serial entrepreneurs who have used up their lifetime limit of entrepreneur’s relief will be able to claim the EIS deferral relief on gains above the limit. Allowing individuals to claim both entrepreneur’s relief and deferred gains will be highly complex and is inconsistent with the aim of simplifying the tax system.
The right hon. Member for East Ham also asked whether Her Majesty’s Revenue and Customs is planning any extra education about the changes for customers and their advisers. HMRC will talk to representative bodies about what extra guidance is required. It will see what practical help it can give to agents generally through the “working together” agent network, and it will look at working with the media and interest groups to raise awareness among individuals who may be affected by the changes.
This is a reform that protects the Exchequer while ensuring that those on lower incomes are protected and the recovery is safeguarded. We have acted in a way that is in the spirit of the coalition agreement. I do not think any Member on the Government Benches would want to raise taxes beyond a level that would maximise revenue—revenue that is, after all, used to fund a substantial increase in the income tax threshold, taking 880,000 people out of income tax. If we had raised the level further, or if we had raised it by less, we would not have been able to do so much in that particular area. Consequently, we believe that 28% is the right level. We do not intend to return to this matter, and I ask that schedule 1 be agreed.
Stephen Timms
I do not propose to press this to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 1 agreed to.
To report progress and ask leave to sit again.—(Mr Newmark.)
The Deputy Speaker resumed the Chair.
Progress reported; Committee to sit again tomorrow.
Business without Debate
Delegated Legislation
Committees
Mr Deputy Speaker (Mr Nigel Evans)
With the leave of the House, we will take motions 4 to 22 together.
Ordered,
Business, Innovation and Skills
That Luciana Berger, Mr Brian Binley, Jack Dromey, Rebecca Harris, Margot James, Nicky Morgan, Chi Onwurah, Rachel Reeves, Mr David Ward and Nadhim Zahawi be members of the Business, Innovation and Skills Committee.
Communities and Local Government
That Heidi Alexander, Bob Blackman, Clive Efford, George Freeman, Mike Freer, Stephen Gilbert, George Hollingbery, James Morris, Toby Perkins and Chris Williamson be members of the Communities and Local Government Committee.
Culture, Media and Sport
That Ms Louise Bagshawe, David Cairns, Dr Thérèse Coffey, Damian Collins, Philip Davies, Paul Farrelly, Alan Keen, Mr Adrian Sanders, Jim Sheridan and Mr Tom Watson be members of the Culture, Media and Sport Committee.
Defence
That Mr Julian Brazier, Mr Jeffrey M. Donaldson, John Glen, Mr David Hamilton, Mr Mike Hancock, Mr Adam Holloway, Mrs Madeleine Moon, Alison Seabeck, Bob Stewart, Ms Gisela Stuart and John Woodcock be members of the Defence Committee.
Education
That Conor Burns, Nic Dakin, Pat Glass, Damian Hinds, Liz Kendall, Charlotte Leslie, Ian Mearns, Tessa Munt, Lisa Nandy and Craig Whittaker be members of the Education Committee.
Energy and Climate Change
That Dan Byles, Gemma Doyle, Tom Greatrex, Dr Phillip Lee, Albert Owen, Christopher Pincher, John Robertson, Laura Sandys, Sir Robert Smith and Dr Alan Whitehead be members of the Energy and Climate Change Committee..
Environment, Food and Rural Affairs
That Nigel Adams, Mr David Anderson, Tom Blenkinsop, Thomas Docherty, Bill Esterson, George Eustice, Mrs Mary Glindon, Neil Parish, Dan Rogerson and Amber Rudd be members of the Environment, Food and Rural Affairs Committee.
Foreign Affairs
That Mr John Baron, Sir Menzies Campbell, Ann Clwyd, Mike Gapes, Emma Reynolds, Andrew Rosindell, Mr Frank Roy, Sir John Stanley, Rory Stewart and Mr Dave Watts be members of the Foreign Affairs Committee.
Health
That Rosie Cooper, Nadine Dorries, Andrew George, Fiona Mactaggart, Grahame M. Morris, Mr Virendra Sharma, Chris Skidmore, David Tredinnick, Valerie Vaz and Dr Sarah Wollaston be members of the Health Committee.
Home Affairs
That Nicola Blackwood, Mr Aidan Burley, Lorraine Fullbrook, Dr Julian Huppert, Steve McCabe, Mary Macleod, Alun Michael, Bridget Phillipson, Mark Reckless and Mr David Winnick be members of the Home Affairs Committee.
International Development
That Hugh Bayley, Mr Russell Brown, Richard Burden, Mr James Clappison, Richard Harrington, Pauline Latham, Jeremy Lefroy, Ann McKechin, Anas Sarwar and Chris White be members of the International Development Committee.
Justice
That Mr Robert Buckland, Chris Evans, Mrs Helen Grant, Mrs Siân C. James, Jessica Lee, Mr Elfyn Llwyd, Claire Perry, Yasmin Qureshi, Mrs Linda Riordan, Anna Soubry and Karl Turner be members of the Justice Committee.
Public Accounts
That Mr Richard Bacon, Stephen Barclay, Jackie Doyle-Price, Justine Greening, Matthew Hancock, Chris Heaton-Harris, Joseph Johnson, Eric Joyce, Mrs Anne McGuire, Austin Mitchell, Nick Smith, Ian Swales and James Wharton be members of the Committee of Public Accounts.
Public Administration
That Kevin Brennan, Nick de Bois, Michael Dugher, Charlie Elphicke, Paul Flynn, Robert Halfon, Greg Mulholland and Mr Charles Walker be members of the Select Committee on Public Administration.
Scottish Affairs
That Fiona Bruce, Cathy Jamieson, Jim McGovern, Mark Menzies, David Mowat, Fiona O’Donnell, Mr Alan Reid, Lindsay Roy, Julian Smith and Dr Eilidh Whiteford be members of the Scottish Affairs Committee.
Statutory Instruments (Joint Committee)
That Mr Robert Buckland, Michael Ellis, John Hemming, Mr Ian Liddell-Grainger, Mr George Mudie and Toby Perkins be members of the Select Committee appointed to join with a Committee of the Lords as the Joint Committee on Statutory Instruments.
Transport
That Angie Bray, Lilian Greenwood, Mr Tom Harris, Kelvin Hopkins, Kwasi Kwarteng, Mr John Leech, Paul Maynard, Angela Smith, Iain Stewart and Julian Sturdy be members of the Transport Committee.
Welsh Affairs
That Guto Bebb, Alun Cairns, Geraint Davies, Glyn Davies, Jonathan Edwards, Nia Griffith, Susan Elan Jones, Karen Lumley, Jessica Morden, Owen Smith and Mr Mark Williams be members of the Welsh Affairs Committee.
Work and Pensions
That Harriett Baldwin, Karen Bradley, Ms Karen Buck, Margaret Curran, Richard Graham, Kate Green, Mr Oliver Heald, Sajid Javid, Stephen Lloyd and Shabana Mahmood be members of the Work and Pensions Committee.—(Geoffrey Clifton-Brown, on behalf of the Committee of Selection.)
Treasury
Ordered,
That, notwithstanding the provisions of Standing Order No. 121(2) (Nomination of select committees), John Cryer, Michael Fallon, Mark Garnier, Stewart Hosie, Andrea Leadsom, Mr Andrew Love, John Mann, Mr George Mudie, Jesse Norman, David Rutley, John Thurso and Mr Chuka Umunna be members of the Treasury Committee.—(Mr Newmark.)
Science and Technology
Ordered,
That, notwithstanding the provisions of Standing Order No. 121(2) (Nomination of select committees), Gavin Barwell, Gregg McClymont, Stephen Metcalfe, David Morris, Stephen Mosley, Pamela Nash, Jonathan Reynolds, Alok Sharma, Graham Stringer and Roger Williams be members of the Science and Technology Committee. —(Mr Newmark.)
Business of the House
NHS (Cornwall)
(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Sarah Newton (Truro and Falmouth) (Con)
I am delighted to have this opportunity of welcoming the publication today of the coalition Government’s health White Paper, “Liberating the NHS”. It received a warm welcome in Cornwall this evening during the evening news on the BBC, with support from patient groups and GPs. I believe that making the NHS more accountable to patients and freeing staff from excessive bureaucracy and top-down control will drive up quality of care and outcomes for patients. I also welcome the measured pace of change and the Government’s desire to engage in a wide range of consultations to get the detail of the proposals working for the benefit of patients.
This evening, I would like to describe the current situation and direction of travel of the NHS in Cornwall, and to raise one important aspect outlined in “Liberating the NHS” today: assuring the continued improvement in quality of care in Cornwall. In addition to the ambulance service, we have three organisations that commission or provide care for people in Cornwall: the Royal Cornwall Hospitals NHS Trust, the Cornwall Partnership NHS Foundation Trust, and the Cornwall and Isles of Scilly primary care trust. There have been significant problems with some aspects of the quality of care provided by those organisations, but over the past three to four years improvements have been made. Significant challenges remain, and it is essential that momentum be maintained in the further improvement from ratings of “adequate” and “fair” to “good”, and then sustained at that level.
The Royal Cornwall Hospitals NHS Trust annual health check ratings demonstrate some steady improvement. Areas that needed work were governance, financial management, infection control and elderly care. The quality of service was rated “weak”, and remained weak until 2008-09. However, more recently the trust has demonstrated overall improvement through the interim core standards declaration in October 2009. The trust was registered under the Health and Social Care Act 2008 in April 2010 without conditions and with only minor concerns. The overall annual health check ratings of the Cornwall Partnership NHS Foundation Trust demonstrate improvement in performance, particularly since the high-profile investigation of services for people with a learning disability. In 2005-06, the trust’s quality of service was rated weak, improving to good in 2007-08, and that improvement was sustained into 2008-09. Its quality of financial management similarly improved. The trust was registered without conditions under the 2008 Act in April 2010, and achieved foundation status on 1 March 2010.
The Cornwall and Isles of Scilly PCT has also seen some improvement in performance. In 2006-07, its quality of commissioning was rated fair, improving to good in 2007-08 and then returning to fair in 2008-09, and its quality of financial management is improving to good. The trust was also registered without condition, however this was with a moderate level of concern.
Also of relevance to all three Cornwall NHS trusts is the report on the inspection of safeguarding and looked-after children’s services published by Ofsted on 23 October 2009. Out of 16 outcomes, Cornwall council was awarded only one score of “good”—there were six of “adequate” and nine of “inadequate”. Although most issues for action are for the local authority, there were also issues for the health community to address, which involve all three NHS trusts to a greater or lesser degree. Action plans are in place, and oversight and scrutiny of the health element is provided by the South West Strategic Health Authority. It is performance-managing progress on delivery of the action plan weekly and bi-monthly, alongside an improvement board, which has been established.
At such an important time, when Cornwall’s NHS trusts are working hard to improve the quality of care, which they need to deliver for Cornwall, it is essential that momentum is not lost. The regulation of the quality of care is vital to patient confidence. The ability of patients and clinicians to access information about the quality of services provided, as well as their being able to feed in information to the inspection and regulation regime, is very important. With the abolition of many centrally imposed targets and more devolved target setting and commissioning, the regulation and inspection of the quality of commissioning will need to adapt to this new environment. Many local factors are important to health outcomes in Cornwall, such as access to services, and those will be able to be taken into consideration. There is also an opportunity to invite the greater involvement of patient and clinical experience of services into the regulation and inspection regime.
The information provided to patients must embrace all that goes on to make up quality, including access, waiting times, cleanliness, infection rates, quality of clinical care, results for patients, access to same-sex accommodation and single rooms, cancelled operations, emergency readmissions, discharge arrangements, numbers of complaints, patient experience and patient-reported outcomes. Most of those data already exist, but they are difficult to access for many people. An open attitude to acknowledging and acting upon criticism is also needed to drive up the quality of care. If we had an open information culture, the scandalous failings that took place in Maidstone and Tunbridge Wells and then at Stafford hospital would not have gone unchallenged.
I am concerned by the number of clinicians in the NHS in Cornwall who tell me that when they challenge their manager and try to improve a service for patients they are told, “Nothing can be done”, “There’s no point saying anything as nothing will change” and, “Don’t ask, don’t tell, don’t complain”. At Mid Staffs there was clearly a sense among some of the professionals, and indeed the public, that the hospital had problems, but that was just the way things were done. That is just not good enough. We should never allow that sort of thing to happen again.
Andrew George (St Ives) (LD)
My hon. Friend is making a good point, particularly about whistleblowers in the NHS. It is vital that they are treated seriously and not threatened or bullied as a result of their whistleblowing.
Within the coalition agreement, to return to the role of patients and the local community, there was a commitment to a strong voice for patients locally through directly elected individuals on the boards of local primary care trusts, with the other members being representatives from the local authorities. However, those PCTs will be abolished. Does my hon. Friend agree that in Cornwall we need to ensure that there is some democratic accountability and community representation in the overview, scrutiny and management of the local NHS?
Sarah Newton
I thank my hon. Friend for that comment and I am sure that when the Minister replies he will describe some of the proposals in the White Paper to give local authorities and representatives far greater involvement in the overview and scrutiny of health services.
Instead of whistleblowing being seen as going outside the organisation, we should see such challenges as integral to safety and improvement within the organisation. In April 2009, John Watkinson was dismissed from his role as chief executive of the Royal Cornwall Hospitals NHS Trust. He took his case to an employment tribunal, which has published its judgment that he was unfairly dismissed. In the opinion of the tribunal, he was unfairly dismissed because he made a “protected disclosure” covered by the Public Interest Disclosure Act 1998. The disclosure was linked to the reconfiguration of upper gastro-intestinal services in Cornwall. The tribunal also found that the trust acted as it did as a result of pressure from the South West strategic health authority. Verita, a specialist company that conducts independent investigations, reviews and inquiries, has been commissioned to undertake a review and will report later this year. With a different culture in the NHS, this difficult situation might well have been avoided.
In the same way, instead of seeing complaints as a burden, distraction or something to be dealt with outside mainstream service provision, we must see them as integral to the improvement of the service that we provide. Learning from our mistakes, listening to complaints, comparing what we do, evaluating our performance and constantly seeking to improve quality are the features of the best performing organisations in every sector, and they can be already found in the best performing NHS trusts.
Listening to patients—asking, reporting and learning from patient experience—will be of great importance in designing and improving services, including achieving greater efficiency. However, the NHS too often asks insufficiently penetrating questions, insufficiently frequently, of too few patients. The NHS patient survey, which asks whether patients are satisfied with the care they received, is too much like asking patients if they are grateful.
I have read with interest the section in the White Paper entitled, “Autonomy, accountability and democratic legitimacy”. It sets out the outline of the proposed registration, evaluation and inspection regime. The Care Quality Commission process is new and generally thought to have made a good start in Cornwall, and I am pleased to see that it has an extended role in regulating quality of care.
Given the important stage that the NHS trusts have reached in Cornwall, assistance from those aiding the improvements that have already been identified in action plans needs to continue. As a result, I want to understand what plans the Minister has to develop the regulation and inspection of care providers and commissioners to ensure that standards of health care and the confidence of clinicians and patients in that care are improved. What is the time frame for migrating from the current regime to the new one and who will be involved in the consultation process for the creation of the new regime?
The Minister of State, Department of Health (Mr Simon Burns)
May I say, Mr Deputy Speaker, what a particular pleasure it is to have you in the Chair this evening for this important and interesting debate on the NHS in Cornwall? I pay tribute to my hon. Friend the Member for Truro and Falmouth (Sarah Newton) for securing her first Adjournment debate on this subject, which is important not only to her constituents but to the constituents of all other hon. Members and hon. Friends from Cornwall. I know from an earlier debate in Westminster Hall with my colleague the hon. Member for St Ives (Andrew George) that he has long-term concerns about funding for the NHS in Cornwall.
The comments of my hon. Friend the Member for Truro and Falmouth about my right hon. Friend the Secretary of State’s announcement on the White Paper, “Liberating the NHS”, and the way it has found approval in her county are replicated throughout the country. That is, as she rightly said, because of the freedoms and liberation that the Government are giving to the NHS, not only in Cornwall but throughout England, so that we do not have an NHS that is distorted by targets and in which clinical decisions are taken not on clinical grounds but to meet deadlines. We will not have politicians and civil servants in Whitehall seeking to micro-manage the NHS throughout the country.
Next to reducing the deficit, the NHS is the Government’s top priority. That is why we have decided that, despite the dire state of the public finances, the sick should not have to foot the bill for years of living beyond our means. We will increase NHS spending in real terms for each year of this Parliament. As today’s White Paper sets out, that money will be accompanied by a radical shift of power away from the centre and down to the front line. For the first time, NHS staff will have the responsibility and the resources to improve outcomes for patients, free from the shackles of central Government, and patients will be given more power over their care and treatment than ever before.
The White Paper shows that the NHS can become a truly world-class service that is easy to access, that treats people as individuals and that offers care that is safe and of the highest quality. We have published a revised operating framework for the NHS as a first step in delivering those priorities. The framework is putting in place a zero-tolerance approach to infections, setting out how we can move from process targets to evidence-based measures of quality, developing payments for performance geared to results and moving towards a service that empowers clinicians and makes them more accountable for achieving the best outcomes for their patients.
The NHS in Cornwall has made important strides in the past 12 months and I pay tribute to NHS staff across the whole county, who are already improving the care given to my hon. Friend’s constituents. For example, in 2008-09, the Care Quality Commission’s annual health check gave the Royal Cornwall Hospitals NHS trust a “weak” designation for quality of services, but with the hard work and dedication of staff, it obtained registration without conditions with the CQC for 2010-11. On 1 March, the Cornwall Partnership NHS trust became Cornwall’s first foundation trust. It has consistently achieved good ratings from regulators and I know that its services are well regarded by patients and commissioners.
The PCT is working hard to move services closer to home for patients, with several services being brought back into the county, including those on surgery to widen blocked or narrowed coronary arteries, breast reconstruction, treatment for wet, age-related macular degeneration and services for weight management. In the past two years, the PCT has moved care closer to home for more than 19,000 people and it is committed to moving a further 10% of services out of district general hospitals and into the community. It will also work with the local authority to improve patient transport services in order to improve access for the constituents of my hon. Friend and of other hon. Members who are present.
The NHS in Cornwall is involved in some innovative pilot schemes. The whole systems demonstrator pilot is enabling more than 1,000 people to be cared for while remaining independent and in their own homes. That is the biggest pilot of its kind in the UK. The Newquay integrated care pilot is changing the way that people with dementia are cared for. A new purpose-built health centre has just opened in Truro alongside the two existing GP practices. It provides a wide range of services, including family planning, podiatry, physiotherapy, speech and language therapy and social care. The scheme is the result of collaboration between local GPs, members of the public, the local council and other stakeholders.
My hon. Friend mentioned the situation at the Royal Cornwall Hospitals NHS Trust. Although it received a “weak” designation in 2008-09, the CQC annual health check showed that significant improvements have enabled it to obtain registration without conditions with the CQC for 2010-11. After an independent review of management and governance, and recommendations reported in 2009, the strategic health authority carried out a six-month review of the trust’s progress, followed by monthly follow-ups until the end of the last financial year.
At that point, the trust was able to confirm that it had achieved all the recommendations. The PCT and the SHA are arranging a formal meeting with the Royal Cornwall Hospitals NHS Trust further to review the trust’s performance against the recommendations. At its board meeting on the 30 June, the trust agreed the updated chairman’s progress review action plan, which continues to be monitored through the trust’s monthly chairman’s meeting. Progress reports have been shared with the PCT, and clear progress is being made.
My colleague the hon. Member for St Ives (Andrew George) discussed the election of members to PCT boards—a proposal which, as he now knows, is somewhat past its sell-by date. As a result of discussions with the coalition, we have determined the right way forward. In addition to abolishing strategic health authorities—that was in his manifesto—the whole reform package in the White Paper on PCTs and the transfer of commissioning to GP practices makes his proposal redundant. The idea of locally elected PCT members will therefore not be pursued.
Andrew George
I am grateful to the Minister for his response. As he says, things have moved on in a few weeks on the commitment directly to elect PCT boards, but a vacuum has been left, and not just in Cornwall, because we must make sure that finances are adequate for future need and because the local community cannot be represented through the GP commissioning boards. It needs a role in the shaping of services.
Mr Burns
I am extremely grateful to my hon. colleague. As he reads the White Paper in conjunction with other documents that will flow from it in the next few weeks, he will come to understand that all the pieces are in place to deal with the concerns that he has expressed. We as a Government are committed to providing a strong local voice for patients through democratic participation. As he and my hon. Friends will appreciate, the nub of the White Paper announced today for Cornwall and for the rest of England is about putting patients at the heart of our reforms, so that their desires and health care needs drive the reformed NHS. No longer will the NHS be told from the top what has to be done throughout our local communities, both in Cornwall and elsewhere. It will be driven by a bottom-up, rather than a top-down, process. To meet that objective, PCT commissioning functions will be phased out and transferred to the NHS commissioning board.
My hon. Friend the Member for Truro and Falmouth asked about the time scale for these reforms. The time scale for phasing is between now and 2013. We propose to replace PCTs with an enhanced role for elected councillors and local authorities to boost local democratic engagement in the NHS. Given the way in which the whole system is to be held accountable, they will increase their responsibilities from their existing role in the public health sphere.
I now turn to my hon. Friend’s point about information. If we are going to create a national health service that is driven by patients, for patients, they must have the information that qualifies them to make the decisions and the choices that are all part of our vision for a patient-led NHS. I can give her this commitment: information across the whole of the health sector will be made available to all patients and members of the public so that they will be able to access it and then make a judgment based on their health requirements as to their choices of consultants and hospitals. That informed decision making can be provided only by enhanced information for those people. I can assure her that that information will be made available so that they can make those decisions and choices.
My hon. Friend mentioned whistleblowing. As she will know, my right hon. Friend the Secretary of State is a strong supporter of holding the NHS to account when it fails or could do better to ensure that we have the finest health service that does not concentrate on processes, as it has for too long, but is driven by outcomes, which is the important thing that matters the most to our constituents. My right hon. Friend has already stated that he is going to strengthen and protect the position of whistleblowers, to use the old-fashioned phrase—I am not convinced it is the best one, but it is certainly the most obvious—so that people who see things that are wrong or things being done that should not be done have the protection and the confidence to be able to draw them to the attention of the authorities so that we can right the wrongs and make the improvements without those individuals fearing for their jobs, future careers and commitment to the NHS. I hope that my hon. Friend is reassured by that.
My hon. Friend mentioned the inspection and regulation regime and the Care Quality Commission. Let me tell her, although she will certainly know the basic principles, that the role of the CQC as the regulator of all health care providers will be strengthened by a clear focus on essential levels of safety and quality. All providers of regulated health care and adult social care will be registered against essential levels of safety and quality, and the CQC has the power to take action against providers that do not meet these standards. The CQC will carry out targeted inspections of providers against the essential standards.
As my hon. Friend will be aware from the White Paper, GP consortiums will commission the majority of health services in place of PCTs, and the NHS commissioning board will authorise consortiums and hold them to account for their performance. The CQC will no longer have a role in assessing commissioning. On the involvement of patient and clinical experience of services in the regulation and inspection regime, instead of focusing on the measurement of processes or targets, the CQC now places the experiences of the people who use health and social care services at the very heart of its work.
The CQC actively seeks the views of people who use health and social care services when making assessments of the quality and safety of that care. When inspecting a care provider, it asks to see evidence of outcomes and evidence that patients experience effective, safe and appropriate care. Rather than looking at policies, it speaks to people experiencing care, to their families and to staff to find out what the quality of care is like in practice. The CQC also actively seeks the views of clinicians, who play a crucial role in improving the quality of care. When there is a problem, it works with them to work out the best way to solve it and to improve care. Clinicians’ expertise in service delivery and design is invaluable, as I am sure my hon. Friend will agree.
In addition, the CQC works in partnership with a range of professional regulators, such as the General Medical Council and the Nursing and Midwifery Council, to ensure that its assessments of a provider are informed by their views on clinical best practice. Integration with HealthWatch, as announced in today’s White Paper, will give patients in Cornwall and throughout the country a greater public voice, providing a greater connection between their views and the actions of the regulator.
I reassure my hon. Friend, my colleague the hon. Member for St Ives and all other hon. Members from the great county of Cornwall that we are determined to improve and enhance the quality of care in the county and throughout the whole country. We want to ensure that the improvements are experienced by patients, because patients are at the heart of the new NHS that we envisage. Only by taking into account what they want and their patient experience within the NHS can we make the improvements necessary to ensure that we have a great NHS not just for the next five years but thereafter.
Question put and agreed to.