19:19 - The House divided: - Ayes: 322 / Noes: 242 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have enjoyed a lively and wide-ranging debate during the Bill’s progress. I would therefore like to start by thanking all Members who have taken part in the four days of debate on what is a short but significant Bill—despite its brevity, it makes fundamental changes to Britain for the better.
The Bill follows the emergency Budget and puts in place many of the measures that are necessary to strengthen the economy and ensure fiscal discipline. It was a crucial Budget, and this is a crucial Bill because this is the time when we finally get to grips with our deficit. The Bill re-establishes the credibility of the country to the rest of the world. It shows that where tough choices are needed, the Government have the courage to make them, and it provides for a fair and productive society.
The Budget was tough, but it was also fair. It set out a decisive and credible plan to deal with this country’s record deficit and to tackle the other problems that were left behind: a structural deficit £12 billion larger than we had been told; a deficit that was the largest in the G20 and second only to Ireland in the European Union; one in every four pounds of public spending coming from borrowing; an uncompetitive tax environment; and endless complexity and unfairness throughout the tax system. Our plan will pave the way for sustainable private sector-led growth, keep interest rates lower for longer and protect jobs. It is the right approach for the country.
Last week the OECD said in its report on the UK:
“The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point. It signals the commitment to provide the necessary degree of fiscal consolidation over the coming years to bring public finances to a sustainable path, while still supporting the recovery.”
Despite containing only nine substantive clauses, the Bill represents a clear change from the past and a new direction of travel, and it meets the three principles of responsibility, freedom and fairness set out by my right hon. Friend the Chief Secretary on Second Reading.
First, the Bill shows that we are taking responsibility for the problems we inherited, and it follows a Budget more honest, more transparent and more pragmatic than those before it. We have been honest about the scale of the challenge, and we have been honest about the actions needed to take it on. If we are to bring down the deficit without cutting vital public services, raising VAT is unavoidable. We recognise that Members have concerns about that, but for the first time we have published analysis of the distributional impacts of Budget measures. It shows that fairness underpins the tough choices the Government have taken to tackle the deficit.
Andrew George
I am very grateful to the Minister for giving way. He refers to the Budget as being both honest and disciplined. On VAT and the theme of fairness, which he says underpins the Budget, will he ensure that there is an opportunity transparently to review the VAT measurer in clause 3? He has rejected the concept of a sunset clause, but will this be evaluated, as proposed in the Government’s published taxation policy? If it is going to be evaluated, at what stage should it be evaluated and when will the House have an opportunity to analyse it and debate the issue?
Mr Gauke
I am grateful to my hon. Friend for that intervention. As he knows, with this Budget we have set out more distributional analysis than any previous Government have ever done before. On the VAT increase, I say to him that all tax matters are kept under review. He has a fine reputation for finding opportunities to raise particular points in Parliament, and I am sure that he will do so on this matter. I am sure that there will be opportunities for him, and for other hon. and right hon. Members, to raise these matters in future. For the moment we have put in place an increase in the VAT rate. We cannot make any promises to change it, and it would be dangerous for us to do so, given some of the points that we debated in Committee; a promise of a VAT cut in future is likely to result in a deferral of expenditure. However, this is an ongoing debate and I am sure that he will contribute to it fully, just as he has contributed to this debate fully over the past few days.
We believe that this Budget has been demonstrated to be a progressive Budget that deals with the deficit fairly; all sections of society contribute, but the richest pay more than the poorest. I also have to make the point to the House and to my hon. Friend that, of course, we should not look at the VAT increase in isolation, because it is part of a wider package that ensures that the most vulnerable in society are protected. It is also worth making the point that during these days in which we have debated this matter we have learned that support for the VAT increase was more widely spread than we ever realised. With exquisite timing, we learned from Lord Mandelson that the previous Chancellor wanted to raise VAT.
Mr Byrne
Before the hon. Gentleman leaves the subject of VAT, can he clear up one problem that I came across in the Red Book? The scorecard for the Budget says that about £8 billion will be raised in taxes by 2014-15, yet the Office for Budget Responsibility forecast in the back of the Red Book says that only £3 billion in tax will actually come through the door. Why is there a £5 billion difference?
Mr Byrne
The matter can be cleared up very quickly. The scorecard on page 40, with which the hon. Gentleman will be enormously familiar, states that the “total tax policy decisions” will result in £8.230 billion being received in 2014-15, whereas table C12 on page 101, which shows the OBR forecast, says that only £3.1 billion in receipts will actually come in. Why is there a difference between what is on the scorecard, which is a little more than £8 billion, and what is in the OBR forecast for the money that will actually be raised, which is £3 billion?
Mr Gauke
The right hon. Gentleman appears to be raising a perfectly fair point. The OBR was heavily involved in calculating the numbers for the scorecard, so I suspect that there is a perfectly innocent explanation and I will endeavour to ensure that he receives it before this debate reaches its conclusion.
Mr Byrne
Is not the answer very straightforward? Is not the answer that the Budget depresses growth so much that tax receipts will actually be down, so even though the scorecard sets out a series of measures that should, in theory, raise the amount that it sets out, the OBR, understandably, knowing that growth is depressed, has set out that far less money will actually come through?
Mr Gauke
If that is the point that the right hon. Gentleman is getting at, I must point out what the OBR made very clear in the Red Book. That point is that it is misleading to make a straight comparison between the growth figures that were projected on the basis of market expectations of interest rates, which were lower as a consequence of the anticipated fiscal tightening that this Government promised to deliver and that we have delivered, and the forecasts that do not take that into account. That is a point that we have gone over a number of times. The OBR said that such comparisons were potentially misleading, so if that idea is what is driving the right hon. Gentleman’s queries, I must point out to him that the OBR would not accept that.
Matthew Hancock (West Suffolk) (Con)
Is not one explanation the idea that the OBR came forward with growth forecasts that were reasonable and at least had a hope of being accurate rather than the hopelessly over-optimistic growth forecasts put in place by the previous Government?
Mr Gauke
My hon. Friend might well have the answer. One point that we learned from Lord Mandelson in the course of his much-loved memoirs is that the then Chancellor, who is now shadow Chancellor, apparently accused the then Prime Minister of having a “ludicrously over-optimistic” view of what the growth forecasts would be and about
“Britain’s ability to support such a large and expanding deficit.”
That might well be the explanation.
Mr Byrne
I rise with the ambition of being helpful to the Minister as he will not want knowingly or unknowingly to mislead the House. He will know that the OBR forecast on page 101 is a forecast of what tax receipts will come in on the basis of the Budget set out in the Red Book. These things are entirely consistent with each other and the forecast has nothing to do with previous Budgets or previous OBR estimates. Will he confirm that for the House?
Mr Gauke
The fact is that the big risk to growth for this country would have been if we had done nothing about the deficit. If we had tried to ignore it, we would have found ourselves having our credit rating downgraded, as has happened to Greece, Portugal, Spain and now the Republic of Ireland, and we would have faced a contagion of sovereign debt. We have taken the necessary actions to ensure that growth is secure and the fact is that the OBR projections have far greater credibility than the previous Government’s—we have learned about how political they were in making their growth forecasts. Our growth forecasts have credibility. Our public finances have a credibility that they did not before. We can be proud of that.
As we have heard, the previous Treasury team believed that an increase in VAT was necessary and that was only blocked by the previous Prime Minister. One can hope that the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has seen the error of his ways. I noticed that he did not feature in the Division Lobby opposing the VAT increase—perhaps we have persuaded him, after all, that his views on VAT were unwise. We have succeeded where the shadow Chancellor failed.
We have heard legitimate concerns about how the most vulnerable in society will be protected, but we have sought to provide such protection in the Budget. For example, we have committed to the uprating of the basic state pension through a triple guarantee of earnings prices or 2.5%, whichever is highest, from April 2011. We have taken steps to increase the child tax credit.
Ms Angela Eagle (Wallasey) (Lab)
I thank the hon. Gentleman for his generosity in giving way. On this point about uprating pensions, will he take this opportunity to admit that the shift from the retail prices index to the consumer prices index as the definition for which all benefits and now all pensions will be indexed is scored as plus £6 billion in the Red Book, which means that he is taking that amount of money from some of the most vulnerable and poorest people in the country?
Mr Gauke
We have taken measures to secure the public finances for the longer term, but we have done so by protecting the poorest in society. We have provided a triple guarantee for pensioners and we have finally restored the earnings link that our predecessors did not succeed in restoring in 13 years. In addition, we have taken steps to increase the child tax credit by £150 next year and by £60 in the following year. As a result, levels of child poverty after the Budget will remain unaffected, taking into account all the measures of the next couple of years.
Andrew George
I hate to drag the Minister back to VAT, but he moved on from it very swiftly after the shadow Chief Secretary’s question about the alleged black hole in the finances. Given that there is no, or very little, likelihood of a sunset clause in the Bill or a further evaluation of VAT within this Parliament, will the Minister confirm that each of the zero ratings and exemptions from VAT, as well as the reduced levels of VAT that are available, will be retained and protected? That is very important in order for him to advance his point about the protection for lower-paid people.
Mr Gauke
That is our intention. The Chancellor has made it clear that we have no intention of reconsidering the zero ratings for food or children’s clothes. There are occasional border disputes regarding goods that are zero-rated and those that are fully rated, but on the fundamental question of zero-rating we have made it absolutely clear that we do not intend to revisit those areas. We are also increasing the personal allowance on income tax.
Toby Perkins (Chesterfield) (Lab)
May I drag the Minister back to his point about the VAT rise being part of a package of measures and about the poorest being protected by the Budget when it is taken in the whole rather than just looking at the VAT rise? Will he remind the House what safeguards there are for pensioners or unemployed people who do not have children? What benefits will they gain that will pay for the extra VAT that they are going to pay?
Mr Gauke
Again, I refer the hon. Gentleman to the distributional charts, particularly those that examine these matters on the basis of the expenditure decile, which academics increasingly believe provides a better examination of those who are suffering from material deprivation. That approach demonstrates that the measures are progressive, when taken as a whole, and that the wealthier sectors of society are paying more. The distributional analyses show that the single tax measure that had a regressive effect was the dumping of the 10p rate of income tax that was announced in 2007, which hurt the bottom five deciles and benefited the top five. That does not seem fair, and I am glad that we were not part of the Government who did that.
Chris Leslie
I am grateful to the Minister for giving way. The distributional tables in section A of the Red Book that he mentions are quite interesting, but will he remind us why they extend for only two years? Does he plan to lay any more tables before the House, soon—I do not know whether we could get them before the end of Third Reading—so that we can talk about when the real cuts to benefits and to the poorest people will kick in?
Mr Gauke
The further forward the projections go, the less reliable the information and evidence on existing measures, not to mention the fact that, of course, there will be a number of Budgets between now and then and further policy announcements will be made during that period. Therefore, those projections are unlikely to be particularly accurate or helpful to the House.
Stewart Hosie (Dundee East) (SNP)
The Minister has been telling us about a number of measures that will mitigate the VAT rise, such as changes to the tax system and tax credits, but none of those things is in the Bill. He has not mentioned some of the other cuts not yet announced but promised that are not in the Budget either, not least the huge savings intended to be made in the welfare system. Would he care to give a more rounded picture and tell us what the impact on those who are at the very bottom and wholly dependent on benefits will be when those cuts kick in?
Mr Gauke
This Government have provided greater distributional analysis than any Government have done before. Clearly, in very difficult times, when it is necessary to raise substantial sums and to reduce the deficit very dramatically, we have managed to do so in a way that has spread the pain. It is not the Government’s desire from any great sense of pleasure to be taking tough measures, but that is unavoidable—we cannot ignore it or hide from it—and, yes, there will be pain, but there is no alternative.
Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we have made progress in the Bill and the Budget. We are increasing the personal allowance on income tax and taking almost 1 million people—the lowest earning income tax payers—out of income tax altogether. That will also benefit 23 million people who work in Britain by up to £170 a year.
The second matter that the Bill stands for is freedom—freedom for the private sector to grow, unconstrained by uncompetitive tax rates. The Bill will take the first step towards that by cutting the corporation tax rate to 27%, and it will be cut every year until it reaches 24%—the lowest rate of any major western economy, one of the lowest rates in the G7 and the lowest rate that this country has ever known.
Hon. Members were concerned that cutting the main rate would mean that banks did not pay their fair share. Many sectors, including manufacturing, will benefit from the reduction in corporation tax, but we have made it clear that the reforms outlined in the Budget will ensure a greater contribution from the banking sector—one that far outweighs any benefit that they receive from lower corporation tax rates. The banking levy announced in the Budget is a surgical approach reflective of economic risk and intended to encourage banks to move to less risky funding profiles. Banks will pay at least £2 billion more in tax as a consequence of those proposals.
The hon. Member for Nottingham East (Chris Leslie), who has contributed a great deal to the debates on the Bill, was particularly concerned that the banks will be let off for risky behaviour. That is not the case, but I hope he will accept that a targeted approach is the best way forward. Tax competitiveness is good for employers and society as a whole, and the bank levy allows us to be competitive, while ensuring appropriate tax treatment for those activities that pose the greatest risk.
Chris Leslie
I will certainly look closely at the bank levy consultation, but I was looking at the Hansard report of the costs to the Exchequer of the corporation tax giveaway to the banks. It is not just £400 million in the final year, 2014-15; there is also £100 million of lost revenue in 2011-12; £200 million in 2012-13; and £300 million in 2013-14. Cumulatively, over the period of the Budget, there are £1 billion in corporate tax giveaways to the banks. Surely, if there really is no alternative, the hon. Gentleman should think again about that cash-back arrangement.
Mr Gauke
The hon. Gentleman was a Member of the House in the early days of the previous Government, so he knows all about rolling up numbers. I could roll up the numbers for how much will be raised from the bank levy—I do not have the details in front of me, but we would get to about £8 billion—but I am not sure that that is a terribly helpful way of approaching things.
The corporation tax reduction is just one part of the wider package to build a private sector-led recovery. Instead of increasing the small profit rate by 1%, we will cut it to 20% in next year’s Bill, which will benefit some 850,000 companies from April 2011. We are increasing the threshold at which employers start to pay national insurance contributions and have announced a package of support for small businesses. The package will also include a reduction in the writing-down value of plant and machinery allowances to 18% and a reduction in the annual investment allowance to £25,000. That will still provide for allowances that are broadly in line with depreciation, while the annual investment allowance will still cover the annual qualifying expenditure of 95% of businesses. Furthermore, we are reducing the main rate of corporation tax this year and changing allowances in 2012. We are giving companies a timing benefit that will form part of the £13 billion extra that will be invested as a result of the changes.
The third and final area that we are addressing is fairness. Clause 2 increases the rate for capital gains tax for higher rate payers to 28%. That progressive change will substantially reduce the incentive for individuals to disguise their income as a return on capital. It will ensure that the appropriate rate of taxation is paid, which is fair in itself.
Avoidance is a significant issue for the Government and it has been a significant topic throughout the Bill’s passage. It was raised with reference to corporation tax and capital gains tax, and it is the target of clauses 8 and 9, which protect about £200 million of revenue a year. I assure the House that the Government are absolutely committed to tackling avoidance and evasion robustly.
Mr Gauke
If the hon. Gentleman will forgive me, I am keen to press on.
We have inherited plans to limit tax relief on pension savings for the wealthiest. Under the approach in the Finance Act 2010, individuals on the highest incomes who were able to make very large pension contributions could have continued to get pensions tax relief worth up to £51,000 a year. We have concerns about the complexity and fairness of the previous Government’s approach. Given the state of the public finances, we cannot ignore the £4 billion or more of revenue that the policy was set to raise, and as we are committed to protecting the public finances, the alternative needs to raise no less revenue than the existing plans. We are looking at an approach whereby the annual tax relief available will be restricted to less than half that under the previous Government’s plan, which will significantly curtail the ability of the super-rich to benefit from pensions tax relief.
We have touched on annuities. We want to enable people to make more flexible use of their pension savings. We intend to end the obligation to annuitise by the age of 75 from April 2011, and last week we launched a consultation on the details of the change. Before a new system is introduced in next year’s Finance Bill, this Bill puts in place interim measures that will delay such decisions until an individual is 77. That will prevent anyone turning 75 on or after Budget day from being disadvantaged by having to make a decision before the new rules are in place.
The Bill is at the heart of the Budget changes that are necessary for this country’s tax system. Unlike our predecessors, we do not believe that, in a pit of debt, we should still be digging. We do not believe that we can just borrow to pay for front-line services. In the words of the previous Chancellor:
“If we are not credible in what we do and say, people will assume there will be more borrowing or huge tax rises to come.”
Our predecessors failed that test but we are succeeding.
In the words of the shadow Business Secretary, we cannot wish the deficit problem away. The Bill will promote enterprise. It is progressive and responsible, and I commend it to the House.
The Economic Secretary to the Treasury (Justine Greening)
Will the right hon. Gentleman give way?
Justine Greening
Is the right hon. Gentleman saying that he thinks the savings ratio is too high and that we should encourage people to go out and spend, spend, spend even if they cannot afford it?
Mr Byrne
No. I am saying that the country’s investors now have so little confidence in the economic plan that they would rather save their money than dare to invest it in productive capacity and growth for the future.
Let us look at some of the measures that show the decline in confidence. The Bank of England says that mortgage approvals fell in June; last month, the consumer confidence index fell for the first time in a long time; and yesterday, Rightmove told us that house prices have been cut for the first time this year. The Budget and the Bill are putting Britain’s recovery in the slow lane. The greatest irony of all is that we must all pay more as a consequence.
Justine Greening
No, I will not.
We have just heard from the shadow Minister that the Opposition are still in denial, and I shall come to that later. Before we conclude what has been a lengthy debate over the past few weeks, I wish to echo the earlier comments of my hon. Friend the Exchequer Secretary. Hon. Members throughout the House have played an essential role in scrutinising the Bill, and I thank them all for doing so.
Today we heard from the shadow Chief Secretary—the man who admitted that there was no money left—and from my hon. Friend the Member for West Suffolk (Matthew Hancock), who successfully demolished the Opposition’s case for failing to take any action to sort out the deficit. We heard from a number of Opposition Members, including the hon. Members for Wakefield (Mary Creagh), for Streatham (Mr Umunna) and for Chesterfield (Toby Perkins). I listened to what they had to say with great interest, and in many cases they violently agreed that we are in a serious situation that needs to be sorted out. What we failed to get from any of them, however, was any kind of alternative. That thread has run through not just today’s debate but the debates over the past few weeks.
We heard an important contribution from the hon. Member for St Ives (Andrew George), who throughout our debates has talked about his concerns about some aspects of the Bill. However, he has recognised that we have to take serious steps to sort out the fiscal deficit. We also heard from my hon. Friends the Members for Daventry (Chris Heaton-Harris), for Dover (Charlie Elphicke) and for Stourbridge (Margot James), who all want a Government who face up to the challenge, as do their constituents.
The Bill provides for many of the key measures in the emergency Budget, which was needed to address the fiscal crisis that we face in our country and get Britain growing. Although it was tough, it needed to be, and was, fair. When we came into government, we had to set up the Office for Budget Responsibility to get, finally, an independent review of the books. That review showed that the books were perhaps even worse than the former Chief Secretary had said.
Justine Greening
No, I will not.
The OBR said that the deficit was £12 billion larger than had previously been suggested, so our priority was to tackle that deficit. Although reductions in public sector spending will be necessary to ensure that it is at a level affordable to the public, taxes clearly have to play their part as well. As we have heard, even from the hon. Member for Wallasey (Ms Eagle), growth in employment must be led by the private sector. Reducing incentives to employers, as the previous Government would have done by introducing the jobs tax and raising small companies’ corporation tax rates, would have reduced incentives and led to our economy languishing for longer and longer, and debt building up.
Chris Williamson (Derby North) (Lab)
Is the Minister aware, though, that the Financial Times published research last month showing that 1.2 million jobs in the private sector rely on the public spending that she is going to cut?
Justine Greening
That is typical of the contributions that we have had from Opposition Members all the way through our debates. The hon. Gentleman’s party went into the election having passed its Fiscal Responsibility Act 2010, which set out 20% cuts. That means one of three things. Either Labour Members had no intention of ever reducing or tackling the deficit, in which case the Act was gross duplicity; or they went into the election standing on a platform of cuts with no idea whatever of how to deliver them, in which case it was gross incompetence; or they knew what they wanted to do but still, in spite of all the hours of debate, fail to admit to any of the measures that they were planning to take, in which case it is gross concealment. We need take no lectures from the hon. Gentleman.
Justine Greening
No, I will not. There was a time when the Labour party had something relevant to say on the economy; that time has now passed.
What we need to do is to ensure that companies in this country and across the world know that Britain is open for business. That is why the centrepiece of the Budget was providing a springboard for a private sector-led recovery to take place by reducing the rate of corporation tax year on year over the next four years; reducing the small profits rate of corporation tax, benefiting 850,000 companies; and of course taking difficult decisions on capital gains tax changes that will mean increases for higher rate tax payers while protecting entrepreneurship. The Budget was welcomed by business across the board, and it is important to bear that in mind when Opposition Members say that they do not believe that it will ultimately boost jobs.
Although we wanted to help business succeed, we also recognised the importance of protecting those most in need, and the Budget did just that. From April 2011, we are increasing the personal allowance, removing almost 1 million people from income tax. On pensions, we are taking the power to repeal the pensions tax regime introduced in the Finance Act 2010, which will allow us to bring in a fairer arrangement that will not allow the very rich to benefit from basic rate tax relief. We are re-establishing the earnings link for the state pension with a triple guarantee, making changes to the benefit system that will protect the most vulnerable people in our society, increasing child tax credits and introducing a set of measures that, despite a tough Budget, will leave child poverty unchanged.
We know that we need to take that action, because the Labour party has absolutely no alternative. We have debated the Budget long enough now for Labour Members to have brought forward an alternative if they had one, but they clearly do not. We have been honest and open about the problems that our country faces.
Justine Greening
That is what the voters expect, and what they—[Hon. Members: “Give way!”] Oh, I will give way.
Clive Efford
I am very grateful to the hon. Lady, but will she accept this one point? Throughout the debate her party has argued that the state is too big. Everyone accepts that the Budget will cut the size of the state so that in six years, it will be smaller as a proportion of GDP than it was in 1997. Does that not suggest that it is an ideological move, and on that basis does she not accept that if the Tories had been elected in 1997, they would have come in cutting?
Justine Greening
What is too big is the deficit. That is what we need to sort out. As I have said, the hon. Gentleman’s party itself recognised the need to cut public expenditure, which has to be at an affordable level.
While we have sought to engage the public in the debate about how we can recover from the economic crisis, rebalance our economy and rehabilitate ourselves from debt-driven policies, all that we have heard from the Opposition is what they do not like, and nothing about what they would do instead. They have said no to everything and yes to nothing, and they have kept quiet when asked how they would solve the problems that they have caused. It was one party that got us into this mess, and now two parties will have to get us out of it.
We have heard a lot of analogies today, but to my mind the Opposition are in denial: they are like a debt junkie. Like most junkies and addicts, they always want to solve the problem tomorrow. They want a reduction in the deficit tomorrow, growth in the private sector tomorrow, and fairness for those most in need tomorrow. We were never going to see any action from the Labour party, and over the course of this Budget debate we have heard shrill voices of despair from the Opposition Benches.
We have taken decisions that are right for this country—tackling our debt, kick-starting the private sector and taking action to take those on the lowest incomes out of income tax. Those choices are the right ones to start our country back on a credible path to sustainable recovery. We are encouraging enterprise and protecting those most in need, yet tackling the colossal debt left to us and to this country. This coalition Government are making decisions where Opposition Members did not have the courage, and I commend the Bill to the House.
Question put, That the Bill be now read the Third time.