(13 years, 4 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
22:46 - The House having divided: - Ayes: 23 / Noes: 473 - Question accordingly negatived.
01:22 - The House divided: - Ayes: 10 / Noes: 293 - Question accordingly negatived.
13:34 - The House divided: - Ayes: 159 / Noes: 295 - Question accordingly negatived.
Sir Paul Beresford (Mole Valley) (Con)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
New clause 2—Eligible medical insurance contracts—
‘(1) This section has effect to determine whether a contract is at a particular time (the relevant time) an eligible contract for the purposes of section [Medical insurance (pensioner tax relief)].
(2) A contract is an eligible contract at the relevant time if—
(a) it was entered into by an insurer who at the time it was entered into was a qualifying insurer and was approved by the Commissioners for the purposes of this section,
(b) the period of insurance under the contract does not exceed one year (commencing with the date it was entered into),
(c) the contract is not connected with any other contract at the relevant time and has not been connected with any other contract at any time since it was entered into,
(d) no benefit has been provided by virtue of the contract other than an approved benefit, and
(e) the contract meets one or more of the three conditions set out below.
(3) The first condition is that the contract is certified by the Commissioners under section [Certification of contracts] at the relevant time.
(4) The second condition is that, at the time the contract was entered into, it conformed with a standard form certified by the Commissioners as a standard form of eligible contract.
(5) The third condition is that, at the time the contract was entered into, it conformed with a form varying from a standard form so certified in no other respect than by making additions—
(a) which were (at the time the contract was entered into) certified by the Commissioners as compatible with an eligible contract when made to standard form, and
(b) which (at that time) satisfied any conditions subject to which the additions were so certified.
(6) Where a contract is varied, and the relevant time falls after the time the variation takes effect, subsections (1) to (5) above shall have effect as if “entered into” read “varied” in each place where it occurs in subsections (4) and (5) above.
(7) For the purposes of this section a contract is connected with another contract at any time if—
(a) they are simultaneously in force at that time,
(b) either of them was entered into with reference to the other, or with a view to enabling the other to be entered into on particular terms, or with a view to facilitating the other being entered into on particular terms, and
(c) the terms on which either of them was entered into would have been significantly less favourable to the insured if the other had not been entered into.
(8) For the purposes of this section each of the following is a qualifying insurer—
(a) an insurer lawfully carrying on in the United Kingdom business relating to insurance;
(b) an insurer not carrying on business in the United Kingdom but carrying on business in another member State and being either a national of a member State or a company or partnership formed under the law of any part of the United Kingdom or another member State and having its registered office, central administration or principal place of business in a member State.
(9) For the purposes of this section a benefit is an approved benefit if it is provided in pursuance of a right of a description mentioned in section [Certification of contracts] (3)(a).’.
New clause 3—Certification of contracts—
‘(1) The Commissioners shall certify a contract under this section if it satisfies the conditions set out in subsection (3) below; and the certification shall be expressed to take effect from the time the conditions are satisfied, and shall take effect accordingly.
(2) The Commissioners shall revoke a certification of a contract under this section if it comes to their notice that the contract has ceased to satisfy the conditions set out in subsection (3) below; and the revocation shall be expressed to take effect from the time the conditions ceased to be satisfied, and shall take effect accordingly.
(3) The conditions referred to above are that—
(a) the contract either provides indemnity in respect of all or any of the costs of all or any of the treatments, medical services and other matters for the time being specified in regulations made by the Treasury, or in addition to providing indemnity of that description provides cash benefits falling within rules for the time being so specified,
(b) the contract does not confer any right other than such a right as is mentioned in paragraph (a) above or is for the time being specified in regulations made by the Treasury,
(c) the premium under the contract is in the Commissioners’ opinion reasonable, and
(d) the contract satisfies such other requirements as are for the time being specified in regulations made by the Treasury.
(4) The certification of a contract by the Commissioners under this section shall cease to have effect if the contract is varied; but this is without prejudice to the application of the preceding provisions of this section to the contract as varied.
(5) Where the Commissioners refuse to certify a contract under this section, or they revoke a certification, an appeal may be made to the relevant Tribunal by—
(a) the insurer, or
(b) any person who (if the policy were certified) would be entitled to relief under section 1 above.
(6) Where a contract is certified under this section, or a certification is revoked or otherwise ceases to have effect, any adjustments resulting from the certification or from its revocation or ceasing to have effect shall be made.
(7) Subsection (6) above applies where a certification or revocation takes place on appeal as it applies in the case of any other certification or revocation.
(8) In this section the reference to a premium, in relation to a contract of insurance, is to any amount payable under the contract to the insurer.’.
New clause 4—Medical insurance: supplementary—
‘(1) The Commissioners may by regulations—
(a) provide that a claim under section [Medical insurance (pensioner tax relief)] (3) or (6)(b) shall be made in such form and manner, shall be made at such time, and shall be accompanied by such documents, as may be prescribed;
(b) make provision, in relation to payments in respect of which a person is entitled to relief under section [Medical insurance (pensioner tax relief)], for the giving by insurers in such circumstances as may be prescribed of certificates of payment in such form as may be prescribed to such persons as may be prescribed;
(c) provide that a person who provides (or has at any time provided) insurance under contracts of private medical insurance shall comply with any notice which is served on him by the Commissioners and which requires him within a prescribed period to make available for the Commissioners inspection documents (of a prescribed kind) relating to such contracts;
(d) provide that persons of such a description as may be prescribed shall, within a prescribed period of being required to do so by the Commissioners, furnish to the Commissioners information (of a prescribed kind) about contracts of private medical insurance;
(e) make provision with respect to the approval of insurers for the purposes of section [Eligible medical insurance contracts] and the withdrawal of approval for the purposes of that section;
(f) make provision for and with respect to appeals against decisions of the Commissioners with respect to the giving or withdrawal of approval of insurers for the purposes of section [Eligible medical insurance contracts];
(g) make provision with resepect to the certification by the Commissioners of standard forms of eligible contract and variations from standard forms of eligible contract certified by them;
(h) make provision for and with respect to appeals against decisions of the Commissioners with respect to the certification of standard forms of eligible contract or variations from standard forms of eligible contract certified by them;
(i) provide that certification, or the revocation of a certification, under section [Certification of contracts] shall be carried out in such form and manner as may be prescribed;
(j) make provision with respect to appeals against decisions of the Commissioners with respect to certification or the revocation of certification under section [Certification of contracts];
(k) make provision generally as to administration in connection with sections [Medical insurance (pensioner tax relief)] to [Certification of contracts].
(2) In subsection (1) above—
“eligible contract” has the meaning given by section [Eligible medical insurance contracts], and
“prescribed” means prescribed by or, in relation to form, under the regulations.’.
Sir Paul Beresford
The new clauses would provide tax relief on medical insurance premiums for people above a certain age. “Pensioners” might be a better description of them. As a very part-time dentist, I must declare a potential interest, but I had better declare a further potential interest, as birthdays keep relentlessly coming upon me—and the rest of us.
As in much of the south-east, life expectancy in Surrey is somewhat higher than the England mean. The average life expectancy in England is about 78 for males and 82 for females, while in Surrey the figures are about 82 and 86 respectively. Moreover, the proportion of those aged 65 and over in my constituency is about one in five, or 20%. It is obvious to me, as one with a professional interest in health and as an observer of my constituents’ health, that that longevity brings with it a higher demand for health care and imposes large demands on health services, especially cardiac, carcinoma and orthopaedic services. A planeload of Surrey Saga tourists would really set the airport metal detectors buzzing as the hip and knee replacements proceeded towards take-off.
The Mole Valley constituency is served by three good national health service hospitals: East Surrey hospital, Royal Surrey County hospital at Guildford, and Epsom hospital. Those hospitals have expanded in certain health areas to meet the increasing demand for treatment from the elderly, the best example being Epsom, which has a special orthopaedic unit where more than 3,000 hip and knee replacement operations are carried out annually, almost entirely on elderly people from surrounding areas such as Mole Valley. As a result of those medical problems there has been a call for an enhanced and enlarged cardiac unit at Epsom as part of the retention and refurbishment of that much-loved hospital. I have given those two examples to illustrate the increasing demand for national health service care from, predominantly, those aged over 65. That increasing demand is not specific to Mole Valley or even Surrey, but is, to a greater or lesser degree, nationwide among that age group.
My older constituents are also served by private hospital services. Some are relatively local and some are in London, but there is choice for patients. Approximately 12.5% of the United Kingdom population are currently covered by private health insurance, and about 70% of that cover is corporate while about 30% is individual. On retirement, many may wish to take over their corporate private health insurance, but the personal cost becomes a heavy factor. Additionally, many of those who fund their health insurance personally may not feel able to do so when a regular personal income is just a pension or savings. That means that, just as their need for health care is likely to increase, those individuals turn to the national health service and absorb facilities and costs that they would not use if they could be persuaded to retain or take out private health insurance and use the private sector.
Before March 1997, when tax relief was available to those over 60, it was estimated that tax relief was paid in respect of 400,000 contracts to cover about 600,000 individuals.
Mr Edward Leigh (Gainsborough) (Con)
I warmly congratulate my hon. Friend on his new clause. Is he aware that a ComRes poll of 150 Members of Parliament found that 66% of Conservative MPs supported the return of tax relief on private insurance for pensioners? That is hardly surprising when even the Major Government gave that elementary service to our elderly people.
Sir Paul Beresford
I thank my hon. Friend. One of the delightful things about his intervention is the increase in my education.
Over seven years from 1990, tax relief for the over-60s cost £560 million. However, that included a period when the relief was across all taxpayer rates. In 1994, that was reduced to apply to the basic rate of tax only. Unlike in my proposal, the relief started then at 60, not at 65, so my proposal would reduce the cost to the Revenue in real terms compared to pre-1997.
In 1997 the Labour Government cancelled the tax relief for pensioners, and Western Provident Association estimated that 40% of pensioners would discontinue their private health service. Which? magazine reported in 2002 that private health insurance coverage was lowest in the 65-plus age group. Those who choose to have personally funded private health insurance pay twice for their health—premiums and tax. It would be safe to assume that nigh on 100% of those aged 65 and above are personally funding their health insurance. It is their choice, and for many it may mean sacrificing other choices that may affect their lifestyle.
Mr John Redwood (Wokingham) (Con)
Can my hon. Friend also give us some idea of the saving in NHS expenses that results from people taking out cover and going privately?
Sir Paul Beresford
I would love to, but I am numerically dyslexic and English is my second language so I have some difficulty. I am sure that the next time I raise this possibility, I can bring those facts forward.
Oliver Heald (North East Hertfordshire) (Con)
I am grateful to my hon. Friend for giving way and proud to support the new clause. Does he agree that there is real concern about the cost to the NHS as estimates of longevity rise, and that his measure is likely to carve out a portion of that and protect the position for the over-65s, who will be an ever larger group?
Sir Paul Beresford
I agree with my hon. Friend. Not only that, it would allow spaces for the NHS to provide choice and opportunity.
The new clauses would allow basic tax relief at 65-plus and rising, and the age would rise as the pensionable age increased. It would encourage people either to keep or take out health insurance just as they reached the period of life in which demand can be expected to increase. If they do not have or cease to have insurance, they will add to the call on the NHS. This approach in no way degrades my or, indeed, their respect for the NHS, but it is intended to take some of the load of numbers and cost off our tax-paid national health service.
As UK life expectancy increases, as my hon. Friend the Member for North East Hertfordshire (Oliver Heald) just mentioned, and as the wonders of medical research improve, our pensioners’ life expectancy and well-being will increase. That will be an incentive for more to choose not only to pay their taxes—thus supporting the NHS—but to use health insurance to take an increasing load off our NHS, to the benefit of others.
Mr Kevan Jones (North Durham) (Lab)
I rise to oppose the new clauses. I have to say that it is pleasing to see the real Conservative party still alive and kicking on the Back Benches, wanting to create a privilege for a small section of the population. I understand that when tax relief was in operation, it affected only about 5% of the population. It feels as if we are going back in time a little, because if we accepted the new clause we would be stepping back to the late 1980s, when the Conservative party introduced relief on private health insurance—I acknowledge that the new clause would apply to the over-65s, rather than to the over-60s, as was the case then. That was introduced to address a lot of the arguments put by the hon. Member for Mole Valley (Sir Paul Beresford); the aim was to try to ensure that people would be given choice. I hasten to add that people have a choice if they can afford it, but they have no choice whatsoever if they cannot. I believe, as I understand the Conservative Front-Bench team does these days, that we should seek to improve the health service and opportunities for all, rather than give a tax cut and perk to a very small section of the population.
Mr Leigh
Surely the point is that the proposal applies to pensioners, that they have paid tax all their life and that, just at an age when they might need private medical care, they find that their insurance premiums rocket. Surely it is only elementary natural justice that they should get tax relief on those insurance premiums.
Mr Jones
I disagree with the hon. Gentleman. I do not understand why a low-paid worker in South Stanley in my constituency who has worked hard all his or her life should be given no tax relief or assistance and should pay their taxes just to give a tax relief and perk to individuals who not only might be able to pay for care, but who have an advantage over them. We should seek to ensure equal access to health care.
I understand what has been said about waiting lists and the health service, but when I was elected in 2001 my constituency contained two old hospitals, one of which—the old workhouse—was a disgrace. We now have two new hospitals, thanks to a Labour Government. The hon. Member for Mole Valley mentioned hip and knee replacements, and I can tell him that the industrial legacy of a mining community meant that my area had a long waiting list; it was not uncommon for people to wait for more than two years. I recall people coming to my surgery arguing about how they could get up the list any faster. Waiting lists have more or less been abolished over the intervening 10-year period, which is testament to the changes the previous Labour Government made and the investment we put in. Investment in the health service should be about ensuring equal access to care, not about giving a tax perk to a very small section of the population—the less than 5% who actually have private health insurance—as this proposal seeks to do.
Mr Redwood
I would be more persuaded by this argument if the Labour party had, when in office, prevented the rich from buying the health care they wanted when they wanted it. The truth is that neither the Labour party in office, nor the coalition Government, have had any intention of preventing the rich from using their power and wealth to get the health care they want. The new clause is a measure to enable people who are not that rich to be able to do so.
Mr Jones
The facts do not bear that out, and I shall return to that point in a moment. If people wish to spend their money on health care, that is entirely up to them—I am not opposed to that. What I am saying is that I and others should not be subsidising that choice. We should be putting the money, as the Labour Government did, into ensuring that the general population have access to good-quality NHS care and do not have to worry about the cost.
Mr Peter Bone (Wellingborough) (Con)
The hon. Gentleman is making a powerful socialist speech, which is nice to hear in this Chamber. Is he not wrong about the new clause, however, because we would not be subsiding from the taxpayer? Anyone who takes out new private medical insurance because of the subsidy would be saving money for the NHS and so more money could be spent on the people who wish to use the NHS? [Interruption.]
Mr Jones
Not necessarily, as my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) says from a sedentary position. As I have seen in my constituency, people who have access to the private sector cherry-pick. Routine operations might be covered by private health insurance but with the more difficult, specialist treatments, the last recourse is often the NHS. A few years ago, a constituent of mine came to my surgery and complained that she could not get her knee replaced on the NHS. I found that remarkable, because by that stage the waiting lists were reduced in my constituency, until I found out from the NHS trust that there were medical reasons why she could not have that operation at that time—basically, she had weight and heart problems. She subsequently had the operation in the private sector, against all the advice, and lo and behold, when there were complications they were picked up not by the private sector but by the NHS. A full NHS care package and local social services were needed to support that woman through an operation that she was determined to have against medical advice.
Mr Christopher Chope (Christchurch) (Con)
I am delighted to be regarded as the true face of the Conservative party, but I am also very pleased that there are lots of other true faces of the Conservative party present to listen to this debate. Not everyone recalls the great excitement that there was in the Conservative party and on the Conservative Benches back in 1989 when the then Secretary of State for Health, who is now the Justice Secretary, said that he was going to introduce tax relief for health insurance premiums. That policy, which was announced in a health White Paper and then put into practice in the 1990 Budget by Nigel Lawson, was the action of a self-confident Conservative Government. That same self-confidence carried on through the years when John Major was Prime Minister, and right up to 2001, when a proposal to restore the relief, which had been taken away by the mean Labour Government, was in our manifesto. Since then, we seem to have rather lost our way.
Mr Kevan Jones
I would never accuse the hon. Gentleman of losing his way, but can he remember why the Labour Government did that? It was not just because the relief was unfair but because they went on to use part of the money to reduce the VAT on heating fuel.
Mr Chope
That was the excuse put forward at the time, but I doubt whether it was the real justification. I suspect that the real justification was a feeling on the part of a lot of socialists—people on the Labour side of the House—who resented the idea that the health service should in any way be funded by the private sector. The problem we have in this country is that although our health service is funded by taxpayer money to the extent of most health services across the G7 or G8 countries, we lag behind those other countries in that we do not have enough private sector contributions to the health service. That is why the new clause tabled by my hon. Friend the Member for Mole Valley (Sir Paul Beresford) is brilliant, because it sends out a very strong signal to people that we want to encourage them to participate in and contribute to the cost of their health care.
It is good for people to contribute to the cost of their health care, and that of their family, if they can afford so to do. Some people who can afford to do that pay for their health care outright: in a sense, they pay as they go. Others who can afford to do that pay through insurance policies. Yet others who can afford to do that do not make a contribution at all, because they believe that it is in the national interest that the whole cost of their health care should be borne by other taxpayers, many of whom are less well-off than they are. Those are the three categories, and we should try to move more people from the category of those who could afford to pay for, or contribute towards, their health care but do not, into the category of those who do contribute.
Mr Jones
I totally disagree with the hon. Gentleman, but I understand where he is coming from. However, the scheme introduced in the 1980s did not do what he wants. It basically just gave a tax cut to about 500,000 people who already had private plans, so it did not work the last time it was tried.
Mr Chope
Obviously, the Treasury will always say that there is what is described as a dead-weight cost associated with such initiatives, in that people who would be paying for health insurance anyway would get the tax relief—but that is looking at only part of the issue. What I am trying to do—as is my hon. Friend the Member for Mole Valley in his new clause—is to encourage more people to come into that category, so that we grow that cohort of people. We certainly do not want to allow that cohort to be reduced, as it inevitably is when people who were on schemes provided by their employers retire and lose that provision. Taking on that burden, or responsibility, for themselves is a significant expense; my hon. Friend’s new clause would not eliminate that cost, but it would reduce it by a useful amount.
Julian Smith (Skipton and Ripon) (Con)
Will my hon. Friend tell us how, in the current financial situation, we could pay for any dead-weight costs? Where would the money come from?
Mr Chope
It is a matter of seeing what the countervailing benefits would be, because obviously, if as a result of my hon. Friend’s new clause a lot more people who are not contributing anything towards the cost of their health care started to do so, thereby reducing the burden on the NHS, the dead-weight cost that my hon. Friend the Member for Skipton and Ripon (Julian Smith) mentions would be exceeded by the overall benefits, and a reduction in the overall burden of taxation. More people who are getting health care in this country would be paying for it, or contributing to its cost, rather than relying on the state and the taxpayer to do so.
Mr Leigh
The dead-weight cost argument is always used against ideas such as school vouchers or tax relief for health insurance, but does my hon. Friend agree that the whole point of such proposals is to help the people in the middle? Quite rightly, Parliament is concerned about the people at the bottom of the heap, and the rich can always buy their way out, but this part of the Conservative party should help the people who struggle all their lives, and pay tax all their lives.
Mr Chope
Exactly. My hon. Friend is absolutely right. There is a lot of resentment about the fact that people who arrive in this country can latch on to the health service, at no cost to themselves, when they have not made any contribution at all. The new clause would give people who have been making a contribution, either through their employers or by paying insurance premiums themselves, a bit of help in the form of tax relief when they retire. We are talking about modest sums, but that would send a useful message and be an incentive.
Mr Kevan Jones
If we were designing a system to increase the number of people with private health insurance, would not this proposal be a very inefficient way of doing it? I must draw the hon. Gentleman’s attention to the Institute for Fiscal Studies and King’s Fund report, which showed that when the scheme was abolished, 0.7% of people—4,000 people—gave up their policy. It strikes me that for most people, the scheme was a not a great incentive to buy health insurance.
Mr Chope
The hon. Gentleman quotes figures from the Institute for Fiscal Studies that go back, I think, to 2001—10 years ago. What concerns me is that there has been no update of those figures. If my hon. Friend the Financial Secretary to the Treasury, whom I am delighted to see on the Front Bench, comes forward with up-to-date statistics that show that the Government have been considering the issue seriously, obviously I will listen to his arguments, as I always do.
I am concerned that the issue has become one that the coalition Government do not want to discuss, and they are not prepared to commission research into it. They are not prepared to consider the argument put forward by my hon. Friends and myself that our proposal would generate more private sources of income for the health service. The Government are going for the simplistic version and concentrating on the idea that there would be an up-front dead-weight cost. There might be, but that would be outweighed by the other benefits.
Barry Gardiner (Brent North) (Lab)
Can the hon. Gentleman explain why the individual making the payment should not make it out of resources provided by another person for the purpose of enabling it to be made? If he can explain that, does he not believe that it would require a desperately intrusive large state to undertake investigations to ensure that the provisions in the new clause were adhered to?
Mr Chope
The new clauses being considered together are a word-for-word recital of the original legislation. The hon. Gentleman may have some good points, but I hope that those will not be taken by the Minister, because they would be points against the measures that followed the 1990 Budget.
Barry Gardiner
I am grateful to the hon. Gentleman for giving way again. I am simply trying to establish the extent of Government intrusion that would be required in order to enforce the clauses that he supports. The Government would have to intervene and find out whether the funds being made available for the premium had been supplied by a third party—perhaps children who wanted to help their ageing parents. How would the restriction be enforced?
Mr Chope
In the same way as it was enforced before, as my hon. Friend the Member for Mole Valley says. As the insurance companies will be the beneficiaries, in a sense, because more business will be created for them, the provisions of the new clauses require those insurance companies, in effect, to participate in a regulatory regime supervised by the Treasury. That is the reasonable safeguard that we had before, and it would be a reasonable safeguard in the future. I am delighted if the hon. Gentleman’s only objection to the new clause is that whingeing technical objection, because that must mean that he is in favour of the substance of it.
Charlie Elphicke (Dover) (Con)
Perhaps my hon. Friend can help me. I am puzzled that Labour Members oppose the new clause as creeping privatisation, because when they were in office they privatised large sections of the NHS, with the independent sector treatment centre programme. I do not see how those two views sit together.
Mr Chope
As so often, my hon. Friend makes a telling point, which has got Opposition Members back on their haunches as a result of that good intervention.
Let us look at the total contribution made to health spending in this country by the private sector. The hon. Member for North Durham (Mr Jones) quoted from the Institute for Fiscal Studies report that came out in 2001. It said:
“Despite the increase in use of the private sector, private spending on health care makes up only 16.3 per cent of total health spending in the UK, which is lower than in any other G7 country.”
It goes on to describe how low health spending was as a percentage of gross domestic product. I concede, and am pleased, that since then health spending as a percentage of GDP has increased, but the percentage of private contributions to health care has not increased commensurately, as it should have done.
Thomas Docherty (Dunfermline and West Fife) (Lab)
That has been used as an argument against privatising the national health service, because the reason why the United States spends such a high proportion of its GDP on health care is that there is a completely free market there. The hon. Gentleman is actually making an argument for the national health service.
Mr Chope
I certainly support the national health service, but I do not think that the hon. Gentleman understands my point. My point is that even in very socialistic countries, such as Sweden, the other Scandinavian countries and others in Europe—quite apart from the United States—the proportion of total health spending that comes from the private sector is much higher than it is in this country. I think that it would be much better if a higher proportion of our total health spending came from the private sector and from individuals and companies.
Mr Chope
My hon. Friend makes a good point. I think, and some of the research suggests, that when people contribute directly to the cost of their health care they take a greater interest in outcomes and hold the health service to account to a greater extent than when they can be told, “It’s all free, so what do you expect?” We talk about the health service being free at the point of delivery, which of course it is, but I want a health service that is available at the point of need, and the two things are very different. That is the gap that exists at the moment. A little more private sector resource, which would relieve some of the burden on the taxpayer or complement taxpayer resources, would be a good thing.
Mr Kevan Jones
Where is the evidence for that? The old scheme that the hon. Gentleman says was so great clearly did not do that, for example in relation to waiting lists. It would cost £140 million, and it would be far better if that money went into the health service to improve care for all, rather than to the small section of society that he is trying to benefit.
Mr Chope
Of course, the original scheme was brought in on the basis that it would apply to everyone over the age of 60, and initially would give full tax relief to higher-rate taxpayers, so the figures would be nothing like as high under the new clause, because its proposals would apply only to people over 65, and would give only 20% in tax relief.
Mr Leigh
Is my hon. Friend not being very moderate? Surely there is an argument for giving everyone tax relief, which is how we would move to a continental-type system with much better health outcomes, and blur the boundaries between the private and public sectors. That is what we, as Conservatives, should believe in.
Mr Chope
I absolutely agree, but I think that my hon. Friend the Member for Mole Valley, who tabled the new clauses, is a gradualist by nature; that goes back to his time as leader of Wandsworth council, when he was preparing for his time in Parliament and knew that things could not be done immediately but must be done gradually. He can speak for himself when he contributes to the debate, but perhaps that gradualism is part of his thinking.
I will finish soon, because many Members wish to contribute, but let us first put this suggestion in perspective by thinking about roughly how much it would cost. Let us suppose that an average health premium is about £2,000, which a pensioner or pensioner family would be faced with paying, and which previously their employer had paid as part of a contributory or non-contributory occupational scheme. Many pensioners would not pay that, but if we gave them the tax relief, which would amount to more than £400, I submit that many of them would carry on paying for their insurance, thereby contributing towards the cost of the health service, which would be a benefit.
The last time I spoke in a debate on a Finance Bill on Report it was about insurance premium tax. The insurance premiums paid for health insurance are already subject to tax, which the Treasury keeps increasing, so an alternative way forward might be to abolish the insurance premium tax paid on health insurance contributions. That is a separate argument and not the subject of this group of new clauses, but it serves as an example. The Financial Secretary to the Treasury would obviously say that we could not afford that—but does he realise that if we increased the number of people taking out health insurance, the Treasury would receive a lot more in insurance premium tax? I am sure that he will take that into account when he—in due course, having done the proper research—tells us the costs and benefits of the proposals in the new clauses.
We should not forget that the dynamic effect of these taxation changes could deliver great benefits and dividends. It is important to send a strong message to those who can afford to contribute towards their health care costs but who currently do not do so, that this would enable them to contribute at a lower cost than would otherwise be the case. I think that it is a well-rounded and sensible proposal, and I am delighted that it is getting so much support from colleagues on the Government side of the House.
Frank Dobson (Holborn and St Pancras) (Lab)
I am sure that people across the country would be astonished to discover that the first priority of Back-Bench Tories on health spending is to give a tax concession to people who pay, on average, £2,000 a year towards health insurance, because most people over 65 are in no position to pay such a sum towards health insurance. Most people across the country, including many pensioners, and perhaps even those pensioners who have private health insurance, think that the first priority for spending should be to avoid some of the cuts that the Government are already introducing and to direct spending to the national health service.
Mr Redwood
I just want to correct the record, because our first priority was to have a wider range of drugs to treat cancer, as we thought that the previous system was too meanly constructed, and we were proud of the Government when they made that the No. 1 priority for extra spending.
Frank Dobson
But that decision has been and gone, and I do not think there was any opposition to it across the House, but we are now talking about the Bill. The Government now propose that the first priority should be to spend the best part of £200 million to give a subsidy to people who are already sufficiently well off that they can pay £2,000 on average towards their private health care costs. I do not think that that is a sensible priority for anyone concerned about health care. I hope that no Tory Members, or Lib Dem Members if they support this proposal, will parade outside their local hospitals saying, “Please don’t get rid of 200 nurses, or some of the doctors, or our ambulance and emergency service, and please don’t take away our maternity unit.” That will be because some of their colleagues thought that the first priority was to spend £200 million on people who are considerably better off than the average.
Government Members have said that the rich can afford to buy private health care and that most rich pensioners already have it. Some extreme marketeer right-wingers both here and in the United States think that health insurance should be abolished because, if people have to pay for health care costs out of their income or savings, they will be a source of pressure to bring down those costs, but Government Back Benchers have not reached that extreme marketisation approach yet.
Mr Bone
The right hon. Gentleman is being very generous in giving way, and I should say something nice about his speech, but I cannot think of anything. This Government’s first priority on health, however, was to make sure that we increased health spending at more than the rate of inflation. It was something that his party would not guarantee.
Frank Dobson
Let us turn to a bit of history. When the previous scheme was introduced, neither the Department of Health nor the Treasury made any calculation whatever of what it would cost the taxpayer. It was a decision flying blind—[Interruption.] I notice the Financial Secretary looking to the Box, but if those in the Box give him an honest answer, he will have to confirm that the Treasury made no calculation of the cost of introducing the scheme originally and neither did the Department of Health. When I had the scheme abolished, I found it very difficult to discover how much it had cost. It took the Treasury quite a bit of time, too, because it had not logged the effect of the scheme—which it introduced.
The proposition is that, if people have private health insurance, they will not place any demands on the national health service. First, however, they would get the tax concession most of the time, but, during the years—one would hope that there were many of them—when they did not need any health care at all from anybody, they would not be relieving demand on the national health service because they would not have any demand to supply.
Secondly, as my hon. Friend the Member for North Durham (Mr Jones) has already pointed out, large numbers of people—certainly if they have a difficult or complex operation—do not resort to their private health insurance, because private providers are not up to providing them with the quality of care that is needed, so they resort to the national health service.
I remember a proposal to build a private hospital on the Odeon site on Tottenham Court road, and the brochure that the projectors of this brilliant scheme provided had a paragraph that can be summarised as stating, “It doesn’t matter if anything goes wrong in our private hospital, because you’ll be next door to the world-famous University College hospital, so you’ll be transferred there and then you’ll be okay.” Almost all intensive care is provided in the national health service; private sector providers do not generally provide it, so when things go wrong people are shifted.
Mr Kevan Jones
Does my right hon. Friend agree that, if we wanted to move to the market-led initiative that some Government Back Benchers have put forward, we would find that private hospitals had to train all the nurses and doctors whom they currently get through state-subsidy and training in the NHS?
Frank Dobson
The private sector creams off the straightforward, relatively simple and less risky operations for people who are otherwise healthy, leaving the national health service to provide similar operations for people who are unhealthy, which can be much more complex. For instance, if someone needs their hip joint replaced, and they are okay apart from their bad hip, that is fairly straightforward, but, if they have a dickey heart or something wrong with a kidney, it is altogether more complex, and you can bet your boots that that operation will take place in an NHS hospital. Similarly, an NHS hospital will provide intensive care, accident and emergency care and emergency beds, and it will carry out the training that by and large the private sector does not.
All those burdens stay with the NHS, none of it transfers to the private sector, and we are being asked to provide a tax incentive for people to do something that they do already. There was no evidence in the 1990s of any increase in the use of private health insurance as a result of the Government’s tax benefit.
Charlie Elphicke
The right hon. Gentleman is being extraordinarily generous in taking interventions, and he has a long-held principled position on the national health service. On the private sector creaming off, as he would say, the easy cases, does he agree that, first, he would not have acceded to the independent sector treatment centres programme and, secondly, that it was wrong for the private sector in that case to charge for operations which were not carried out?
Frank Dobson
When I was Health Secretary, I agreed to the establishment of national health service units that undertook diagnostic and straightforward treatment on straightforward conditions. I thought that it was a sensible idea, but unfortunately my successors decided to privatise it, and it has to be said that then, John, now Lord, Hutton was not good at getting bargains for the taxpayer. He agreed a scheme whereby on average the private sector was paid 11% more per operation than the national health service, and the private providers were also paid when they did not do all the operations that they were contracted to do. Some got 11% more for operations that were not actually carried out, so I am no fan of such arrangements, but, having opposed them right from the start, I do not recall any cries of “Hosanna!” from the Tory party when I attacked the proposition. My memory may be false, but the Tories seemed to be wild enthusiasts for that ridiculous scheme.
Noticeably, however, unlike putting money into the private sector or, in the case before us, a bit more money into the hands of pensioners who have quite a bit to start off with, investing in the national health service had a dramatic effect. When we took office, national health service hospitals performed 5.7 million operations a year; in the most recent year for which figures are available, they performed 9.6 million. If we want to look after the interests of people who get sick, we will find that the way to do so is to ensure that everyone has access to a massive increase in the number and quality of operations, and there has been a massive increase in both.
Barry Gardiner
When considering the situation in 1990, does my right hon. Friend recall that part of the rationale for those people having private health care was that the queues in the health service were so long that it was effectively a way of getting the same care and the same consultant but doing so in the private sector much faster? Does he share my fear that the reason why the proposal is being made now is that Tory Back Benchers know that waiting lists are already going up and will go up still further, so they want to give their friends exactly the same opportunity?
Frank Dobson
Yes, my hon. Friend is quite right. Government Members are obviously anticipating the expected decline in national health service output, and that decline is the reason why the national health service is going to stop collecting figures on waiting lists and waiting times. One is always rather suspicious of any organisation that collects figures and then stops. One wonders why, and the idea that those figures might be embarrassing is a good explanation.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend is coming on to precisely the point that I want to make. This week, my local hospital, Tameside general hospital, announced 200 job losses among front-line staff, and its waiting times have shot through the roof. Is not this the real picture of what is happening in the national health service? If money is available, should we not be prioritising care in hospitals such as Tameside, not giving a tax hand-out to people for medical insurance?
Frank Dobson
I agree with my hon. Friend. I am sure that he will draw this proposition to the attention of the electors of Tameside, who are facing valuable staff being got rid of and reductions in the number of operations being carried out. I hope that he will also point out, as I did at the beginning of my short contribution, that apparently the first priority of a lot of Back-Bench Tories, who seem to represent the true core of Tory opinion, is to bung £200 million into the hands of the best-off pensioners, some of whom will not agree with it either.
Charlie Elphicke
I respectfully put it to the right hon. Gentleman that our priority is not to bung £200 million at people, as he describes it, but to see real increases in NHS spending as against the cuts that were in the last Budget of the Government whom he long supported.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I let the hon. Gentleman’s previous question go, but he is drifting way off the mark. This debate is about medical insurance.
Frank Dobson
Let me return to the point. The proposition before us is to divert £200 million of taxpayers’ money to a group of pensioners—not to the national health service, or even to the private health care sector, but to those particular pensioners. I cannot believe that many people in this country, at this moment, believe that that is the first priority of anyone sensible—it is certainly not my priority—but that is what we are being asked to say by those who want us to vote for this new clause.
I can remember the claims that were made when the old scheme was introduced. Despite that, nobody was able to adduce any evidence that it added to the number of pensioners who took out health insurance or stayed as pensioners who had health insurance. When it was abolished, the predictions from the national association of scaremongers, led by Bupa and others, created the impression that the whole system would collapse, that hardly anybody would keep using private health insurance, and that legions of the formerly insured would be pouring into every hospital, clinic and doctor’s surgery. That did not happen. The main function of the scheme was to put a few bob in the pockets and handbags of the better-off pensioners, and that is what it did. It had virtually no impact whatever on health care either in the national health service or in the private sector, and I suspect that the situation would be similar today.
If we have £200 million to spare—apparently we do—and we want to put it into health care, I would be very happy to see some of it go into my local hospitals so that they were not laying off nurses and doctors and other staff in the next couple of years while having to put up with the ridiculous marketising shambles that the Health Secretary has wished on the country. In case it has not been clear, I am opposed to this proposition and, given the opportunity, will vote against it.
Mr Bone
It is a great pleasure to follow the right hon. Member for Holborn and St Pancras (Frank Dobson), who has been very consistent in his views over the years and, I think, represents the real views of the Opposition.
I congratulate my hon. Friend the Member for Mole Valley (Sir Paul Beresford) on proposing—
Mr Bone
I will not give way on congratulating my hon. Friend because I am not going to change my view about that. He has proposed a very small and sensible measure that I support because it would benefit people’s health. That is its basis; it is not being done for any other reason.
Over many years, I had the opportunity to observe at very close hand someone who was very seriously ill and was being treated in the national health service and in private hospitals, and they got wonderful treatment in both cases. I pay tribute to the staff in all our health institutions. I do not single out any one group as being better than the other; they all did a very good job.
I believe passionately in insurance. People should insure against things that might go wrong in future; they hope that they will not, but they take out insurance and pay a small fee for that benefit. In the case of the person I mentioned, the cost to the private medical company ran into hundreds of thousands of pounds. My argument is simple: had they not taken out private medical insurance, that money would have had to be paid by the national health service. One of the sad things I saw during that period of years was elderly, retired people at the private hospital putting down £10 notes to get a service that they would have got at a fraction of the price had they taken out insurance. By offering tax relief, we will get more people to do the right thing. It is right that we encourage people to provide for their own medical care. It is simple: if someone is getting 20% off in tax relief, the other 80% is a saving to the national health service.
Let me deal with the dead weight argument. I suspect that the Government will say, as Opposition Members have said, that because people are doing the right thing they should be penalised. If they are doing the right thing in saving money for the NHS, they should benefit from it. The new clause would encourage more people to take out private medical insurance—in this case, only those who are retired. Come February next year, when I introduce my private Member’s Bill on extending the proposal to cover all patients, we can go even further, but this would be a small step in the right direction.
Frank Dobson
The hon. Gentleman is trying to justify this on the grounds that people should be rewarded if they place a lesser demand on the national health service. Is he suggesting tax cuts for people who stay slim, do not drink too much or do not smoke, because that would have a much bigger impact on demand on the national health service?
Mr Bone
Some of those things were tried in the past by the previous Administration—incentives for people to stop smoking, for instance. That is not what I am talking about, and I think you might well say, Mr Deputy Speaker, that I was out of order if I started to drift on to those subjects. One of the great things about today’s debate, of course, is that we have all night to scrutinise the Bill. One of the benefits of having no programming is that nobody can stop our discussions, and so far there has not been any filibustering.
Ian Swales (Redcar) (LD)
Clearly we have a financial problem in this country. Has my hon. Friend made any assessment of the number of people who do not currently sign up for private medical insurance but would be likely to do so in order to establish the costs of the new clause?
Mr Bone
The proposal applies to retired people, so I think that it will affect people who have private medical insurance through their companies or who can afford to have it while they are employed, but who drop it when they retire, at the very time when they are most expensive to the national health service. The more people we can encourage to take it up, the better.
Mr Kevan Jones
I am very interested in this point. Will the hon. Gentleman say what evidence there is? When this tax relief was withdrawn, 4,000 people did not continue with their health insurance, so there is no evidence at all that people drop out. Likewise, there is no great evidence that by introducing this measure, the previous Conservative Government increased the numbers. What it did was give a tax break to people who already had private health insurance.
Mr Bone
I am grateful to the hon. Gentleman, because he said first that 4,000 dropped out and then that nobody dropped out. He had already proved that 4,000 people dropped out.
I believe that the proposal will improve the uptake of private medical insurance enormously, which will mean that there will be less of a burden on the national health service and that more money will be put into private hospitals, allowing them to develop. This country needs more health care of a higher quality. That does not need to be centrally controlled, but can be done by a mixture of NHS and private providers.
To get the idea that the priority of this Government has not been the NHS, Opposition Members must have been asleep. A thorough new Bill has come forward, which has been scrutinised by Parliament. There have been slight shrivels on the way, and it has now gone into Committee. This proposal would be a very minor adjustment to the NHS programmes of this Government. It deserves the support of the House and it will be interesting to see what happens when we divide.
Thomas Docherty
I should say at the outset that I have no problem at all with private health care or education. If somebody wishes to spend their money as they see fit, it is entirely a matter for them. However, we must challenge head-on the argument that has been articulately, though falsely put forward by some Government Members that people are doing their patriotic duty by not using the national health service because they are a burden on it, and that they should be rewarded for having private health care. That is simply not the case. First, private health care is a form of queue jumping. I understand the arguments behind it, but we should recognise that we are talking about people who jump to the front of the queue.
Thomas Docherty
The hon. Gentleman shakes his head, but that is exactly what people with private health care do—they jump right to the front. There might be a six-month waiting time for a minor operation—I suspect that waiting times will get longer—but people who choose to have private health care go to the front of the queue and are seen within a fortnight. I have seen various television adverts for very reputable private health care companies that advocate the services that they provide. I do not think that that should be forgotten.
Mr Kevan Jones
Does my hon. Friend also recognise that when we had long waiting lists, the incentive that a lot of these companies used in their advertising was that people could get to the front of the queue? Is there not an argument that now that we have short waiting lists—for the time being—there is less need for private health care?
Thomas Docherty
My hon. Friend is entirely right. It is interesting that there are now far fewer adverts for private health care. He is right that part of the reason for that is that we have a superb national health service. Having served in the House for longer than I, he should take a great deal of credit for the fact that we have a first-class health service. The second reason why I suspect private health companies are not advertising is that thanks to the policies of the Government parties, people cannot afford to have private health care. Of course, many people are losing their jobs. I will return to that point shortly.
The other huge issue about burden is that the private health system is a burden on the national health service, because it takes doctors, nurses and other medical professionals away from it.
Thomas Docherty
Now the hon. Gentleman is shaking his head. There are many highly paid consultants who split their time between their private practice, their golf course and the national health service. The time that they spend in private practice is clearly time that is not available to the national health service.
Andrew Gwynne
Is this not a question of priorities? If there is a pot of money to be given away, would it not be much better to spend it on health care for the many, rather than on a tax give-away for the few?
Thomas Docherty
I absolutely agree with my hon. Friend. It is fascinating that in this debate, we have seen for the first time who the real deficit deniers are in this House. I appreciate that the parliamentary resources unit, which so ably serves the Conservative Benches, is very good at putting out lines to Conservative colleagues about my hon. Friends being deficit deniers. We have seen this afternoon that the real deficit deniers are sitting on the back row of the Conservative Benches. At a time when there is a real-terms cut in NHS spending—I must correct the hon. Member for Wellingborough (Mr Bone)—because the promised increase in funding under this Conservative-led Government is lower than inflation, whether using the consumer prices index or the retail prices index, these Conservative Members propose that we should take money, which Government Front Benchers often tell us we do not have as a nation, and use it to assist with private health care. We have seen yet again today, as my hon. Friend points out, that they are the real deficit deniers. I look forward to seeing whether they have the courage to push the new clause to a Division, and I look forward to going through the No Lobby later this evening.
Mark Reckless (Rochester and Strood) (Con)
On that issue, there is clearly a very large deficit, which we inherited from the hon. Gentleman’s Government. On funding for this proposal, we have seen a 74% increase in our net contribution to the EU, which many Government Members would not like to see paid. The Financial Secretary to the Treasury has made very substantial savings by keeping us out of the Greek bail-out—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I do not think that we will be tempted down that route. We will stick to insurance.
Thomas Docherty
The hon. Member for Rochester and Strood (Mark Reckless) is always tempting. I suspect that you would rule me out of order, Mr Deputy Speaker, if I pointed out that it was this Prime Minister who went to the European Council and failed to live up to his promises. Therefore, let me move back to the substantive debate, which is being so ably chaired.
This proposal is a Trojan horse. Government Members tried hard to cover up their anti-health service rhetoric, but every now and again it seeped out in their speeches. The national health service is an institution that Labour Members are proud of. It is the greatest achievement in 100 years of the Labour movement. It has transformed our country’s health. As you know, Mr Deputy Speaker, I am doing an Open university degree in history. [Interruption.] I am asked where I find the time. I have a great wingman in my parliamentary duties. I am currently studying a module on the history of medicine from 1500 to 1930. It is fascinating to see that the pre-war health system that was available to the vast majority of people did not compare one iota to the achievement of the 1945 Labour Government. It was fascinating to hear the disdain of Government Members for the national health service. They are attempting to allow privatisation through the back door and to undermine the national health service. I look forward to hearing what the Minister has to say and whether he agrees with his own colleagues on the issue.
Mr Kevan Jones
Does my hon. Friend recognise that it is the top 40% of earners who have access to private insurance? In the bottom quartile, less than 5% have it.
Thomas Docherty
My hon. Friend is absolutely correct, and the new clause is, yet again, all about the few, not the many. It would do nothing for the squeezed middle, the people who, thanks to the economic policies of Treasury Ministers, are finding life much harder at the moment. We should perhaps reflect on the fact that for all the passion about tax breaks on insurance, hon. Members of both Government parties did not hesitate to go through the Lobby and vote to raise VAT, which has made life much harder for many of my hon. Friend’s constituents and mine.
There are two reasons why companies have historically offered private health care. One is as an incentive to get people to come and work for them in a competitive market. As I said, thanks to policies of the Government parties, that is not particularly a problem in the current climate of job losses and rising unemployment.
The second reason is a hard-nosed business case for key employees. There is obviously a good reason why companies decide that to minimise the amount of time for which certain key employees are absent from the workplace due to illness or injury, they will provide a fast-track or—wait for it—queue-jumping approach to health care. I understand the argument for that, and it is a matter of choice, but companies have not offered private health care beyond retirement because they have no further use for that employee. That is why we tend not to see companies giving a lifetime guarantee, as they do in the United States. It is therefore a slightly false argument to say that when a company provides private health care up to the age of 65, the state needs to step in after that. It is a hard-nosed business reason.
Mr Jones
Is not one of the hard facts of life in the United States system, as many individuals there are seeing now, that as soon as people become unemployed, their health insurance stops? In some cases the public sector then has to pick it up. Although there may be a benefit when somebody has work, there clearly is not if they do not have work.
Thomas Docherty
My hon. Friend is entirely correct that that is the case for the vast majority of people. Of course, care is often continued for highly paid executives, the group of people whom Conservative Members seek to help—as I have said, the Conservatives are the party of the very few, not the many. However, he is entirely right that the vast majority of US citizens lose their private health cover in that situation. That is why Opposition Members have worked so hard to resist the attempts of the Secretary of State and his Liberal cohorts to introduce privatisation by the back door.
I am conscious that the hon. Member for Mole Valley (Sir Paul Beresford) will wish to make his closing arguments prior to dividing the House. We look forward to seeing the strength of feeling that exists, and I urge Liberal Democrat Members to stand up for the health service and stand up to their Conservative allies.
Mr Redwood
I should like to make it absolutely clear that this matter is not my No. 1 priority, and I do not think it is the No. 1 priority of all Conservative Members. We were elected on a manifesto that said that we were going to increase spending on the NHS in the traditional way by several billion pounds a year, and that pledge is going to be honoured.
Mr Redwood
The hon. Gentleman should read the Red Book. It clearly shows substantial cash increases in spending on health every year over the lifetime of this Parliament.
Thomas Docherty
The reality is that the increase in spending is lower than the increase in inflation, so it is a real-terms cut.
Mr Redwood
We have kept the promise to have substantial increases in cash spending. It is now very important that we get the maximum for it. We are in danger of wandering too far from the new clause, but I point out that as we are about to enter a period of wage freezes, a substantial increase in cash funding will obviously buy more health care, because the main cost is wages. I hope that the hon. Gentleman will understand that. The Government’s clear priority was to expand cancer treatments and other drugs, and to ensure that we have more high-quality care. I welcome that very much.
The second thing to understand about the new clause is that it is not a help-the-rich new clause. Opposition Members should understand that the rich are not going to be attracted by an offset on 20% tax, because they are either non-doms paying very little tax or they are paying 50% tax. They are people who self-insure, so they are not going to take out insurance policies such as we are discussing. We are not dealing with the rich, because the rich have always been able to buy the health care that they want under any type of Government. That would not change as a result of the new clause.
We are talking about a specific group of people who are coming up to retirement. Some of them will have had the benefit of company scheme insurance, and some will not have had the benefit of insurance at all. At 65, they often have an important decision to take, because several things happen. First, they lose their company health insurance, if they were receiving it. Secondly, their insurance premiums go up a lot, because they are suddenly thought to be higher risk. Thirdly, they enter the age group when they will need a lot more health care than they did in their healthy, earning years when they were executives or whatever. We are talking about whether that group of people should be able to carry on their insurance, and whether such an incentive would make any difference.
Kerry McCarthy (Bristol East) (Lab)
Will the right hon. Gentleman give the House some indication of what proportion of the population he is talking about, and what sort of income scale they are on, including retirement income?
Mr Redwood
I will give as much precision as the Leader of the Opposition and say that they are the squeezed middle. They are exactly the people in whom the Opposition are meant to be interested but whom they clearly now wish to attack in the debate.
Mr Redwood
That may have been the case in the past, but what we are interested in is the new clause.
The answer to the hon. Member for Hartlepool is that no, I cannot tell him that. It is not my new clause and I have not researched the matter. I was about to say that I would be more likely to vote for it if a case could be made on the money involved. It seems to me that it would be a good-value purchase if the savings on health care that it generated for the NHS were considerable. We need to balance the two things—we need to know what the revenue loss would be, based on a sensible estimate of take-up, and what the savings to the NHS would be.
The Labour party has to accept that it is not a one-sided matter. The whole point of the scheme is that there would be cost savings to the NHS. That money going into the NHS could then be spent on other people and other treatment. The NHS may still have to do the really difficult things for the people involved, but there could still be an overall benefit both to them and to the NHS if the extra money coming through the private sector led to extra care.
The fundamental mistake that we have heard from the Opposition tonight in their approach to these issues—although it was not the mistake of many Labour Ministers—is the idea that the resources to be provided are finite, to be used either in the private sector or in the public sector. The whole idea, surely, is that we need more resources, more trained people, more treatments, more supplies and more medical activity, because people are living longer, they need more health treatments and the population is growing for a variety of reasons.
As some of my hon. Friends have said, the one big gap between Britain and our European partners, which are normally the example held out by the Labour party, is the amount of private sector money that goes into health in Britain. It is a considerably smaller proportion than in countries such as Germany or France or the Scandinavian countries. If Labour Members are interested in the squeezed middle, they would be well advised to consider any scheme that might help to increase or release private sector money in health in a way that creates more resources, more medically trained people, and more medical treatment.
Oliver Heald
Does my right hon. Friend agree that a more substantial private sector would help the NHS, because at times of great busyness in the NHS, it is to the private sector that the NHS looks to do the necessary operations? That happens right across the country, and it is one reason why it has been possible to bear down on waiting times.
Mr Redwood
That is exactly what successive Ministers and Secretaries of State for Health in the Labour Government concluded, with the honourable exception of the right hon. Member for Holborn and St Pancras (Frank Dobson). After him came the modernising Secretaries of State and Ministers who felt that they had to turn to the private sector to achieve better standards—in terms of offering people treatment in a timely way—and to expand the total capacity of the system.
Frank Dobson
My successors, to whom the right hon. Gentleman refers, sometimes make rather wild claims about the number of cataract operations that are carried out by the private sector. When Labour came to power, the NHS did 167,000 cataract operations a year, and in the last year for which figures are available it did 346,000. The private sector made the massive contribution of 16,000 in its best year.
Mr Redwood
The right hon. Gentleman may well be right. It is quite obvious that the NHS is the dominant health provider in our country—it has been for the many years since its foundation, and it will continue to be so under any schemes proposed by any governing party or parties in this House of Commons.
I wanted to concentrate on the cost and benefit of the proposals. I am an agnostic on this issue, which may come as a surprise to the House, because I am far from being a deficit denier, and I believe that we must weigh carefully any proposal for tax relief against other such proposals. In this case, I would be interested to know more about what the savings would be. There could be significant savings. If Ministers do not adopt the proposed scheme, they need to introduce others to promote more private health care of the right kind, because we will need a lot more of that to meet our targets and requirements, alongside the very large, and rightly favoured and supported, NHS.
Perhaps my hon. Friends the Members for Mole Valley (Sir Paul Beresford), for Christchurch (Mr Chope) and for North East Hertfordshire (Oliver Heald), who have spoken so strongly for the new clauses, wish to move closer to the Liberal Democrat coalition partners. Perhaps they had ringing in their minds the words of the right hon. Member for Yeovil (Mr Laws), who set out a comprehensive universal insurance scheme for health in the Orange Book. We will have to disappoint him today, because the proposal is modest, and it will not cover nearly as many people as he would like. Were he here, we could debate that with him, and perhaps he would see that caution and moderation is the hallmark of Conservative approaches to such things. This proposal might be the way to get started on the journey that he wished to make.
Mr Iain Wright
In terms of spending on health, does the right hon. Gentleman believe that we should move away from a policy of funding through general taxation and towards comprehensive medical insurance, which is the policy advocated by the right hon. Member for Yeovil (Mr Laws)?
Mr Redwood
No, I was just wondering whether my hon. Friends had that in mind, knowing how much they treasure the coalition with the Liberal Democrats, and knowing that such bold statements were made in the Orange Book by no less than a former Chief Secretary to the Treasury, who presumably knew the price of everything and the value of some things, and who would want to ensure value for money.
I hope that my hon. Friends on the Front Bench consider the wider issue that was rightly raised by my hon. Friend the Member for Mole Valley. How do we get extra resources and money spent on health in a friendly and sensible way, on top of the very great and important NHS, which my hon. Friends the Members for Mole Valley, for Christchurch and for North East Hertfordshire rightly back? If not by their route, what route? May we please have some numbers? The proposal could be a good-value buy, but that depends very much on how much cost would be taken out of the NHS.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
I have one or two things to say about this debate, and I was stirred into standing up by the previous speech, because either woolly-headed logic was being used by the right hon. Member for Wokingham (Mr Redwood), or he was making a deliberate statement to try to cover—
Oliver Heald
On a point of order, Mr Deputy Speaker. Is it in order for somebody to come into the Chamber towards the very end of a debate and then to start criticising how it has been conducted?
Mr Deputy Speaker (Mr Nigel Evans)
That is not a matter for me. I have just come into the Chair myself, as I am sure you observed, Mr Heald, so I am the last one to criticise anyone for just coming in and talking.
Michael Connarty
You know, Mr Deputy Speaker, there is amazing technology in this place. Members can sit in their offices and, if they wish, not watch the tennis but follow the debate in detail, and come down to the Chamber when they think it might be useful to add something. I recommend it to Members: turn off the tennis, turn on the Chamber.
The point I was making is that the logic used by the right hon. Member for Wokingham was possibly deliberately to convince the public that the proposal is an effort to add extra resources to the health services by encouraging people to put money into private health insurance. The logic, of course, is that such private health insurance is available to some people when they are in employment, but is denied them when they retire. If that is the kind of employer that people have, it is a shame that they are deluded into thinking that insurance is a substitute for taxation-based health services.
The right hon. Gentleman stated that resources are not finite, and that somehow this money would bring new resources rushing into the health service. Everyone who has studied the health service over the time I have been in elected politics, which is since 1977, knows what happens. The consultant and the surgeon choose whether to work in the private sector or in the public sector. Sometimes they choose to work in a mixture of those. I commend those who decide to work entirely in the public sector, because they give the best value to our constituents, as my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) said when, in an intervention, he cited the number of operations for cataracts.
However, the reality is that only a limited number of people get to the top of the elitist profession that is the medical profession, particularly to consultant level, because we do not train enough people to do the work that is required in the health service.
Mr Redwood
Does the hon. Gentleman not understand that in countries that have a bigger private sector on top of a large public sector, there are more doctors and nurses in relation to the population, because there is more money?
Michael Connarty
The right hon. Gentleman leads me to my next point. He recommended that we look at the EU system. I am glad that in reply to an intervention from one of my hon. Friends he said that he objects to the idea of a comprehensive, insurance-based health service in this country. I, too, have looked at that on the continent and in EU countries, and I have seen that it does not work.
In fact, other EU countries do have a larger number of doctors—there are more doctors per head of population in most of them than in this country—but that is because of the elitist structure of the medical profession in this country. That structure keeps the numbers down and pays huge bonuses to people once they get to the higher gradings. Many of those people are the very same ones who moonlight in the private sector for additional personal financial gain.
Mr Kevan Jones
Insurance-based health systems such as that in the United States may have large numbers of doctors, but those doctors are not accessible to the large proportion of the population who do not have private health care.
Michael Connarty
I hear my right hon. Friend say that 40 million people in the United States of America exist without adequate health care insurance or provision. A friend of mine tried to set up a dental care service in New England based on Medicare, and found that the money was not available. Many people in New England are denied any form of dental care when they end up in private nursing homes in their old age. Something is seriously wrong with that. I commend President Obama’s attempts to at least moderate that.
Let me return to the debate. People should not be deluded into thinking that the proposal will encourage more resources into the health service. It will encourage more companies to demand the services of the limited number of available surgeons to carry out operations for their private patients, instead of allowing the surgeons to do the job they should be doing. I would commend a scheme of private health care payments that provided the NHS with new equipment, doctors and other staff on top of those already trained in this country to work in the NHS.
Those who say that this proposal could do that should look at what happened with a hospital built for the private sector on the west coast of Scotland. The idea was to build a huge hospital with private money and to have people come from around the world to use it, but eventually it had to be sold to the Scottish Government when Jack McConnell was First Minister. We bought the hospital at a knock-down price because, in reality, the private sector could not generate new and fresh talent and equipment. That is not going to happen. It will just suck out resources needed by my constituents, who believe that the NHS should be paid for through taxes.
Andrew Gwynne
Does my hon. Friend agree that this is not about restricting choice, but about prioritising finite resources and ensuring that any available money goes into front-line NHS services, rather than into a tax giveaway to a small number of people who are already accessing private health care?
Michael Connarty
I could not have put it better myself—I commend my hon. Friend for helping me with his analysis.
The Labour Government were right to encourage people to provide resources that the NHS could access using taxpayers’ money where it would be more efficient. That was an excellent scheme that enabled people in my constituency to go to hospitals where beds were available over Christmas for operations that were not being done and could not be fitted into the schedules of hospitals that were short of resources. That was a good initiative, but this proposal is not; it is the opposite. It would be a damaging initiative if it encouraged people to take out private health insurance and so divert resources from the NHS, where they are needed.
John Hemming (Birmingham, Yardley) (LD)
I have found it odd recently that some private health insurers will pay those whom they insure to use the NHS. If that is the habit of private health insurance, where does the hon. Gentleman think the saving to the taxpayer is in allowing this tax relief?
Michael Connarty
I did not want to cite that example, although it is a good example of what happens when people use private health care and take resources away from the NHS. I find it appalling that through private health care people can actually buy organs donated to the NHS by paying for the hotel care and all the rest of it. They are not allowed to buy the organs any longer; instead they buy the ancillary health care and then use resources that people might have donated thinking they would go to NHS patients, but which end up being used for private care. But that is an aside from this debate.
The new clause would encourage more private money to suck out resources and money needed in the NHS. The right hon. Member for Wokingham kept talking about cash increases. We should not pretend that this is not the same Member who reminded us all of the real effect of cash increases when inflation is running higher than the increase. He was—how can I put this?—dodging the issue unnecessarily and treating us as though we were stupid. Cash increases will not keep the resources at the level they are at, and the new clause will in fact take out resources that the NHS does not have to give.
Mr Stewart Jackson (Peterborough) (Con)
I can scarcely believe that the hon. Gentleman is making that case, given that the previous Labour Government paid consultants and general practitioners respectively 27% and 44% more for doing less work, hid billions of pounds off balance sheets with dodgy private finance initiative schemes, which have reduced taxpayers to penury, and foisted independent sector training on primary care trusts, meaning that they could not plan for patient numbers or the money needed to run those centres.
Mr Deputy Speaker (Mr Nigel Evans)
Order. Interventions must be brief; otherwise we might find ourselves sitting until the early hours of the morning.
Michael Connarty
If the hon. Gentleman proposed a motion suggesting that all those things should not have happened, I would vote for it. I am a socialist. I did not like the Labour Government overpaying people and changing their hours in such a way that my constituents got less of a service. It seems that even some Conservatives realise that paying people huge amounts of money and asking them to work fewer hours in this elitist organisation—I am very critical of the consultancy-led health service in our country—is something we should be looking at seriously. Our constituents need value for money, which many of the schemes the hon. Gentleman mentioned did not provide. However, it is interesting that this Government have done nothing to change the tax laws, despite 23% of PFIs now being owned by foreign companies that are still getting the tax breaks in this country. Part of the idea of PFIs was that they would bring in tax money, yet 23% of the companies are abroad and put nothing into this country’s economy.
Kerry McCarthy
I can confirm that the Opposition oppose new clause 1. The Prime Minister spent the years in the run-up to the general election and the year since trying to convince us that he valued the NHS, that it was “safe in his hands”. Sadly, however, given the current shambles over the health Bill, which has yet again returned to Committee, it is safe to say that he and his Health Secretary have spectacularly failed. On current evidence, it seems that the Prime Minister did not even attempt to persuade his Back Benchers—it seems that they now want to reinstate a policy introduced by Baroness Thatcher’s Government.
As we have heard, new clauses 1 to 4 would introduce a tax relief on medical insurance for over-65s. The hon. Members who tabled the new clauses stood on a manifesto that proclaimed we “believe in the NHS”. It turns out that they believe so much in the state that they think even private sector provision should receive state funding.
Mr Kevan Jones
Does my hon. Friend not think it strange that this proposal has not appeared in a Conservative party manifesto since 2001? The fact that it was dropped in 2005 and 2010 shows clearly that it is not a vote winner.
Kerry McCarthy
I thank my hon. Friend for that intervention. I believe that I will come to the point that he raises in a moment.
New clause 1 would reinstate a benefit that was withdrawn by the Labour Government in 1997 because, quite simply, it had failed. As my hon. Friend the Member for North Durham (Mr Jones) said, it was not picked up by the Conservative party during the recent general election. As noted by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson), who was in government at the time—I congratulate him on his excellent speech—the measure had little impact. One of the problems with the previous Conservative Government's tax relief was that they did not do their homework on what impact it would have. I would be interested to hear what research the hon. Members who tabled the new clause have done. I note that the hon. Member for Mole Valley (Sir Paul Beresford) pleaded numerical dyslexia when asked about the statistics. I think he should have got someone to do his maths homework for him before proposing a spending commitment. The first thing hon. Members should have done was to see whether it would have the desired effect in spending that money.
The Justice Secretary, the then Chancellor, claimed when originally introducing the relief that it would provide an incentive to older people to buy private insurance and reduce the pressure on the NHS. That has been echoed by many Government Members today. However, the tax relief did not reduce the burden on the NHS or help those patients who relied on it. It simply subsidised health insurance for those who could already afford it and had chosen to buy it. When originally announced in 1989, it was estimated that the relief would cost £40 million. A telling warning for Government Members who want to reintroduce the expenditure at a time of such fiscal restraint is that by 1997 the cost had multiplied to £140 million, because there was no limit on the state’s generosity to private providers. It would be wholly irresponsible to reinstate a policy whose costs could spiral to such an extent.
As NHS patients knew to their cost in the 1980s and early 1990s, the then Government were far more comfortable limiting expenditure on the NHS and letting waiting lists rise for the majority of pensioners and others who could never contemplate private insurance, which, as my hon. Friend the Member for Brent North (Barry Gardiner) said, was primarily a way of financing queue jumping for those who could afford it. For just a 10% increase in the number of people covered by insurance qualifying for relief, there was a 100% increase in costs in just the first three years. Over the lifetime of that Government’s policy, the number of people covered rose from 500,000 to 600,000; so, for a 20% increase in the number of people covered, the costs shot up by 350%.
Andrew Gwynne
I am pleased that my hon. Friend has confirmed that those on the Labour Front Bench will oppose this measure. She is setting out the right arguments for why we should do so. Did more people not take up NHS care and treatment under the 13 years of Labour Government because of the improvements in NHS care and treatment that were achieved over the lifetime of the Labour Government?
Kerry McCarthy
My hon. Friend makes a good point as always. That is the crucial thing. Under the Conservative Government, the increased take-up in medical insurance from 500,000 to 600,000 did not necessarily have anything to do with the tax relief that was introduced; it happened because the NHS was in absolute crisis. Waiting lists were going through the roof under the last Conservative Government. People were terribly scared and did not feel confident that the NHS would look after them in their ill health. There were significant improvements under the Labour Government, which meant that fewer people felt the need to take out private health care.
Let me turn to the fairness argument. It remains to be seen how much the Health Secretary’s experiment through the measures in the Health and Social Care Bill—driven once again by a preoccupation with private sector involvement in health care—will eventually take from health care budgets. We know that £850 million will be spent on redundancies alone, and the estimates are that £2 billion of PCTs’ budgets are earmarked for what can only be described as—in those infamous words of the coalition agreement—a “top-down reorganisation”. Despite the Prime Minister’s promise of real-terms increases, NHS expenditure is falling in real terms. The King’s Fund has calculated that the NHS will have £910 million less to spend over the spending review period. Patients and staff know all too well that front-line services are being affected, but tax relief for private patients will not help them.
Alun Cairns (Vale of Glamorgan) (Con)
Do I take it from the hon. Lady’s comments on health spending that she is condemning her colleagues in Wales, who are cutting health spending by £1 billion over the next three years?
Kerry McCarthy
I am sorry, I did not quite catch the end of that because a colleague was talking to me. I do not know whether the hon. Gentleman wants to make that intervention again.
Alun Cairns
I will happily repeat the point. Do I take it from the hon. Lady’s earlier comments about growth in health spending that she condemns her colleagues in Wales, which is the only place where Labour is in power? They are cutting health spending by £1 billion over the next three years.
Kerry McCarthy
The Government are here to answer for the activities for which they are responsible in the English health service—it is one of those things that goes with devolution. We have heard from Government Members in this debate that the Government are increasing spending on the NHS. They have trumpeted that over and over again—it was meant to be a platform on which the Conservatives sought election—but the truth is that there is not a real-terms increase in spending on the NHS. When inflation is taken into account, there is actually a cut in NHS spending, and it is time that the Government owned up to that.
I am under pressure to finish my speech and allow those on the Government Front Bench to come in. [Interruption.] As hon. Members can see from the fact that not one but two Opposition Whips are sitting behind me, shouting at me to hurry up, I am indeed under pressure.
How can Conservative MPs tell the hundreds of thousands of people who have signed up to the “Save our NHS” campaign that a spending commitment priority for this Government should be subsidies for private medical insurance? The coalition has tried to deny that it is creating a market in the NHS, but now Conservative MPs do not even want it to be a fair one, by creating incentives for the private sector. If the Treasury thinks it wise to spend such considerable sums, I hope that it is clear by now that they could be much more wisely and fairly spent on the NHS for the benefit of everyone, not the few who need it least. Why not invest in the NHS as a universal service of which we should all be proud, rather than sending the clear message to patients and enormously dedicated NHS staff that private health care is better? Is the coalition planning to run down the NHS to such an extent that people will need to resort to private insurance?
As my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) knew when the relief was withdrawn in 1997, not only could those funds be of great value to the NHS, but ending the relief could fund a reduction in the VAT charged on domestic energy supplies to 5%—a rate that the Conservative Government had increased to 8%, and which they would have increased still further to 17.5%, had they not been defeated by Opposition MPs. The Labour Government at the time made clear their priorities. Rather than giving a tax break to older people who could already afford health insurance, they chose a tax cut that benefited everyone, but made the most significant difference to older people on low incomes who were struggling to heat their homes.
It is worth reminding the House that the Conservatives wanted to reverse that policy and reinstate the relief in 2001. Now, 10 years later, they still have the wrong priorities —priorities that will quite simply be incomprehensible to the average person feeling the effects of this Government’s reckless spending cuts. It is estimated that 4.5 million families in the UK are living in fuel poverty, while people are facing 10% increases in their electricity bills, which are likely to increase still further as a result of the coalition’s poorly thought out plans for a carbon floor price, which we will debate perhaps in the early hours of tomorrow morning or next week. Moreover, this Government have decided to cut the winter fuel payment for pensioners.
Faced with individuals and families who will struggle to heat their homes this winter, are the Government taking positive, responsible action to help them? No; instead, they have already hiked up the VAT bills of a couple with children by £450, and those of a pensioner couple by £275, and their Back Benchers think that it is more important to reverse a decision taken to help with fuel costs and instead give tax relief to the minority who can already afford the luxury of private health insurance.
The Labour Government lifted 1.1 million pensioners out of poverty, but there is a continuing need to support those on the lowest incomes. I fear that these proposals betray how some Conservative Members neglect the needs of the poorest pensioners. With the new clauses, they want to add insult to injury by giving tax breaks to the richest to buy private medical insurance, while poorer pensioners have no option but to rely on the NHS—a service that the coalition seems determined to decimate. New clause 1 explains that the relief would apply to people over 65 but, as we all know, the coalition is planning rapidly to increase the state pension age, which will affect the associated support for older people. Does the hon. Member for Mole Valley therefore envisage the age limit increasing with the state pension age, or does he disagree with the Government’s timetable?
In 2006, 10.6% of the population were covered by private medical insurance, and only 3% by personal private medical insurance. The latest figures that I have seen indicate that just 7% of people over 65 have private medical insurance, so the clear motivation behind new clause 1 is the choice to prioritise a very small percentage of the population at a time when the country and the NHS cannot afford it. Inflation is running at more than double the target rate thanks to the Chancellor’s decision to increase VAT, growth is flat-lining, the jobseeker’s allowance claimant count is increasing and more than 80 claimants are applying for each vacancy in some areas. That all means that the Government will have borrow £46 billion more than they planned last autumn, so how on earth can this measure be a priority?
I urge the Government to reject these new clauses, to consider how the money could be much better spent and to secure the future of the NHS as a high-quality service that everyone can access and trust. Instead of an unfair income tax cut for the few, we need a temporary emergency VAT cut that will benefit everyone, particularly those on low and middle incomes, and that will give a much-needed boost to the economy to reduce the deficit over the long term in a fair and balanced way. I conclude by asking the hon. Members who tabled the new clause what their priority is. Is it a tax cut for the minority who can afford private health insurance, which would undermine and undervalue the NHS, or a tax cut that would help everyone at a time when the economy needs it most?
The Financial Secretary to the Treasury (Mr Mark Hoban)
New clauses 1 to 4 seek to provide for tax relief on medical insurance premiums for individuals above the age of 65. I understand that the argument for introducing such relief is that it would encourage individuals above that age to take up private medical insurance and therefore reduce pressure on NHS resources, and that this would result in a net saving for the Exchequer in the medium to long term.
The Government introduce new tax reliefs only when there is a compelling case that to do so would represent a good use of public money. Turning first to cost, we estimate that this relief would have a direct and immediate cost to the Exchequer of at least £135 million pounds a year—a significant amount, especially given the fiscal climate in which we are now operating. That would reflect the cost of restricting relief to the basic rate of tax.
Mr Kevan Jones
I am interested to find out where the Minister got his figure from, because the figure in 1997 was £135 million. Has it not changed since then?
Mr Hoban
That is the Treasury’s latest estimate, and it is a number that we are going to stand by.
In his opening speech, my hon. Friend the Member for Mole Valley (Sir Paul Beresford) said that he wanted to restrict the tax relief to the basic rate, but subsection (3) of new clause 1 would not have that effect. It suggests that the relief could be obtained at the highest marginal rate that a person paid. He has used the 1990 legislation, whereas in the 1994 legislation the relief was restricted to the basic rate.
Mr Leigh
Why does my hon. Friend think that the social insurance systems on the continent, where there is much more blurring between the public and private sectors, produce much better health outcomes? Also, why does he think that the Major Government followed this policy, which we all supported at the time? Why is this proposal different from the policy of the Major Government, which we all—or some of us—supported?
Mr Hoban
I am pleased that my hon. Friend added that qualification. I entered the House only in 2001, so I was not in a position to support the Major Government or to disagree with them. We need to look at this measure on its own merits.
I would say to my hon. Friend the Member for Mole Valley that the way in which his new clause has been drafted means that tax relief could be gained at someone’s highest marginal rate, which could mean relief of up to 50%.
Sir Paul Beresford
Of course, if that were the result, I would be prepared to make some little adjustments to the new clause as the Bill progressed through the House.
Mr Hoban
My hon. Friend is an experienced Member of the House, and he will know that this is the final stage of the Bill, so it would not be possible to amend his proposal in that way. I note, however, that he has introduced a ten-minute rule Bill on a related subject, so we shall see what progress that makes through the House.
Mr Hoban
I want to make some progress. I appreciate that my hon. Friend the Member for Wellingborough (Mr Bone) has said that the debate may go on until any hour, but I do not want to be the cause of delaying the House’s tackling subsequent new clauses.
The vast majority of the cost of providing the proposed tax relief would go to those who already have private medical insurance, and there is therefore no obvious need for a new incentive. The case for introducing tax relief rests on the proposition that it would encourage significant new take-up of private medical insurance and ultimately be self-financing. However, at this stage we do not have any strong evidence to show how much additional take-up of private medical insurance a tax relief would generate, or how much pressure on NHS resources would be relieved as a result.
Indeed, when a similar relief existed between 1990 and 1997, it had little apparent effect. It is estimated that take-up of medical insurance increased only from 500,000 to 550,000 individuals over that period. The hon. Member for Bristol East (Kerry McCarthy) said that that increase was a demonstration of people’s lack of confidence in the NHS under the previous Conservative Government, but she ought to be aware that the take-up of private medical insurance under the Labour Government of whom she was a member went up from 550,000 to 1.7 million, so I do not think that her argument is particularly strong.
Frank Dobson
I congratulate the Minister on at least producing an estimate of the cost of the proposed measure. When the original scheme was first introduced, neither the Treasury nor the Department of Health made any estimate whatever; they were flying blind.
Mr Hoban
I thank the right hon. Gentleman; there are times when I am happy to accept congratulations from the other side of the House. We want to ensure, especially given the constraints that we are working under in these times of fiscal austerity, that measures can be well justified.
An Institute for Fiscal Studies report published in 2001 questioned how far the take-up of private medical insurance would ever respond to tax relief. It also suggested that the dead-weight cost would make it unlikely that tax relief could be self-financing.
Mr Chope
My hon. Friend was not in the House in 1989, but is he saying that my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), who was Secretary of State for Health at the time, was wrong to say that introducing this self-same measure would
“reduce the pressure on the NHS from the very age group most likely to require elective surgery, freeing resources for those who need it most”?—[Official Report, 31 January 1989; Vol. 146, c. 169.]
Mr Hoban
Loth as I am to suggest that my right hon. and learned Friend could ever be wrong on any measure, I want to make a point about the chances of a reduction of pressure on the NHS exceeding the cost of the tax relief. There is no evidence that there would be a net positive outcome for the Exchequer. When a similar relief existed in the 1990s, it had little apparent effect, and the IFS report from 2001 concluded that it was unlikely that such a subsidy for private medical insurance would ever be self-financing.
I appreciate the passion with which my hon. Friend the Member for Mole Valley has put forward his argument for the new clause, but I do not think that there is sufficient evidence at this point to justify the relief. There is no evidence that it would represent good value for money for the taxpayer, particularly at a time when our efforts should be focused on reducing the deficit and tackling the problems left by the previous Government.
Oliver Heald
Assuming that the new clause does not result in making a change in the law tonight, would my hon. Friend be prepared to look into the effects of longevity and the effect of having a more substantial private sector available to undertake operations and procedures on behalf of the national health service, as this is partly about capacity and what the future holds, not just about the numbers today?
Mr Hoban
My hon. Friend makes an important point about the impact of longevity on the public finances; the Office for Budget Responsibility is working on that at the moment, and we await its report. At the moment, however, given the fiscal situation and the need to tackle the deficit we inherited from the Labour party, I do not believe that the costs entailed by the new clause would represent good value for money, so I ask my hon. Friend the Member for Mole Valley to withdraw the motion.
Sir Paul Beresford
It is traditional to say that we have had a good debate, but we really have had a good one today; it has been stunning in a way. Most importantly, I do not think there is any Member who does not support the national health service. We are very much behind the national health service, and it is true of me even more than most Members of all parties, because I have worked in it, as well as working in the private sector and in a combination of the two. I am emphatically behind it, and I back the hospitals in my constituency.
The approach has, of course, been different. If the right hon. Member for Holborn and St Pancras (Frank Dobson) had not joined the debate, I would have felt that I had failed because we would otherwise not have heard a good red-blooded, left-wing socialist viewpoint. The difference, of course, is that Conservative Members support the national health service, but we also support the possibility of looking for alternatives or different ways of helping the NHS. That was my aim tonight.
I question the figures that the Minister provided, as we need to recognise that over a seven-year period from 1990, with the over-60s—not just the over-65s—having a full swathe of tax deducted, not just the basic rate, the relief was costing about £80 million. If the proposal in the new clause went through, there would be a progressive growth in the number of people claiming as time went on. I do not think it would be logarithmic, but it would certainly make a difference to hospitals in my constituency and others, particularly those down south. There would be a relief of the strain on those hospitals and an opportunity to redistribute the money.
I was putting my toe in the water this evening, trying to get some thinking going on the proposal, and that has happened. I will discuss the issues further with the Minister before the Budget and next year’s Bill, but in the meantime, I wish to withdraw the clause.
Clause, by leave, withdrawn.
Mr Deputy Speaker (Mr Nigel Evans)
We now come to new clause 5. Fiona Bruce. Not moved?
New Clause 5
Transfer of personal allowances between spouses
‘After section 37 of the Income Tax Act 2007, insert—
“37A Transfer of personal allowances between spouses
(1) This section applies to an individual who is entitled to a personal allowance under sections 35 to 37 for a tax year if—
(a) the individual is a person whose spouse who is living with the individual for the whole or any part of the tax year, and
(b) the spouse meets the requirements of section 56 (residence, etc).
(2) If—
(a) the allowance exceeds the individual’s remaining relievable income;
(b) the individual makes an election, and
(c) the individual’s spouse makes a claim,
the individual’s spouse is entitled to an allowance for the tax year equal to the amount of the excess.
(3) The individual’s remaining relievable income is found by—
(a) taking the amount of the individual’s net income, and
(b) subtracting any personal allowance to which the individual is entitled for the tax year.”’.—(Mr Leigh.)
Brought up, and read the First time.
Mr Leigh
I beg to move, That the clause be read a Second time.
In the last Parliament the Prime Minister and other senior Conservatives repeatedly expressed their commitment to recognise marriage in the tax system. There were some very strong statements, particularly by the Prime Minister. For instance, in Glasgow, in July 2008, he said:
“And when it comes perhaps to the most important area of all, families, we will take action not just to support marriage and family stability”,
because he wanted to say
“to parents, your responsibility and your commitment matters, so we will give a tax break for marriage and end the couple penalty.”
That was the leader of our party speaking during the last Parliament. This was the key policy response to the challenge of social breakdown, or the “broken Britain” phenomenon, and it became an important manifesto pledge at the 2010 election—a manifesto pledge on which every Conservative MP was elected. It was a sacred bond, as it were, with the electorate to support marriage, which was considered to be an absolutely key part of dealing with broken Britain. We put that in our manifesto.
I know that our party did not win an outright majority, but the commitment, most importantly, got into the coalition agreement with a provision for our Lib-Dem friends to abstain. I am not asking them to do anything, but I am asking our Front-Bench team to fulfil the pledge that they solemnly made in the manifesto and put in the coalition agreement. We are still waiting for it, which is why new clause 5 is so important and why I believe that, whatever else has been going on in the background this afternoon—I need not go into that—it was my duty to move it. If it had not been moved, many people involved in the Christian community or in the Christian Institute or in churches would have wondered why this new clause—clearly on the agenda this afternoon, and a vital part of what we are trying to achieve for Britain—had suddenly been withdrawn. I was not prepared to let that happen. I have therefore moved it to allow a debate, to which the Government should be made to respond.
Since the election the Prime Minister has reiterated his commitment to recognise marriage in the tax system on a number of occasions, including at his second Prime Minister’s Question Time—but no action has yet been taken. Given that the manifesto pledge is backed by the coalition agreement and pertains to the period between 2010 and 2015, the fact that the Government have not yet acted to recognise marriage in the tax system is, I hope, no cause for alarm. This debate is important: the Minister will have to respond to it later, when he can assure us that although it has not been possible to do this yet, it is definitely going to happen in this Parliament because it was in our manifesto and in the coalition agreement. At the very least, I want the Minister to say that.
Since the commitment to recognise marriage in the tax system was made last year, there have been some significant changes, which in my personal view greatly increase the need for swift action. In this context, the tabling of new clause 5 on Report to recognise marriage in the tax system is an important step. It provides an opportunity to put on the record the standard arguments for recognising marriage in the tax system and, more importantly, to set out the changes over the last 12 months that have greatly increased the urgency of taking action in this area. As I have said, the Government are obliged to respond and engage with the implications of the changes as they relate to the importance of recognising marriage in the tax system.
Let us go into a bit more detail. Apart from married couples with at least one spouse born before 1935—a number that will clearly reduce over the years—and couples in which at least one partner is blind, everyone in the United Kingdom is taxed on an individual basis. Unused tax allowances cannot be transferred from a non-earning spouse to an earning spouse.
Under the system of transferable allowances, which we have constantly promoted as a party for several years and as is envisaged in our coalition agreement, a non-earning spouse would be able to transfer the whole or part of the basic income tax personal allowance to their earning spouse. Depending on how it was introduced, the whole allowance or part of it could be transferable, and it could be limited to couples with children under a specified age, or limited to tax at the basic rate. The Government can decide what they can afford and they can bring it in gradually; there need not be dead-weight costs or the other problems that were aired in the previous debate. Moreover, I am not at all sure that it is appropriate to talk about dead-weight costs in this context at all. For 2011-12 the personal allowance is £7,475; if the whole allowance were transferable it would be worth up to £1,495, so we are not talking about huge sums of money.
Let us look at what other countries are doing, because it is important to nail the untruth that this idea comes just from the right wing of the British Tory party, or from the Christian community, when it is very common throughout the world. In fact, Britain is unusual among developed countries in failing to recognise marriage in the tax system. This is something that we did as a country, with cross-party agreement, as it was considered absolutely the right thing to do, right up to 1999-2000. Only 24% of citizens of OECD states live in countries that do not recognise marriage in the tax system in one way or another, and most of those live in just three countries—Mexico, Turkey and the UK. We are very much in the minority in not recognising marriage through our tax system. Why should we not recognise marriage when most countries and tax administrations in the world think that marriage is a force for stability? It is not unusual to want to recognise that. Other developed countries such as France, Germany, Italy and America all recognise marriage. In that context it was hardly surprising to learn that, according to the latest figures—published in May 2010—the resulting tax burden on single-earner married families in the United Kingdom was one third greater than the OECD average.
Helen Goodman (Bishop Auckland) (Lab)
I agree with the hon. Gentleman about the importance of marriage, but I am not convinced that it is appropriate to encourage and recognise it through the tax system. The hon. Gentleman mentioned unfairness, and I think the question of fairness is the nub of the issue, for if the money were spent on benefits or tax credits for children rather than on a married tax allowance, far more children could be lifted out of poverty.
Mr Leigh
As so often in Finance Bill debates, the devil is in the detail. The hon. Lady has made a perfectly reasonable point. However, I hope to establish in my speech that the present system is unfair and, specifically, militates against single-earner families. That applies especially to those who are struggling out of poverty, but it is not necessarily the very poorest about whom we should be concerned. We should also be concerned about families on fairly modest earnings who are desperately trying to look after their children, and who decide that someone, usually the mother, should stay at home and care for them. But, as I have said, the devil is in the detail, and I will try to deal with the hon. Lady’s point later. It is important, and we need to tease the answer out of Ministers. We want to know why action has not been taken.
Mr Leigh
That argument has been used against transferable tax allowances. It is true that it is impossible to create a transferable tax allowance that helps everyone, but I do not consider the fact that in certain circumstances, through no fault of their own, people will not be allowed to enjoy the benefits of such allowances to be a good argument against trying to help others—and that is all we are trying to do.
Let us examine the extent of support for marriage in Britain. It is no surprise that marriage rates are at an all-time low and family breakdown is a massive problem, affecting many different areas and, it is estimated, costing us directly between £24 billion and £41 billion per annum. The “Breakdown Britain” report motivated the then Leader of the Opposition, now the Prime Minister, to come up with this policy—our policy—and launched the debate. It was promoted by my right hon. Friend the Secretary of State for Work and Pensions; although he is not present today, I pay tribute to him for his fantastic work.
Mr Leigh
I will in a moment, but I want to make a little more progress. Others will want to contribute to this important debate.
There is no doubt that the lack of support for marriage gives rise to some family breakdown, not primarily through the breakdown of existing marriages but by making marriage a less attractive and more costly option for some people than it would otherwise be. I do not pretend that that applies to everyone, but undoubtedly our present system, which is very unfair on single earners receiving relatively low wages, is a disincentive for some. As the “Breakdown Britain” report demonstrates, a child born to unmarried parents has a nearly one in two chance, before reaching the age of five, of seeing its parents split up, whereas for children whose parents were married, the figure is just one in 12. That is unmistakably a huge difference. It is, I believe, a commonly held view that marriage is a good thing.
A more recent piece of research, “Family breakdown in the UK”, set out the problem of the lack of support for marriage in the following terms:
“the problem is not divorce. While marriage accounts for 54% of births, the failure of marriages—i.e. divorce—accounts for only 20% of break-ups and 14% of the costs of family breakdown, amongst all families with children under five. Unmarried families account for 80% of the break-ups and 86% of the costs.”
The report also states:
“These new statistics demonstrate dramatically that family breakdown is a huge and growing problem and that the main driver of family breakdown is the collapse of unmarried families. A failure to acknowledge these key points will lead to the inevitable failure of any government policy aimed at strengthening families.”
That is why many Government Members believe that this policy is so important.
Chris Williamson
Given the hon. Gentleman’s proposition that the tax system discriminates against single-income households and could cause couples to break up, what does he think of the Government’s decision to force through a change in the child benefit rules for single-income higher earners with, say, three children, whose families will lose up to £3,000 per annum? If he believes that family breakdowns result from financial circumstances, he must surely believe that that will lead to even more of them.
Mr Leigh
I agree with the hon. Gentleman. I have made clear my belief that our policy of fiddling around with child benefit is entirely wrong. Child benefit works because there is no fraud and no error, and because it is a flat tax. I strongly oppose the Government’s policy, because it will attack families who are on the margin just as they get into work and emerge from poverty. I predict that we will see a U-turn on that policy, and if it is the 23rd U-turn, it will be one of the best of them.
Why does the lack of stability in marriage matter? We all recognise that most single parents do a fantastic job in very difficult circumstances—I noted earlier interventions on my speech to that effect—and they must enjoy our full support. Nothing that I am saying constitutes an attack on them. However, policy must be based on evidence, and the evidence is very clear. It shows that, on average, children who are brought up in single-parent families do less well than children brought up in two-parent families according to every significant measure: educational attainment, health, the likelihood of getting into trouble with the law, and alcohol and drug abuse. I do not think it wrong for the Government to try to recognise what works when it comes to bringing up children.
Some may be tempted to respond to what I am saying by suggesting that the principal cause of the different outcomes is not marriage but wealth, and that it just so happens that wealthier people are more likely to get married. However, the facts do not support that. No one is trying to argue that marriage is the only important consideration, or that wealth is not relevant—of course it is—but data show substantial differences in family stability between married and unmarried couples in the early years of parenthood, even after the discounting of socio-economic factors such as age, income, education and race.
Most notably, the difference in family breakdown risk between married and cohabiting couples is sufficient that even—this is an important point—the poorest 20% of married couples are more stable than all but the richest 20% of cohabiting couples. It is foolish to make ourselves the odd one out in comparison with other developed countries such as France, Germany and America. Why do we not recognise marriage in our tax system, and why has the Minister not fulfilled the pledge that we made in our manifesto?
As we all know, recognition of marriage in the tax system specifically through a transferable allowance brings heightened child development benefits. In a culture that encourages parents to go back to work as quickly as possible, even though research demonstrates that this is a key time for developing attachment which has huge implications for the later development of a child, the provision of a transferable allowance makes it easier for one parent to stay at home to be with their children. I am not saying that everyone will want to do it, I am just giving an opportunity. I am not requiring anybody to do anything.
Mr Leigh
I have given way to the hon. Lady once. I will make a bit of progress and if she is really desperate, of course I will let her in because I am very fond of her, as she knows, and we have served together in a Select Committee.
Polling demonstrates that staying at home is a choice that parents want to exercise. That is all that we are talking about here; we are talking about choice—no requirement. For instance, a 2008 YouGov poll for the Centre for Social Justice, run by the Secretary of State for Work and Pensions, found that 88% of parents thought that more should be done to help parents who wish to stay at home and bring up their children in the early years and 97% agreed that the Government should do more in that area. What other policy has 97% support?
A 2009 YouGov poll for the Centre for Policy Studies found that only 12% of mothers wanted to work full time, 31% did not want to work at all. Only 1% of mothers with children under five thought that the mother in a family where the father worked and there were two children under five should work full time, 49% thought that she should not work at all and fathers, when asked the same question, offered an almost identical response. So the facts are there in the opinion poll data. Only 2% thought that mum should work when her husband worked and the children were under five, and 48% thought that she should not work at all.
Many people are forced into work. Many mothers want desperately to be at home looking after their children when their children are very young, but they simply cannot afford to do so. No one suggests that a transferable allowance will solve the problem of family breakdown or make it incredibly easier for families to cope, but it will be a step in the right direction and a small gesture that we in Parliament could make to mothers who desperately want to stay at home and look after their young children.
Many women, rightly, want to work; they have good jobs. Why should we be forcing young women with very young children into low-paid jobs when they want to be at home looking after their children? Why should we create a tax system that militates against women making that choice?
Helen Goodman
I am grateful to the hon. Gentleman for indulging me. He makes a powerful point. Many mothers of small children want to work part time. I worked part time as I am sure did many other hon. Members. I want to bring the hon. Gentleman back to the facts. When the tax system changed from one that included a transferable allowance to one that did not, was there evidence of any impact on family breakdown?
Mr Leigh
I confess that I cannot go back to 1999 and I do not know what data were then available to the Chancellor, but the hon. Lady cannot deny that our tax system is unfair because it militates against the choice to stay at home. Surely I can take the hon. Lady just this far, if no further—that it should be a free choice for women with young children whether they work or not, and the tax system should be neutral. That is all that we are asking for. The hon. Lady can make a speech later if she disagrees with me. I do not doubt her sincerity. I am just saying that the system is simply unfair.
Britain’s failure to recognise marriage in the tax system meant, as of May 2010, that it was out of line with other developed countries, with the effect that, far from supporting the best child development environment and being family friendly, it was placing a significantly greater proportion of its total tax burden on this family type than was the case in comparable countries. In that context, it is not surprising that family breakdown, the key driver of the broken Britain phenomenon is particularly pronounced and the case for recognising marriage in the tax system is clear and compelling. So all the arguments for recognising marriage in the tax system stand in one key area. The tax burden on one-earner married couples with children in the UK has now risen such that it is over 40% greater than the OECD average.
Mr Kevan Jones
New clause 5 would allow married couples to transfer their personal income tax allowances between each other, along the lines of what was said by the Prime Minister and the Secretary of State for Work and Pensions during the election campaign about recognising marriage in the tax system. The new clause is not exactly what the Conservatives were proposing at the general election, and I shall deal with the differences in a while. The important point, which has not been clearly articulated by the hon. Member for Gainsborough (Mr Leigh), is that this policy arose from a 2005 report by a Conservative think-tank, the Centre for Social Justice, on the breakdown of the family. Its main argument was that marriage is the important point in keeping families together, tackling poverty and dealing with all the other arguments that he has covered. It also supported the introduction of an incentive in the tax system to encourage people to marry, and I shall return to that in a moment. I am not sure that most people who get married are thinking about the tax system before they decide to do so.
Andrew Gwynne
My hon. Friend makes a reasonable point and one that we were discussing on the Back Benches earlier. I am married and all three of my children attended my and Allison’s wedding in 2003. We did not need a tax allowance in order to get married—that is the important factor here that is being missed.
Mr Leigh
The hon. Gentleman knows perfectly well that I am not suggesting for a moment that people get married in order to get tax allowances—I have never said that. All I am saying is that the current system is unfair, because it militates against a family on modest earnings where one person wants to stay at home to look after children. Of course nobody gets married in order to get a little tax allowance, but why should we have an unfair tax system?
Mr Jones
I actually do not understand why all this is unfair, because the new clause would give an advantage to people who are married but do not have children. I do not know how the new clause does what the hon. Gentleman is proposing in terms of keeping family units together and alleviating child poverty.
The important point relates to what was in the Conservative manifesto. What came out of that Conservative think-tank was the idea that marriage was an important point in keeping the family unit together and ensuring that children and wider society were not disadvantaged by a breakdown in the family unit. The manifesto made a commitment to “recognise marriage” in the tax system. It proposed that couples and civil partners who were basic rate taxpayers should be entitled to transfer just part of their allowance—this was worth, in effect, up to £150 a year. That is very different from what is contained in the new clause, because it makes no mention of civil partnerships. Given the names of the people who are supporting this proposals, I suspect that this has come from the wing that has not quite gone all the way in being the new cuddly Conservative party in terms of even envisaging the idea that civil partnerships, with or without children, could constitute a family unit.
As the hon. Gentleman mentioned briefly, the policy came unstuck in the coalition agreement because this proposal is clearly not supported by the Liberal Democrats. I believe that during a general election television interview, the Deputy Prime Minister called it “Edwardian”.
Andrew Gwynne
The Deputy Prime Minister did not just say that this proposal was Edwardian. I believe that he went on to say that it was also patronising drivel.
Mr Jones
That is a bit rich coming from the Liberal Democrats, because most of the things that they come out with are patronising drivel. However, they were clearly not happy about this policy, so in the scramble to get the red boxes and cars they had to reach some type of compromise. Thus, the coalition agreement simply states that there will be a provision whereby the Liberal Democrats can abstain at some point in the future when this policy is introduced.
Mr Jones
Possibly. The 22 June Budget made no announcement on where this policy stood and on what was happening to it. I can understand the annoyance felt by the hon. Member for Gainsborough and others, who clearly think that this is a vital piece of legislation that was promised to the electorate. It was obviously a key point: I am sure that a lot of people went to the ballot box thinking that if they would get an extra £150, they would vote Conservative. That pales into insignificance when set against what has been taken away from them since this Government came into power.
Mr Stewart Jackson
I expect better of the hon. Gentleman than the trivialisation of this important issue. He is better than that. I know he is probably working up to the filibuster that is usual from him when we do not have a guillotine on our business, but does he concede that low-income families in North Durham who are eligible for working tax credit and in which one parent wishes to stay at home to look after the children will miss out on the child care element of that credit? That is the reality, and he should address those issues rather than trivialising the subject through knockabout.
Mr Jones
I am not trivialising the subject, but I will say to the hon. Gentleman that the real difference in North Durham was made by provisions opposed by him and his party, such as tax credits, which raised hundreds of families out of poverty, and the Sure Start initiatives, which were important in poor communities such as Stanley in my constituency and gave real life chances to youngsters from poor backgrounds. I will not take any lectures from a Conservative on alleviating child poverty. I hasten to add that since this coalition Government came to power, many families, including many individuals whom I met the other day at a school in my constituency, will lose the education maintenance allowance. That was not a luxury but a vital part of supporting those children in education and giving them the access to higher education that generations before them had never had.
Mr Jones
I totally agree with my hon. Friend. I remember the debates on the minimum wage as a trade union official, as he will too, and we were told that it would wreck the economy, but in the north-east alone 110,000 people got a pay rise thanks to that change. It is interesting that we are now hearing proposals from Conservative Back-Benchers to change the system and that people who are disabled and others should perhaps be offered a lower rate of minimum wage.
Dan Rogerson (North Cornwall) (LD)
While the hon. Gentleman is patting himself on the back about the great successes of the previous Government, can he tell us which he thinks would have the best effect for working families with low incomes: scrapping the 10p rate or raising the income tax threshold, as this Government are doing?
Mr Jones
The hon. Gentleman must be honest with my electorate in North Durham about the fact that although the Government have increased personal allowances they have taken away money in others ways, such as the increase in VAT and the £140 million of cuts that Durham county council will have to impose over the next three years. Those cuts will have a direct effect on many of those poor families. The Liberal Democrats can claim that they have had great success, but if that is their only claim they should be honest with people and tell them what they have lost, as well, through such vicious policies. The hon. Gentleman should remember that this Conservative Government would be doing nothing without the support of him and his Liberal Democrat colleagues.
Helen Goodman
Another problem with raising the tax thresholds—a provision constantly promoted by the Liberal Democrats—is that, as I am sure my hon. Friend has not forgotten, the biggest beneficiaries are those who are highest up the income scale. The biggest value of the change is not to the people at the margins—those who are just caught or just not caught by the tax boundaries—but to the people higher up the income scale.
Mr Jones
My hon. Friend makes a good point, but she knows as well as I do that many people in County Durham are facing unemployment as a direct result of the spending cuts. Many of those people will be taken out of paying income tax altogether because they will not have a job. For Members to try to trumpet that policy, not realising the damage they are doing to regions such as the north-east of England, is disingenuous.
I understand the argument made by the hon. Member for Gainsborough, which is that marriage is key in ensuring that we have the units that will lead to less crime, less social breakdown and so on, but—I am sorry—I do not accept that. The root cause of many of those issues is poverty. If we consider the examples given by the hon. Gentleman, as well as those given by the Secretary of State for Work and Pensions when he toured his Glasgow housing estate, we can see that £150 will not make a great difference to lifting anyone living on such a council estate out of poverty or giving life chances to the young children who live there. We should address poverty, and, in my opinion, provisions to do with the tax system and marriage are not the way to do that.
Mr Stewart Jackson
The hon. Gentleman is being very generous in giving way. Would he care to comment on the UNICEF study, produced in 2007, which showed a league table ranking the well-being of children in 21 developed countries, including their material, educational and subjective well-being, their health and safety, their behaviour and the strength of their family and peer relationships? Under the hon. Gentleman’s Government, Britain came bottom of the league.
Mr Jones
I think that report has been discredited, but I can look at the north-east of England and my constituency and consider the changes in employment that happened under the previous Labour Government as well as the life chances we gave to individuals, the new hospitals we provided and the investment we made in things such as Sure Start centres. Although I accept that such changes will not have benefits straight away, they will have real benefits over the lifetimes of those individuals. The Government that the hon. Gentleman supports is taking away such provision and says that the state is not important in one respect while, in this case, they want the state to engineer people’s private lives socially. I find that a completely contradictory stance, but, again, the hon. Gentleman is a Conservative and is therefore allowed to be contradictory.
Andrew Gwynne
My hon. Friend is being generous in giving way and he is making the point that the state can be family friendly through its policies without having to give away a tax break to people based on their marital status. The previous Labour Government made great changes by giving life chances to young families, in particular, without having to manufacture the tax system in such a way.
Mr Jones
My hon. Friend makes a good point. A little later, I shall discuss what our Government did to recognise the fact that if we are to address the issues raised by the hon. Member for Gainsborough about child poverty, the tax system and marriage are not necessarily the way to do it. The way to do it is to ensure that the money goes to the families and children who are affected. That is why the child tax credits and other such provisions were vital in raising people out of poverty. Earlier, my hon. Friend the Member for Alyn and Deeside (Mark Tami) mentioned the minimum wage, which lifted a lot of very poor individuals out of poverty who were getting a pittance. I remember seeing as a trade union official an advertisement in the jobcentre in Newcastle that read, “Night guard, bring your own dog, £1.35 an hour.” That is a thing of the past. I hope that it will remain so, but I do not know, as we hear from Conservative Back Benchers that they might want to change the minimum wage in some way.
Helen Goodman
It was interesting that the hon. Member for Peterborough (Mr Jackson) mentioned the UNICEF report, because Denmark came at the top and Britain came very low down. I want to remind hon. Members that Denmark has the highest rate of lone parenthood and the Danish can combine that with good child well-being because they have a strong welfare state. Does not my hon. Friend think that that is far more important in addressing child poverty and well-being?
Mr Jones
It is. To be fair to the hon. Member for Gainsborough, he did say that being a lone parent does not make someone a bad or unfit parent. My hon. Friend the Member for Denton and Reddish (Andrew Gwynne) had three children before he got married, but that does not make him a bad parent. [Interruption.] He says, “I don’t know,” but I do not think it makes him a bad parent: it is something that he and his partner chose to do. As he said earlier, the offer of a tax break of £150 a year would not make any difference to whether people decide to have children before or after they marry. Indeed, I have many friends who have children and who have never married and have no intention of doing so.
Barry Gardiner
Has my hon. Friend considered the situation of people like my mother whose husband, my father, died when I was a child? Under the proposed system, she would have found that the support was taken away at the very time when financially she needed it most. That would be the effect of the measure, which pays no real attention to the needs of the family or the needs of the child.
Mr Jones
My hon. Friend makes a very good point. The proposal is not subtle at all and his personal example is a good one. Why should someone who loses a spouse in an accident or through natural causes be penalised because, through no fault of their own, they have lost their spouse? That is the problem with trying to use tax in relation to marriage. As I have said, the measure is very different from what was put forward in the Conservative manifesto because it does not include civil partnerships. It clearly is not what Conservative Back Benchers have read in their own manifesto.
Mr Jones
The hon. Gentleman knows that there are always winners and losers in any tax system. I am very surprised at him because I know that he has very libertarian views on a whole host of subjects, which we have heard on many occasions in the Chamber. Is he really suggesting that we should use the tax system socially to engineer society by saying that people should marry rather than cohabiting or, as has been mentioned, becoming single through separation or bereavement? I am surprised at him because I thought he was very much against the state doing anything, but the measure has the state wanting to determine or influence exactly what an ideal society should be. I am sorry, but the statistics just do not bear out what the hon. Gentleman proposes. If such tax measures worked as a way of bolstering marriage and keeping families together, we would have expected marriages to rise with the married man’s tax allowance through the 1960s and 1970s, but they did exactly the opposite—we had record levels of divorce and separation. Hon. Members should look at the facts. Tax measures have not succeeded in doing that in the past, and I doubt whether they will in future. They certainly will not encourage anyone to get married for a small financial benefit.
It is important to dispel one myth, which has been put forward again by the Conservative party—the fact that a wicked Labour Government somehow did away with the married couple’s tax allowance and that Labour is responsible for the degeneration of society that the Secretary of State for Work and Pensions describes in his report. It is important to recognise what the previous Conservative Government did on this. It was Chancellor Norman Lamont in the 1993 Budget who proposed that the married couple’s tax allowance should be restricted to 20% from April 1994. That was the first time that happened for the basic MCA, which for a couple under 65 was then £1,720, so it was worth something like £608 for those who were on marginal rates of 40%, but only £344 for those on marginal rates of 20%. We then had the argument that it was unfair to have different amounts for people on higher tax rates than for those on lower tax rates. The then Chancellor said:
“There is no good reason why an allowance intended to recognise the responsibilities of marriage should give least to those on low incomes and most to those right at the top of the income scale.”—[Official Report, 16 March 1993; Vol. 221, c. 182.]
In the November 1993 Budget, the current Justice Secretary confirmed that change and went on to announce that the MCA would be further restricted to 15% from April 1995, so there was a slow change in the system. The provision restricting the MCA was made in section 77 of the Finance Act 1994. When this was debated in Committee, there was general support for the idea that the MCA should be the same across the board.
Helen Goodman
My hon. Friend’s description of what happened in the 1990s reminds me of an issue that I do not think the hon. Member for Gainsborough (Mr Leigh) addressed. One of the big debates on this subject was about the fact that transferable allowances reduce any scope for financial privacy within a marriage. A number of people felt very uncomfortable about that. Does my hon. Friend have any comments on that?
Mr Jones
My hon. Friend makes a key point and I understand why she makes it. This goes right back to when income tax was introduced in the 1790s, when a spouse’s income was the property of the husband. That was the basis on which income tax was brought in and it continued for centuries. There was no recognition that even within marriages people might have separate tax affairs or sources of income that needed to be recognised.
It is interesting to look back at the debate that took place about the MCA. Baroness Maddock, who was then a Member of this House, argued that the MCA was
“a relic of the days when a husband was taxed on his wife’s income as well as on his own. It contravenes the principle that marriage should be tax neutral.”—[Official Report, Standing Committee A, 22 February 1994; c. 344.]
Mr Jones
I am very pleased to hear that but I am not sure that that is very good news for the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith) to whom I understand the Baroness is now married. However, I take the hon. Gentleman’s point.
Interestingly, the then Chief Secretary to the Treasury, Michael Portillo, concurred with Mrs Maddock’s view. The then Chancellor, who is now the Justice Secretary, recognised that and announced in his Budget speech that there would be a two-stage restriction of the MCA, stating:
“Now that husbands and wives are taxed independently—one of the best taxation reforms in recent years—the married couple's allowance is a bit of an anomaly.”—[Official Report, 30 November 1993; Vol. 233, c. 935.]
The important thing that this demonstrates is that change was taking place under a Conservative Government, and that it was not the wicked previous Labour Government who came up with this idea. However, the change did set off the forces who were arguing that the changes were wrecking marriages. In 1995, a major paper called “Farewell to the Family” appeared. It made much of the fact that the measure would change families and discourage people from marrying.
Stephen Pound (Ealing North) (Lab)
Does my hon. Friend agree that it is a pretty poor show if a couple united in love and affection for each other decide to get married simply for the sake of some miserable, mean, pusillanimous fiscal mechanism? Would it not be a more healthy world if we could get the accountant out of the couple’s marriage bed, and concentrate on the important thing: two people who love each other, not two people who are trying to save a few bob from the Treasury?
Mr Jones
As usual, my hon. Friend makes a very good point. He raises the idea of the accountant in the bed. I do not know of many couples who, when they are ready to get married, sit down with their accountant to work out the financial benefit to them. I am sure that for many, something other than money comes into the decision to marry or start a family—a point that I demonstrated earlier.
Mr Stewart Jackson
As I said earlier, the hon. Gentleman aspires to be the County Durham filibustering champion; no doubt he will be on his feet for many more minutes. Is he seriously denying the findings of the British household panel survey, which found that the average length of cohabitation is just over three years, and led it to conclude in its paper that, compared to marriage, cohabitation was a significantly more fragile and temporary form of family? Just one in 11 married couples split up before their child’s fifth birthday, compared to one in three unmarried couples. Those are the facts; is he disagreeing with them?
Mr Jones
As for filibustering, this is nothing; I think that my record is two and a half hours. If the hon. Gentleman would like to keep intervening, I am sure that I can try to beat that. I do not deny what he says, and it is all right to cite the facts, but should one necessarily go on to say that those facts are a bad thing for society? Is he genuinely saying that the relationships of people who cohabit are any poorer than those of people who are married? Likewise, is he suggesting that if people decide, after marriage or cohabiting, to split up, that makes them bad individuals in some way—or, if they have children, bad parents? I know many cohabiting and divorced couples and single parents who are perfectly good parents and role models and work very hard to ensure that their families contribute to society financially and to local community life. The statistics that he cites are fine, but what is not fine is the next bit—the suggestion that the situation will somehow lead to the breakdown of society, or the idea that the family as a unit is the only answer to people’s lives these days. It is not.
That goes back to a Victorian notion. Before the Victorian period, it was not uncommon for people not to get married for many years. Marriage was a Victorian fashion, but in Georgian times many people did not get married at all, and raised perfectly good families. I am not sure that society came to a grinding halt because people were not married, or because there was not a tax system that encouraged people to marry.
Mr Jackson
Perhaps I might invite the hon. Gentleman to make a causal link, because he is not challenging the substantive point that I made with the figures that I gave. He will know that the Centre for Social Justice report of May 2011 found that children who do not grow up in a two-parent family are 75% more likely to fail at school, 70% more likely to be a drug addict, 50% more likely to have an alcohol problem, and 35% more likely to experience unemployment. That is not about traducing single-parent families, or besmirching their commitment to their children, but there is a causal link to family breakdown, which the hon. Gentleman denies.
Mr Jones
That is complete nonsense. When the Secretary of State for Work and Pensions was in opposition, we saw him walking around the Easterhouse estate, saying how dreadful things were. That is not down to whether people are married; it is down to poverty. That is the key driver of the pressures that people face. It is all very fine talking about drug use, but I have worked with an organisation for parents of drug addicts in Durham, and most of those parents are middle class. They have stable homes, but they have drug-addict sons and daughters. They are not bad parents, and it is not down to whether they are married. The hon. Member for Peterborough (Mr Jackson) and the Centre for Social Justice report make the mistake of saying that the family units that he describes are the reason for poverty. They are not. Addressing poverty, which we were doing through measures such as tax credits, is the way forward, rather than social engineering, and £150 a year will not go very far in encouraging people to stay married—or, for that matter, alleviate child poverty at all.
Stephen Pound
Does my hon. Friend agree that there is not a person in this marvellous, glorious, gorgeous building who fails to accept that couples together often nurture and raise children in a happier and better way, although they are not the only ones? However, we are not arguing about the sanctity of marriage; we are arguing about a backhander from the state—a few bob. The hon. Member for Peterborough (Mr Jackson), who was a bank manager and may well have interposed himself in a few intimate relationships in his time, is speaking very much from the perspective of the Conservative who sees everything in terms of money and fiscal benefit. Is there not a better way?
Mr Jones
There is, but the new clause that we are debating—I do not know whether the hon. Member for Peterborough would agree with this—refers only to married couples; it does not refer to civil partnerships, for example. I know that the new Conservative party is supposed to be modern and reflective, but what about people in a civil partnership who have children, whether from previous marriages or afterwards? Are we saying that that is a worse family unit than marriage? This debate is not about the tax system for those who are married and those who are not; it is about what is in the best interests of the child. Single parents—they may be separated, or their partner or spouse may have died, as my hon. Friend the Member for Brent North (Barry Gardiner) said—work very hard. This is about the child. The problem with the proposal is that it would reward people with no children.
Barry Gardiner
Does my hon. Friend accept that he has perhaps calumniated Georgian England—inadvertently, I am sure? Does he accept the wisdom of Jane Austen, who of course said:
“It is a truth universally acknowledged, that a single man in possession of a good fortune”
of £5,000 a year
“must be in want of a wife”?
My hon. Friend’s suggestion that marriage was not as common in Georgian England as in Victorian England is somewhat belied by Austen and other authors of the age.
Mr Deputy Speaker (Mr Nigel Evans)
Order. I fear that we are straying a little far from the point. Any chance of getting back to the 21st century?
Mr Jones
I think this is an important point, Mr Deputy Speaker. The main thrust of the argument that has been made is that marriage, and taxation in marriage, has been consistent throughout history, but it has not. Like a lot of things in this country, it has been looked at through a Victorian prism that seems to bend the reality of what took place way back then. However, I will move on to my next point.
Helen Goodman
I should like to back up what my hon. Friend says. In the major study of marriage in England from 1550 to 1750, Lawrence Stone demonstrated that in a commercial society with a commercial attitude—
Mr Deputy Speaker
Order. We seem to be going even further back. Keep to the 21st century, please.
Mr Jones
It is important to note that income tax was introduced in the 1790s. We need not go back to the 15th century, but my hon. Friend the Member for Bishop Auckland (Helen Goodman) makes a good point, which was made earlier—the tax system treated women and their income as the property of their husbands. The supporters of the new clause argue that it would strengthen society, but there is no evidence for that. The new clause will help many people who have no children. It would apply to married couples and even retired people.
Mr Stewart Jackson
To what does the hon. Gentleman attribute the fact that many more people in County Durham, Northumberland and the north-east of England generally are keen on getting married than in, say, the south of England and London? Are his constituents wrong in supporting the institution of marriage?
Mr Jones
No, not at all. Many things in the north-east are obviously better than anywhere else in the country, but the statistics show that the number of people getting married is going down. The Secretary of State for Work and Pensions seems to think that a tax break of £150 a year will encourage people to get married, but that is not the case at all. He misses the main point.
The MCA was abolished in the Budget speech by the then Chancellor in 1999, and withdrawn in April 2000. Only married couples who reached the age of 65 by that date would be able to continue to claim the MCA. The additional personal allowance was also withdrawn at that time. The allowance equalised the MCA so it was given to lone parents, whether single, divorced or widowed, caring for one or more children under the age of 16.
Importantly, the then Labour Government introduced the child tax credit, which was vital to ensure that support went to the children. The Centre for Social Justice report suggested that marriage was important for keeping families together, but that is not the case. The important thing is how we support children. By introducing the tax credit system, we lifted thousands of children out of poverty by helping the families, whether they were married or not.
The credit took the form of an allowance which was then set at £5,200, on which relief was given at 10%. Families eligible to claim the child tax credit were able to cut their annual income tax not by £150, as is proposed, but by £520 a year. In April 2002 the credit was increased in line with inflation, making it worth £10 a week more. That was the fairest way of supporting families. I do not question the Secretary of State’s intention to help families, but the child tax credit was a far better way of doing it than through the married tax allowance.
The debate tonight has glossed over the cost of the proposal. We are told by the Government that we face hard times and that we must make every penny count. One reason given to explain why the proposal was not brought forward was the coalition Government; another was cost. The IFS estimated the cost of various options for introducing a transferable allowance based on different criteria. On the assumption that the allowance applied only at the basic rate of tax, which was due to be 20% in April 2008, the figures are eye-watering.
If the allowance applied to all married couples, the IFS estimates the cost at £3.2 billion. I am not sure where the Government would get such a sum from. If the allowance applied to all married couples but only half the personal allowance was transferred, that would cost £1.6 billion, so we are not talking about small amounts of money. If the object is to get that money to children, is this the best way? There is no realistic hope of the present Government doing this. I understand the annoyance of the hon. Member for Gainsborough, who thinks that he stood on a manifesto which will now not be implemented.
Stephen Pound
No one in this place would begrudge that sum if there was the slightest empirical evidence that it would be of any long-term benefit to society. There is no such evidence. Does my hon. Friend agree that that money could be far better spent on a raft of supportive mechanisms for families, particularly families with young children? That would ensure the longevity of the family unit.
Mr Jones
I agree. The money should be directed into Sure Start centres and the child tax credit, for example, but the Government are penalising single parents in some of their benefit proposals.
Another option that the IFS considered was targeting the allowance at married couples with dependant children or those receiving carer's allowance. The estimated cost of that was £1.5 billion. The final and cheapest option was that it would be given only to married couples with children under the age of six, which would cost £900 million. The various options illustrate the complexity of the policy and the questions that arise from it—whether it should apply to everyone or only to the groups that I outlined.
As the hon. Member for Gainsborough pointed out, whatever system is chosen, there are winners and losers. If we believe, as the hon. Member for Peterborough clearly does, that keeping people married is so important that everyone should get the allowance, the price tag is totally unaffordable, but doing anything less would undermine the main argument put forward.
It is worth recognising what that would translate into in cash terms. If it applied to the full personal allowance, the amount provided as an incentive to remain married would be quite meagre, at about £20 a week, which I am not sure is a great incentive. The rationale is that it needs to be fair and large enough to make a difference, but I do not think that a couple whose marriage is breaking down would stay together for an additional £20 a week. Whatever figure we come up with, I doubt whether it would actually make a real difference in determining not only whether a couple gets married in the first place, but whether they will separate after a period of marriage. When it comes to enabling families to stay together as a unit, clearly the important point is poverty. That pledge was made before the general election by the previous Prime Minister. I think that everyone, even those influenced by the darker forces on the traditional wing of the Conservative party, agrees that the modern family takes many forms.
Stephen Pound
My hon. Friend is young and has not been around for a enormously long time. When Mrs P and I were married in June 1976, virtually everyone got married just after the beginning of the financial year, which was a nonsensical system, with churches doubling the cost of altar servers. I assure him that one of the disadvantages of the married couple’s allowance was the great logjam of spring weddings. Despite that, Mrs P and I are still together.
Stephen Pound
I appreciate that we are treading on you patience, Mr Deputy Speaker, but I should note that it was probably a fear of Father Padraig that kept Mrs P and I together for the first three decades, rather than any small financial advantage.
Mr Jones
I understand why my hon. Friend and Mrs P have stayed together. Although the allowance might be an incentive to get married, the important point is that it does nothing to ensure that people will stay together for longer than the tax year. As has been mentioned, what is proposed would be very unfair. What happens if someone loses a spouse though no fault of their own, for example as a result of a tragic accident? Why should someone who finds themselves suddenly bereaved through no fault of their own after an accidental death, possibly with young children, be penalised by the tax system? It would be very difficult to introduce flexibility into this system to take account of that, and if we compare that with the tax credit system we will see that the important point is to support families and their children.
I will turn to some of the statistics on marriage that the Conservative party is putting forward. The hon. Members for Gainsborough and for Mole Valley (Sir Paul Beresford) are not known as great state interventionists, but by arguing that the tax system should be used to encourage people to marry, they are suggesting that the state should determine a certain model of behaviour. I find that very strange coming from Conservatives who deplore the nanny state and argue that the state should not interfere in people’s lives. There is an inconsistency there that needs to be answered.
Mr Stewart Jackson
The charming Maggie Pound deserves a long-service medal at the very least for putting up with the hon. Member for Ealing North (Stephen Pound).
On the merits and logic of the argument that the hon. Member for North Durham (Mr Jones) is making, is he suggesting that there is no place for fiscal incentives in directing personal and public policy? If so, does he think that we should not fine motorists for breaking the speed limit, for instance, because that is the logical corollary of his last remark?
Mr Jones
I am not saying that at all. I am saying that the hon. Gentleman, his party and, certainly, the more blue-blooded elements of it very strongly argue that the state should not intervene in people’s lives, including, in some cases, motorists’ lives, but what we have in new clause 5 is the right of the Tory party arguing for direct state intervention in something very personal: somebody’s personal relationship.
Earlier, it was said that a tax system would encourage people to get married, but there is no evidence of that at all. In the late 1960s and ’70s, when the old married man’s tax allowance was in place, there was a record rise in divorces, but that was less to do with the tax system and more to do with the change in society and the law that clearly made it easier to get divorced or to choose not to marry at all. Again, the idea that £20 a week will encourage somebody not to divorce is quite ludicrous. All the studies find that we would need to offer a considerable amount of money to prevent people from divorcing.
My hon. Friend the Member for Bishop Auckland (Helen Goodman) raised the issue of international comparisons, somebody else mentioned Denmark and other countries and the hon. Member for Gainsborough mentioned the fact that we are one of the few countries not to recognise marriage in the tax system, but there is no evidence to suggest that taxation as an encouragement to get married does anything to hold the family unit together.
Clive Efford (Eltham) (Lab)
I have listened to my hon. Friend’s speech with a great deal of interest. On fiscal incentives for people to stay together, does he agree that the cost of running two separate households is a major financial consideration for people living apart? It far outweighs any fiscal benefit that the taxation system could deliver.
Mr Jones
I agree. The changes being made to housing benefit will not do anything to help families stay together. My hon. Friend is a London Member, so he will know that families will be forced to move out of central London because of the Government’s changes to housing benefit rules. That is one of the inconsistencies of this Government. On the one hand they say that a tax break of £150, or £20 a week, will help to keep the social unit together, and on the other they—the same Minister, I hasten to add—pursue policies on housing benefit and other benefit changes that will not help at all to keep families together but will lead to the root cause of most of these issues: the poverty that affects such individuals.
I turn to some of the problems with the Bill as framed, and to what we have before us. New clause 5 is not the measure in the Conservative party’s most recent election manifesto. This proposed change includes married couples but excludes civil partners, who would not be covered by the new clause. When there was an outcry and complaints about what had been proposed at the election, the Prime Minister included civil partners at the last minute.
People would have to opt in to this system and elect to transfer their part of an allowance. That would be very unfair to many people who do not understand tax codes. I have just got my annual tax return and I keep putting it to one side, as most people do, until the deadline arrives. Introducing a system whereby people have to elect to transfer a certain allowance may well help the more articulate middle-class people who can do that when they fill in the form, but I am not sure that some of the people on poor council housing estates in Glasgow whom the Secretary of State for Work and Pensions is trying to address will have the wherewithal or knowledge to do it even if they knew that the option was available.
The Government have told us that they wish to simplify the tax system, but the new clause would make it a lot more complicated. In trying to bolster marriage, it would help certain groups of people but not others. Whenever we do anything with the taxation system, we should try to make it as user-friendly as possible. If someone opted to move their allowance around, that would be quite complicated because people’s incomes change throughout the year, so they might have a certain allowance available in one year but not another. The system would incur not only the £3 billion-plus cost of having it open to everyone but the cost of trying to work out how the tax office would administer it. In that respect, the new clause is not well thought out.
The Government have got themselves into a bit of a logjam on this. The Prime Minister is clearly committed to this policy. His Back Benchers are now worried that it cannot be implemented because of the coalition agreement. Huge amounts of public money would be used, but would it have any effect on child poverty? No, it would not, and neither would it affect most families. Moreover, it would help people without any children, including pensioners.
Kate Green (Stretford and Urmston) (Lab)
Leaving aside couples where there are no children in the household, does my hon. Friend agree that married couples typically tend to come from the better-off social classes and that, while I am sure that this is not what the hon. Member for Congleton (Fiona Bruce) intends, a tax break for marriage would therefore benefit the better-off?
Mr Jones
My hon. Friend has great experience in this area, and she makes a clear point. People on lower incomes and possibly of lower educational standing than others will not look at the tax system and say, “I’m going to stay married because somehow I will be financially better off.” That is why it is important to simplify the tax system.
If we are looking to help children, this proposal would not do that. Indeed, some aspects would be detrimental to families, especially put alongside the Conservatives’ existing proposals on changes to the tax and benefits system. We need an honest debate on the family, child poverty and how we can build communities. By investing in Sure Start and child tax credit, the last Labour Government raised a whole group of individuals out of poverty. That was the way to do it. If money is tight, it needs to be targeted very carefully.
The approach that has been put forward, which recognises marriage, is not targeted and will not have the effect that the Secretary of State for Work and Pensions wants. That is unfortunate, because I think that he is well intentioned and has just come to the wrong conclusions. It will be interesting to see whether the Government accept the new clause. I do not think that they will, because it is not what the Prime Minister and the Secretary of State for Work and Pensions outlined in the manifesto or in the lead-up to the general election. It will be interesting to see how much pressure the Liberal Democrats can bring to bear to ensure that this proposal never sees the light of day. The coalition agreement says that they can sit on their hands if it is brought forward.
In conclusion, the individuals who are trying to address this issue, including the hon. Member for Gainsborough who is well intentioned and thoughtful in trying to do the best for families, have got it wrong in thinking that the answer is marriage. The root cause of social breakdown is not that people are not married, but poverty. We need to ensure that not only the tax system, but the benefits system and everything else, supports families, whether the parents are married, single, in a civil partnership or whatever. As has been said, and as the modern part of the Conservative party recognises, the modern family comes in all shapes and sizes. One size does not fit all and one solution does not fit all. Giving a pathetic sum of money to support marriage will not relieve child poverty; nor will it ensure that people stay together longer if the taxman will raid their savings or income if they do not. I do not think that this is the answer, and if it goes to a vote I will oppose it.
Fiona Bruce (Congleton) (Con)
Only a few days ago, on father’s day, the Prime Minister stated:
“I want us to recognise marriage in the tax system so as a country we show we value commitment”.
I believe that the Government’s commitment to introduce such a provision is genuine. It was in the Conservative manifesto, it is in the coalition agreement, and I trust that the Government will introduce it in this Parliament, just as they are addressing the couple penalty. I warmly congratulate the Government, and in particular my right hon. Friend the Secretary of State for Work and Pensions, on the work being done to address this subject.
Kate Green
I know that the hon. Lady and her colleagues feel strongly about the couple penalty. Does she not accept that the design of the benefits cap that her Government are proposing will bring in a couple penalty—something that I thought they were trying to remove?
Fiona Bruce
The Government are seeking to support families and stable communities. In supporting marriage, that is what we are seeking to do.
Fiona Bruce
Committed relationships.
Under the previous Conservative Government, Britain recognised marriage in the tax system. The Labour Government did away with that in their first term. Britain’s fiscal arrangements effectively made it more challenging for people to marry than was the case in most other developed countries. Today we still live with that legacy. Apart from those in the UK, only 18% of citizens of OECD states live in countries that do not recognise marriage in the tax system. Most of them live in Turkey and Mexico. Our failure to recognise marriage puts us out of line with fellow developed countries, and that arrangement continues to be a cause for concern, for a number of reasons relating to both fairness and social well-being.
Barry Gardiner
I notice from the amendment paper that new clause 5 is in the hon. Lady’s name. Could she explain to the House why she did not move it?
Fiona Bruce
My hon. Friend the Member for Gainsborough (Mr Leigh) kindly moved it in my stead.
Is it fair—
Chris Leslie (Nottingham East) (Lab/Co-op)
On a point of order, Mr Deputy Speaker. I do not wish in any way to dispute the hon. Lady’s version of events, but I am quite sure that I distinctly heard her—maybe the official record will show this—say “not moved” when she was asked about new clause 5. Am I wrong in my recollection of that?
Mr Deputy Speaker (Mr Nigel Evans)
That is not a matter for the Chair, but I am sure that the hon. Gentleman will be able to read Hansard and work it out for himself tomorrow. As a matter of record, as he knows, it is open to any Member to move a new clause, despite the fact that the Member who tabled it has decided not to move it.
Fiona Bruce
Is it fair that when incomes are equivalised, one-earner married couples with children—
Mr Kevan Jones
On a point of order, Mr Deputy Speaker. I am sorry, but like my hon. Friend the Member for Nottingham East (Chris Leslie), I heard the hon. Member for Congleton (Fiona Bruce) say “not moved”. I think that I saw one of the Tory Whips at her beforehand, so I do not know whether they tried to persuade her not to have this debate, but I think we need to clarify this point before we move on.
Mr Deputy Speaker
The position has been made absolutely clear. Now can we please continue with the speech that is being made?
Fiona Bruce
Is it fair that when incomes are equivalised, one-earner married couples with children, on the average male wage, find themselves thrust into the poorer half of the population in income?
Chris Leslie
I apologise for interrupting the hon. Lady’s flow, but this is really quite important. Did she or did she not say “not moved” at the beginning of the debate on new clause 5?
Fiona Bruce
I have already indicated that my hon. Friend the Member for Gainsborough kindly moved the new clause in my stead. I am very pleased that he did so.
Fiona Bruce
If I may, I will move on.
On the subject of young people’s aspirations, it is striking that surveys demonstrate that approximately 90% of young people aspire to marry, yet that is not reflected in the marriage figures. I am not suggesting for a minute that fiscal considerations are the only factor, but the Government should at least ensure that it is not more financially detrimental to marry in this country than in other developed OECD countries, if we are to be true to our determination to become the most family-friendly country in Europe.
As a Government, we should send out a clear and credible signal to young people that we value marriage and encourage their aspirations in that respect, particularly as marriage acts as a stabiliser not just for the individuals within it but for the wider community. The prevalence, for example, of the isolation and exclusion of the elderly is influenced by the wider breakdown of family and community networks, as the Centre for Social Justice stated in its “Fractured Families” report.
On social well-being, the current problems in our local communities resulting from our failure to recognise marriage are pressing. As we have already heard, in December 2006 the CSJ’s report “Breakdown Britain” clearly resonated with the public. One of the key drivers of social challenges is family breakdown.
Fiona Bruce
No, I am going to continue now, because I have given way so many times that, as has been pointed out, it has interrupted the flow of my speech.
Family breakdown is an incredibly important challenge for the Government. The cost in human terms, especially in terms of children failing to fulfil their potential, is far too high. Although most single parents do a fantastic job in very difficult circumstances, and deserve support as they do so, the evidence is that on average, the children of married parents do better on significant measures such as educational attainment, health, likelihood of getting into trouble with the law, and alcohol and drug abuse.
The crucial thing to understand about British family breakdown is that the key is not only divorce, but the break-up of cohabiting relationships, which are far less stable than marriage. The CSJ report states:
“While marriage accounts for 54 per cent of births, the failure of marriages—ie divorce—accounts for only 20 per cent of break-ups and 14 per cent of the costs of family breakdown, among all families with children under five. Unmarried families account for 80 per cent of the break-ups and 86 per cent of the costs.”
Mel Stride (Central Devon) (Con)
My hon. Friend makes an extremely powerful case. Does she agree that Conservative Members are not denigrating forms of family other than those that involve marriage, but saying that we believe that marriage makes for a powerful start in life for children, and leads to better social outcomes on average?
Fiona Bruce
I agree with my hon. Friend in that respect—nor are Conservatives seeking to take away the support that we give to other family groups such as single parents. We are saying that there should be a tangible affirmation of the very important relationship of marriage.
A child born to cohabiting parents has nearly a one in two chance of living in a single-parent family by the time they reach the age of five, but a child born to married parents has only a one in 12 chance of finding themselves in that situation at that age.
Fiona Bruce
No, because I took interventions from Opposition Members earlier.
The direct costs of family breakdown are variously calculated at between £24 billion and £41.6 billion per annum—a huge amount of money that cannot be ignored, especially in times such as these. When faced with such enormous figures, a provision such as the transferable tax allowance to support marriage, and in turn to support stable families, who in turn form an important element of promoting the stable communities that we all want and that are so very much needed today, is surely worth considering.
I am aware of the argument that the principal cause for those different life outcomes is not marriage but family income, but that analysis is too simplistic. No one is trying to argue that family income is not relevant—it is—but in my view, insufficient recognition has been given in recent years to the importance of family stability in promoting the health and well-being of children.
Mr David Burrowes (Enfield, Southgate) (Con)
In my hon. Friend’s careful preparation for her speech, did she analyse whether other countries have given similar recognition to marriage?
Fiona Bruce
I did indeed, and I shall refer to that before I close my speech.
The CSJ report “Fractured Families” demonstrates significant differences in family stability between married and unmarried couples in the early years of parenthood, after discounting other factors such as age, income, education and race. Even the least well-off 20% of married couples are more stable than all but the richest 20% of cohabiting couples.
It is appreciated that we do not need to preach or moralise, but if we are to be truly family-friendly we must ensure that choosing to marry is no more difficult in this country than it is in any other developed country.
Fiona Bruce
I will give way—[Hon. Members: “No!”]
Moreover, if we rise to that challenge through the provision of a transferable allowance, as suggested by the new clause, we would do so in a way that makes it easier for one parent to stay at home for the children, which parents value and from which children benefit. That is also a matter of women’s rights, for it is often women who will exercise greater choice and flexibility. Women want that choice.
A 2008 YouGov poll found that 88% of parents think that more should be done to help parents who wish to stay at home and bring up their children in the early years, and 97% of them agree that the Government should do more in this area. Furthermore—this is of huge importance—the relative costs of introducing a transferable allowance are small when compared with the huge costs of family breakdown. I quoted those figures earlier.
Fiona Bruce
The transferable allowance would help to reduce those costs, and would therefore be an investment very well made. The £550 million cost of the partially transferable allowance proposed by the Conservatives prior to the general election represents just 1.3% of the direct costs of family breakdown, as calculated by the Relationships Foundation—[Interruption.] And just 2.16% of the direct costs of family breakdown, as calculated by the same organisation—
Mr Deputy Speaker
Order. I ask the hon. Gentleman to resume his seat. Fiona Bruce has made it absolutely clear that she has no intention of giving way at this stage. I am sure that she will make it clear if she changes her mind.
Fiona Bruce
I fully accept that the Government’s priority has been to clean up the terrible financial mess left by the previous Administration, which has necessarily involved difficult decisions, and I want to put on record today my support for the Government, who have not been afraid to grasp the nettle and make the difficult decisions that the previous Administration were incapable of making. Britain is on a much sounder footing today than was ever the case under the previous Administration, and I pay tribute to the Government’s hard work in this respect. However, even in the current economic environment, I believe that new clause 5 would, as I have outlined, be an investment well worth making both fiscally and socially. The Government have said that they will recognise marriage in the tax system at the appropriate time. I suggest that that time is now, particularly given that it would still take Her Majesty’s Revenue and Customs some considerable time to implement a transferable tax allowance, because of the IT and other implications.
Does the Minister agree that the increased tax burden on one-earner married couples on an average wage—it will soon be more than 50% greater than the OECD average burden on such families—commends the early introduction of the transferable allowance if we are to be, as we aspire to be, the most family-friendly country in Europe? What assessment has he made of the time it will take to make the necessary IT and other changes to give effect to the Government’s commitment to introduce the transferable allowance? If he has not made such an assessment, will he do so? I ask the Government to bring forward this legislation not when they are ready, but sufficiently in advance of that, so that all IT and planning changes can be made first, and when the money is available, transferable allowances can become operational quickly, not one or more years later.
The transferable personal allowance was a key election commitment from many of us in the House and an important reason why people voted for the Conservative party. They are now looking for action. I very much look forward to what the Minister has to say, and I will conclude with a quotation from a speech given by the Chief Rabbi in another place earlier this year:
“If the Jewish experience has anything to say to Britain today it is: recognise marriage, not just cohabitation, as in the best interests of the child. Do so in the tax system. Do so in the educational system. Do so in relationship support. Otherwise, our children will pay the price—financial, educational, medical and psychological—for generations to come. Without stable marriages we will not have strong families, and without strong families we will not have a big society.”—[Official Report, House of Lords, 10 February 2011; Vol. 725, c. 366-7.]
Jim Shannon (Strangford) (DUP)
Thank you for giving me the opportunity to speak this evening, Mr Deputy Speaker. For the first time in what I suppose is a long time, I will be at odds with some of my colleagues sitting on the Opposition Benches. They are surrounding me at the moment, and I suspect that I will say something that they might not be entirely happy with. None the less, that will not stop me making my point of view heard.
Kate Green
Does the hon. Gentleman not accept that the reason why children from married relationships so often do better is that their parents come from higher socio-economic backgrounds, not the fact of marriage itself?
Jim Shannon
The evidence from the constituency that I represent would indicate that that is not necessarily the case. Those who are perhaps worse off financially are in stable relationships as well. The reason I am speaking on this issue tonight is that I am reflecting not only my personal views, but—I believe—those of a large majority of the people whom I represent. I am here as the MP for Strangford to put that on the record and ensure that that opinion is well heard this evening. Many people might not like what I have to say, but hon. Members will have to accept that it is my opinion.
Barry Gardiner
I, too, believe that marriage is good for society, but surely what we have to consider this evening is whether the proposals before us would do anything to incentivise marriage and increase the number of people going into wedlock, and I do not believe for a moment that they will.
Jim Shannon
I do not believe that that is the intention of those who have put these proposals forward. I believe that they are about the unfairness in the taxation system that impacts directly on those in marital relationships. That is the reason. This is not about creating a financial incentive—other Members have suggested that it is about encouraging people to get married for an extra £150—and I do not believe for a second that it is.
Ian Paisley (North Antrim) (DUP)
Does my hon. Friend agree that these proposals are not about incentivising or encouraging people to get married, but about saying to people who are married, “You will not be penalised financially”? Marriage is good for society, good for relationships and good for children, and it should be encouraged. We should not as a House try to pour scorn on the many married couples out there, whether they are unemployed married couples or wealthy married couples.
Jim Shannon
I thank my hon. Friend for his intervention and for the passion in his voice.
Mindful of those points, it is a minimal responsibility of policy makers to remove all obstacles to marriage resulting from fiscal policy. Indeed, there is a good case for considering what steps could be taken to support marriage. I believe that the proposal before us is one suggestion that we should be considering. In the light of that, I am delighted by what the Prime Minister has said. Some people in this Chamber would say, “If the Prime Minister supports it, we don’t,” but if the Prime Minister says something good, let us support it, whether he is the Prime Minister or not—and if one of my colleagues says that something is good, then that is good as well.
Mr Burrowes
The hon. Gentleman is making the case on behalf of his constituents and presenting his own personal view, but does he also recognise that a strong case has been made in those countries that recognise marriage in a way that this country does not?
Jim Shannon
I thank the hon. Gentleman for his intervention. Clearly that is the issue, because there are many countries right across the world that have tax breaks. Indeed, the Prime Minister has said:
“Britain is almost the only country in Europe that doesn’t recognise marriage in the tax system.”
That was his comment back in 2007, but he reiterated the point in 2008 and 2010. There is clearly an issue to be addressed if we are to make comparisons with tax systems in other countries across Europe.
Barry Gardiner
I am grateful to the hon. Gentleman for giving way again; he is being extremely generous. I am delighted that he believes that this should not be about incentivising—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. Please could the hon. Gentleman direct his comments through the Chair? That will also mean that I can hear what he is saying.
Barry Gardiner
My apologies, Mr Deputy Speaker.
I am delighted that the hon. Gentleman has said that this measure is not about incentivising marriage, or about penalising people. Can he therefore explain why, under the proposals, a woman with children who has recently been widowed would suffer a financial loss at precisely the time when the family needed the money the most? That seems to me to be a fundamental flaw in the proposals.
Jim Shannon
The hon. Gentleman made that comment earlier to other speakers, and they responded to it. I accept that there are anomalies in all systems. In the short time that I have been in the House, I have spoken on many issues, and each one was something that my constituents told me that they wanted me to deal with. I am on record as having opposed changes to the education maintenance allowance, the employment and support allowance and incapacity benefit. I am also on record as opposing changes to the disability living allowance, among other changes in the benefit system. I have done that in this Chamber; if I see something wrong, I will take a stand on it. If I see an anomaly, I will do my best to address it. I cannot necessarily tell the House every detail of the matter, because I might not be aware of them, but if there is a wrong, it must be righted.
Ian Paisley
Does my hon. Friend also accept that it is all very well to say that there are anomalies, but that sometimes straw men are put up in these arguments? The fact is that if a pensioner, for example, loses a loved one, their tax credits and allowances go up, not down. We should not allow these straw men to be introduced into the debate.
Yasmin Qureshi
No one is saying that there is anything wrong with marriage. Of course, one should encourage it. My parents were married, and I am married. No one is objecting to people getting married or saying that we should be telling people to get married. However, a fundamental problem with the new clause is that it effectively discriminates against one set of people. Why should a man and a woman who live together and have children be less well off or be discriminated against, compared with a married couple? Why would we wish to create discrimination between those groups of people?
Jim Shannon
People’s interpretations of these issues are different; we see things in different ways and have different opinions. I do not necessarily agree with what the hon. Lady has said, but there are issues to be addressed.
Roberta Blackman-Woods
Does the hon. Gentleman accept that there is inconsistency among Conservative Members, in that they want to support marriage while taking away huge amounts of financial support from ordinary families?
Jim Shannon
I do not believe that there is an inconsistency in relation to this matter, although, with respect, I would disagree with certain other proposals relating to the benefit system.
Michael Connarty
I am grateful to my hon. Friend—I regard him as such—for giving way. I share his warmth about marriage, having spent the past 41 years married, although I am not sure that my wife would be quite so enthusiastic. He has, however, strayed beyond his own guidelines. He said that the provision was not about people marrying for a payment, yet he is now arguing that that is what he supports. Surely this should be about the responsibilities that people take on as a couple, especially when they have children, because that is the most burdensome time when they need the most help from the tax system. This is not about whether they decide to have one kind of a relationship or another. Whether they are married or unmarried, if they decide to be together and have children, they will be burdened with other costs.
Jim Shannon
I can tell the House that when I married, I married for love. I am one of those old-fashioned boys; that is just the way I am.
Mr Leigh
In the light of the intervention from the hon. Member for Linlithgow and East Falkirk (Michael Connarty), it is important to point out that we are not trying to penalise single-parent families or families in which there are two earners. All we are trying to do is remove the severe penalty on families in which there is only one earner, because our system is totally out of step with most of the rest of the world in that regard.
Jim Shannon
I thank the hon. Member for his contribution and for providing a bit of focus to this debate.
Given that the agreement pertains to a full Parliament, one ordinarily would not be concerned at the failure to action a commitment in just over a year. What we need is for legislative change to be approved by the coalition Government, to move forward and perhaps see this legislation coming through in two years. The latest publication of the international tax comparison, CARE’s “The Taxation of Families 2009-10” puts things in a very different light. It demonstrates that we are now headed to a place where the tax burden on a married family with children with one earner on an average wage is growing so much that it will soon be more than 50% greater than the OECD average. That breaks new ground, taking us into territory that not even new Labour dreamt of occupying.
Some will no doubt respond by saying that this is a result of the tax burden having to increase on everyone in the context of the debt crisis. I understand that, but it is not exactly the case. Let me quote a director of an influential think-tank, who said:
“Given that it will take some time between changing the law and implementing the actual recognition of marriage in the tax system, it is important that the Government makes this a priority, takes swift action. The change, or at least a recognition of it, should be made”.
I very much hope that that report can be taken seriously, that the Government can look further at the issue and perhaps bring it forward in future legislation.
Kate Green
I just want to ask the hon. Gentleman which report he is referring to and which think-tank?
Jim Shannon
The think-tank is ResPublica.
As the hon. Member for Gainsborough (Mr Leigh) said earlier, the tax burden on single people with no dependants on the same wage has been falling and far from being 50% above the OECD average, it is now actually below it. That is reflected in the fact that the tax burden on a one-earner married couple on an average wage with two children is projected to rise from 73% to 80% of that of a single person on the same wage by 2012-13, while the equivalent average burden among OECD nations is 52%.
In this context, it is strange that the Government have started investing what will probably end up being almost £12 billion on increasing individual allowances to £10,000. There is a cost factor there and an agreement within the coalition on how that is going to happen. That will cost us all. It is a measure that will have a disproportionately positive effect on single people, yet the Government will not have brought forward a much cheaper transferable allowance policy.
I do not believe that the current situation is sustainable. It is now urgent that the Government introduce legislation to give effect to the transferable allowance. I hope that the Minister will be able to provide robust assurances on this point and a commitment to ensure that as the tax burden increases in the context of the current financial difficulties, it is allocated in a way that is fair, sensitive to family responsibilities and recognises the real strengths that marriage brings to society. I also trust that the Minister will address the important points raised by other hon. Members, including the need urgently to address the IT implications of recognising marriage in the tax system. There are changes to be made, there are costs and a system will need to be set up.
I urge Members to support new clause 5. I believe it is worthy of support. I understand that there are differences of opinion. This is probably the first time that I have disagreed with many colleagues on the Opposition Benches, but I believe in my heart that this is an issue of some importance.
Dr William McCrea (South Antrim) (DUP)
Does hon. Friend accept that no one here needs to apologise for believing that this nation was richly blessed whenever it honoured marriage in legislation?
Jim Shannon
I thank my hon. Friend for putting the issue into perspective. We have no apologies to make; we believe in the sanctity of marriage; we believe it is important. Long may this House subscribe to that belief; we need to provide help and assistance to support marriage. We urge Members to support new clause 5.
Dan Rogerson
This has been a fascinating debate. It has been broad in its coverage of issues relating to marriage and social policy—although I must say that at times it has been as long as it has been broad—and it has strayed back into recent centuries in examining the institution of marriage. One common factor has emerged from it: Members in all parts of the House recognise the hugely beneficial effect of marriage on wider society in keeping families together and improving the quality of life, although some evidence presented by Members has raised questions about the quality of life during marriage.
Andrew Selous (South West Bedfordshire) (Con)
Does the hon. Gentleman not recognise that the transferability for which the new clause provides would enable parents, particularly women, to choose how they spend their time—to choose whether to work or to stay at home to look after children—and does he not think that providing that choice is a good idea?
Dan Rogerson
The hon. Gentleman has raised a useful point. However, given the existing pressures on families I do not think that the new clause is sufficient to allow that to happen, although it may be a step in the right direction. The argument presented by, mainly, Members in a particular corner of the Chamber is that on one hand that this is about incentives and on the other hand that it would make a financial difference, and I think there is a weakness at the heart of that argument.
Members have produced evidence relating to what happened at the time of the change in the tax system. My own marriage took place in 1999 and was not related to tax considerations; I am pleased to say that other factors were operating. I suspect that, given the way in which tax has risen and fallen in every Budget, if such decisions were based on tax policy we would see a huge flux in the nature of relationships and marriage.
Mr Leigh
The hon. Gentleman is making a perfectly honourable speech and his party’s position is entirely consistent, but, as possibly the only Liberal Democrat speaking in the debate, will he confirm that, given the coalition agreement, he would be perfectly relaxed if our Government produced such a transferable allowance? Surely the Liberal Democrats could simply abstain.
Dan Rogerson
The hon. Gentleman knows that I am generally a relaxed person. We in Cornwall are famed for being laid back and not wanting the hectic pace of life that some other constituencies thrive on. I am focusing on the debate about the Government’s policy in the Bill and whether the Government will choose to accept the new clause that the hon. Gentleman proposed in such an able and distinguished manner. I hope that the Government will not at this juncture look to act on the proposal in the new clause.
I am happy to update the House that during the course of the debate news reached me that Julia Goldsworthy, the former Member for Falmouth and Camborne, has announced her engagement, which I am delighted to hear. Whether she and Chris have been watching the debate and decided that this was it is unclear. I think it is unlikely, but I am delighted that the institution of marriage is taking a step forward in terms of our political life in Cornwall.
Hon. Members’ speeches have made it clear that the new clause is an attempt to send a signal to a group of people in society, but I am not convinced that we should use the tax system to send a signal. There are other ways in which we could support marriage.
Mr Stewart Jackson
I concur that 1999 was a vintage year for nuptials, having been married myself that year. Surely there is a discrepancy in the hon. Gentleman’s argument. By increments, he is seeking to direct fiscal policy in terms of taking poorer people out of tax—it is his party’s policy, shared by many in my party, and it is in the coalition agreement. Surely he must recognise that there are perfectly good fiscal reasons for us to prevail on the Government to pursue the married tax allowance.
Dan Rogerson
There is certainly an important debate to be had, but it is not based on income or the tackling of poverty. It is a different argument, although of course an entirely legitimate one. It is just one that has failed to convince me at this juncture.
In our long debate this evening we have explored the issues in some depth. Despite the excellent speech made by the hon. Member for Gainsborough, he has failed to convince me that the Government should act on his new clause.
Kate Green
This is an important debate and one that I am pleased to have the opportunity to speak in. The first thing to say is that it is important that we take great care with what the evidence tells us. That is in two respects.
Kate Green
The hon. Gentleman is interrupting before I have even begun to expand on the evidence, but I shall be delighted to hear what evidence he has.
Mr Jackson
I merely had the temerity to point out that the hon. Lady did not grace us with her presence until about 20 minutes ago, so she was not in a position to hear the extremely articulate and well-made arguments made by my hon. Friend.
Kate Green
I am very sorry to have missed the contribution of the hon. Member for Gainsborough (Mr Leigh), but I should point out my own credentials—something that I do not often do. I bring to the House, if not exactly an interest, probably a bias. For four years I was proud to be the director of the National Council for One Parent Families. I worked with hon. Members, including Conservative Members, on what happens when relationships break down and children are involved. I know that I speak for hon. Members across the House when I say that our fundamental concern in this debate must be the well-being of children. I know that we come at that from different positions, but it is the debate that I think it is important we have this evening. The debate is not—however much hon. Members may, with the best of motives, care about it—about the social role of marriage and the societal messages that we send. I am interested in the well-being of children. It is incredibly important that we examine what we know about what marriage means for the well-being of children, what drives the factors that improve the well-being of children and the role of the financial position of families, and particularly of mothers, in the well-being of children.
I have had the pleasure of talking to hon. Members about this over many years, including Conservative Members. It is important for us as a House that we put it on record that this is what we really care about.
Kate Green
I will with great pleasure give way to the hon. Gentleman, with whom I have had many important conversations on this point.
Andrew Selous
I acknowledge the hon. Lady’s considerable expertise, as I have been the beneficiary of some of it in the past. Does she agree that we should not set up a position of false opposition on this matter, and that many single parents are probably passionate supporters of marriage and might well like to get married again? We need to be a bit careful how we relate to this issue.
Kate Green
The hon. Gentleman is absolutely right, because the majority of people, including young people, want to be married. Most people who become lone parents never set out to do so; they did not enter into relationships expecting or wanting those relationships to break down. However, people often find themselves, at least for a time, bringing up children on their own. My point is that the well-being of children when that relationship breaks down must be a priority for this House. He probably feels as strongly as I do about that, and I hope that hon. Members will focus their attention on it when considering the new clause.
I want to say two things about the evidence that has been mentioned and debated by hon. Members this evening, the first of which relates to the cause and effect evidence. I perhaps raised this clumsily in earlier interventions, when I sought to point out that, to some degree at least, married couples are a bit of a self-selecting category. There is a preponderance of marriage among those who already had more financial and social resources before they married. Our policy should adjust to that where children who come from different social backgrounds may be disadvantaged, rather than seek to reinforce some of the societal disadvantages which mean that there is a prevalence of marriage among higher socio-economic groups.
Dr McCrea
As a minister, I have been marrying couples for the past 42 years and I do not know where the hon. Lady is getting her statistics from, as they certainly do not reflect the reality in the Province. She gives the idea that people who enter into marriage are at the upper end of the financial stability scale, but the vast majority of people who have been married have been at the lower end of the scale or in between. The reality is certainly not what she is describing to the House tonight.
Kate Green
I cannot question the hon. Gentleman’s evidence about Northern Ireland, but I can say that the position across the United Kingdom as a whole is that a higher rate of marriage correlates with people in higher socio-economic groups. We were helpfully reminded by the hon. Member for North Cornwall (Dan Rogerson) of an important question, which relates to the second point about the evidence: even if we could do something to spread the advantages of marriage across wider society, would a tax break do this? I have seen and heard no evidence, either this evening or during the many years that I have studied this subject, to show that a tax break persuades people to get married or to stay married. In that sense, particularly in these constrained fiscal circumstances, it seems extraordinary to spend public money on a mechanism that has no evidence to prove that it works effectively. There are real issues to address in respect of what the evidence shows us. Saying that does not devalue, in any way, the importance of marriage; I merely say that when we spend money, we need to know what outcome we expect it to achieve.
Mr Burrowes
I, too, recognise the hon. Lady’s expertise. It is difficult in these debates to unite on what we are for. She opened her contribution by discussing children’s well-being, and surely she would agree that there is evidence to suggest a correlation between children’s well-being and marriage. This issue should not just be the preserve of the few and the privileged; it should be an issue of social justice and extending it to the poorest, who can benefit from incentives and support in relation to marriage. That is what we are about, so surely we should unite in this House on that issue.
Kate Green
With the greatest of respect to the hon. Gentleman—I understand what he says—we do not know and we have no evidence to tell us that it is the fact of marriage that gives those children that advantage. That is where the evidence falls down, with the greatest of respect to the strongly held views of Conservative Members and of DUP Members, too. The evidence does not tell us that the fact and existence of a marital relationship, if we strip out all other social and economic factors, makes the difference for children. Commitment might be one important factor but there is another important factor: conflict. We know that conflict, in married relationships or outside them, is extremely damaging for children, so it is dangerous for us pick out one aspect of relationships or familial structures and to say that it makes or breaks children’s well-being. The evidence simply does not stack up to tell us that.
I said at the beginning of my speech that my concern was about the well-being of children in the context of the proposal to spend public money on supporting a particular kind of familial structure. I am concerned that we are diverting resources to families who are economically better off rather than to those who face the greatest risk of poverty.
The families who face the greatest risk of poverty today—hon. Members on both sides of the House agree on this point—are lone parent families. There are two possible policy responses to that, one of which is to try to stop those lone parent families becoming lone parent families. Saying that we should have fewer single parent families could be a policy response if we could see the mechanisms to achieve it and if we thought that it would genuinely work for children’s well-being. In the absence of evidence that this tax break or other mechanisms can compel families to stay together, we must also consider the second policy response mechanism, which is how to improve the economic prospects of children growing up in single parent families, particularly in light of the fact that one in four children in this country will spend some time in such a family. I suggest that if we are considering where the pressure of public resources need to be focused, protecting the best interests of those children, irrespective of the marital situation of their parents, ought to be our priority.
Mr Stewart Jackson
The hon. Lady is very generous in giving way, but surely she is avoiding one central fact. We alone in Europe have a tax system that is biased against families with caring responsibilities in which one member chooses to stay at home to look after the children. That is the central fact that she is avoiding.
Kate Green
The hon. Gentleman raises a number of important points. First, I have been struck this evening by the interventions by Government Members about the opportunity for couples to make a choice—particularly that which many of them would like to see, which is for one parent in the couple, often the mother, to take some time out of the workplace to stay at home and care for children. They seem willing to spend money on offering that choice to mothers in couple relationships and to spend more on offering it to mothers in married couple relationships, but not to offer it to single mothers. The economic pressure on single mothers to go out to work to support their children is being ratcheted up by this Government. If it is right for children to have a parent at home for a time, not necessarily just when the children are very young, it must be right irrespective of the marital status of the parents. Government Members must think about the child-focused approach to deploying resources. If we think it right that parents should have the choice to be at home with their children, all parents must have that choice, not just those in married relationships.
In response to the interesting and important point made by the hon. Member for Peterborough (Mr Jackson) about what goes on in other European countries, let me say that one of the distinguishing factors is that the experience of poverty among lone parent families in this country and the much lower experience of such poverty in other European countries shows that one can design a fiscal system so that lone parenthood need not be a determinant of poverty. It need not lead families and children into poverty. This is about the redistributive choices that we make in our fiscal system. When we have such pressure on the public finances, making a choice to spend money on favouring a group of families, many of whom are already economically advantaged, rather than focusing spending on those who are most economically disadvantaged is a strange priority, particularly given that we have no evidence of the efficacy of spending money on keeping people married as a route to keeping them out of economic disadvantage.
Mr Kevan Jones
My hon. Friend talks about international comparisons, but does she agree that there is also no evidence in European countries or anywhere else that having a tax system that encourages marriage leads to more stable marriages or more coherent family units?
Kate Green
It is very clear that putting the weight of expectation for supporting marriage on the fiscal system is a very unrealistic and unlikely way of providing adequate support for strong couple relationships. Of course everybody wants strong couple relationships to be sustained and of course it is right to use every instrument of public policy that we can—cost-effectively and in terms of outcome—to do so, but the evidence about what sustains strong couple relationships is not that we should give tax breaks to the already better-off, and particularly not to the already better-off who do not have children, if we are concerned about child well-being. The evidence about what sustains strong couple relationships is about a much broader landscape of social and emotional support. It is about early relationship and social education in schools and ensuring we have strong services to support families in the community, including the universally welcome Sure Start services and the very good-quality child care and play facilities that can be available to support parents in raising their children.
To isolate money and spend it in the fiscal system rather than direct our attention to what genuinely supports strong family relationships and children in whatever family structure they are growing up is in my view a misapplication of public funds, particularly at a time when those public funds are constrained. As hon. Members have pointed out, it is particularly strange to spend money on couples who have no children if we are concerned about child well-being, rather than to spend money in a way that specifically focuses on the well-being of kids. I am very concerned that the new clause would take money from those with higher levels of need and give it to many couples in lesser need. I accept that, as hon. Members on the Democratic Unionist Benches have said, some married couples are in low-income groups and in straitened circumstances, but in general we would be diverting resources to better-off families from lower-income families, and particularly from lower-income families with children.
Finally, let me address the issue of the couple penalty, about which we have heard a great deal and about which I am deeply sceptical. Let us start by remembering that there are economies of scale of living with another adult in one’s household. It does not cost twice as much for two adults to live in a household as it costs one. The couple penalty that has been much talked about by Conservative Members fails to identify that the material circumstances of children in lone-parent families are measurably worse than those of children in couple families. Whatever the intellectual and fiscal modelling might suggest about a financial couple penalty, the reality—the outcome—is that there is no such couple penalty. Indeed, the penalty works in quite the opposite way. To seek to extend the material advantage that couples enjoy at the expense of single parents seems to me a strange choice for a Government who are particularly concerned about social mobility and improving the prospects of the most disadvantaged children.
I hope that hon. Members will consider the new clause very carefully and the fact that it simply fails to achieve the laudable goals of Members on the Government Benches to improve the prospects of some of our most disadvantaged children. I hope that they will look instead at how best we can direct resources to support parents who are bringing up children on their own, usually through no choice or fault of their own. I hope that they will relieve what is often a burden from the parents who are often proud to take on that burden and who deserve to be rewarded for taking it on, as they are the parents who stay and make the commitment. Surely they are the parents to whom we should be giving extra financial support if there is extra financial support to be made available. I really do plead with Members on the Conservative Benches, and with DUP Members who I think are giving them some support this evening, to think again about the likely effect of such a new clause and about the children who would lose out. I am sure that their intentions are honourable, but I am afraid that the results will be anything but.
Mr Stewart Jackson
It is a pleasure to follow the hon. Lady, who always makes an intelligent, cogent and reasonable case, but she is completely wrong. I had not intended to trouble the scorers this evening, but it is important that we have a proper debate on new clause 5, that it is not rushed through, and that this is not treated as a procedural issue that the House can dismiss lightly. It goes to the kernel of what my hon. Friends and I believe in. We did not come into politics at any level—in my case, more than 20 years ago—to make people poorer, to embed disadvantage, or to have a tax system that favours some over others.
My party has a strong tradition of small “l” liberal and progressive social reform, from Disraeli onwards. One of the more depressing aspects of the debate is the straw men—or straw people, I should say—who have been set up, and the caricatures of the Conservative party that have been paraded before us.
Mr Jackson
Not at the moment; I may do so later. If a reasonable person from any other European country stumbled into the Chamber tonight, they would wonder why we were debating the issue. It is an existential issue of what we believe as public servants—as politicians—about the institution of marriage. That is not to traduce or do down the massive contribution that those who are, for a variety of reasons, single parents make to their family. They love their children and care about their family, and they are a part of the community. However, it is incumbent on us to say what we think is right. I commend the courage and dedication of my hon. Friend the Member for Gainsborough (Mr Leigh), who is willing to be unfashionable sometimes and speak out on what he believes is right.
This is a totemic issue, because my party put it in its election manifesto. It recapitulated that point in the coalition agreement and has argued for this specific policy, so it is not one that we can lightly cast aside as irrelevant now that we are in a coalition in which there must be give and take. Many of us have always believed that it is vital to take poorer working people out of tax. We heard about a cornucopia of so-called Tory errors, going back to the minimum wage. Let me remind Opposition Members that the gap between the richest and poorest 10% widened under the Labour Government. A former very senior Government member professed that he was
“intensely relaxed about people getting filthy rich”;
that is a fact. No one has a monopoly on care and compassion for people.
It cannot be wrong to look at examples in other European countries, see that their fiscal policy decisions work, and decide to look at a similar policy. I like, respect and trust the Exchequer Secretary to the Treasury; he is a decent man of his word. He will have heard the strength of views and the passion on the Conservative Benches. He will also have heard the filibustering by the hon. Member for North Durham (Mr Jones), which reached a nadir when he effectively said in his final remarks that people were essentially too thick to fill in their tax forms. I know that filibustering is an art form, and he has perfected it, but that is gilding the lily and taking things to a ludicrous length. This is not a subject for knockabout politics; it is about real changes to support people.
Mr Burrowes
My hon. Friend makes a good and important case. Many people quite properly raise concerns about the gap between the rich and the poor growing over the years, but why do the same people not also raise concerns about the position of one-earner married couples on an average wage with two children? Their tax burden has increased over the years, too. Why are people not rising up and expressing concern about that discrimination, which will lead to real child poverty if we do not deal with it?
Mr Jackson
My hon. Friend has a long tradition of concentrating on this issue in his professional work in family law before he came to the House, and he knows what he is talking about. He is right and astute in his observation. The proposal is about ameliorating unfairness, as well as having a progressive tax policy to reward what we think is right. The hon. Member for Stretford and Urmston (Kate Green), in her usual decorous way, skipped the key issue, which is that European countries are making such tax changes or have established them, and we have not. It is incumbent on her to make the case why they are all wrong and we are right.
Andrew Selous
Does my hon. Friend agree that in this case the United Kingdom is the odd country out? As he so powerfully said, we need to join the mainstream of Europe on this matter.
Mr Jackson
My hon. Friend makes an intelligent point, with which I wholeheartedly agree.
Reference was made earlier to the Centre for Social Justice report of May 2011. The hon. Member for North Durham, who is ambling along the Back Benches towards his place, did not refute the causal link and the difference between marriage and cohabitation and some of their negative socio-economic impacts.
Mr Kevan Jones
I do not know whether the hon. Gentleman was listening; I said nothing of the sort. I said that a possible reason for marriage break-up was poverty, but the link that he is making by suggesting that marriage break-down somehow leads to poverty is not the point that I was making at all.
Mr Jackson
The hon. Gentleman is trying the patience of the House. We will have a look at Hansard tomorrow to see what he said. He did not refute the details and facts that I put before the House in my interventions on him and others.
Mr Jones
I know the hon. Gentleman is not a good listener. He is drawing the conclusion that poverty, and things such as drug abuse among children of single parents and others, is a result of the fact that their parents are not married. What I said, and what is clear from the work of the Secretary of State for Work and Pensions, is that the root cause is poverty, not whether people are married or not married.
Mr Jackson
My capacity to listen is in inverse proportion to the length of the hon. Gentleman’s peroration. Given that he spoke for an hour, at the end, like many others, I lost the will to live. I expect better of the hon. Gentleman because he has given some very informative speeches over the years. Sadly, that was not the case tonight. I am sure he is distressed at my observations.
The hon. Gentleman failed to take on board any of the comments that were made or the facts that were presented. A study by the Bristol Community Family Trust in December 2010 demonstrated that cohabiting couples accounted for 80% of family break-ups, whereas divorce accounted for only 20% of break-ups. He did not specifically seek to break the causal link that I was making. One in 11 married couples break up before their child is five, compared with one in three unmarried couples. None of us wants to see the dire social consequences of family breakdown. There is a consensus across this country about it, from the Prime Minister down.
Kate Green
Accepting at face value what the hon. Gentleman says—that cohabiting couples are more likely to separate than married couples—what evidence can he give us that a financial inducement would work to keep those cohabiting couples together?
Mr Jackson
I expected better of the hon. Lady, who is learned, intelligent and usually erudite, than rejigging the caricature, “Put a ring on your finger and get an extra 20 quid a week.” That has never been our argument. We seek to influence private behaviour with public policy, and I used the example of speeding fines and points on a licence as policies that are likely to influence future behaviour. As I said to the hon. Member for North Cornwall (Dan Rogerson), who is no longer in his place, the Liberal Democrats made a manifesto commitment, which we have accepted, to take more poorer working people out of tax. That commitment was made on the same basis. The point I keep coming back to, and which I repeat for the hon. Member for Stretford and Urmston, is that the international comparators support my case and not hers.
Mr Jackson
I will not give way for the time being.
We all wish to deal with the problem of family breakdown, and I genuinely believe that this would be an important pointer and signal that we are in line with other countries and cognisant of international comparators. The hon. Member for North Durham painted a picture of a wonderful land of milk and honey, a Valhalla, after 13 years of the Labour Government, but it is worth repeating that in 2007, under a Labour Administration, a UNICEF report on child well-being placed Britain bottom in a league table of 21 countries. Members should listen not only to me on that point but to Mr Justice Coleridge from the family division of the High Court, who in 2009 summarised the position thus:
“The breakdown of families in this country is on a scale, depth and breadth which few of us could have imagined even a decade ago… almost all of society’s ills can be traced directly to the collapse of family life… it is a never ending carnival of human misery.”
The Whips are imploring me to conclude my comments—I know it is not my aftershave—so I will do so, as I am always receptive to the admonitions of my hon. Friend the Member for Rochford and Southend East (James Duddridge). We have had an excellent debate and I believe that my hon. Friend the Exchequer Secretary has listened. This is an important point of principle for Members on this side of the House and for many others, including hon. Gentlemen and Ladies from Northern Ireland on the other side of the Chamber. It is a totemic issue, and this Conservative-led coalition Government must, and I believe will, deliver on this promise.
Michael Connarty
In the contributions that I have heard via the live feed and in the Chamber, sadly there seem to have been moral overtones that echo speeches in a Victorian Parliament. If moral judgments are behind those arguments and people think that they this is a moral vote, I am quite sad about that. It might be a political strategy, however. Many political strategies were put forward by the Conservative leadership at the election, but hopefully they will not be reflected in the legislation put though this House. I hope that the contribution from the hon. Member for North Cornwall (Dan Rogerson) is more reflective of the coalition, which means that the Government will not do what the new clause proposes.
It is very important that people listening to this debate realise what the proposals are. After the advances that this country has made, in the recognition of civil partnerships, for example, this proposal is about spouses and spouses alone, not civil partners. It is attacking the progress that has been made, which is now being copied across Europe. It does not relate to people of the same gender in firm and committed relationships, which shows that it is not a forward movement at all. It is an attempt to throw out and make a moral judgment on the things that have been done by the joint agreement of this House to advance society’s value of firm and committed partnerships. That is what is important.
Michael Connarty
Not yet.
It is not just a matter of putting a marriage partnership or a firm partnership ahead of any other. My hon. Friend the Member for Stretford and Urmston (Kate Green) spoke strongly and has worked hard on single parenthood, but I happen to believe, in most cases but not all, that a partnership provides a much stronger place for children to grow up in than that provided by any single person—male or female—who has to go it alone. Therefore, our society has a lot of value when we can encourage partnerships.
We still have the oddest situation in Europe—and among many other countries outside Europe—because we do not recognise de facto partnerships. De facto partnerships are not civil marriages but agreements by people without either a civil or Church marriage to remain in a relationship and to commit to themselves and to any offspring.
My son lives in Australia, and he shared a de facto partnership for a number of years, recognising that if he or his partner had died their pension would have transferred to the other. In this country I have friends who, like me and my spouse, have been together for 41 years. They have had to get married because they might be coming to the end of their lives—not for a long time, I hope—and their pensions would have died with them.
That was a moral judgment which the previous Labour Government made, and it was shameful, because we should have had civil partnerships for all who wished to have them, and we should have recognised de facto partnerships as much as same-gender partnerships. That is how we should have looked at things, but we should not give cash incentives, as the new clause seeks. Indeed, that was the contradiction in the contribution from the hon. Member for Strangford (Jim Shannon), because he said that he was not about incentivising partnerships through finances and then spoke on behalf of the new clause—which would incentivise partnerships.
Michael Connarty
I have a call from my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) first.
That is what is wrong with the new clause. It is about spouses, it is backward looking and moralistic and it will not help children at all. It is sad that one in five marriages breaks down and that civil partnerships break down, so we must encourage people through the way we finance them and help them to keep their relationships together, because finances as much as personal fall-outs break down relationships.
Andrew Gwynne
I agree wholeheartedly that families come in different shapes and sizes, and we need to respect and reflect that in public policy. Is not that why the previous Labour Government were absolutely right to target limited resources on tackling child poverty, irrespective of the child’s family background?
Michael Connarty
My hon. Friend has made that point before, and he puts it better than I could.
My mother, who now has sadly passed away, was soured by the Labour Government very early on when we took away the additional money for single parents. From then on, every time I went to her house on a Sunday, she would start by saying, “Welcome,” and then she would say, “You and your Tony Blair,” and for the rest of my visit berate me for what we had not got right. She was a great touchstone, however, because she saw that the defence of children and the future of children were important, not the rest.
The new clause is a backwards step, but I am hopeful that the Minister will not support it and that such legislation will never get through. It states that only marriage—not any other relationship—is good enough or as good as we would wish.
Mr Burrowes
The hon. Gentleman is experienced in European affairs, given his chairmanship of the European Scrutiny Committee and his general interest in European matters, so I have a question. Why do France, Germany and Italy all recognise marriage in the taxation system? Indeed, let us widen that question. Why do only 24% of OECD citizens live in countries that do not recognise marriage in the taxation system? Has he ever asked why our European neighbours recognise marriage but we do not?
Michael Connarty
People must ask those Governments, but many recognise de facto partnerships as well, and their recognition is based on not just the marriage to which the new clause refers with “spouses”. That is the point. This is about one small group that we in this country used to see as a backward thing. We have moved beyond that now, and it is time we put it behind us. Perhaps others will catch up with us soon enough when they realise that it is partnerships that matter, not specifically spouses in a formal marriage.
Mr Chope
In making a brief contribution to this very important debate, I congratulate my hon. Friend the Member for Gainsborough (Mr Leigh) on getting it going. It came as a bit of surprise when my hon. Friend the Member for Congleton (Fiona Bruce) did not speak to the new clause, but I am delighted that she subsequently joined the debate to speak in support of it.
I come at this subject on the basis that the Prime Minister supports exactly what I support: recognising marriage in the tax system. He promised that the Government would recognise marriage in the tax system after the general election, and this debate rightly puts the focus on how that commitment will be implemented. I hope that when the Minister responds, he will say exactly when that is going to happen. Over a year ago, on 2 June 2010, the Prime Minister said:
“I believe that we should bring forward proposals to recognise marriage in the tax system. Those in our happy coalition will have the right to abstain on them, I am happy to say, but I support marriage. We support so many other things in the tax system, including Christmas parties and parking bicycles at work, so why do we not recognise marriage?”—[Official Report, 2 June 2010; Vol. 510, c. 428.]
Those were excellent words from my right hon. Friend. Then, some three or four months later—
Mr Chope
No, I am not going to allow anybody to interfere with the words of the Prime Minister.
On 5 October 2010, the Prime Minister said:
“I have always supported the idea of supporting marriage through the tax system, specifically supporting the idea of a transferable tax allowance. The idea of a transferable tax allowance is in the coalition agreement.”
That is where my hon. Friend’s new clause comes in, because it calls for just that. One is entitled to ask why, having had two Budgets since the general election, we still do not have proposals to implement that very important pledge.
Labour Members are misrepresenting this proposal as an attempt to build new privileges for those who are in a marital relationship, but, as has been brought out time and again during the debate, the question is what we are going to do to prevent those who are married from suffering disadvantage under the tax system. That is what we are trying to put right with the new clause.
Helen Goodman
Labour Members would be far more sympathetic to the case that the hon. Gentleman and his colleagues are making in saying that they do not have negative attitudes towards single-parent families if they had not voted for the Welfare Reform Bill, which requires lone parents to pay to get the services of the Child Support Agency.
Mr Chope
Speaking for myself, I do not have negative attitudes towards single-parent families, but I do feel that single-parent families should not be advantaged in the tax system as compared with married families. That is the problem that we have at the moment, and that is what we are trying to put right in the new clause.
I am lucky in that my constituency is in an area described thus in a headline in last week’s local paper: “East Dorset is a place for love and marriage”. The article says:
“Married couples in East Dorset stick together. Latest…figures show that 65 per cent of marriages in the area last, well above the national average”,
with the seventh highest rate of marriage survival in the country. Even so, fewer than two out of three marriages survive, but that is a lot better than in many other parts of the country.
I am not suggesting that the tax system is causing marital breakdown, but I am saying that we should follow the very strong lead of our Prime Minister and put pressure on the coalition Government to implement their commitment to recognise marriage in the tax system.
John Glen (Salisbury) (Con)
Is not the real issue the calibration of the compromise? Most new Government Back Benchers recognise that in a coalition there has to be compromise. At the same time as we see moves forward on the individual allowance for our Liberal Democrat colleagues, we need to see some progress along the lines that my hon. Friend is setting out. The key issue is that there appears to be an imbalance in the compromise.
Mr Chope
My hon. Friend makes a very good point. We are seeking a route towards a destination. The Prime Minister set out the clear destination, but so far we do not seem to have made any progress towards achieving it. What was set out in detail on the Conservative website at the time of the election was a very modest proposal, which talked about a small proportion of the tax allowance being transferable, with quite a tight maximum income threshold in order for people to be eligible. Even that modest proposal has not yet been put forward by the Government in the Finance Bill so that we can support it and implement it.
Mr Kevan Jones
The hon. Gentleman has talked about the Prime Minister’s support for this proposal. Does he recognise that the Prime Minister included civil partnerships in what he said? If we agreed to this proposal tonight, civil partnerships would be excluded, which is clearly at odds with what the Prime Minister wants.
Mr Chope
If there is a defect in the wording of the new clause and it fails to recognise everything that the Prime Minister said—he certainly referred specifically to civil partnerships—the hon. Gentleman may have a point about that, but he does not have a point about much else, in my submission.
Mr Leigh
I am happy to make the concession to the hon. Member for Linlithgow and East Falkirk (Michael Connarty), who spoke at some length on this point, that if the new clause is defective, I am happy to withdraw it and for the Government to bring back a new clause that includes civil partnerships. I make it absolutely clear that we have nothing against civil partnerships.
Mr Chope
My final point is that there is a read-across between the new clause and the conundrum that the Government face in the debate about the withdrawal of child benefit from families that comprise at least one higher rate taxpayer. That issue is causing a lot of angst among our constituents, particularly for parents in single income households in which one parent stays at home to look after the children. As I have said in correspondence with the Minister, in some cases one parent stays at home to look after a disabled child. If there is one parent who is the breadwinner and he is a higher rate taxpayer on an income of about £45,000 or £50,000, he will be above the threshold and will be deprived of his child benefit.
Mr Chope
I will give way in a minute.
In comparison, a household with two people earning between £35,000 and £40,000 each, which has a much higher income, will keep its child benefit. That is not fair. In response to correspondence, the Minister has said that there has to be a bit of rough justice and that to introduce a system of transferability of allowances and entitlements would be very complicated. However, that is exactly what was proposed by the Prime Minister with the transferability of tax allowances, and that is what is proposed in the new clause. That is of significance, because there is a read-across from this other thorny policy issue that faces the Government.
I hope that we will have a positive response from the Minister, and that he will spell out in detail when and how the Prime Minister’s pledges to the country will be implemented.
Chris Leslie
What on earth is going on with the Tories this evening? It is a perplexing situation, because Conservative Members usually accuse Labour Members of filibustering in an open-ended Finance Bill debate, but not at all this evening. Instead we seem to have a private family dispute breaking out.
Chris Leslie
There could be, who knows? We had the unedifying spectacle, at the beginning of the debate, of the hon. Member for Congleton (Fiona Bruce), in whose name the new clause was tabled, not moving it, and the hon. Member for Gainsborough (Mr Leigh) swiftly getting to his feet and deciding to move it. Three hours later, here we are. I am not quite sure whether the hon. Member for Congleton had reached some sort of deal with the Whips—it did not look like a particularly friendly deal at the time, but maybe she had a concession from Ministers and they are going to announce, finally, some movement on their election pledges. It is all very strange behaviour.
As my hon. Friends have said, it is very peculiar, at a time when millions of families, pensioners and others are being hit hard by deep spending cuts and tax rises, that the first priority of so many Conservative Members is to advocate an unfair tax cut with no apparent benefit to society. It would be a multi-billion-pound marriage tax break that would penalise those who are separated, widowed or divorced, many of whom are already being hit hard by cuts to tax credits and child care.
Mr Jackson
On the subject of unfairness, would the hon. Gentleman like to apologise for the fact that in the financial year 2007-08, under his party’s Government, the tax burden on one-earner married couples with two children, on the average wage, rose to 44% greater than the OECD average? That is a matter of fairness. Does he think any responsible party should ignore it?
Chris Leslie
I am not quite sure what the hon. Gentleman’s point is. Maybe in the cool light of day that intervention will have more light shed on it. In his contribution earlier, he asserted that there was a causal link between marriage and the socio-economic well-being of society, child well-being and so forth. He may well have a set of statistics in which he sees a correlation, but I am sure he understands the difference between causal and correlative effect. It may well be that car ownership has a similar correlation with child well-being, but that does not mean that setting up the tax system to the advantage of a particular institution will necessarily have the outcome that he seeks.
My hon. Friends the Members for Stretford and Urmston (Kate Green), for North Durham (Mr Jones) and others have overwhelmingly proved that we need a tax and benefits system focused on need and on poverty alleviation, particularly poverty among children. That must be the driving force behind a sane and rational tax system. We do not want a system with the peculiarities and idiosyncrasies that Conservative Members advocate.
Mr Kevan Jones
Does my hon. Friend agree that one causal link might be with poverty? The hon. Member for Christchurch (Mr Chope) says that couples in Dorset stay together longer, but might that not have a lot to do with the affluent nature of that part of the world compared with, say, inner-city Glasgow?
Chris Leslie
Absolutely. Of course that is the case. It is so obvious that it is surprising that Conservative Members cannot see it. What is worse is that the new clause that they have moved—or rather, that one of them has moved—would cost more than £4 billion. It would cost £4.1 billion to create a personal allowance transferable between all couples, married and unmarried. That would be the price tag of new clause 5. That is the equivalent of a penny on income tax, a penny on employee national insurance rates, a 1% increase in VAT or putting VAT on fuel and power, as we know the Government sometimes like to do. If Conservative Members advocate spending that amount of money, surely it would be better to target it on the basis of need and where it would have the best and most direct benefit to society.
There is a long history of the transferability of personal allowances, and I will not go through it.
Chris Leslie
I know that many of my hon. Friends would like to me to elucidate some of that history, but we have already been through various centuries in this evening’s debate. Suffice it to say that it was a Conservative Government who eventually phased out the married couple’s allowance, and indeed the current Lord Chancellor who said:
“Now that husbands and wives are taxed independently—one of the best taxation reforms in recent years—the married couple’s allowance is a bit of an anomaly.”—[Official Report, 30 November 1993; Vol. 233, c. 935.]
My hon. Friend the Member for Stretford and Urmston was absolutely right when she highlighted Labour’s policy shift towards helping the children and families in greatest need, particularly through the tax credit system. That was one of the greatest changes made by the previous Labour Government, and one that we should be proudest of.
Chris Leslie
The hon. Gentleman could have speeded that up by not intervening.
I shall finish by saying that, clearly, there are major problems with the transferable allowance. It is costly and not targeted, and it is unfair to those without a marriage certificate, whether they are divorced, widowed, single or in a couple. There are a host of anomalies and unintended consequences, as several of my hon. Friends have said. For instance, if a husband is killed in a tragic road accident, his widow and children will be left without support, and so on. The proposal undermines the principle of independent taxation, but most of all, we should focus our tax and benefits system on need and on the alleviation of poverty. I sincerely hope that the House will reject new clause 5.
The Exchequer Secretary to the Treasury (Mr David Gauke)
As we have heard, new clause 5 would introduce transferable personal allowances for married couples, allowing one spouse in all married couples to transfer unused personal allowance to the other. I am very grateful to my hon. Friend the Member for Congleton (Fiona Bruce) for tabling the new clause. It highlights an important point: that marriage is a positive institution, and one that the Government are committed to support.
We are keen to send a clear message that family and marriage matters, and that strong and healthy families help to create a strong and healthy society. In little more than a year, this Government have proved our determination to tackle the wider issues that can affect family stability.
Fiona O'Donnell
What message would the measure send to the woman who came my surgery on Friday, fleeing an abusive relationship to keep herself and her children safe?
Mr Gauke
It is of course important that we, as a society, do everything that we can for a woman in the circumstances that the hon. Lady describes. However, the Government also believe that the institution of marriage provides something to society that should be recognised. That is the thinking behind our policy. Of course we must help those in abusive relationships and do all we can to support them, but that does not preclude taking steps to support the institution of marriage. The Government recognise that.
Thomas Docherty
Like the Minister, I am a fan of the institution of marriage, but what does it say about the institution that the Government feel that they need to support it like this?
Mr Gauke
If the hon. Gentleman is prepared to be patient, I will set out the Government’s position.
If we are to address poverty, it is important that we address not just poverty but the causes of poverty—to coin a phrase—and ensure that work pays, and that is what our welfare reform programme is designed to do. It is also important that we take steps to ensure that the family and marriage are recognised, and that we do what we can to support stable relationships.
Ian Austin (Dudley North) (Lab)
Under the Minister’s proposals, if a man abandoned his wife and children and got remarried, would he continue to receive the tax allowance? If a woman were widowed, would she lose it?
Mr Gauke
Let me set out—[Hon. Members: “Ah!”] Let me set out the point. As has been said many times during this debate, marriage is recognised in the vast majority of countries. The previous Government introduced the transferable nil-rate band for inheritance, which was specifically designed to assist married couples and civil partnerships. If the Labour party is against any kind of recognition of marriage within the tax system—
Ian Austin
Would a woman whose husband was killed in Afghanistan lose this benefit?
Mr Gauke
As I sat down to give way to the hon. Member for Dudley North (Ian Austin), the shadow Chancellor said, “You don’t have to be married to benefit from the transferable nil-rate band.” He is absolutely right. As I said, it applies to married couples and those in a civil partnership. That is exactly what I said earlier. As the hon. Member for Dudley North pointed out, it is important that we support widows in the circumstances he mentioned. Does that mean, though, that we should never do anything for married couples? It does not necessarily follow.
I want to put this in the wider context of what we are doing to help strong and stable families. For example, the Department for Education has announced plans to spend £30 million on relationship support to deliver better support for couples in relationship distress. However, as hon. Members will be aware, the Government have made it clear that we intend to introduce proposals to recognise marriage and civil partnerships in the tax system. As the Prime Minister said recently, this will show that as a country we value commitment. I certainly agree, therefore, with the intentions behind the new clause.
Although the Government support the principle behind the new clause, now is not the appropriate time to bring forward such a measure. It would entail significant and immediate costs to the Exchequer, its scope is wider than the Conservative party manifesto pledge and the cost, we estimate, would be more than £4 billion. It would also necessitate substantial implementation costs.
Clive Efford
Will the Minister comment on what message this sends to teachers planning to strike on Thursday? On the day when the Secretary of State for Education was dragged to the House to explain what he was doing to avoid the strike, the priority of Back-Bench Conservative MPs is to propose a motion that would cost more than £4 billion a year, yet teachers are being told that the Government will not negotiate over increases in their pension fund contributions. What message does that send to those teachers?
Mr Gauke
We have heard a lot in this debate about single parents. One group that will be affected if teachers go on strike and schools close on Thursday will be single working parents, who will face substantial disruption in dealing with child care. I hope that Members in all parts of the House will strongly urge teachers to go to work on Thursday.
Mr Leigh
I am quite prepared to accept that we are only Back Benchers and that the new clause may be defective, but I would be prepared not to force it to a vote if my hon. Friend now gives a firm and solemn pledge that during this Parliament the Government will honour our manifesto pledge to recognise marriage in the tax system. If my hon. Friend gives me that pledge, I will not force the new clause to a vote; if he does not give that pledge now, I will force it to a vote.
Mr Gauke
I am going to make some progress.
Clearly, £4 billion is a significant amount of money. Any decision to introduce a mechanism to recognise marriage in the tax system will need to be taken in the context of the wider public finances, so whatever proposals the Government make will balance the benefit to society with the cost to the Exchequer. We will consider a range of options.
There are also some issues with the drafting of new clause 5. Some seemingly minor elements, such as the lack of a commencement date, make the new clause administratively difficult for two reasons. First, lead-in times for an effectively implemented mechanism will be lengthy because HMRC will need to design and put in place new processes—a point that a number of hon. Members have recognised. We will factor that into our thinking. The Government and HMRC understand the need for a workable way of delivering this, and we are actively engaged in that process. Secondly, the lack of a commencement date means that those who qualify could, technically, claim for at least the last four years, which could substantially increase the cost.
As we have heard, the new clause also makes no mention of civil partnerships, which we believe must be included. There is much that HMRC will need to prepare before the Government are able to meet their commitment, but hon. Members can rest assured that the Government are considering all those points. Let me say to my hon. Friend the Member for Gainsborough (Mr Leigh) that the Government remain committed to exactly what we said in the coalition agreement. I support the principle behind the new clause.
Labour introduced a mechanism in the tax system to recognise the advantages of cycling to work, and although I have nothing against cycling to work, it seems to me that marriage is more important to society, so the idea that the proposal before us would somehow represent a strange or unusual element in the tax system is, I am afraid, wrong. However, it is not practical to implement it at this time, and such changes need to be made within the boundaries of improved fiscal stability. Therefore, although I will reluctantly ask my hon. Friend to withdraw new clause 5, I can assure my hon. Friends that this is not an issue that we have forgotten about; rather, it is a commitment that we will keep.
Mr Leigh
I am afraid that the Minister has not answered the specific question that I asked him. It is not good enough to say that we will honour a commitment, but then give no date for when that commitment will be honoured. I am very sorry, but there is not a cigarette paper between what my hon. Friends and I are proposing in new clause 5 and what the Prime Minister said, which I shall repeat:
“I believe that we should bring forward proposals to recognise marriage in the tax system. Those in our happy coalition”—
notice that he mentioned the coalition, because this is about now, in this Parliament; he was not talking about some time in the future—
“will have the right to abstain on them, I am happy to say, but I support marriage. We support so many other things in the tax system, including Christmas parties and parking bicycles at work, so why do we not recognise marriage?”—[Official Report, 2 June 2010; Vol. 510, c. 428.]
Mr Leigh
I will not be shouted down by the hon. Gentleman. He was not here for most of the debate anyway.
We made that pledge, and we should now respect it. I was hoping to be able to say that the new clause was defective, and that we would be quite happy to withdraw it and to redraft it to enable civil partnerships to be recognised. We would be quite happy if the Minister then said that it could be introduced during the course of this Parliament. However, he has not said that. I am afraid that he has not answered the points that we have put to him. We had an hour’s speech by the hon. Member for North Durham (Mr Jones), most of which did not address what we are trying to say. I want to end by saying that none of us is trying to penalise two-earner families or single parents. We are simply trying to remove the severe penalty that this country imposes on one-earner families. The United Kingdom is completely out of step with most of the world in that regard. Nothing in our proposal is radical; it is sensible and it is right, and I think that we should now have a Division on it.
Question put, That the clause be read a Second time.
The House proceeded to a Division.
Mr Speaker
Order. Open the doors for a further minute, owing to the extreme congestion in one Division Lobby.
Mr Bone
On a point of order, Mr. Speaker. A very unusual thing just occurred during the Division. I was one of the tellers. The doors were locked at the appropriate time, then unbelievably, they were unlocked again. Given the closeness of the result, do you think that the vote should be taken again?
Mr Speaker
I see no reason for it to be taken again, but I am strikingly impressed by the fact that, although it is three minutes past 11 o’clock, the sense of humour for which the hon. Member for Wellingborough (Mr Bone) is renowned throughout the House has not deserted him. However, it is only fair to say that the Chair has discretion to allow the vote to continue for slightly longer in particular circumstances. A very large number of Members were seeking to get through one Lobby so I extended the time. I think we will leave it there, and I am grateful to the hon. Gentleman for the manner in which he has raised his point of order.
New Clause 6
Rate of value added tax
‘(1) In section 2(1) of the Value Added Tax Act 1994 (rate of VAT), for “20 per cent” substitute “17.5 per cent”.
(2) In section 21(4) of that Act (restriction on value of imported goods), for “25 per cent” substitute “28.58 per cent”.
(3) The amendment made by subsections (1) and (2) has effect in relation to any supply made on or after 30 August 2011 and any acquisition or importation taking place on or after that date.’.—(Jonathan Edwards.)
Brought up, and read the First time.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 9—Value Added Tax (Change of Rate) Order 2011—
‘(1) The Chancellor of the Exchequer shall make an order under the powers conferred by sections 2(2) and 21(7) of the Value Added Tax Act 1994 that in section 2(1) of the Value Added Tax Act 1994 (rate of VAT), the rate of tax charged by virtue of that section shall be decreased by 12.5 per cent.
(2) In section 21(4) (value of imported goods) of the Value Added Tax Act 1994 for “25” substitute “28.58”.
(3) This Order shall be known as The Value Added Tax (Change of Rate) Order 2011 and shall come into force on 30 August 2011.’.
New clause 10—VAT—
‘The Treasury shall, within three months of the passing of this Act, report to Parliament its assessment of the impact of the rate of VAT on UK economic growth.’.
Jonathan Edwards
Diolch yn fawr, Mr Speaker. I had an hour-long speech prepared for this debate, but as it is going well past my bedtime, I will try to keep my remarks as short as possible.
I move this new clause with a sense of déjà vu, as only last July I closed a Finance Bill debate on an amendment tabled by my hon. Friend the Member for Dundee East (Stewart Hosie) that aimed to overturn the decision in the emergency Budget to raise VAT to 20% from January this year. Many of the arguments I made then remain relevant, but I will resist the temptation to air the same speech twice. Interestingly, that debate [Interruption]—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Too many conversations are going on in the Chamber, and I am sure that everybody wants to hear the hon. Gentleman.
Jonathan Edwards
Thank you very much, Mr Deputy Speaker.
Interestingly, when the House divided on that amendments the Labour party abstained. Since then, it seems that the official Opposition’s main critique of the UK Government’s economic policy has been based on the Treasury’s VAT policy. I hope that when we divide later the Labour Front-Bench team will set aside its usual partisan approach to votes in this place and will walk through the Lobby with us. As I see the shadow Minister, the right hon. Member for Delyn (Mr Hanson), grinning, I hope that that will be the case.
In the 2010 general election, Plaid Cymru campaigned against a VAT increase—unlike the Liberal Democrats, who had their tax bombshell poster, we meant it. That is why we tabled an amendment to prevent the increase last year and why we have done the same again this year. Last year, I said that there was both a social and economic reason why the increase in VAT was a bad idea, and I hope to concentrate on those reasons during my speech. We are against the ideological cuts and the rush to achieve a zero deficit within one parliamentary term with the net result of hundreds of thousands of lost jobs and unimaginable pain across our communities. We have consistently expressed our concern at the possibility of what the former Monetary Policy Committee member, David Blanchflower, called a “death spiral”, whereby cuts in expenditure become cuts in receipts.
A country’s economy is not like a family budget. Although it is good public relations, making misleading references of this sort is a very dangerous game for the UK Government to continue to play. In the case of the state there is a direct link between expenditure and income. Indeed, an overt reduction in expenditure can lead to a reduction in income and an increase in the deficit. Some would argue that we are in that situation already, even before the real cuts start to bite.
The state cannot cut its expenditure and assume that its income will remain constant. We are talking about intrinsic fine balances, which is why it always makes more sense for a state to change its expenditure levels modestly, rather than go cold turkey, as is favoured by the current Government. Four main elements drive economic growth: public sector expenditure; exports; private investment; and the key element as far as today’s debate on VAT is concerned, which is household spending.
VAT is, in essence, a tax on consumption. Economic growth in the Labour years was largely driven by consumer spending, resulting in a situation whereby personal debt levels in the UK have rocketed to an unsustainable 100% of gross value added, at £1.4 trillion.
Matthew Hancock (West Suffolk) (Con)
I am listening to the hon. Gentleman’s argument. Given that cutting VAT appears to be the only economic policy of the Labour party, is he not surprised that the party tabled its amendment so late that it was not selected and that the leader of the Labour party did not sign up to its amendment?
Jonathan Edwards
The hon. Gentleman makes an interesting point and I hope that the shadow Minister will be able to address it much better than I could.
Debt charities such as Citizens Advice report that the amount of debt problems dealt with by the service continues to increase, as the human cost of the recession feeds into the system. There is a long-term economic case for addressing this unsustainable situation by reducing the personal debt caused by consumption in the economy. My preference, however, would be to change the banking code and make it more difficult for lenders to seduce consumers into debts that they cannot service, rather than directly to reduce the purchasing powers of individuals via the use of VAT. I note that new clause 11 has been selected for debate and it covers associated matters.
The major issue faced by the economy is a lack of demand. Personal household debt, built up during the last decade, will be a severe economic headwind facing the UK economy for the foreseeable future. The increase in VAT exacerbates the situation, as we can see today from the revised growth figures for the first three months of 2011, which show that consumer spending is falling at its fastest rate since the second quarter of 2009, a decline of 0.6%. Real household disposable income is 2.7% lower than it was last year, the biggest annual fall since 1977.
Growth in consumer spending will be key if the UK Government are to meet the economic growth forecasts they have set in order to achieve their fiscal consolidation targets. The January VAT increase will stymie the consumer-led growth on which the Government depend.
In the past, my party has argued against VAT being used as an economic stimulus, which was the aim of the previous Labour Government when they cut VAT by 2.5% in 2008-09. In our view, there were more effective ways of stimulating the economy, not least investing in capital infrastructure and putting proper money in people’s pockets and in their pay packets rather than just hoping that they would spend the small change from VAT. With the increase in standard VAT from 17.5% to 20% and the stagnating economic recovery from the recession, the circumstances have changed. This is no longer about merely keeping the tills ringing, but about keeping families in their homes.
Christopher Pincher (Tamworth) (Con)
I have listened carefully and with interest to the hon. Gentleman’s new clause. Can he tell the House when he informed the shadow Cabinet that he was going to table this clause and whether he has had any advice on it from the shadow Chancellor?
Jonathan Edwards
The hon. Gentleman will be aware that I am in a different party from those on the shadow Front Bench and we do not normally negotiate on the clauses we table. I can only assume that my staff are more effective.
Richard Banks, the chief executive of UK Asset Resolution, said that the UK economy faced a tsunami of repossessions once interest rates rise. Increases will come sooner rather than later, partly as a result of the VAT increase. The increase in inflation has come about for a variety of international reasons, including the slow devaluation of the pound and increases in basic food and oil prices, but we have a 2.1% increase in prices across the board and I am sure that many businesses have racked up their prices by greater amounts. The increase in VAT is adding to the inflationary pressures on the economy and it therefore seems strange that the Treasury is using a fiscal measure that is playing its part in increasing inflation and will inevitably at some stage lead to a tightening of monetary policy, creating a further major headwind for the economy. It is the economic equivalent of shooting oneself in the foot.
John Hemming
I congratulate the hon. Gentleman on being more efficient than the official Opposition. However, he is proposing to reduce VAT in this financial year, which would mean an increase in the deficit and therefore an increase in the borrowing. Where would we borrow the money from and how much interest would we pay?
Jonathan Edwards
As the hon. Gentleman rightly says, I am proposing a temporary cut and I am endeavouring to convey that the priority of the Treasury should be securing sustained economic growth. In my view, the increase in VAT is hindering that. That is my key point.
Older people and pensioners who thought that they had enough to live comfortably for the rest of their lives now find themselves with very little interest but high inflationary costs in their everyday life. The Government’s attempts to save money by changing indexation from the retail prices index to the consumer prices index means that any benefits people receive are lower than the real world cost, rather than keeping up with it.
Families who are stretched by the costs of their daily living are dealing with wage freezes but finding that the cost of living is rising dramatically. Young families find it hard to save to buy a house, and others live in worry about the base rate increasing and being unable to cover their mortgage. The VAT change last year is reported to have taken £450 from each family with children across the UK.
Alun Cairns
I give the hon. Gentleman and his party credit for having had consistent policy on this matter, but has he had any indication about where the official Opposition stand on his amendment? There has been some indecision within the official Opposition, with policies being announced without the shadow Cabinet knowing about them.
Jonathan Edwards
We will have to wait and see. I just hope that my words are powerful enough to entice them to come through the Lobby with us, but I am afraid we will have to wait until a little later in the evening.
I was talking about one positive reason for a temporary VAT cut, but that would not be my main, or only, consideration. The purpose behind the cut would be to help the millions of ordinary people who would benefit from not having to pay those extra pennies and pounds every day to the Government, which they could then use to spend or save elsewhere as they saw fit. They could spend them on other goods and stimulate the economy in that way or they could keep them to pay off their debts. At the moment, many costs have been factored into the margins of businesses and many businesses have not yet raised their prices to meet this new inflation from both VAT and other spending increases. If we can keep prices down through the use of a temporary VAT cut and keep high street prices down with it, we will help families. On the other hand, if we can secure the margins for shops and companies, we will help business. I hope that Government Members will agree with that point. Either scenario would be a win-win situation for families and business. Negating a key element of inflationary pressure would also enable monetary policy to be kept loose for longer, which I would imagine is a key objective for the Treasury and the Monetary Policy Committee.
In closing last year’s debate on the effect that the VAT increase would have on the budgets of public sector organisations, the devolved Governments and charities, I asked the Government what analysis they had made of the impact that increasing VAT would have on the operating costs of those bodies, as one study had estimated that increasing VAT would cost charities alone an extra £150 million per annum. I would be grateful if the Minister addressed that specific point in winding up. We will be pushing for a division on new clause 9, as it would introduce a temporary reduction and is more likely to generate support across the House. New clause 6 would be our preferred solution in the long term, but I will not push it to a vote tonight.
Ian Swales
I rise to speak against new clause 6 and I note that we have had no costings from its proposer, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I would be interested to find out what he thinks the policy would cost. I can report that there was no dancing in the streets of Redcar when the VAT was reduced from 17.5% to 15%, and neither have we had riots in the streets about the rises from 15% to 17.5% and then to 20%.
Ian Lucas
There may not have been dancing in the streets, but after that reduction in VAT there was economic growth—something that has not happened as a result of the hon. Gentleman’s new-found friends’ policy, which he is now following, but which he refuted and rejected in order to get elected.
Ian Swales
I thank the hon. Gentleman for that intervention. I believe that the policy that his Government followed cost £12 billion; it would be difficult to spend £12 billion and not give some stimulus to the economy. I shall come to my view on that in a moment.
There was hysteria about the VAT rate among Labour Members, but if people in the street were not shouting about it, it is worth asking why. Our predecessors in this place knew that putting VAT on everything would be a very regressive measure, so they did not do that. They recognised that the basic costs of living should be VAT-free. In fact, when it was first introduced in 1979, some reporters described it as a luxury tax. Let us just think about all the things that are VAT-free: rent, mortgages, council tax, water costs, fares on buses, trains and planes, prescriptions, dental and optical care, newspapers, magazines, books, betting, bingo, the lottery, postage, TV licences, children’s clothes and shoes and, above all, food. Although gas and electricity were originally VAT-free, they now have a fixed VAT rate of 5%.
Ian Swales
Yes, absolutely. This Government have made no changes on any of those items, nor will the new clause lower the cost of those items. Of course, that list covers the vast bulk of the weekly bills of lower-income families and pensioners. In fact, I am sure that many pensioners do not pay any standard VAT in many a typical week.
Toby Perkins (Chesterfield) (Lab)
It is hard to know where to start, given the number of areas on which the hon. Gentleman is wrong, but let me just point out one. The increase in VAT affects the cost of absolutely everything. As it is on fuel, it adds to the cost of getting food to our properties. VAT impacts on the cost of every single thing. It is an indiscriminate tax that hits the pensioner, the unemployed, and the single mother just the same is it does the millionaire in his castle.
Ian Swales
I thank the hon. Gentleman for his intervention. I just read out a long list of items that are VAT-free; that was the point of what I was saying.
Clive Efford
Those items were VAT-free when the hon. Gentleman made his pledge at the general election. When he stood for election, he said that the poorest people in society were affected most by increases in VAT, and that it was therefore a regressive tax. He was right then, and that point is still right now. Why, then, is it correct and appropriate for the poorest people in our communities to pay for the deficit that was run up by the richest bankers in the country?
Ian Swales
The hon. Gentleman has strayed off the topic of the new clause, but on my party’s policy on VAT, obviously we are between a rock and a hard place, due to the economic state of the country. We had some very difficult choices to make, and a progressive expenditure tax is the right answer.
Sir Menzies Campbell (North East Fife) (LD)
My hon. Friend points out that difficult choices had to be made; indeed, they would undoubtedly have had to be made if a Labour Government had been returned. Does he recall that it was the policy of the last Labour Chancellor of the Exchequer to raise VAT to 19%?
Ian Swales
I thank my right hon. and learned Friend for reminding me of that fact. One of the things that have been absent from Labour Members is alternative policies to those being pursued by the Government.
The week after VAT was reduced by 2.5%, Cristiano Ronaldo, the premiership footballer, saved £4,000 on the cost of his new Ferrari. He will also have made massive savings on many of his other purchases during that period. I doubt whether any constituent of mine saved £4,000 as a result of VAT being reduced.
VAT as applied in this country is a progressive tax on spending. The more people spend, the more they pay, so the inconvenient truth is that cuts in VAT benefit people in proportion to how wealthy they are.
Nic Dakin (Scunthorpe) (Lab)
Does the hon. Gentleman think that when Save the Children says that
“the discount rate and exemptions doesn’t take into account the incomes of people buying goods and services—so they are not enough to make VAT fairer”,
Save the Children has got it wrong?
Ian Swales
I understand that charities have an issue with VAT, and I understand that Save the Children is right in its analysis. I am talking about the effect on personal spending.
The concept of a progressive spending tax is well understood across Europe. New clause 6 would take VAT in the UK back to a level where, among EU countries, only Cyprus and Luxembourg would have a lower rate. We have not heard from the Opposition parties how they plan to finance the cut in VAT.
Nia Griffith (Llanelli) (Lab)
Can the hon. Gentleman think of any other way in which people who can afford a Ferrari could contribute to the tax system?
Ian Swales
Well, £4,000 extra VAT is obviously one way that they are contributing as a result of this Government’s policies.
The hon. Member for Nottingham East (Chris Leslie) said in the previous debate that the important focus of the tax and benefit system is on need and alleviation of poverty. I believe that VAT increases, which impact on the wealthy more than on the poor, are a good way of doing that.
Kelvin Hopkins (Luton North) (Lab)
The hon. Gentleman keeps referring to VAT as a progressive tax. It is a flat tax, proportionate all the way up the income scale. Progressive taxes have increasing rates at higher incomes.
Ian Swales
Technically, VAT is a progressive spending tax because the average rate paid increases the more one spends. That is the definition of a progressive tax.
Kate Green
Does the hon. Gentleman accept that in relation to the proportion of a household income rather than its expenditure, VAT is a regressive tax? That is why we on the Opposition Benches are opposed to it.
Ian Swales
No, I do not accept that, because of the long list of items that are VAT-free. If everything had VAT applied, I would agree with the hon. Lady.
We have had no view about how the Opposition would fund the proposed cut in VAT. If they wished to borrow, which presumably is the answer, there are many options which are fairer to pensioners and the less well-off and more likely to encourage economic growth. Reducing VAT would be a flawed policy, just as it was last time, and I urge the House to reject new clause 6.
Mr David Hanson (Delyn) (Lab)
I shall speak to new clause 10, but before I do so, may I remind the hon. Member for Redcar (Ian Swales) that he fought an election on the Tory tax bombshell? I remember pictures of the Deputy Prime Minister, the right hon. Member for Sheffield, Hallam (Mr Clegg), standing in front of a poster that referred to a Tory tax bombshell—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I am sure the right hon. Gentleman would want to speak through the Chair.
Mr Hanson
I remember the hon. Member for Redcar standing with the Deputy Prime Minister in front of a poster that said “Tory tax bombshell”. I find it amazing to hear the hon. Gentleman speak this evening as an apologist for the Conservative Government’s imposition of VAT on people in Britain.
New clause 10 calls for a review of the assessment of the impact of VAT on UK economic growth over the next three months. As Members know, last Tuesday we voted on a Labour motion, which was opposed by the Liberal Democrats, to cut VAT on a temporary basis to 17.5% while economic growth is restored. The Conservative party voted against that motion, which would have ensured that we had the VAT cut proposed today.
Mr Gauke
The right hon. Gentleman will be aware that tax law is made in Finance Bills. Given that we are debating such a Bill, will he explain why the official Opposition have not brought forward their own proposals, in a form that could be selected, to cut VAT on a temporary basis, or have they abandoned that policy?
Mr Hanson
The policy is clear. If the Exchequer Secretary looks at new clause 10, he will see that we want an assessment of the impact of VAT that looks at how we should deal with the question of VAT across the whole UK. Let me start by saying that we have a deficit reduction plan, as he knows, and a plan to save resources to tackle the deficit, and we have a plan to ensure that we meet the needs of this country. He will know that we have consistently supported opposition to the Government’s VAT rise since they brought it forward.
Alun Cairns
I note that the right hon. Gentleman is speaking to new clause 10, which is very different from the proposal made to the House only a week ago. Is this yet another shift in official Opposition policy?
Mr Hanson
The hon. Gentleman cannot get away from the fact that he has imposed a VAT rise on businesses, families and hard-working people in Vale of Glamorgan and elsewhere in the UK, and he could have avoided that tax in different ways. On the same evening that the Conservative party has proposed tax relief on support for private medical insurance—[Interruption.] Well, I may be mistaken, but I believe that the hon. Members for Christchurch (Mr Chope) and for North East Hertfordshire (Oliver Heald) are Conservative Members of Parliament. The hon. Member for Vale of Glamorgan (Alun Cairns) has imposed a VAT rise on his constituents that is unfair, damaging business and will damage the UK economy.
Christopher Pincher
We all feel very sorry for the right hon. Gentleman, sitting there having to speak to new clause 10. Last week he proposed cutting VAT, but this week he simply wants to assess it. What will his policy be next week?
Mr Hanson
The policy is exactly the same week in, week out. We have opposed the VAT increase and the hon. Gentleman has voted for it. Last week we supported a temporary cut to help the economy and he opposed it. We are calling for a review of the impact of VAT on businesses and families, and tonight he will oppose it. This is an important debate and we have an opportunity tonight to assess the impact of VAT and look at the issues that affect constituents.
Harriett Baldwin (West Worcestershire) (Con)
New clause 16, which is on the amendment paper in the right hon. Gentleman’s name, has not been selected for debate. Will he explain why it was late and unable to be selected?
Mr Hanson
The hon. Lady will know that we have tabled several amendments to the Finance Bill. Mr Speaker chose not to select new clause 16, but he did select new clause 10, which calls for a review of the impact of VAT on things that are important to my hon. Friends’ constituents and hers: family incomes, businesses and jobs. If she looks at what the leader of her party said during the general election—[Interruption.] Perhaps the hon. Member for Chelsea and Fulham (Greg Hands) should listen to this, because during the general election the then Leader of the Opposition said during the Cameron Direct campaign in Exeter:
“You could try, as you say, to put it on VAT, sales tax, but again if you look at the effect of sales tax, it’s very regressive, it hits the poorest the hardest.”
I agree with the Prime Minister. Does the hon. Member for Chelsea and Fulham agree with his right hon. Friend?
John Hemming
On the point about hitting the poorest hardest, does the right hon. Gentleman not accept that the poorest people, those on means-tested benefits, receive an up-rating for the cost of living, which is in fact in excess of the extra VAT, and so benefit by 1% in excess of the extra cost of VAT?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Hemming, you have had one intervention. If the shadow Minister is not giving way, you should respect that.
Mr Hanson
When the Conservative party, supported by Liberals who at the general election opposed VAT increases, imposes VAT increases, it does so on businesses and on jobs and hardest on the poorest people in our society. I will now give way to the Minister so that he can explain that.
Mr Gauke
The right hon. Gentleman says that every Labour Member opposes the increase in VAT. Will he explain, first, why so few of them voted against it last year and, secondly, why the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), according to Peter Mandelson’s memoirs, was in favour of raising VAT to 19%?
Mr Hanson
I have great respect for my right hon. Friend the Member for Edinburgh South West (Mr Darling), and he is a very good friend of mine, but the issue tonight is that no Labour Government increased VAT above 17.5%. Indeed, the same Chancellor of the Exchequer, my right hon. Friend, in similar circumstances to those that we face now, when there is pressure on jobs, on businesses and on incomes, temporarily reduced VAT to help hard-working families to cope.
Andrew Gwynne
My right hon. Friend is absolutely right to draw the House’s attention to new clause 10. All it asks for is an impact assessment of the rate of VAT on UK economic growth. Is it not the case that, since the VAT rate was increased, consumer confidence has flatlined and retail sales have fallen?
Mr Hanson
It is very interesting that my hon. Friend makes that point about the VAT increase, because following that reckless gamble, inflation, which was 3.1% in September, was 4.5% in April and May, hitting savings, pensions, incomes, jobs and people’s livelihoods. He will know that confidence is important and that consumer confidence is now at minus 31%. Overall confidence was three points lower in April than in March, and lower than at any time since spring 2009.
Stephen Williams (Bristol West) (LD)
Confidence is a measure of sentiment and opinion, but spending power is a fact, so will the right hon. Gentleman explain how in January, February, March and April consumer expenditure went up?
Mr Hanson
The hon. Gentleman will know that the Office for Budget Responsibility and every independent forecaster have already shown that growth in the economy has flatlined over the past 12 months, following the impact of the Labour Government’s measures at the end of their time in office at the beginning of 2010. Since then, growth has flatlined and unemployment is projected to increase by 200,000 over the next year.
Stephen Williams
I thank the right hon. Gentleman for giving me a second chance to pose my question to him. The Library’s statistics show that, in the four months since VAT was increased, consumer expenditure in shops increased month after month, so how can he say that consumer confidence has declined? That is not about economic growth, which is how he answered my first question; it is about consumer confidence and spending. Will he deal with that point, please?
Mr Hanson
I suppose that is why the Federation of Master Builders only today—[Interruption.] Just for the record, on my uttering “Federation of Master Builders”, Conservative Members fell about with laughter, but the FMB’s members build houses and employ people in the construction industry. Only today—in a brief dated today—it stated:
“The situation for small construction firms has been made more perilous by the VAT increase at the start of the year,”
and that we risk
“11,400 construction job losses and 34,000 total potential job losses”
because of the VAT increase. The hon. Member for Bristol West (Stephen Williams) and his colleagues may recall that the OBR expects some 200,000 additional people to become unemployed this year. The lack of consumer confidence, the impact of VAT and the lack of consumer spending will be critical to those potential job losses in the community.
Kelvin Hopkins
The Tories have a track record on this. My right hon. Friend may recall that in 1979 they raised VAT from 8% to 15%, massively deflating the economy. Unemployment rose by 2 million and a fifth of manufacturing industry disappeared, and it was all down to that policy.
Alun Cairns
I seem to remember that Labour opposed all those increases in VAT, but not once did it reverse them. Is that true?
Ian Lucas
Government Members seem to view the British construction industry with some levity. In a debate this morning on the crisis in the construction industry, no Liberal Democrats turned up and one Tory Back Bencher turned up 20 minutes late. The increase in VAT has had a massive impact on the construction industry, as one will hear from any representative group and anyone involved in the sector. Government Members are in complete denial about the madness of the policy that they are pursuing and the firms that they are driving into bankruptcy.
Mr Hanson
If the hon. Gentleman will allow me, I should like to try to make some progress. I have been very generous in giving way so far.
Although unemployment has fallen by a couple of hundred thousand in the past few months, and that is very welcome, the OBR has said that the lack of consumer confidence, the impact of VAT increases and the long-term lack of economic growth will hit employment hard. Average UK unemployment at the moment is about 7.7%, but for those of us who represent seats in Wales, the east midlands, Scotland, the north-west, London, Yorkshire and Humberside, the west midlands and the north-east, it is well above that level. That is partly because of the impact of the VAT increase on retail sales and manufacturing in our communities. When the Government introduced the increase in January this year, the chairman of the Federation of Small Businesses, John Walker, said:
“A recent FSB survey shows that 70% of businesses are worried about the VAT increase, with almost half of respondents going to have to increase prices as a result and 45% believing it will decrease their turnover”.
The situation with regard to jobs is very important.
Diana Johnson (Kingston upon Hull North) (Lab)
In my constituency, 85 claimants of jobseeker’s allowance are chasing every vacancy. Would not a reduction in VAT assist those people?
Mr Hanson
My hon. Friend’s region of Yorkshire and Humberside has a 9.2% unemployment rate overall, compared with 5.7% in the south-east of England. For someone who is unemployed, the figure is 100% wherever they are. Nevertheless, there are regions of the United Kingdom where many people are chasing jobs, there is a lack of consumer confidence, traditional manufacturing and the retail industry are being hit by a lack of demand, and growth is not occurring, and the VAT increase has been damaging to all those things.
Ian Swales
I have listened carefully to the right hon. Gentleman’s speech and that of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). Neither has contained details of the cost of such a reduction in VAT. Once we know that figure, we will be able to give many ways in which our economy could be stimulated with such an amount of money. We are still not sure where it is coming from. Reducing the price of Italian sports cars and round-the-world cruises is only one option.
Mr Hanson
The hon. Gentleman shows his complete ignorance of the impact that value added tax has on ordinary working people and their families. The rise in VAT is costing ordinary working people in Redcar and every other constituency an additional £450 each this year. Low-paid people will bear the brunt of that. I look forward to going back to Redcar with hon. Friends from the north-east and explaining what the hon. Gentleman is doing about those concerns.
Malcolm Bruce (Gordon) (LD)
The Labour party is keen on cutting taxes and on opposing cuts in expenditure. Consequently, it would widen the deficit, which is already at record levels. The consequence of that would be an increase in interest rates. Does the right hon. Gentleman not think that the retail trade and consumers would be more concerned about an increase in interest rates than a rise in VAT?
Mr Hanson
At the beginning of my speech, I said that we had a deficit reduction plan at the last election. When I was a Minister at the Home Office in the previous Government, we forwarded plans for £1.5 billion-worth of expenditure cuts. The Conservative-led Government are cutting £2.5 billion in that Department, which is why we are losing police officers and police community support officers, and why I fear that crime will go up. There was a plan. There were certainly issues that we had to tackle, and we will tackle them. The way in which the Government propose to tackle the deficit goes too far, too fast and too deep. It is being done in an unfair way that hits the poorest people hardest, and it will damage the long-term business interests of the United Kingdom.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Does my right hon. Friend agree not only that the coalition Government’s policies will deflate the economy, but that they are missing their own deficit reduction targets? They are so far from meeting them that they will have to borrow £46 billion more than it forecast, although they have not yet corrected the figure.
Mr Hanson
My hon. Friend is absolutely correct. The Conservative-Liberal Government are missing their borrowing targets and will have to increase borrowing by £46 billion because unemployment will rise over the next year and because we have lower growth. There is lower growth, in part, because of a lack of confidence, which has happened, in part, because of the rise in value added tax. It is an unfair tax that hits the poorest people hardest.
Mr Hanson
Before I let the hon. Gentleman intervene, I ask him whether he will contradict the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), who said:
“I hope we don’t have a VAT increase because it is the most regressive form of tax, it penalises the poor at the same rate as the rich.”
Perhaps the hon. Gentleman will agree with his right hon. Friend.
John Hemming
I agree with my hon. Friend the Member for Redcar (Ian Swales), who is an accountant, that on the basis of expenditure deciles VAT is a mildly progressive tax. I ask the right hon. Gentleman, whose name appears above unselected new clause, 16, which would put VAT up to 20% once things improve, why the Labour party, having opposed VAT at 20%, now believes that it should be at 20% in the long term.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are not going to get bogged down in the VAT figures. We need to talk about the new clauses in the group. We are drifting into parts where we should not be.
Mr Hanson
I remind the hon. Member for Birmingham, Yardley (John Hemming) that new clause 10 calls for a review of the impact of value added tax on businesses and families over the next three months. Labour Members voted last week for a temporary reduction in VAT. Labour policy is to have a temporary reduction to tackle the real issues that we all face in our constituencies in relation to jobs, living standards and the future of our businesses.
Toby Perkins
I am listening to the debate with tremendous interest. There is a determined gaggle of Liberal Democrats here, arguing in the strongest possible terms that the manifesto that they have just fought an election on was totally wrong. Has my right hon. Friend ever known such a passionate rejection of a policy by Members who told us only a year earlier that we should be voting for it?
Mr Hanson
The most passionate rejection that I have seen in recent years was in Chesterfield, of my hon. Friend’s predecessor. He stood just next to where I am now before the election, when I was Police Minister, calling for more police and more expenditure. Yet now, the Liberal Democrats are saying that we should have had less expenditure.
I accept that I am going slightly wide of the issue of VAT, Mr Deputy Speaker, so I will return to it. VAT hits not just families or businesses but public services. The national health service in England will be hit by an extra £250 million a year because of the rise in VAT. A CT body scanner that cost £700,000 before the rise in VAT will now cost £17,500 more. A fully equipped ambulance that would have cost £225,000 will cost an extra £5,500. There is about £3 million a year of expenditure by each NHS trust on locum doctors, which will increase by £75,000. A Government who want to cut public spending are levying additional costs on the health service in England.
In my own region, in Wales, the actual cost of the increase in VAT to NHS budgets since 1 January is estimated at £13.2 million. For colleagues in Scotland, I add that Scottish health boards have been saddled with an extra £71 million of costs because of the VAT increase. At a time of decreasing public spending and squeezed budgets, we need to review the matter over the next few months and consider whether the VAT increase is causing even more difficulty.
Bill Esterson (Sefton Central) (Lab)
My right hon. Friend is explaining in incredible detail the danger that the VAT increase is causing. I wish to bring to his attention the effect that it is having on pensioners in my constituency, one of whom wrote to me to express his outrage. I cannot repeat what he said, because he swore in his e-mail, but he said that
“if these costs were not so damaging it could be laughable.”
Does my right hon. Friend agree?
Ian Lucas
There is another sector that is being hit extremely hard by the VAT increase—the third sector, the charitable sector. Government Members regularly profess to support hospices, but hospices in my constituency are having to raise more money to pay the extra costs that that lot have imposed upon them.
Mr Hanson
My hon. Friend is absolutely right. It is not just charities and the voluntary sector that are affected, but Welsh and other universities. In Wales alone, there will be £3.5 million extra VAT for universities to pay this year. Housing associations are affected, and the chief executives of the National Housing Federation and of the Homes and Communities Agency have said that the rise will cost an additional half a million a year in VAT.
Roger Williams (Brecon and Radnorshire) (LD)
Does the right hon. Gentleman agree that the problem for charities, which the hon. Member for Wrexham (Ian Lucas) mentioned, would exist whether VAT was 17.5% or 20%? The Labour party did not attend to the problem when it was in government.
Mr Hanson
Not just Labour MPs are concerned about this increase. The hon. Member for Colchester (Bob Russell), a Lib Dem MP, said in a debate last year that he wants to help charities that have been hit by this move.
We all accept that VAT is a difficult issue for charities, but it has been made more difficult by an extra 2.5% increase at a time of squeezed budgets, and when the Government are asking more of the charitable sector by cutting public sector spending generally. That issue of great concern was highlighted by my hon. Friend the Member for Wrexham (Ian Lucas).
Mr Hanson
I do. My hon. Friend spent many a happy hour in Committee discussing those very issues.
If the Government are not interested in master builders and the voluntary sector, and if they are not interested in the impact on public sector operations such as hospitals, schools and universities, perhaps they will listen to the British Retail Consortium, which states:
“Increasing the VAT rate to 20 per cent would cost 163,000 jobs over four years and reduce consumer spending by £3.6 billion over the same period.”
Only today, there were job losses at Jane Norman. There have been job losses at Habitat, Focus DIY, HMV, Mothercare, Comet and HomeForm.
Stephen Williams
I thought I heard the right hon. Gentleman say Borders, but Borders went bust under the previous Labour Government. Would he like to retract that?
Mr Hanson
I misheard my hon. Friend the Member for Vale of Clwyd (Chris Ruane). I thought he said Borders, but he said Thorntons, which has today lost 10,000 jobs. It may be of some interest to the hon. Member for Bristol West (Stephen Williams) that those jobs have been hit, as has the confidence in the retail sector, by VAT increases.
My hon. Friend the Member for Wrexham mentioned charities. Earlier this year, Sue Ryder, the charity, stated:
“Today's rise in VAT to 20% will cut the amount of social care that charities can deliver”.
That has an impact.
What is the impact on fuel of the VAT rise? People with a typical family car will pay £1.35 more to fill up their tank, as will people moving goods around the country. The VAT increase has hit the retail sector and we see job losses across the board, but there is also concern from the tourism sector. Just recently, on 6 June, the British Hospitality Association stated that the high level of UK VAT is a deterrent to tourism growth. Once again, those are the impacts on growth, jobs and public services.
Mark Durkan (Foyle) (SDLP)
My right hon. Friend refers to the impact of the higher rate of VAT on the tourism sector. Of course, in Ireland, from next week for 18 months, VAT in the tourism sector will be reduced to 9%. It has already been reduced to 7% in Germany and 5.5% in France. Is that an argument for taking a more sector-targeted approach to VAT reductions? Will the assessment proposed in new clause 10 allow for consideration to be given to a more articulate way of applying VAT, rather than having general, standard reductions across the board on all products, regardless of whether they are imports or the products of home businesses?
Mr Hanson
If my hon. Friend looks at new clause 10, he will see that it calls for a general review of VAT and the impact on the economy. Out of that review could come, for example, a temporary reduction to 17.5%, as was called for by my right hon. Friend the Member for Morley and Outwood (Ed Balls), or there could be changes for certain sectors. The review could look at a range of issues to assess the impact of the increase on growth, jobs and living standards.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
Given the arguments that the right hon. Gentleman is making, how does he intend to vote on the new clause moved by the hon. Member for Caernarfon?
Mr Hanson
The hon. Member for Caernarfon has not moved a new clause—the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) moved it. However, we will not be supporting it because it does not give an end date for the potential VAT reduction. It would be a permanent reduction. We want a review of the impact of VAT on business, jobs and living standards.
Mr Gauke
I am trying to understand the Labour party’s position. If it believed in the policy announced by the shadow Chancellor a week or so ago, it would want first to reduce VAT, and then to make a decision on when to increase it. I do not understand, therefore, why it is not supporting the new clause, which takes that first step—it does what the Labour party want to do.
Mr Hanson
I will try again, slowly. The new clause calls for a permanent cut in VAT to 17.5%. It does not do what my right hon. Friend the Member for Morley and Outwood wishes to do—what we voted on last Tuesday—which is to implement a temporary cut in VAT until we secure strong growth.
Mr Hanson
In a moment. The new clause does not do what we said we would do, which is implement a temporary reduction. We have tried, through new clause 10, to ensure that we have a review of all the issues I have mentioned—of tourism, business, jobs and families—so that we can come to conclusions about sectoral reductions and a temporary reduction to help employment.
Jonathan Edwards
May I clarify my position? I have a note from the House of Commons Library to me:
“NC9 finds an alternative way of doing the same thing as NC6 (i.e. decreasing the rate of VAT), only on an exclusively temporary basis. It does this by means of the Economic Regulator, which is a mechanism that allows for changing the rate of excise duties like VAT on a temporary basis without having to use primary legislation.”
Surely, it cannot be clearer than that.
Christopher Pincher
The right hon. Gentleman says that new clause 10 will make the VAT cut permanent. Is he saying, therefore, that there will never be another Budget before this House? Not only does he seem to have no policy, he does not understand parliamentary procedure.
Mr Hanson
With due respect to the hon. Gentleman, you and I, Mr Deputy Speaker, have been here 19 years and three months. I have been here long enough to understand a few matters of parliamentary procedure. The hon. Gentleman needs to go back to Tamworth and explain to his constituents why, by increasing VAT, he is adding £450 to people’s annual VAT bill; why he is hitting retail sales and retail shops in his constituency; why he is impacting on businesses in his constituency; and why the VAT increase in his constituency will put up the cost of the health service, education, housing and jobs. He needs to reflect on those issues as part of this debate.
In conclusion, we have today an opportunity to vote for new clause 10, which would give us a chance to consider the impact of VAT, to come to conclusions on the points I have made today and to ensure that we can properly assess the best way to implement our VAT reduction so that it helps create jobs, build growth and not stifle our economy. This Conservative-Liberal Democrat Government have not only broken their promises on VAT to the electorate, but put at risk growth, jobs and family living standards. Most abominably of all, however, with this rise they have hit the poorest hardest. We have consistently opposed the rise to 20%, and we want it reviewed. We ask hon. Members to vote for new clause 10 tonight, and I look forward to my right hon. and hon. Friends joining me in the Lobby at the end of the debate.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I want to outline my support for new clause 10, and for reviewing the impact of VAT within three months of passing the Bill. The increase in VAT is having a real impact on the spending power of people in my constituency, many of whom are really feeling the pinch of inflation, pay freezes, and rising energy and food bills, and for thousands of people across the north-east, this all comes at a time when many of them are facing redundancy.
The previous Labour Government’s decision to reduce VAT temporarily to 15% was judged by the independent Institute for Fiscal Studies to be an effective stimulus, putting additional money into people’s pockets, and helping to support an increase in consumer confidence, a return to economic growth and a fall in unemployment, all of which are needed now. Of course we must reduce the deficit, but I do not accept that the right way to do so is on such a scale and at such an intensity that ideological deficit reduction is delivered at the expense of economic growth and job creation. Indeed, there is widespread and well founded concern that this will only make it harder to get the deficit down in the long term. Finding ways to kick-start economic growth must therefore be a priority. It is therefore vital that the impact of VAT be kept under review.
Finding a means of kick-starting growth is vital, particularly for regions such as the north-east, where I fear we risk a lost generation of young people if new economic and employment opportunities are not created, and created quickly. A key concern in my region remains the level of youth unemployment, with around 19% of 16 to 24-year-olds in the north-east not in education, employment or training, compared with the national rate of around 15%. Of particular concern is the fact that over the last 12 months the north-east has seen a 10% increase in the number of 18 to 24-year-olds claiming jobseeker’s allowance. Only Northern Ireland, Scotland and London have also experienced such rises over the same period, and then only to a maximum of 4%. With measures such as the previous Government’s future jobs fund axed by the coalition and nothing lined up to take its place specifically to support the long-term unemployed into work, we need to consider as many steps as possible to kick-start economic growth and increase employment opportunities for young people. Keeping VAT under review is vital to ensuring that.
The coalition’s decision to increase VAT to 20% in January has hit many businesses hard, particularly as that VAT hike helped to push fuel prices up to record levels. Let me take just one example from my constituency. The owner of a small electrical services company in Gosforth has made clear to me the impact of high fuel prices on his firm, which he says have hit the small business sector hardest. From its base in Newcastle upon Tyne North, his company carries out most aspects of domestic electrical work and small commercial work, travelling across the Tyneside, Northumberland and Durham areas.
Catherine McKinnell
I will give way in one moment.
The owner of the company has an expanding network of clients from the private and voluntary sectors, and he would therefore like to be able to take on his first employees within the next 12 months. However, he has said that the cost of fuel and running a second van will be a significant influence on whether he decides to take on new staff, which he would like to do, thereby doing his bit to help the economy recover. That is just one example of a local company in my constituency really feeling the impact of high fuel prices, which are hugely affected by the rise in VAT, but there are others. They include the small driving school in Lemington that saw fuel costs rise by £20 a week over the last year, the self-employed businessman from Fawdon whose work requires him to travel around 10,000 miles a year, and the young man from Gosforth who set up a Facebook page on the issue and has 475,000 supporters. All those companies are affected by the rise in VAT. The Government must make a commitment to keep it under review, to ensure that all steps are taken to help businesses survive and thrive through these difficult times, and to support those that wish to expand and create new employment opportunities to be able to do so.
Chris Ruane
You’re doing their dirty work! Look! There’s three times as many of them—
Mr Deputy Speaker (Mr Nigel Evans)
Order. We cannot have any shouting. We want to listen to Catherine McKinnell.
Catherine McKinnell
Thank you, Mr Deputy Speaker. I will give way to one of my friends from the north-east, who I am sure has something relevant to say.
Ian Swales
As a fellow north-east Member, I congratulate the hon. Lady on her speech. I believe that the previous VAT cut cost £12 billion. She makes a persuasive case for the need to stimulate the economy. Does she think that borrowing £12 billion and then cutting VAT is the best option from all the choices available?
Catherine McKinnell
The fact is that the current rate of 20% is hurting, and it is not working. Growth has stalled. We need to return to growth, particularly in the north-east, and I would have thought that the hon. Gentleman would support such a move.
A sector that has faced particular difficulties over recent months and years is the construction industry. It is thought that one in five of the firms going into administration are from that sector, and research recently undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is an alarming figure. It is really worrying, when we consider that construction makes up around 10% of the UK economy, and that some 80% of the materials used by the industry are procured from within the UK, creating an economic stimulus and jobs in other sectors.
The construction industry is one clear example of how public spending can support private sector growth and jobs. Indeed, it is estimated that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2. The maths is simple. It is widely accepted that coalition decisions to cancel projects such as Labour’s Building Schools for the Future programme, to cut the housing and regeneration budget by 70%, to end the HomeBuy Direct scheme, and to scrap regional spatial strategies, are having, and will continue to have, a seriously detrimental effect on the construction sector.
The coalition’s VAT rise is also having a considerable adverse impact on many small and medium-sized construction firms, particularly when combined with the draconian cuts that the Government are imposing on public spending. Indeed, at the time of the VAT rise the Federation of Master Builders—an organisation to be taken very seriously—expressed its concern that 11,400 jobs would be lost in the construction sector alone over the next decade as a direct result of the coalition’s decision to hike VAT to 20%. The impact of VAT must be kept under review.
Household income in the north-east is the lowest in England, and a temporary reduction in VAT would have a positive impact on the spending power of people living in my city and region, helping to support local businesses, local economic growth and local jobs. Such a reduction could not come at a more apposite time, given that my region is facing the policies of what Kevin Rowan, the regional secretary of the Northern TUC, has recently described as a “profoundly anti-Northern Government”.
That is a description I would agree with, in the light of the impact of some of the coalition’s policies highlighted by Mr Rowan. They include the abolition of One North East and the planned sale of its assets to finance national Government administration—something that is not happening in London. Furthermore, job creation is simply not keeping up with job losses, with up to 19 jobseekers applying for every vacancy in some areas of the region. The north has the highest unemployment rates in the UK, and it is seeing cuts in disability benefits that will have a disproportionate impact on former industrial heartlands, as well as cuts in tax credits, the abolition of area-based grants and local government cuts significantly higher than those in many councils in the south-east. It is for those reasons that I support the proposal for the Government to undertake an assessment of the impact on UK growth of the rise in the rate of VAT.
John Hemming
Well, here we are: the Opposition have said that they really hate the idea of having VAT at 20%, and that that is a dreadful proposal. What are they proposing instead? They are proposing a review.
Thomas Docherty
Can the hon. Gentleman remind me whether he agreed with his party leader when he said, during the election campaign, that a VAT rise would hit families the hardest?
John Hemming
My right hon. Friend the Member for Twickenham (Vince Cable) was quite clear when he said that the party did not rule out an increase in VAT, when he was asked that specific question—[Hon. Members: “Oh!”] The then Chancellor supported an increase in VAT to 19%, and the present Opposition now support a long-term VAT rate of 20%. The reason why they will not support new clause 9 is that the change it proposes is not temporary but permanent. Labour Members cannot criticise us for accepting a long-term VAT rate of 20% if they want the same long-term rate themselves. There is an argument about whether the stimulus that would, admittedly, result from a temporary cut in VAT would be in the long-term interests of the country, but it is a complex one. However, it is clear that we need to keep the deficit under control.
We have heard criticism from the Opposition today that the Office for Budget Responsibility has indicated that we might be borrowing more money than was originally forecast. The Opposition criticise us for the fact that the OBR forecasts higher borrowing. The Opposition’s solution, however, is even higher borrowing. They identify a problem and then put forward a policy proposal to make that problem worse. It is an absurd situation.
Ian Lucas
The hon. Gentleman ought to have listened to the debate earlier, particularly to the very good speech by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), who explained that for every pound that is spent in the construction sector, £3 is injected into the economy. That would lead to three times as much being put into the economy for every pound spent in the construction sector. That means we should encourage that sector, not decimate it as the Conservatives are doing as we speak.
John Hemming
We should remember that VAT does not apply. I declare an interest, as a VAT-registered person. People who understand how VAT works will know that people who charge VAT can reclaim it on their inputs. We have to look at the details. On the hon. Gentleman’s further point, yes, there is an economic multiplier that has an effect. As demand is increased, there is a multiplier effect. At the same time, we have to look at the long-term effect on the deficit, the debt and the interest paid. As interest rates go up, wider damage is done to the whole of society.
It is true that in an ideal world we would not have higher rates of VAT. In an ideal world everything would be nice, and there would no problems and no difficult decisions to take. We have to get a balance. It is very pleasing to see that the official Opposition now accept that VAT should be 20% in the long term.
Clive Efford
There used to be a time when the hon. Gentleman was fond of quoting the Institute for Fiscal Studies, which called the VAT cut “an effective stimulus”. As for the construction industry, does he not recognise the figures showing a 19% increase in the number of business failures in the construction industry in the first three months of this year—since the increase was imposed?
John Hemming
There is no VAT on new build. The hon. Gentleman’s party believes that the VAT rate should be 20% in the long term; I thank him for agreeing with us about that.
The Government, essentially, have to bring the deficit under control to keep interest rates under control—and that is what we are doing.
Mr Deputy Speaker (Mr Nigel Evans)
Is the hon. Member giving way, or has he finished?
Nia Griffith
I am delighted to be given this opportunity to speak, perhaps a little sooner than anticipated. I shall speak to new clause 10 and I specifically remind Members that it is about having an assessment of the impact of the VAT rate on UK economic growth. That is the area on which I shall focus; it is what we need to talk about if we want to get this country back on its feet.
We are not asking for a knee-jerk reaction. We recognise that there is a complex relationship between the various different fiscal measures that can be taken—between VAT and all the other types of fiscal measures. We also recognise the importance of a changing environment, as events elsewhere might affect our ability to export, for example, and economic events in different countries will impact on our economy in all sorts of ways.
Let us look at what has happened recently. We have massive inflation and businesses are having real difficulty. They are being badly squeezed. They are experiencing rising costs, rising costs and more rising costs, and they are having to make difficult judgments about how many of those costs they can pass on to consumers before they begin losing sales. Their difficulties have been compounded by the fact that they have had to contend with a higher VAT rate since January. They are making calculations daily. The costs of their raw materials are changing constantly. They must keep asking themselves, “What must we do in order to keep afloat?”, but the problem is, of course, that many of them are going under.
Nia Griffith
I will if the hon. Gentleman is going to ask a sensible question.
Gordon Birtwistle
Does the hon. Lady agree that businesses—[Interruption.] I was asking the hon. Lady, not the animal in front of her. Does the hon. Lady agree that businesses can reclaim the VAT that they are charged?
Nia Griffith
I fully understand that businesses reclaim the VAT, but the consumer purchases the end product for a composite price that reflects everything that has been done to produce the thing in the first place, as well as the transport costs—that was explained by my hon. Friend the Member for Chesterfield (Toby Perkins)—and, of course, the VAT. The customer pays the VAT in the end, but the business has already been affected by the rise in costs that it is incurring, which do not include VAT. The price of raw materials, particularly fuel, has risen, and every business is being squeezed to the limit. Every penny counts, and businesses are asking themselves, “At what point can I put the price up? At what point does the purchaser not buy?”
Many of my hon. Friends have mentioned the impact on hard-pressed families, and they have indeed been hit very hard. The hon. Member for Redcar (Ian Swales) recited a long list of goods that do not attract VAT. Was he suggesting that every middle-income and lower-income family should exist solely on food and children’s clothing? Has he not thought of the numerous household items—
Stephen Williams
The hon. Lady’s Front-Bench colleague, the right hon. Member for Delyn (Mr Hanson), said that there would be a £450 increase per “hard-pressed family”, if I may use her phrase. That means that families would have to spend £18,000 a year on VATable items—not VAT-exempt or zero-rateable items. Can the hon. Lady give us an example of the sort of items on which those hard-pressed families would spend £18,000 a year?
Nia Griffith
When we arrived at the £450 figure, we were taking account of the total impact of all the tax changes introduced in the emergency Budget last June. However, if Members look around their bathrooms and kitchens, they will see numerous items that do not last for ever and need to be repaired. For example, adults will need to replace some items of clothing.
Catherine McKinnell
Does my hon. Friend share my confusion about the fact that during the election the Liberal Democrats campaigned against the Tory VAT bombshell, yet tonight they seem to be the only Members present who are defending the Tories’ increase in VAT?
Nia Griffith
I find that extraordinary, and I also find it extraordinary that the Tories seem to have so little comprehension of the impact of the increase. As I have said, many household items need to be replaced.
Andrew Gwynne
Is not the real purpose of new clause 10 to enable us to assess whether the impact of the VAT increase is indeed returning growth to the economy, and does not the evidence so far suggest that the economy is going into reverse as a result of the Government’s measures?
Mr Hanson
My hon. Friend, like myself, is a Welsh Member of Parliament. May I draw her attention to a press release last year entitled “Welsh Lib Dem MPs want VAT rise impact to be assessed”. The hon. Member for Brecon and Radnorshire (Roger Williams) said:
“we are worried about the proposed increase in VAT. … We need to carry out this work so that we can lessen the impact of any increase in VAT.”
The hon. Gentleman said that they were
“particularly concerned about the impact on the voluntary sector”
and on hard-pressed rural areas.
Nia Griffith
That is an extraordinary statement, especially as I can remember the most surreal experience of being in a studio in Cardiff and the hon. Member for Brecon and Radnorshire (Roger Williams) popping up on a screen from some distant place to defend the increase in VAT. So what is the position of the Liberal Democrats? I really do not know. One minute they say one thing about an assessment, the next minute they pop up on a screen defending to the hilt every statement in the Budget last June. I do not know what the position of Welsh Liberal Democrat Members is.
Albert Owen (Ynys Môn) (Lab)
My hon. Friend is making a strong point about small businesses being unable to absorb the VAT increase. She asked about the position of the Liberal Democrats. They are on the wrong side of the argument and they are here tonight to defend the Tory rise in VAT. It is an absolute disgrace, and Welsh businesses and businesses throughout the UK will punish them at the next election.
Nia Griffith
My hon. Friend is right.
Let us move on from the small items such as mobile phone bills and the VAT on them—it might be someone’s only phone if they do not have a landline. Let us move to the other end of the scale and what are called the big ticket purchases such as replacing a car or refurbishing a kitchen. They are things that people do not have to do now, but they may choose to do; perhaps they intend to do them in the next few years. The Labour Government introduced the car scrappage scheme, which spurred on people who were thinking of replacing their car in the next couple of years to bring that purchase forward. It meant that money that was available, which some people had put by in savings, was fed into the economy and made a difference.
Mrs Madeleine Moon (Bridgend) (Lab)
Does my hon. Friend remember that the car scrappage scheme was particularly effective in Wales, where the Ford factory found that the majority of cars bought under the scheme were Fords. So jobs were kept in Wales? The Welsh Liberal Democrats want to take those jobs away from Welsh workers.
Nia Griffith
The whole point of an active Government who take an interest in re-igniting the economy was absolutely that—to create jobs and ensure wealth creation so that we would be in a better position to pay back quickly—
Ian Swales
Can the hon. Lady confirm that she is now proposing a cut in VAT and car scrappage schemes and other measures to stimulate the economy? Or is she offering a choice?
Nia Griffith
I am asking about the Government’s growth strategies. I am trying to explain by giving some examples of how Governments can stimulate the economy and make a difference. They can choose to kick-start the economy or to allow it to go spiralling down and unemployment to increase. These are active choices that a Government can make. We are asking in our new clause for a proper assessment of the effect of the increase in VAT on what is happening now in the economy.
Andrew Gwynne
My hon. Friend has been generous in giving way. She talks about the Government’s growth strategy. It appears to me that they have neither a coherent strategy nor, apparently, growth.
Nia Griffith
That is precisely the problem. In spring 2010 we were beginning to come out of the recession, the economy was growing, inflation was low, and unemployment was coming down. Under Labour’s plan, the economy was set to grow strongly. In fact, as more people were getting back into work, borrowing ended up £21 billion lower last year than had been forecast.
Bill Esterson
I am sure that my hon. Friend is aware that the Treasury is set to borrow £46 billion more than it planned last autumn as a result of slower growth. I am sure that she agrees that without growth the deficit will continue to rise. Surely that is why we are right in the new clause to call for an investigation of the impact of the measures on growth. Clearly, the Liberal Democrats do not understand the impact of the rise in VAT.
Nia Griffith
That is precisely the point. There is a huge contrast between an economy that was growing and doing better than the forecasts had predicted, and a situation where there has been no growth since last October. As my hon. Friend pointed out, the Office for Budget Responsibility now predicts that the Government will have to borrow £46 billion more over the coming years than was forecast last autumn after the spending review. Worse, they are failing to get Britain back to work, which is probably pushing up the benefits bill this Parliament by more than £12 billion. That not only makes the deficit worse, but makes the lives of the people involved infinitely more miserable.
Clive Efford
My hon. Friend cannot have failed to notice that only one Back-Bench Conservative Member is present—
Clive Efford
Yes, he is a PPS. By contrast, nearly a dozen Liberal Democrat Members have been present. That is nearly as many Liberal MPs as positions their party has taken on VAT. I have here positions set out by not only the hon. Member for Brecon and Radnorshire (Roger Williams), but the hon. Member for North Cornwall (Dan Rogerson), who called for a review, and a Liberal Democrat activist, who called for a cut in VAT on tourism in that part of the world. Just how many positions do the Liberal Democrats have on VAT?
Nia Griffith
The whole point is that our new clause calls for a proper assessment to be made to see what the actual effect of the current VAT rate is on the economy, given the lack of growth and the lack of a plan for growth. The important thing is to carry out that impact assessment and work out the best growth strategy, because nothing is coming from this Government in order to put things right.
What has been happening in the news recently? Everybody must be aware of the crisis we are facing on our high streets and in store after store. This is happening to TJ Hughes and its 57 stores, to Jane Norman’s 90 stores and 100-plus concessions, to Habitat, and to HomeForm, which covers Möben Kitchens and Dolphin Bathrooms. Some 5,300 jobs are in the balance, and now we hear about what is happening to Thorntons and Comet. Judith McKenna, chair of the CBI’s distributive trades panel, has commented:
“After a year of growth, high street sales volumes fizzled out in June….Shoppers are budgeting hard and cutting back on their discretionary spending, such as on clothes and big ticket household goods.”
She is the CBI’s chief financial officer.
Alison McGovern (Wirral South) (Lab)
I thank my hon. Friend for mentioning TJ Hughes in her speech, because all this will have a great impact on its home in Merseyside. Does she agree that it demonstrates a problem with the Government’s approach to VAT, which is that the inflationary expectations they have built into the economy are damaging not only the people who will lose their jobs at TJ Hughes, but high streets throughout Merseyside and up and down our country?
Nia Griffith
I wish to correct what I said, because Judith McKenna is chair of the CBI distributive trades panel and ASDA’s chief financial officer.
The point is that the message is being given clearly from all our retail people. The CBI’s retail sales index fell to its weakest level in a year. Why was that? It was because anxious shoppers are cutting back on purchases of clothing, groceries and big-ticket items, as everybody is being squeezed.
Mr Robinson
Does my hon. Friend agree that the gist of what she is a saying in a general and good contribution is that the Government have managed to combine a deflationary economic policy with inflation at double the rate they forecast? Such a policy does not stand up. Is not the core of this their overall deflationary policy, of which an increase in VAT was the central part?
Nia Griffith
Absolutely. That is now having a devastating impact on the economy, on businesses and on individual families. In our new clause, we are asking for a proper impact assessment of the effect of the VAT rate on growth in the UK. Let us see whether the Government can come up with something more constructive and find a way to drive the economy forward.
Jonathan Edwards
I thank my parliamentary neighbour for giving way. Is she saying that the evidence is already there that the VAT rise is hurting the economy, as I believe it is, or that we need a review to see whether it is doing so?
Nia Griffith
I am saying that any fiscal measure is interdependent on other fiscal measures and the Government need to decide how their growth strategy will work and how the VAT rate will fit into that, in addition to any other fiscal measures they wish to take. I am not promoting any one particular measure, but there needs to be some form of stimulus because at the moment we are spiralling downwards and seeing increases in the debt and the deficit, in the benefits bill and in the number of people who are out of work. We would like to see increases in the number of jobs and in the number of businesses that are picking up and we would like to see the deficit come down so that we can get Britain back to work and get people back into jobs. The problem at the moment is that the policies with which we are being presented seem to do precisely the opposite, as was ably explained by my hon. Friend the Member for Coventry North West (Mr Robinson) a moment ago.
We need a proper assessment and we need proper decisions to be made on the basis of it to help our economy to grow.
Roberta Blackman-Woods
I want to support new clause 10. It is very important that the assessment of VAT considers the effects of the rise on both individuals and businesses. We need to consider both categories to understand fully the impact that the rise could have on economic growth. I know from sitting through the last debate that the Conservative and Liberal Democrat parties have no understanding and no idea of the pressures that are being placed on family budgets. This debate seems to be showing that they do not have any understanding of the stresses and strains being put on businesses in constituencies such as mine. In fact, as my hon. Friends have said, the Government seem to have very little understanding of what is happening to businesses across the north of this country.
I know from my constituency postbag and I hear from my local citizens advice bureau that more and more people are looking for advice not only because they are concerned that they might lose their jobs, which is affecting a large number of people in my constituency and the neighbouring areas, but because those who are in work are experiencing increasing rises in food, energy and petrol prices while facing a cut in wages in order to keep themselves in employment. If we add those factors together, we can see that consumers are concerned about the future, which is affecting what they purchase on the high street. That has a huge impact on all our constituencies and we have heard tonight of many examples of businesses in the retail sector that are falling daily.
Mr Kevan Jones
Does my hon. Friend agree that a vivid example of that can be seen when one walks through the centre of the fine city of Durham? An increasing number of shops are closed with no trade taking place at all.
Roberta Blackman-Woods
I am grateful to my hon. Friend for making that point and I shall come to the city of Durham in just a moment or two.
The situation that I am describing, with reducing consumer confidence and increasing stresses on business, would definitely be helped by a reduction in VAT, even if it were temporary.
Hywel Williams (Arfon) (PC)
May I congratulate the hon. Lady on making such a fine and powerful case in favour of the new clauses tabled by my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards)? Given the case that she is making, why do we need yet another review?
Roberta Blackman-Woods
That is an interesting point, but as my right hon. Friend the Member for Delyn (Mr Hanson) said earlier from the Front Bench, we would like to see a time scale and an end point.
As I was saying, we need a full assessment about whether a reduction in VAT would really help to turn around areas such as the one I represent. I also want to know exactly what the impact is on growth, and I will come to that in a moment or two. I want to take up the point that my hon. Friend the Member for North Durham (Mr Jones) made point about retail, but my argument is that almost every single sector in Durham is being affected by the rise in VAT that was brought in by the parties in government. We are a constituency that has a large public sector not because it is crowding out the private sector, which is the mantra we always hear from the Government parties, but because it is an administrative centre and so has a large number of public sector jobs. However, the public sector is being hit by public expenditure cuts as well as by the rise in VAT.
Bill Esterson
The situation that my hon. Friend describes is also typical of my constituency, where we have a very high level of people working in the public sector who are threatened with job losses from the parties in government. We also have a large number of small businesses that depend on those public sector workers for their custom. Those businesss are finding, as other Members have mentioned, that the VAT rise makes it very difficult for them to keep prices at the same level, and that has made it very difficult for them to trade effectively.
Roberta Blackman-Woods
My hon. Friend makes an excellent point, which clearly demonstrates a major problem in the economic strategy of the parties in government, which show no understanding of the links between spending in the public sector and private sector businesses. That is a very great shame and is to the detriment of business in many areas.
My hon. Friend the Member for North Durham has talked about the great impact on retail businesses in my constituency, and I am concerned about the ability of some businesses in the city centre to keep going. I have been talking to the head of one of the construction businesses in my constituency, which has been a very vibrant business in the past, and he told me that it is not only flatlining but might be about to go bust. That is extraordinary because it is a major company, but jobs in the construction sector are drying up. Other hon. Members have made this important point, which shows the lack of growth strategy from the parties in government. I would like there to be some consideration about whether a reduction in VAT could help to push down inflation and could lead to a boost in job creation, particularly in areas such as mine.
Mrs Moon
Does my hon. Friend accept that part of the problem is that some of the smaller construction companies do not feel able to take on a young apprentice and help them to train, thereby giving them that initial start in business that might help them to see a future? Instead, those people cannot find work and feel that there is no hope, and that desperation is placing a huge depression over many of our communities.
Roberta Blackman-Woods
My hon. Friend makes an excellent point. As a result of the insecurity that a number of businesses face, they are more reluctant than they were to give young people—and older workers—apprenticeships.
Roger Williams
The hon. Lady makes an important point about the construction industry, but does she agree that some of the problems in that industry were due to the previous Government’s abolition of the industrial buildings tax allowance, and indeed the agricultural buildings tax allowance, which led to a contraction in the construction industry?
Roberta Blackman-Woods
The previous Government’s investment in the economy led in my constituency to a huge growth in construction jobs for those working on not only fine public-sector projects such as our new hospital and our new school, but new housing. That has just disappeared. The really serious point that I am making is that there is no growth strategy from the Government parties to ensure growth in construction jobs in my constituency—in fact, quite the opposite. We know from national figures that there is an effect on the construction sector right across the country.
Ian Paisley
Does the hon. Lady agree that there are a number of cash-flow issues that affect the entire business sector, and particularly the construction industry? There is a lack of cash flow from banks to business; from business to business, which means that debts are not paid; and of course from business to consumer, and from consumer back to business. Does she agree that the measures that are being proposed are among a cocktail of measures that need to be introduced if we are to start to address the nation’s economic crisis?
Roberta Blackman-Woods
The hon. Gentleman makes an interesting point. He describes very well the downward spiral that businesses can get into unless there is a clear strategy in place to counter the deflationary measures in the economy, and we are simply not seeing that from the Government parties.
Mr Robinson
Does my hon. Friend agree, having listened to the minor carps of Liberal Members, that the essential difference between our policy and theirs seems to be on the issue of aggregate demand in the economy? All that the Government have done is reduce it by cancelling overnight Building Schools for the Future. That has halved the demand for construction in my constituency, and denied two crucial schools new buildings that they desperately need.
Roberta Blackman-Woods
My hon. Friend makes an excellent point, and reduced demand, not just from sectors but from individuals, appears to be very damaging for communities such as mine.
I want to talk about tourism in my constituency. Tourism was mentioned earlier; we know that VAT rises have really had an impact on the tourism industry, and cities such as mine are suffering because of that. People do not have as much disposable income as they did, so they are not spending as much on leisure, and that has an impact on tourism.
Mr Kevan Jones
It took the Minister with responsibility for tourism a year to visit the north-east; he finally turned up in the north-east last week. Is my hon. Friend as concerned as I am not just about the effect of VAT on tourism in Durham, but about the fact that the Minister had no answers whatever when it came to the issue of replacing One North East’s marketing campaign to promote tourism? He basically said to local businesses that they had to get on with it themselves.
Roberta Blackman-Woods
I am not sure that I am surprised that that was the answer from the Minister with responsibility for tourism. I shall come on to the regional development agency in a moment or two.
Stewart Hosie (Dundee East) (SNP)
For the past 10 minutes, the hon. Lady has been making a very good speech. She has said that virtually every sector in her constituency is under pressure. She was worried that businesses might not even be able to keep going. She spoke about a construction company that is under huge pressure. She described the inflationary impact of the VAT rise. She spoke about the downward spiral for businesses, and the impact of the VAT rise on tourism. Would she please explain, then, why she will not vote tonight for a temporary decrease? Has Labour changed its position? Does the shadow Chancellor not know what he is doing? Is he having a fight with his party’s leader, or is this just the normal Labour shambles?
Roberta Blackman-Woods
I can only suppose that the hon. Gentleman was not listening to the answer that I gave earlier to his colleague, who made the same point.
Roberta Blackman-Woods
I had better make progress as others want to speak. I have been quite generous in giving way.
In conclusion, I shall deal with the issue of growth and why it is so necessary for us to monitor the impact of the rise in VAT on the economy, on families and on the whole country. I make a plea for the Government to look particularly at how that is impacting on growth in the north. It was reckless of the Government to get rid of a regional development agency in the north-east that had a very good plan in place for promoting growth and identifying sectors of the economy that would benefit from public sector investment that would lever in private sector investment. We have no growth strategy in place from the Government, and that is having a huge impact. I would like that to be examined alongside the impact of the VAT increase.
Toby Perkins
This is not the first time that I have been involved in passionate debate at 12.50 am, but under normal circumstances it has taken place in a rather less rarefied environment than we are currently enjoying. I shall speak to new clause 10 and the need to assess the impact of VAT on a range of things. We should remember that the Bill follows the Budget for growth, as it was described at the time. One has to ask whether that has been investigated by the Advertising Standards Authority, because since the Budget for growth we have seen growth continuing to flatline.
We saw three months of negative growth at the back end of 2010, which was blamed on the wrong kind of snow. In early 2011, we were expecting a huge boom, with all the people who had been unable to get out to the shops in December rushing out in January and getting the economy moving, but of course it did not happen. The Chancellor’s Budget for growth was a damp squib.
At every level the Chancellor has demonstrated that he just does not get it. He does not get the challenges facing working people or the challenges facing business. He does not understand the cause of the banking crisis and the collapse of the banking model. He does not understand the need for growth and how the Government can stimulate it. Most importantly, he does not understand that the public and the private sector need to co-exist and depend on each other in a constructive economy.
There is no taxation that does not have knock-on effects. The knock-on effects of VAT are phenomenal. The Institute of Economic Affairs described the VAT increase as “bad economics”. If people do not choose to listen to the Institute of Economic Affairs, perhaps they want to listen instead to the economic genius who was advising Norman Lamont when we were led into black Monday. In January this year, the Prime Minister said about VAT:
“If you look at the effect as compared with people’s income then, yes, it is regressive.”
That was at least consistent—it was exactly what he had said in opposition. But what about the Deputy Prime Minister? We all remember him. Back in the old days, when he was still pretending to be a progressive, we remember him with his giant Tory tax bombshell. We have been told tonight that those signs did not mean that he was against a VAT rise, or that the Liberal Democrats would not introduce such a tax bombshell; he was simply warning us that it was coming and that we should beware. A lot of Liberal Democrat leaflets were delivered in Chesterfield, and I thought at the time that they were describing the impact of the VAT increase as a bad thing, but today those of us who have never visited Planet Clegg have been put straight. The impact of VAT on the cost of living is significant, and increasing the cost of living has a dramatic impact on people’s capacity to spend money and support the economic growth that we need.
Jon Ashworth (Leicester South) (Lab)
One of the effects of the VAT increase is its contribution to inflation, which is currently running at twice the rate of earnings growth. The Bank of England has suggested that inflation will hit 5% later this year because of increases in utility prices, which are a result of the VAT increase. Many of my constituents are feeling particularly hit by that. Is that also the case in Chesterfield?
Toby Perkins
Absolutely. My hon. Friend makes an important point. The impact is being felt on the cost of everything, even items on which VAT is not charged, because businesses and members of the public are having to spend more on others items. There is the impact on fuel and heating costs and the downward pressure on wages, as we see the failure to achieve economic growth and the public sector being told that it will have no wage increases for two years and that pension contributions will increase. All those impacts are contributing to people spending more on VAT and having less money.
Andrew Gwynne
New clause 10 proposes an assessment of the impact of VAT on the economy, and of course we can now make a direct comparison with a fairly recent period when the previous Labour Government introduced a temporary cut in VAT and got the economy growing again. Is it not the case that we need to make that assessment so that we can see where this Government are getting it so badly wrong?
Toby Perkins
Absolutely. The new clause could not be more reasonable. It is impossible to imagine even having a vote on it, because I cannot see how anyone could argue against the need for an assessment when there is so little growth in our economy.
Ian Paisley
Does the hon. Gentleman agree that we need a much more strategic approach to this? We have the ludicrous situation that our taxation policies affect even our international relations. For example, we have lent £7 billion to our nearest and dearest—by which I mean expensive—neighbour, the Irish Republic, which allows it to reduce its internal taxation and reduce to a matter of pennies its aviation tax, yet our taxation continues to increase, which ruins business opportunities in our country. We need a more strategic approach so that if we lend money overseas we can ensure that it does not undermine taxation policy in this country.
Toby Perkins
That is an interesting point. We had the ludicrous situation of the Chancellor claiming that our country was on the verge of bankruptcy, but at the same time giving money to a country that was genuinely in a very difficult position. His credibility is really damaged when, for political gain, he says things that he knows are not true, and that every serious economist knows are not true. No one seriously believes that he would have lent money to the Irish if he thought that this country was on the verge of bankruptcy. What we saw in Ireland was what would have happened if we had followed the dangerous policies that the Conservative party proposed in 2008, which were to start cutting when the recession was at its worst. It is precisely for that reason that there is now so little economic confidence.
Susan Elan Jones (Clwyd South) (Lab)
Having tried on three occasions to intervene on speeches by Conservative Members, and on each occasion been told no, I am grateful to my hon. Friend for accepting this intervention.
On VAT, Conservative Members bleat that it is not possible to secure any rebate on VAT because the Europeans will not let us, but does my hon. Friend recall that the French managed to do so for their own restaurateurs? What is it about Conservative Members’ being so gutless and spineless that they will not argue our case in Europe in order to do something that would actually improve life for people in this country—especially as they brought in the VAT increase in the first place?
Toby Perkins
If I had had any idea that my hon. Friend so desperately wanted to intervene I would have given way earlier, but I am pleased to have been able to make her dream come true. The strong point that she makes, and on which Members should reflect, is precisely why my right hon. Friend the Member for Delyn (Mr Hanson) suggests that we assess the impact of the VAT increase.
I am not trying to get into a class war thing, but one reason why the Chancellor has got things so wrong and why so many of his policies seem so out of kilter is that he has no concept of what people can actually buy with a half-decent salary. That is one reason why, at the drop of a hat, he introduced the changes to child benefit. As someone who was loaded the day he was born, he has no idea of the difference between a salary of £50,000 a year, £20,000 a year or £12,000 a year; he just knows that they are a lot less than he has, and that people on £50,000 seem to earn more than the average so they are probably okay.
Mr Kevan Jones
Has my hon. Friend noticed that the same applies to the majority of the Cabinet? I understand that among both its Conservative and Liberal Democrat members there are some 20 millionaires, so they say that we are all in it together, but they are clearly not.
Toby Perkins
My hon. Friend makes a valuable point. No one is suggesting that because someone is wealthy they do not have a right to go into politics, just as we would never keep someone out of politics because they were poor—[Interruption.] Well, we would never do so! The central point, however, is that when the policies that the Government pursue seem so directly to hit the most deprived people, to attack pensioners and, particularly, to attack women as they have on so many different occasions, people will understandably look at the background of the people making those decisions. When people hear them in opposition say that they recognise that VAT is a regressive tax, but see them go into government and try to claim something different, they will understandably question their credibility.
VAT hits the poor, the workless and pensioners. Are those really the people the Chancellor wants in his sights?
Toby Perkins
Absolutely. The VAT cut, like so many other Government policies, is hitting women hardest.
I do not know, Mr Speaker, whether you ever have the opportunity to visit the Conservativehome website, but if anyone does so today they will see an article entitled “The Conservatives are losing female supporters. Why?” We have had many debates that could have given them the answer, but basically every single economic policy that they have introduced has had an adverse effect on women. Women are more likely to be public sector workers; women have been badly hit by the pension changes; women are more likely to be impacted by the VAT increase; and women often manage the family budget and have noticed acutely the increase in and squeeze on the amount that they have to spend. The Conservatives are trying to analyse why women are deserting them, and we can lead them to the answer without the need for them to do much research at all.
The challenges that business face are significant. Before coming to this place, I was running my own business. Confidence is low. When customers are worried about whether they will be able to afford to pay their mortgage, they will not be spending money on anything that they do not need. The banks are not lending, public sector organisations are not buying from the private sector because they have less money, and IT suppliers are finding that they are not getting the business they relied on from the public sector. At the same time, public sector employees are not contributing to the private sector by buying all the things they would be buying if they had confidence in the security of their jobs. The cuts to the public sector are having a dramatic effect on the private sector.
We have had a Budget for growth that has led to no growth. We now need an assessment of the impact of the VAT increase so that we can understand fully the reasons we are not getting growth in the economy. We need to make decisions based on getting people back to work, getting money in people’s pockets, and seeing the economy grow back in the way that every single one of us wants it to.
Kate Green
It is a pleasure to follow my hon. Friend the Member for Chesterfield (Toby Perkins) and to echo many of his remarks.
I appreciate that it is late, and I will keep my remarks brief, but it would be remiss of me not to speak up on behalf of my constituents to express the genuine concerns about the impact on businesses and families of the Government’s fiscal policies, including, in particular, their policy on VAT.
The impact on families, especially the poorest families, of the Government’s fiscal measures is a cause of considerable concern. The other day, the Institute for Fiscal Studies told us that inflation is having a 60% greater impact on poorer families than on better-off households. The poorest fifth of families now face an inflation rate of 4.3%, compared with the richest fifth, for whom it is only 2.7%, and the higher rate is hitting pensioners especially harshly. I suspect that we all know this from standing on the doorsteps in our constituencies and listening to families talk about the pressures they are facing in managing the rising cost of living and the difficulties they are experiencing in making ends meet. Families across the piece are beginning to feel the squeeze that is resulting from the Government’s policies, and there is no doubt that the VAT increase is a significant element in that.
I am sorry that the hon. Member for Redcar (Ian Swales) is not in the Chamber, because there are one or two important points about VAT that we need to ensure that Conservative Members understand. First, VAT is a regressive tax because it hits the lowest income deciles disproportionately harshly. That is because it is a flat-rate tax that it is taken away from the poorest families at the same rate as from the better-off. All the sleight of hand that looks at expenditure deciles misses the point that families with lower disposable incomes are seeing more of their income eaten up on non-discretionary spend, where costs are rising.
My hon. Friend the Member for Llanelli (Nia Griffith) rightly pointed out that we are talking about spend not on luxuries but on household basics. We recognise that food and children’s clothes are exempt from VAT, but let us remember all the other household basics that families will still have to go out and buy: soap powder, washing-up liquid, shampoo, shoe repairs. These are not items of frivolous luxury but everyday expenditures that families have to meet. In addition, as families rightly seek to enter or stay in the labour market, there are the costs for adults of buying clothes and equipment for work. VAT is a regressive tax that harshly hits ordinary families on tight budgets, and that is an important first consideration for Conservative Members to bear in mind.
Secondly, as many of my hon. Friends have said, we need to think about the impact that the VAT rise is having on the economy as a whole. That is the thrust of new clause 10. Here again, there is a basic lesson in economics that my hon. Friends have been trying to get across. Some Government Members have said that businesses can reclaim VAT. That neglects the fact that VAT, wherever it is applied in the product chain, ends up being charged somewhere. It ends up being charged when the consumer goes out and buys the goods. It does not somehow disappear in the course of VAT recovery, but is charged ultimately to the customer, who is now faced with spending more on essential items and having less to spend on additional items. That is having a damaging effect on business, manufacturing, retail and jobs. That is the point that I and my hon. Friends have been trying to get across.
It is a pity that the hon. Member for Redcar has only just arrived as I finish this helpful, if rather basic lesson in elementary economics. You will not want me to repeat it all at this time of night, Mr Speaker, so perhaps the hon. Gentleman can read the Official Report tomorrow to gain the benefit of what I and my hon. Friends have been trying to get across.
As I said, I want to make a few remarks about the impact that this policy is having in my constituency. I have talked about the impact that it is having on families in my constituency. Hon. Members have alluded to the impact that it has had on HomeForm, which is a substantial business based in Old Trafford in my constituency. It has been forced into financial difficulties, and I am very concerned about that. I am also concerned about an exceptionally important and large retail centre in my constituency, the Trafford centre, with which hon. Members may be familiar. I am concerned about jobs at the Trafford centre, particularly because of the nature of those jobs. They are exactly the kind of jobs that low-income families and those who can manage only a few hours of work are reliant on: part-time jobs, shift jobs and low-skilled jobs. Those are the jobs that are being put at risk and those are the jobs that do something—not very much, but something—to keep families on modest incomes afloat.
I am concerned that there is an impact on families, an impact on industry, an impact on retail and an impact on jobs. As my colleagues have said, that translates into a fall in consumer confidence and a fall in retail growth. We are concerned therefore about the damaging effect on the economy overall.
As the House is aware, we are asking simply for an assessment of the economic impact of the Government’s VAT rise. I think that that is a reasonable thing to ask for, particularly given the Chancellor’s apparent greater open-mindedness towards the economic impact of the 50% income tax rate introduced by the last Labour Government for those with incomes of more than £150,000. It was interesting to hear him say explicitly in his Budget statement in March this year that he regards that as “a temporary measure” and that he is concerned about what its broader impact may be. We are asking simply that VAT—a tax that affects all families, all households, all businesses and our economy as a whole—be subject to the same degree of scrutiny and review. I am at a loss to understand why a responsible Government would not want to take on board new clause 10 and support us in the Lobby this evening.
Mr Gauke
We have had an interesting debate. I must admit that I am surprised that on the subject of VAT cuts I am responding principally to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) and that it is he who tabled the new clause calling for a VAT cut. After all, it was only on 16 June that, with much fanfare, the shadow Chancellor announced the Opposition’s flagship policy of a cut in VAT—the first paragraph to appear on the blank sheet that is Labour policy. Yet with an opportunity to legislate for that very policy today, the official Opposition failed to get around to tabling their new clause until the day before the debate—too late for selection.
Mr Robinson
How can the Exchequer Secretary say that the economy is working and growing? It flatlined for six months, and according to his own Office for Budget Responsibility, the prognosis is that we will borrow £46 billion more over the period of the deficit reduction plan, and that unemployment will rise by 200,000 over the same period. How can he pretend that the plan is working?
Mr Gauke
The fact is, the economy grew in the first quarter of this year, after the VAT increase, unemployment fell this year at the fastest rate since 2000, and borrowing is falling. The plan is working. I am afraid that Opposition attempts to talk the economy down are not working. In difficult international conditions, the economy is growing.
Raising the rate of VAT was a difficult decision to take, but it was the right decision, and the responsible thing to do. The Opposition proposal is reckless: an unfunded VAT cut to the tune of £12 billion a year, and £51 billion over the Parliament. How do the Opposition propose to fill that gap? Would they revert to their tax on jobs? Do they think that that would stimulate growth?
Deficit reduction, in which the VAT increase plays an important role, is a prerequisite for sustained economic growth. At the June Budget and in the spending review, the Chancellor set out a credible plan to reduce the deficit. According the OBR, the plan is consistent with medium-term growth, achieving the mandate in 2014-15, a year earlier than required. The International Monetary Fund continues to back the Government’s consolidation plans, and to advise against changing course. It considered whether it is time to adjust macro-economic policy, and its conclusion is that the answer is no.
Events in Europe and around the world in the past few weeks have shown how important it is for countries with large deficits, such as the UK, to have a credible plan to deal with their debts. The Government have a credible plan. The British economy is recovering, output is growing and new private sector jobs are being created. We have set out why we have made those changes and explained what is required. We are putting our economy on a path of sustainable growth. I urge hon. Members not to press the new clauses to Divisions, and to support the Government’s plans for this country.
Jonathan Edwards
We have had a very interesting debate, although I find myself somewhat confused by the voting intentions of hon. Members. We will see in a few moments.
I shall not press new clause 6 to a Division, because it proposes a permanent reduction in VAT. New clause 9, however, proposes a temporary reduction, no matter what Labour Front Benchers say, and I will press that to a Division. Those who do not join us in the Lobby for the Division on new clause 9 will not be able to say with any credibility that they oppose the January VAT increase.
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 9
Value Added Tax (Change of Rate) Order 2011
‘(1) The Chancellor of the Exchequer shall make an order under the powers conferred by sections 2(2) and 21(7) of the Value Added Tax Act 1994 that in section 2(1) of the Value Added Tax Act 1994 (rate of VAT), the rate of tax charged by virtue of that section shall be decreased by 12.5 per cent.
(2) In section 21(4) (value of imported goods) of the Value Added Tax Act 1994 for “25” substitute “28.58”.
(3) This Order shall be known as The Value Added Tax (Change of Rate) Order 2011 and shall come into force on 30 August 2011.’.—(Jonathan Edwards.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.