House of Commons

Monday 2nd July 2012 Commons Chamber

Monday 2 July 2012

The House met at half-past Two o’clock

Prayers

Monday 2nd July 2012 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Monday 2nd July 2012 Commons Chamber

The Secretary of State was asked—

[Stuart Andrew (Pudsey) (Con)]

1. What steps he is taking to promote refurbishment of empty and vacant homes.

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

We have introduced a series of measures to get empty homes back into use, which are backed up by our commitment of £160 million of central Government funding. That is in contrast to the last Government’s pathfinder programme, which was more interested in bulldozing Victorian terraces than refurbishing empty homes.

[Stuart Andrew]

I am grateful for that answer. Constituents of mine in Pudsey are extremely concerned about the deluge of recent planning applications on greenfield and protected area of search—PAS—sites, given that as of October 2011 the number of empty properties in Leeds stood at nearly 14,000. Does my right hon. Friend agree that it would be better to bring those homes back into use than to destroy our green spaces?

[Mr Pickles]

I know my hon. Friend’s constituency well and am a frequent visitor there. He is right to point out the number of empty homes within the Leeds city boundaries, as it is one reason why we have been so keen to have the new homes bonus there, in order to bring long-term empty properties back into use. We would be doing well if we brought some of the fine architecture of Leeds—those wonderful terraced properties—back into use.

[Mr Philip Hollobone (Kettering) (Con)]

Will the Secretary of State congratulate Kettering borough council, of which I have the privilege to be a member, on its work with the Rockingham Forest Housing Association? They have recently spent about a third of a million pounds to bring three empty properties back into use, and now three families have homes that they did not have this time last year.

[Mr Pickles]

My hon. Friend illustrates my point. I hope those families enjoy their new property and will come to see it as something that a different Government were able to deliver in a different way.

[Andrew Gwynne (Denton and Reddish) (Lab)]

2. What steps he is taking to encourage use of empty shops not covered by the Portas pilot scheme or the high street innovation fund.

[Bill Esterson (Sefton Central) (Lab)]

11. What steps he is taking to encourage use of empty shops not covered by the Portas pilot scheme or the high street innovation fund.

[The Minister for Housing and Local Government (Grant Shapps)]

Addressing the issue of empty shops is one of the priorities for the industry-led taskforce set up as a response to the Portas pilots. We are also encouraging landlords to make empty shops available for meanwhile use, and have introduced the community right to bid, to help local people sustain their vital community assets.

[Andrew Gwynne]

The Portas pilot is a great boost for Stockport, and I have seen some of the good work done there, particularly during the recent “Love your local market” fortnight. However, there is a record number of empty shops in the town centres of this country—about 24,000. Just how many of those does the Minister expect to see filled as a result of the many initiatives that he has announced?

[Grant Shapps]

As the hon. Gentleman will recognise, the Portas review suggested 28 different steps. We have accepted almost all those, and one of the things we added to the list was a £10 million fund that directly helped to bring empty shops back into use. That is £5 million more than was proposed by his party.

[Bill Esterson]

Formby, Maghull and Crosby—three towns in my constituency—all bid unsuccessfully for the Portas cash. Sefton’s Labour council would like to help, but the scale of the cuts to local government make that almost impossible. What concrete support is the Minister going to give to revitalise our town centres, because the £10 million he mentions is not going to go far enough?

[Grant Shapps]

Hon. Members know that active Members of Parliament are an extremely important asset in getting those town centres working again. A second round of Portas pilot bidding is to take place, which I will announce before the end of this month. That is still open to the hon. Gentleman’s three towns. In addition, I can report to the House that going forward we intend to support all the towns—more than 370—that have applied.

[Justin Tomlinson (North Swindon) (Con)]

What consideration has the Minister given to incentivise the take-up of empty shops by young entrepreneurs?

[Grant Shapps]

I have been able to see some fantastic schemes in places such as Stockton, where the council has taken over a large double shop frontage, which entrepreneurs rent for just £10 a week. It then uses the empty properties in the town centre to get these people into rentals after a few months when they have made their businesses a success. Those are the types of schemes that I have seen and that I am encouraging, and hon. Members can do an awful lot to persuade their local authorities to play ball.

[Ian Swales (Redcar) (LD)]

I am sure the Minister will join me in welcoming the big reduction in the number of empty shops on Redcar high street, but what can he do about the rigidity of the business rates system? In one case, business rates are five times the rent being sought by the landlord.

[Grant Shapps]

Business rates are always a heavy cost and people like me who started our businesses in shops are familiar with that heavy burden. We have taken 300,000 of the smallest businesses out of paying any business rates at all and, in addition, we have spread the rise, which is only an inflation-level rise, for other businesses over up to three years. We will continue to look at ways to help businesses, and particularly the smaller shops, with their rates bills.

[Roberta Blackman-Woods (City of Durham) (Lab)]

What plans does the Minister have to assist areas with high shop vacancy rates, such as Grimsby, which has 28.3% vacant, West Bromwich, which also has 28.3% vacant, Stoke-on-Trent, which has 25% vacant, and Sunderland, which has 23% vacant? Those areas, so far overlooked for Government funding, have an average unemployment rate of more than 10%, which is way above average. Can we expect there to be more weighting towards disadvantaged areas in the next round of Portas pilots?

[Grant Shapps]

One of the useful changes we have made through the Localism Act 2011 is to allow local authorities to vary the rates downwards, which means that local authorities can look at their high streets and try to help them. I rather brushed over a point earlier. Those on the Opposition Front Bench have previously called for £5 million to be spent on bringing those empty shops back into use—I remind the hon. Lady that those calls came from her own Front Benchers—and we have doubled that and spent £10 million to assist.

[Jane Ellison (Battersea) (Con)]

There would be fewer empty shops if small retailers in particular could spread their costs more evenly. I know that the Portas recommendation was that wherever possible people should move to monthly rather than quarterly rent. Will the Minister take this opportunity to encourage all landlords to look kindly at such an approach when it is suggested by their tenants?

[Grant Shapps]

From my experience, as reflected in the 2007 leasing code, an awful lot of small things could make a big difference to smaller businesses. Finding the money to pay three months’ rent in a single go is enough to topple some businesses over, and smoother payments, fairer leases and not always having upwards-only rent reviews can all help. I am working with the industry, including the likes of the Royal Institution of Chartered Surveyors, to ensure that the leasing code is better implemented.

[Charlie Elphicke (Dover) (Con)]

4. What discussions he has had with local authorities on reforming the electoral rules relating to parish polls; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)]

I have regular conversations with local authorities on a wide range of issues, including electoral matters. Parish polls are the most local means of giving communities an opportunity to have their say by voting on a range of issues, from bus shelters and community centres to the installation of CCTV cameras. However, we recognise the current electoral rules are outdated and can be a barrier to local people’s participation in those polls. When an appropriate legislative opportunity arises, we will therefore reform the rules.

[Charlie Elphicke]

I thank the Minister for that very positive answer. Such polls are not just used for bus shelters. We had a parish—or town—poll in Dover on the future of the port of Dover and 98% voted in favour of the people’s port community ownership model, which was the right way forward. The rules are that polls are open between 4 and 9 and there are no postal votes, no proxy votes and no poll cards. That discriminates against the elderly, the disabled and those who work. Does the Minister agree that we need change quite urgently?

[Robert Neill]

I hope that I have shown that I am on the same side as my hon. Friend. I pay tribute to him for his work on the poll in Dover. He observes that some parish and town councils serve large populations. As the rules are set out in the schedule to primary legislation, we need a legislative means of reforming them, but we are looking for that.

[Guy Opperman (Hexham) (Con)]

5. What plans his Department has to offer support to communities seeking to purchase their local pubs or other assets of community value.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)]

The Government recently laid before the House the assets of community value regulations, which give communities a fairer chance to bid to take over local assets, including their local and valued pubs. We will also support communities that take up these rights, and details of a support package to achieve that end will be announced very shortly.

[Guy Opperman]

Some of the finest pubs in the country are in Northumberland, including the one in Humshaugh in my constituency, which was saved by the local community. Does the Minister agree that it is a concern that soldiers were turned away from a pub down south last week? As Armed Forces day took place last weekend, including in my constituency of Hexham, does he also agree that pubs should be encouraged to accept soldiers at all times?

[Robert Neill]

I congratulate my hon. Friend and his constituents on the initiative in Humshaugh. I have had the opportunity of visiting other community initiatives in his area, including the Forum cinema, which has been very successful. On the point about the welcome to soldiers in our pubs, I, along with all other Members of this House, am horrified at such inappropriate and disgraceful treatment of men and women who, as we sadly learned again today, regularly put their lives on the line on behalf of our country. I note that the management of the premises in question have said that in the light of the public reaction, they will review their policy. I sincerely hope that they do; they ought to, and it ought to be changed. I hope that that is the message that all hon. Members present will send to them.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The continued decline of the local newspaper industry is of huge concern to Members on both sides of the House. Those publications are clearly community assets. What consideration has the Minister given to amending the Localism Act to protect those papers from the actions of predatory news groups?

[Robert Neill]

Under the Localism Act, assets are defined in terms of property assets. However, the hon. Gentleman will know that one of the challenges to local newspapers sometimes comes from the use of taxpayer-funded propaganda sheets by local authorities. It is for that reason that the Government have strengthened the rules on transparency. I hope that he will join me in encouraging those overwhelmingly Labour-controlled councils that do not play by the rules on fair trading and transparency to come into line, because many of us think that they are deliberately trying to squeeze an independent voice of criticism out of those Labour-controlled areas.

[Greg Mulholland (Leeds North West) (LD)]

I welcome the community right to bid for pubs and other community assets, but does the Minister agree that unfortunately it will not be as successful as it should be while the loophole allowing the demolition of free-standing pubs remains, and while the right to bid allows pubs to be changed into things like betting shops and solicitors’ offices, with planning permission? Would it not be simpler to introduce a separate use class, so that the community always has a say when a pub is to be closed or demolished?

[Robert Neill]

There are two points: first, the Government have indicated that they will look at the operation of the use classes order more generally; and secondly, the issue regarding demolition stems from a court definition of what counts as development, and that recently changed. Now a local authority has in its gift the ability to issue what is called an article 4 direction, removing deemed permissions in relation to various classes of development. That is an option that should be considered. So, too, is the option of neighbourhood plans, which could recognise the importance of local public houses and other community facilities. Indeed, the national planning policy framework strengthens the weight that can be given to such issues as material considerations.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

6. What steps he is taking to increase the availability of social housing.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

The Government and the private sector are together investing £19.5 billion in an affordable homes programme that is set to exceed all original expectations. It will deliver up to 170,000 new homes for both rent and affordable home ownership. We are also spending £1.3 billion to get stalled developments back on track, and to build the infrastructure needed to unlock sites for housing.

[Gordon Henderson]

I welcome the Minister’s comments, but in many coastal communities there is a surfeit of holiday accommodation in caravan and chalet park centres. If one of those sites closes down, it has to revert to agricultural use. Does he agree that it would make sense to redesignate caravan parks as brownfield sites to make it easier to develop them for affordable housing?

[Andrew Stunell]

These are very much matters for the local plan, which is in the hands of my hon. Friend’s planning authority. I am sure that he will also be alert to the options in the neighbourhood planning system for local communities to seek a different designation, if that is appropriate.

[Mr Clive Betts (Sheffield South East) (Lab)]

I do not know whether the Minister is aware that according to figures from Shelter, in 2010-11 there were 104 new affordable home starts in Sheffield, including social rented housing starts. Assuming that he will put that down to the inadequate legacy of the previous Government, is he aware that in 2011-12, the number of new affordable starts fell to two, in a city of more than half a million people? Does he accept responsibility for that, and if so, what will he do about it?

[Andrew Stunell]

The Homes and Communities Agency significantly exceeded its corporate plan target for last year. It delivered 51,665 new affordable homes, of which 33,000 were for social rent, and that is in very stark contrast with the Labour Government’s performance; they reduced the number of social homes available for rent by 421,000.

[Annette Brooke (Mid Dorset and North Poole) (LD)]

What steps is the Minister taking to ensure that houses sold under the right-to-buy legislation are replaced on a one-to-one basis?

[Andrew Stunell]

My hon. Friend has been a lively campaigner for more social housing, and rightly so. It is an essential part of the coalition agreement on the right to buy that there will be a one-for-one replacement of every home sold, to provide a new social or affordable home.

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

I draw attention to my interest, as declared in the register. The House will have noticed that the Minister’s response to the question about the availability of social rented housing was to use a different term—affordable rented housing. Everyone knows that under this Government, social rented housing has virtually come to a halt. When will they recognise that affordable rented housing depends on very much higher rents, and when the Department for Work and Pensions is cutting housing benefit and the Prime Minister is encouraging even deeper cuts in housing benefit, how can they possibly hope people on low incomes will be able to afford those rents, if social housing is not being provided?

[Andrew Stunell]

The right hon. Gentleman once sat in my office and he will know that during his period of office he reduced the number of social homes available. In 2011-12 two thirds of homes completed—33,227—were social homes for rent. If he had paid more attention to getting a positive input of social homes during his period of office, we would not have such a deficit to fill now.

[Chris Williamson (Derby North) (Lab)]

This Administration are presiding over the worst housing crisis in a generation. There has been a 97% collapse in new social housing starts and a 68% fall in affordable housing in the past 12 months. We have heard the Minister tell us that everything is fine and dandy, but nobody believes him. I cannot help wondering if he is modelling himself on Voltaire’s hopelessly optimistic Dr Pangloss or on one of George Orwell’s cynical apparatchiks, or is he just plain incompetent?

[Andrew Stunell]

The hon. Gentleman left off the correct response, which is that unlike him, I am supervising the development of more social and affordable homes. It was the Government whom he supported who cut the number of social and affordable homes by more than a quarter of a million. If his Government had performed properly in their period of office, we would not be facing that housing crisis now.

[Henry Smith (Crawley) (Con)]

7. What recent steps he has taken to support former members of the armed forces in respect of housing.

[Andrew Bridgen (North West Leicestershire) (Con)]

9. What recent steps he has taken to support former members of the armed forces in respect of housing.

[Karl MᶜCartney (Lincoln) (Con)]

15. What recent steps he has taken to support former members of the armed forces in respect of housing.

[Rebecca Harris (Castle Point) (Con)]

19. What recent steps he has taken to support former members of the armed forces in respect of housing.

[The Minister for Housing and Local Government (Grant Shapps)]

I am determined to help current and former members of the armed forces gain the housing they deserve. I have given service personnel priority for the Government’s affordable home ownership schemes, including Firstbuy, and on Friday last week I issued new statutory guidance to make it easier for service personnel to get access to affordable homes for rent.

[Henry Smith]

I am pleased to hear that that guidance is coming forward because my local housing authority has up till now seemed to be confused about where it stands in relation to the military covenant and its obligations under it.

[Grant Shapps]

I am grateful to my hon. Friend for giving me the opportunity to explain to the House that that new guidance makes it clear to his and every other local authority that this nonsense of people returning, often without a base back in this country because of the amount of time they have served overseas, and then not being able to apply for housing in their area because of some trumped-up allegation that they have no locality—in other words, that they do not have a residency requirement —is to end. That is what the guidance makes absolutely clear.

[Andrew Bridgen]

I have a constituent in the village of Belton, Mrs Kirsty Pett, who is a mother of four and has served in the armed forces, whose husband, a former Warrant Officer, was tragically killed in a motorcycle accident last year. She is currently on the council housing list and has been given medium priority, but she will lose her privately rented home in the very near future. Will my right hon. Friend confirm that Mrs Pett’s family, and indeed widows and children of all armed forces personnel, will benefit from the new changes to enable her to remain resident in her home village?

[Grant Shapps]

My hon. Friend raises an important point: when Army personnel return, that is one thing, but when they do not and their spouses are left to pick up the pieces, that is when this country owes them a real debt of gratitude. In the new statutory guidance, which was issued on Friday, I have ensured that the bereaved spouses of those who are serving and of reservists get top priority.

[Karl MᶜCartney]

I thank my right hon. Friend for his reassuring earlier answer, which indicated that the Government are taking action to support veterans who have made sacrifices to defend our liberty. Many councils in the UK will be giving priority to former armed forces personnel who have urgent housing needs. Will he join me in calling on City of Lincoln council and North Kesteven district council in my constituency to follow suit?

[Grant Shapps]

Yes, absolutely. In drawing up the criteria, we have made sure that councils need to provide that additional guarantee to those service personnel for some years after they leave the armed forces, so the residency criterion, for example, will not be placed against them for up to five years.

[Rebecca Harris]

The whole House will welcome the new guidance to councils, particularly as it relates to social housing. The Minister alluded to support for those who wish to purchase their own home, and many people in my constituency of Castle Point would like to get on the housing ladder. Will he give me more information on what support there is for that?

[Grant Shapps]

My hon. Friend is absolutely right. Of course, when many people come back from military service they want to start on the housing ladder by purchasing a home. I have extended the Firstbuy scheme by ensuring that a high preference is given to those people. In addition, we have sent personnel out to bases both in the UK and abroad to ensure that Army personnel know that they can apply to the Firstbuy scheme, for example, and hundreds have done so.

[Phil Wilson (Sedgefield) (Lab)]

8. What estimate he has made of the level of affordable house building starts in 2011-12.

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

18. What estimate he has made of the level of affordable house building starts in 2011-12.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

There were 15,698 affordable housing starts on site in 2011-12 delivered in England through programmes managed by the Homes and Communities Agency.

[Phil Wilson]

If the Government’s record on affordable homes is so good, why has the number of households in bed and breakfast-style accommodation increased by 44%?

[Andrew Stunell]

Many of these problems would have been a great deal easier if we had had an extra quarter of a million social and affordable homes, which is the reduction that the hon. Gentleman’s Administration produced. We have a social and affordable housing programme that will deliver 170,000 new affordable homes by 2015, and my right hon. Friend the Housing Minister has been very diligent in pursuing the point the hon. Gentleman raises.

[Siobhain McDonagh]

There appears to be a discrepancy between the figures used by the Government and those used by the Homes and Communities Agency. Why does it suggest that there was a 68% drop in starts last year, and will the Minister be getting the chief executive of that august organisation in as soon as possible to clear it up?

[Andrew Stunell]

The hon. Lady should not believe too much of what she reads on these matters—[Interruption.]

[Mr Speaker]

Order. The Minister, as we always expect him to, is behaving like a gentleman, but the hon. Gentleman must be heard.

[Andrew Stunell]

The fact of the matter is that the social and affordable housing programme is meeting an urgent need and we are pressing ahead with it vigorously. The issue that the hon. Lady raises must be seen in the context of the financial and housing situation we inherited from the previous Government.

[Robert Halfon (Harlow) (Con)]

Given what my hon. Friend said about right to buy and like for like in social housing, does he agree that the more people who take up the £75,000 discount, the more chance there will be for people to have affordable housing, and will he make every effort to encourage every council to offer that discount so that we can make affordable homes for the many, not for the few?

[Andrew Stunell]

That is of course an important step, and the Minister for Housing and Local Government has also announced a consultation on “pay for stay” to ensure that those on very high incomes do not have the subsidised use of valuable social rented accommodation.

[Hilary Benn (Leeds Central) (Lab)]

I am not surprised that the Housing Minister has chosen not to answer these questions, given that the House knows he has a bit of a problem when it comes to statistics. Will the Under-Secretary explain how his right hon. Friend came to conclude that the huge decline in affordable housing starts this year—that is what the figures from his own Department show—were in his words “impressive” and “rapid and dramatic progress”?

[Andrew Stunell]

It is certainly rapid and dramatic progress if someone inherits a situation in which they are going backwards. We are going forwards, and the Homes and Communities Agency housing delivery programme is on track and, in fact, in completion terms, ahead of its corporate plan. There is a cyclical financial profile, but the sector has risen to the challenge to deliver, and 146 providers will deliver 80,000 new homes for affordable rent and affordable home ownership, using Government funding of just under £1.8 billion. This means that we will be able to deliver even more homes for every pound of subsidy from the taxpayer.

[Hilary Benn]

I am not surprised that the Minister is unable to answer the question, but the House should be keen to assist his right hon. Friend the Housing Minister in his difficulty. He has already had to be put straight by the UK Statistics Authority, and I suggest that he seeks the help of the Education Secretary and offers to take one of the new mathematics O-levels. I have a question: “If 49,363 affordable houses were started last year and only 15,698 affordable houses were started this year, should Grant describe this as: a) ‘a massive increase’; or b) ‘a 68% decline’? Please show your detailed workings.” Does the Under-Secretary not understand that every time his right hon. Friend does that, it is not just affordable house building that declines, but his credibility? When is the Secretary of State going to get a grip?

[Andrew Stunell]

The right hon. Gentleman prays in aid the UK Statistics Authority, so if I may I shall very briefly quote this:

“Official estimates of net change are available for social rented dwellings, but not for the wider stock of ‘affordable’ housing beyond this category. They show an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period 1997 to 2010.”

That seems to me a horrific indictment of Opposition Front Benchers, and what Government Members are doing is repairing some of that damage.

[George Hollingbery (Meon Valley) (Con)]

10. What progress his Department has made in protecting the rights of people who live in park homes.

[The Minister of State, Department for Communities and Local Government (Greg Clark)]

The treatment of residents on many park homes sites is simply unacceptable, and I welcome the Select Committee on Communities and Local Government’s important report, which highlights widespread abuse. The Government will therefore offer their full support to the Mobile Homes Bill of my hon. Friend the Member for Waveney (Peter Aldous) in order to secure a better deal for residents.

[George Hollingbery]

I am grateful for the Minister’s reply. The inquiry took a good deal of evidence that criminal fraternities were making considerable inroads into the industry. Will he outline for the House what the proposed measures are going to do to rid that industry of such people?

[Greg Clark]

I know my hon. Friend is a member of that Select Committee, and one of the most shocking things I found when I read the six volumes of written evidence that had been submitted was how many submissions had to be anonymous because the people giving evidence feared reprisals. It is completely unacceptable that bullies and thugs should intimidate some of the most vulnerable people in our society. The Housing Minister has published a consultation on the measures that are needed to deal properly with the problem and to drive out these rogues from the sector, including restricting their ability to block sales. Those measures will be reflected in our hon. Friend’s Bill, to which I hope the whole House will give its full support as it makes progress.

[Natascha Engel (North East Derbyshire) (Lab)]

I belong to the all-party mobile homes group, and we have been campaigning for years to strengthen the hand of local authorities to enforce properly the licences that protect people who live on park home sites. Will the Minister outline the specific powers that local authorities are being given to ensure that the powers that they do have are properly enforceable?

[Greg Clark]

Now is not the time, because the Bill will be published, as well as the response to the consultation. However, the hon. Lady can have my reassurance that the Select Committee’s recommendations on strengthening the ability of local authorities to prevent the owners of park homes from denying the rights that every other home owner reasonably expects will be present in the Bill.

[Stephen Gilbert (St Austell and Newquay) (LD)]

I welcome the support that the Government will give to the private Member’s Bill promoted by my hon. Friend the Member for Waveney (Peter Aldous). However, does the Minister agree with me and the Select Committee that the Bill should include reserve powers for a fit and proper person test should the welcome steps that the Government are already going to take not deliver justice for residents?

[Greg Clark]

As I said, the Government will respond to the Select Committee’s report. The Select Committee, of which my hon. Friend is a member, said that the measure would be a big change in the regulation of the sector and that the best thing would be to carry out a review in a couple of years to see whether the changes had had an effect. That approach seems sensible.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

12. What steps he is taking to increase opportunities for young people between the ages of 18 and 25 to find suitable housing.

[The Minister for Housing and Local Government (Grant Shapps)]

The housing strategy outlines a range of initiatives designed to get the house building sector moving again and to provide opportunities for everyone. In particular, our NewBuy and Firstbuy initiatives are helping young people into home ownership and we are supporting that with institutional investment in the private rented sector.

[Mr Sheerman]

Is the Minister sure that that will help 18 to 25-year-olds? There is a crisis out there of young people with nowhere to live. The issue is not just about housing benefit; I believe that all benefit should be linked to education and employment. But the fact is that there is a crisis and there does not seem to be much imagination on the Minister’s part.

[Grant Shapps]

The hon. Gentleman is absolutely right to point out that the crisis is very real and we believe that it has been brewing over a long period. By the way, it is about a lot more than simply housing; if we look at the lives of people in chaos, we always find educational problems and family breakdown, and often financial crises are involved. A lot of work is going on across the Government, including the ministerial working group, which brings together eight different Departments. Our next report, which the hon. Gentleman can look forward to, will be published before the summer and will tackle that exact issue.

[Jack Dromey (Birmingham, Erdington) (Lab)]

Under Labour, homelessness fell by 70%. Under this Government, 1 million people are out of work; house building is falling; homelessness is rising rapidly; and now there is the proposal to punish young people who leave home to find a job or get an apprenticeship by making them lose their housing benefit and therefore the roof over their head. The measure was described as “absurd” by the YMCA because it will drive up homelessness and close the facilities that support those people.

The Minister for Housing and Local Government has said that homelessness is what brought him into politics. Is it not becoming increasingly clear that his legacy will be rapidly rising homelessness and should he not concentrate not on making a bad situation worse, but on building homes, creating jobs and driving down homelessness?

[Grant Shapps]

From the great passion with which the hon. Gentleman speaks, one would imagine that he had a long-term interest in this issue; in fact, he is the eighth Labour shadow Housing Minister whom I have faced. During the time the Opposition have been in place, guess how many Opposition day debates there have been in the Chamber about this important subject? Zero, none—there has not been a single such Opposition day debate. That is because the hon. Gentleman has a very loose relationship with statistics himself. Homelessness is lower than it was in 28 of the last 30 years—and it is less than half the level it was in the 13 years of his Government.

[Graham Jones (Hyndburn) (Lab)]

13. What assessment he has made of the level of negative equity in the north of England.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

A Council of Mortgage Lenders report in 2011 suggests that, as of the first quarter of that year, 827,000 UK households were in negative equity. That includes nearly 300,000 in the north of England. The organisation also reported that there were 36,200 repossessions that year—the lowest annual total since 2007.

[Graham Jones]

In its report on home ownership, Standard & Poor’s says that rates of negative equity in the north-west and the north-east are four times higher than those in London. Obviously those areas were disproportionately hit by the Government’s cuts, and unemployment is rising. There are hard-pressed families in these regions struggling to pay their mortgages. What help is the Minister going to give them?

[Andrew Stunell]

I remind the hon. Gentleman that negative equity becomes a problem if people cannot pay their mortgage. Mortgages are affordable at the moment because of the fiscal and financial policies that this coalition Government are pursuing. Interest payments on mortgages are at the lowest level as a proportion of total income since records began. I invite him to consider how many repossessions in the north of England would result if we had the bond rates of the Italians or the Spanish, and therefore how important it is for this Government to remain steadfast on their fiscal programme.

[Stephen Mosley (City of Chester) (Con)]

Does the Minister agree that the way to encourage a successful housing market in the north of England is to encourage the growth of sustainable, private sector-led jobs in that region?

[Andrew Stunell]

Yes.

[Dame Joan Ruddock (Lewisham, Deptford) (Lab)]

rose—

[Mr Speaker]

Lewisham, Deptford is some considerable distance from the north of England, to which nevertheless the observations of the right hon. Lady will certainly relate.

[Dame Joan Ruddock]

I hope to be in order, Mr Speaker, by pointing out that despite what my hon. Friend the Member for Hyndburn (Graham Jones) said about the north of England, Lewisham has the fourth highest rate of repossessions in England. There are 17,000 homeless people on our housing waiting list. What advice would the Minister give to those of my constituents given the misery that they are facing through losing their homes—their most precious possession?

[Mr Speaker]

I am a tolerant and obliging fellow and I wanted to hear the evidence, but there is nothing to which the Minister should respond on the Floor of the House, because the question relates to the north of England and he did not expand it. However, the right hon. Lady’s observations are on the record.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

She is a dame!

[Mr Speaker]

The hon. Gentleman says that she is a dame, but even dames must play by the rules, and that is not disputed.

[Fiona Mactaggart (Slough) (Lab)]

14. What his most recent estimate is of the number of homes to be built in the south-east in the next five years and of the proportion of such homes that will be let at affordable rents.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

We do not forecast levels of future house building. However, taking into account delivery in the first term of this Government, up until March 2015 we expect to deliver 107,000 affordable homes in London and east and south-east England through the Homes and Communities Agency programme and the Greater London authority. Of those, over 37,000 are expected to be for affordable rents.

[Fiona Mactaggart]

I am rather confused by that answer, because the Minister has just said that he does not forecast numbers of new homes but in an earlier answer he forecast 170,000 new homes. I do not know when a forecast is not a forecast. May I tell him what the housing situation is like on the ground, because his responses so far have not revealed it properly? In Slough, 43 affordable new homes have been started, down from 103. I have had more inquiries about housing this year than in any year since I was elected in 1997. We have nearly 300 people whose homes have been repossessed. [Interruption.] If I could come to the question—

[Mr Speaker]

Order. I think that the hon. Lady wants to know what the Minister is going to do about the situation.

[Fiona Mactaggart]

May I specifically ask the Minister what he can offer to people in a situation where there are more people on the housing waiting list in Slough than there are affordable homes?

[Andrew Stunell]

The hon. Lady made up in volume what she lacked in common sense.

[Fiona Mactaggart]

That is out of order.

[Mr Speaker]

Order. There is no breach of order. [Interruption.] Order. I must say to the hon. Lady that the Minister is not out of order. I do not think she should take offence, as the Minister did not mean to be offensive in any way; he was being light-hearted and jocular, as we all seek to be.

[Andrew Stunell]

If it assists in our proceedings, I am happy to withdraw the comment.

I fully acknowledge that we need more social and affordable homes. That is why we have a programme that is adding to the stock of social and affordable homes. I say to the hon. Lady that Slough will end up with more social and affordable homes in 2015 than there were in 2010, unlike the period in which Labour ran this country and its housing policy.

[Mr Speaker]

I want other Back Benchers to get in.

[Mr Adam Holloway (Gravesham) (Con)]

16. What the percentage change was to average band D council tax bills in real terms in (a) England and (b) Gravesham constituency over financial years 2010-11 and 2011-12.

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

Thanks to the council tax freeze, over the last two years, council tax bills have fallen by 1.4% in Gravesham and 4.4% across England in real terms. That is real help for families and pensioners with the cost of living.

[Mr Holloway]

I thank the Secretary of State for his answer. I will ask my question in a very calm manner. The majority of councils in Kent have frozen their council tax. Is he disappointed that in Gravesham it has risen by 3.48%, which is just below the 3.5% threshold for a referendum?

[Mr Pickles]

Gravesham has joined the small, select list of council tax dodgers. If it was felt that the council tax should go up, it would have been sensible to put it to the people of Gravesham, who no doubt would have given it their consideration.

[George Freeman (Mid Norfolk) (Con)]

17. What steps his Department is taking to promote small wind turbines within the planning framework.

[The Minister of State, Department for Communities and Local Government (Greg Clark)]

Following the requirements of a private Member’s Bill in the last Parliament, the Government have introduced permitted development rights for domestic installations of small-scale renewable energy projects.

[George Freeman]

Does the Minister agree that although not all communities are keen for large-scale wind generation in their area, many small businesses, families, households and neighbourhoods are keen on small wind-powered generating turbines, such as those supplied by the excellent Windcrop in my constituency, as part of the micro- generation revolution that the Government are promoting? What assurance will he give the House that the Government will continue to promote that popular brand of microgeneration from small, local wind projects?

[Greg Clark]

I am aware that the firm to which my hon. Friend refers creates valuable jobs in his constituency. He will also know that Norfolk, like other places in the country, attracts tourists, so it is right to maintain the quality and character of the landscape. The new permitted development regulations give some latitude to householders, but not in a way that will destroy landscapes.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

T1. If he will make a statement on his departmental responsibilities.

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

On Thursday, I spoke to the Local Government Association annual conference. I announced our intention to make it easier for councils to abolish chief executive posts without having to hand out massive payouts, welcomed the £430 million in bids for the new weekly collection schemes, and noted the next stage of town hall transparency in which new rules will require councils to declare their trade union funding and their interests. In the interests of bipartisanship, I pay tribute to the hon. Member for Warrington North (Helen Jones), who courageously put down questions on council tax collection and exposed the inability of Labour councils to collect council tax.

[Teresa Pearce]

Shelter has advised me that my borough of Bexley has one of the highest proportions of home owners at risk of repossession in England. What funding and advice does the Secretary of State intend to give Bexley so that it can cope with that risk?

[Mr Pickles]

I am sure that the hon. Lady will recognise that repossessions are at their lowest since 2007. The most important thing that we can do to help people is to ensure that interest rates are kept at a reasonable level. That is what the Government have done. An increase of 1 percentage point would add £1,000 to the costs faced by her constituents and put more people at risk.

[Priti Patel (Witham) (Con)]

T2. The Minister will be aware of the excellent representations by the Witham town centre team to bring a Portas pilot to Witham. Will he congratulate that team on their vision and, importantly, support them in bringing that vision to Witham town centre?

[The Minister for Housing and Local Government (Grant Shapps)]

I am aware of the excellent Portas pilot bid by my hon. Friend’s town team. I wish it well, along with the other 350 or so bids that are still in the competition. As I mentioned, an announcement will be made before the end of this month.

[Helen Jones (Warrington North) (Lab)]

Properly targeted and funded family intervention works, so why have the Government introduced a half-baked scheme based on research that fails to distinguish between poor families and those involved in antisocial behaviour? Why do they refuse to give details of their cost estimates on the spurious grounds that the spending of public money is commercially sensitive? Is it not because they want to disguise the fact that they have slashed services such as Sure Start and youth intervention programmes, which really make a difference, and the fact that councils will get back only a tiny fraction of the millions that they have already lost?

[Mr Pickles]

I would have thought the hon. Lady would have been a little bit more jolly, considering that I congratulated her on the great work that she has been doing on behalf of the Government.

I am very surprised at the hon. Lady, because we would not have been able to help troubled families without the intensive help of Labour councils. The big difference between what we are doing now and what she suggests is that we are allowing councils to come up with their own schemes and methodologies. All that we are interested in is the outputs. Frankly, she should congratulate all those who have worked hard, because we can now identify the correct families, three months ahead of when people expected us to be able to do so.

[Andrew Bridgen (North West Leicestershire) (Con)]

T6. Has the Minister had a response from the UK Statistics Authority to the letter from the shadow Housing Minister, the hon. Member for Birmingham, Erdington (Jack Dromey), about net losses in social housing?

[Grant Shapps]

Yes, I can report to my hon. Friend and the House that I have had a response from the UKSA. The hon. Member for Birmingham, Erdington (Jack Dromey) pleaded in his letter for an answer on whether I was right to say that the reduction in affordable homes for rent under Labour was 45,000 or 200,000. I am pleased to say that the UKSA wrote back to both him and me and confirmed that the figures showed an overall reduction of 421,000 homes for social rent during Labour’s time in office—a disgrace, and in stark contrast to the 170,000 that we will be building over the next three years alone.

[Kate Green (Stretford and Urmston) (Lab)]

T5. There has been a 40% reduction in homelessness services for women between 2011 and 2012. As the number of homeless people increases and the services available to support homeless women reduces, what will the Minister do about it?

[Grant Shapps]

As the hon. Lady will know, I bring together eight Departments in a working group on homelessness and its causes. Our next report is very likely to be on the precise issue of the women who make up a subsection of people who are homeless. It is worth bearing in mind that one of the first things the Government did was to change the disgraceful rules that prevented the number of homeless people from being properly registered under the previous system. It is also worth knowing that the level of homelessness is less than half the average under the previous Administration.

[Sir Tony Baldry (Banbury) (Con)]

T7. Will my right hon. Friend consider working with Cherwell district council, myself and others to make Bicester a garden city?

[The Minister of State, Department for Communities and Local Government (Greg Clark)]

First, I congratulate my hon. Friend on his knighthood, which is thoroughly deserved. We have heard that being a dame accords a Member no special privilege, but my hon. Friend commands the respect of the House uniformly.

I am very happy to work with my hon. Friend. The difference between this Government and the previous Government is that such things are entirely up to the local authority, but we will do everything that we can to help that fragrant corner of Oxfordshire become a garden city.

[Simon Danczuk (Rochdale) (Lab)]

Rochdale is a hot spot for home repossessions and homelessness. Does the Minister accept that there is a link between the bankers’ LIBOR scandal and such problems?

[Grant Shapps]

All the research into homelessness proves that there are a lot of different causes, and LIBOR may be a contributory factor if it transpires that mortgage rates have been adjusted as a result. The hon. Gentleman takes a considerable interest in the matter, and I am sure he will be pleased to note, as we are, that repossessions last year fell to their lowest level since 2007. Low interest rates have been a very important reason for that falling number.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

T8. One of my constituents recently asked our local planning department whether he needed planning permission to erect a shed for his mobility scooter. The planning officers refused to answer his question and insisted that he had to submit a form and pay a £75 fee to determine whether the shed was covered by permitted development rights, which it was. Does my right hon. Friend agree that it is wrong for local authorities to charge for simply clarifying planning rules?

[Mr Pickles]

Yes. The man should get his money back.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

The Minister will know that more rain fell on Newcastle upon Tyne and the surrounding areas in a few hours last Friday than would normally fall in the whole month of July. The resulting floods damaged businesses, people’s private homes and the transport infrastructure. Ministers will want to join me in thanking the local authority employees, who responded magnificently, and the emergency services more generally for their response. Will the Secretary of State look again at the Bellwin formula to see whether it works reasonably? It is an old formula, and possibly ripe for revision to deal with exceptional circumstances of that kind.

[Mr Pickles]

The right hon. Gentleman will be very familiar with Bellwin and the formula and he is right to praise the emergency services and local people. I have spoken to friends in the area, and I know the events were traumatic. I recall the enormous damage and wreckage—both physical and psychological—caused by a flash flood in my constituency a few years ago. The Government have not yet received an application under the Bellwin rules, but I can assure him that when it comes, we will look at it most sympathetically in terms of the formula.

[Amber Rudd (Hastings and Rye) (Con)]

T10. A woefully inadequate number of new houses were built in Labour’s 13 years in government. What progress is being made on new houses in areas such as Hastings and Rye, so that young people have a chance of getting on the property ladder?

[Grant Shapps]

The good news is that programmes such as NewBuy, which allows people to get a 95% mortgage once again, will help people in Hastings and across the country, as will programmes such as Firstbuy, which is on track to deliver more than 10,500 homes. The record low interest rates will also help people, as long as they continue and as long as we ensure that the deficit is not allowed to balloon.

[Mr George Howarth (Knowsley) (Lab)]

On social housing, does the Minister agree that it would make a lot of sense if priority were given to the building of bungalows for rent, which would assist the elderly or those who have mobility problems and free up two and three-bedroom family social rented houses for those on the waiting lists?

[Grant Shapps]

I absolutely agree with the right hon. Gentleman—that is a very sensible approach, as is ensuring that the right to buy is available. Right to buy frees up the home lived in by the occupant who has had the opportunity to reach the aspiration of purchasing their own home. The cash is then used to build another home to take somebody off the record waiting lists we were left by Labour.

[Duncan Hames (Chippenham) (LD)]

Cherish Chippenham’s bid for a Portas pilot will be even more competitive in the second round, which I am delighted the Minister will announce later this month. We have heard that some places consider their high streets to be in a more dire situation, but does he agree that there is far more to the important criterion of potential for improvement than simply a statistical vacancy rate?

[Grant Shapps]

My hon. Friend is absolutely right. A vibrant town centre requires all sorts of things to bring people in to shop there. He will be interested to know that not only will the second round be announced before the end of the month, but so will a £1 million prize for the most improved town centre. That does not have to be one of the Portas pilot—it can be any town centre. Every single one of the towns that apply will enjoy the support of the Government.

[Mr Andy Slaughter (Hammersmith) (Lab)]

Hammersmith and Fulham’s housing strategy involves plans for 22,000 new homes in three opportunity areas. That should be good news for the 10,000 local families waiting for social housing, but not one of those 22,000 homes will be a social home for rent. Is it the Government’s housing policy that my constituents have to move out of London if they want an affordable home?

[Grant Shapps]

I know the hon. Gentleman has never quite got over his days as Hammersmith and Fulham housing lead, even though Hammersmith and Fulham is now doing a phenomenal job, delivering far more homes than were available under the Labour administration. I am sure those of the 170,000 homes for affordable rent that are in Hammersmith and Fulham will be enjoyed by the constituents there.

[Mr Aidan Burley (Cannock Chase) (Con)]

I welcome my right hon. Friend’s announcement last Thursday that he will change the law in order to require councillors to declare union support and donations as pecuniary and therefore prejudicial interests. Did he receive representations from the Labour Front-Bench team against these proposals when the statutory instrument came in this month? If not, would their union paymasters be justified in thinking them asleep on the job?

[Mr Pickles]

This matter—not whether Labour has been asleep on the job but the amount of union involvement with councillors—is of enormous concern. We are taking the moderate and reasonable approach of saying, “We support unions and it is wonderful that they support the Labour party, but we would like to know and it should be a matter for public disclosure.” Given that it is so uncontroversial, I am sure it will receive support throughout the House.

[Jeremy Corbyn (Islington North) (Lab)]

Is the Minister aware of the housing crisis throughout central London in the private rented sector, with rents rising well above inflation, housing benefit being capped or cut, and many families being evicted and communities broken up? Is it not time that we lifted the housing benefit level and introduced strict regulation of the private rented sector to preserve families and communities in the inner-city parts of the country?

[Grant Shapps]

It is absolutely the case that rents are not well served by caps at all, and when in place they enhanced neither rental levels nor the quality of properties. For example, the housing market shrank to 8% with rent caps. There is no advantage to introducing rent caps. Without them, the market has expanded again to 16%, serving people in London and elsewhere far better.

[Mr Speaker]

Last but not least, I call Helen Grant.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

Are the Government’s excellent proposals for troubled families being embraced by local authorities throughout the country?

[Mr Pickles]

I am delighted to report that all 152 principal local authorities signed up last month. I am also delighted at the amount of progress being made and delighted that at least some Opposition Members have been more than helpful. It is our first big chance to do something about this serious situation.

EU Council

Monday 2nd July 2012 Commons Chamber

15:32

[The Prime Minister (Mr David Cameron)]

I am sure that, like me, the whole House will be deeply saddened by the deaths of three British servicemen in Afghanistan yesterday. These brave soldiers were demonstrating great courage to prevent Afghanistan from once again becoming a haven for international terrorists and therefore to help keep us safe here in the UK. The suspected perpetrator is in custody, and we will do everything in our power, with the Afghan national security forces, to ensure that justice is done. This tragic incident again demonstrates the very real risks that our soldiers face every day, and we will learn all the lessons that arise from it. I know that everyone in the House will want to send their support to our brave troops and their families at this difficult time.

Britain had three objectives at last week’s European Council: first, for eurozone members to take the urgent action needed to deal with the immediate crisis; secondly, to secure a comprehensive growth package firmly focused on Britain’s priorities; and thirdly to send a clear message to the rest of Europe about what we expect from the budget negotiations to come. I shall deal with each before turning to future policy and the Government’s response to the banking scandal.

First, on the eurozone, Britain has been clear that in the short term we want urgent action by eurozone countries and authorities to defend their currency and deal with the instability. In the longer term, we recognise that the remorseless logic of a single currency means that the eurozone may need closer economic and fiscal integration. Britain is not in the euro, and we are not going to join the euro, so we should neither pay for short-term measures nor take part in longer-term integration. The summit made some progress. On shorter-term measures, eurozone members agreed to use the bail-out funds to support intervention in bond markets; to put eurozone money directly into struggling banks; and to ensure that official loans to Spanish banks would not be given preferential treatment over private sector loans. Under the last Government, we could have been liable for financial support for these measures, as members of the EU bail-out fund, but this Government have repatriated that power so that the British taxpayer is not involved.

On longer-term issues, eurozone members agreed important steps towards closer integration following a discussion of a report by the President of the European Council and others. It is vital for Britain—and, we would argue, for the strength and prosperity of the whole European Union—that they do this in the right way. We therefore secured agreement that as this work goes ahead, the “unity and integrity of the single market” will be fully respected.

On the specific proposal of a banking union, we ensured that Britain will not be part of any common deposit guarantees or under the jurisdiction of any single European financial supervisor. I am very clear that British taxpayers will not be guaranteeing any eurozone banks, and I am equally clear that, while we need proper supervision of our banks, British banks should be supervised by the Bank of England, not by the European Central Bank. The original draft of the growth compact included a whole section on economic and monetary union which implied that a banking union might apply to all 27 countries. A number of countries worked together to ensure that that whole section of the growth compact was removed.

Our second objective involved growth. The growth programme includes commitments to deal with weak lending, including through an increase in funds for the European Investment Bank. Alongside this are clear commitments to complete the single market in areas such as services, energy and digital, in which Britain will be one of the prime beneficiaries. The agreed plan included dates and times by which those steps should be concluded.

We also agreed to go ahead with the European patent court. Businesses have complained for decades that they needed 27 patents to protect their intellectual property. That problem will now be solved. In finalising the agreement, Britain had two objectives: that the new patent should be redrafted so that it did not get snarled up in the processes of the European Court of Justice, and that a significant part of the court, covering pharmaceutical and life science industries, would be based in London. I am pleased to say that we secured both those outcomes. That will mean millions of pounds and hundreds of jobs for Britain.

Our third objective involved the EU budget for the next seven years. We want a budget that is focused on growth, not a focus on growth in the budget. EU members as a whole are €3.5 trillion more in debt now than when the last EU budget was negotiated. We have to face up to that tough reality. I made it clear that without the British rebate, we would have the largest net contribution in the EU as a share of our national income. Without our rebate, our net contribution would be double that of France and almost one and a half times bigger than that of Germany. So the British rebate is not up for renegotiation. It is fully justified.

On foreign policy, the Council welcomed the EU oil embargo against Iran, which came into force yesterday. On Syria, we called for united action by the United Nations Security Council to place more robust and effective pressure on Assad’s regime, including the adoption of comprehensive sanctions.

Europe is changing rapidly and fundamentally, and that presents real challenges for all countries. Those inside the eurozone have to face fundamental choices about whether to limit their national democracy and provide financial support to the weaker members. And like others outside the Eurozone, we in Britain also face big choices. As Europe changes to meet the challenges of the eurozone, so our relationship with Europe will change, too.

There are those who argue for an in/out referendum now. I do not agree with that—[Interruption.] I do not agree with that because I do not believe that leaving the EU would be best for Britain. Nor, however, do I believe that voting to preserve the exact status quo would be right. As I wrote yesterday, I do not believe that the status quo is acceptable, but just as I believe it would be wrong to have an immediate in/out referendum, so it would also be wrong to rule out any type of referendum for the future. The right path for Britain is this. First—[Interruption.]

[Mr Speaker]

Order. Members are a little over-excitable. They must calm themselves, and the Prime Minister’s statement must be heard.

[The Prime Minister]

First, we must recognise that, in the short term, the priority for Europe is to deal with the instability and chaos. Secondly, over time, we must take the opportunities for Britain to shape its relationship with Europe in ways that advance our national interest in free trade, open markets and co-operation. As I argued yesterday, that should mean less Europe not more Europe, less cost, less bureaucracy, and less meddling in the issues that belong to nation states. Thirdly, all party leaders will have to address the question. It follows from my argument that, far from ruling out a referendum for the future, as a fresh deal in Europe becomes clear, we should consider how best to get the fresh consent of the British people.

Finally, as I have said, as the eurozone moves towards a banking union, we must ensure that Britain takes responsibility for sorting out its own banking sector. On the unfolding banking scandal here in the UK, we need to take action right across the board, including introducing the toughest and most transparent rules on pay and bonuses of any major financial centre in the world, increasing the taxes that banks must pay, ensuring tough civil and criminal penalties for those who break the law and, above all, clearing up the regulatory failure left by the last Labour Government.

The British people want to see two things: they want to see bankers who acted improperly punished; and they want to know we will learn the broader lessons of what happened in this particular scandal. On the first, the Serious Fraud Office is looking at whether any criminal prosecutions can be brought, and at whether the full force of the law is being used in dealing with this. On the second, I want us to establish a full parliamentary committee of inquiry involving both Houses, chaired by the Chairman of the House of Commons Treasury Select Committee. This committee will be able to take evidence under oath; it will have full access to papers, officials and Ministers, including Ministers and special advisers from the last Government; and it will be given by the Government all the resources it needs to do its job properly.

The Chancellor will be making a full statement, but this is the right approach, because it will be able to start immediately, it will be accountable to this House and it will get to the truth quickly, so we can make sure this never happens again. I commend this statement to the House.

15:40

[Edward Miliband (Doncaster North) (Lab)]

I am grateful to the Prime Minister for his statement. On the tragic news from Afghanistan, all our thoughts are with the family and friends of the soldiers concerned. The news reminds us once again of the risks our troops face—day in, day out—and of our duty to do everything we can to protect them.

Let me start with the Prime Minister’s announcement on the banking inquiry. It is right for him to reconsider the position of last week on the need for a full inquiry. I welcome that recognition. I have to say, however, that I am not convinced by his way forward because I do not believe it measures up to the scale of what is required. However able or distinguished they are, politicians investigating bankers will not command the consent of the British people. People are understandably angry about the way their banks let them down, and I do not believe that the proposed way forward is the way we can build the consensus required for real change. After all, there have already been a number of Select Committee reports into the banking crisis.

I appreciate that the Leveson inquiry has been uncomfortable for politicians on all sides, but that is the way it should be. We will continue to argue for a full and open inquiry, independent of bankers and independent of politicians. That is the only way, in my view, that we can rebuild trust in the City of London and financial services.

Turning to the European Council itself, let me associate myself with what the Prime Minister said on Syria. Agreement—but, in truth, little progress—was reached at Geneva on Saturday, and the divisions within the international community on this issue mean that too little is being done to bring the escalating violence to an end. In that context, will the Prime Minister update the House on the position of Russia, which is clearly imperative in this regard, on a future for Syria without President Assad?

Turning to the main issues of the summit, it took place against a backdrop of the continuing crisis in the eurozone, a faltering global recovery and a double-dip recession here in the UK. The central challenge, then, was how we can have a Europe not of austerity and unemployment, but of jobs and growth. I am afraid to say that on that central issue, the Prime Minister cannot be part of the solution because he is part of the problem.

On growth, the Prime Minister used an instructive phrase in his post-summit press conference, when he said:

“Just as we have to tackle the euro crisis, so we have to tackle the growth crisis”.

Having at last admitted that there is a growth crisis, he added:

“Britain has been driving this debate.”—[Laughter.]

I do not think it was meant as a joke, but it suggests someone quite out of touch with reality. As he was speaking, the figures were coming in, showing the double-dip recession, created by him in Downing street, was worse and deeper than we thought. The UK is one of only two countries in the G20 in double-dip recession. There can be no solution to the growth crisis unless we tackle the crisis of demand in the European economies and globally? Will he tell us whether he advocated at this summit any measures to tackle the crisis of demand in the European economy, as well as the long-term measures he mentioned?

The Prime Minister talked about the banking regulator. How will he use his popularity and influence in Europe to secure specific legal safeguards between now and December’s final proposals to protect the very important British interest in the single market? He then talked about the patent court, and said, with his customary humility, that the outcome showed that he was succeeding. Only this Prime Minister could pretend, having argued that the court’s headquarters should be in London, that it was a diplomatic triumph that it had ended up being based in Paris.

As for the eurozone and bank recapitalisations, it is welcome that direct help can be provided for eurozone banks, but does the Prime Minister really believe that the funds that eurozone countries are making available are adequate? There are many reasons to believe that that is not the case.

Finally, there is Europe and the Prime Minister’s position—or should I call it his weekend hokey-cokey? On Friday, he ruled out a referendum. He said:

“‘I completely understand why some people want an in/out referendum… I do not think that is the right thing to do”.

Hours later—what a coincidence—100 Back Benchers and the former Defence Secretary called for an in/out referendum. Then, hey presto, on Sunday—[Interruption] —the Prime Minister hinted that he might rule one in. Then the Foreign Secretary—[Interruption.]

[Mr Speaker]

Order. I said that Labour Back Benchers should not be yelling when the Prime Minister was speaking, and the same applies to Government Back Benchers. I do not care what they are exhorted or encouraged to do from any quarter; it is not proper behaviour, and however long we have to continue, it is not going to happen. That is the beginning and the end of the matter.

[Edward Miliband]

Then the Foreign Secretary was sent out to say on television:

“The Prime Minister… is not changing our position.”

Three days, three positions. First it was no, then it was yes, and then it was maybe.

Can Members on both sides of the House have some clarity about the Prime Minister’s position? First, has there been a change in the Government’s position, yes or no? Secondly, the Prime Minister talked of a referendum being connected to the renegotiation of powers. To be fair to him, his position on renegotiation is longstanding, not least because he has got nowhere in negotiating it, but is he now saying that he may be in favour of withdrawal from the European Union if he does not get these powers? That would be a new position. It would be helpful—and I am sure that his Back Benchers would like it too—if we could have a “yes” or “no” answer to that question as well.

Thirdly, can the Prime Minister explain this? Last October, he said in the House:

“there is a danger that by raising the prospect of a referendum… we will miss the real opportunity to further our national interest.”—[Official Report, 24 October 2011; Vol. 534, c. 27.]

So why is he doing it now? We all know the answer to that question. It is not to sort out the crisis of growth, it is not to tackle youth unemployment, and it has nothing to do with the national interest. It is all about managing the divisions in the Prime Minister’s own party. But a nudge-nudge, wink-wink European policy is not good for the country, nor will it keep his party quiet.

Five years ago, the Prime Minister said that his party should stop banging on about Europe, but now he is the man getting out the drum. As John Major could have told him, it is not going to work. We have a veto that never was, a referendum that the Prime Minister cannot explain, a party talking to itself, a Prime Minister who is managing his party rather than leading the country, and a Government who are letting Britain down.

[The Prime Minister]

Let me start with the right hon. Gentleman’s questions about the inquiry into the banking scandal. I think that what he said was rather demeaning to Parliament, the House of Commons and the House of Lords. I see no reason why Parliament cannot get to the bottom of this if we take the best and brightest from both Houses and all parties, and there are few better people to do that than my hon. Friend the Member for Chichester (Mr Tyrie), who has considerable expertise. The key point, however, is that this needs to be done speedily. The Vickers Bill—the banking Bill—will be introduced in the House of Commons in January, and I want an inquiry to be completed by then so that we can take the best of that inquiry and put it in the Bill. I think that that is the right thing to do.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

It is what you tried to do on Leveson.

[The Prime Minister]

The shadow Chancellor is intervening from a sedentary position. No one would like to see him in the dock of a courtroom more than me, but the job here is to get on with it, find the answers, and put them into law.

Let me now deal with the questions that the Leader of the Opposition asked about the European Union. He asked some very specific questions, including one about Russia and Syria. At the weekend, following some very hard negotiation by my right hon. Friend the Foreign Secretary, all parties agreed on transition by mutual consent. We now need to implement the policy, and all the P5 members need to do that.

The right hon. Gentleman talked about taking responsibility on the economy. When is Labour going to take responsibility for the twin crises: the crisis of the deficit and the crisis of failed banking regulation? He asked what we had done to protect the single market. If he looks at the summit conclusions, he will see that it says very specifically that the single market and its integrity must be protected. On whether the eurozone funds are sufficient, frankly, I think he is right to ask that question. We continually say it is very important that the firewall—the bazookas—are big enough.

On the right hon. Gentleman’s description of recent events, I think he probably ought to give up the hokey-cokey and stick to the Rubik’s cube. But let me tell him this: I am not going to take any lectures from a group of people who gave up the rebate and got nothing in return, who gave up our social chapter opt-out and got nothing in return, and who took us into the bail-out funds when we were not even part of the euro. Those are the people who say that the European Union has not got too much power and that they would join the euro if they were in power for long enough. The right hon. Gentleman likes to tell us endlessly about standing up to vested interests, but the fact is that he will never stand up to two big vested interests: the trade unions and Brussels.

[Sir Malcolm Rifkind (Kensington) (Con)]

While there is wide agreement in Britain as to the need for reforms in our relationship with the EU, does the Prime Minister agree that the worst possible moment to try to start negotiating with 26 other countries is when all the member states are, quite rightly, preoccupied with the very future of the eurozone and the potential of its collapse? Does the Prime Minister also agree that as the UK is fully protected by the statutory requirement for a referendum if there are any further proposals for the transfer of powers to Brussels, it must be the right policy to establish a link between any negotiations which we wish to begin, and the new treaty that would be required to have unanimous conset if the eurozone 17 wish to achieve a fiscal and banking union?

[The Prime Minister]

My right hon. and learned Friend has set out the situation very well. It is worth saying, as I said in my statement, that everyone has to recognise that the short-term firefighting is the EU’s urgent and immediate priority, but my point is that we are safeguarded through the referendum lock in respect of further powers being transferred. However, we must think about how Europe is developing, make sure we make the most of the opportunities, and then think about how to seek the consent of the British people.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

Does the Prime Minister agree that the customary celebrations after last week’s euro summit were, yet again, premature? There is not nearly enough money in the European stability mechanism, as its £500 billion is not enough to deal with Spain, let alone other countries. Equally, the German Chancellor’s opposition to eurobonds means there must be a question mark hanging over the eurozone. On banking, if we are to have a truth and reconciliation committee—which is fine—we must just remember that some of the most strident calls for deregulation over the last 30 years came from the Government side of the House.

[The Prime Minister]

I have great respect for the right hon. Gentleman, and what he says about the eurozone agreements at the weekend is absolutely worth listening to and having regard to. The point I would make is that for the first time in a long time there was a series of steps that countries such as Britain had been calling for about using the facilities to buy bonds and about direct recapitalisation of banks. They are hedged around with all sorts of ifs and buts, but that was progress. On the truth and reconciliation commission issue, I note that the right hon. Gentleman said that a full independent public inquiry is not the right way ahead. I think the way ahead we have suggested will be swift enough, but also strong enough to get to the answers—and to get to them quickly.

[Mr John Redwood (Wokingham) (Con)]

Given that there is practically no unpledged money left in the current bail-out fund and given that the new bail-out fund does not exist, did the member states assembled discuss how they are going to get hold of the £500 billion or more that they might need, and are they proposing to borrow it on the credit rating of countries such as Spain and Italy?

[The Prime Minister]

As ever, my right hon. Friend is incisive at getting to some of the difficulties in what is being proposed. I think we should be pushing the eurozone members into taking the short-term steps to try to help with financial stability, which buying bonds, directly recapitalising banks and sorting out issues of seniority are all about. We have to recognise the great difficulties they are going through in trying to raise adequate amounts of finance, but none the less it is in our short-term interests that they do deal with the crisis at the heart of the eurozone, because the high interest rates in Italy and Spain are not only hurting Italy and Spain; they are hurting us, too.

[Mr Jack Straw (Blackburn) (Lab)]

The right hon. Gentleman failed to answer the question from my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, just a moment ago, in which he asked the Prime Minister to recognise that the pressure for deregulation and a very light touch in the City was coming very strongly from him and—[Interruption.] Oh yes it was. So if there is to be truth and reconciliation, will there be some acceptance by the Prime Minister and the Chancellor that they got it woefully wrong in putting the pressure on us?

[The Prime Minister]

Everyone will have to account for what they have said and all the rest of it, but I have to ask: who was in charge for the last 13 years? Who was the City Minister who carried out this action? If the right hon. Member for Blackburn (Mr Straw) wants to go into the interstices of who said what and did what, I can tell him that the Conservative party—I do not think I was in Parliament at the time—actually voted against the tripartite arrangement that has so badly failed.

[Sir Menzies Campbell (North East Fife) (LD)]

May I welcome my right hon. Friend’s continuing, and occasionally warm, endorsements of Britain’s continued presence in Europe? Does he also agree that those who wish to take Britain out of Europe now have a duty to provide detail as to what the political and economic cost would be, rather than vague promises of the Elysian fields?

[The Prime Minister]

My right hon. and learned Friend makes an important point, which is that we need to make sure that the whole debate about our engagement in Europe is properly informed. I do support our membership; I do think that the single market is vital for us and that determining the rules of that market matters for us. However, it is important that we air these facts and figures, and the balance of competences review that will be launched shortly will help all parties, all politicians and all parts of civic society in Britain to see some of the arguments and some of the facts and the figures. I think that that will help to inform the debate.

[David Miliband (South Shields) (Lab)]

Further to that question, I wonder whether there are any circumstances, further to the Prime Minister’s negotiations, in which he will recommend to the British people that they should leave the European Union.

[The Prime Minister]

As I said, I want to stay in the European Union for the reasons I have given. But I will always stand up for the British national interest as I see it. That is the job of being Prime Minister.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

My right hon. Friend will know that my opposition to excessive centralisation of power in Europe has never been in doubt. Indeed, the only doubt that my Euroscepticism has given rise to was that which John Major cast upon my paternity. Will the Prime Minister, none the less, agree that what we need is not a commitment to an in/out referendum, but a commitment to insisting that our partners give us back powers to govern ourselves if they want our agreement for them to subordinate themselves further to centralisation in Europe?

[The Prime Minister]

My right hon. Friend, whose parentage I have never questioned, nor would I ever do so, puts it very well. The fact is that Europe is changing very rapidly. The eurozone countries, in my view, are going to need to take some pretty bold integrationist steps. That will provide opportunities and openings for countries outside the eurozone, such as Britain, and we should maximise those opportunities to pursue our national interest. I firmly believe that that means remaining at the table for those things that really matter for us, but I think that is what we should do.

[Mr Peter Hain (Neath) (Lab)]

Is the Prime Minister concerned that on Europe and the referendum he sounds more like John Major by the day?

[The Prime Minister]

What matters is doing the right thing. I think that there are two positions that do not make sense. First, unless you actually want to leave the European Union now, and some people do, an in/out referendum now is not the right answer. But ruling out, for ever and a day, any form of getting the consent of the British people for what I would call a fresh deal and a fresh settlement in Europe also does not make sense. This is a question that all party leaders are going to have to answer. We are providing the answer—the right hon. Gentleman’s party leadership will have to do the same thing.

[Andrea Leadsom (South Northamptonshire) (Con)]

Will my right hon. Friend agree to consider carefully that the Fresh Start project’s options for change paper, which is being launched next week by my right hon. Friend the Foreign Secretary and is the culmination of a year’s work by parliamentarians from all parties and external experts, might possibly offer some of the solutions to the type of reform we are looking for in the EU? Will he also agree to reconsider the issues of competition in the banking sector that, in my opinion, are one of the major reasons why we are in this appalling situation?

[The Prime Minister]

I shall certainly consider very carefully what my hon. Friend says. As I said, the Foreign Secretary will shortly set out the balance of competences review and how the process will work. I hope that that will inform debate; clearly, the piece of work undertaken by her and her colleagues will help. She mentions the banking sector and there are clearly rules for financial services at the level of the single market that are required and it is very important that we have a say over them. The fundamental elements of banking union, however, flow from the single currency, not the single market. That is why that union should be carried out at 17, not at 27.

[Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)]

What discussions were there of the likely effects of the oil embargo on Iran and were there any discussions on the knock-on effect on prospects for a sustainable peace in the middle east?

[The Prime Minister]

There were brief discussions about Iran because the discussions about the single currency, the eurozone and the growth compact were so protracted. There is strong agreement in the European Union that the sanctions are right and necessary and I think that if we could get Iran to take a more sensible path on the issue of civil nuclear power, that would help unlock the problems of middle east peace rather than making them worse.

[Mr William Cash (Stone) (Con)]

I was heartened by my right hon. Friend’s interview on the referendum question, but given his negative answer to me on 23 May on that same question, will he take the advice of the London taxi driver to whom I have just spoken, who just said, “The British people are not stupid; they understand the position. Give them renegotiation, give them a referendum, get rid of the coalition agreement—then, he will be re-elected by a massive majority.”

[The Prime Minister]

I can see that it must have been a particularly satisfying and heart-warming taxi ride for my hon. Friend. As I have said, I do not think that an immediate in/out referendum is the answer, but ruling out a referendum is not the answer either. There are opportunities to build the sort of settlement we want in Europe and the Government believe that we should take advantage of them.

[Helen Goodman (Bishop Auckland) (Lab)]

Will the Prime Minister tell the House what indications he has had from European colleagues that they would be likely to agree the repatriation to this country of the social chapter and other powers?

[The Prime Minister]

We were able to renegotiate the bail-out power and get out of that part of the treaty, so we have had some small success on that agenda already. There is a big change coming in Europe. I cannot say how fast it is going to go and whether it will be a number of small treaties or a bigger treaty, but there will be opportunities. The eurozone countries will have to do more to integrate, which will give others opportunities to pursue their own agendas.

[Conor Burns (Bournemouth West) (Con)]

My right hon. Friend the Prime Minister will be aware that the British public are heartily sick of broken promises on European referendums, not least because of the decision of the Labour party to renege on a referendum on the Lisbon treaty. Can my right hon. Friend see the attraction of passing into law in this Parliament a binding commitment to a referendum in the following Parliament and that it might well strengthen his negotiating hand if he can look his fellow Heads of Government in the eye and know that any deal that he negotiates will have to be put to the British people, whose government, after all, we are talking about?

[The Prime Minister]

I take seriously my hon. Friend’s point and there is some merit in that argument. We have legislated in this Parliament for a referendum lock that we very much hope will apply to future Parliaments. The problem with the approach he suggests is that the change in the eurozone and in Europe is happening so rapidly that it is quite difficult to predict in legislation passed in this Parliament the exact nature of any referendum in a future Parliament, so I do not think that is the right way ahead. As I wrote in the article in The Sunday Telegraph, I think we need to show some tactical and strategic patience, knowing that we can safeguard our existing position with the referendum lock and make the most of the changes that are happening in Europe, as I have set out.

[Mr Denis MacShane (Rotherham) (Lab)]

Will the future referendum that the Prime Minister is now semi-pledging also cover treaty obligations relating to the European convention on human rights and the Council of Europe?

[The Prime Minister]

As the right hon. Gentleman knows, the two issues are separate, in that there is the Council of Europe, and the European Union. There is, of course, the attempt to make the European Union a signatory to the European convention on human rights, which I have considerable difficulties with, but as things stand, the two things are separate.

[Sir Tony Baldry (Banbury) (Con)]

Britain is a trading nation. Does my right hon. Friend agree that, as a trading nation, it needs unfettered access to Europe’s single market, and also a clear voice and say in the rules of that market?

[The Prime Minister]

My hon. Friend is absolutely right. That is at the heart of the case for remaining in the European Union. We export a large share of our gross domestic product; we need Europe’s markets to be open. I would not want to swap the status that we have, of having both access to the single market and a say over the rules of the single market, for the status of a country that only has access. It is very important, though, that as the eurozone develops and integrates, we make sure that there are safeguards to prevent caucusing at the eurozone level that could disadvantage us in the single market. There is a whole series of steps that we have to take, some of which are about safeguarding what we have, some of which are about making the most of the future, and all of which are achievable if we play our cards right in the years ahead.

[Kate Hoey (Vauxhall) (Lab)]

May I simply ask the Prime Minister to look at his terminology? In his statement, he mentioned Britain 12 times; he did not mention the United Kingdom once. Does he agree that if there is to be a referendum, which I think is inevitable, the people of Northern Ireland should have a very strong say? He must, in the European Council, refer to the United Kingdom, or the UK for short; saying “Britain” excludes Northern Ireland.

[The Prime Minister]

As ever, the hon. Lady is right about almost everything, and I am rightly chastised.

[Mr Edward Leigh (Gainsborough) (Con)]

What I suspect the majority of British people want is what they were offered in the only referendum that they have ever been allowed on Europe, namely a say on whether there should be a common market—no more, no less. Given that our partners have the overwhelming balance of trade in their favour, why should they veto our negotiation for a free market area? The door is unlocked; why does the Prime Minister not walk through it and renegotiate?

[The Prime Minister]

The point that I make to my hon. Friend, whom I respect hugely for his views, is that what we have in the single market is not just a free trade area, but a say in the rules about how that free trade area works. It does seem to me that absolutely central to Britain’s case for remaining in the European Union are those two key points. I think that there is a difference between a single market with rules and simply a free trade agreement. That is what I think we should continue to pursue.

[Keith Vaz (Leicester East) (Lab)]

May I welcome the continued support that has been given to Greece? It is not just a case of Greece repaying its debts; it is about the responsibilities that it has to the rest of the EU. Last year, as the Prime Minister knows, 100,000 people illegally entered Greece through Turkey. Will we ensure that those resources are directed towards protecting the borders of the EU?

[The Prime Minister]

I know that the right hon. Gentleman has great expertise in this area. It seems to me important that we support organisations such as Frontex, and the means by which those countries can protect their borders, but in all these European negotiations we always have to be careful about the language of burden sharing, because of course when we look at where people actually end up, in terms of asylum claims, it is often countries such as Britain, Sweden, and Denmark that bear a very large share of the burden, and we always have to be alert to that argument.

[Philip Davies (Shipley) (Con)]

Will the Prime Minister remind his coalition partners that in their 2010 manifesto, they said:

“The European Union has evolved significantly since the last public vote on membership over thirty years ago. Liberal Democrats therefore remain committed to an in/out referendum”?

Given that, and given that I know my right hon. Friend always likes me to remind him that he is in coalition with the Conservatives as well, may I remind him that an in/out referendum is now inevitable in this country at some stage, and that it would be to his advantage to be ahead of that curve, rather than being seen to be dragged into it later on?

[The Prime Minister]

My hon. Friend makes a good point. He often rightly criticises me for not delivering every part of Conservative policy, and now he is having a go at me for not delivering Liberal Democrat policy as well. I do occasionally make that point to our coalition partners, but as I have said, I think the sensible position to take is not having an immediate in/out referendum, but not ruling out a referendum in the future. Europe is changing; there are opportunities for Britain, and I am determined that we should take them.

[Mr Dennis Skinner (Bolsover) (Lab)]

With all these mixed messages, unlike the Thatcher regime, can the Prime Minister tell us whether he came to his present opinion before or after he met Andy Coulson?

[The Prime Minister]

Just to clear it up, I did not meet or speak with Andy Coulson at the weekend.

[Mrs Anne Main (St Albans) (Con)]

I completely disagree with my right hon. and learned Friend the Member for Kensington (Sir Malcolm Rifkind). With the chaos in Europe, there has never been a better time for other EU members to mind their business, not ours, and now is the right time to try to have a debate with them about which powers we would like to bring back, before we have any form of referendum.

[The Prime Minister]

My hon. Friend makes a powerful point. The argument that I would make is that although there may well be opportunities because of the needs that other EU members currently have, respecting the fact that they are fighting a fire in the eurozone, which is their urgent work that benefits us if they can deal with those bond spreads, deal with those banks, deal with those problems, the right time to consider institutional changes is as institutional reforms and treaties come through.

[Sir Stuart Bell (Middlesbrough) (Lab)]

The Prime Minister has referred several times to the national interest. He also referred to the brief discussion on the ban on oil imports from Iran. Is not that ban an example of how the European Union acting in concert can assist the British national interest?

[The Prime Minister]

Yes, I think that it is, but the argument that I would make is that that was an agreement reached through unanimity. It shows that what is required often in Europe is not institutional structures, but political will to come together and do the right thing. That is what we have done in relation to Syria, Iran and eventually Libya, so I am all for co-operating and often leading the debate with our European partners about foreign policy priorities. That is what we have done about Burma and sanctions, but I do not think that means the endless passage of powers from Britain to Brussels—in fact, quite the opposite.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

May I associate the Prime Minister’s Liberal Democrat colleagues with his expressions of condolence and sympathy following the deaths of our servicemen in Afghanistan? Does the Prime Minister agree that, while it is of course right that at the last election his party had a set of manifesto commitments on Europe, as did the Liberal Democrats, the coalition agreement is clear? There is provision for a referendum if there is a handover of power from the UK to Brussels. There is no provision for any other referendum, and we are agreed that the priority, as evidenced last weekend, is that 27 European countries work together to deal with the imminent, urgent economic crisis across Europe.

[The Prime Minister]

My right hon. Friend makes an important point. To be fair, in terms of coalition policy on Europe, we said clearly that there would be no further passage of power from Britain to Brussels. We have said that we should protect and defend the single market. Let us look at the achievements over the past couple of years. We have got out of that bail-out fund; we have promoted the single market in energy, digital and services; and we have written into conclusions after conclusions safeguards for the single market. That is all to the good, but all party leaders, whether Conservative, Liberal Democrat or Labour, must think of the future— how we evolve policy in a changing Europe, how we maximise the benefit for Britain, and how we take the British people with us. That is exactly what I am doing.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

The Prime Minister suggests the setting up of a parliamentary committee of inquiry. Whenever we have such inquiries and when they are compared with judge-led inquiries, the big difference is access to information, such as e-mail exchanges and other background material. Will he ensure that in its terms of reference such a committee will have the same powers as a judge-led inquiry?

[The Prime Minister]

The short answer to that is yes, I want it to have those powers. What Parliament has behind it is that, if people do not produce those policies, papers and people, they are in contempt of Parliament. We are seeing with the Culture, Media and Sport Committee inquiry that the whole concept of being in contempt of Parliament is being strengthened, and that is all to the good. The committee will have the powers that it needs and the expertise that it needs, but crucially it will be able to get on with the job straight away.

[David T. C. Davies (Monmouth) (Con)]

Does the Prime Minister agree that the last time we saw the current levels of interference in British domestic affairs, it led to the traumatic split with the Catholic Church? Does he agree that we would be better off having a second referendum than a second Reformation?

[The Prime Minister]

The point I would make—[Interruption.]

[Mr Speaker]

Order. I want to hear the Prime Minister on the subject of reformations and other matters.

[The Prime Minister]

As a rather wishy-washy member of the Church of England, I am finding answering this question rather difficult. The point I would make is that there are opportunities, but we should show patience because our colleagues in Europe are dealing with a fire-storm. We can pursue our interests and, I think, deliver on them over the medium term.

[Barry Gardiner (Brent North) (Lab)]

The EU decision on the oil embargo on Iran has caused great joy in the paint shops around the Arabian Gulf, as vessels have gone into dry dock to be repainted, renamed and reflagged. Can the Prime Minister set out for the House what practical steps are being taken to monitor Iranian vessels to ensure that there is an embargo in fact as well as in name?

[The Prime Minister]

The hon. Gentleman raises an important point. I believe that the embargo will be robust and we will make sure that it is policed. I do not want to set out in public what all those measures will be, but we will make sure that the points he makes are taken on board.

[Mark Pritchard (The Wrekin) (Con)]

Far be it from me to correct the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), but I understand that the Liberal Democrat manifesto referred to provision for a referendum if there is

“fundamental change in the relationship between the UK and the EU.”

The Prime Minister said in his statement that “Europe is changing rapidly and fundamentally.” Is it not time we had an in-or-out referendum in this Parliament, rather than relying on the outcome of the next general election, which of course nobody can predict?

[The Prime Minister]

I completely understand the view held by my hon. Friend and a number of other colleagues on our Back Benches either that we should want to get out straight away and so should have an in/out referendum straight away or, to be fair to him, that the change has been so fundamental that the referendum should be held sooner rather than later. I have set out my argument; I think it would be better not to do that immediately for the reasons I have given. I think that there is an opportunity for what I would call a fresh settlement and fresh consent that would be in the national interest of the whole United Kingdom.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Well, it looks like we are going to have a referendum, maybe in two or three years’ time, and maybe there will be more than one question—a Euro-max option—and we do not know what the question will be, yet the Prime Minister has the gall and temerity to question the Scottish National Party’s referendum process. Does he believe that all this delay for two or three years will create a great deal of business uncertainty across the United Kingdom?

[The Prime Minister]

I have to say gently to the hon. Gentleman that there is a slight difference. As I understand it, his party has a very clear view that it wants to leave the United Kingdom, and fought an election in Scotland on having a referendum to do just that. What I am trying to do is help him to have that simple, single-question referendum so that the country can make a decision. I profoundly hope that Scotland will vote to stay in the United Kingdom, which I think would be in Scotland’s interests and in all our interests, but I have to say that we should not have to wait quite as long to get on with it as his First Minister wants.

[Mr John Baron (Basildon and Billericay) (Con)]

The Prime Minister has repeatedly said that now is not the time for an in/out referendum, so will he confirm that the letter I and 100 other colleagues sent to him urged him to legislate in this Parliament for a referendum in the next Parliament and so address the mass public distrust in politicians promising referendums on Europe, because they remember all too well the Labour party’s broken promises?

[The Prime Minister]

I absolutely hear what my hon. Friend says. I do not want to misrepresent him, and if I have done so in any way I absolutely apologise. That was never my intention. I read very carefully the letter he sent to me. He is not suggesting an immediate in/out referendum. As I said in reply to my hon. Friend the Member for Bournemouth West (Conor Burns), although it is possible to legislate in one Parliament to bind the next, as we have done with the referendum lock, I do not think that it makes as much sense to do that with a referendum for the future, because we do not know the exact pace of developments in the eurozone or the exact changes that will take place in Europe; I do not think that that is the right answer.

[Chris Bryant (Rhondda) (Lab)]

The coalition agreement makes another commitment in relation to treaty change: that the Government will campaign to abolish the ludicrous caravanserai between Brussels and Strasbourg, which we would all agree should be abolished. I am absolutely certain that the Prime Minister has got absolutely nowhere with that and possibly has not yet even mentioned it to the new French President, so why should people trust him when he promises more renegotiation and has not even managed to secure the one thing he is committed to?

[The Prime Minister]

I am still waiting for my apology, which I notice I have not yet got. Perhaps there will be a few more questions first. The hon. Gentleman will know that in order to deal with the problem of the two Parliaments we need a treaty change, so he should want to bring it on.

[Nicholas Soames (Mid Sussex) (Con)]

May I associate myself with the remarks of my hon. Friend the Member for Banbury (Sir Tony Baldry) about the importance of trade and the single market? Does the Prime Minister agree that if we are to see a return to prosperity in the European Union, the rules of the World Trade Organisation need to be vigorously enforced? To that end, it would be fatal were we not to be sitting at the table when those matters are discussed.

[The Prime Minister]

My right hon. Friend makes an important point. One of the things that we have made progress on over the past two years is the EU free trade deals with fast-growing parts of the world, including Korea, and obviously negotiations are under way with Singapore, India and others, including possibly Japan. In recent weeks, we have also made some quite exciting progress with the idea of an EU-US trade deal, so there are things that European nations can do together for our mutual benefit. Trade and the single market are clearly absolutely up there, and I very much agree with my right hon. Friend on that point.

[Mr David Winnick (Walsall North) (Lab)]

After what has happened today and the responses from the Prime Minister’s side of the House, does he now have some sympathy for what John Major had to endure from his party during the 1992 to 1997 Parliament?

[The Prime Minister]

I worked very closely with John Major and admire him very much. People now make a reassessment and see that he left this country an excellent economic record, which the Labour party completely squandered with a whole decade of debt.

[Mr Stewart Jackson (Peterborough) (Con)]

Irrespective of our personal views, why is it right that the people of Scotland will be given a potentially irreversible in/out referendum by 2014, yet the people of the United Kingdom will not be given a similar plebiscite on a matter of great import—this country’s relationship with the European Union?

[The Prime Minister]

I have great respect for my hon. Friend, who takes a very clear view about which he feels very deeply. I think that there is a significant difference, which is that in Scotland, like it or not, the Scottish National party is committed to leaving the United Kingdom and was elected with a mandate for a referendum to do just that, whereas in the case of the United Kingdom and the European Union, most people in our country want a fresh settlement with fresh consent, rather than the binary choice of leaving right now or, indeed as I said in my statement, voting to stay in right now and thereby almost confirming that status quo, which I am not satisfied with—and I do not think many people are.

[Paul Flynn (Newport West) (Lab)]

How many of the hundreds of new jobs that will come from setting up the patent court will be located in the city that has been the home of the brilliantly successful United Kingdom Patent Office, now the Intellectual Property Office, the city of Newport?

[The Prime Minister]

I do not know the answer to that question; I will have to look very carefully and, perhaps, reply to the hon. Gentleman. The parts of the court that we will have will be pharmaceuticals and life sciences, an area of great national expertise, and it is a good deal for London and a good deal for the UK.

[Joseph Johnson (Orpington) (Con)]

Unemployment in the eurozone today hit a fresh record high of 11.1%, with youth unemployment reaching the terrible level of 22.6%. Whatever happens to the euro, what recognition is there in Brussels of the risk of creating a lost generation unless the EU as a whole takes seriously the need to do serious labour market deregulation and to push ahead with the completion of the single market?

[The Prime Minister]

My hon. Friend makes a very important point. If we look at the different rates of youth unemployment throughout Europe, we find that we are certainly not one of the best, but certainly not one of the worst. We can look at countries such as Germany and Holland, which have very low rates of youth unemployment, different approaches to welfare from ours and different approaches to training, and we have a lot to learn from them, but overall what my hon. Friend says about opening up the single market—deregulating—is one of the key answers to getting young people back to work.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

Can the Prime Minister explain to the House why existing anti-fraud legislation does not work in the case of the LIBOR rate-setting scandal?

[The Prime Minister]

As I have said, today we have asked the Serious Fraud Office to look specifically at the issue and to see whether there are criminal acts that it can address. It has the resources that it needs, and if it needs more resources it will be provided with them, but we have a Serious Fraud Office, which is the authority for both investigation and prosecution, to deal with just that question.

[Richard Harrington (Watford) (Con)]

I am sure that the Prime Minister remembers from his recent visit to Watford the several multinational companies, such as Medtronic and Hilton Worldwide, whose trade depends very much on their using the UK as a hub for their European operations. With that in mind, could he assure the thousands of my constituents who work for those companies that nothing that happened in the European Council will be detrimental to their interests—and, above all, that he will not be bounced into an in/out referendum that could put their jobs at terrible risk?

[The Prime Minister]

My hon. Friend is absolutely right. Britain benefits from being in the single market and having a say over the single market rules. One of the things that has happened over the last two years has been that, because of investments by companies such as Nissan, Honda and Jaguar Land Rover, we in the United Kingdom are now a net exporter of cars again, for the first time since 1976. Access to the single market and our role in the single market play a key part in that investment.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Businesses in my constituency are worried about jobs and growth. Given the size of our trade relationships with Europe, they want a Prime Minister who will show leadership in getting growth across Europe. What progress did the Prime Minister make on a growth package and how did he see that as being in the UK’s national interest?

[The Prime Minister]

I am grateful for the hon. Lady’s question. There was good progress on the growth compact. I think people had expected that it was all going to be an agenda, important though that is—project bonds and European Investment Bank spending is part of it. But the hon. Lady will see that in the growth compact, copies of which will be available in the Library, there are very clear commitments to the services directive, energy liberalisation and the digital single market. That is very much the British, and also Italian, agenda, which we have driven into the growth compact, which will really help our country.

[Several hon. Members]

rose—

[Mr Speaker]

Order. I am keen to accommodate more colleagues, but very large numbers of them are standing and I will not be able to accommodate them all. To maximise the number of participants, brevity will be of the essence.

[Richard Drax (South Dorset) (Con)]

The Prime Minister urges close integration as one solution to the problem in Europe. Closer integration, even among a smaller number of eurozone countries, is already leading to economic chaos and big civil disorder. Surely he should be advising everyone to go back to their currencies, except, perhaps, for the powerful countries in Europe, and then rebuild the economy, rebuild jobs and rebuild wealth.

[The Prime Minister]

We cannot make choices on behalf of other European countries. The eurozone countries say that they want a single currency and that they want that single currency to work. If that is the case, I believe that it follows that they will have to integrate more deeply. It remains to be seen whether all of them will be able to do that. What we see in Europe, week after week, are the difficulties of taking those steps. None the less, we cannot instruct those countries not to do something. That is their choice. We have made our choice, which is to stay out of the eurozone. As I said, we are not going to be involved in that integration and we will not be paying those bills. I hope that my hon. Friend can be reassured on that basis.

[John Cryer (Leyton and Wanstead) (Lab)]

Can the Prime Minister confirm that he is prepared to see the sacrifice of sovereignty and democracy in Greece and other eurozone countries to defend the single currency?

[The Prime Minister]

I would not put it like that. I cannot tell the Greek people what to do. My view is that the right answer for Britain is to be outside the single currency and not to be involved in this integration. People can go back to my election address in 1997, when I said that I opposed Britain’s joining the single currency. The reason why I opposed it was that I did not think it right to give up that sovereignty and level of democracy. That is a choice that those countries and those people must make; it is not for us to make it for them.

[George Eustice (Camborne and Redruth) (Con)]

I agree with the Prime Minister that the priority for this country should be to negotiate the return of powers from the EU and that any referendum should come at the end of that process, not the beginning. However, does he agree that we should reject the defeatism of the Leader of the Opposition and start to articulate the case for an alternative vision for the future of Europe?

[The Prime Minister]

My hon. Friend makes a very important point. There has been a defeatism from the Labour party, including when it was in government. When confronted with difficult choices about the rebate, it gave it up; and when confronted with the issue of the European constitution, it promised a referendum and did not deliver it. In the end, it always went along with absolutely everything. The Labour party has not yet told us whether it would sign the treaty that I refused to sign back in December. When it comes to this, it is the status quo party.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

There are significant misgivings about the impact of a banking union on the financial services sector in this country; the Prime Minister commented on some of them earlier, during his statement. What reassurance can he give the House that the strategy that he is currently following will not lead to the long-term disadvantage of finance in this country?

[The Prime Minister]

I do not believe that it will. We are trying to protect our interests in terms of the single market and our strong financial services industry. I believe that a banking union flows from the fact that there is a single currency rather than from the fact that there is a single market. That union should be at 17, and we will be able to protect our interests from outside it.

[Steve Baker (Wycombe) (Con)]

I welcome the progress that my right hon. Friend is making towards obtaining the full-hearted consent of the British people. Will he remind us, please, who denied the British people their say on the Lisbon treaty?

[The Prime Minister]

My hon. Friend makes a good point. The fact is that a promise was made of a referendum on the European constitution, which changed into the Lisbon treaty. The previous Government had every opportunity to deliver that referendum as country after country went through passing that treaty into law, and they completely failed and let the country down.

[Nia Griffith (Llanelli) (Lab)]

Will the Prime Minister give us a little more detail about the evidence that he used to convince his EU counterparts that the UK Government are serious about increasing demand, particularly in the light of the latest disastrous UK growth figures?

[The Prime Minister]

The point I would make to the hon. Lady is that there are parts of the growth compact that include expanding the role of the European Investment Bank, and we support that. We support the idea of project bonds—innovative finance—because part of the problem is the need for an active monetary policy required right across the European Union. However, we should not give up on the real wins for our economy of completing the single market in energy, digital and services, because real increases in both demand and supply could come about from that.

[Neil Carmichael (Stroud) (Con)]

No doubt there will be many more EU Councils to come, so does the Prime Minister think that he would be helped or hindered in his negotiations to protect Britain’s interests if there were an in/out referendum in the foreseeable future?

[The Prime Minister]

I am sure that the first half of my hon. Friend’s question is right. I have been Prime Minister for only two years, but I feel that I have spent about half my life in the Justus Lipsius building in Brussels, and I am sure that other summits will be coming along. The point about having an in/out referendum now is that if your view is that Britain should leave the European Union, then of course that is the logical thing to do, but if you want to fight from the inside for a fresh settlement and then a fresh mandate, the approach that I am setting out is the right one.

[Graham Stringer (Blackley and Broughton) (Lab)]

The Prime Minister has claimed success with the bail-out funds, which, of course, were not part of any treaty. Most of the powers that have been transferred from this House are in treaties. If he fails to renegotiate those powers and return them to this House, will he then agree to an in/out referendum?

[The Prime Minister]

On the bail-outs, I do not think that the hon. Gentleman is correct. The fact is that a treaty article was used for those bail-outs, and we have replaced what was called the EFSM, the European financial stabilisation mechanism, with the ESM, the European stability mechanism. I got it written into the preamble to the treaty that Britain would not be included in it and would not have to contribute to it. That is to our advantage, and it shows what you can achieve if you are prepared to negotiate hard and not just give in to whatever people want.

[Matthew Hancock (West Suffolk) (Con)]

I warmly welcome the announcement of the review into banking to replace the failed regulation drafted by Labour Members, but will the Prime Minister ensure that, as a deterrent, criminal sanctions are available in future for those bankers who are wholly irresponsible?

[The Prime Minister]

My hon. Friend makes an important point. The Chancellor will be going into more detail on this issue. We need to ensure that the regulators and the SFO have all the powers they need. People will not understand why crimes on the high street are punished in one way but crimes in the banks and elsewhere are punished in another way. That absolutely needs to be cleared up, and I am sure that this Government will do so.

[Wayne David (Caerphilly) (Lab)]

Given the Prime Minister’s support—in theory, at least—for a referendum on Europe, what is his position now with regard to a referendum on Lords reform?

[The Prime Minister]

We have set out in the House of Lords Reform Bill a very clear pathway for the House of Lords. House of Lords reform was in the hon. Gentleman’s party’s manifesto, it was in our manifesto, and it was in the Liberal Democrat manifesto, so I do not think a referendum is really necessary.

[Mr Peter Bone (Wellingborough) (Con)]

I can report that the relationship between Mrs Bone and the Prime Minister is blooming. I have just discovered that the Prime Minister has invited Mrs Bone to Downing street next week. She is very excited about the renegotiation and the Prime Minister’s words on the referendum. Could he please her even more at next week’s meeting by promising legislation in this Parliament for an EU referendum in the next Parliament?

[The Prime Minister]

As ever, I am looking forward to my meeting with Mrs Bone, but—how can I put this?—I do not want to get her too excited before the big day. I am afraid that I cannot satisfy my hon. Friend on that basis. We have in place the referendum lock, which I think should reassure Mrs Bone a lot.

[Mark Hendrick (Preston) (Lab/Co-op)]

What game is the Prime Minister playing? He is encouraging eurozone members to integrate closer and at the same time encouraging his Back Benchers by saying that we will have a referendum that could bring us out of the European Union.

[The Prime Minister]

I do not really understand what lies behind the hon. Gentleman’s question. It is intellectually coherent to argue that if countries want to be in the eurozone and to have a working single currency, they must take at least some of the steps that other single currencies, such as the dollar and the pound sterling, have taken. That means that they have to stand behind weaker parts of the union and that they need things such as joint debt issuance and a single banking system. That is just a fact of economic life. I see no contradiction in arguing that Britain should be outside the eurozone with a looser relationship with the European Union and that those inside the eurozone will have to take at least some of the steps that I have set out. If they do not, I think that the eurozone will have real difficulties.

[Mr James Clappison (Hertsmere) (Con)]

Does not the history of our membership of the European Union demonstrate that there is not just an issue with the single market, but that there is more of an issue with the ever closer union that is enshrined in EU treaties? Will my right hon. Friend assure us that to be meaningful, a referendum must encompass the question of ever closer union?

[The Prime Minister]

That goes back to one of the problems with the referendum in the 1970s, when people did not receive a full explanation of all that was envisaged by the original treaty of Rome. I am clear that I do not support ever closer union. I do not want to see an ever greater transfer of powers from nation states to Brussels. However, I think that Britain and the European Union can work very well together to maximise the single market and our co-operation on matters such as foreign affairs, while ensuring that it is in our national interest.

[Mr David Anderson (Blaydon) (Lab)]

Was the financial transactions tax spoken about at the weekend, whether formally or informally? Does the Prime Minister not realise that the people of this country would welcome that as a way of showing that bankers are being made accountable for their appalling behaviour?

[The Prime Minister]

The financial transactions tax was mentioned, because the growth compact says clearly that a number of eurozone members will go ahead with it. I do not support it and Britain will not take part, because unless there is agreement all over the world, the transactions will go to jurisdictions that do not have the tax. That would cut our jobs, our investment and our GDP. The people who would pay for such a tax would be not the bankers, but the pensioners, and I do not think that that is sensible.

[Nigel Adams (Selby and Ainsty) (Con)]

How bad does the Prime Minister think the financial damage to the UK would have been had we not got ourselves out of the euro bail-out mechanism?

[The Prime Minister]

I am grateful for my hon. Friend’s question. We can start to count the cost, because with things such as the Spanish bank bail-out, we can work out what percentage we would have paid. We have saved Britain considerable amounts of money by ensuring that we are not involved in the bail-outs.

[Mr William Bain (Glasgow North East) (Lab)]

Economic demand is continuing to fall across the eurozone, youth unemployment in Greece and Spain reached 52% today, and 5.5 million young people are unemployed across the EU. When will the Prime Minister finally acknowledge that the answer to such a chronic crisis of demand and jobs can never be harsher austerity?

[The Prime Minister]

The point that I would make to the hon. Gentleman is that because we are outside the euro, as well as having tough fiscal targets, which frankly anyone in my position would have to deliver to deal with the debt and the deficit that we were left, we can have a very accommodating monetary policy, with ultra-low interest rates. Our monetary policy is our own to determine because we are outside the euro. That is the difference between the situation in Britain and the situation in countries that are inside the eurozone.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I completely support the Prime Minister in saying that the answer is less Europe, rather than more Europe. I wonder if I may bring his attention to part (j) of the communiqué, which states that the Commission will work on proposals for a

“common consolidated corporate tax base”.

Can I assume that Her Majesty’s Government will oppose those moves, as we are cutting corporation tax here, not trying to raise it to European levels?

[The Prime Minister]

He can.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

It is clear that the type of referendum that the Prime Minister has in mind is one in which the choice is to vote in favour of whatever settlement we manage to extract or in favour of the status quo. Does he think such a referendum would satisfy the in/out zealots on his Back Benches?

[The Prime Minister]

For people who want to leave the European Union—that is a perfectly honourable, respectable political tradition and Members on both sides of the House, probably even Liberal Democrats, have held that position—campaigning for an in/out referendum is a perfectly sensible thing to do. It is just not my view or the Government’s policy, and I do not think it is the hon. Gentleman’s, either.

[Mr Julian Brazier (Canterbury) (Con)]

I welcome the Prime Minister’s announcement of the progress in Russia’s views on Syria. Could we do more to persuade Russia that it is not in its interests to have a nuclear-armed Iran sitting on its border?

[The Prime Minister]

My hon. Friend is entirely right to make that point, and the Foreign Secretary has spent a lot of time with his Russian counterpart having exactly those discussions. There are great connections between resolving the situation in Syria and trying to get a resolution to the Iranian situation. It is worth noting that the oil sanctions have come in. They are tough and represent concerted action by the European Union, and I think they can make a difference.

[Huw Irranca-Davies (Ogmore) (Lab)]

The Prime Minister’s position on an EU referendum seems to be summed up in that comedy catchphrase, “Yes but, no but, yes but, no but.” Is he likely to come to a decision and resolve his teenage dilemma before the next election?

[The Prime Minister]

I think I would let Vicky Pollard stick to her own work and think of something different.

As I have said, I think there are only two positions that do not make sense for Britain. One is an immediate in/out referendum, which I do not think would be right for us, and the other is somehow to rule out for ever and a day any way of forming a new consent with the British people. I want to see a new settlement, and I think we should then get a new consent. That seems to me an entirely sensible and logical position to take.

[Mr David Nuttall (Bury North) (Con)]

At a time when EU countries are more indebted than ever before, why should the UK pay more so that the European Investment Bank can make yet more loans when there is an increasing risk that some of those loans will never be repaid? How much of the €10 billion increase in funding for the EIB will this country have to pay?

[The Prime Minister]

We account for about 14% of new loans made by the European Investment Bank. There is clearly weak lending by banks and there are problems in monetary policy right across the European Union, so the role of the EIB is helpful. It is important, though, that it maintains its very strong triple A credit rating.

[Several hon. Members]

rose—

[Mr Speaker]

Order. I am now looking for questions consisting of a single, short sentence. I am sure the hon. Member for Eltham (Clive Efford) will lead us in that exercise.

[Clive Efford (Eltham) (Lab)]

With reference to the answer that the Prime Minister gave to the hon. Member for West Suffolk (Matthew Hancock), if he genuinely believes that some of the actions of Barclays bank bordered on the criminal, will he now call for the resignation of Mr Bob Diamond?

[The Prime Minister]

I do not think it is for Prime Ministers to hire and fire bank chiefs. Mr Diamond will have to make himself accountable to his shareholders, and to this House when he answers questions on Wednesday. As I have said, I think he has some serious questions to answer.

[Dr Julian Lewis (New Forest East) (Con)]

Is it my right hon. Friend’s position that in any referendum on Europe while he is Prime Minister, the option of voting to leave the EU will not appear on the ballot paper?

[The Prime Minister]

No, that is not what I have said. What I have said is that I do not support an immediate in/out referendum. I believe that we should show strategic and tactical patience, and then I want to see a fresh settlement for which we seek fresh consent. The right time to determine questions about referendums and the rest of it will be after we have that fresh settlement. That is what we should do.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

The Prime Minister has repeatedly endorsed the United Kingdom’s membership of the EU this afternoon. Will he say something about the circumstances in which he would endorse withdrawal from the European Union?

[The Prime Minister]

What I have always said is that we should act in the interests of the whole United Kingdom, and I do not think our best interests would be served by leaving the European Union. That does not mean that we meekly and lamely accept the status quo. We are not happy with the status quo, as the British public are not. I am not a defeatist who says that you have just got to take what you are given. We have already shown in a small way, by getting out of the bail-out fund, that we can do better, and I want Britain to do better.

[Ian Swales (Redcar) (LD)]

Is the Prime Minister aware of any significant City institutions that want this country to leave the EU?

[The Prime Minister]

I am not aware of any City institutions that want that. On the whole, the City institutions want to ensure that our position in the single market is safeguarded. I am not a mercantilist, but it is worth noting that the one sector in which we have a massive current account surplus with Europe is financial services. It is therefore important that we ensure we safeguard the interests of that sector.

[Mr David Evennett (Bexleyheath and Crayford) (Con)]

I welcome my right hon. Friend’s statement. Does he agree that we must continue to battle for radical and substantial reform of the EU and not be deflected from our national interests of trade and the single market?

[The Prime Minister]

My hon. Friend puts it extremely well. We should pursue the national interest. The key argument is membership of and influence over the single market. That lies at the heart of our case for being in the EU.

[Mr Sam Gyimah (East Surrey) (Con)]

Does my right hon. Friend agree that a referendum is only a means to an end and not the end in itself, and that it is therefore important for us to work out what Europe we want to emerge from this crisis and what it means for the UK national interest, so that we give voters a meaningful choice in the matter?

[The Prime Minister]

My hon. Friend is absolutely right. Before we get to the referendum question, we must ask the prior questions of what exactly Britain wants in Europe, what we have at the moment, what we would like to change and how we can best change it. All those prior questions need to be asked before we get to the vital question of how to secure the full-hearted consent of the British people.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

More Eurocrats work in education and culture than on the internal market and services. Will my right hon. Friend stand up for hard-pressed British taxpayers and ensure that our scarce resources are directed towards jobs and growth by completing the internal market?

[The Prime Minister]

The depressing statistic my hon. Friend gives is important as we go into the budget negotiations. We must ensure that the EU budget is focused on things that are likely to help with growth, such as the single market, rather than on regulation. She makes a very good point.

[James Morris (Halesowen and Rowley Regis) (Con)]

There has been a lack of growth in Europe, but does the Prime Minister agree that, despite concerns about our future relationship with the EU, we should focus on policies that target growth, particularly in important sectors for British business, such as energy and the digital market?

[The Prime Minister]

My hon. Friend is entirely right. That is why our approach in Europe—the positive steps we have taken—is about building an alliance with other European countries to push forward the single market and free trade agenda. It has been heartening that in recent months, people such as Prime Monti of Italy and Prime Minister Rajoy of Spain have been involved in that. There is no longer a north-south divide in Europe: many countries are pushing for the growth agenda that has been championed by both parties in the coalition.

[Gavin Barwell (Croydon Central) (Con)]

I welcome the Prime Minister’s stress on the importance of the single market and his statement that, in other areas, the EU status quo is not acceptable. Does he agree that this issue will be solved in the long-term only by giving the British people their say?

[The Prime Minister]

My hon. Friend is right that, in the end, as Europe changes and as we seek this fresh settlement, we will need to seek a fresh mandate. That is what the Conservative party at least has clearly recognised.

[Henry Smith (Crawley) (Con)]

At last week’s meeting, the European Council president said it could take up to a decade to implement EU treaty change. Does my right hon. Friend agree that it is therefore more important that the Government passed a referendum lock in legislation?

[The Prime Minister]

My hon. Friend makes a very good point. Europe is changing rapidly and, as I have argued, quite fundamentally, but some of the institutional changes will take quite a long time to come through, because it is difficult for democratic states to achieve what the eurozone countries are engaged in. It will take time, which is why, as I have said, we need the tactical and strategic patience to maximise our national interest.

[Robert Halfon (Harlow) (Con)]

I welcome the fact that my right hon. Friend has opened the door to a referendum on substantial renegotiation. Will he resist EU regulations on biofuels, which are pushing up prices at the pumps for hard-pressed motorists?

[The Prime Minister]

One question about biofuels is their sustainability—that might be what lies behind my hon. Friend’s question, but I will have a careful look at it.

[Charlie Elphicke (Dover) (Con)]

Although I welcome the Prime Minister’s setting up the banking review, does he agree that the real crime is that there is any doubt at all that interest rate rigging is a criminal offence? If we are to have truth and reconciliation, should we not see a bit more responsibility and a bit less of the buck-passing that we have seen from former Labour Cabinet Ministers today?

[The Prime Minister]

My hon. Friend makes an important point, but although there has been silence from the Labour party in this House, in the other place its Whip stood up and said, “Absolutely, this is squarely Labour’s fault.” It is a pity we do not hear a bit of that from the party here.

[Andrew Bridgen (North West Leicestershire) (Con)]

Given that the UK is running a large trade deficit with the rest—[Interruption.]

[Mr Speaker]

Order. We must hear Mr Bridgen.

[Andrew Bridgen]

Given that the UK is running a large trade deficit with the rest of the EU, does my right hon. Friend agree that our European partners would have much to lose from erecting trade barriers with this country, if the British people decided to leave the EU?

[The Prime Minister]

My hon. Friend makes a good point. Britain is not only a huge market for other EU goods but a large net contributor to the EU budget. For that reason, as I often say, our membership entitles us to just as strong a view as those who have joined other parts of the EU, such as the single currency. We should never be frightened of making our voice heard.

[Jason McCartney (Colne Valley) (Con)]

Does the Prime Minister agree that the Leader of the Opposition is wrong to criticise those who bang on about Europe, because by doing so he is criticising my constituents who bang on about the EU directives, whether on fish discards, animal experiments on stray cats and dogs or the levying of VAT on aviation fuel for the Yorkshire air ambulance?

[The Prime Minister]

As ever, my hon. Friend speaks up robustly for his constituents. Some of the issues that we face in our constituencies relate to the extra regulation, extra cost and extra bureaucracy coming from the EU, so he is absolutely right to make that point.

[Mr Speaker]

Last but not least, we must hear the voice of Kettering, Mr Philip Hollobone.

[Mr Philip Hollobone (Kettering) (Con)]

Given that my right hon. Friend is now not ruling out a future referendum on our membership of the EU, is it not time for Her Majesty’s Government to commission an official, full-scale, independent, comprehensive audit of the costs and benefits of our membership in order better to inform that referendum when it comes?

[The Prime Minister]

When my hon. Friend sees the balance of competences review, he will find that a lot of what he seeks is in it. The idea is to look through the competences exercised by the EU and nation states, and to work out the costs and benefits, so that we have a proper and informed debate. Where he and I will differ, I suspect, is here: I think we benefit from having access to, and a say over, these markets, and that is a powerful argument for remaining in the EU. Like him, however, I am not happy with the status quo, and I want us to seek to change it and then get consent for it.

[Mr Speaker]

Order. I thank the Prime Minister, the Leader of the Opposition and the 74 Back Benchers who have questioned the Prime Minister in 62 minutes of exclusively Back-Bench time.

LIBOR (FSA Investigation)

Monday 2nd July 2012 Commons Chamber

16:52

[The Chancellor of the Exchequer (Mr George Osborne)]

On Thursday I updated the House on the Financial Services Authority’s investigation into Barclays and the attempted manipulation of the LIBOR market in the years running up to and during the crisis. The House has just heard from the Prime Minister, and I would like to give more details of the steps we are taking.

This morning I spoke to Marcus Agius, who confirmed that he was resigning as chairman of Barclays because of the unacceptable standards of behaviour within the bank. The Treasury Select Committee has called the chief executive of Barclays to account for himself and his bank on Wednesday, and I, like many people here, look forward to hearing his answers.

As I also said last week, every avenue for the possible criminal investigation of individuals involved in the attempted manipulation of LIBOR is being explored, but in the view of its chairman, Lord Turner, the powers given to the FSA do not allow it to pursue criminal sanctions. People in the country rightly ask why it does not have the necessary powers, and those who set up the tripartite system can answer.

People also ask whether the gaping holes in the existing law mean that no action at all is possible. After all, fraud is a crime in ordinary business, so why should it not be in banking? I agree with that sentiment, and I welcome the Serious Fraud Office’s confirmation that it is actively and urgently considering the evidence to see whether criminal charges can be brought, particularly in relation to the Fraud Act 2006 and false accounting. It expects to come to a conclusion by the end of the month, and we encourage it to use every legal option available.

I should like to address three further issues today: what happens to the money we get from the fines; what urgent changes are needed in the regulation of LIBOR and other markets to prevent such abuse occurring again and to ensure that the UK authorities have the powers they need to hold those responsible to account; and the wider issue of what went so badly wrong in the culture of our banking system and the way it was regulated, allowing such fundamental failures of basic standards of conduct to go unchecked and unchallenged. Let me take each issue in turn.

Last week, I said that we wanted to ensure that all future fines paid by the financial services industry should go to the taxpayer. Today, I can confirm that we will propose amendments to the Financial Services Bill in the autumn to make that happen. The new arrangement will apply to fines received from 1 April 2012, so the measure will include the Barclays penalty. From now on, the multi-million pound fines paid by banks and others who break the rules will go to the benefit of the public and not to other banks.

That brings me to the urgent changes needed to the regulation of LIBOR to prevent this from ever happening again and to ensure that in future the authorities have the appropriate powers to prosecute those who engage in market abuse and manipulation. I have today asked Martin Wheatley, the chief executive designate of the Financial Conduct Authority, to review what reforms are required to the current framework for setting and governing LIBOR. This will include looking at whether participation in the setting of LIBOR should become a regulated activity, at the feasibility of using actual trade data to set the benchmark, and at making initial recommendations on the transparency of the processes surrounding the setting and governance of LIBOR.

The review will also look at the adequacy of the UK’s current civil and criminal sanctioning powers, with respect to financial misconduct and market abuse with regard to LIBOR. It will also assess whether those considerations apply to other price-setting mechanisms in financial markets, to ensure that these kinds of abuses cannot occur elsewhere in our financial system. We need to get on with this, and not spend years navel-gazing when we know what has gone wrong. I am therefore pleased to tell the House that Mr Wheatley has agreed to report this summer so that the Financial Services Bill currently before Parliament—or, if necessary, the future legislation on banking reform—can be amended to give our regulators the powers they clearly need.

The review is essential to ensuring that we mend the broken regulatory system—introduced by the last Government—that allowed these abuses to happen, but the manipulation of the most used benchmark interest rate reveals the broader issue of the professional standards and of the culture in some parts of the financial services industry that was allowed to grow up in the years before the crisis and which still needs to change. I do not think that a long, costly public inquiry is the right answer. It would take months to set up and years to report. We know what went wrong, and we cannot wait until 2015 or 2016 to fix it.

In just six months’ time, we will bring forward the banking reform Bill, which will implement the recommendations of Sir John Vickers’ independent commission on banking. The Bill will bring far-reaching, lasting change to the structure of British banks by ring-fencing retail banks from their investment banking arms. Let us see whether we can use that Bill to make any further changes needed to the standards of the banking industry, and to the criminal and civil powers needed to regulate it and hold people to account for their behaviour.

As the Prime Minister said, we propose that Parliament establish an enquiry into professional standards in the banking industry. The Government will in the coming days lay before both Houses a motion to establish a Joint Committee, drawn from the Commons and the Lords. It should be chaired by the Chair of the Treasury Select Committee, my hon. Friend the Member for Chichester (Mr Tyrie). He and his Committee have already been quick off the mark in investigating the issue, and we certainly want their hearings this week to proceed.

I propose that the Joint Committee’s terms of reference should be as follows. Building on the Treasury Select Committee’s work and drawing on the conclusions of UK and international regulatory and competition investigations into the LIBOR rate-setting process, we should consider what lessons are to be learned from them in relation to transparency, conflicts of interest, culture and the professional standards of the banking industry. I propose that the Committee should be able to call witnesses under oath, including current Members of Parliament and of the House of Lords. I can confirm that we will provide the Committee with the resources that it needs to do the job.

I would suggest to the House that we ask the Joint Committee to report by the end of this year. That is enough time to do the job—and do it well—but not so long that it drags on for years. It means, in very practical terms, that we can amend our banking Bill to take on board its recommendations at the beginning of next year. I hope all parties will reflect on this and support the motion we put forward.

The failure to regulate the banks in the boom years cost this country billions of pounds. The behaviour of some in the financial services industry has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country. We are changing the failed regulation and are reforming the banks; now it is time to deal with the culture that flourished in the age of irresponsibility and to hold those who allowed it to flourish to account. I commend this statement to the House.

17:00

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

The systematic lying—[Interruption.]

[Mr Speaker]

Order. Everything will be slowed up, the more noise there is. I do not care what the exhortation is for people to create a wall of noise. That should not and must not happen in this Chamber. If we end up being much slower because people are mindlessly bawling their heads off from either side of the House, we will be slower. I do not think the public will be much impressed by that sort of behaviour from either side of the House.

[Ed Balls]

The systematic lying, concealment and arrogant abuse of power revealed by the FSA report into LIBOR market fixing at Barclays bank is truly shocking. As one member of the Vickers commission said this morning:

“Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what they can get away with.”

Set against the depths of that malpractice, which has now been revealed, and the scale of the challenge we face in reforming and rebuilding trust in British banking, I am afraid that the Government’s decision to reject Labour’s call for an independent and judge-led public inquiry into the culture and practice of banking in our country just will not do. Just as in phone hacking or the Iraq war, so in banking: only with an independent, forensic and open public inquiry—not politicians investigating bankers—can we rebuild trust for the future.

Banks play a vital role in our economy—they lend to businesses, small and large; they help people to save and borrow for mortgages; and many hundreds of thousands of jobs across the UK are dependent on our retail and our global wholesale banking industries—but banking is a profession that depends on trust, and that trust is currently in tatters. The public are rightly baffled and angry about what they learned was happening at Barclays. We have learned that senior bank executives knew about and covered up deliberate market fixing and manipulation of key interest rates. When ordinary people break the law and defraud the taxpayer or the benefit system, they face criminal penalties and jail sentences; the same should apply to bank executives. The public are now rightly asking who they can trust to clear up this mess and sort this industry out.

First, on the issue of criminal penalties, the Chancellor says he will bring forward amendments to the Bill in the House of Lords—amendments that he did not introduce in the House of Commons. Will he confirm that the powers he needs for an FSA investigation to be followed by a criminal investigation are actually on the statute book and that it is the job of the Serious Fraud Office to take forward those investigations, using the powers in the Fraud Act 2006? Will he confirm that section 2 of the 2006 Act already makes it a criminal offence to make “false representation” for personal gain and that it is an offence under section 4 to “abuse” a position of trust for financial gain? Will the Chancellor explain whether such investigations are already under way, and whether it is true that the Serious Fraud Office initially refused to act because of inadequate resources? There is now a real suspicion that the Chancellor’s new conversion to law making is just a smokescreen for the failure of prosecutors to get a grip.

Secondly, on the LIBOR market, we welcome the limited investigation that the Chancellor rather belatedly announced at the weekend. Self-regulation of this market goes back to the 1980s, but will the Chancellor explain why in March, as this scandal started to emerge, the Financial Secretary denied there was an issue and dismissed our calls for investigation and tougher regulation? When he was asked in the Committee whether he had a view on what needed to be done, he replied with one word: “No.” Given how much the Chancellor is now placing his faith in the Bank of England as the leading financial regulator in the future, will he assure us that the Bank did not turn a blind eye to the manipulation of the LIBOR survey?

However, the problems of culture and ethics that have now been uncovered are wider than the LIBOR market. The public are angry, and they rightly ask whether this generation of politicians, regulators and banks can put right the wrongs for which they are paying a heavy price. I say “this generation of politicians” because we must all admit that regulation should have been tougher, and we should all learn the lessons of an open and independent judicial inquiry. For my part—[Interruption.] For my part, I regret—[Interruption.]

[Mr Speaker]

Order. What we cannot have are individual Members who feel that their contributions from a sedentary position are somehow in a different category from the sedentary interventions of other Members. We do not need them. What we need is a bit of respectful listening to what is said by the Chancellor and the shadow Chancellor.

[Ed Balls]

For my part, I regret—as do Ministers and central bankers around the world—that we did not see the financial crisis building and take action, but let me ask the Chancellor this question: do he and the Prime Minister regret consistently attacking us in the Labour Government for being too tough in our approach to regulation, saying that it would undermine City effectiveness? That is what they said.

As for the future of regulation more widely, let me ask the Chancellor another question. Having rightly commissioned the Vickers report, does he now regret coming to the House a few weeks ago and saying that he was watering down its recommendations and weakening leverage ratios, and arguing, shockingly in the light of recent events, that complex derivatives—the very derivatives that led to the appalling mis-selling of interest rate swaps to small firms—should be inside the retail bank ring fence, contrary to the recommendation of Sir John Vickers? Surely that is one U-turn that we need from the Chancellor.

We all have a responsibility to do better in future, to reform our banking industry and to rebuild trust, but we do not believe that another parliamentary inquiry can do the job, just as we rejected that approach in relation to phone-hacking. The Chancellor said today that we did not need more “navel-gazing when we know what has gone wrong.”

How complacent is that? If the Chancellor and the Prime Minister are so confident that their approach is right, why do they not put two options to a vote, and let the House decide? Labour Members will vote for an independent and open public inquiry, not an inadequate and weak plan cobbled together over the course of this morning. The independent inquiry is what our constituents want, and it is the only way to achieve a lasting consensus on reforms for the future.

[Mr Osborne]

There was one question that dared not speak its name: who was the City Minister when the LIBOR scandal happened? Who? Put your hand up if you were the City Minister when the LIBOR scandal happened.

The shadow Chancellor was not here on Thursday, so he has had days to think about it, but there was not one word of apology for what happened when he was in charge of regulating the City. He blamed central bankers around the world and he blamed the Opposition of the day, but he did not take personal responsibility for the time he was regulating the City when the LIBOR scandal started, and that is why he will not be listened to seriously until he does. Indeed, we need to know whether he knew anything of what was going on. Did he express any concern about the LIBOR rate? When he was in the Cabinet and Gordon Brown, the right hon. Member for wherever it is, was Prime Minister, was he concerned about the LIBOR rate and Barclays? We shall find out in due course.

Let me now deal with the specific questions asked by the shadow Chancellor. He said that the criminal penalties exist in legislation. As I said, the Serious Fraud Office—which is totally independent of politicians, and rightly so—is looking at the law and seeing what it can do, but Lord Turner himself has said that the Financial Services Authority does not have adequate criminal powers. [Interruption.] Opposition Members are shouting, but let me read to them something a member of their own Front-Bench team has said. Lord Tunnicliffe said this:

“Criminal sanctions are extraordinarily difficult to bring about because of the burden of criminal law. It is fair to say though that you can’t find them in the current legislation. And, yes, OK, it’s our fault. I hope my leaders don’t hear me say that.”

That is a member of the Labour Front-Bench team clearly placing the blame on the late Labour Government, of which the shadow Chancellor was the principal economic adviser. That is the problem with the current law, and we are seeking an urgent review in order to amend it and make sure we can deal with the problem.

The shadow Chancellor talks about our acting belatedly in respect of regulation. He had 13 years in which to regulate properly, yet in the space of two years we are changing the entire system of regulation by getting rid of the FSA and introducing a change to the structure of banking. That is happening because of the recommendations from the committee that we set up under John Vickers, and we have still not heard from the shadow Chancellor whether he supports John Vickers’ proposals. He often gets up and says what is wrong with them—[Interruption.] Well, if he has just welcomed them for the first time, that is very welcome, but he goes out of his way not to do so on other occasions.

The shadow Chancellor then said that, somehow, a parliamentary inquiry would be wrong and that I was complacent to say we knew what had gone wrong. This is what my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), said at the weekend, however:

“We know what went wrong and we don’t need a costly inquiry to tell us”,

so that is not just the view of the current Chancellor.

I hope the shadow Chancellor reconsiders his position. We will have good people from both sides of this House and the House of Lords to consider the matter. We will put the motion to the House. Let us have a serious inquiry, but let us have an inquiry that comes to a conclusion within a measurably short period so that we can amend the law that will be going before the House next year. That is the sensible step to take. In the meantime, the shadow Chancellor should reflect on his role and his responsibility, as the City Minister who let Northern Rock sell those dodgy mortgages, as the City Minister who let RBS explode, and as the City Minister who presided when the LIBOR scandal began.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Unlike the shadow Chancellor, I strongly opposed the tripartite regulation of the banks when that was brought forward by the then Labour Chancellor, as I said in a speech I made in the House in 1997. May I now revert to questions that I put to both the Prime Minister and the Attorney-General—who is still with us in the Chamber—suggesting we should urgently consider introducing the concept of the directing mind as defined in the Dodd-Frank Act in the United States, which would enable English commercial law to be strengthened so that the heads of banks can be held answerable for the actions of rogue subordinates?

[Mr Osborne]

My right hon. Friend reminds us that he was absolutely right about the problems that would emerge with the creation of the tripartite regime, and, sadly, his predictions have been borne out by events. He also makes a specific proposal about legal changes and the introduction of the directing mind. We are aware of that idea, and we will look into it. The House can look at it, too, in the inquiry over the next few months.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

The Chancellor referred to my quote in a newspaper yesterday. I should just tell him that I was asked specifically about the investigation of individuals, and I made the point that there are authorities, such as the Serious Fraud Office and the Financial Services Authority, who are supposed to be doing that.

On the Chancellor’s broader point, let me say that this inquiry will work only if it is a genuine examination of what went wrong. As I have said before, it went wrong under successive Governments over quite a long period, as well as in the City itself. If the inquiry looks like a partisan exercise in settling scores between the political parties, it will not work. The public may not like bankers, but they do not care much for politicians either. I therefore hope the Chancellor can give us an assurance that this inquiry will not be that sort of exercise, and that it will instead be a genuine inquiry into what went wrong and what needs to be put right.

[Mr Osborne]

First, the inquiry should be genuinely cross-party and it will, of course, be up to the Labour party to choose whom it would wish to be on the Committee, both in the Commons and in the Lords. So there will be a choice for the Labour leadership in that respect. Of course, I hope that they would consult my hon. Friend the Chair of the Treasury Committee, but it is ultimately their choice.

Secondly, the Treasury Committee, under its previous Chair, Lord McFall, did some very good work on investigating what went wrong. So the idea that the Select Committee or a Joint Committee is unable to do this work is nonsense. “The run on the Rock” was a very good report, as I think the right hon. Gentleman would concede, and it provided the basis for some of the changes in the Financial Services Bill. I think we can draw also on the expertise in the House of Lords in this area and have a Joint Committee. As I say, I hope that once tempers have cooled today, we will be able to reflect on that and have a joint-party consensus on it.

[Mr Andrew Tyrie (Chichester) (Con)]

First, may I assure the House that I will not countenance a partisan inquiry and I would not be prepared to chair one either? I do believe that Parliament—both MPs and the other place—has something to contribute to clearing this mess up; they cannot do it all on their own.

By any standards, the LIBOR scandal, for which 20 banks around the world are now being investigated, is shocking. It has corroded trust in the UK financial services industry and it is a shameful affair. I find it particularly sad that it will have unfairly damaged the reputations of hundreds of thousands of our constituents who work hard and honestly in the financial services industry. The UK’s reputation has been tarnished, but it can be restored and enhanced if we draw the right lessons. The Treasury Committee will continue with its inquiry into what exactly happened. We will be holding the inquiry on Wednesday with the chief executive of Barclays, and we will also probably call the British Bankers Association and the regulators to find out exactly how this all happened.

None the less, the immediate task to be conducted by the Financial Services Authority must be to ensure that we have appropriate sanctions for wrongdoing and a regulator strong enough to give us confidence that wrongdoers will be caught. Does the Chancellor agree that another task, on which the Joint Committee will and should concentrate, must be to learn the lessons of the LIBOR scandal for corporate governance and standards in the banking industry?

[Mr Osborne]

I completely agree with all the sentiments exposed by my hon. Friend. He is right to say that this is an incredibly important industry. In many constituencies represented in this House, across the United Kingdom, financial services will be the largest private sector employer. We want to ensure that this industry has a high reputation that Britain can be very proud of. Of course these activities have damaged the credibility of the industry, and that is what the work that we have begun here, and which I hope he continues, will put right.

[Several hon. Members]

rose—

[Mr Speaker]

Order. There is a lot of interest but not much time. I am keen to accommodate as many as possible, but extreme brevity is required. So questions, please, without preamble.

[Frank Dobson (Holborn and St Pancras) (Lab)]

Would the Chancellor of the Exchequer authorise Her Majesty’s Revenue and Customs to examine the personal taxation position of all the people involved in this scandal, because if they are willing to swindle everybody, the chances are that they are trying to swindle the Revenue?

[Mr Osborne]

The Chancellor of the Exchequer, hon. Members will be glad to know, under any Government, cannot direct the Revenue towards any individual. It would be a very sorry state in this country if I could direct the Revenue to the tax affairs of individuals, so I am not proposing to do that. However, as I have said at this Dispatch Box, and as others have said, this Government are introducing a general anti-avoidance rule, we are clamping down on stamp duty evasion and we have increased the resources from the budget we inherited from Labour when it comes to tackling tax evasion, and the Revenue is therefore well resourced to do its work.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Last year, the then director of the Serious Fraud Office, Mr Richard Alderman, declined to investigate possible breaches of the Fraud Act 2006 arising from allegations of LIBOR rigging. In the light of that, does the Chancellor of the Exchequer think that the SFO is still fit for purpose?

[Mr Osborne]

Yes, I do. My understanding, although I have not spoken to him directly, is that the director of the Serious Fraud Office feels that he is well resourced to undertake the investigations he is undertaking.

[Mr Peter Hain (Neath) (Lab)]

Does the Chancellor accept that public confidence in his Government, the Crown Prosecution Service and the police will be totally destroyed if no prosecution results for the bankers who rigged the LIBOR rate? Whatever the specifics of banking legislation, an offence has been committed—conspiracy to defraud—and that is what the police should be investigating in a criminal investigation.

[Mr Osborne]

The Serious Fraud Office is absolutely independent of Government, but it will be in no doubt that this House and the Government want to ensure that the law is properly enforced and that if there are legal avenues that it can explore, it should use them. We must accept that the Financial Services Authority, which is also a prosecuting authority in respect of financial crime, does not feel that it was given enough powers to undertake a criminal prosecution, as Lord Turner has said very clearly. That is why I want to give the regulators the powers they need. Instead of spending two or three years getting to that point—a long public inquiry would take a year or two, after which the Government would go away, consult, publish a White Paper and introduce legislation, and it would be 2015 or 2016 before we did anything—I propose that we use the Financial Services Bill that is already before the House and next year’s banking Bill to put things right.

[Stephen Williams (Bristol West) (LD)]

The Chancellor mentioned new legislation on the destination of fines on the banking industry and other financial services providers. I raised the issue with our hon. Friend the Financial Secretary in January and got the answer that in the past 10 years, £377,734,373 was levied in fines across the banking sector—a staggering amount. Does the Chancellor agree that a suitable destination for future fines might be the not-for-profit sector and the debt advice agencies that do such valuable work in all our constituencies?

[Mr Osborne]

My hon. Friend is right to point out that under the current arrangements, these fines, including the one that Barclays is paying, will be used to reduce the levy that the rest of the banking industry pays to the Financial Services Authority, so the rest of the banking industry will be the beneficiary of the fines. I do not think that that is right and that is why we are making the changes. We are making them retrospective from the beginning of April to ensure that the fine paid by Barclays will be available to be used for the benefit for the public, and I am sure that we will have a lively debate about how that money should be spent.

[Glenda Jackson (Hampstead and Kilburn) (Lab)]

I welcome the Chancellor’s commitment to broad-ranging and hard regulation for the British banking system—a position eschewed like the plague by his colleagues when they were in opposition. Will he guarantee that the powers given to the FCA will ensure that it is genuinely what many of my constituents have campaigned for for some time: a banking watchdog, not a lapdog?

[Mr Osborne]

I can certainly tell the hon. Lady what we want the new regulators to be. We want them to be tough, independent regulators who hold the banking industry to account. However, it is frankly pretty pathetic for Labour MPs, including former Ministers in the Labour Government, to get up and blame the then Conservative Opposition for what happened when they were in office. Why do they not take some responsibility for what they did?

[Several hon. Members]

rose—

[Mr Speaker]

Order. I repeat that we need brief questions and although I know—[Interruption.] Order. Although I know that the Chancellor is seeking to assist the House, pithy replies would also help.

[Penny Mordaunt (Portsmouth North) (Con)]

Does the Chancellor find it odd that the Opposition are calling for Barclays to face a criminal investigation, given that when they were in office they set up a regime that did not make this abuse a criminal offence?

[Mr Osborne]

To give a pithy reply, I certainly do find it odd.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Does the right hon. Gentleman regret diluting the Vickers proposals, under pressure from the banks? In the light of revelations in recent days, will he ensure that the ring fence is strengthened, so that this does not happen again?

[Mr Osborne]

We are not diluting the Vickers proposals; we are putting them into law. The House will have the opportunity next year to ring-fence retail banking and separate it from banks’ investment banking arms. When I was the shadow Chancellor, I proposed changes to the structure of banking, and they were completely rejected by the former Prime Minister at this Dispatch Box. We now have an opportunity to change the structure of banking, and I hope that I will have the hon. Gentleman’s support when the law comes before us.

[Andrea Leadsom (South Northamptonshire) (Con)]

In the early 1990s, we had around 45 major banks; we now have about five. One of the key reasons why there is so little new competition is the lack of ability to switch. Does my right hon. Friend agree that now is the time to look again at the proposals that the Vickers commission made on switching, and to think again about moving to account portability?

[Mr Osborne]

My hon. Friend will know, as we discussed this in the Treasury Committee, that the Vickers commission specifically recommended—indeed, insisted on—the ability to change bank account easily, and that from 2013, the banks should have in place a mechanism that enables people to do that within a week. As Vickers said—I agree with him—let us see that that happens; if it does not, we can take alternative measures, but we have in place plans to make it much easier to switch bank accounts from next year.

[Stewart Hosie (Dundee East) (SNP)]

I welcome what the Chancellor said about the Serious Fraud Office and the responsibility that he has given Martin Wheatley in relation to governance and the setting of LIBOR, and what he said about potentially putting criminal sanctions in the banking reform Bill. I am disappointed that he has not ordered a full public inquiry, but I wish the investigation that he has set up well. Will he confirm to the House that the hon. Member for Chichester (Mr Tyrie) will not be restricted in any way in calling for evidence, under oath, from witnesses from the commercial banks, the central Bank, the regulators, or Ministers at the Treasury at the time of the LIBOR rigging scandal?

[Mr Osborne]

I can confirm to the hon. Gentleman that the Committee will not be restricted in any way. It will call whomever it wants. I suggested—but this, of course, will be a matter for the House—that it should call people to give evidence under oath. [Interruption.] As we are getting a question from an Opposition Front Bencher, let me say that the Committee will also be able to call former Government Ministers.

[Joseph Johnson (Orpington) (Con)]

The shadow Chancellor seemed to suggest that the Chancellor was passing the buck to the Bank of England, and that the Bank was somehow conniving in LIBOR lying. Will the Chancellor confirm that the Financial Services Authority, in its investigation, found no evidence to suggest that the Bank of England at any point encouraged banks to low-ball their LIBOR rate?

[Mr Osborne]

The FSA’s report is very clear about the interaction between the Bank of England and Barclays. Paragraph 176 says:

“No instruction for Barclays to lower its LIBOR submissions was given”

during the telephone conversation that caused the press interest.

[Mr George Mudie (Leeds East) (Lab)]

Will the Chancellor confirm that there will be no Government majority on the Joint Committee?

[Mr Osborne]

The Committee will be set up in the normal way.

[Jason McCartney (Colne Valley) (Con)]

Will the Chancellor once again confirm that progress is being made towards a more responsible banking system, with the separation of high street domestic banking and banks’ so-called casino operations?

[Mr Osborne]

My hon. Friend is right: we are proceeding with a change to the structure of British banking, in which we will ring-fence the retail banks from their investment banking arms. [Interruption.] There will be plenty of opportunity for Labour ex-Ministers such as the shadow Chancellor to appear before the Committee, if he is worried about that. We will introduce a Bill, which will go through Parliament next year. In answer to the point about a public inquiry, why spend three or four years before getting to legislation? Why do we not use the opportunity to get it right now, and amend the Bill that will be before Parliament?

[Mr Dennis Skinner (Bolsover) (Lab)]

With hedge funds providing up to 50% of all the money that goes into the Tory party political coffers, can we be sure that those criminal penalties that are referred to can extend to any or all of those Tory MPs mentioned in The Independent on Sunday yesterday?

[Mr Osborne]

I do not think that that question deserves an answer. The inquiry will do its job, and I hope it will do so on a cross-party basis.

[Ian Swales (Redcar) (LD)]

With Friday’s FSA report into the inappropriate selling of base rate swap products, does the Chancellor believe that the culture behind that latest scandal should also be part of the inquiry?

[Mr Osborne]

The Joint Committee will look more broadly at the culture in the banking industry, but the very specific point that my hon. Friend makes is about a mis-sold retail product. What I want to do, and what I am sure our constituents would want us to do, is make sure that the compensation is paid out as quickly as possible. I do not want any inquiry to delay that. We want to make sure that small businesses, in particular, which are having cash-flow problems because of the products that they were mis-sold, get the compensation they need. I do not want to impede that process.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

Does the Chancellor identify shortcomings in existing anti-fraud legislation, apart from the costs of pursuing an investigation and a prosecution? Will he confirm to the House that there will be no constraints on either investigation or prosecution costs?

[Mr Osborne]

There will be no constraints because of cost.

[David Rutley (Macclesfield) (Con)]

Does my right hon. Friend agree with the view expressed a few years ago that

“nothing should be done to put at risk a light-touch, risk-based regulatory regime”?

Is this not further evidence of the wishful thinking that is all too prevalent on the Opposition Benches?

[Mr Osborne]

My hon. Friend is right. I remember sitting at the Mansion House listening to the former Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), telling us in 2007 about the golden age of the City, just before the City imploded.

[Mark Durkan (Foyle) (SDLP)]

Does the Chancellor recognise that many of us observed for a number of years that the competition between the Front Benches in the House seemed to be based on saying, “Our touch is lighter than yours”? The public believe that Parliament and parties have indulged the banksterism that is now all too apparent. The failure and inadequacy of legislation were a failure by Parliament, not just of Government. Is an inquiry that will be a Whips’ stitch-up, with fairly narrow terms of reference, really an adequate response to the public concerns out there?

[Mr Osborne]

In the end, the conclusion of the inquiry will command the confidence of the House only if it is a unanimous report. The Labour party will be able to choose its members. If it is a divided report along partisan lines, people will see that. I hope the joint inquiry comes forward with a unanimous report. As I say, that would be the way to proceed. A public inquiry would take months to establish and a year or two years to report; in Northern Ireland we have had inquiries that have gone on even longer. There would then be a Government response, a Government White Paper and Government legislation. We would be standing here in 2016 or 2017 dealing with a scandal that had happened a decade earlier.

[Conor Burns (Bournemouth West) (Con)]

As my right hon. Friend sets out the task of restoring trust and integrity to the banking system in the light of the appalling revelations at Barclays, he will be aware that we all have constituents who are decent people working in those institutions, who have been badly let down by some of the leaders in the sector, not least the 4,000 people who work for JP Morgan in Bournemouth. May I invite my right hon. Friend the Chancellor to use this opportunity at the Dispatch Box today to recommit the position of this Government—that we are committed to a vibrant banking sector that contributes so much to the economy of the United Kingdom?

[Mr Osborne]

I can tell my hon. Friend that we are absolutely committed to a vibrant banking sector. I have gone out of my way in these exchanges to draw attention to the fact that this is an incredibly important sector to the British economy. The fact that an American bank employs 4,000 people in Bournemouth reminds us that this sector is not just in the square mile of the City of London or in Canary Wharf. This industry employs many hundreds of thousands of people around the country. It is the largest private sector employer in the country, and of course it has a huge impact on the rest of the economy, which is why it must now be properly regulated.

[Caroline Lucas (Brighton, Pavilion) (Green)]

The Chancellor keeps repeating his intention to follow the Vickers recommendation of ring-fencing retail and investment banking, but in the light of this scandal will he not accept that simple ring-fencing is not enough because any firewalls will soon be circumvented, which is why we need nothing less than the full legal separation of retail and investment banking?

[Mr George Osborne]

There are people who share the hon. Lady’s view, but we specifically asked John Vickers and his commission, whose membership was drawn from people who had expertise in the consumer industry, banking and elsewhere, to consider whether we should physically separate the banks as she suggests. They explicitly addressed that issue and came to the conclusion that ring-fencing was a better approach, and one of the reasons why they did so is that ring-fencing might provide more stability for the retail arm, as it would be able to draw on the resources of the investment bank. They specifically looked at that and came to the conclusion that having a retail ring fence was better than separating the banks.

[Several hon. Members]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I inform hon. Members that there is very important business after this statement and I will therefore be unable to fit everyone in. I plan to let the statement run for another 10 minutes or so, so short questions and short, direct answers would help enormously.

[Mark Field (Cities of London and Westminster) (Con)]

For the reasons the Chancellor has set out, I very much agree that the long path back to trust in banking and financial services is served by a banking Bill, but will he take on board some of the concerns expressed just now by the hon. Member for Brighton, Pavilion (Caroline Lucas)? Many feel that the LIBOR scandal might be a turning point. In addition to looking at ring-fencing, is he open-minded enough at least to consider the prospect of a fully fledged separation of casino or investment banking from retail banking?

[Mr Osborne]

I say to my hon. Friend, whose constituency expertise and personal expertise I have a great deal of time and respect for, that one of the purposes of asking John Vickers to do this work was to resolve the issue for our country. We brought together a commission with broad experience. It specifically looked at this issue and came to the conclusion that a ring fence was better than actual separation. I think that we should stick with its recommendations in order to give the industry some stability.

[John Mann (Bassetlaw) (Lab)]

If tomorrow morning the elected Treasury Committee comes up with its own terms of reference, as it is appointed by Parliament to do, will the Chancellor accept them or ride roughshod over them?

[Mr Osborne]

It is for the House of Commons and the House of Lords to pass a motion, so ultimately it is a matter for the House.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

At the heart of this matter is a culture that has seen bankers go from trusted advisers to salesmen and clients go from valued clients to marks. Given that culture, is it not right that the Committee be asked to interview the Vickers commission again to see whether, in its view, ring-fencing is adequate following these events?

[Mr Osborne]

It would be entirely up to the Committee to call whomever it would want to call, and it might well want to speak to John Vickers, who has enormous expertise in this area.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I think that the Chancellor has done his announcement a disservice by setting it up as a continuation of his obsession with placing every act of wrongdoing by every banker at the door of the previous Government. Does he not accept that what the public want is something that gets to the heart of the rotten culture exposed by the FSA report last week, rather than the partisan way in which he set out today’s announcement?

[Mr Osborne]

I agree with the right hon. Gentleman that we want to get to the heart of the cultural problems, but when the shadow Chancellor responds to a statement and blames it all on the party that was in opposition at the time, it is perfectly reasonable for me to point out who was in government. That is a perfectly reasonable response in the cut and thrust of this House, but I completely agree with the sentiment he expresses, which is that we should try to proceed on a cross-party basis. I hope that his Front Benchers will think about supporting the joint inquiry—they will of course be able to choose its Labour members—because I think that that it is the correct way forward to give us answers for next year.

[Dr Phillip Lee (Bracknell) (Con)]

Does the Chancellor agree with me, and indeed with Plato, that good people do not need laws to tell them how to act responsibly, and that bad people will find a way around such laws? We really should bear that wisdom in mind when it comes to determining the outcome of the inquiry that has been announced.

[Mr Osborne]

I am tempted to say that we should find an Aristotelian mean, where we do not completely destroy the industry with one inquiry after another, but instead have a sensible inquiry that gets to the right answer, amends the law appropriately and enables us to have a sensible financial services industry that avoids the scandals that we are dealing with today.

[Helen Goodman (Bishop Auckland) (Lab)]

One of the most controversial episodes in the recent history of the City was big bang in 1986. Notwithstanding the many good qualities and good intentions of the hon. Member for Chichester (Mr Tyrie), the fact is that in 1986 he was a special adviser to the then Chancellor of the Exchequer, who was overseeing big bang. Does the Chancellor agree that the hon. Gentleman will find it difficult to demonstrate the necessary independence?

[Mr Osborne]

My hon. Friend the Member for Chichester (Mr Tyrie) is more than capable of demonstrating his independence, and I remind the House that thanks to the reforms of this Government he was elected to his post by the entire House of Commons.

[Dr Sarah Wollaston (Totnes) (Con)]

I have just received a heartbreaking letter from a 72-year-old pensioner who is being pursued through the courts for a disputed and modest tax claim. How can it be right that those telling lies for eye-popping sums are not ending up in court?

[Mr Osborne]

The Serious Fraud Office is independent of the Government, but it is pursuing every avenue to see whether it can bring criminal prosecutions in this case. This is, however, a matter for the SFO, which is going to come back to us by the end of the month to tell us whether it can do so, and it will have heard what the House has said today. We also want to ensure that in future the regulators have the criminal sanctions that they need, and that is why we seek these investigations to change the law now, rather than waiting four or five years to do so.

[Clive Efford (Eltham) (Lab)]

How can it be right, and in line with the Government’s credibility on wanting to clean up the banking system, when those who were responsible and in management at the time of these criminal activities—both the Prime Minister and the Chancellor have today accepted that criminal activities were going on—remain in post, such as Mr Bob Diamond?

[Mr Osborne]

As the Prime Minister said and I repeat, Mr Diamond has to account for himself before the Treasury Committee this week, and I congratulate the Committee on doing that. The chairman of Barclays has resigned, but it is not the job of the Chancellor of the Exchequer to hire and fire the bank chiefs at this Dispatch Box. I am not sure that we want to go down that path; it is much better for the shareholders to do it, the board to do it, and they will have the appearance before the Committee of Mr Diamond to go on.

[Steve Baker (Wycombe) (Con)]

Further to the question from my hon. Friend the Member for Bracknell (Dr Lee), will the Chancellor look again at my Financial Institutions (Reform) Bill, which would transfer commercial risk back to the banking sector and end the incentives that have created the culture of recklessness and rule-breaking that is ruining the City?

[Mr Osborne]

I will certainly take a close look at my hon. Friend’s Bill and get back to him on it.

[Mr Tom Watson (West Bromwich East) (Lab)]

The Chancellor said in his statement that he had asked Mr Wheatley whether participation in the setting of LIBOR should become a regulated activity. Does the Chancellor accept that public confidence in the British Bankers Association has completely ruptured, and that for the public it is a question not of whether, but of when, we take that responsibility away from it?

[Mr Osborne]

I completely agree with the hon. Gentleman that confidence in the process of setting LIBOR has been damaged—of course—by these revelations. That is precisely why, if I may say to him, I want to get on with it: that is why I have asked Mr Wheatley to do his report in the next couple of months, not even by the end of the year—so that we have the opportunity in October of amending, just before it becomes law, the Financial Services Bill. The hon. Gentleman is an expert on public inquiries, and I am sure he will agree that a public inquiry would take years to get to that point. Let us get to that point this autumn.

[Mark Pritchard (The Wrekin) (Con)]

I fully support greater transparency in banking and, in particular, punishing those who have done wrong, but can the Chancellor from the Dispatch Box today reassure my constituents who, as part of their pensions, hold shares in banks that the Government, or the inquiry, will take no action that unnecessarily undermines the value of those pensions?

[Mr Osborne]

We would not want to take actions that unnecessarily undermined the value of anything, so my hon. Friend has that assurance.

[Mr Roger Godsiff (Birmingham, Hall Green) (Lab)]

After the nationwide disturbances last year, a student was given a six-month sentence for stealing a pack of water bottles. What punishment does the Chancellor believe would be appropriate for bankers who have stolen millions of pounds from investors through rigging interest rates?

[Mr Osborne]

I completely understand and sympathise with the sentiment that the hon. Gentleman is expressing: people suffer criminal penalties for offences involving much, much smaller sums of money—a fraction of the sums that we are talking about. The Serious Fraud Office, which is independent of the Government, is looking at the matter. Let us wait to hear what it has to say. It is looking at what laws are available to let it do that. I am sure that he would not want the Government of the day to undertake the criminal prosecutions themselves.

[Stephen Mosley (City of Chester) (Con)]

What powers and sanctions will the parliamentary Committee of inquiry have should witnesses refuse to attend, refuse to answer questions or mislead the Committee?

[Mr Osborne]

Parliamentary Committees have a whole set of powers available to them. Ultimately, as I understand it—the Parliamentary Secretary to the Treasury might correct me if I am wrong—the House itself can call witnesses to Parliament through a vote. That power is available to us—[Interruption.] That is absolutely the case. [Interruption.] What I find astonishing is Opposition Front Benchers’ lack of confidence in Parliament—in the House of Commons, in the House of Lords—to do this job. Looking at how they treated Parliament over 13 years, perhaps that is not surprising. I have confidence in Members from both sides of the House to do the job being asked of them.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Interest rate swaps have been mis-sold. They are complex derivatives. Does the Chancellor still think it right that they are inside the retail banking ring fence?

[Mr Osborne]

We are not proposing to put complex derivative products inside the retail ring fence; that is not part of our proposals. As I say, we are coming forward with plans to implement the Vickers reforms and I hope that the hon. Lady welcomes that.

[Mr Robin Walker (Worcester) (Con)]

We have had regrets but no apology from Opposition Front Benchers. What our constituents really want is action. May I commend the Chancellor for taking action to set up a swift parliamentary inquiry? Will he make sure that the proceeds from any fines go to the taxpayer, not the banks?

[Mr Osborne]

I thank my hon. Friend. I say again that I came to the House just last Thursday and said that I would look to see what I could do on the fines. I have now come forward, a few days later, and said that we are going to take those fines—including the fines that Barclays will pay—and make sure that they are put to the public benefit, not to the benefit of the financial services industry. We are acting extremely swiftly on this. As I said, I would have thought that it was in everyone’s interests that we get on and deal with the matter in the coming months.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

Since there is clear evidence of a conspiracy, going on for years, to defraud over LIBOR, will the Chancellor now transfer responsibility for the interest rate market away from the incestuous control of the British Bankers Association to the Financial Services Authority or the Bank of England, including the power to bring criminal charges on evidence of market abuse?

[Mr Osborne]

The right hon. Gentleman asks two very good questions, as did the hon. Member for West Bromwich East (Mr Watson), about who should oversee the setting of LIBOR and what criminal sanctions should exist for the manipulation of that market. That is precisely what we are going to investigate over the next couple of months in Mr Wheatley’s inquiry. That will enable us in September and October to change the law; the Bill has been going through Parliament and can become law this autumn. I hope that I have the right hon. Gentleman’s support for getting on with this and getting the powers on the statute book.

[Mr Rob Wilson (Reading East) (Con)]

If it is found, following the Joint Committee inquiry, that manipulation of interest rates damaged small businesses or mortgage holders, will my right hon. Friend consider forcing the banks to reimburse fully those individual small businesses and mortgage holders?

[Mr Osborne]

Of course, if harm is proved to individuals or to businesses the whole question of compensation will arise, and we have the compensation regime to address that. As I said in the House on Thursday, it is difficult to establish whether that is the case because people were trying to manipulate the rate up and down on different days to suit their derivative trading book, so there were times when the rate was too low and times when it was too high compared with the fair market rate, and so the question of how much people lost out will be difficult to establish.

[Several hon. Members]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I am sorry that I am going to have to end the statement there. We have taken questions from 39 Back Benchers in 47 minutes. I appreciate that it is a very important issue, but we have very pressing business that we need to move on to, and of course this matter will come back to the House again.

Points of Order

Monday 2nd July 2012 Commons Chamber

17:50

[Jeremy Lefroy (Stafford) (Con)]

On a point of order, Madam Deputy Speaker. In asking a question of the Chancellor regarding London commodity markets and their impact on smallholder farmers around the world following his statement last Thursday, I inadvertently failed to draw Members’ attention to my entry in the Register of Members’ Financial Interests. I wish to do so now and apologise for the oversight.

[Madam Deputy Speaker (Dawn Primarolo)]

I am grateful to the hon. Gentleman for putting that information on the record. He has been quite ingenious in using a point of order to do so. I am sure that the House is grateful for that correction.

[Chris Bryant (Rhondda) (Lab)]

On a point of order, Madam Deputy Speaker. You will know that when there is an equality of voices in this House, that is the only time when the Chair of a Committee or the Speaker is able to vote. In the other House, it is quite the reverse: the Speaker or the Chairperson of a Committee is able to vote twice, both in their own right and then if there is an equality of votes. If the new Committee that is to be set up is set up as a Joint Committee, traditionally that has meant that the rules of the House of Lords apply rather than those of the House of Commons. That would mean that the Chairman of the Committee, who is a Member of this House, would have two votes. Is that correct?

[Madam Deputy Speaker]

I am advised that the hon. Gentleman is correct in his analysis of the rules with regard to the requirements on voting and whether a situation would apply in the circumstances that he has described. I am grateful for his point of order. Perhaps I could ask him to leave it with me at this point so that I can take further advice from the Government and the Clerks as to whether that is the true intention of the Government.



Finance Bill (Ways and Means)

Resolved,

That provision (including provision having retrospective effect) may be made in the Finance Bill about face-value vouchers.—(Mr Gauke.)

Finance Bill (Ways and Means) (No. 2)

Resolved,

That provision may be made in the Finance Bill amending the descriptions of supplies which are zero-rated, exempt or subject to a reduced rate of value added tax.—(Mr Gauke.)

Finance Bill (Ways and Means) (No. 3)

Resolved,

That provision (including provision having retrospective effect) may be made in the Finance Bill about the treatment of arrangements involving settled property.—(Mr Gauke.)

Finance Bill (Programme) (No. 2)

Monday 2nd July 2012 Commons Chamber

Motion made, and Question proposed,

That the following provisions shall apply to the Finance Bill for the purpose of supplementing the Order of 16 April 2012 (Finance (No. 4) Bill (Programme)):

1. Proceedings on consideration shall be taken on the days shown in the following Table and in the order so shown.

2. Each part of the proceedings shall (so far as not previously concluded) be brought to a conclusion at the time specified in relation to it in the second column of the Table.

TABLE
First day
Proceedings	Time for conclusion of proceedings
New Clauses, Amendments to Clauses, new Schedules and Amendments to Schedules relating to fuel duties.	7.00 pm
Amendments to Clauses 1 to 4 and new Clauses and new Schedules relating to income tax rates, rate limits and personal allowances	10.00 pm
New Clauses, Amendments to Clauses, new Schedules and Amendments to Schedules relating to child benefit	11.30 pm
Second day
New Clauses, Amendments to Clauses, new Schedules and Amendments to Schedules relating to value added tax.	7.30 pm
New Clauses and new Schedules relating to the taxation of banks and employees of banks; remaining new Clauses and Amendments to Clauses; remaining new Schedules and Amendments to Schedules; remaining proceedings on Consideration	10.00 pm

3. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at 11.00 pm on the second day.—(Mr Gauke.)

17:53

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I will speak very briefly because I am conscious of the time, but it would be remiss of me not to put on record the fact that we have some concerns about the lack of time available to discuss what is a very big Finance Bill. There are a number of serious issues that many Members will want to discuss during the course of this evening. Although we will not vote against the programme motion, I want it to be on the record that we regard this as an exceptional circumstance and we do not wish it to be seen as the way in which things will be automatically dealt with in future.

17:54

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Let me briefly respond to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). As hon. Members know, we have already scrutinised the Budget and the Finance Bill for eight weeks, including in Committee of the Whole House and in the Public Bill Committee, where our discussions were thorough and detailed. Indeed, the hon. Lady played a very large role in those discussions. Before that, in December 2011, the Government published over 400 pages of draft legislation and received about 450 comments on it. That demonstrates our commitment to improving the way in which policy is developed. In order to make progress with Government business in good time, we have agreed through the usual channels to programme this debate on Report. I commend the motion to the House.

Question put and agreed to.

Finance Bill

Monday 2nd July 2012 Commons Chamber

[1st Allocated Day]

Consideration of Bill, as amended in the Public Bill Committee

New Clause 1

Fuel duties: rates of duty and rebates from 1 August 2012 to 31 December 2012

‘In relation to products charged with duty under HODA 1979 on or after 1 August 2012 but before 1 January 2013, that Act has effect as if the amendments made by section 20 of FA 2011 had never been made.’.—(Miss Chloe Smith.)

Brought up, and read the First time.

17:55

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss the following:

New clause 8—Biodiesel—

‘(1) With effect from 1 July 2012 the fuel duty payable under the Hydrocarbon Oil Duties Act 1979 on biodiesel produced from waste cooking oil shall be 10 pence per litre less than would be payable apart from this section.

(2) The Commissioners for Her Majesty’s Revenue and Customs may by order made by Statutory Instrument repeal subsection (1) on or after 1 January 2014 or when the Renewable Transport Fuel Obligation has come into effect, whichever is the earlier.’.

New clause 9—Taxes on road fuel—

‘The Chancellor of the Exchequer shall conduct a review into the relationship between fuel duty, other taxes charged on road fuel and the cost of road fuel, and lay a copy of the report before the House of Commons before 1 August 2012.’.

New clause 11—Fuel duties: rates—

‘(1) The Hydrocarbon Oil Duties Act 1979 shall have effect as if the amendments made to it by section 20 of the Finance Act 2011 (Fuel duties: rates of duty and rebates from 1 January 2012) had not been enacted.

(2) This section will have effect from 1 August 2012.

(3) The Treasury may by order made by Statutory Instrument repeal subsection (1), and any such order shall be subject to annulment in pursuance of a resolution of the House of Commons.’.

[Miss Smith]

I share the concerns that many have raised about driving, the cost of living, and the challenges of running a business. Although the cost of fuelling a vehicle has recently eased as global oil prices have fallen, it is still a very important part of the overall cost of living. That is why the Government have announced that we will provide further support to motorists regarding the cost of fuel by deferring the 3p per litre duty increase that was planned for this August until January next year. That will mean that this Government will have kept fuel duty frozen for a total of 21 months since our decision in the Budget 2011 to cut fuel duty by 1p per litre.

[Robert Halfon (Harlow) (Con)]

I am grateful to the Government for moving on this issue, as will be many motorists across the country. Will my hon. Friend confirm that, because of what the Government have done, fuel duty will be 10p lower than it would have been if we had followed Labour’s plans?

[Miss Smith]

I shall certainly confirm that. It is testament to the repeated action that this Government have taken to support motorists that that is indeed the case.

[Sarah Newton (Truro and Falmouth) (Con)]

Does my hon. Friend agree that this reduction in fuel duty is vital not only for motorists but for small businesses such as those in Cornwall that have long distances to take their goods to market, and that it shows that this Government are listening and are on the side of hard-working families and small businesses?

[Miss Smith]

I am grateful to my hon. Friend. She is not only in fine fettle, as she is standing without crutches, but rightly points to the effect that we know this will have on households and businesses.

[Mr Alan Reid (Argyll and Bute) (LD)]

I, too, welcome the decision. This Government are certainly on the side of rural motorists. Will my hon. Friend confirm that as well as fuel duty on the mainland being 10p a litre lower than it would have been under Labour’s plans, on the islands it is 15p a litre a lower thanks to the Government’s adopting the island fuel discount—a policy that Labour refused to adopt?

[Miss Smith]

I am pleased to confirm that. I am glad to hear my hon. Friend’s welcome for the scheme on behalf of his constituents and others in rural areas where we are piloting it.

[Julie Hilling (Bolton West) (Lab)]

Like other Members, I welcome the Government’s U-turn on petrol tax—another U-turn on the omnishambles of the Budget—but does the hon. Lady recognise that the increase in VAT means that the cost of petrol has increased during the time of this Government, and not decreased as one might imagine?

[Miss Smith]

I shall say two things in response to that. First, as a result of all the actions that this Government have taken, including what we have had to do on VAT, the price of petrol and diesel at the pumps is still lower than it would have been under Labour—whose Members are, on the whole, absent today. Secondly, the decision that we are legislating for today combines our determination to help families with the necessity of keeping Britain safe in the global storm and with our credible plan to deal with the country’s debts.

[Robert Halfon]

Does my hon. Friend agree that the Opposition’s support for a cut in VAT is rather a misnomer, because not only would it cost £12 billion, but the vast majority of businesses who need to get their petrol prices down do not pay VAT?

18:00

[Miss Smith]

My hon. Friend is an ardent voice on behalf of small businesses in his constituency and elsewhere. He is right to point to the nuances in the costs of running a business.

Deferring the August rise will cost about £550 million this year. We will finance that through greater than expected savings in Government spending. That will avoid increasing the national debt, which is vital to our country’s well-being. That is our tough but fair plan to deal with Britain’s debts. Our actions to reduce the deficit and to rebuild the economy have secured interest rates at near record lows, benefiting businesses and families and keeping mortgage rates low.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

This morning, my hon. Friend and I were together on the train pressing the case for investment in rail. Are the Government, of whom she is a proud member, not showing the right example to the country by taking their foot off the accelerator and driving more economically? Will this measure bring the growth that the FairFuelUK campaign said it would?

[Miss Smith]

This morning, I was indeed speaking in my constituency capacity about my wish that our regional economy will not be left in the sidings. The same is true of our national economy. We must ensure that Britain remains competitive. Our actions, which are part of a credible national plan, have kept Britain safe from the global turmoil around us. It is within that plan that we have listened and acted.

New clause 1 will defer the fuel duty increase that was planned on 1 August this year to 1 January 2013. As the Chancellor said last week, and as my hon. Friend the Member for Harlow (Robert Halfon) has noted, this decision means that pump prices are 10p a litre cheaper than they would have been if we had not abolished the previous Government’s fuel duty escalator. It is a real help for families, businesses and motorists across the country. The AA has said that it is

“great news for all motorists”.

The RAC Foundation has said that it is

“good news for drivers and good news for the country.”

The Government have taken action upon action to support motorists and have done more than any other Government. We have avoided the two years’ worth of increases planned by the previous Government. More than that, last year we abolished Labour’s fuel duty escalator, which increased fuel duty by above inflation every year until 2013. We have successively cancelled and deferred duty to deliver the longest period of unchanged fuel duty for more than five years. As a result of that repeated action, average pump prices are now approximately 10p a litre lower than they would have been. To put that in context, a typical Ford Focus driver will be £159 better off and an average haulier £4,900 better off between 2011 and 2013 than they would have been under the plans left by the previous Government.

This support for motorists is part of our broader plan of helping with the cost of living and promoting business growth, while reducing the deficit and rebalancing the economy. That has included freezing council tax and raising the personal allowance.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

I, too, congratulate the Government on this decision, not least because it saves me from making a speech on an amendment that we had planned to table on this issue. Considering the gloating of the official Opposition last week, does the Minister recall the Labour party at any stage on Second Reading or in Committee making the case for this 3p cut?

[Miss Smith]

The hon. Gentleman has given me the perfect opportunity to note that, regrettably, the official Opposition’s Benches are astoundingly empty. The stance that they took last week showed astounding political opportunism, given that they had 13 years to support the motorists but did not, and that they left behind a depth charge of increases. I regret that I shall not be able to hear him put the case in his own words. Perhaps I may explain to him more of the actions that we are taking to support the motorist and businesses.

Businesses are seeing successive cuts in corporation tax, coupled with an extended business rates holiday for small businesses until April 2013. In passing, I should note that the high pump prices of recent years are causing real difficulties in ensuring that motoring remains affordable. However, pump prices have fallen by nearly 11p a litre since their peak in April. That said, at a time when money is tight, deferring the fuel duty increase from August to January will provide further support to motorists.

This is a Government who not only have a credible plan to support motorists, but are dealing with the debts created by the previous Government. A responsible Government are able to listen to, consider and respond to the concerns of motorists. Compared with the plans that we inherited, we have cut fuel duty, cancelled the previous Government’s escalator and introduced a fair fuel stabiliser.

I understand that we will also be discussing what the Opposition have planned for motorists, perhaps in some detail. I also look forward to hearing from my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) on biodiesels. I look forward to responding on those matters. This Government are on the side of motorists and our measures will support them when times are tight.

[Sheila Gilmore (Edinburgh East) (Lab)]

On Second Reading, we were given to understand that the fuel duty rise was essential to the Government’s proposals and a key piece of the jigsaw in resolving the deficit. For many weeks, that has been the clear message from the Government. I understand that Government Back Benchers were exhorted to write to their constituents to tell them why—regrettably, no doubt—the rise would have to happen and there was no alternative. It therefore comes as rather a surprise to hear that it is not quite so essential to the Government’s plans after all, but is a dispensable piece of the jigsaw.

This is probably the most expensive of the U-turns that have been performed over the past few weeks. It dwarfs many of the others in terms of revenue forgone. It is all very well for the Minister to tell us that it has happened because we have a listening Government, but they must also listen to what they have been saying. On that basis, they must explain how they have come to this position.

[Lyn Brown (West Ham) (Lab)]

Does my hon. Friend have any idea how much the U-turns have cost collectively so far?

[Sheila Gilmore]

I understand that it is in the region of £725 million. That is quite a large hole in what was presented in March—it seems a long time ago now—as a balanced Budget. That was one of the Chancellor’s key themes in his Budget speech. We now appear to be faced with something of an unbalanced Budget.

[Mr Reid]

Because the Government have made savings in other areas, the Budget is still balanced. The hon. Lady was elected on a manifesto that supported the fuel duty escalator. When did she change her mind?

[Sheila Gilmore]

It is clear from the pattern of fuel duty rises under the last Government that such things were never set in stone and were not intended to be so. One has to look at the situation with which one is faced.

[Miss Chloe Smith]

The hon. Lady has a touching faith in the previous Government’s ability to stick to a course. Does she support Opposition new clause 11, which has a price tag of about three times as much as the new clause that she is attacking?

[Sheila Gilmore]

We have very different views about how to stimulate and boost the economy. The Government have run demand into the ground, for example by raising VAT to 20%, which has had an effect on fuel. Ministers are reluctant to talk about that in any detail. It has to be remembered that prior to the election, the Conservatives were going around telling us that there would be no increase in VAT, and their coalition partners liked to stand in front of huge billboards saying that they feared there would be a VAT bombshell but were completely against it.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has my hon. Friend noticed that oil and petrol prices have dropped by 28% over the past three months? That is not reflected at the petrol pumps, and surely the Government should do something about that.

[Sheila Gilmore]

My hon. Friend makes an important point. When the raw product goes up in price, the pump price goes up very quickly, but a downward turn seems to take a great deal longer to reach the consumer. We have made similar arguments about other energy price rises.

The hon. Member for Argyll and Bute (Mr Reid) suggested that it was all right for the Government to make U-turns such as this, because they had found savings elsewhere. That is nice to know, but if such savings could be found so easily, maybe the Government could have avoided some of the other things they have done. After all, we spent a lot of time in the Budget debate and before talking about the plight of couples who were losing tax credits because they were deemed not to be working enough hours. That change affects a small number of people—from memory, I believe it is about 500,000. We were told that if it were not implemented, it would cost the Treasury £500 million. We were told that it was impossible to go back on that decision, because money was so tight.

Like all Governments, the current Government are making choices. In the past two years, they have said that certain things have to be done and are not choices. They have said that they have been forced into them. However, all Governments make choices—that is part of governing.

[Julie Hilling]

Does my hon. Friend recognise that the Government have chosen not to do a U-turn on the granny tax, which is aimed at the people who are least able to pay, but continue to reduce the top rate of tax?

[Sheila Gilmore]

Indeed, and a lot of people would be glad to see the Government make U-turns in other areas, and in fact in their entire economic policy. It has been misguided, and the Opposition were clear from the start that it was the wrong way to reduce the deficit.

[Lyn Brown]

Does my hon. Friend agree that one of the biggest problems last week was that we were not told where the new money had come from to fund the Government’s U-turns? Does that not show the Conservative party’s economic incompetence? It is very worrying.

[Sheila Gilmore]

That is a very important point. We had a semi-answer from the Government saying that savings had been found, but they seem to be somewhat mysterious savings. We had not heard about them before, and we still do not really know where they have been found.

[Miss Chloe Smith]

Has the hon. Lady not read the Office for Budget Responsibility’s forecasts or the reports identifying about £4 billion of underspend in each of the past four years?

[Sheila Gilmore]

If the Economic Secretary is so clear that there is money to be used, I once again have to press her on some of the choices that the Government have chosen not to make. From what she has just said, it seems to me that there may be scope for her to reconsider some other matters.

I have a constituent whose employer, a big national department store, recently told her that she had to go completely flexible with her working hours. That meant that her shifts could vary from day to day. When she said that that could be very difficult for her, because she had child care arrangements to make and could not simply change things at short notice, she was told that she could reduce her current 18-hour week to a 12-hour week. We are told that such people should easily be able to find more hours of work to get around the problem of having their tax credits removed. If there is so much underspend, perhaps the Government should think beyond their proposals on fuel duty. It does not give us a great deal of confidence when they are adamant that they are not going to change things, but then do so before thinking about where they are going to find the money.

18:15

[Mr Iain McKenzie (Inverclyde) (Lab)]

My hon. Friend rightly identifies the fact that the Government have found additional money all of a sudden to fund their U-turns. Does she think that that money could have been used to create employment in areas with significant unemployment levels?

[Sheila Gilmore]

It could, and there could also have been significant investment in the building of affordable housing, which is dear to my heart. That would not just give people houses but create jobs and apprenticeships and boost the local economy. The Government could have done that if they had really wanted a Budget for growth. Our criticism of the Budget was that however balanced it may have seemed—it now turns out not to have been quite so carefully balanced as we were told—it was not a Budget for growth. Very little was put into building up jobs and growth. Perhaps it was only a practice Budget, although I always thought that was what the autumn statement, which used to be called the pre-Budget report, was for.

[David Rutley (Macclesfield) (Con)]

Fiscal responsibility is clearly an overriding priority, but does the hon. Lady agree with President Hollande, who recently said that

“national debt is the enemy of the left and the enemy of France”?

It is also the enemy of the United Kingdom.

[Sheila Gilmore]

National debt is sometimes essential. After all, I seem to recall that it was very much higher at the end of the second world war than it has been at any time since. There were reasons for that, and I believe we finished paying it down only a few years ago. Sometimes, we have debt because we have made essential or useful investment, and of course it is not the same as deficit.

[Mr McKenzie]

My hon. Friend is making a very good point. We have heard one of the comments of the new President of France, but does she think the Government will agree with his opposition to the austerity measures that have been put in place across Europe?

[Sheila Gilmore]

I do not dissent from my hon. Friend’s view. The new President’s general intention is indeed to break away from the fixation with austerity measures. That is not the same as saying that we do not want to deal with the deficit. The question is how to do that successfully and ultimately reduce borrowing.

The last Government have been misrepresented as having constantly increased the national debt. That is simply wrong. It was substantially reduced under the Labour Government, but what caused that process to go into reverse—I am not going to say it did not—was the recession and the economic stimulus that was put in to get us out of it. Our view remains that had the policies that were in force between 2008 and 2010 been continued, rather than going into a double-dip recession we would have begun to climb out of the recession.

[Julie Hilling]

Does my hon. Friend agree that we had growth in the British economy at the time of the general election, but we now have a recession made totally in Downing street? If the Government have such a big underspend, why on earth do we face a double-dip recession, and why are ordinary people suffering so much at their hands?

[Sheila Gilmore]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. In replying to that intervention, I hope the hon. Lady returns to the subject of the debate, which is fuel duties.

[Sheila Gilmore]

I do not want to dissociate those things—they are linked in lots of ways. Initially, we were told that there were constraints on the Budget, including not postponing the increase in fuel duty. What happens in a few months’ time? The measure is a deferral—we are not forgetting about it for ever—but what financial complexities will that create?

It is heartening that the Government’s motivation seems to be their recognition that people are suffering from a general reduction in their standard of living. As many commentators have pointed out, many working families are experiencing real reductions in disposable incomes such that they have not experienced for many years. That is part of the serious position in which people find themselves. It is good that the Government have understood that and want to act on it, but I would like them to act on some of the other issues that Opposition Members have constantly raised. I want them to understand that people are suffering not just from fuel prices, but from a number of other measures. The Opposition’s five-point plan would have reduced VAT and enabled investment in job creation. Perhaps it is not too late even now for the Government to U-turn on that.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I am happy to speak in the debate on new clause 1, which was moved by the Economic Secretary on behalf of the Government; on new clauses 9 and 11, which are in the name of the Labour Opposition team; and on new clause 8, which is in my name.

I support new clause 1. I am not against responsive government—indeed, there is a duty to be responsive in government. I therefore welcome the fact that the Chancellor announced that the Government had heard the concerns of ordinary people, families and businesses that cost of living pressures continue to be difficult on them. The cost of fuel at the pumps affects people in rural areas, but it also affects people in suburban and urban areas, and people running both small businesses and larger firms. For some people, there is an inescapable obligation to drive—they drive for their families and businesses, and in emergencies. Therefore, the price at the pump is a hugely important part of their weekly budget.

People made the case, and the Government, including Treasury Ministers from both parties, first agreed to delay the increase scheduled for earlier in the year until August, and last week announced a further delay until the end of the year. That is welcome. It is fair to say that the announcement came slightly out of the blue and yellow last week—it took a few people by surprise—but it clearly has not been met with opposition from those on the Opposition Benches, because a grand total of six Labour Members, including the Whip, have been present in the Chamber for this debate. There is clearly no great furore at this concession to the needs of the consumers.

[Sheila Gilmore]

Will the right hon. Gentleman give way?

[Simon Hughes]

No, I will not give way. The hon. Lady spoke for a very long time, as she often does, and I will not concede. This is a short debate—it goes on only until 7 o’clock—and I want to allow other colleagues to speak.

I want to make a specific plea on biodiesel. I should declare my interest: as some colleagues know, I sometimes drive a London taxi, which has often been powered by biodiesel bought from Uptown Oil, a firm in my constituency that collects used cooking oil from local firms—a chain of good environmental practice ends up in my cab and other vehicles in south London.

I have had discussions with the Economic Secretary and the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), and I asked colleagues—my hon. Friends the Members for Bristol West (Stephen Williams) and for Redcar (Ian Swales)—to argue the case in Committee last week. We have so far not persuaded the Government to change policy, but I wanted to put the case as to why the industry needs continuing Government attention and to ask that they do not turn their back on the industry, even if they are not willing to concede to my requests now.

[Charlie Elphicke (Dover) (Con)]

I remember a case reported in the papers some while ago. A gentleman in Wales was arrested by customs officials for not paying duty on the cooking oil in his car. He was traced by the smell. Can the right hon. Gentleman confirm that cooking oil fuel no longer smells, and that customs officials should not arrest people found with it in their cars?

[Simon Hughes]

I confirm both.

Biofuel is produced from waste vegetable oil and collected locally. This has been going on for a century or more—the first diesel engine ran on peanut oil. Colleagues may not know this, but the idea was that biodiesel vehicles would be used by farmers, who could use their crops effectively. The Department for Environment, Food and Rural Affairs is clear that the huge numbers of blockages caused by pouring oil down drains are not a good thing—it is better to put it somewhere else, which costs money for companies and local authorities.

Biodiesel also means that such waste does not go into landfill sites, which produce 40% of our methane emissions and 3% of our country’s greenhouse gas emissions. The product therefore helps us to meet our renewable energy targets. We produced something like 35 million litres of biodiesel from used cooking oil sourced in the UK for road transport two years ago, which meant a carbon saving of 82 million kilograms of CO₂.

There are about 30 to 40 producers—not just Uptown Oil in my constituency, but companies all over the UK. They are generally small firms, employing about five to 20 employees. They are confronted by a severely difficult economic situation. We could lose them, which would mean a loss of employment, a loss of revenue to the Government because they pay their taxes, and a loss of the source of the product, which would be a very bad thing.

In April 2012, following a decision by the previous Government, the differential fuel duty on biodiesel was taken away—it was put in place to support the industry—as the system of support across the EU changed to a new one. The derogation was originally meant to end in 2010, but it was extended by two years by the previous Government, because the implementation of the renewable energy directive was delayed—perfectly legally. There was therefore an attempt to ensure that the industry in the UK had continuing support on the basis that when such support ended—it was planned to end in spring 2012 —the new renewable transport fuel obligation certificate system would bring in the revenue.

Sadly, that was delayed—it was due to be implemented in December 2010, but in the end, it was implemented in December 2011. The new system has therefore had only a few months to bed in. The problem—bluntly—is that the price of the certificates is nothing like what the industry expected. Let me give a couple of quotes from people on the front line. This is from a firm in Feltham:

“I have found biodiesel road sales fall through the floor since the removal of the tax differential. 80% of my biodiesel sales now are for use as heating oil at a considerably reduced margin and overall volume of sales. I have had to lay-off my production manager and am working 7 days a week just to try to keep the business going.”

Edible Oil Direct Ltd of Rye, East Sussex says:

“We had to keep our prices at the pre budget price. Our On-Road customers who most makeup ‘saves money’ as opposed to the ‘green impact’ stated that if the price was increased in line with mineral they will switch back to mineral.”

Convert2Green of Middlewich, Cheshire says:

“"On average Convert2Green…received last year 20p tax differential and 17p Renewable Transport Fuel Certificate…revenue per certificate i.e. 37 pence per litre. With this, the company made an operating profit of £290k. Currently, the best offer we have for RTFCs up to April 2012 is 7 pence per litre and from April 2012 onwards 10 pence per certificate. At two certificates per litre”—

the new system—

“we estimate we will get 9 pence per certificate or 18 pence per litre on average. This is a reduction of 19 pence per litre. We sell approximately 3.75 million litres of road fuel per annum. Our profit reduction is £712,500 per annum or £59k per month. This takes us into significant loss. We will have to consider our future.”

Finally, the firm from which I bought my biodiesel, Uptown Oil, just over the bridge in Southwark, says:

“So far it has had a disastrous effect on our sales of Biodiesel for road use....Down 75%. Before the change we were receiving…around 17 pence…and 20p from the government. Now we receive 7p x 2 RTFC so 14 pence. So having increased our price we are worse off by 13 pence a litre. If we were to increase our price by 13 pence our fuel would be marginally more expensive than fossil fuel and sales would virtually cease.”

Those figures speak for themselves.

18:30

According to the Government, the problem is that the estimate of the industry—that the differential will cost the Treasury only about £10 million—is an underestimate, because it has been proved to be so in the past, and that it could be used to subsidise imports and so have an unpredictable outcome and not support business in this country. I hear what the Government say, but compared with the freezing of the general fuel duty this August, which will cost about £500 million, this plea is for a very small subsidy indeed.

I am concerned that if the Government do not respond to the industry’s plight, by the end of the year we might lose it—or most of it—and the revenue from it; there might be a net loss to the Exchequer, because the differentials I want extended for one more period would be far less than the loss; green fuel will lose out; a good recycling product will lose out; and we will regret it. I ask the Minister and her colleagues in the Department for Transport not to let this happen. If it cannot be implemented in this Finance Bill, as I would like, something might need to be done quite soon in this financial year. They will accept, I hope, that it would not be good for part of this valuable industry to be lost. We need green jobs, and the Government are promoting them, but they must continue to do so for the road industry.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to speak on this important issue. Notwithstanding the fact that few Opposition Members are present, I hope that Government Members will recognise the quality of the contributions, if not their weight in numbers. Neither should anyone believe that the fact that there are relatively few Labour Members in the Chamber suggests a lack of interest or concern about this issue, which matters to every one of our constituents.

Two weeks ago, on 20 June, an article in The Daily Telegraph reported the Prime Minister as warning motorists that there was

“no bottomless pit of money”

to fund a fuel duty cut. We were led to believe that this was dampening speculation that the Treasury would be able to afford the £1.5 billion needed to cancel the extra duty for one year. On 24 June, the Transport Secretary, also in an interview in The Daily Telegraph interestingly, indicated that she was not prepared to lobby the Treasury to delay or abandon the 3p increase in fuel duty due this August. She was also reported as saying that her focus was instead on “challenging” petrol firms to cut the cost of fuel at the pumps to reflect the falling cost of oil globally.

We have no problem with that. Many people are concerned that prices at the pump do not change as the oil price drops, although we know that it is difficult for small independent petrol retailers who have to buy at a particular price and might not have the same volume going through as some of the large supermarkets. We have to understand that. However, the Transport Secretary’s comments chimed perfectly with the words of the Economic Secretary in a recent Westminster Hall debate:

“Calls for the August increase to be scrapped raise an important question, because we would need to consider how to replace the £1.5 billion it would cost. That money would need to come from higher taxes or lower spending elsewhere.”—[Official Report, 23 May 2012; Vol. 545, c. 143WH.]

Every time the issue was raised, then, Ministers made it absolutely clear that if they were to do it, they would have to come up with a way of paying for it—stating the obvious, perhaps, but I shall return to that point later, if I have the opportunity.

It might be a cliché to talk about a week being a long time in politics, but a week after the 20 June article, the shadow Chancellor, in an article for The Sun—that newspaper, like FairFuelUK, had campaigned on the issue—called for the August duty increase to be dropped, and made it clear that he wanted it to be dropped at least until next January. Government Members seemed to suggest that this was opportunistic and done on the spur of the moment or for purely political reasons. Nothing could be further from the truth. We have consistently made it clear that action needs to be taken, especially given that times are tough, with higher VAT generally and prices rising faster than wages.

Everyone knows from their constituents—I am sure that Government Members receive the same representations as Labour Members—that filling up the car is now a big drag on family budgets. Indeed, a nurse in my constituency who was not on a high salary told me that filling up her car to get to work cost her so much that it was like having another mortgage.

[Charlie Elphicke]

The hon. Lady is making heavy weather over who should take the credit and whose idea it was. Is it not great news, first, that prices at the pump are falling, and have been falling in recent weeks, and secondly that the Chancellor has been able to freeze fuel duty?

[Cathy Jamieson]

I welcome the fact that it will make a difference for constituents, but once again, unfortunately, the way it was done did not suggest a Government who were organised or knew that they were going to make the announcement at that particular time. That is important in the context of how it will be paid for, but I shall come to that.

At the time, we expressed concern that the Chancellor’s Budget plan would mean a 3p hike in fuel duty in just five weeks. Previously, we had called for the Government to cut VAT, which would have knocked 3p a litre off fuel prices, as well as helping hard-pressed household budgets in other ways. We called for the August rise to be dropped because we believed that increasing the fuel duty at this time would have sent the wrong signal to retailers, who would have had to pass every penny on to drivers and put prices up just when they should have been cutting them.

We also made the point that with Britain now in a double-dip recession, the last thing our economy needed was another tax rise adding to the squeeze on household budgets and to the difficulties faced by many small businesses. The Government’s priority should have been to boost the economy, rather than to clobber families, businesses and pensioners just when they were feeling the squeeze the most. That is why we called on the Chancellor to stop the August fuel duty rise, at least until next January. We said that we would put that issue to a vote in Parliament, and that is why we tabled new clause 11.

[Mr Jim Cunningham]

One question that has never been answered is why the fuel duty decision was not taken in the Budget. Does my hon. Friend agree that the Government rushed into this without thinking about the consequences?

[Cathy Jamieson]

Indeed; my hon. Friend makes a good point. The way in which the decision was announced, and the aftermath of that announcement, does perhaps suggest that the Government were rushed into this. Also, many Government Back Benchers agreed that the fuel duty increase should be dropped. A number of them made that clear in a good Westminster Hall debate, and others publicly signed up to support the FairFuelUK campaign.

We tried to be helpful. We suspected that Ministers might say—as, indeed, they did—that they could not afford to stop the increase, even though they had found the money to give a tax cut to millionaires. As has been suggested, if there is money available, it ought to go to those whose household budgets are being squeezed the most. It is still astonishing to me that the Government seem intent on punishing families—especially those with children—while at the same time giving a massive tax cut to millionaires. [Interruption.] Government Back Benchers can shake their heads and look at the ceiling, but real people are being affected by this Government’s Budget, and those who are benefiting are the best off.

We suggested some ways of raising the necessary funds. We said that the Government could perhaps consider closing the tax loopholes that the Prime Minister had been condemning, and stopping hundreds of millions of pounds being lost through offshore tax havens. We also suggested that they might want to reverse the pension tax relief boost that they have given to people who are already well off—namely, those earning more than £150,000—and that they might want to use the £500 million underspent in the Olympics budget.

We were not being opportunistic. We understand that difficult decisions have to be made if we are to get the deficit down, and as a responsible Opposition we looked at the figures. We also recognised that, at difficult times in the past, Labour had put up fuel duty. On many occasions, however, we also delayed or cancelled planned fuel duty rises in the light of the circumstances at the time—including at the height of the global financial crisis —because it was the right thing to do to give assistance to the people who needed it most and to ensure that we balanced and grew the economy.

We know—and more and more commentators are agreeing with us—that raising taxes and cutting spending too far and too fast have backfired. Britain has been pushed into a double-dip recession, more people are out of work, and the result is a bigger benefits bill and £150 billion of extra borrowing. That is why we need a fairer and more balanced plan for our economy that will get people back to work, and why we are calling again for the Government to change course and put their efforts into tackling youth unemployment, as well as using the skills of people who have been made redundant, and who have something to give back, to support young people into the jobs market.

We agree with the Government that stopping August’s 3p rise in fuel duty is the right thing to do for British businesses and families. I do not know whether the Prime Minister and the Chancellor have ever had to worry about the cost of filling up their cars in the way that the nurse in my constituency does. She works night shifts, and she does not know whether she will have enough money left at the end of the month to fill up her car so that she can get to work. In response to the hon. Member for Dover (Charlie Elphicke), we are glad that the Government have at last started listening to those who face those difficulties, and we will therefore be supporting the Government tonight on this issue. As I said earlier, however, the manner in which the announcement was made raises a number of questions. It looked as though the issue had brought about the quickest U-turn in politics. The new benchmark for “a long time” in politics is no longer a week but overnight, with changes being made 24 hours after the initial announcement.

18:44

The Chancellor made the announcement to Parliament during Treasury questions. It was right and proper that he did it in the House; I have no complaint about that. However, the shambles of the aftermath made it abundantly clear that people on his own side had not been expecting it, especially those Back Benchers who had religiously stuck to the “lines to take” that had been circulated in advance. We actually felt a bit sorry for some of them, because they had not stuck their necks out and done what they knew in their heart of hearts to be the right thing—namely, sign up to the campaign and call on the Government to change course. Instead, they went out and defended the Government’s proposals, right up to the last minute. We heard that confirmed this evening by the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), who said that the change had come as a surprise to him.

It is not clear exactly how many people were surprised by the announcement. There was a strong suspicion that many of the Chancellor’s fellow Ministers, including perhaps the Transport Secretary, who gave that interview to The Daily Telegraph on 24 June, were caught on the hop. Of course, the Chancellor and his senior colleagues were posted missing, leaving the Economic Secretary to tour the television studios, even though she clearly did not have the information that she needed on how the measure would be paid for. That turned what the Government’s spin doctors were expecting to be a good news story into yet another shambles, and it was a shambles entirely of the Chancellor’s own making.

Now, we are nearly a week down the line, which must count as an eternity in the light of that new benchmark—[Interruption.] I would be more than happy to take an intervention from the hon. Member for Beverley and Holderness (Mr Stuart), rather than listen to him commenting from a sedentary position.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

I am delighted that the hon. Lady has given way. I wonder whether she could bring her speech to a close, so that we might hear from someone who really does have some authority on this subject and who has so ably led the campaign to bring about this change.

[Cathy Jamieson]

I acknowledge that the hon. Member for Harlow (Robert Halfon), to whom the hon. Gentleman is referring, did a lot of work on the campaign. However, given the earlier suggestions that there was a lack of interest in this subject on the Opposition Benches because of the lack of numbers here tonight, I felt it important to lay out our case fully. I hear what the hon. Gentleman is saying, however, and I will bring my remarks to a conclusion.

I want to ask the Minister some specific questions. Now that the Treasury has had a week or so in which to do the number crunching—if it had not already done so—what areas of departmental underspend have now been identified to ensure that the decision to delay the August 2012 increase in fuel duty will be met in a fiscally neutral way? Will the Minister also tell us which Departments have, through budget exchange, already surrendered an underspend in advance of the end of this financial year, and which Departments are expected to have greater than originally forecast savings in departmental spending in 2012-13?

I do not have time to comment on the points that have been raised about biofuels. Perhaps I shall be able to do so in another debate. In conclusion, however, I should like to refer Members to new clause 9. We shall not be pressing it to a vote this evening, but it calls for a review of the relationship between fuel duty, other taxes charged on road fuels, and the cost of road fuel. It was made clear in the recent Westminster Hall debate that such a review might reflect the views not only of the Opposition but of many Government Members —I see some of them nodding—and I hope that the Government will be good enough to listen to that proposal, and to come forward with a plan to establish such a review.

[Robert Halfon]

I am grateful to have the opportunity to speak, and I support the Government’s new clause. I hugely welcome the support of my colleagues, particularly that of the hon. Member for Dundee East (Stewart Hosie), who did so much work with FairFuelUK and attended the Westminster Hall debate to which the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) referred.

The case for cheaper petrol is economic, social and moral. It is economic because the AA says that keeping 3p off fuel prices will pump £1.8 million into our economy every single day. That supports high street demand at a time when it is collapsing in Europe. It is social, because fuel duty is a tax on everything, and we should be honest about who is paying it. We talk about “motorists”, but they are not a special interest lobby group. As FairFuelUK and many hon. Members have shown, motorists are everyone: mums driving to school, children on the bus, pensioners hit by inflation. That is why this is an issue of social justice. The economy is important, but it is only half the argument.

The case is moral, too, because as I have set out in other debates, fuel duty is regressive. The Office for National Statistics said last year that it hits the poorest twice as hard as the richest. Fuel prices are now, in essence, a poverty trap, adding to our dole queues. The average motorist in my Harlow constituency pays £1,700 a year to fill up the family car—that is a huge amount and clearly unsustainable.

Opposition Members have spoken of a U-turn, but I would say that it is an L-turn, showing that the Government have listened, and I believe that the Government deserve huge credit for doing so. When I spoke to my constituents at the weekend, no one said that this was a U-turn or wondered when it was first mentioned or by what Minister when and why. Rather, they said thank you to the Government for listening to motorists.

The Chancellor, the Economic Secretary and her predecessor, who is now the Transport Secretary, have done more to cut fuel taxes in two years than the Opposition did in a decade. The 2011 Budget saw Labour’s rise cancelled and fuel duty cut by 1p, while in last year’s autumn statement Labour’s January rise was scrapped after the campaign by FairFuelUK and MPs. Then, last week, the Government delayed Labour’s August rise. This is a radical tax-cutting agenda, targeted in a way that helps the poor. It shows that the Government are on the side of the little guy, supporting aspiration and hard work.

I listened to the “Today” programme interview with the shadow Chancellor, and I say to the hon. Member for Kilmarnock and Loudoun that this is not a decision made in a day. I and many others have been to see Treasury Ministers over many weeks and have led delegations to see relevant Ministers. I knew that the Government were considering this issue for a long time.

[Cathy Jamieson]

I thank the hon. Gentleman for making those points. If those discussions were going on for that length of time, would he not have expected the Government to say how it was going to be paid for?

[Robert Halfon]

In the Westminster Hall debate, which the hon. Lady mentioned, the Economic Secretary did not give a view either way on the issue and said that the Government were looking at it. Ministers then came to the House for Treasury questions. What better way of informing us that they were going to stop the August rise?

Returning to the “Today” interview with the shadow Chancellor, he said that Labour had “acted” on petrol prices, but a House of Commons Library note says:

“From 2000 the Labour Government increased road fuel duties...In its 2009 Budget the Labour Government announced that in future years fuel duties should rise by 1p a litre above inflation.”

In the next Budget, they

“proposed that the escalator should apply at least until 2014/15”,

and that

“the increase set for 2010/11 would be phased in over the coming tax year in 3 stages...fuel prices continued to rise strongly, driven by this increase in duty rates”.

That is the record we inherited, and which we are now having to unwind.

[Sarah Newton]

Will my hon. Friend give way?

[Robert Halfon]

I apologise, but I cannot, as I have to allow time for the Minister to respond.

There are still problems: fuel is still at around £1.30 a litre, which is unsustainable. As the RAC has said, duty revenues are shrinking every year, as people are driven off the roads. We must stop seeing cars as a cash cow.

I accept that the Government can only do so much. We are always held hostage by the international oil price. As has been noted, however, pump prices are quick to rise, but it feels as though we need a court order to get them down. Evidence shows that from May to August last year, oil prices fell by 5.5%, but petrol and diesel stayed high, falling by just 1.5%.

The Office of Fair Trading has said it will not investigate the UK oil market. I am petitioning the Backbench Business Committee to table a motion so that Parliament can urge the OFT to investigate that market, which clearly looks uncompetitive and unfair to many people.

Finally, there is the problem of local variation in petrol prices, especially in rural areas, but also in towns like Harlow. Harlow residents often write to me, saying that fuel is 5p cheaper only a couple of miles down the road, and there is no explanation for it, other than a lack of competitiveness. Germany, Austria and America have initiated fuel price regulation to limit price rises. We should be doing the same thing.

In conclusion, the Chancellor and the Economic Secretary have given Harlow families and many millions of motorists across the country at least six months’ breathing room, and I welcome that. I urge the Government to look seriously at the long-term cost of fuel and petrol, and see what else they can do. I also urge them to put pressure on the OFT to do a market study. I will vote wholeheartedly for the Government’s new clause, and I urge the House to join me.

[Miss Chloe Smith]

With just a few minutes remaining, I would like to respond to a few points—in some detail, if I may, in relation to the Government new clause.

I shall take up some of the themes raised by my hon. Friend the Member for Harlow (Robert Halfon), who has indeed campaigned assiduously on this issue to the benefit of his constituents and others, but first let me first tackle some of the points—frankly, mainly about process—raised by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). After our time in Committee, when we interacted very reasonably, I regret to say that the hon. Lady focuses on points that do not matter to constituents not only in Harlow but up and down the country. I know from conversations in my constituency and elsewhere that people soundly welcome the news that fuel duty will be frozen for the 21st month in a row. It is important that the Government are able to listen and respond in that way.

Let me answer the hon. Lady’s specific question—I have done so already, but I am happy to repeat it. The funding for this measure has been found from within existing spending plans. We will set out the details in our autumn statement. I know that my constituents—and, I suspect, hers as well—welcome a Government who take every opportunity, when underspends are found, to make life easier for households and for businesses. That is what we are doing with this measure. I am glad that the hon. Lady welcomes the impact of this measure on households and businesses, and I hope she leads her colleagues, who appear rather thin on the ground, to join us in the Lobby tonight in favour of the Government new clause.

Briefly, new clause 9 calls for, if I am not mistaken, the 29th report for which the Labour party has called during the course of Finance Bill 2012. I do not think such a report is necessary; it rather misses the point, which is that we are taking action to help motorists in businesses and in households. I wonder what the hon. Lady makes of new clause 11 and the costings implicit within it, as cancelling the 3p increase would cost around £1.4 billion next year. If I am not mistaken, that is just as unfunded from Labour’s point of view as is their five-point plan. I have already explained the action this Government are taking to support motorists and how we are going to fund it.

New clause 8 was proposed by my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes). He has campaigned assiduously on this matter, and I recognise that. He and I have spoken about it in meetings in the past. He laid out what his new clause is designed to achieve—to introduce a 10p duty differential from 1 July for biodiesel derived from used cooking oil. This would carry on where the sunset relief of the previous Government left off. That was designed to end on 31 March this year.

Let me make a few brief points to my right hon. Friend. The last Government’s differential was very costly. It cost £80 million in 2010-11, and the amount subsequently rose to £160 million. Most of the supply was imported, as international producers took advantage of the UK’s unlimited relief. Analysis by the Government indicates that if a 10p-per-litre duty differential were introduced, the cost could rise to £90 million in 2013-14. Rather than subsidising importers, that money could be spent on key public services. This Government believe that the renewable transport certificates—

19:00

Debate interrupted (Programme Order, this day).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.

Question agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

Clause 1

Charge for 2012-13 and rates for 2012-13 and subsequent tax years

19:00

[Cathy Jamieson]

I beg to move amendment 1, page 2, line 6, leave out paragraph (c).

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss the following:

Amendment 2, page 2, line 7, leave out subsections (3) to (6).

Amendment 23, page 2, line 36, leave out clause 4.

[Cathy Jamieson]

The amendment deals with an unfair situation that I mentioned earlier. People who are already earning considerable amounts, millionaires and others receiving the highest levels of pay, will benefit from the Government’s proposal to reduce their tax rate to 45%. We had a good debate on the subject on Second Reading, but were not able to discuss it in Committee. At that time we wanted the Government to reconsider, and not just because millionaires were set to receive something equivalent to a £40,000 per annum tax cut.

[Sheila Gilmore]

My hon. Friend may be interested to learn something that I myself learnt from a television programme that had no direct connection with economics. It was part of a series about London streets. A banker who was talking about his home in Portland road said that prices there had risen considerably since the taxpayer had bailed out the banks, and that far from suffering from the current financial situation, people seemed to be benefiting.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I must inform the hon. Member for Harlow (Robert Halfon) that only one Member should be standing on the Floor of the House at any one time. Welcome to the Opposition Benches, Mr Halfon.

[Cathy Jamieson]

I was not sure whether the fuel duty debate or the intervention from my hon. Friend the Member for Edinburgh East (Sheila Gilmore) had exercised the power of persuasion that led the hon. Member for Harlow (Robert Halfon) to cross the Floor and spend some time on the Opposition Benches, Madam Deputy Speaker, but I shall now return to the subject of the amendments, which are fairly simple and straightforward.

Amendments 1 and 2 would remove the cut in the top tax rate for people earning more than £150,000 a year, and amendment 23 would prevent the abolition of the age-related allowance that would increase the tax on millions of older people—the so-called granny tax. As we said in the earlier debate, the amendments are based on the straightforward principle that when times are tough and there is less money around, we must ensure that the burden of deficit reduction is fairly shared. That theme of fairness will be a feature of the contributions of Labour Members this evening.

As I said at the outset, however, the Government have chosen to cut taxes for the richest 1% of the population, and that tax cut is worth £40,000 to those who earn more than £1 million a year. At the same time, they are raising the taxes of 4.4 million pensioners by, in some instances, hundreds of pounds a year. Most of those pensioners are living on less than the average taxpayer.

[Mr Reid]

Did not the Budget also raise the personal allowance for income tax by a record amount, thus cutting the tax for many people and taking many out of it altogether?

[Cathy Jamieson]

I hear what the hon. Gentleman says, but many people will be about £511 a year worse off. Many, particularly those on the lowest incomes, will not benefit from the rise in the income tax threshold, and a large proportion will be part-time workers who cannot work for the extra hours that they have been told will enable them to continue to qualify for tax credits.

[Charlie Elphicke]

Does the hon. Lady not welcome the fact that 2 million will be taken out of tax altogether, and that most basic rate taxpayers will be better off to the tune of, I believe, £220?

[Cathy Jamieson]

The problem is that the Government are giving with one hand and taking away with another. According to the Institute for Fiscal Studies, many people will be £511 a year worse off. That may not seem a lot of money to one of the millionaires who will benefit from that £40,000, but it will make a big difference to a low-paid worker who is struggling to make ends meet and is feeling the pinch because of rising prices for food and other commodities.

[Julie Hilling]

Not only have the Government cut the rate of tax at the top—admittedly there is a welcome relief for people near the bottom, although of course those at the very bottom will not benefit at all—but the squeezed middle are being hammered in all directions. Because the threshold at which people will start to pay the higher rate has fallen, more people will be dragged into it, and people are also being affected by the tax credit and child benefit measures.

[Cathy Jamieson]

That is absolutely true. As I said earlier, that is exactly what happens to those who cannot work for the extra hours that would increase their working time to the 24 hours that would entitle them to maintain their working tax credit. These are people who want to work and pay their way—they want to do the right thing—but for some reason the Government have chosen to clobber them the hardest at the same time as giving millionaires a tax break. That makes no sense to me, although Government Members may say that it is a point of principle.

A commentator—I think that it was Fraser Nelson of The Spectator—recently suggested that the best definition of “Osbornism”, if there can be such a definition, had been provided by Groucho Marx:

“These are my principles. And if you don’t like them—well, I have others.”

I hope that the Government have received the message loud and clear from the Opposition and from the British public. We do not like the principles that are at the heart of the Government’s economic policy. We do not like, or accept, the principle of asking millions to pay more so that millionaires can pay less. That is why we are giving the Government the opportunity to put their well-practised U-turning skills to good use once again.

[Mr Jim Cunningham]

Should they not go further than that? Should we not deal with the amendment to existing legislation allowing the use of foreign countries as tax havens to avoid paying the debts of the developing countries, which can cost £4 billion a year?

[Cathy Jamieson]

My hon. Friend has made a good point. We will have an opportunity to discuss that subject in more detail tomorrow.

The Government once made much of their commitment to fiscal responsibility. Deficit reduction was to be their defining mission. Today, however, that task has been made even harder by the failure of their own economic plans, which involve £150 billion of extra borrowing. Their pledge to clear the deficit by the end of this Parliament has been blown to pieces, yet they still find the money for a tax giveaway to the top 1%.

[Nigel Mills (Amber Valley) (Con)]

rose—

[Cathy Jamieson]

Perhaps the hon. Gentleman would like to comment on that in his intervention.

[Nigel Mills]

Am I right in thinking that the impact of amendment 1 would be to take away the 45p rate and leave the highest rate at 40p, thus in effect giving a double tax cut? Can the hon. Lady explain the technicalities of how her amendment works?

[Cathy Jamieson]

I am a relative newcomer to this place, and I sometimes find its procedures and conventions bemusing. I have learned from my time in the parliamentary process, however, to take advice from the Clerks and others who know about drafting legislation, and that is what we did in respect of these amendments.

The Minister will no doubt protest that the higher rate was not raising any money, but the Government’s attempts at justification have not withstood the scrutiny that has been undertaken. The Office for Budget Responsibility, for example, says that Her Majesty’s Revenue and Customs’ estimates of the reduced tax avoidance that would result from the reduced rate are “highly uncertain”. They are based only on the first year’s yield from the new top rate, which was always expected to be artificially depressed by people’s ability to bring forward their income. No real basis is therefore offered for estimating the revenue-raising potential of the 50p rate. It is for that reason that the Institute for Fiscal Studies said that it is

“too soon to form a robust judgement.”

The claims that new funds would flood into the Treasury as a result of people relaxing or reversing their efforts to avoid paying the top rate have been shown to be notoriously speculative. Again, as the IFS explained,

“you’re first giving out £3bn to well off people who are paying 50p tax...you’re banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them less...there is a lot of uncertainty, a lot of risk with this estimate.”

A written answer provided by the Exchequer Secretary to my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary, on 19 June shows that in 2010-11 more than 73% of people earning over £250,000 were paying more than the top rate, as were more than 80% of people earning between £500,000 and £10 million, implying that many tens of thousands of people were paying the 50p tax rate of last year and are now in line for a very large tax cut if this measure comes into effect.

[Charlie Elphicke]

rose—

[Cathy Jamieson]

I will give way to the hon. Gentleman, if he would like to answer that point.

[Charlie Elphicke]

I read the impact statement and the detailed IFS discussion of the so-called ‘uncertainty’. Its premise was that the avoidance would end because people would pay themselves out, regardless of how they had parked and deferred the revenue, and would therefore pay the tax at 50p. The problem is that people who have a personal service company—as so many Labour MPs and Labour supporters, including Ken Livingstone, seem to have—can defer for a very long time. They can pay themselves a beneficial loan and almost avoid tax altogether. That has also been a scandal in recent days. It is therefore not true to say people cannot continue deferring.

[Cathy Jamieson]

I will answer that point in more detail later. I am a little disappointed, however, as I thought the hon. Gentleman was going to make a different point. He seems to be suggesting that only people with a connection to Labour had been avoiding or evading tax, which is, of course, absolutely not the case. I hope Members across the House will ensure that at every stage those who are due to pay their taxes should pay them and should do so willingly and properly.

[Sheila Gilmore]

What does my hon. Friend think about the fact that in Committee a Conservative MP, the hon. Member for North East Somerset (Jacob Rees-Mogg), said that in his opinion the actions of a certain Ken Livingstone were in fact very sensible?

[Cathy Jamieson]

I do not wish to return to the lengthy debate that took place in Committee, but we did at various times have discussions about people doing things that were perfectly legal—and which, if they were so advised, might make perfect sense—but the question then arises as to whether they are morally or ethically the right things to do.

19:15

[Julie Hilling]

Was my hon. Friend as surprised as I was when the Government refused to release the tax details of their Front-Bench Members?

[Cathy Jamieson]

Again, I do not want to focus on such issues at this time. I am sure that Government Front Benchers will want to take responsibility for their own actions.

I now want to address some points that Ministers may make about the Bill’s measures to reduce tax avoidance. The IFS has again been very busy and has made some extremely helpful and interesting points. It says this Budget compared poorly with Labour Budgets, which cut tax avoidance by more than £12 billion between 2002 and 2009—an average of more than £1.3 billion each year. This Budget, however, is estimated to have cut tax avoidance by just £800 million. Closing loopholes to prevent avoidance should be something that every Budget does, and we should not be required to compensate the very rich for the inconvenience.

The Government’s last line of defence will no doubt be that cutting tax for those who already have the most will unlock investment and kick-start economic growth, but that is pure ideology, with no evidence to back it up. The OBR documents accompanying the Budget show a continued pattern of the promised recovery of business investment being postponed. An 8% increase was promised for 2011, but the amount actually fell by 2%. A further 10% increase had been projected for this year, but the forecast is now less than 1%. The role of such investment in driving growth for future years has been significantly written down.

As for growth, again the OBR is clear. It states in box 3.1 on page 46 of its latest economic and fiscal outlook, which is headed “The economic effects of policy measures”, that the only policy with a measurable effect is the cut in corporation tax. It says that that will lead to an increase in GDP of

“0.1 per cent by the end of the forecast period.”

Beyond that, it says in the policy costings document:

“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”

Therefore, according to the best evidence and the advice of independent experts, this is a tax change that will have no discernible impact on our economic prospects and, at a time of tight public finances and tough decisions on deficit reduction, it could cost billions of pounds, making it harder to deal with the deficit and necessitating harsher sacrifices for others in society.

The granny tax is addressed in another of our amendments, which would reverse the Chancellor’s shameful raid on pensioners’ incomes. We must give the Government a chance to make amends for what is essentially a broken promise, and for their shabby attempts to sneak this past Parliament and the public. We call on the Government to cancel this unfair measure for a number of reasons. First, the Government made a commitment as recently as last year that the age-related allowance would be uprated each year of this Parliament in line with the retail prices index. It is there in black and white on page 35 of the 2011 Red Book. Recently it has been reported that the Prime Minister is resistant to suggestions from the Secretary of State for Work and Pensions that he break pre-election promises on benefits for older people. Yet here is a promise made only last year that the Government have consigned to the dustbin. Instead of acknowledging this most disreputable of U-turns, the Chancellor actually sought to conceal it, dressing a crude tax grab up as a “simplification”.

According to the House of Commons Library, by far the majority of those being asked to pay more live on incomes that put them in the bottom half of taxpayers. The crucial point—again, I am sure that Government Members will have heard this—is that having a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put someone in line to lose under this measure. We are talking about the people who did not earn big salaries in their working lifetimes but managed to save so that they could provide for themselves. These are more people doing the right thing; they avoided the means-tested benefits. So yet again I say: why are the Government so keen on policies that penalise the people who are doing the right thing? Why do they penalise the people who are trying to work—the low-paid, part-time workers who lose their tax credits—and the pensioners who have tried to avoid the means-tested benefits and have saved for their retirement and done the right thing?

There is no doubt that pensioners have been hit hard by this Government’s decisions: winter fuel allowance has been cut; pensions have been indexed to a lower measure of inflation; the increase in the state pension age for women has been brought forward; last year’s VAT rise added £275 to the cost faced by an average pensioner couple; and cuts have been made to services such as the NHS, social care and local transport—all the things that matter on a day-to-day basis for pensioners. So pensioners have been hit hard by this Government’s decisions and policies, yet with this Finance Bill the Government are coming back for more. They are not content with all those things and are coming back for more. In total, this measure will raise more than £3 billion pounds over the next five years.

[Ian Lavery (Wansbeck) (Lab)]

Is it a coincidence that the tax cut to the rich costs £3 billion, which is exactly the same as the tax increase for elderly people in society?

[Cathy Jamieson]

My hon. Friend makes a very valid point. That must be purely coincidental, because surely no Government would want to take that amount of money from pensioners simply to give it to the richest. Perhaps this Government would though; perhaps we have the same old Tories with the same old policies, yet again. The pensioners who have been hit hardest by this Government’s decisions are seeing them coming back for more. That £3 billion raised over the next five years is the biggest revenue raiser in the whole Budget, and it is coming from the pockets of pensioners with modest incomes. And it is all going towards what? Is it going to paying down the deficit? No. Is it going to help young people get back to work? No. Is it going to help the poorer pensioners? No. Instead, this money is being taken from millions of older people living on modest pensions and redistributed to a few thousand individuals with incomes of more than £150,000 a year. What an absolute disgrace: taking from the pensioners to give to those already on those high earnings.

The Government were said to be surprised by the anger this tax change has aroused. If that is the case—if they were surprised—that shows just how out of touch they are with the values, principles and priorities of the British people. At the time, the response of Age UK was very clear. It said that it was disappointing that the Budget

“offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes, who are already being squeezed”.

We could not have put it better ourselves. The chief executive of Saga said:

“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”

The National Pensioners Convention said:

“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax—whilst those earning £150,000 or more will see their tax bills reduced.

This is seen by many as the last straw...Pensioners feel they are being asked to bail out the super rich—and it’s simply not fair.”

Pensioners are absolutely right to feel that way.

These amendments are a chance for the Government to rectify one of the most blatant injustices in this Budget. It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less. It is extremely hard to comprehend how the Government could ever have thought that this was fair, or that it would be acceptable to pensioners and to others who care about pensioners, but now they have an opportunity to put it right, and Members from all parts of the House have a chance to show where they stand. They can support these amendments and do the right thing by the people who did the right thing for themselves.

[Charlie Elphicke]

It is a pleasure to follow the shadow Minister, who has set out such a partial view from the Labour party’s perspective on this Budget. I think there is a better approach: the more people we take out of tax, the better, as the administration cost is less and there is less hassle for people, particularly the least well-off. I want to see the personal allowance increased to £10,000 as soon as possible. Good progress was made in the last Budget, but the sooner we take the number to £10,000, by far and away the better. Nevertheless, I welcome the fact that most basic rate taxpayers will see an annual cash gain of £220, and I welcome the fact that this Budget takes 2 million people out of tax altogether. That is important, particularly given that we all remember the fiasco over the 10p tax rate. The more we can look after the least well-off and take them out of the tax system, by far and away the better.

I was fascinated by the whole discussion about the 50p rate. We can see from Treasury figures that we are talking about £100 million. That figure is rubbished by the Labour party, which thinks the figure is completely wrong and cites an IFS report. Let me quote the relevant passage from the IFS report, which is where I think the Labour party draws its approach from. The IFS states:

“The worry for the Chancellor is that the estimate that cutting the top rate to 45% will only cost £100 million is particularly uncertain. It assumes a ‘no behaviour change’ cost of £3 billion offset by a behavioural change of £2.9 billion. The first number we know reasonably accurately; the second number is estimated with great uncertainty. Even if we knew the effect of introducing the 50p rate—which we don’t with any precision—responses may not be symmetric. Those who have got a taste for avoiding the 50p rate may continue to avoid the 45p rate (even if they wouldn’t have done so had the 50p rate never existed). The experiment with the 50p rate does not appear to have gone well.”

My first conclusion is that the IFS is saying that making the rate 50p in the first place was a complete and utter disaster. The second issue raised is the uncertainty over behavioural change. On that, I say that we have empirical evidence on what happens when the rate is reduced. I do not know whether everyone recalls this, but we used to have an income tax rate of about 80%. When that was reduced, first to 60%, there were great cries from the Labour party that it would cause a collapse in the revenues, but instead the revenues rose. Why was that? It was because fewer people avoided tax. The Government of the day then reduced the rate to 40p. Again there were great cries from the Labour party that that would let the rich off the hook, but what happened? The revenues rose. Why was that? It was because fewer people were as interested in avoiding tax and they paid up a fair share.

[Sheila Gilmore]

There are other explanations for the increased tax take during the period in question. One was the general growth in the economy, which generated more income, whereas another was the greater degree of inequalities, which meant that although people were paying a lower rate of tax, the cash take was higher because their income had risen so much. People on very high incomes are still paying a relatively low rate of tax, however. If tax avoidance did not take place previously, why have there been so many examples of it?

19:30

[Charlie Elphicke]

I absolutely agree. The 1980s were a time of great economic expansion; a great time of liberalising markets, sound money and sound economic policies that saw that massive expansion. It was also good that the ’80s saw a massive reduction in the rate of taxation, which spurred on growth.

What happened in the last decade was all built on debt. It was all a bubble and it ended in a massive shambles and a massive bust that has brought our country to its knees. We need growth. How will we get it? By reducing the rate. If we cut the rate, we will increase the take and encourage people to invest in UK plc. That is where we need to go.

[Hywel Williams (Arfon) (PC)]

Proponents of the Laffer curve, which is what the hon. Gentleman is talking about, often say that paying a higher rate of taxation is a matter of personal choice. Does he agree?

[Charlie Elphicke]

As I said, I think the Laffer curve is an interesting principle, but I prefer empirical curves and empirical results from experiments. We know from the ’80s that if the rate is cut, it increases the take. For me, the uncertainty is not about whether reducing the rate from 50p to 45p will cost the Exchequer £100 million, but about whether it will add £100 million or £200 million to the Exchequer as fewer people seek to avoid tax.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Does my hon. Friend think that cutting the rate to 40p or even 35p might have raised even more money? Would not that be a very good thing for the Government to do?

[Charlie Elphicke]

My hon. Friend tempts me, as ever. He knows that my view is that one should reduce the rate and clamp down heavily on tax avoidance. I respect the fact that he does not always share my views on tackling tax avoidance—I recall that in Committee he said that I was going to paint the cliffs of Dover red, so passionate was I that people should pay their fair share—but I do think that if we have lower, simpler taxes and a simple tax system, it will incentivise investment and encourage more economic growth. The argument for reducing the higher rate of tax, which was only a temporary increase in the first place—the Labour party seems to have forgotten that—was to get more investment in our economy and to encourage the entrepreneurs and wealth creators.

[Jonathan Edwards]

Does the hon. Gentleman agree that the major problem we have at the moment is that it is socially acceptable to avoid paying tax and that our job as politicians is to create a social climate where it is unacceptable not to pay what you are due?

[Charlie Elphicke]

I agree. There has been a climate in which it is somehow acceptable to avoid taxation and I made many speeches in Committee about how that culture is unacceptable and needs to change.

It is up to us to send a clear message, as Members of all parties, that tax avoidance is wrong. That was why I intervened on the shadow Minister earlier to say that the message sent by politicians who use personal service companies is deeply corrosive. They should all pay a fair share of taxation and should not try to avoid it in that way, because it sends the wrong message. In all fairness, I say that to members of my own party as much as to Labour members. It is not acceptable in the current age.

[Ian Lavery]

The hon. Gentleman and I had some good discussions in Committee—I would not call them enjoyable, but they were good. Does he think it is fair to hit the grannies—to hit elderly people—with a £3 billion loss and at the same time to cut taxes for the richest people in the UK?

[Charlie Elphicke]

I think it is fair to say that we are not cutting taxes yet, because the change would not come through to the next financial year. Hon. Members will correct me if I am wrong, but I believe that that is the case. We must consider the Exchequer numbers, which show that the cost of the cut is very low. I think those numbers are wrong, as they have not taken into account the dynamic effects of the change, which will probably be tax accretive to the Exchequer when all is taken into account.

As for the issue of age-related allowances, the Government’s triple-lock guarantee will mean that the overwhelming majority of older people—in fact, all of them, I think—will be better off and there are no cash losers. Secondly, we are talking about the very richest of the oldest. We are not talking about the oppressed pensioner with no savings but about the richest of the oldest and, as I say, there will be no cash losers. Although it is uncomfortable for many people and has been uncomfortable for all of us, the Government have been doing the right thing by the elderly and have been looking after the least well-off elderly first of all. It is really important to protect them from the difficult economic times we have had.

[Sheila Gilmore]

I ask the hon. Gentleman to correct the impression he gave. The age-related tax allowance does not go to the very richest pensioners; it is the group in the middle who are being squeezed by the proposal.

[Charlie Elphicke]

The age-related tax allowances only kick in to benefit those pensioners who have a substantial income, or a more substantial income, in retirement. We are not talking about the very least well-off pensioners who are affected by grinding poverty, but about pensioners who are better off and who have savings and income. As I said, there are no cash losers and they have had a massive benefit from the pensions triple lock.

[Ian Lavery]

When the hon. Gentleman says that there are no cash losers, does that mean that pensioners will not lose out?

[Charlie Elphicke]

That is my understanding, yes. Pensioners will not lose out, there will be no cash losers and no pensioners will be worse off in cash terms, As the hon. Gentleman well knows, we can have the argument about future rates of inflation and future rates of RPI, but one must also take into account the other side of the equation, as pensions and benefits for elderly people will rise in the same way and at the same time. Overall, we are not talking about a great difference; we are certainly looking after the least well-off of the elderly, and we have done so very well indeed. That is an important achievement of this Government. Pensioners have been better off under the Government and have been shielded from the austerity measures.

Let us look across the piece at what the Government have done. We have done the right thing to reduce taxation at the top level, which was meant to be temporary, to encourage investment in our economy and to encourage entrepreneurs. The Government need to take further action to deal with people who abuse personal service companies and other tax wheezes and to ensure that we have stronger measures against avoidance by individuals. We have seen enough of it in the newspapers, so I shall not go into individual cases because, as we know, that ends up in a spat about whether one likes Take That or late-night comedy shows. Nevertheless, it is right that we should ensure that individuals cannot play the system and that the law should be changed. It is all very well for the Labour party to take the moral high ground on the issue of tax allowances, but Labour was asleep at the wheel for about a decade and failed to deal with tax avoidance in the individual and corporate spheres. That was completely wrong.

[Kevin Brennan (Cardiff West) (Lab)]

I would be more prepared to take that from the hon. Gentleman if I had not sat through Finance Bills when we were in government only to see that, time after time, his party tried to stop us closing loopholes that would stop tax avoidance.

[Charlie Elphicke]

I was not there at those times, I did not sit through those Bills and I cannot comment. I am only a newish Member, elected in the 2010 general election, and I have personally been pretty consistent in making the case that we should not have tax avoidance and should be far more vigorous in tackling tax avoidance by individuals and by corporates. Corporate tax avoidance is particularly important, but it is not on the subject of this debate, so I shall move on quickly before you call me to order, Mr Deputy Speaker.

There is an issue and we need to tackle it. Overall, I want the allowances for the least well-off to be higher so that we take more of them out of tax. I think the Government have taken the right Budget decision on the higher rate numbers and have taken a difficult but principled decision on age-related allowances. The Government have struck the right Budget balance.

[Barry Gardiner (Brent North) (Lab)]

“No cash losers”: I must say that I think that those are the most disingenuous words that I have heard in this Chamber for a great many years. I remember that in the Budget the Chancellor was not particularly keen to draw the House’s attention to this change.

In the Budget, the Chancellor glossed over the whole issue of the granny tax very quickly indeed, yet only a year before, he came to the Dispatch Box on Budget day and said that he would not hide anything—he would tell it like it was. He would tell the bad with the good. That was just a year before, but in this year’s Budget, he glossed over the granny tax altogether.

“No net losers”—how accurate is that if we look at the total picture for pensioners? For existing pensioners, the age-related allowance will be frozen. It is interesting that the year before, it was not the Chancellor, but the Prime Minister, no less, who promised that the allowance would increase in line with the retail prices index. “No net losers”—those who believed the Prime Minister’s promise to pensioners might be excused for feeling that they were losers under the change. That is what happens. People listen to what the Prime Minister says, and make their financial plans on the basis of it: “The Prime Minister promised me, so of course I can expect to have that.” Well, it did not happen, and I think that is disingenuous.

We heard in this Chamber that there are no net losers, but what about people who are about to become pensioners? Are they net losers? They certainly expected an age-related allowance, but they find that, for them, it is not frozen, but cut. We can stand here and call black white, but it is incumbent on us not to take the public for fools, and I am afraid that the speech from the hon. Member for Dover (Charlie Elphicke) did that. I regret that, because he is not a disingenuous character—he is quite a lovable character in this House—but to say what he did is to treat people with contempt. It is treating them as though they do not understand their own affairs, when it is their own affairs—their own pennies, in many cases—that we are talking about. That hits hard.

[Ian Lavery]

Is it not a fact that 4.4 million pensioners will lose roughly £83 a year from next year, and that people who turn 65 next year could lose up to £322 a year? That implies that it is disingenuous to suggest that people are not losing out—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. “Disingenuous” is not a word that we should use. I know that it is meant to be an appropriate term, but it is not the sort of parliamentary language that we accept. I am sure that we will not be using it again.

[Barry Gardiner]

I apologise to you, Mr Deputy Speaker, and to the hon. Member for Dover, if that is unparliamentary language.

[Mr Deputy Speaker]

Order. In fairness, Mr Gardiner, you said that you did not think that the hon. Member for Dover (Charlie Elphicke)was disingenuous. We were all right up to that point.

[Barry Gardiner]

Thank you, Mr Deputy Speaker. I absolutely recognise the figures that my hon. Friend the Member for Wansbeck (Ian Lavery) laid before the House, and of course I think that they are accurate. He is right to say that we are talking about a cut—a cut in what people were, with legitimacy, expecting. That is the point. It was legitimate for somebody coming up to pensionable age to expect that their retirement could be based on the figures that they were using. They had a promise from the Prime Minister that that would be the case. That promise was not honoured, and they have experienced real hardship as a result.

I want to focus on one other aspect of the debate: people’s behaviour at different rates of taxation. Let me be clear that I do not, in principle, want a 50p rate of tax to continue in place in perpetuity. Indeed, the Labour party does not want that, as was made very clear when my right hon. Friend the Member for Edinburgh South West (Mr Darling), as Chancellor, introduced the tax before the 2010 election. He made it quite clear that we felt it was necessary in the short term, but would ultimately wish to get rid of it. There is no desire on the Labour Benches to see a 50p tax rate imposed for ever more.

19:45

However, as for the idea that one year was a sufficient period in which to be able to assess the revenue take for the Treasury, we know that, always, in the first year of a new rate of tax, people adjust. They adjust where, in tax years, they put their income. They can carry over, and use the degree of arbitrage between tax years to make sure that the full impact of the new tax level does not hit them. To have used the figures for that one year as the basis for any assertion of what the tax take would be in the long run was clearly—I will not say “disingenuous”, because that would not be appropriate—mistaken. It was a mistake, because it was only a partial view. That is clearly the point. A shift in policy is being justified on the basis of imperfect information.

Let us look more carefully at the argument that if we reduce the percentage of tax, the net revenue to the Exchequer will rise. The hon. Member for Dover spoke about days gone by, when there was a drop in taxation levels from 80% to 60%, and from 60% to 40%. He said that we then saw net revenue to the Exchequer increase. Of course, he did not talk about the growth in national wealth and in the economy at the time, or say what part of the revenue take for the Exchequer was a result of that growth. Those are figures that he was not prepared to give the House, or perhaps he did not know them. I do not know them either, but a significant element of the increase in revenue would be covered by growth in the economy, if one included that in the calculation.

Let us follow the logic of the argument made by the hon. Member for Dover. He was ably supported by the hon. Member for North East Somerset (Jacob Rees-Mogg), his colleague on the far, far end of the Benches, who said, “Why stop at 40%? Why not go to 30% or 20%?”

[Jacob Rees-Mogg]

Hear, hear!

[Barry Gardiner]

From a more-than-sedentary, almost recumbent position, he says, “Hear, hear! Let’s go to 20%!” Does he really think that there is not a limiting point at which the argument tips? Does he really think that there is not a point below which, instead of more revenue coming into the Exchequer, there is a dramatic loss of revenue? Of course there is.

[Jacob Rees-Mogg]

I do indeed think that there is a point at which revenue would drop off, if rates got low, and the Laffer curve shows such a point. However, as a general point, I think that the lower the rates are, consistent with raising the revenue that is needed, the better, and that we have not tested the argument properly to see how low we could go.

[Barry Gardiner]

Well, there we are: the Great British public are being treated to an experiment. “We want to test how far the Laffer curve theory can go.” Is that really the Government’s policy? Is it really their policy to see how low they can get tax before the economy collapses?

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for giving way once again. Sadly, I am not Her Majesty’s Government. He must address his comments to those on the Treasury Bench, rather than to me.

[Barry Gardiner]

I am sure that it is only a matter of time. In so far as the hon. Gentleman seeks to speak for his party—

[Mr Graham Stuart]

Does he?

[Barry Gardiner]

I do not want to see dissent break out on the Government Benches. No fighting amongst yourselves, please, gentlemen. These are serious matters. They cannot be treated as an experiment because people suffer.

[Charlie Elphicke]

I thank the hon. Gentleman for giving way. He is a courteous and jolly fellow. Let me help him by digging him out of the hole that he is rapidly getting himself into in his exchanges with my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). The point that we are making is simple: reducing the top rate will not change the income and revenue numbers significantly, but it sends a message to wealth creators that their investment is encouraged and will help to grow the economy.

[Barry Gardiner]

The hon. Gentleman has already said once in the debate that he does not believe the Treasury’s figures. He has now reinforced that. The Treasury has made the calculations. He can choose to say, on a personal level, “I think the Red Book is a load of tosh,” but he cannot say that that is the Government’s position. The Government’s position is that the measure will cost £3 billion a year. [Hon. Members: “No, it is not.”] The Government cannot get out of this one. They say that it will cost money. That money will be taken away from some of the poorest people in our society to pay for it.

That is what people find so distasteful about the way the Government are behaving. They are taking away from some of the poorest in our society, yet feel that it is so important to send that signal out to some of the wealthiest. The people who are being excoriated in the public conversations around the country for what they have done and what they continue to do to our economy—those are the people who will benefit, and it is the poor in our constituencies who will suffer.

[Sheila Gilmore]

Did my hon. Friend spot the illogicality in the position of the hon. Member for Dover (Charlie Elphicke), who made an impassioned claim to be a scourge of tax avoiders, but is in effect endorsing tax avoidance by arguing that we have to reduce the rate of tax because so many people are trying to avoid it? Would it not be better to look at ways of preventing people from avoiding tax?

[Barry Gardiner]

My hon. Friend, yet again, makes an excellent point. There is an implicit acceptance that people will try to avoid tax, and that therefore it is better to reduce the level of taxation so that there is not the same level of avoidance.

Most of my constituents listening to this debate and to the debate that has been going on since the Budget think the Government do not understand what people are going through, what they are feeling and just how difficult it is for some of them to make ends meet. They do not understand that precisely because of the sort of signals the hon. Member for Dover just mentioned. The Government consider it more important to make those signals to the wealthy. They think it is more important to focus on what they understand about their involvement in society, and they do not give the same attention to getting those messages to the poor in society.

What the Government have done in the Budget is to say, “If you are poor, we know that the best thing for you is to cut your benefits to make sure that you work harder, and if you are rich, we know that the best thing for you is to cut your tax so that you work harder.” People look at that and say, “This doesn’t make sense. It’s one law for the rich and another law for the poor.”

[Charlie Elphicke]

Yes, we do understand, and I in particular understand because my constituency is one of the most deprived in the south-east. The economic numbers are much more like those of a constituency much further to the north of England than the hon. Gentleman’s constituency. We do understand, and we also understand that wages have stagnated since about 2004, on the hon. Gentleman’s Government’s watch. This is not a new problem. We understand that, which is why we need to reduce the top rate of tax to encourage the job creators to create the jobs and the money that will give my constituents more prosperity.

[Barry Gardiner]

The hon. Gentleman talks about the way in which wages have broadly stagnated. We are now seeing wages going down and jobs being lost, and we are back in recession. He should look at the promises of his Government in that first Budget. The promises, commitments and assertions were that the measures in it would pull us out of the problems that we were in and get the economy back on track. They would deliver growth and prosperity, but they have not. He will remember, because he is an honest fellow, to use his word, that at the time, on the Opposition Benches, people were saying, “No, this will lead to a double-dip recession.” All those on the Government Benches told us in unison that we were wrong and that the Budget would pull us through the problems.

The electorate look at that, see the analysis, see what steps were taken and ask, “Who was right?” They know, because we are back in double-dip recession, that the Government got it wrong. We are at a point where there is £150 billion extra borrowing, the largest single increase year on year in the UK’s history.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I know the hon. Gentleman is painting the big picture, but we need to come back to the relevance of income tax. We have discussed personal allowances. I know he will come back to the point.

[Barry Gardiner]

I accept your ruling, of course, Mr Deputy Speaker, and you are right. We have strayed wide of the initial focus of the amendment. It was not my intention. All I can say in mitigation is that I was led down the path by the interventions that I took.

[Mr Robert Syms (Poole) (Con)]

I welcome this debate because the decisions that we take on tax rates are critical. We have had a slightly more general debate than I expected. Opposition Front Benchers particularly presume that the Government can somehow control events. However, there is a big wide world out there and anybody watching television or watching what had happened in the eurozone knows that there is a limit to what any Government can do in the present circumstances, when confidence is low, countries are being bailed out and businesses, even those with money, are not investing as rapidly as one would like. All the Government can do within the global context is try to make the best decisions they can on the information that they have. We have a plan, which I think is a good plan, and by and large we are sticking to it. The deficit has come down by 25%. That is a start and we need to do more.

On the subject of income tax rates, I think we tax people at far too small a salary. We do not increase incentives to work. A key point of the coalition programme is to up the basic allowances to make work pay. We all know—I am sure even the hon. Member for Brent North (Barry Gardiner) knows—that the benefits system can be a big disincentive to people taking jobs. People act rationally, and if they are not going to be much better off or if they are going to lose money, they will not take work. A reform of benefits is needed, with the universal credit coming in, and we have to up the income tax allowances for those at a lower pay level in order to increase incentives for people to take jobs. Hopefully that will get more people into work over a period of time.

All the evidence suggests that work is good for people. It is better for their health, including their mental health, and it is a better way to bring up a family, and of course those in work have a better chance of gaining skills, reskilling and getting on in life. That is the key point about what the coalition Government are trying to do. Therefore, I commend them for what they have done to take many millions of people out of income tax and hope that they continue to make progress in that area so that incentives to work increase over the next few years.

20:00

We have always had an age-related allowance for pensioners that is somewhat different from those for ordinary taxpayers, but one has to ask why that is the case. It is easy for politicians to go along with a system that has been in place for several years, but in an environment in which the Government are pushing up allowances, hopefully to £10,000 and beyond, at some point soon the basic allowance will overtake the age-related allowance. From a tax simplification point of view, that is sensible. People talk about pensioners, but they are not one homogenous group; they include poor people and rich people. In fact, many of my constituents have benefited from buying their homes and the post-war inflation, and the evidence from surveys suggests that the people struggling the most are actually young families with children.

[Ian Lavery]

The hon. Gentleman is very kind to give way. Does he agree with hitting pensioners hard with the £3 billion tax increase?

[Mr Syms]

About a quarter of my constituents are pensioners, but I have received only three or four e-mails on this subject. It is not a major issue in Poole, where most of my constituents pay tax. I do not think that it is the big issue that Opposition Members claim it is. It depends on how fast the basic allowance for all taxpayers overtakes the age-related allowance, which I presume is logically what the Government want it to do. Of course, it also depends on the level of inflation. If we freeze the allowance and have higher inflation, it will be eroded more quickly than if we have lower inflation. Thankfully, one of the good points about the past few months is that inflation is starting to crash back down towards 2%, and the sooner we reach that rate, the better.

If we look at what the Government have promised in their triple lock for pensioners—the increase in the basic state pension of over 5%—along with the winter fuel allowance, which we continue to pay, and free bus travel, we will see that their priority has been to support pensioners. We have been criticised over the reduction in the winter fuel allowance, but I point out that the previous Government put it up for the election year but made no budget provision for the year after, and we are faced with some very difficult problems. Unfortunately, it is an expensive item and the Government have been unable to keep it at the level it was for one year, but on the whole we have kept it at the level it was for most years at the end of the previous Government’s time in office, and that is a boon to many pensioners. I think that what the Government are doing on the age-related allowance is probably the right thing to do.

[Ian Lavery]

I am surprised to hear that only three or four of the hon. Gentleman’s constituents have contacted him on that point—I wish him good luck on that. Various figures have been bandied about and I wonder whether he disputes them. It has been suggested that 4.4 million pensioners will lose up to £83 a year and those turning 65 next year could lose up to £322. Does he support that?

[Mr Syms]

I am not sure that that is a massive loss of income. The most recent issue we debated was the 3p cut on fuel, which will make more of a difference to pensioners in my constituency than this minor change in tax allowances. I think that the Government’s policy towards pensioners is fine.

Let me turn to the top rate of tax. We all know that there is a lot of politics in this. The rate was 40p under the previous Government, except for the last 37 days they were in office, so the 50p rate was one of the wonderful inheritances from them. Clearly, if we want to stop people looking to avoid paying tax, we have to keep a competitive rate. At 40p we have a rate that was competitive with many western European countries, but at 50p we do not. If we have a country without exchange controls, a very mobile population, as we do, and people with highly tradable skills, there is a danger that if we start to put up the rates we will lose revenue and people will go abroad. As my hon. Friend the Member for Dover (Charlie Elphicke) said, having had a 50p rate which meant people started looking at how to avoid taxation, that might stay in the system for some time. I welcome what the Government have done by reducing the higher tax rate to 45p. I think that it is a pity they delayed it, because I suspect that the impact will be to reduce income tax take for the current year, but when the rate drops to 45p for the year after, we will see an increase in the income tax yield.

It is important to give a message. I was in this House when the previous Government put up income tax. In one of his last speeches from the Government Back Benches, Stephen Byers said that he very much regretted that the Labour party had decided to do that. If all the evidence suggests that that has not raised very much this year, it seems to me that it is being done for ideological reasons, rather than practical, economic ones. If nothing else we ought to be practical in how we do things. Therefore, the Government’s reducing the top rate, as a start, is the right thing to do which will have a beneficial effect in the long term. But let us not forget that the allowances for the lower paid have gone up this year. The top rate of tax will come down next year, by which time we will have had another Budget in which I hope the Government will have made more progress on assisting some of those on lower pay and taking more people out of the tax net.

The one thing that can be said about the Government is that their thinking is joined up. We have welfare reform, we are pushing up the tax allowances to increase work incentives, and we are dealing with a whole range of tax rates, including trying to make corporation tax more competitive, and I think that that will make us a much more competitive country in the world. We look like an island of stability, certainly compared with the eurozone countries. Let us hope that they sort out their problems so that we can start selling them our excellent goods, but let us face the fact that we live in a competitive world and unless our taxes are competitive we will not be able to generate the wealth to pay for all the things we want: health, schools, foreign aid, defence and all the things we need to do. I think that the Government are on the right track. Clearly, it is a very bumpy economic environment, certainly rather bumpier than we might have thought it would be when we came into office, but provided we have leadership and vision, we will get through.

[Jonathan Edwards]

It is a pleasure to contribute to the debate. It has been very interesting listening to the debate on income tax for the 2013-14 financial year. Hon. Members already know the position of the Plaid-SNP-Green group; we were among the handful of Members who voted against the inclusion of the new 45% additional rate in the founding principles of the Bill at the conclusion of the Budget debate earlier this year. Indeed, the official Opposition seemed to miss that debate, with the exception of two Labour Members, the hon. Members for Newport West (Paul Flynn) and for Bolsover (Mr Skinner). I also tabled amendments in Committee, which were supported at the time by the official Opposition, including some that they have chosen to table for this evening’s debate, which naturally I will support if they decide to push them to a vote later.

Much of the debate on Second Reading and in Committee focused on differing interpretations of, and often selective quotations from, a series of reports. Hon. Members attempted to argue that their party’s interpretation of the statistics was most valid, and we heard some of that again this evening. They were essentially making economic arguments about taxation—about the Government’s claim that the loss of tax revenue from shifting the 50% additional tax rate to 45% would be compensated for by the stimulus it would provide to the wider economy, and that given the amount of forestalling and income shifting that the 50% rate has apparently generated, we would be better off in future and, ultimately, more tax would be paid. That is the thrust of the argument.

I simply do not buy the idea that a tax cut will make those avoiding the 50% rate choose to contribute to society by paying at the 45% rate. What the Treasury should be doing, rather than giving a tax cut to those earning in excess of £3,000 a week, which is almost twice the average income in two months for most of my constituents, is closing down all the clearly aggressive tax avoidance schemes, some of which have been highlighted in recent weeks, and ending the tax havens that provide a nice bolthole for those who wish to hide their income.

For my party, however, the issue of taxation is one of principle. We believe that people should be proud to pay taxes and contribute to society. It should not be a game in which those who can afford to pay an accountant pay less and then consider it a triumph or a success. As I said during a debate in Committee, the Scandinavian model of taxation and social security is in my party’s DNA. Some might say that that is the difference between ourselves and the Labour party, which announced the introduction of the additional rate as a temporary measure, bringing it in literally weeks before the party left government. Where we believe that the additional rate is part and parcel of contributions to society, Labour remains unclear how long the now official Opposition intended to continue the additional rate.

This tax cut for the mega-rich leaves a bitter taste in the mouth. Public sector workers in my constituency face pension changes, meaning that they have to pay more in, that they get less out and that they work longer—that is, those who still have their jobs after spending several years with pay freezes and the threat of regional pay dangling over them. Living standards for private sector workers in my constituency are being squeezed, and many families struggling to make ends meet are being stigmatised by the Government, while the disabled and the vulnerable face tribunals to decide whether their pain is real. It is not acceptable that we are in a society which tells those at the bottom that they have a culture of entitlement, while those at the top get huge and unnecessary tax cuts. Why do we think that we can cut the poor’s income to make them work harder, but incentivise the rich through tax cuts? That is perverse thinking.

We support the aim of amendment 3, which would give those public sector workers earning less than £21,000 who have had their pay frozen a £250 tax rebate. They deserve it, as do many private sector workers who have lost out because of the Treasury’s austerity economics.

We support also amendment 1, tabled by the official Opposition, despite its effect of wiping out the additional rate altogether for 2013-14. Given their failure to vote on the inclusion of the 2013-14 rate in the Bill at the time of the Budget, we recognise that their intent is to show their belated support for maintaining current income tax rates. If the amendment is successful, we expect the Government to reinstate the top rate at 50%.

With last week’s figures confirming that the double-dip recession is deeper than first thought, and with the cuts now beginning to feed their way through the system, giving a tax cut to the mega-rich is a funny way of showing that we are all in this together.

[Nigel Mills]

It is a pleasure to follow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I shall make a few brief remarks on various subjects in the Bill, starting with the granny tax, which I also spoke about on either Second Reading or during the Budget debate—we seem to have been debating it for a long time, particularly those of us who have done a few weeks in Committee on some of these topics.

I was one of those who heard the Budget, heard the Chancellor briefly mention what became known as the granny tax and did realise what it was likely to mean. I was not one of those, like the hon. Member for Leeds West (Rachel Reeves), who claimed that the Chancellor had hidden it in his speech; it was clearly there.

Those of us who, in our short time as Members, have argued that we need to simplify our tax regime face a problem when one way suggested by the Office of Tax Simplification is this very idea. To be fair to the OTS, it did not envisage its idea being introduced quite so quickly. I suspect that generally it would be quite keen to have its ideas legislated on in a matter of weeks, but on this one it intended there to be further consultation and deliberation. It was, nevertheless, one idea that it came up with as a way of removing one of the regime’s complexities, whereby an additional allowance has to be claimed, the policy justification for which was determined a long time ago. It is perfectly reasonable for the Government to revisit it and to wonder whether, of all the groups in society who need such extra help, pensioners earning more than the state pension are one of them.

Those people who have done the right thing and saved, and who now have a little private pension on top of their state pension, are generally the ones in whom we want to encourage pension-saving behaviour, but the basic personal allowance is rapidly heading towards the £10,000 target in the coalition agreement, and the benefit of that higher personal allowance has to be clawed back. We are seeing a complexity with a reducing benefit, and we are perfectly entitled to want to understand the policy justification for it when we spend the limited amount of money that we have. It is not, therefore, an unreasonable or illogical proposal for the Government to bring forward; there was a year’s notice, and there is a chance for consultation to consider its impact.

20:15

We might prefer consultation then legislation, rather than legislation then consultation, but we still have time to consider the issue. We are struggling for money to balance the budget. We heard in the previous debate about a balanced budget and the Opposition being concerned that the U-turns on VAT and on fuel duty are somehow unbalancing it, but they now seem to want us to do a U-turn that would seriously unbalance next year’s budget.

I am not sure where the term “balancing” comes from. In my years as an accountant, we used to think that a balanced budget was one in which someone’s income equalled their expenditure, not one in which their expenditure exceeded their income by about £90 billion, which is what this year’s Budget shows. When we talk of a balanced budget, what we really mean is that we have a borrowing number that makes the other two numbers agree.

On that basis, I will vote for the tax measure, although it is very difficult to sell and we all know the perils of upsetting people of that generation in our constituencies, but we have to go out there and say, “We have to take tough measures”; we cannot please everybody.

[Ian Lavery]

The hon. Gentleman recognises that we cannot please everybody, but does he agree that cutting taxes for the rich pleases the rich, while the ones who will be less pleased are pensioners, having £83 a week taken off them, and people who turn 65 next year, losing £322?

[Nigel Mills]

I am sure that people who benefit from a tax cut will be pleased and those who lose out from a tax change will not be, so I guess I can agree with most of that, but it will be interesting to see in the Lobby later whether the hon. Gentleman votes for his party’s amendment, which would mean the House passing the Bill after abolishing the 45p rate completely and reducing it to a 40p rate.

It is all right saying, “Perhaps we can do that and perhaps the Government will do something different in future,” but we are legislating in Parliament, and if we were to vote for the amendment and remove the 45p rate, it would not actually exist, and I am not sure that those Members who would rather the provision read “50p” than “45p” could in all conscience vote for that. I clearly will not vote for the amendment, because it would be the wrong measure at this time; I will vote for there to be a 45p rate in next year’s tax regime.

When I debate these things, I could take a narrow constituency view. I suspect that very few of my constituents pay the 50p tax rate, as I have many pensioners who are not that well-off and will be adversely impacted by the granny tax, so from a political and personal view I could happily oppose the tax cut and the granny tax, too, but we have to get our economy into sensible working order.

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

The hon. Gentleman talks about the over-65s, saying that this is all very fair and things will balance out over time. Does he not understand that someone over 65 is likely to be on a fixed income and £323 is therefore considerably more important, whereas if someone earns higher amounts and is taxed at 50%, 45%, 40% or anything in between, whatever it may be, they have the capacity to earn more? Once they retire, it is the fixed nature of their income that makes the Chancellor’s decision so invidious.

[Nigel Mills]

I am grateful for the intervention, and of course understand that pensioners living off their savings have suffered terribly during the recession, starting with the raid on private pensions when Labour first came into office, all the way through to the terrible impact of the loss of interest income on savings. I totally accept that that is clearly an issue, but to return to the 45p or 50p rates we ought to be completely accurate. With the 2p national insurance charge, which comes in when someone normally starts paying NI, and which will remain, those rates are 52p or 47p. We should be careful on a matter of principle. I am not sure how many people out there would want to work if the money for more than half an hour of every hour that they worked was not for them but for the taxman. That is what that effective 52p rate does; it means that a person is probably not working for themselves for 31 minutes of every hour.

I am not sure that that is a real incentive for those who have a lot of money. They do not need to carry on working; they could retire to their yachts and sail around the Mediterranean. We want them to come back, invest in another business, have another go and employ some more people. We want that investment to come into the country. If a person is keeping less than half the money they earn, there is a real psychological impact. That is why it is right to bring the rate down.

We are having a long political debate about what was meant to be a temporary tax. The previous Government never had it in place when they were in power; it was set up as a political stunt for the election. It was not expected to raise significant amounts of money. It was there not for an economic purpose, but a political one. It was right for us to say that at a time when we need to get activity going and to attract investment into the country, we need to encourage those who have a choice whether they carry on working and generating wealth or not, to carry on working.

It is right for us to bring the tax rate down. I would have thought that it was better just to do it rather than wait a year, but there are many good economic reasons why we had to wait for that length of time. The fact is that if tax rates are too high, people get much more keen on avoiding tax.

When I was relatively new in my accountancy career, the then Chancellor in effect reduced the capital gains tax rate to 10% tax on the sale of a business asset. The place where I worked then had made lots of money advising people on how to reduce their capital gains tax liabilities when they retired from their businesses. When the rate went down at a stroke overnight from 40% to 10%, that meant that no one was interested in that kind of tax planning; they were perfectly happy to pay what they thought was a reasonable tax bill. But the reverse effect also applies—if the rates go up to a level that people are not happy to pay, they will start to use ingenious methods to avoid the taxes.

[Gloria De Piero (Ashfield) (Lab)]

The hon. Gentleman is speaking as though his party had always supported the abolition of the 50p tax. However, a couple of months before the Budget, the former Energy Secretary, the right hon. Member for Eastleigh (Chris Huhne), was saying that the 50p tax was here to stay. He told the BBC:

“I think we’ve won that argument.”

What happened?

[Nigel Mills]

I guess it is not for me to explain the right hon. Gentleman’s comments. He was clearly misinformed.

However, we have seen that drift towards tax avoidance. I was saying that there was an easy way to avoid paying UK tax—not to be working in the UK at all. People can choose whether to come here or stay here; no complicated avoidance is necessary if they are not here at all. We want to attract the most skilled and able here to earn their money.

My hon. Friend the Member for Dover (Charlie Elphicke) was generous in not having a go at some of the high-profile individuals who have been caught avoiding their taxes. People earning very good livings in this country should pay the tax that Parliament tells them they have to pay—there is no excuse for using complicated routes through Isle of Man or Channel Islands trusts. If they are taking money from hard-working people who go to their concerts, comedy shows or football matches, it is outrageous for them to route it through the Isle of Man. I am not sure that I would choose to listen to their concerts or their jokes.

We should send a strong message that such behaviour is unacceptable. If those people are now feeling a little guilty and think that they have made a terrible error of judgment, it is quite simple—they can re-file their tax returns from recent years, declare all that income and pay tax on it. As Gary Barlow might think, “It only takes a minute” to do that—[Interruption.] We had to get some in. Then that money would be “Back for good”, wouldn’t it? It would certainly be one of our “Greatest day”s. I only “Pray” that he would do that—it would certainly be magic if he did. Those are all the Take That songs that I can remember, so I will not carry on.

The important point is that if we push tax rates up too high, revenues will start to go down and people will start engaging in the behaviour we want to crack down on. The Government are cracking down on it and doing everything they can, but there is a limit to how far ahead they can stay. New things will always come along. Fundamentally, we cannot stop people leaving the country.

Labour Members generally think that Conservative Members cite the Laffer curve; we have heard mention of calculations on fag packets and so on. The theory that revenue falls if tax rates are too high is a lot older than the Laffer curve. I had the pleasure of studying Mr Ibn Khaldun, a Muslim philosopher from the 14th century, who wrote an extensive commentary on what happens with tax rates. When they start low, they generate lots of economic activity. Gradually the Government like the idea of spending money, taxes go up and then the economy fails. If our debate was not programmed tonight, I could read out pages of those quotes, to prove that Mr Laffer’s theories are not new, but I shall resist. The theory is not new; it is an entirely understandable and accurate theory: if tax rates are too high, we end up losing revenue.

Another amendment under discussion would give a £250 tax cut to a public sector worker who had not had their £250 pay rise for the last two years. I am not convinced by that. It would be very generous; presumably, if they had had the pay rise, they would have to have paid tax on it, so they would not have had the full benefit of the £250. The idea is probably tempting, but I will not be able to vote for it.

[Meg Hillier]

I do not want to broaden the debate too much, but I say at the outset that we should get back to the basics. Why is it important that people pay tax? I strongly believe that it is important for people to have a stake in society and that paying tax is a big part of that. I may be out of step with a number of Members—including, possibly, my party’s Front Benchers—in believing that the rush to increase the personal allowance and take lots of people out of tax is not necessarily, on its own, a good move. Taking people out of the tax system altogether denies them responsibility for a number of issues to do with public spending and takes away the accountability that we, as elected Members, should have in helping to set those policies.

[Nigel Mills]

I agree with the hon. Lady, but does she note that we are not taking people out of national insurance? All those people are still paying the tax most closely associated with the main public spending items.

[Meg Hillier]

It is interesting that the hon. Gentleman has managed to conflate tax and national insurance; perhaps he has given away what the Government’s thinking really is.

I am a member of the Public Accounts Committee which has been looking closely at the sometimes interesting tax arrangements of some individuals. We recently went on a study visit and discussed some of the international issues to do with how tax is dealt with. The UK’s is a complicated system and we are not alone in that. This means that, in the corporate world, corporate lawyers can run rings around HMRC and that highly paid lawyers can find ways for some high-worth individuals to work in a more tax-efficient way, to put it politely, and actively to avoid tax—sometimes worse. To a degree, New Zealand has simplified its tax system, although it is difficult to know from a distance how successful that is for people.

If the increase in allowance were genuinely linked to a simplification of the system, I would be much more supportive of it, but it has the feeling of being rather piecemeal, a bit joined together. It is like a dodgy second-hand car—the front bit is welded to the back bit. The coalition feels a bit like that; sometimes I am not entirely sure whether the Deputy Prime Minister or the Prime Minister is at the front or back at any particular time. There is a danger that we are seeing the increase in the personal allowance as a sticking plaster for one element of the coalition, while the cut in the 50p tax rate, which, as my hon. Friend the Member for Ashfield (Gloria De Piero) pointed out, was opposed by the Liberal Democrat half of the coalition—she quoted the former Energy Secretary—is a sop to the other side. We almost have two unjoined-up bits of the system.The hon. Member for Amber Valley (Nigel Mills) talked about tax simplification. If that is the mission, then let us see the overall plan for it, but all we hear about is the increase in personal allowances. I do not sense that there is a big idea, and that is a real worry.

Let me turn to the 50p tax rate cut. Some 300,000 taxpayers will gain £10,000 a year as a result of that policy. These are individuals who earn more than £150,000 a year. The Treasury says that it should do this because £2.9 billion will supposedly come back from the people who are currently avoiding tax. I am not sure that that stacks up. Government Members try to suggest that these earners are all wealth creators, but we need to look a bit closer to home in the public sector. Perhaps the Government of whom I was a part, and the party that I represent, should have been a bit sharper in this regard. Public sector salaries have increased exponentially over the past decade. With the best will in the world, and much as I admire many of the people in my own constituency, and those I have met over the years, who work in the public sector because they genuinely believe in public service, they are not wealth creators, and I do not think they would consider themselves to be so. They may be safeguarding the health of my constituents or enabling the council to deliver excellent services; there are myriad ways that they can help, but wealth creation is not one of them.

20:30

The notion that this measure has the benefit of encouraging wealth creators to stay in this country and create wealth is false. It may be true of a few, but for someone who is very wealthy it will not make the biggest difference. In fact, corporation tax will probably have a bigger effect on why people choose to invest. That is why there was a battle royal in the Republic of Ireland about keeping its corporation tax down to the lowest level in Europe to make sure that businesses were attracted to Ireland and wanted to stay there when it was going through very difficult economic times. If we are to have a grand plan for simplification, this does not seem to be part of it.

We should look at what the Office for Budget Responsibility and the Institute for Fiscal Studies have said about the supposed £2.9 billion that the Treasury expects to get back from people who are currently avoiding tax. The OBR said:

“The results of this evaluation are highly uncertain.”

The IFS said:

“If the future of the 50p rate is to be determined on the basis of evidence about its impact then Budget 2012 will be too soon to form a robust judgement.”

We lack robust judgments in this debate. This policy has become a shibboleth for one half of the coalition, while the higher rate of personal allowance that takes people out of tax is very important to the other half, and the two halves do not properly join up. Many of my constituents are among the poorest in the country, and when everything is taken into account, they will not gain from either measure because the increased rate of personal allowance does nothing to improve the public services that many of them are now losing out on as cuts begin to bite.

As my hon. Friend the Member for Brent North (Barry Gardiner) said, the big question about this tax take is how much revenue will be brought in from so-called missed tax avoidance in future years given that people will front-load their tax benefits in the early years. Overall, there is an inherent unfairness throughout the Budget decisions and announcements that the Chancellor made, and I hope that this measure will bite the dust. It is as much about the signal that it sends as the reality of it. For me, that is very important, because my constituents, many of whom are working hard and just trying to hold body and soul together, do not see the fairness in this and do not see why the very richest should pay much less tax as a result. Indeed, these people are supposedly saving £10,000 in a single year, and that is as much as many of my constituents earn in a year.

[Ian Lavery]

I totally agree with my hon. Friend. Ten thousand pounds a year equates to £833 a month, and it is more than hundreds of thousands of people in my constituency make on an annual basis.

[Meg Hillier]

Absolutely. If we have a duty in this House, it is constantly to remind ourselves of what life is like for our constituents. We can get lulled into a sense of safety and snugness on these green Benches and enjoy intellectual repartee and debate, but we are here to represent the people who elected us. It is incumbent on us to remember that many people are living on £10,000 a year or less, and it is important that we reflect their concerns in this House. For me, that is a burning issue. I want my constituents to earn more than £10,000 a year, but they will not be able to do so unless we get the economy moving.

Locally, we have real poverty and high unemployment. Youth unemployment has risen to about a quarter of the total number of my constituents aged under 24, as roughly a third of them are, and we are seeing an increase in over-50s unemployment. These are the people who are not gaining but seeing those earning over £150,000 gain considerably. There is a lot that we need to do.

We must look at the unfairness of the cut overall and at the needs of the people who are earning less. I do not think that the money that is supposed to come back will be used to reverse the cuts to further education, to make the banks lend or restore the overdraft facilities of small businesses in my area, or to restore the education maintenance allowance, which had a big impact in helping those in my constituency who wanted to skill themselves up to earn more money—the end of EMA put those people on the back foot. Those matters all impact on the lives of people in Hackney South and Shoreditch today.

A year ago, the Chancellor promised that the measures in the Budget, some of which we are debating today, would boost the economy. What have we seen in the past year? The economy has not just stalled, but shrunk. Again, who suffers the most? It is not the people who have gained from the reduction in the 50p rate of tax, but ordinary men and women up and down the country who are working hard and paying tax. The Chancellor has also had to borrow £150 billion more than planned.

I have mentioned the freezing of the personal allowance overall, but the decision to take away the pensioner element has the biggest impact on those who earn between £10,000 and £29,000 a year. There are not many pensioners in my constituency who earn more than that, although it does have an interesting mix. Being on the edge of a city, there are people of greater wealth in my constituency, but they are not many in number.

Somebody who is due to retire in 2013-14 aged 65 will lose £323 a year, which other Members have talked about at length. It is worth reiterating the point that I made to the hon. Member for Amber Valley: somebody who is on a fixed income or who will be on a fixed income in a year’s time will have to adjust their affairs overall, including their savings if they are lucky enough to have any. That £323 may not seem much to us on our comfortable salaries as Members of Parliament, but for people on low-level fixed incomes of just above the amount where they would get help other than the basic state pension, that will have a real impact on their household income. I reiterate that we must think about the message that that sends out: pensioners are the victims; those earning £150,000 a year or more are the victors. That is unfair.

[Graeme Morrice (Livingston) (Lab)]

Thank you, Mr Deputy Speaker, for giving me the opportunity to contribute to this debate in support of the Labour Opposition amendments.

I was a member of the Finance Bill Committee and attended each of the 18 sittings over the past several weeks; obviously I must have been bad in a former life. It was clear to me that the more the Bill was scrutinised in Committee, the more it was revealed that the Bill, and the Budget that it will enshrine into statute, is the omnishambles that many commentators have described it as.

Once again, the Tories are showing their true colours. It was a classic Tory Budget, with millions paying more so that millionaires can pay less. That is evidenced by the fact that, as we have heard throughout the debate, 14,000 millionaires will receive a tax cut of more than £40,000 a year, while 4.4 million pensioners will lose an average of £83 a year. It is a classic Tory Budget, but with the difference that it was possible only thanks to the support of the Liberal Democrats—the Lib Dems who continued publicly to oppose any change to the 50p rate of income tax immediately prior to the Budget statement but then voted for it; the Lib Dems who, before the last election, repeatedly stated their opposition to immediate public spending cuts, only to support a Budget reduction of more than £6 billion within two weeks of forming the coalition; and, lest we forget, the Lib Dems who promised not to raise VAT and then raised it.

The 50p rate raised about £1 billion in its first year and could have raised £3 billion a year over the lifetime of this Parliament and beyond. Its continuation could have been used to cut fuel duty, not just freeze it, as we agreed in the previous debate. Many of my constituents have written to me about that. It could have been used to reverse the Government’s damaging cuts to tax credits or help reduce the deficit. Instead, the Chancellor chose to give the richest 1% of earners a huge payout. People on middle and low incomes are already being squeezed by rising fuel, energy and food prices. Now, their tax credits and child benefit are being cut. Yet again, the Government have made the wrong choice and proved how totally out of touch they are.

The aspect of the Budget that has undoubtedly caused the most anger among my constituents is the decision to freeze the personal allowance for pensioners, which will help subsidise the Chancellor’s bumper tax cut for the rich. That was buried in the Budget’s small print, and the Government tried to make out that it was a tidying-up exercise. However, nobody was fooled by that. It was clear that it was actually a £3 billion tax raid on pensioners. No wonder that was the only aspect of the Budget that was not leaked in advance.

How will the Chancellor’s tough talk about cracking down on tax evasion and aggressive tax avoidance, which he says is “morally repugnant”, be put into action if the resources of Her Majesty’s Revenue and Customs continue to be cut? Some 10,000 jobs will go by 2015, including 240 processing posts at Pentland House in my constituency.

Labour’s five-point plan for growth offers an alternative vision. If the Government followed our advice and implemented a £2 billion tax on bank bonuses to fund 100,000 jobs for young people, we would begin to see some progress on tackling the scourge of youth unemployment. Instead, millions are left to pay for a Budget for millionaires—a classic Tory Budget, but this time supported by the discredited Liberal Democrats.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

I should, in the interests of probity, place on record the fact that my wife works for Age Scotland. I declare that interest.

The contrast between the two sums of money that we are debating has been mentioned several times. There is the £3 billion of tax cuts for millionaires’ row, versus the £3 billion by which our pensioners will be worse off as a result of the punitive measures employed by Liberal Democrat and Conservative Members. Personal allowances for the over-65s, our golden generation, are to be cut in real terms in the coming year. As several hon. Members have mentioned, that will mean that a pensioner who turns 65 in the next year will be up to £323 a year worse off. In these hard-pressed times, with the rising cost of living, rising energy and water prices and the flatlining of their savings, they can ill afford to pay that tax. It is worth contrasting their situation with that of the people who will be the greatest beneficiaries of the Government’s decisions.

I know that many Members are fans of a popular US television programme called “The West Wing”. For hon. Members who do not own a television, let me explain that it is about a wonderful Democrat politician, whom Members of all parties might aspire to be, who is pitted against a mad, right-wing Republican Congress that pursues more and more absurd policies. Even “The West Wing” could not countenance the idea that in a time of austerity, when deficits have to be reduced, a right-wing party—or the two right-wing Government parties—would call for tax cuts for the very wealthiest. Even Speaker Haffley in “The West Wing” would not support such ludicrous so-called economics.

20:49

Much has been made of how the Conservatives and Liberal Democrats get along. We have heard many stories of the infamous quad—the Prime Minister, the Chancellor, the Chief Secretary to the Treasury and their servant, the Deputy Prime Minister—drinking whisky late at night to celebrate putting the Budget to bed. Perhaps if they had spent a little less time on the drams and a little more on the details, they would not have ended up in this absurd situation. We have heard allegations that Prime Ministers of previous Governments were not always aware of the detail of a Budget, but I do not recall a Chancellor who was not aware of it. We have seen time after time in debates on this Bill, and in U-turn after U-turn, that this Chancellor is unaware of that detail. As my hon. Friend the Member for Wallasey (Ms Eagle) said last week at business questions, perhaps next year’s Budget should be written in pencil so we can save time by simply rubbing out the changes.

In that spirit, I hope the Minister sees sense, having heard eloquent arguments from Opposition Members and the lack of arguments offered by Government Members.

[Ian Mearns (Gateshead) (Lab)]

Would my hon. Friend care to speculate on how many of the 14,000 millionaires who will be super-beneficiaries of the measures will stop moving the mountains of cash that they currently move to avoid paying tax when the top rate is reduced from 50p to 45p? Surely if they move mountains of cash to avoid paying 50p, they will not move any less to avoid paying 45p.

[Thomas Docherty]

I suspect the best and fastest way to answer my hon. Friend’s question would be to attend the next Conservative party fundraising drinks event, where I am sure many of those millionaires will be buying the Minister a rather hearty round.

Much has been made of the quad’s all-night drinking session. I am sure they were drinking fine Scotch malts—indeed, no fine malts are made outside Scotland—but they should have spent more time looking at the detail of those two decisions. In direct contrast to the hon. Member for Dover (Charlie Elphicke), I would argue that pensioners on an income of £10,000 a year are not among the wealthiest pensioners in the country. If Conservative Members believe pensioner households struggling to get by on £10,000 are wealthy, it goes to show how staggeringly out of touch they are.

[Jacob Rees-Mogg]

I am extremely grateful to the hon. Gentleman for giving way and am enjoying his wanderings through the drinking habits of certain Members of the House, which I am not sure are directly relevant. Why is it fair that pensioners should have this benefit but not families who have a £10,000 allowance who are struggling with children? Why is it fair that the benefit should be age-related?

[Thomas Docherty]

I always give way to the hon. Gentleman, who knows more about age than anyone in the House. He needs no history lesson, but the measure goes back to the end of the second world war, and the concept of the greatest generations—those who have given a lifetime of sacrifice. It is worth noting that, just last week, we unveiled a long-overdue memorial to some of that greatest generation. I am sure he would recognise their sacrifice.

[Jacob Rees-Mogg]

The measure was introduced earlier, I believe by Winston Churchill; indeed, an hon. Member asked earlier how we could overturn what the great man had done. The wartime generation are having the benefit frozen; they are not losing it. The people who are not getting it were not born when the war was going on.

[Thomas Docherty]

I cannot believe the hon. Gentleman’s hearing is going. I began by saying that a cash freeze is a real-terms cut. I am sure he would agree with that.

[Jacob Rees-Mogg]

The Government’s wonderful policies are very successfully bringing down inflation; there has been a substantial fall. In addition, oil prices are coming down and there is a cut in fuel duty. That amazing combination means everything is working very well.

[Thomas Docherty]

With an intervention like that, it will not be long before the hon. Gentleman is sitting on the Front Bench speaking for the Government on Treasury matters. Perhaps I can help him on another matter, though, because several references were made to Take That. For his benefit, let me say that they are a popular beat combo who can often be found on the wireless. He might enjoy listening to them.

[Jacob Rees-Mogg]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We do not need to worry about Take That and radios for today. I think that the circus has carried on long enough.

[Thomas Docherty]

I am most grateful, Mr Deputy Speaker.

[Ian Mearns]

Would my hon. Friend care to reflect on the fact that we have just heard from the hon. Member for North East Somerset (Jacob Rees-Mogg) a celebration of stagflation?

[Thomas Docherty]

My hon. Friend is correct. This is not a time for celebration, as the cost of living continues to rise and the cost of energy and other precious commodities heads in the wrong direction. The real-terms cut faced by pensioners this year will make their lives much harder.

It is also worth reflecting on who will benefit from the proposals outlined by Ministers. We are talking about footballers, pop stars and “Big Brother” contestants. We talk about wealth generation and the value of people. With the greatest respect, I would argue that those three categories should not be given priority over our greatest generation. I know that the Minister is a courageous soul and, for his sins, an Ipswich Town supporter—such as that can be—but I wonder whether he truly believes that the value given by Ipswich Town players last year or this year was greater than the value given by the greatest generation in our nation. Surely, he must reflect on whether Middlesbrough, Ipswich Town, Sunderland, Leicester City or Crystal Palace players should really be prioritised over our pensioners.

[Gloria De Piero]

Did my hon. Friend notice the inconsistency of the Liberal Democrats on this matter? In January, they said it would be very wrong to reduce the 50p tax, but by March they were briefing that they were not ideologically wedded to the tax. Has this episode not demonstrated their powerlessness in government?

[Thomas Docherty]

I often think that the Business Secretary would make an excellent contestant on “Strictly Come Dancing”, such is his fleetness of foot. In fact, I am sure that tomorrow morning there will be leaflets out in Brent and elsewhere condemning and disowning this Government policy, as if Liberal Democrat votes had not yet again carried the argument, leaving Ipswich Town footballers and others better off and our greatest generation worse off. This is a poverty of policy. It is the worst example of what happens when the quad sits up drinking and it will leave the country with a dreadful hangover.

[Sheila Gilmore]

The policy on the higher tax rate is, in effect, an endorsement of tax avoidance, which worries me greatly. Some of us sat through the Finance Bill Committee and heard Government Back-Bench Members say how much they disapproved of tax avoidance, but throughout this episode we have heard people argue that because some people have taken steps to avoid tax, we should reduce it. That is highly unsatisfactory to the many people who, on pay-as-you-earn, have little ability to avoid tax. They are gobsmacked by all this.

If part of the problem was due to people forestalling, which is the technical term, in the first year of the new tax, perhaps—and this is a thought for the future too—we should have introduced it with immediate effect, as happens with some other taxes. For example, tobacco duty is generally increased on the day of a Budget, so that people do not rush out to fill their shopping bags—or whatever they do. Perhaps that would have been a way around it. I know it is not traditionally done with increases in tax rates, but if that is how people respond to these things, perhaps we should treat higher earners like we treat people we think will fill their bags with cheap booze or cigarettes, and forestall them, rather than letting them forestall the rest of us—because that is what they are doing to the communities in which they live. Unfortunately, in a year’s time, we are likely to hear Government Members saying “We told you so” even more. The reduction has been postponed for a year, but it will still happen, and a lot of people will no doubt do the same thing in reverse when it does.

It has become something of a mantra to say that no money was ever raised from the 50p rate of tax, but that is not true: £1 billion was raised, even in the year in which people were apparently forestalling. If we had let it run for somewhat longer, the situation could have been even more different. However, as the Institute for Fiscal Studies pointed out, to rush to judgment on this matter so quickly, because that suited the way in which the Government wanted to go, was not justified. We are, in effect, saying to people that it is all right to avoid tax.

I started to tell a little story earlier, and I hope that it will be seen to be relevant. I am fascinated by history, and particularly by housing, and—unusually, for me—I watched a television programme last night. It was entitled “The Secret History of Our Streets”, and last night’s episode was about Portland road, in London. It had been made long before the current debate on the Budget. A young, brash banker got up and said that the value of the property on that street had gone up even further since the taxpayers had bailed out the banks. Did we really think, he asked, that the banks were going to start lending to small businesses? No, they were going to give people like him an increase in income so that they could pay even more for those houses. He might have been one of those boastful types, but that was nevertheless an insight into the mindset of the kind of people in our community who think that tax avoidance is absolutely legitimate. There is a great deal of wealth in this country, as that example showed, and many ordinary people find this whole debate offensive and difficult to swallow.

At the other end of the tax issue, we have the question of raising the tax-free allowances. The Government keep saying how kind they are being to people on low incomes, but we should remember that once those people have had their tax allowance raised, they will get no further advantage in subsequent years because they are already out of the income tax regime. Other people, however, have gained considerable advantages from the raising of the basic tax threshold. Many people on considerably higher earnings—although not necessarily paying higher rates of tax—have gained from the measure.

It has been easy—for the Liberal Democrats in particular, as this is one of their favourite lines—to say that raising the tax threshold is all about helping the very poorest. However, the very poorest were already outside the income tax regime, and people on considerably higher earnings—particularly two-earner families without children—have benefited substantially from the raising of the threshold. We must also take into account what people on the margins who have been taken out of tax have lost. When we look at the details, we see that as a result of the measure, they could lose tax credits and, in some cases, housing benefit. Their gain is therefore very much less than has been suggested.

[Mr Kevan Jones (North Durham) (Lab)]

A lot of the people my hon. Friend is describing are actually in work, and the Government seem to forget that a lot of low-paid workers get housing benefit and other benefits. Does she agree that it is those individuals who will be hit the hardest?

[Sheila Gilmore]

Indeed, people who are working and who are, or were, paying tax stand to lose considerable amounts, particularly in the light of the way in which the tax credit system has been eroded as part of this process.

There are those who say—again, this is one of those things that keeps getting repeated as if it were true—that the Labour Government were not bothered about getting people into work or making work pay, but the whole thrust of tax credits, including child care tax credits, was indeed to make work pay. What this Government have done, by reducing the amount that can be claimed for child care, by taking away tax credits and, most inappropriately in my opinion, by taking away tax credits from some of the lowest-paid couples because they are deemed not to be working enough hours, more than detracts from the gains made by raising the tax threshold. Being realistic, these poor people whom the Liberal Democrats think they are standing up for have, particularly if they have children, lost out because of the combined effect of the Government’s measures.

21:00

I do not think there is any proof for the idea that if we lower tax rates, people will somehow invest. Let us look at what the Office for Budget Responsibility said about investment. It is predicting that the amount of investment going into business in the coming years will be much less than was previously thought. Despite what Government Members believe, if the people apparently not even paying this tax are not investing in the economy, is it clear where they are putting their money? Yes, they are clearly putting it into very expensive properties, but that does nothing to improve job prospects for young people.

[Mr Jones]

I suggest that those people are also putting their money into the Conservative party, whose largest donors are often hedge fund managers or financial services companies.

[Sheila Gilmore]

That may well be the case.

What we need to do is to find ways to invest in our economy that will genuinely benefit not just those who are unemployed, but those who are under-employed. The Government like to suggest that the rate of growth in the private sector has increased slightly in the last few months, but most of the jobs created over the last couple of years are part-time jobs. As a result of that, these very people are simultaneously losing tax credits and have to claim other benefits. The housing benefit bill has risen substantially in the last year, despite the Government’s changes, and that is because many people in part-time jobs are having to claim. What we saw in May, for example, was that the tax take had dropped and expenditure had risen, particularly on various kinds of welfare benefits.

Taken as a whole, this policy is simply not working. I would have greater respect for the Government if they were now saying, “We must look at why it is that some people are seeking to avoid the additional rate of tax. We must find ways—perhaps it is nudge, perhaps it is enforcement—to make them pay.” As others have said in this and previous debates, we seem to say to one group of people that if we take their benefits away they will work harder, while we say to another group of people that we have to give them more money through tax breaks so that they will work harder. It does not make a great deal of sense, and it is profoundly unfair.

Some of the differentials in our society now are huge. If the proportion—not necessarily the amount—of tax being paid by the top 1% of earners has risen, it might well be because their incomes have risen so much further than those of the rest of the community. The gap between the top earners and the rest has widened hugely over the last few years, which creates a profoundly unequal society.

[Stephen Williams (Bristol West) (LD)]

I have listened to a good deal of what the hon. Lady has said during our debates, and I have been trying to decide whether or not she supports the raising of the tax allowance. However, I want to ask her about the specific point that she made about the gap between the rich and the poor, which she said had widened over a “few years”. Surely she meant “over the last 13 years”.

[Sheila Gilmore]

As I think the hon. Gentleman knows fairly well, the increase in inequality began far earlier than that. The point in the history of the post-war United Kingdom when the equality gap was narrowest was 1979, which, interestingly, marked the end of a 20-year period during which Labour Governments had predominated. After 1979, the widening of the gap began and accelerated.

I would not suggest for a moment that the party of which I am a member did as much as I should have liked it to do when it was in government, but we did a great deal for pensioners and the least well-off workers in society by, for instance, getting single parents back to work and introducing the minimum wage. It is simply not true that we were not aware of the issues, or that we did nothing to tackle them. The hon. Gentleman may want to return to the heady days of 1979, and perhaps we should all want to do that. Now, however, inequality is breeding a society that poses many dangers, and we want to reduce that inequality, but I do not believe that the Budget does anything to reduce it. We know that the Budget will increase child poverty, and I believe that in three or four years the inequality gap will have widened even more.

[Jacob Rees-Mogg]

It is a real pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore), who made such an enormous contribution to the Public Bill Committee. She enlivened it regularly with her thoughts, with which I have almost invariably disagreed—and today is no exception.

We are now dealing with the best part of the Budget: the heart, soul and even the guts of it. We are doing some big and bold and important things, with which I shall deal in turn. One of them is tough and brave and noble. It is the proper aim of Government to take on difficult things which, although difficult, are right. But I shall start, instead—

[Ian Lavery]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

Of course I will.

[Ian Lavery]

Is it bold and tough to rob the pensioners of £3 billion and give the millionaires a £3 billion tax cut?

[Jacob Rees-Mogg]

The pensioners are not being robbed. The pensioners have been extraordinarily well looked after by this Government, and rightly so. I agree in many respects with the hon. Member for Dunfermline and West Fife (Thomas Docherty), who talked earlier about how important the elderly were to our society. He called them the golden generation. I thought that, out of respect to Her Majesty, we ought to call them the diamond generation, as they are all over 60.

Of course we owe a great deal to the elderly. That is why it is right that they have kept their bus passes—which they are pleased to have, although there are not many buses in North East Somerset—and their winter fuel allowances. If they are over 75, they will also retain their free television licences so they can watch the BBC free of charge. I think that many of them prefer Sky nowadays, but that is a separate issue. The Conservative party, in alliance with our Liberal Democrat friends, has looked after the pensioners.

As for the thresholds, it is absolutely right that they should be evened out. Let us consider the people who are paying tax across the country. How is it fair for those who have retired to be given an automatic tax break, rather than those who are working hard and perhaps bringing up children? They need the income just as much as the pensioners, and in some cases more. That, I think, was bold and brave of the Government, and right.

I want to begin, however, by discussing the easiest step to defend—the one that was so startlingly obvious that it is surprising that the Government did not take it earlier and go further. I am talking about the reduction in the 50p tax rate to 45p. We know well that high taxes drive out enterprise and people, and drive down tax revenues. That is not because of evil schemes of tax avoidance; it is because people simply decide that if they are not going to get paid, they will not work. They remove their labour. Our socialist friends—

[Thomas Docherty]

rose—

[Jacob Rees-Mogg]

I give way to my socialist friend.

[Thomas Docherty]

Does the hon. Gentleman really believe our society is enhanced by these pop stars and premiership footballers?

[Jacob Rees-Mogg]

It has to be said that I am not the world’s greatest expert on pop stars and footballers, but none the less I think they bring a richness to our national life that enlivens many people in my constituency, and even in Scotland. They want to watch the highest quality football being played.

This is relevant, Mr Deputy Speaker, in case you think I am going off on a tangent. I have thought that it would be a good idea to remove the limit on overseas players in cricket, because that limit has been removed in association football and it has led to our having in this country the highest quality league football, and in English cricket—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are drifting away from the topic under discussion—and as somebody who follows cricket and feels that it is to the benefit of the England team that there are not too many overseas players in the county game, I do not want to go any further into this debate.

[Jacob Rees-Mogg]

Thank you, Mr Deputy Speaker, but the reduction of tax is what encourages them to be here and why they do not decide to work in other countries instead.

[Thomas Docherty]

I am pretty sure, Mr Deputy Speaker, that the England cricket team is very good and the England football team is not very good.

[Jacob Rees-Mogg]

But my concern was about Somerset county cricket club. Football teams such as Manchester United do very well through having more foreign players. Somerset, however, has yet to win the county championship, but this lower level of tax and greater freedom in employing overseas players may lead to its achieving that.

Returning to the question of the 45p tax rate, we have had a discussion about avoidance in that context, and I want to defend tax avoidance. I know this is not the most popular cause to espouse, but I do so because I believe in the rule of law, and I do not believe the rule of law is best maintained by Parliament being arbitrary in its taxation.

We have the power, through our votes this evening, to set rates of tax as we choose—to set schemes that allow people to be charged tax, or not to be charged tax, as we choose. If we in this House are too incompetent to draw up the tax law properly, is it reasonable to say to the taxpayer, “You must work out what Parliament may have wanted. This is not what is said, but Parliament may have wanted you to pay this extra amount on top”? Should we then also say that to people who put money into their individual savings accounts? Should we retrospectively say that they ought to have paid more tax on their ISA sums, or on their pension funds?

[Ian Lavery]

Does the hon. Gentleman agree that there is a moral obligation on people to pay taxes, as well as a legal obligation?

[Jacob Rees-Mogg]

No, I do not. I do not believe that taxation is a matter of morality. I believe the law is a matter of morality and it is immoral to break the law, and therefore I divide very firmly between tax evasion and tax avoidance, which is the historical position of this Parliament—and, indeed, of English law. Tax evasion is criminal and should be prosecuted to the full extent of the law. I think the scheme used by a comedian, whose name momentarily escapes me but who is quite famous, was almost certainly unlawful, and that scheme should be prosecuted.

[Mr Kevan Jones]

I know the hon. Gentleman lives in a rarefied world, but does he not understand the anger felt not only by low-paid workers, but middle-earners, who pay their tax through pay-as-you-earn and have no opportunity to avoid tax, unlike the footballers to whom he referred? This situation cannot be fair in any society.

[Jacob Rees-Mogg]

It is very important, once again, to differentiate between avoidance and evasion. If we have passed laws that allow people, for example footballers, to sell the rights to their name and corporatise that, we can change the law, and the fact that this Parliament has not changed the law means that people are entitled to do it.

21:15

[Mr Jones]

Does the hon. Gentleman get it? Does he not understand the anger of even middle-income earners, who pay their taxes, work hard and cannot use any schemes such as those he has been suggesting which are open to those on ludicrous sums of £250,000 a week? Many people in Somerset must be in this category?

[Chris Heaton-Harris (Daventry) (Con)]

rose—

[Jacob Rees-Mogg]

I give way to my hon. Friend.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. It is worth answering that one first.

[Jacob Rees-Mogg]

I am getting so many interventions, and I am always happy to take them all; allcomers are welcome. I do not think that there is this anger; I think that people are very supportive of high earners who earn their money.

[Chris Heaton-Harris]

Does that not make the point? If there was this anger, thousands of people would not queue in lines to get their season ticket for Manchester United at the beginning of each season and millions of people would not be watching on television, because the strength of anger that Labour Members seem to want to articulate would mean that people would boycott these disgraceful sports and pursuits.

[Jacob Rees-Mogg]

My hon. Friend is absolutely right and he has hit the nail on the head.

[Ian Mearns]

The hon. Gentlemen have got it quite wrong. The tribal nature of football is that people idolise their own team’s players and despise the activities of the players from other teams. The bottom line is that the hon. Member for North East Somerset (Jacob Rees-Mogg) would prefer that there was no tax at all.

[Jacob Rees-Mogg]

The hon. Gentleman is wrong on that last point; I recognise that there is a need for taxation, though slightly beyond the clauses we are immediately discussing. However, I will answer the important point that he has raised on the tribal nature of football and why people are willing to see these high salaries paid. It is because they recognise that those salaries get them the best quality players and they want to see the best quality players playing for the team that they so ardently and passionately support—it is an ardent passion that I do not have, but I understand that many people do have it. That requires low taxes, because otherwise these players take their talent abroad.

I come back to Professor Laffer, because his argument is one that is so obvious as to be self-evident: if the tax rate is zero, nothing will be raised and if it is 100%, no sane person will pay it either as there is no point in working or in earning. There is some point along that curve where the least legal avoidance takes place—I emphasise that avoidance is legal—the most amount of working is done and the highest amount of revenue is received. We have seen this. I know that some Conservative Members, myself included, think that there was a golden age when Baroness Thatcher was in charge—

[Ian Lavery]

rose—

[Jacob Rees-Mogg]

I give way to another supporter of the golden age.

[Ian Lavery]

I intervened just too early, because he mentioned Margaret Thatcher—another issue. Is there anywhere on this curve that the hon. Gentleman continues to mention where morality comes into play?

[Jacob Rees-Mogg]

This argument is not a moral one. We are not the House of Bishops. I am all in favour of the Lords Spiritual having a view on this, but I am not one of them. I did not go into the Church; I went into politics. Politics is about raising the revenue that is needed for the country to carry out its business, and it is not an issue of morality in terms of how we phrase the laws. That those laws are then obeyed is a matter of morality. I can probably quote paragraphs of the Catholic catechism on this, but you are looking fretful at that thought, Mr Deputy Speaker, so I shall move back to the golden age of the noble Baroness Thatcher, Lady of the Garter, Order of Merit.

In 1979, the top tax rate was 98%—83p in the pound on income tax and a 15p surcharge. [Interruption.] I hear Labour Members saying that that was excellent and a jolly good thing. It is rather splendid to know that I am not the only one with dinosaur-style views in this House; there are even greater dinosaurs on the Labour Benches. When those tax rates were reduced they came down first to 60% and then to 40%, to fury from hon. Members. I believe that the House was suspended when the noble Lord Lawson introduced the rate of 40p in the pound; I think the Scottish nationalists got up in a passion of anger, wishing for higher taxation to spread across the realm of the United Kingdom. What did that reduction do? It raised more money for Her Majesty’s Government, which meant that the Government could spend money on their priorities and pay down their debt. We had a golden economic scenario when the noble Lord Lawson was at the helm, because we believed in low tax rates and had the courage of our convictions.

[Kelvin Hopkins (Luton North) (Lab)]

I remember the noble Lord Lawson’s time as Chancellor and the real reason we boomed in that time was that he depreciated our currency by 35%.

[Jacob Rees-Mogg]

Without going anything other than briefly through a history of sterling in the 1980s, I seem to remember that it bottomed in 1985 at $1.10 and then started rising again. So, that was not the case throughout the noble Lord’s period in office.

I shall come back to the subject of the Laffer curve, but I must first take an intervention from the hon. Member for Clwyd South (Susan Elan Jones).

[Susan Elan Jones (Clwyd South) (Lab)]

I must confess that I was rather enjoying the sporting analogies and wondering, if the rules were different, what rates of taxation would be required for England rugby players to be able to beat the Welsh—but let me move on. The hon. Gentleman says that there is no morality in tax, but how does he feel about indirect taxation? There were many concerns about the effect on petrol prices, for example, when VAT was raised. Does he think that that should be reduced, too?

[Jacob Rees-Mogg]

I am grateful to the hon. Lady—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are in danger of moving off the topic. We are discussing personal allowances and we need to get back to them. We have had a good lesson in the Jurassic history from those on both sides of the Chamber.

[Jacob Rees-Mogg]

Thank you, Mr Deputy Speaker. One always feels ashamed not to answer a question directly, so I apologise to the hon. Lady for the fact that I shall have to give a later answer on that knotty point of value added tax.

I will stick with the Laffer curve and its history of increased revenue. We heard from the Opposition that when rates went down, the economy boomed and so, therefore, did the revenues raised. There are two answers to that. One reason that the economy boomed was that there was lower tax, so people had more of their own money in their pockets to spend on goods and services, leading to overall economic growth. Secondly, the amount paid by top taxpayers grew much faster than the rate of the economy overall. We are now in a situation where 27% of income tax is now paid by the top 1% of income tax payers—

[Kelvin Hopkins]

Not enough.

[Jacob Rees-Mogg]

In 1979, when the hon. Gentleman had a real socialist Government, that figure was about 8%. One can see that massive expansion in the burden of tax falling on the richest in society—the ones who can bear that burden—comes when the rate is lower. That is an excellent part of this Budget; perhaps the best part.

[Chris Heaton-Harris]

I thank my hon. Friend for being so generous in giving way. If one could possibly take the politics out of tax, surely one would want to hit the tax rate that brings in the most revenue, in order to pay for hospitals and everything else. If that tax rate was proved to be lower than the higher tax rate, one would like to think that common sense would prevail and that Ministers would choose the tax rate that would bring in the money.

[Jacob Rees-Mogg]

I agree with my hon. Friend. I believe that there are studies that show that that rate would be 36p in the pound. I hope that the Minister is listening and that we can look forward in the next Budget to the rate being lower still.

We have heard discussion about the morality of tax rates, and I dispute that there is morality to tax rates, but there is a perniciousness about taxing for the sake of it and about taxing for the sake of envy, because people do not like the rich or because they wish to crush the income earners in society. That is not the type of envy that we have on these Benches. Even our Liberal Democrat friends do not suffer from that type of envy; they recovered from it after their experience in 1909.

We Conservative Members have never had that type of envy. We recognise that if the maximum amount of revenue is raised, it is better for everybody. We heard our Prime Minister giving an invitation to our friends in France, saying, “Come and join us. The weather here may be rainy, but the tax rate is only 45p in the pound, compared with the 75p that you may have to pay.”

[Ian Lavery]

Will the hon. Gentleman enlighten the House on what personal tax allowances he would put in place at different levels, if he were the Chancellor and had the power?

[Jacob Rees-Mogg]

It would be an impertinence for someone who entered the House in only the past two years to aspire, even hypothetically, to the height of Chancellor of the Exchequer. I leave that question to my hon. Friends on the Government Front Bench, who, having listened carefully to all that is said in this debate, will no doubt advise the Chancellor. They may consider the figure of 36p in the pound to be perfectly suitable—or they may go further and advocate a flat tax, which is a very attractive proposition. Perhaps people could have tabled an amendment to that effect, but sadly they did not. As I understand from my hon. Friend the Member for Amber Valley (Nigel Mills), who is no longer in his place—

[Gavin Williamson (South Staffordshire) (Con)]

He’s behind you.

[Jacob Rees-Mogg]

Oh, he is behind me. My hon. Friend the Member for Amber Valley said that the effect of the amendment from our Labour friends would be to bring the tax rate down to 40p. I am not sure that it was wise of him to say that, because those of us who were listening may be tempted to go into the same Lobby as the Opposition later, to help them achieve that objective.

I want to talk about the other great aspect of the Budget, and to give full credit to our Liberal Democrat friends for twisting Conservatives’ arms to get them to do something that they have always wanted to do anyway: get as many people out of taxation as possible by raising the thresholds. As the thresholds are raised, so the incentive to work becomes greater. The hon. Member for Edinburgh East (Sheila Gilmore) said that we wanted to make the out-of-work work harder by cutting their benefits, and the in-work work harder by cutting their taxes, and thought that was illogical. Of course it is not, because a person does not get unemployment benefit for working; if a person works, they lose their benefit, and if we encourage people to work, they have more money. Likewise, if we cut people’s taxes, they have more money, so they are likely to work harder.

When we raise the threshold, we find that many millions of people are able to work more easily. They will be taken out, to some degree, of the poverty trap, which is one of the most crushing and pernicious taxation and benefit traps that anyone has to face. The move, in stages, to a £10,000 threshold is a very bold thing to do in a time of economic difficulty, but it may have some of the greatest social benefits of any of the policies that the Government are following. It really is a noble approach to taxation—an objective that is fundamentally worthy.

[Mr Kevan Jones]

I have listened carefully to the hon. Gentleman, but I am not sure that he realises that a large number of my constituents, and possibly his, who are in low-paid jobs claim council tax benefit, housing benefit and tax credits. However, all of those have been cut by the Government, and that counters the encouragement to work, in terms of the increase in the threshold.

[Jacob Rees-Mogg]

I am always grateful for the hon. Gentleman’s thoughtful interventions, but one of the greatest mistakes that Governments make is to have this merry-go-round of taxation and benefits, whereby we tax people and then pay them back their own money in benefits, with a cut taken for administration in between. It is much more sensible to take people out of tax altogether. I would like the threshold to be raised considerably higher, basically towards average earnings, so that the bulk of people do not pay tax at all on what they earn, but do, of course, pay in other ways, through other taxes—through indirect taxation. That takes away the major disincentive to go into employment, and lets people benefit from the fruits of their labour. That is an important proposal that has come forward, and it is popular throughout the country, though I would not say that there was literally cheering in the streets.

[Chris Heaton-Harris]

My hon. Friend talked about the recycling of money through the system. In May 2010, nine out of 10 families were able to claim some sort of tax credit. Surely it is completely wrong if everybody —or 90% of people—is relying on the state to give them money back in some grandiose scheme. Surely taking people out of tax is the right way to get rid of that problem.

[Jacob Rees-Mogg]

I am in entire agreement with my hon. Friend. We want to get people out of the tax and benefits system as much as possible so that they can stand on their own two feet. That is what people want.

[Sheila Gilmore]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

It will be an honour to give way.

21:30

[Sheila Gilmore]

The problem with the hon. Gentleman’s argument is that, even if the tax threshold is raised towards the median income, as he suggested, unless the minimum wage is raised substantially, many people’s earnings will be so low that they will still live in great poverty. That was why benefits such as tax credits were created. The other route might be to raise the minimum wage.

[Jacob Rees-Mogg]

Mr Deputy Speaker, you will rule me out of order if I argue that raising the minimum wage would be extremely unwise, so I would not dare to say it. However, on the point of benefits for the worst off, I am all in favour of those. It is a thoroughly good thing to help people who are just in the earning bracket, but not to give benefits to people earning £70,000 a year, paid for out of their extraordinarily high taxes.

[Kelvin Hopkins]

Surely the biggest disincentive to less well-off people earning or trying to get work—many are trying to get work that is not available because there is mass unemployment—is the fact that all the benefits are means-tested. If we reduced the level of means-testing and had many more universal benefits paid for out of a much more progressive form of taxation, we would avoid that problem.

[Jacob Rees-Mogg]

There are enormously exciting benefit changes coming through and I look forward to speaking on those with enthusiasm, because I think they will make a substantial change to the welfare of the people of this country. But that is for another day. We must make sure that the tax system encourages work, gets people off benefits and helps them to be prosperous. Universal benefits have the grave disadvantage of wasting money on people who do not need it.

In the limited time that remains to me, I wish to deal with the issue that has caused most controversy: the freezing of the age-related allowance. This was a bold decision for the Government to take, but undoubtedly the right one. The ordinary threshold has been so raised that the age-related allowance, which used to be almost double the ordinary allowance, is now only marginally higher. The change is being made in the most sensible and calm way, by freezing the allowance so that nobody loses in cash terms. There will not be a cash loss to any existing pensioner. Over time the basic threshold will be raised so that everybody is better off.

It is a policy that has of course been momentarily unpopular. It has received a little publicity that is adverse, but as somebody once said, to govern is to choose. Government are at their best when they make tough choices and stick to them. We know that the economic situation of this country is deeply unsatisfactory. We know that we have a deficit that is out of control and a level of debt unseen out of wartime. In getting it right, the Government cannot throw money about like confetti. They must take the tough and bold decisions and yes, there may be consequences in the newspapers, but—

[Kelvin Hopkins]

The hon. Gentleman talks about the deficit. Things are getting worse, rather than better, because of the squeeze on the economy. If we made serious efforts to reduce the tax gap, which is estimated at £120 billion a year, we could solve that problem overnight. It is just a question of changing the law to make sure that people pay the taxes that they should pay.

[Jacob Rees-Mogg]

We have already discussed this. By and large people pay the taxes that they are supposed to pay, as Parliament has laid down. If they evade tax, the full force and might of the law can and should come down upon them.

I conclude on the crucial point of defending the Government on a decision that, though it has not been immediately well received, will be welcomed by the electorate, because the electorate admire Governments who govern effectively through the tough times. They do not admire Governments who are loose and lazy with their money. They admire ones who are willing to take the tough decisions. We should oppose all the amendments in the group and stick with the Budget as it was—a very fine and good Budget, in which the right decisions were made.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

We have had an interesting debate that has addressed what are perhaps two of the most controversial issues in the Budget: the change to age-related allowances and the reduction in the 50p rate of income tax. The debate has lasted three hours, but at one stage I thought we might finish early, until we heard the tour de force from my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). I hope that I will have time to respond to the various comments that have been made. We heard the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) quote Groucho Marx, which I suppose is an improvement on other Marxes who might have been quoted, although I was reminded of the other Groucho Marx line:

“I’ve had a perfectly wonderful evening, but this wasn’t it”,

at least until I heard the speech from my hon. Friend.

The changes the Government have made to the rates and thresholds of income tax will provide a competitive platform for our tax system while also ensuring fairness. The measures in the Bill will reduce the additional rate of income tax in 2013-14 to 45p, increase the personal allowance to £8,105 and simplify the working of age-related allowances. I will discuss each of the amendments in turn, but it is important first to set out why the Government have taken this approach.

The fact is that the 50p rate of income tax has not raised the revenue it was intended to raise. It is currently the highest statutory income tax rate in the G20. When we came to power we inherited an economy that the previous Government had driven into a parlous state, with regard to not only the state of the public finances but our overall competitiveness. The fact is that the 50p rate came in only at the fag end of the Labour Government, who for 13 years had kept the 40p rate, and when they brought in the 50p rate they declared that it was temporary. There was a reason for that: they recognised that the 50p rate would damage our competitiveness. The hard evidence backs up that claim. The report by HMRC sets out that the 50p rate is distortive, damaging to international competitiveness and an economically inefficient way of raising revenue.

In short, the 50p rate is a failed policy. We were told that it would raise over £2 billion and, given the crippling deficit we were left, that was not something we could just wave away as if it did not matter. However, higher taxes are worth while only if they raise more revenue, and the analysis by HMRC shows that at best the yield would be £1 billion, and at worst it may raise nothing at all. That is because the behavioural response has been substantially larger than expected.

[Chris Heaton-Harris]

One part of HMRC’s gaming for this actually did not look at how much extra money would come in as a result of the incentive to pay the lower level of tax. Surely it would have been worth while doing that so that we could prove to some of those who do not understand simple economics that it would be worth while.

[Mr Gauke]

HMRC’s analysis, which is a good piece of work, showed through two different mechanisms that the reality was that the amount being raised was somewhat less than had been predicted. The fact is that the behavioural response was much greater.

Let me say a word or two about that. To start with, HMRC estimates that as much as £18 billion worth of forestalling took place in 2009-10, of which about two thirds, up to £11.3 billion, has been estimated to unwind in 2010-11, but this forestalling was not factored into the original revenue calculations. Furthermore, HMRC estimates that between one third and one half of the behavioural effect comes from genuine reductions in income. We have heard this evening that this is all about tax avoidance, that tax avoidance increases when we increase the rate and that we can be sure we will get the benefit of it as we unwind, but the reality is that between one third and one half of this was simply the result of less economic activity, because people reduced their hours and participation in the UK labour market and moved elsewhere.

[Kelvin Hopkins]

The Minister has said it: the amount raised from the increase in tax declined because the economy went into relative decline as a result of the Government’s policies. The fact is, however, that all this is about the feebleness of our tax-collecting system—the laws governing it and HMRC, which has been shown to be soft on big companies, in particular, and soft on the rich when it comes to tax collection. Light-touch regulation: that is the poison.

[Mr Gauke]

I strongly disagree, but before I turn to tax avoidance let us remember that between one third and one half of the reduction is because of less participation in the labour market. It is not because of the decline in the economy; we are talking about people moving elsewhere, people retiring earlier and people working fewer hours because it is not worth their while, in their opinion, to work as hard as they would otherwise do. Let us not forget that when someone moves from this country to Switzerland, we miss not just the difference between 45p and 50p, but everything, the whole 50p, and not just that bit above £150,000, but the first £150,000. That is the consequence of a tax rate that drives people out of the country and does not attract them here.

[Thomas Docherty]

Can the Minister tell me two premiership footballers who have left the country because of this tax rate?

[Mr Gauke]

No I cannot, but I know that, for example, the Arsenal manager remarked that the 50p rate put him at a disadvantage. Earlier, the hon. Gentleman mentioned Ipswich Town and whether its players deserved a tax cut or pensioners did, and I have to say that on last season’s performance one or two looked as if they could qualify for the age-related allowance, but that is not at the heart of my argument.

The point is that we have to be competitive, and we want to attract talent to the UK, but having a higher rate than France, Italy and Germany is not competitive.

[Sheila Gilmore]

Generally, when changes are made and we want to assess their impact, we carry out properly independent research. On the changes to housing benefit, for example, the university of Sheffield has been commissioned to produce reports, but what research into our short experience of the 50p tax rate was carried out that gives rise to the conclusions mentioned? Do we have some research that we can look at, or is there just speculation that people might have retired or might have gone to Switzerland?

[Mr Gauke]

The hon. Lady asks what research we have. I am holding it in my hand: the document produced by HMRC, which sets out a thorough analysis. I urge her to read it and to see that it is far from speculative; it is a thorough piece of work, which shows that as a result of the 50p rate total income fell by between £2.9 billion and £4.4 billion and GDP was between 0.2% and 0.3% lower. There has been not just a loss of tax revenue, but a loss to the whole economy through lower productivity and lower economic activity.

[Justin Tomlinson (North Swindon) (Con)]

If Labour Members felt that the 50p rate was so good, why did they introduce it as only a temporary measure?

[Mr Gauke]

My hon. Friend is absolutely right to make that point. As I asked earlier, why did they wait 13 years to introduce it?

[Chris Ruane (Vale of Clwyd) (Lab)]

If it is such a sensible, logical and scientifically researched conclusion that reducing the tax rate from 50% to 45% is such a good thing, why do the great British public not believe it?

[Mr Gauke]

I do not know whether the great British public have reached that conclusion. Perhaps some of them believe some of the arguments put by the Labour party, but if they do I have to point out some of the weaknesses. In the Committee of the whole House, the hon. Member for Pontypridd (Owen Smith), who previously spoke for the Opposition on this issue, said that he considered the taxable income elasticity calculations in the report to be “smoke and mirrors”. We would call them analysis and economics.

21:45

Part of the reason for the lower than expected revenue from the 50p rate is that expectations were simply set too high by the previous Government. A more moderate view allows us better to predict the revenues from a 45p rate, and the analysis undertaken by HMRC states that the cost to the Exchequer of a reduction to 45p is about £100 million.

The 50p rate has been criticised by business. It has risked lasting damage to the UK economy and has raised considerably less than expected for the Exchequer, potentially even costing rather than raising revenue. Change is needed, but it must build on the evidence. We now have a more informed view of the behavioural impact of the additional rate—one fully endorsed and accepted by the Office for Budget Responsibility as central and reasonable.

[Ian Mearns]

I am grateful to the Minister and Ipswich Town supporter for giving way. Does he agree with the general thrust of the argument put forward by his colleague, the hon. Member for North East Somerset (Jacob Rees-Mogg)? It was that tax avoidance is not at all morally repugnant and it should be encouraged as long as it is legal.

[Mr Gauke]

To be fair, that is not what my hon. Friend said, although I did not agree with everything that he did say on that issue. I shall take this opportunity to say a word or so about avoidance, because the Government are keen to address that.

[John Hemming (Birmingham, Yardley) (LD)]

rose—

[Mr Gauke]

Before I do that, I give way to my hon. Friend.

[John Hemming]

I am a Government Back Bencher who is not massively enthusiastic about the reduction in the top rate; I think that the Laffer curve peak would be at a higher rate than is thought. However, will the Minister comment on the fact that the Labour party seems to have forgotten that it did nothing to close the transparent fiddles, which are so resented, when people have paid 1% or 2% in tax? Those transparent fiddles have been around for years and Labour did nothing to close those gaps.

[Mr Gauke]

My hon. Friend makes an important point. If we are talking about unfairness in the tax system as far as rates are concerned, I should say that the much greater unfairness is when wealthy individuals are paying very low rates of income tax—lower rates than are paid by the vast majority of people working in this country.

Let me say a word or two about avoidance. In the Budget, we announced a package of measures that will yield more than £1 billion and protect more than £10 billion in revenues over the next five years. Our approach to tackling stamp duty land tax avoidance and the banking scheme closed down in February demonstrate that we are prepared to move quickly and take radical action where necessary. We are introducing strategic changes to address the underlying loopholes in the tax system, as can be seen in clause 22, which is about the treatment of manufactured overseas dividends. More generally, the Government have been active in their response to tax avoidance schemes and can and do act as soon as they become aware of abusive schemes. We have provided HMRC with additional financial support and we remain absolutely committed to tackling tax avoidance.

Amendment 1 asks us to leave out the additional rate for 2013-14. It is exactly the same amendment as was tabled in the Committee of the whole House. I will not repeat every point that I made then, but as my hon. Friend the Member for Amber Valley (Nigel Mills) said, that might well leave us with just a 40p rate rather than a 45p rate. There is an alternative interpretation, which would mean that no income tax was charged for earnings above £150,000. I say that with some nervousness. I hope that I have not overexcited my hon. Friend the Member for North East Somerset; I think that even he would accept that that was below the revenue maximising point.

When the 50p rate was introduced, the right hon. Member for Edinburgh South West (Mr Darling), the then Chancellor, explicitly stated that it was a temporary measure. We are announcing the cut to 45p now to provide stability for investment decisions and certainty for employees and the self-employed. That is why my right hon. Friend the Chancellor set out the rate for 2013-14 this year.

It is right that we take these measures to improve competitiveness, and our doing so has been widely welcomed. This matter must be viewed in the context of the personal allowance increase, which shows that we are committed to a fairer tax system that provides greater reward for work while supporting the public finances. This year there is a £630 increase in the personal allowance, as introduced by clause 3. That represents the second step in our commitment to increase the personal allowance to £10,000 on top of last year’s increase of £1,000. We have also announced a further increase of £1,100 next year—the largest ever increase in cash terms. The Government are taking 2 million people out of income tax, we are providing a tax cut to 24 million people, and we are well on course to meeting our target of a personal allowance of £10,000.

Let me turn to the second subject that we have debated—age-related allowances. Amendment 23 seeks to leave out clause 4, which introduces a phased withdrawal of age-related income tax personal allowances. Those will remain in place until the income tax personal allowance for those born after 5 April 1948 aligns with or overtakes these levels. At that point, the clause guarantees that older people will receive the higher allowance. Amendment 23, like others tabled by Opposition Front Benchers, is a repeat of an amendment tabled in the Committee of the whole House. The Government have committed to increasing the personal allowance above the rate of inflation. Next year, the personal allowance will increase by £1,100—£840 above inflation—and so from 2013-14 everyone born after 5 April 1948 will receive the same personal allowance of £9,205. This will take a further 880,000 people out of tax altogether. Similarly, everyone born after 5 April 1938 will continue to receive the age-related allowance that they currently receive instead of moving on to the higher age-related allowance, which will be maintained for those born on or before this date. There will be no new recipients of age-related allowances from next April.

One of the Government’s key objectives for the tax system is to make it simple and straightforward for people to understand. Clause 4 helps to provide for a simpler system while ensuring that nobody will lose out in cash terms as a result. It will help to make sure that people get the allowances to which they are entitled and pay the right amount of tax, and make the system simpler for Government to administer, thereby minimising costs to the taxpayer.

[Ian Lavery]

It has been mentioned a hundred times tonight that no one will lose out in cash terms. Will there be any losers in this?

[Mr Gauke]

Nobody will lose out in cash terms; that is the point.

Age-related allowances are complex and hard for older people to understand, as the Public Accounts Committee confirmed in a 2009 report. The same report also stated that too much emphasis is placed on older people having to prove their eligibility, resulting in erroneous claims and potential overpayments of tax. Furthermore, in March this year the Office of Tax Simplification published its interim report on its review of pensioner taxation in which it highlighted no fewer than nine complexities with the age-related personal allowance.

Half the people aged over 65 in 2013-14 will pay no income tax at all and are therefore unaffected by these changes. Those who will now not receive an age-related allowance will benefit from a £1,100 increase in the personal allowance, which represents the largest cash increase ever. At the same time, those who are affected by the withdrawal of age-related allowances will still see the total deductions they pay reduce significantly because we have retained the exemption from national insurance contributions for those of state pension age.

It is important to consider these changes to age-related allowances in the context of the wider support that the Government offer to pensioners. Only 40% of pensioners benefit from age-related allowances, about 50% are unaffected by the changes made by the clause because they pay no tax and will continue to pay no tax, and the remaining 10% have incomes above the taper limit for age-related allowances and are therefore unaffected by these measures.

Let us also remember that the triple lock ensures that each year, the basic state pension will be uprated by the highest of these: inflation, earnings or 2.5%. This April, the basic state pension increased by the consumer prices index inflation rate of 5.2%. That meant that there was an increase of £5.30 a week in the full basic state pension—the largest ever cash increase in the basic state pension. Under the previous Government’s plans, the basic state pension would have increased by only 2.8% from this April—an increase of only £2.85 per week. That means that the full basic state pension is £127 a year higher in 2012 than it would have been under the previous Government’s plans. Next year, a full basic state pension is forecast to be £130 a year higher than under the previous Government’s plans, and the year after that, it is forecast to be £133 higher.

Each year, more than 11 million pensioners will benefit from the introduction of the triple lock. An existing pensioner with a full basic state pension will gain more from the triple lock in each of the next three years than they will lose from the freeze in age-related allowances. The Institute for Fiscal Studies has said:

“Our analysis shows that they have lost considerably less from recent tax and benefit changes than any other demographic group. And over the past decade and more pensioner incomes have risen faster than those of the working age population.”

To conclude, the Government are making changes to ensure that there is a fair and competitive tax system. Some of them are controversial, but we should look at the evidence, not the Opposition’s rhetoric. The 50p rate is not sustainable. The introduction of the triple lock on state pensions means pensioners continue to be better off. These changes are good for our long-term tax revenues, good for our economy and good for the UK as a whole. I ask the Opposition to seek leave to withdraw the amendment.

[Rachel Reeves (Leeds West) (Lab)]

It is good to have plenty of time to wind up for the Opposition. We will press for a vote on amendments 1 and 23 this evening, because as today’s debate has confirmed for anyone who was still in any doubt, this is not only an omnishambles of a Budget, as my hon. Friend the Member for Livingston (Graeme Morrice) said, but a flawed and unfair Budget.

We have heard contributions about the hardships that the Government’s economic failure and unfair austerity measures are causing for our constituents. My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) talked about the cuts beginning to bite. She rightly said that pensioners are the victims and millionaires are the victors from the Budget. My hon. Friend the Member for Wansbeck (Ian Lavery) said that the tax cut for millionaires is worth more than the money that most of our constituents take home in a year. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) spoke about a tax cut for the mega-rich that leaves a bad taste in the mouth.

Instead of taking serious steps that might repair the damage that has been done, the Chancellor and his Ministers have turned from their failed experiment in expansionary fiscal contraction and resorted to the notorious Laffer curve. As my hon. Friend the Member for Brent North (Barry Gardiner) said, they are testing that economic philosophy to its limits. It is their latest excuse for an economic policy that rewards those who are already very wealthy and is the last refuge of a Government who have lost any sense of purpose beyond the protection of privilege.

The argument that cutting tax for the very richest is the only way of improving the economic prospects for the rest of us was made by the hon. Members for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke). They were suggesting that cutting taxes for the rich is what makes them work harder, but that cutting benefits for the poor is what gets them out of bed in the morning. They were saying that although these policies will hurt their constituents, they will vote for them anyway. I am sure that their constituents will sit up and take notice.

It is the same old Tories dusting down the same old trickle-down theories. They did not work in the 1980s and they will not work today. As my hon. Friend the Member for Edinburgh East (Sheila Gilmore) said, the Government seem to think that if they cut taxes for the richest, somehow the rest of us will be the beneficiaries. Nothing could more clearly demonstrate the Government’s perverse priorities than the fact that, when ordinary families are going through the toughest times in living memory, clause 1 of chapter 1 of part 1 of this Finance Bill gives a £3 billion tax cut to the richest 1% of the population, and the rest of the Bill is peppered with dubious means of making other, far less fortunate people in society pay for it.

Among those means, the largest and most flagrant is the abolition of the age-related allowance. The Government call it a tax simplification; we call it a tax grab from pensioners with occupational pensions of little more than £5,000 a year. As my hon. Friend the Member for Wansbeck said, it will cost pensioners £83 and people coming up to retirement £323.

May I just say how disappointing it was—

22:00

Debate interrupted (Programme Order this day).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the amendment be made.

22:00

Division 35

Ayes: 233

---

Labour: 222
Scottish National Party: 6
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Green Party: 1

Noes: 315

---

Conservative: 266
Liberal Democrat: 46
Democratic Unionist Party: 2

The Deputy Speaker then put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).

Clause 4

Personal allowances from 2013

Amendment proposed: 23, page 2, line 36, leave out clause 4.—(Rachel Reeves.)

Question put, That the amendment be made.

22:14

Division 36

Ayes: 236

---

Labour: 222
Scottish National Party: 6
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Democratic Unionist Party: 2
Conservative: 1
Green Party: 1

Noes: 312

---

Conservative: 263
Liberal Democrat: 48

Clause 8

High income child benefit charge

[Cathy Jamieson]

I beg to move amendment 24, page 5, line 4, leave out clause 8.

[Mr Deputy Speaker (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Amendment 25, page 134, line 2, leave out schedule 1.

Amendment 21, in schedule 1, page 138, line 10, leave out

‘in relation to the payments’

and insert

‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.

Amendment 22, page 139, line 10, leave out

‘in relation to the payments’

and insert

‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.

[Cathy Jamieson]

It is a pleasure to open the debate on these important amendments. I intend to pursue a theme that emerged earlier this evening—that of fairness to children, families and people who are feeling the squeeze as a result of the Government’s current policies—and also to discuss feedback from people who are concerned about the practicalities of the Government’s proposals on child benefit for higher-rate taxpayers, along with points that were raised by Members during that part of the Committee stage that took place on the Floor of the House.

When I spoke about this issue in Committee, I reminded Members that child benefit involved a number of important principles, not least the principle of universality, which Labour of course supports. Because I spoke at some length on that occasion, I do not intend to rehearse all the arguments again now, but I think it worth repeating that child benefit is supposed to benefit—literally—children and families. That fact has been lost at various points, but I hope that we shall be able to keep it in our minds tonight as we consider what the Government are proposing.

As I pointed out in the earlier debate, child benefit was designed to ensure that mothers—at that time, specifically mothers—had money paid into their purses regularly, so that they had a stable income that could be used for their families.

22:29

[Mr Edward Leigh (Gainsborough) (Con)]

Does the hon. Lady agree that child benefit as we have traditionally understood it has had one great advantage, in that not only does it recognise the role of women in bringing up children, but its universality has ensured that there is virtually no fraud or error, and nor does it in any way add to the unemployment or poverty trap?

[Cathy Jamieson]

I thank the hon. Gentleman for making that point. It is important to understand that the fact that this was a universal benefit ensured that everyone who ought to have had it and who needed it was able to get it. When we debated this topic in the House previously, some Members tried to characterise our concerns about these proposals as Labour trying to protect a universal benefit paid to high earners, rather than looking at the overall principled position, and some may try to do so again this evening. I should repeat what I said both earlier this evening and in that earlier debate: that kind of argument does not wash at all in terms of fairness from a Government who have given a tax cut to millionaires while millions of ordinary families are feeling the pinch.

During the earlier debate, I also reminded Members of article 27 of the United Nations convention on the rights of the child, which the UK has signed up to. It outlines the obligations on states to assist parents to meet the needs of their children, and I pointed out that a number of organisations—as well as a number of Members—had highlighted the importance of those obligations. Sadly, that exhortation to make this debate about fairness to children and families seems to have gone largely unheeded, apart from some honourable exceptions. There have been Westminster Hall debates looking at this issue in more detail, in which a number of Members highlighted both the unfairness of the proposals and their practical difficulties.

[Gordon Birtwistle (Burnley) (LD)]

Does the hon. Lady agree that it is unfair to expect a family in my constituency where the parents might work in manufacturing industry for about £8 an hour to be contributing from their taxes to pay benefits to people who earn over £50,000 a year?

[Cathy Jamieson]

Well, there were some robust exchanges on that issue in previous debates. If the hon. Gentleman feels that is a difficult point, I cannot understand why he does not also feel that it is unfair that people on the very top earnings—those earning millions of pounds each year—are to get a tax cut of £40,000 per year, instead of focusing on the needs of children. I find that extremely odd, and I shall say a little more about the unfairness of the proposals later.

[Mr Frank Field (Birkenhead) (Lab)]

Does my hon. Friend agree that the hon. Member for Burnley (Gordon Birtwistle) is mistaken? We are not talking about redistribution from poorer to richer people. When child benefit was introduced, it took over the function of child tax allowances. Its purpose was to maintain tax equity. That is why there was the element of free income regardless of whether people were on £8,000 a year or £80,000 a year. It made a distinction between those who were responsible for children at any given level of income, and those who were not.

[Cathy Jamieson]

I thank my right hon. Friend for that intervention, which explains the history extremely well. That is why I have focused so much on reminding us that this is supposed to be about children and doing the right thing by people who have the responsibility for caring for them, whether parents, or grandparents or other family members who may be entitled to claim the benefits. I hope to have enough time to be able to say a few words about that towards the end of my contribution.

The Government did revise the original proposal, but that revision has not gone far enough to deal with the inherent unfairness. The revised proposal will affect about 1.2 million families, of whom it is estimated that some 70%—790,000 couples and 30,000 lone parents in 2013-14—will lose the full amount of their child benefit. A further 330,000 couples and 20,000 lone parents affected by the charge in 2013-14 will lose a proportion of their child benefit. The average loss for those who are going to lose out is estimated at about £1,300 a year. In a previous debate, I highlighted the difficulty for families who are going to lose about £500 a year because of other changes that have been made. That £1,300 is a very significant amount for anyone caring for children in today’s economic climate.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Of course my hon. Friend is absolutely right about the unfairness of this proposal. We hear statements from the Government about the complexity of the tax system, so does she not find it surprising that they have come up with a proposal that increases complexity in the taxation system, as well as unfairness?

[Cathy Jamieson]

Again, my hon. Friend makes a valid point, and I shall deal with it in detail in a moment or two. Strangely, given everything else that the Government have supposedly wrapped up to try to make anomalies disappear, we know that sometimes even more anomalies have been created as well as unfairness. In trying to simplify things, they have actually made them more complicated.

In the Committee of the whole House, I raised issues about the principle and about the costs. It is important to have those firmly stated on the record, because the Government have estimated that the additional cost to Her Majesty’s Revenue and Customs over the first five years will between £8 million and £13 million for the computer system—the development and running costs—about £100 million for staff resources and £5 million for customer information. I asked the Minister in that debate for some further information on that. Some further parliamentary questions since then elicited more information, particularly on how much would be spent on marketing the new system. However, having looked at all this again in great detail, I must say that in my opinion and in that of Labour Members, it is not marketing that is needed at this point in time to make a bad policy and an incoherent change to the taxation system palatable to people, but a change of policy to make sure that whatever is done is fair and workable, and will not cause any further problems.

Despite exhortations from Government Members for further changes, those with incomes above £50,000 will have their child benefit withdrawn at 1% for each £100 of income from January 2013. That means that there will be no child benefit entitlement for families where any earner has an income of more than £60,000. As I said in Committee, although the changes that the Government have made are a small step forward, they do not deal with that inherent and fundamental unfairness. That is because they still leave the scenario where a couple with children where one earner is on £60,000 and the other is on £10,000 lose all their benefit, whereas a dual-earner couple on £49,000 each keeps it all. We still do not see how that is fair.

It is not just Labour Members who are saying that there is a problem. Irrespective of someone’s views on whether this is a fair system or whether they support the principle of what the Government are trying to do, which I do not, there remain a number of issues that others have raised. These points will not be new to the Minister, but I am outlining them once again because they have not been adequately addressed during the consideration of the Bill. The most recent information that has come from the Institute of Chartered Accountants in England and Wales makes things clear. It states:

“While this Bill makes some steps in the direction of tax simplification, many of the measures introduce yet more complexity and taken overall the Bill does little to simplify the UK’s complicated tax system. The child benefit reforms…create considerable cost, confusion and complexity.”

It is also concerned about the Bill in general and states that

“the valuable lessons in drafting style produced by the Tax Law Rewrite project have been lost.”

I mentioned that earlier in our consideration of the Bill. As so much of the Bill is made up of complicated schedules and guidance and as it is the longest finance Bill ever, we must question whether we have had the opportunity to carry out all of the scrutiny, even though we did our best in Committee.

People who have to operate the provisions are concerned that they might need to be amended in the light of experience to ensure that they all work properly together and do not end up having further unintended consequences. Essentially, we are using the amendments to ask for clause 8 and schedule 1 to be withdrawn because we believe that the changes are flawed and unfair. That has also been pointed out by the ICAEW, which was straightforward and blunt in its language, stating that there could be a “reputational and operational disaster” for the Government and for HMRC. Those criticisms were largely reported and we have had the opportunity to listen to them in our debates.

We share the ICAEW’s disappointment that the Government have not tabled more workable proposals in time for our final consideration of the Bill. I would hope that even at this stage the Government will at least be able to give us some answers to the criticisms that have been raised or to accept that their plan is not only unfair but risks being unworkable.

The criticisms highlight the fact that

“the phased withdrawal for those earning between £50-60,0000 will be difficult to implement, open to error and potentially costly for HMRC to administer and for taxpayers to comply with.”

As those critics have said:

“The trouble is that an income tax system based on taxation of individuals, does not work properly if it has to cope with benefits that apply to a household”

such as tax credits

“or potentially to another person”

such as child benefit. The real concern is that:

“The phased withdrawal will not work well with the PAYE system.”

A considerable amount of concern has been expressed that the

“‘sliding scale’ approach to tapering down the benefit makes the system much more complicated.”

It has been described as “perverse” that such an approach is being removed for higher personal tax allowances for those aged over 65 on the grounds that this will help to simplify the system at the same time as a form of it is being re-introduced for the withdrawal of child benefit. That does not seem to be a consistent policy approach.

A further criticism is that the implementation timing is odd, with a start date of January 2013 that does not align with the start of the income tax year on 6 April. Concern has been raised that that

“could trigger many unexpected tax bills at the end of the tax year, as many more taxpayers will be brought into self-assessment.”

I do not think that the public have yet caught up with what they will be required to do.

The system is also

“unlikely to cope efficiently if families change or break up”

and we had a considerable amount of discussion on that question during the previous debate. As we all know, family formations change over time. Couples form, the people involved might have children from previous relationships and so on. There is real concern that

“The confusion caused by the new system could hit tax compliance, and undermine confidence in the tax system at a time when the employers are also having to implement the Real Time Information scheme for PAYE.”

On top of the criticisms set out by the ICAEW, the Chartered Institute of Taxation has raised a number of concerns. I hope that the Minister will be able to give an answer to some of these points about the complexity of the scheme. The institute’s concern is that

“ a high degree of complexity—for both HMRC and taxpayers—into what has hitherto been a straightforward benefit with practically universal take-up”

is now being introduced. It also believes:

“If the legislation is to be implemented, there are many issues that need to be resolved”

and that that should happen well before the new charges go live. Given the timing of the implementation of these provisions, there is not a huge amount of time to sort out any of the anomalies. I hope that the Minister can say something on that point. [Interruption.] I heard someone say “six months”. If it is believed that all this can be sorted out in that time, I would like to hear it from the Minister, because many of us have experienced cases where, with the best of intentions, and with support on all sides, fairly complicated systems—new computer programmes and so on—let alone systems of this complexity, have not worked.

22:45

The administrative burden that the new charge places on Her Majesty’s Revenue and Customs is not to be underestimated. We also have concerns about staffing levels, and about the support that will be in place to ensure that the new system, if it goes ahead, is communicated to taxpayers, and that people are helped not only to understand the theory but to work their way through the system in practice. A number of people will have serious concerns about that.

In Committee of the whole House, I questioned the Minister on points that have been raised about the definition of “partner”; I understand that it is the first time that the term has been used in this type of legislation, rather than the terms “spouse” or “civil partner”. We had a bit of debate about when relationships start and end. It is, of course, inherently difficult to define the exact point at which a household comes together or ceases, especially where it has evolved over time. Some people will be unmarried but

“living together as husband and wife”,

which is described in the Bill as condition B, or

“as if they were civil partners”,

which is condition D. Will HMRC use data from third parties to gather information on living arrangements, as is done for tax credits? Those are serious points that people raised when the proposals were first put forward.

Further concerns have been raised about the determination of income and the timely determination of the liability to pay the charges. It may seem that we have moved away a bit from the impact of the benefit on children and on to what will happen to families more widely, but these are concerns that have been raised by people who will have to give advice about, and look at the operation of, the scheme. It is important to mention the concerns, because that is why we have tabled a number of technical amendments.

A charge is to be levied on households in receipt of child benefit in which there is a taxpayer whose income in the tax year exceeds £50,000, as we have heard. Taxpayers are required to notify HMRC of their liability to the charge by 6 October following the tax year in question. However, self-assessment taxpayers are not required to submit their tax returns until the following January. The January deadline is set so late because those with complex or multiple sources of earnings may not know their earnings for the previous tax year until that point; that is an anomaly. How reasonable is it to require someone to declare their liability to pay the charge when that is dependent on their income, which they are not required to calculate for a further three months? That was one of the arguments for trying better to align the two systems, if the change goes ahead.

[Helen Goodman (Bishop Auckland) (Lab)]

Is my hon. Friend saying that if a person’s income fluctuates during the year, but they do not know that it is fluctuating, and do not know the full amount of their income until the end of the year, the child benefit will be treated by one set of rules, whereas if they know how their income is fluctuating and whether they are moving in and out of the zone in which the charge applies, they will be treated in another way?

[Cathy Jamieson]

Yes, my hon. Friend has got the situation exactly right; that is the problem as it has been described. As for people who may elect not to receive the benefit, the Government’s proposals make it difficult for people who do not know what their earnings will be over a particular time to make that judgment.

A number of issues have been raised to do with how one would determine the higher-income person in a relationship. The measure raises a number of complex issues to do with independent taxation and taxpayer confidentiality. I know the subject has been raised with the Minister. My understanding is that HMRC will tell the couple which person had the higher income and is therefore subject to the new charge. As I outlined previously, I can see some difficulties associated with this. Not only does an individual need to know about their partner’s income, but they would need to know whether their partner has claimed child benefit and whether the partner has elected not to receive the benefit.

This will be particularly important where a couple are not on speaking terms. That does happen. It may not seem like it when everything is cosy in the coalition, but there are relationships in which people are not on speaking terms or where they have separated. In those circumstances, we need to be clear about what HMRC intends to do to inform a partner whether the other has made an election not to receive child benefit. Will they be advised, should the partner subsequently revoke that election?

There are potentially Catch-22 situations, particularly in relation to self-assessment and submitting the returns. Far from simplifying the system, which was straightforward and understood by everyone and which made it easy for people to claim, we seem to be making it far more complicated.

I want to raise, briefly, the issue of extended families. There are concerns that there may be contentious cases where different people claim entitlement to child benefit—for example, where parents are unable to look after the children and perhaps grandparents take over that role. We know the valuable role that grandparents can play in those circumstances, often at considerable cost to themselves. There could be situations where a parent continues to receive child benefit, although the child lives with the grandparents. If one or both grandparents have adjusted net income over £50,000, under the relevant provisions of the Bill, the higher-earning one would be liable for the higher child benefit payment, even though the grandparents are not necessarily at that point receiving the child benefit and could even be in dispute with the recipients.

These are some of the practical problems that come into play when we look at how people live their lives. I have mentioned the issue of timing. Perhaps the Minister can answer that. The issue of national insurance credits was raised in the Committee of the whole House. Although the Minister went some way towards explaining the situation and giving reassurance, it would be helpful to hear that stated here this evening.

I shall spend a moment on the problem of electing not to receive child benefit and revoking the election. Where one party to a relationship has an income in excess of £60,000, it seems that HMRC would like to encourage the child benefit claimant to claim the child benefit but to elect not to receive it, because that somehow makes everything neater. HMRC would stop paying out the child benefit, which would reduce the need for the higher earner to join self-assessment and to pay their tax. Those who expect their income to be more than £60,000, apply for child benefit and elect not to receive it, yet subsequently realise that their income for the year is likely to be between £50,000 and £60,000, could lose out unless there are some changes to the legislation.

It is important to place on the record that it is not only the Labour Opposition who oppose what the Government are doing. People who understand the tax system and want to see it improved, such as the Chartered Institute of Taxation, say that ideally the clause and the schedule should be withdrawn and a fresh consultation launched, with a view to coming up with a more workable alternative to the current proposals. We have tabled a couple of amendments to test the Minister’s view on whether that is needed. It has been suggested that these are needed to assist in the situation where people elect whether or not to receive child benefit.

The amendments would put all claimants not subject to 100% high income child benefit charge on the same footing as other claimants able to make a revocation, so this might be easier, it is argued, for HMRC staff to understand and implement. There is a clear distinction between people who elect not to have payments and then find that their income is under £50,000, and those who elect not to have payments and find that their income was between £50,000 and £60,000. The Bill copes with the former, but not with the latter.

I can see people’s eyes beginning to glaze over at these technicalities. Hon. Members in all parts of the House no doubt want me to bring my remarks to a close. [Interruption.] It is good that we all agree on something. These points are very important.

To return to what I said at the outset, if we make the situation more complicated, cause more confusion and make it less likely that people will know whether they qualify for the benefit, that will not be helpful for families, it will certainly not be helpful for children and, I would argue, it will not be helpful for Ministers, because it is they who will have to come back to fix the problem later.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. As hon. Members can see, a number of Members are standing and wish to contribute in what is a relatively short space of time, and the Minister still needs to respond, so please be mindful of other Members when making contributions.

[Mark Field (Cities of London and Westminster) (Con)]

I must confess that I support the principle behind the clause but share many of the concerns expressed by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about its practicality. However, I accept that there is an overriding need to reduce the vast fiscal deficit, and all of us who feel that way must look at the provisions, whether in the Budget or elsewhere, and support what is being done to try to get the deficit down. Apart from everything else, it is a moral case: we cannot pass these huge debts on to the next generation. Even now, in an era that the Opposition have identified as one of austerity and savage cuts, the Government are borrowing £1 in every £5 they spend.

There is an absolute crisis in the welfare state and we must wean ourselves off this huge amount of public expenditure at the earliest opportunity. One of the most important areas to look at is that of universal benefits, particularly universal middle-class benefits, which must be up for consideration. Housing benefit, which has been discussed, and child benefit are certainly important. I believe that wealthy pensioners should not get free TV licences, bus passes or winter fuel allowances, although I accept the political difficulty of that, given the promises made just before the general election.

The Minister is an intelligent man and must realise that the practicalities of the system will make it an absolute nightmare. The hon. Member for Kilmarnock and Loudoun has made quite clear how she feels about it, but let us for once in politics be wise before the event, rather than after it.

[Nadine Dorries (Mid Bedfordshire) (Con)]

My hon. Friend talks about the practicalities of the system, but is he aware that there is no practical mechanism by which wealthy parents can opt out of the system if they do not want to claim child benefit?

[Mark Field]

There will be by next January, because they will not qualify for it.

The broader issue is that there is a risk that the proposal is potentially a penalty on aspiration for those who earn roughly between £50,000 and £60,000 a year. It is a disincentive for families with one parent who stays at home to look after children. What of the broader tax incentives? One of the reasons I am so keen on reducing the higher rate of tax to 45% is that I think there is a mass incentive in having lower rates of tax, yet the concern for those earning between £50,000 and £60,000 who have three children is that they will be paying a marginal rate, often of over 60%, which does not seem to be a sensible way forward. Those are the theoretical issues.

There are a number of major practical issues that the Minister will have to look at. This system will be incredibly difficult to implement. The reality is that many people now earn consulting income and do not know nine months into a year, let alone at the beginning, whether they will earn between £50,000 and £60,000. We will see some strange disincentives that will encourage people to arrange for invoices to go out just after the financial year, so that one year they earn £49,000 and the next they earn £80,000 or £90,000. It strikes me that much of this will rely on IT systems, which have been a reputational nightmare for both HMRC and the Treasury. I think that this system will be very tough to administer. As has been mentioned, the implementation will be in January, rather than, as normal, at the beginning of the tax year, which will make for additional difficulty.

I want this to work. I think that all of us who want to see the deficit reduced want to see Budget measures working well for the Treasury and HMRC. My biggest concern is that we will end up returning to the House, perhaps in January or slightly later next year, at the beginning of the next tax year, recognising a system that is going to be discredited, not least because huge amounts of money will be uncollected and, if the schemes goes ahead, because large amounts will have to be repaid.

23:00

We know—we can see—that there are huge practical difficulties, and, although I fully support the idea of getting the deficit down, I wonder why we cannot look at a simpler system that, for example, limits child benefit only to two or, perhaps, to three children. I am the father of two children, and I know the Minister is the father of three, but there is no particular self-interest here. We need a more straightforward and simple system; one that is easy to calculate and to understand.

[Helen Goodman]

One reason for not taking up the proposal is that one group in society which is most likely to be in child poverty is children in families with lots of children.

[Mark Field]

I accept that, but we are looking for a simple system—[Interruption.] No, the issue at stake is trying to find a straightforward and simple system that bears down on the idea of universality, which we should try to do if our welfare system is to retain any credit.

I hope that even at this late stage the Minister will give some thought to the matter. I work on the basis that I want the measure to work, but nothing would undermine our tax system more than the benefit before us being undermined, as many of us fear, through the practical difficulties that are almost inevitable. Let us for once, as I say, be wise before the event.

[Helen Goodman]

Normally, one begins a speech by saying what a pleasure it is to speak, but it is not a pleasure to speak in this debate; it is a great disappointment. This is the third time that I have spoken about the problem with the child benefit proposals in the Budget that the Chancellor of the Exchequer announced.

The first time I spoke I thought that there were four arguments against the Government’s proposals; I now discover that there are 14. First, there is the impact on distribution and horizontal equity, the point well expressed by my right hon. Friend the Member for Birkenhead (Mr Field). The Institute for Fiscal Studies’ independent analysis of the impact of changes made by the Budget looked at households with and without children, and households with children are losing most. From all the changes in the current year, households with children will lose 1.3% of their annual net income compared with 0.5% for those without children.

On the changes implemented so far, the loss is 3.5% for households with children and 2.1% only for working-age households without children. By 2014 there will still be inequity between households with children and households without. By then, even assuming that universal credit is as good as the Government say it will be, which I doubt, households with children will have lost 3.7% of their income—£1,411 on average—whereas those without children will have lost 2%, or £646 a year. How it can be fair to take more money from families with children than from those without, I do not know.

There is clearly also unfairness among those people who are just above and just below the thresholds, and among families in which one person earns £50,000 and those in which two people earn £40,000. We have discussed all that before.

New problems have emerged since we debated the issue. There is the possibility of people planning their tax to avoid the charge; administrative problems have been referred to; and we have repeatedly asked the Minister how he will preserve independent taxation, given the implications for it. That point has been raised to a significant extent by the professions; the Chartered Institute of Taxation and the Office of Tax Simplification are very concerned about the issue.

One thing that is not at all clear is how Ministers intend to implement the measure, given that, as far as I can see—the Minister can correct me if he wants—in schedule 1 there is no obligation on people to share information about their incomes, so it will be extremely difficult for people to know what is going on. The Minister is calm about that, but given that families’ incomes and circumstances change over time, the measure is highly likely to lead to a large number of practical difficulties.

Another thing that is odd from a Government who claim to be in favour of the family is that they are introducing a charge that is, in effect, a couple penalty. At one stroke of a pen, they have achieved both a penalty for couples and the destruction of the independent taxation of women. It is a masterstroke of its kind.

[Nadine Dorries]

Does the hon. Lady agree that many couples with no children object hugely to their taxation going towards families who decide to have large numbers of children? The proposal made by my hon. Friend the Member for Cities of London and Westminster (Mark Field)—that the cap should be at two or three children—strikes a fair and moral balance.

[Helen Goodman]

As I explained to her hon. Friend, I do not think it strikes a good balance because the children who live in families with lots of siblings are the children who live in poverty. I know that Conservative Members are not as committed to addressing child poverty as were the last Labour Government, and we will see the results of that as we go through this Parliament. I regret that. I am surprised that the hon. Lady, who is in general a practical, well-rooted person, does not see the power of that point.

Another issue is the fiddly definitions of partnerships and the difficulty that Ministers will have in establishing what those are for the purposes of the measure. The measure is both administratively fiddly and extraordinarily mean. It will affect more than 1 million families; about 1 million people are going to lose £1,300 a year. That is a significant sum and I wish that the Government would take more seriously both the practical and the fairness arguments that we are making.

The Minister has still not addressed one final issue: people who at the moment get national insurance credits by claiming child benefit. They will lose their national insurance credits, which will impact on their pension entitlements for many years to come.

I hope that the Minister, even at this last stage, will have a last-minute conversion.

[Mr Stewart Jackson (Peterborough) (Con)]

I say gently to the hon. Member for Bishop Auckland (Helen Goodman) that it is incumbent on her party to offer suggestions for alternative sources of funding, rather than the endless criticism. I speak as someone who is generally extremely sceptical of the policy, but alternatives came there none from the Opposition. Even the alternative offered by my hon. Friend the Member for Cities of London and Westminster (Mark Field) was cursorily rejected by the hon. Lady.

I have been consistent on the issue since it first arose at the end of 2010, following the Chancellor of the Exchequer’s announcement. It would be churlish and unfair of me not to concede that he took on board the issue of the cliff-edge effect. He sought to ameliorate that perverse issue with the taper system, which was broadly supported on the Government Benches.

Apart from administrative issues, there are a number of other criticisms that were comprehensively covered by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). For example, the Government are not abiding by their own tax consultation policy. My hon. Friend the Exchequer Secretary, who is proud to have been the tax personality of 2010, launched a document called “Tax policy making: a new approach” in June 2010. He also responded to the public consultation of December 2010, which called for thorough consultation and cost-benefit analysis and impact assessments for key stakeholders. That has not happened in the case of this change, which will affect 790,000 couples and 30,000 lone parents who will lose the entirety of their child benefit allocation, and 330,000 couples and 20,000 lone parents who will lose some of it. That is a major problem. Apart from the lack of consultation, we still have the unfair situation that a single-earner couple earning just above the threshold rate, which was then £42,475, will lose child benefit, but a two-earner couple earning just under that amount will receive it in full. That has not been properly addressed.

As my hon. Friend said, we have a moral responsibility to focus on clearing up the deficit left to us by the previous Administration, but this proposal, in particular, fails on the grounds of fairness. How can it be right? It will send the message that ambition is wrong, that the basic tenets of fairness will be disregarded, and that there will be a perverse anti-marriage and anti-home maker bias and an attack on hard work, ambition and family responsibilities.

The policy means that a two-earner couple with two children on a combined income of £100,000 will keep their child benefit while a one-earner family with two children on just over £50,000 begin to lose it and, if their income rises to £60,000, lose it completely. The former household is already far higher up the income distribution yet keeps its child benefit, while the latter household, which is lower down the income distribution, loses it. Let us remember that this proposal was predicated on clobbering the top 15% of the income distribution, but it does nothing of the sort. Only if the family has one child will they be in the eighth decile of the income distribution; if they have two, three, four or more children, they will, largely speaking, be skewed towards the middle. We are not clobbering the richest in society; we are clobbering people who want to do well and are ambitious and aspirational. Unfortunately, that will have perverse consequences that will backfire on this Government politically and in terms of what is needed to make sure that the administration of the system works properly.

This issue is inextricably linked to the popular commitment that we made in the 2010 general election to give a tax break for marriage and families, which we have not yet carried through. We need to keep faith with that, particularly as the coalition agreement guaranteed the Liberal Democrats, who had some ideological problems with it, the chance to abstain. If the Government want to keep the faith with the people who elected us as Conservative Members of Parliament, they should make sure that that is in the pipeline now, because after April 2013 administrative difficulties with IT systems might preclude its coming to fruition.

In terms of cash in the pocket and real tax bills, a one-earner, two-child family earning £60,000 currently pays £13,950 in tax per annum while a two-earner, two-child household with each person earning £30,000 pays just £8,768. That difference will increase substantially as a result of these tax changes. The first family will see their bill rise to £15,667, meaning that there will be a substantial difference of 59% between the tax paid by the two families.

23:15

[Nadine Dorries]

To go back to the point made by the hon. Member for Bishop Auckland (Helen Goodman), there are more financially astute means of dealing with child poverty and with large numbers of children than a universal benefit in the form of child benefit.

[Mr Jackson]

My hon. Friend makes an important and astute point, which is that the Rolls-Royce minds at the Treasury, of whom the hon. Member for Bishop Auckland (Helen Goodman) was one, can surely find alternative methods to collect income. We know that the deficit is a problem that the Government have to grapple with, mainly because of the splurge of public expenditure under the last Government and the debt millstone that they left. We must look at all the alternatives, including putting a cap on the number of children, such as two or three. Incidentally, that policy is hugely popular with the public, according to polls taken in the past few weeks.

The higher income child benefit charge fails on at least two bases. First, it is transparently unfair, because it treats families on lower incomes more harshly than those on higher incomes, merely because of the way in which the incomes come to them. Secondly, in the distinctions that it makes, it discriminates between different types of families in a way that is profoundly unenlightened and completely unacceptable. I urge Treasury Ministers to think carefully about the alternatives. This is a potential disaster in the making. It is unfair. I ask them to think again.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I will have to bring the Back-Bench speeches to an end at 19 minutes past, so there are three minutes left.

[Kelvin Hopkins]

I strongly support the brilliant speeches of my hon. Friends the Members for Kilmarnock and Loudoun (Cathy Jamieson) and for Bishop Auckland (Helen Goodman). There are clearly qualms on the Conservative Benches about this disastrous policy.

I had the privilege of being at the TUC general council 37 years ago as a staff member when the original policy was approved by the TUC general council. At that time, we had the social contract between the TUC and the Labour Government, which I think was a brilliant success. Harry Urwin, the deputy general secretary of the Transport and General Workers Union, argued the case against some trade unionists who were concerned about a tax allowance, which would tend to go to male workers, being given through a universal benefit largely to women for their children. It was a massively progressive policy and was the right thing to do. It was in line with the principles of universality established by Beveridge and many brilliant social scientists and theorists later on, such as Richard Titmuss. It was of enormous benefit to families and children.

The hon. Member for Mid Bedfordshire (Nadine Dorries), my nextdoor neighbour, talked about punishing children for the sins of their parents. If their parents, by accident or design, have large families, it is not the fault of the children. The money goes to the children, not to the parents. To punish the children for what their parents have done, by accident or design, is completely wrong.

The principle of universality is rightly carried through in the basic state pension, the winter fuel allowance and a number of other things. If we want to redistribute income, we do it through the taxation system, not with means-tested benefits. We talk about trying to get people back into work. If they receive means-tested benefits, they lose them when they get back into work. Sometimes it is cheaper to stay at home and claim benefits than to go to work. Universal benefits do not have that problem, because everything else comes as extra.

My hon. Friend the Member for Kilmarnock and Loudoun is right, our amendments are right and I hope that the House will carry them.

[Mr Gauke]

Clause 8 introduces a new income tax charge that will be used to withdraw child benefit from a claimant or their partner who receives income of more than £50,000. The charge will reduce the cost of child benefit to the Exchequer while protecting those on low incomes. This measure, like so many others, is a consequence of the previous Government’s profligacy. We are having to make these decisions because of the budget deficit that we inherited—the largest in peacetime history. Unfortunately, it is the British people who have to pay for the debt left by the last Administration. Without addressing the deficit we will face sterner economic conditions, so we are having to ask for more. However, we will do that in a way that is both fair and reasonable, and this measure will ensure that those on low incomes will remain unaffected and those with the broadest shoulders will bear the greatest burden.

Although reconsidering the universality of child benefit was never our first choice, it is the position we have been left. I recognise that many people are concerned about the change and believe that child benefit must somehow be sacrosanct. However, it simply is not fair that an individual who earns £15,000, £20,000 or £25,000 should pay for benefits for those earning £80,000, £90,000 or £100,000. When a Government need to raise revenue, it makes sense to turn to a measure with a broad base and significant numbers of recipients who do not rely on the additional payment that they receive. Child benefit is just such a payment. The steps that we are taking will raise £1.8 billion for the Exchequer by 2014-15.

[Mr Leigh]

What conceivable political point is there in a Conservative Government attacking 1 million of our own people—hard-working people on middle incomes and families in which someone, usually a woman, wants to stay at home to look after a child? What are a Conservative Government doing?

[Mr Gauke]

Speaking as a Conservative, I consider that all the British people are our people.

By raising £1.8 billion by 2014-15, we will ensure that those with the broadest shoulders bear the greatest burden. That was why my right hon. Friend the Chancellor announced that we would seek to withdraw child benefit from higher rate taxpayers. We always said that we would consider ways to implement the measure, but we have been clear that a complicated new means-testing system, which is what would happen if we extended the tax credits system in the way that some have proposed, would not be a sensible way forward. Instead, we should look to existing systems and processes to ensure that we can achieve our goal.

Clause 8 withdraws financial gain from child benefit from families in which one partner has an income of more than £60,000, and reduces the gain if one partner has an income of more than £50,000. It does so in the most efficient and pragmatic way possible, applying a tax charge on those high earners using existing processes. That charge will apply to an individual in receipt of child benefit, or to their partner if they are married or in a civil partnership or living as if they were married or in a civil partnership—a point that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) made. That is an existing definition of partners within social security legislation and means that other adults living in the household will not affect the liability.

The changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. Some 85% of families receiving child benefit, or 7 million families, need not be troubled by the changes. If an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. Child benefit will be withdrawn in full only at an income of £60,000. Furthermore, the thresholds between which the taper will operate will not depend on the number of children.

The changes will take effect from 7 January 2013, and the individuals affected will include information relating to the charge on their self-assessment returns for the first time for the tax year 2012-13. The first payments of the charge will be due by 31 January 2014 if a taxpayer chooses to pay in a lump sum. Those affected will be able to opt out of child benefit payments—that answers a question that my hon. Friend the Member for Mid Bedfordshire (Nadine Dorries) asked. Some may wish to do so, although Her Majesty’s Revenue and Customs will set out clearly the options and implications. For example, if an individual’s income were to fall below £60,000, they may revoke their election not to receive child benefit, and payments would be resumed.

[Mr Stewart Jackson]

If my hon. Friend is going to consider the efficacy of different policies, will the Treasury undertake to consider alternative sources of funding as a corollary to this change, such as a cap on the number of eligible children?

[Mr Gauke]

My hon. Friend and other hon. Members have made the case for a cap on the number of children receiving child benefit. I hear his point about an alternative policy, but we must ensure that the child benefit regime provides support for those who need it most. The policy for which we are legislating maintains that principle—those on the lowest income will retain support.

The Government strongly discourage anyone from not registering for child benefit on the birth of their child, even if they decide to opt out of receiving payments. The child benefit system does not process only child benefit, and failing to register can affect state pension entitlement and make it less straightforward for the child to receive a national insurance number when they turn 16. It is therefore important that children remain registered.

Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary. As I have said, the legislation provides a claimant whose income, or whose partner’s income, is more than £50,000 with the opportunity to elect not to be paid child benefit, so they are not liable for the high income child benefit tax charge. A claimant who has elected not to be paid child benefit can subsequently revoke that election and ask HMRC to reinstate payment of child benefit.

The payment of child benefit would then normally be made from the first pay day after the revocation has been received by HMRC, and not from the date when child benefit was first stopped. That is because it would make no sense to pay arrears of child benefit to those whose income, or whose partner’s income, is more than £60,000. However, the legislation provides for retrospective revocation when a claimant discovers that, contrary to their original expectations, they do not have an income of £50,000 or above. That retrospection will be limited to two years after the end of the tax year to which the original election applies. That means that child benefit can be paid for up to that two-year period.

When a child benefit claimant or their partner has income of between £50,000 and £60,000, the decision whether to elect to receive child benefit is not so clear cut, because the amount of the tax charge is dependent on their income. HMRC recognises that a couple might be nervous about making an election if a later decision to revoke the election would apply only to future payments, leaving them worse off. The legislation provides HMRC with the power to issue directions as to how the election process will be administered. I hope I have cleared up that point.

Let me try to deal with the few remaining points. Draft guidance is being prepared over the summer, during which time HMRC will consult external representatives, including the Social Security Advisory Committee and the HMRC benefits and credits consultation group. The directions will confirm that an election that has been made by a claimant whose income or whose partner’s income is between £50,000 and £60,000 can be revoked retrospectively, to the point at which the child benefit ceased.

I have dealt with this point on the state pension, but it is possible to be registered even if people are not receiving cash. I have also dealt with the point on the definition of partners used in the Bill. As for the argument that the measure is complicated, we have looked at alternatives, but we think the measure is the best available to us. On the principle of individual taxation, HMRC is committed to protecting confidentiality. For taxpayers who are unable to discuss their incomes with each other, HMRC will develop a process with appropriate security checks so that they can answer yes or no to simple questions about the income of their partner.

As I have said, the Government have had to make difficult decisions. The measure means we can continue to provide child benefit, and so, in a sustainable manner, protect those who need it the most. We accept that this is not an ideal situation, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament. I urge the Opposition to withdraw their amendment.

[Cathy Jamieson]

In the very short time available, I want to say that we will press amendment 24 to a Division, although I accept what the Exchequer Secretary said about amendments 21 and 22 not being necessary. The only other point I would make is that it seems odd for him to say that he did not want a more complicated means-test system and then to introduce an extremely complex taxation system. It does not make any sense, and does not pass the test of competence or the test of fairness.

Question put, That the amendment be made.

23:29

Division 37

Ayes: 234

---

Labour: 215
Conservative: 8
Scottish National Party: 6
Social Democratic & Labour Party: 2
Democratic Unionist Party: 2
Plaid Cymru: 1
Green Party: 1

Noes: 300

---

Conservative: 251
Liberal Democrat: 49

Bill to be further considered tomorrow.

Business without Debate

Monday 2nd July 2012 Commons Chamber

delegated legislation

Monday 2nd July 2012 Commons Chamber

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Public Bodies

That the draft Advisory Committee on Hazardous Substances (Abolition) Order 2012, which was laid before this House on 27 February 2012, in the previous Session of Parliament, be approved.—(Mr Dunne.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Education

That the draft Office of Qualifications and Examination Regulation (Determination of Turnover for Monetary Penalties) Order 2012, which was laid before this House on 15 May, be approved.— (Mr Dunne.)

Question agreed to.

Delegated legislation (committees)

Monday 2nd July 2012 Commons Chamber

Ordered,

That the Motion in the name of Secretary Jeremy Hunt relating to Financial Assistance to Industry shall be treated as if it related to an instrument subject to the provisions of Standing Order No. 118 (Delegated Legislation Committees) in respect of which notice has been given that the instrument be approved.— (Mr Newmark.)

Beer Duty Escalator

Monday 2nd July 2012 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Mr Newmark.)

23:42

[Gavin Williamson (South Staffordshire) (Con)]

It is a great privilege to have secured this debate this evening. It is an even greater pleasure to see so many hon. Members in their places as we start this Adjournment debate at this late hour. One could say that an Adjournment debate is akin to an after-hours lock-in, but probably without so much pleasure or enjoyment. We are all here because we care passionately about both the brewing industry and, of course, our pubs right across our constituencies and across the nation. We care about them because we know they are part of the fabric of our nation. We all have concerns about the beer duty escalator and the impact it is having on the many pubs and breweries across the land.

We have to go back to 2008 to see the introduction by the last Labour Government of the beer duty escalator, which saw beer duty rise by inflation plus 2% each year. This, sadly, has been carried on, and it is having a detrimental impact on our pubs and breweries.

[James Wharton (Stockton South) (Con)]

My hon. Friend makes a very good point, and I congratulate him on securing this important debate. He will be aware that it has been predicted by the British Beer and Pub Association that the escalator could cost as many as 5,000 jobs. When he talks about a detrimental impact, does he think it important for the House to recognise just how significant that detrimental impact could be on such an important industry?

[Gavin Williamson]

My hon. Friend makes a valid point about the impact on jobs in the industry of the beer duty escalator, which I was coming on to. In my constituency of South Staffordshire, 1,286 people are employed in breweries and pubs—whether in the fantastic brewery of Enville, the brewery of Kinver, the Morton brewery in Essington, the Marston’s brewery in neighbouring Wolverhampton, or in the 86 pubs scattered across the constituency. Unfortunately, however, these pubs have declined in the last few years, and I am afraid that the beer duty escalator has had an impact in that respect.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Does my hon. Friend agree that a sensible way of helping pubs might be to lower the duty on draught beer but raise it on canned beer?

[Gavin Williamson]

My hon. Friend is not known as a visionary—I believe that his new wife often refers to him thus—for nothing. I hope that the Minister is noting his ideas eagerly, and will recommend them to the Treasury as a host of examples of radical new thinking that could improve and support our breweries and pubs.

[Greg Mulholland (Leeds North West) (LD)]

I congratulate my hon. Friend on securing this debate, and assure him that his cause has the full support of the all-party parliamentary save the pub group.

Pubs pay even more tax per pint because of the other forms of tax to which they are subject. I fully support my hon. Friend’s proposal—indeed, I think that a separate duty should apply to real ale, which requires an increased cost of production and increased cellarmanship—but there is also a problem with European legislation. Rather than saying that we should not challenge that legislation, should not Ministers convey to Europe the message that it could do something important that would greatly help not only our brewing industry but our pubs?

[Gavin Williamson]

It is always welcome when a Liberal Democrat speaks so vociferously against the European Union. I thank the hon. Gentleman, who has fought so hard for pubs not just in his constituency but throughout the country.

Almost 1 million jobs in the United Kingdom are generated by the UK beer and pub industry, which affects all our constituencies, including that of the Economic Secretary to the Treasury, my hon. Friend the Member for Norwich North (Miss Smith). Some 550 people work in the industry there, and I am sure that, like the rest of us, my hon. Friend wants the number to increase.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I am trying to extend the debate to the Opposition Benches. Although my local brewer, Fuller, Smith and Turner, is internationally famous, it is still a family firm, but last year it paid 37% of its turnover—not its profit—in tax, and beer duty will rise by 27% during the current Parliament. Should not the Government take notice of that?

[Gavin Williamson]

The hon. Gentleman has made an important point about how difficult it is for many pub and brewing companies to invest more money in generating new jobs and products in a sector in which we are world leaders. We in the United Kingdom are clearly paying far more duty than the European average. Although we consume only 13% of the beer consumed in the European Union, we pay 40% of the tax bill. I do not often talk about the need for European harmonisation, but I should like us to harmonise with the Germans, who only pay a tenth as much beer duty on their pints. Perhaps we should explore that idea further.

[Mr Robin Walker (Worcester) (Con)]

My hon. Friend mentioned new products a moment ago. The Firefly, a pub in Worcester, recently embarked on the first new brewing venture in the city for 16 years. I am sure that the pub, and Worcestershire, would support my hon. Friend’s campaign.

[Gavin Williamson]

My hon. Friend has made a valid point. Not only is everyone in South Staffordshire rooting for the ending of the beer duty escalator, but so are those in the great county town of Worcester. Obviously their pubs are not as fantastic as those in South Staffordshire, but we all have our crosses to bear in life.

We recognise that the Government face a great challenge. It is not easy to do what they are doing, and Treasury Ministers carry a burden on their shoulders that I am sure none of us on the Back Benches would wish to carry.

[Andrew Griffiths (Burton) (Con)]

As chairman of the all-party group on beer, I congratulate my hon. Friend on securing this debate. I am sure he agrees with me that the packed Benches at almost midnight show the strength of feeling in this House in support of Britain’s brewing industry. Does he share my shock that British brewers are paying half their income in tax to the Treasury, yet the future of the industry is at a critical point? Does he agree we can save jobs and pubs if we cut the duty on beer?

[Gavin Williamson]

As always, my hon. Friend and fellow Staffordshire Member of Parliament makes an excellent point. We want to encourage investment by our brewers into this vital industry and into our pubs.

[Neil Carmichael (Stroud) (Con)]

rose—

[Gavin Williamson]

Over the last eight years there has been a 50% increase in beer duty but only a 10% increase in revenues from that duty. That is a great concern.

[Neil Carmichael]

rose—

[Gavin Williamson]

My hon. Friend is bobbing up and down, so I had best give way to him.

[Neil Carmichael]

We are talking here about small and medium-sized businesses—businesses that employ some 1,600 people in my constituency. My four breweries are very successful small businesses, but they could do with some help in respect of this policy.

[Gavin Williamson]

All the Members who have intervened have made the most wonderful points, and my hon. Friend certainly has not disappointed in that regard. I am a little disappointed, however, that he did not mention his four breweries for a potential future press release.

[Richard Fuller (Bedford) (Con)]

I, too, congratulate my hon. Friend on securing this important debate. As the Member for Bedford, the home of the largest family-owned brewery, Wells and Young’s, may I ask him whether he agrees that it is also a timely debate? The Treasury recently took action to reduce the fuel duty escalator, and it would be a welcome addition if we were also to eliminate the beer duty escalator and its impact on our economy.

[Gavin Williamson]

I would never dream of supposing that I knew more than Treasury Ministers, but that would certainly be a good idea to bear in mind for future Budgets. We must look at the economics involved. As I mentioned, there has been a 50% increase in the rate of duty, but only a 10% increase in the amount of revenue.

I have had the great privilege over the past few months of serving on the Finance Bill Committee, where I heard many emotive and brilliant arguments from my hon. Friend the Economic Secretary about the need to get the balance right between the rate of tax and the money it brings in.

[Heather Wheeler (South Derbyshire) (Con)]

I must declare an interest: for 25 or 26 years, I have been married to a brewery man—and thank goodness for Bass and for Young’s. Many pubs in South Derbyshire are still under threat or are going to close, even though the Shardlow brewery, the John Thompson brewery and in particular the Burton Bridge brewery, which has just opened, are fantastic. I should also mention the Brickmakers in Newton Solney. We are trying to do our best, but the yoke of taxation is too high. Does my hon. Friend agree?

[Gavin Williamson]

I entirely agree. I think we have gone too far, and it is having a detrimental effect on the amount of tax revenue the Treasury can get from this important potential source. The Exchequer already brings in £8 billion in tax revenue from the beer and pub industry, but my concern is that that amount will go into slow decline. Already, the Office for Budget Responsibility and Her Majesty’s Revenue and Customs have made it clear that the money coming in from the increase in beer duty is not going to increase. It has not done so in the past year and it is not expected to do so in the next year. We therefore need to look at different ideas. One of them is not to keep taxing. We have had many debates about the Laffer curve and its benefits, but the simple reality is that beer duty is getting to the point where it is too high and it is pricing people out of the market.

[Nigel Mills (Amber Valley) (Con)]

Does my hon. Friend agree that one of the problems of getting the duty rate too high is that it gives a boost to the illicit trade, which now makes up about 10% of the off-sale market? The higher the duty is pushed, the higher the illicit sales go and so no duty at all is received.

[Gavin Williamson]

The worst thing we could possibly see is the growth of the illicit trade and the Chancellor of the Exchequer getting none of the money whatsoever. We want to make sure that people are paying their taxes and their duty, but we do not want to tax people out of the market.

[Richard Drax (South Dorset) (Con)]

May I add a slightly solemn note to what has been a light-hearted debate? I had a great friend, David Woodhouse, the chairman of Hall and Woodhouse in Blandford, who died aged 49 of a heart attack, running his company. He said to me on many occasions that he could not understand why Governments, and ours in particular, were proposing this tax every year, given that it is a tax on jobs at a time when we are trying to increase jobs. Surely that must be a point for the Government to take away from this debate.

[Gavin Williamson]

My hon. Friend touches on an important point: this is not only about jobs, but about British jobs. Some 68% of the drinks that our pubs sell are beers, so this duty is having a detrimental impact on every one of our pubs. Furthermore, 86% of all that beer that is consumed is produced in this country, which compares with a figure of 0.2% for wine.

[Julian Sturdy (York Outer) (Con)]

I congratulate my hon. Friend on securing this very important debate. He is absolutely right in what he says about the jobs in the pub and brewing industry, but let us also not forget the malting industry, which has a great tradition, especially in Yorkshire. I must declare an interest, because there is also an impact on the farming industry. The job creation that is affected by the beer duty escalator goes right from the grain to the glass.

[Gavin Williamson]

I would never expect anything other than an intervention from a great colleague of mine, who also is a farmer, to enable us to understand the whole process of the brewing industry and to put it into perspective for us.

[Julie Hilling (Bolton West) (Lab)]

I congratulate the hon. Gentleman on securing this debate, and he is being extremely generous with his time. Does he agree that it is also ironic that we are increasing the tax on beer, which drives people to drink much more harmful substances—drinks with a much stronger alcoholic volume—so raising the duty all the time is not good for the nation’s health either?

[Gavin Williamson]

The hon. Lady makes a very valid point. One of the consequences of having a Scotsman as Chancellor for quite a period of time is that the duty on Scotch whisky seemed to be frozen. Perhaps now that we have an English Chancellor what we need is to freeze the duty on English beer. There is so much that we need to be doing. We need to be reviving our pubs. We need to be seeing that vigour and sense of community returning to all our pubs across the country.

[Andrew Bingham (High Peak) (Con)]

I congratulate my hon. Friend on securing this debate; the number of Members here at this late hour shows its importance. Does he agree that pubs not only sell beer, but provide a great community centre in small and rural communities? So many charity collections and fundraising exercises begin in pubs, where people meet and talk.

[Gavin Williamson]

My hon. Friend makes a valid point. In addition, pubs are an important part of the economy and employ young people. In my constituency, 50% of those employed in the beer and pub industry are under the age of 25.

We all talk about the beer duty escalator. Just the other day, I was in a department store. I went up an escalator, and then I noticed that I went down one. So I say to the Minister that we could keep a beer duty escalator, but perhaps put it in reverse.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

My hon. Friend is being very generous and possibly setting a world record in taking interventions. A suggestion that might meet the requirement from the Treasury Bench to raise revenue and which builds on the points made by colleagues about supporting the industry and supporting pubs is to remove the escalator just from cask ales. Those ales are available only in pubs. British pubs are of course part of our heritage and we are talking about a British product with a British supply chain, as my hon. Friend the Member for York Outer (Julian Sturdy) said. We have great pubs, particularly in the Yorkshire area.

[Gavin Williamson]

Unfortunately, they are not as good as those in the county of Staffordshire—although I am sure the pubs in Yorkshire are not bad.

I would love the Minister to stand at the Dispatch Box and announce to the whole Chamber that the beer duty escalator will be frozen or reversed. I know that she carries many burdens on her shoulders and may not be able to give us that promise, so I ask her to meet me and other colleagues who have such concerns in order to listen to the arguments put forward by the industry and by people who feel passionately not just about our pubs but about our beer and our great breweries—a part of our industrial heritage that is living and breathing today.

I am quite sure that if the Minister can take the arguments to the Chancellor and to all those in the Treasury and convince them that we need either to freeze beer duty or to let it rise only in line with inflation rather than at inflation plus 2%, she will be able to provide an enormous boost not just to British breweries and British beer but to the great British pub. I am quite sure that, if my hon. Friend can achieve that, when she next enters the pub every punter will be raising their glass to the Boadicea of British beer.

12:01

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I must take the opportunity, after that last reference, to invite hon. Members to drink at the Iceni brewery in Norfolk, at which I am sure they would be extremely welcome.

I congratulate my hon. Friend the Member for South Staffordshire (Gavin Williamson) on securing the debate. It has been interesting and I thank him and all hon. Members who have contributed tonight. It will not be a surprise, as I have the rather thankless task of being the final speaker tonight at this late hour, if I suggest that he can buy us all a drink when we have finished. I am sure he can do that.

In all seriousness, I want to compliment my very fine brewing and drinking city of Norwich. I regularly go into pubs—indeed, I drink the odd beer—I run politics in the pub surgeries and my local newspaper also runs a very fine “Love your local” campaign, so I am very much in tune with the spirit of what we are discussing tonight.

I regret to say that I must turn to the burdens about which my hon. Friend spoke and do my duty in providing some background on my hon. Friend’s proposal to end the beer duty escalator. As hon. Members will be aware, the inflation plus 2% annual increases were first announced in the 2008 Budget by the previous Government and were extended in the March 2010 Budget. Those pre-announced increases applied to all alcohol types, not only beer, and the additional revenue from the increases was included in the public finance projections at that time. Let me put some numbers on that for your edification, Mr Deputy Speaker. The value of removing the escalator would be £35 million for 2013-14 and £70 million after that.

[Greg Mulholland]

Does the Minister not accept that beer has been treated particularly unfairly when compared with spirits and cider? Ludicrously, the global cider producers who knock out mass-produced products, often not using British apples, pay half the duty even of the smallest micro-brewers on the lowest small breweries’ relief rate. That is simply not fair.

[Miss Smith]

I hear the hon. Gentleman’s argument and pay tribute to him for his work with his all-party group. Let me answer his question with the main question posed at the end of the speech made by my hon. Friend: I would of course be happy to meet hon. Members who are present tonight to discuss these matters further.

There are many points to go into—more, I regret to say, than I have time for. The key point that I must make first is that the duty increases that we are talking about—the increases through to 2014-15—form a vital part of the Government’s plan to tackle the debt left by the previous Government. It would be worse for everybody if we did not tackle that debt. When I say “everybody”, I mean beer drinkers, cider drinkers, spirit drinkers, wine drinkers, brewers, publicans and, of course, all those who never touch a drop. The high interest rates that would result if we abandoned our credible plan to tackle the deficit would not help anybody.

[Dan Rogerson (North Cornwall) (LD)]

The Minister will no doubt have seen in the business section of The Times today the piece on the Sharp’s brewery in Rock. Doom Bar is now a famous brand around the country, and is enjoyed, the article tells us, by the Prime Minister. The Minister has rightly set out the situation facing the country. However, the brewing industry is very keen to take on young people, train them up, and give them a career. That is what Sharp’s is doing. Does she agree that being more sympathetic on beer duty might allow companies to invest in taking on more employees?

[Miss Smith]

Again, a fine point is made. I am the first to support the notion of encouraging young people into work and work experience, but we have to be realistic. The Treasury and the Government face a number of proposals from different industries that say, “Ours is the industry that holds the key,” and I am sympathetic to those arguments. There is, of course, much evidence to go into for all such proposals, but it is important to proceed as a responsible Government, and to try to take into account the revenue that is required to fund vital public services and that, as I say, helps everybody.

[Alec Shelbrooke]

To expand on my intervention on my hon. Friend the Member for South Staffordshire (Gavin Williamson), perhaps we can look at a tax-neutral way of getting more people into pubs, which create so many jobs. As there is an onus on landlords to ensure that people drink sensibly on their premises, that, rather than minimum pricing for alcohol, may help to tackle alcohol abuse.

[Miss Smith]

On that note, let me come on to some of the factors affecting the state of the industry. It is important to be clear that duty is not the only thing affecting the state of the pub industry. We have all, I am sure, been in good pubs and terrible pubs, and the price of the beer is not the only factor involved. On the price of a beer, I point out that the pre-announced alcohol duty increases in question added only 3p to a pint of average-strength beer, including VAT. The total duty on a pint of beer is now 47p. I think that hon. Members will agree that, especially as alcohol consumption does, after all, carry its own costs and concerns, that addition in the Budget this year is not an overwhelming or unreasonable amount. It is something that we can consider in the context of the public finances and the challenges relating to them that have to be met.

As I say, alcohol duty is only one of a wide range of factors that determine the final price paid by the customer. Let us be clear about the position of the industry. The decline in the beer and pub industry that some talk of is influenced by a number of factors. Lifestyles are changing. People’s choices when they walk into pubs and other establishments are changing. People have more choice about whether they go to a pub or somewhere else. Removing the escalator, which is what has been asked for tonight, and the pre-announced duty increases would not solve those problems. There is very much a wider context.

My right hon. Friend the Member for Putney (Justine Greening)—my predecessor as Economic Secretary to the Treasury with responsibility for alcohol duty—and I have met a wide range of representatives from industry. As I said, I am happy to continue doing so. I recognise the important contribution that pubs and breweries make to local communities and to the wider economy. Many groups that have been prayed in aid tonight, such as the Campaign for Real Ale and the British Beer and Pub Association, have welcomed the work that we have done to date, such as the review of alcohol taxation in November 2010. We continue to keep all taxes under review.

[Andrew Griffiths]

Will my hon. Friend give way?

[Miss Smith]

I am sorry. I must complete my remarks within a few minutes, but as I said, I am happy to continue the conversation, whether in the bar or elsewhere.

CAMRA’s figures show that the net rate of pub closures has slowed dramatically over the past two years. I believe the BBPA’s figures support this. I support pubs as places where people can drink sensibly in a supervised environment and enjoy themselves responsibly. I want to reverse the trend towards pre-loading on cheap alcohol at home. I was out with Norfolk constabulary in my neighbouring constituency, Norwich South, on Saturday night, observing some of the problems in action in places that are not as friendly as the community pubs that have been spoken about tonight.

In my view, minimum unit pricing will help to tackle the issue of excessive alcohol consumption and heavily discounted alcohol sold in supermarkets and off-licences. I strongly believe that that will benefit pubs and the responsible on-trade once we can tackle the demand for cheap alcohol in supermarkets. It is of interest to hon. Members here tonight that we have introduced a 50% reduction in alcohol duty for low-strength beers. That may be a growing sector in the industry.

In brief response to my hon. Friend the Member for Amber Valley (Nigel Mills), the Government are committed to tackling alcohol fraud and avoidance, and have been working in collaboration with the industry to address that. There are a number of measures that we wish to take to act on that.

At the Budget, this Government knew that it would be unfair to place further burdens on the alcohol industry, on pubs and on responsible drinkers. This is why we did not go further than the pre-announced duty increases. But I return to my main point. There is an important question of the public finances. The revenue from these increases was included in the public finance projections at that time. It would now require the raising of other taxes to pay for removing them. That is the question that I ask hon. Members to consider. I am sure that many pub conversations come up with the best answers to that, which hon. Members may like to go on to discuss.

This year’s duty increase and those to 2014-15 form part of our vital plan to reduce Britain’s debt, which is required to ensure low interest rates and a stable platform for growth for everybody—drinkers, businesses and households. We will continue to keep all taxes under review and monitor the impact of alcohol duty—

12:12

House adjourned without Question put (Standing Order No. 9(7)).