Finance (No. 2) Bill

Thursday 18th April 2013 Commons Chamber

(Clauses 1, 3, 16, 183, 184 and 200 to 212, Schedules 3 and 41, and certain new Clauses and new Schedules)

[2nd Allocated Day]

Further considered in Committee

[Dawn Primarolo in the Chair]

Clause 1

Charge for 2013-14

11:30

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I beg to move amendment 1, page 1, line 7, at end add—

‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the additional rate of income tax.

(2) This report shall review the impact upon Exchequer receipts of setting the additional rate to 50 per cent. in tax year 2014-15.

(3) The report shall review what impact reducing the additional rate for 2013-14 will have on the amount of income tax currently paid by those with taxable incomes of

(a) over £150,000 per year; and

(b) over £1,000,000 per year.’.

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

With this it will be convenient to discuss the following:

Clause stand part.

Clause 16 stand part.

That schedule 3 be the Third schedule to the Bill.

[Catherine McKinnell]

It is a pleasure, Ms Primarolo, to serve under your chairmanship this morning. I shall speak to the Opposition amendment to clause 1 and about clause 16, which relate to income tax rates and reliefs.

The Opposition believe that politics is about priorities—about providing support to those who need it most, rather than to those with the broadest shoulders. This has never been more the case than in the country’s current economic climate—a parlous economic climate which, let us remind ourselves, has seen just 0.8% growth since autumn 2010, compared with the 5.3% that was forecast at the time. The economy continues to stagnate under this Government, leading to the independent Office for Budget Responsibility halving its predictions for 2013 and anticipating growth of only 0.6% this year, compared with the 1.2% forecast just four months ago.

We have surely now reached the stage where we must ask ourselves what further evidence the Chancellor needs before he accepts that his economic plan is catastrophically failing. Once again, I note the lack of Conservative Members on the Government Benches. Perhaps Back Benchers are demonstrating their lack of confidence in the Chancellor’s plan which, I am sure they would agree, is far from acceptable.

The latest criticism of this failure came on Tuesday, with the International Monetary Fund downgrading its forecast for UK economic growth to 0.7%, in contrast to its view a month ago, when the IMF said that growth of 1% could be expected. Having subjected the UK to the biggest downgrade of any developed country for 2013 and 2014, the IMF commented:

“In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation.”

It went on to say:

“Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand”.

In simple terms, it is time for plan B.

[Alex Cunningham (Stockton North) (Lab)]

I am grateful to my hon. Friend and fellow north-east MP for giving way. Does she share my view that yesterday’s unemployment figures showing an increase of 70,000 were disgraceful? The north-east of England has suffered a disproportionate increase in unemployment, and 12,000 of those 70,000 are from the region that she and I both represent. Does she agree that this is further evidence of the need for change, particularly in regions such as the one we share?

[Catherine McKinnell]

I very much share the deep concern expressed by my hon. Friend about the figures published yesterday. I hope the Chancellor will start to pay attention to the effect that his economic plan is having on people throughout the country but, I agree, particularly in the north-east, where unemployment is above 10%, which is a shocking figure and spells deep trouble for the long-term entrenchment of unemployment. I will come to that shortly.

As we have heard so often from this out-of-touch Chancellor, he is not for turning, despite the fact that the consequence of his economic failure means that Government borrowing is rising, not falling, with the Tory-led coalition set to borrow £245 billon more than it forecast in autumn 2010. His promise to balance the books by 2015 will not be met and the national debt will not fall until 2017-18 at the earliest. Who knows how many times that will need to be pushed back before the Chancellor realises that his plan is not working?

Of course, that dire situation has led to the downgrading of Britain’s triple A rating by Moody’s and the more recent decision by Fitch to place the UK on rating watch negative, both of which had been prized by the Chancellor and used as cover for the austerity measures he introduced back in 2010.

At a time when living standards are being squeezed, average earnings are rising at their lowest rate since the end of 2009, Government borrowing is up, growth forecasts have been downgraded again, the public services on which people rely are being cut or threatened up and down the country, and ordinary people are being asked to pay the price for the Chancellor’s economic failure, what we needed was a Budget that was on the side of ordinary, hard-working people and families, increasing numbers of whom are clearly struggling to make ends meet.

As my hon. Friend the Member for Stockton North (Alex Cunningham) noted, unemployment is rising again. What we needed was a Budget that would back Labour’s jobs guarantee, using money raised from the tax on bank bonuses to fund a guaranteed job—a real job—for every young person who has been out of work for a year or more. I am not sure whether Government Members have had a chance to analyse the long-term unemployment figures published yesterday, but I can tell them that in March this year 167,345 adults over the age of 25 had been claiming jobseeker’s allowance for more than 24 months. Let me repeat that figure: 167,345 adults had been out of work for more than two years, compared with 84,765 in February 2012 and 52,895 in February 2011. That is a disturbing rise of 97% since February 2012 and 216% since February 2011.

Targeted and urgent action is required if the unemployment situation is not to become dangerously entrenched. We believe that it is a totally unacceptable state of affairs and that action is needed now to stop people being put on the scrap heap and left there, as they were under the previous Conservative Government—and, of course, so that we do not continue building up long-term costs for the taxpayer.

What we needed from the Budget was a reversal of the Government’s decision to stop tax relief on pension contributions for people earning over £150,000 being limited to 20% to fund Labour’s compulsory jobs guarantee for long-term unemployed adults.

[Stephen Williams (Bristol West) (LD)]

Perhaps the hon. Lady will remind us of the maximum amount of pension relief an individual could get right up to April 2010, or perhaps a little later. In case she does not know, someone could put just over a quarter of a million pounds a year into their pension fund and get higher-rate tax relief, including at 50%. This Government have lowered that figure to £40,000.

[Catherine McKinnell]

I said that the Budget needed to be about priorities and that we need to look now at how to help people struggling on the lowest incomes and ensure that those with the broadest shoulders bear the greatest burden. In government, Labour took steps to ensure that its pension reliefs were fair to those at the bottom as well as those at the top. This Government have reversed that decision to limit the relief to 20%, and we have seen the result: the impact across the board is being unfairly borne by those at the bottom. When times are as tough as they are now, it cannot be right to subsidise the pension contributions of the top 2% of earners at more than double the rate for people on average incomes who pay the basic rate of tax. However, the Conservatives and Liberal Democrats clearly believe that the time is right to prioritise those earning more than £150,000.

What we got in this year’s Budget, and in the very first clause of the Finance Bill, is the coalition’s unjustifiable and grossly unfair decision to reduce the top rate of income tax from 50p to 45p, a cut that benefits just 267,000 people earning more than £150,000, 13,000 of whom are lucky enough to earn more than £1 million. Indeed, those lucky few are receiving an average tax cut of a whopping £107,000 according to HMRC figures. Who wants to bung a millionaire indeed?

I have no doubt that at this juncture Liberal Democrat Members will want to trumpet the increase in the personal allowance—to pipe up and explain that they are not prioritising the richest in society over those who genuinely need support, but unfortunately for them the facts state otherwise. Let us remind ourselves of the analysis of figures published by the independent Institute for Fiscal Studies. It shows that taking into account all the changes to tax credits and benefits introduced since 2010, households in the UK will, on average, be a staggering £891, or £17 a week, worse off this financial year.

[Stephen Williams]

indicated dissent.

[Catherine McKinnell]

The hon. Gentleman is chuntering from a sedentary position. Does he wish to intervene?

[Stephen Williams]

If you are going to quote from independent reports, you should not quote—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. I am not quoting anything.

[Stephen Williams]

The hon. Lady should not quote from reports selectively. Perhaps she should go on to say that the Institute for Fiscal Studies says that the top decile of income earners has been hit hardest by the combination of Government tax changes.

[Catherine McKinnell]

I suggest that the hon. Gentleman is quoting selectively in leaving out the fact that the greatest impact is on the bottom decile of earners. When you take the cuts and changes overall, those at the bottom bear the greatest proportional brunt.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

I want to support what my hon. Friend has said. The Chancellor’s own distributional analysis shows that the cumulative impact of tax, tax credit and benefit measures mean net reductions in income for the poorest 4% of households. That is not selective analysis—your own Chancellor’s analysis shows that 40% of the poorest households will be affected.

[Catherine McKinnell]

It is the hon. Gentleman’s own Chancellor who is quoting selectively from the figures. I thank my hon. Friend for that intervention.

The facts are clear, and beyond the facts is the reality facing households up and down the country. We see people from those households coming into our constituency surgeries week in, week out. We hear stories every day from families who are clearly struggling to make ends meet.

The reality of the Chancellor’s failing plan is bearing out, not just in the statistics but in the reality of people’s day-to-day lives. The cuts to tax credits and child benefit, the granny tax, the mummy tax, the appalling bedroom tax and the huge hike in VAT, which disproportionately impacts on the poorest, hugely outweigh any small benefit from the rise in the personal allowance.

[Yasmin Qureshi (Bolton South East) (Lab)]

My hon. Friend is making an excellent case about all the various cuts and how they are hitting the most vulnerable in our society. Do you think that the Government should be shedding tears for all those people who will be suffering from all the cuts?

[The Second Deputy Chairman]

Order. May I remind hon. Members that they are not asking the Chair of this Committee to answer questions or accusing the Chair of anything? The use of the word “you” addresses the Chair directly. It would be good practice to refer to “hon. Members” or “my hon. Friend” rather than using the word “you”, which makes things difficult.

[Catherine McKinnell]

Even some mild empathy from the Chancellor for those bearing the brunt of his catastrophically failing economic plan would be welcome to people up and down the country, who feel that he is extremely out of touch with the reality that they face.

To put the issue into context for Government Members, who have willingly voted through this year’s changes, I should say that a two-earner couple with children are losing on average £1,869. The average single parent in work will lose £1,226. A two-earner couple with no children will be £672 worse off, while a one-earner family with children will lose an average of £4,000 in 2013-14. Even worse, this is happening at the same time as 13,000 millionaires are getting a tax cut from this Government worth an average of £107,000. Worst of all, but not surprising given this Government’s shocking attitude towards women, is research showing that 94% of the cuts to household budgets will directly hit women, while 85% of those on incomes over £150,000—so 85% of those who are benefiting from the Government’s tax cut—are men.

11:45

That sums up the coalition’s warped sense of priorities in a nutshell—looking after those at the very top while making everybody else pay the price for its economic failure. It is made all the more galling by the Chancellor’s previous promise that we are “all in this together”—although, admittedly, it is a phrase that we hear uttered from his lips a lot less these days. The Government may believe that the way to motivate people on low incomes is to pay them less and the way to motivate those on high incomes is to pay them more, but we think that that approach is misguided, at best. In these challenging economic times, our focus should be placed firmly on those who need our support the most. Our amendment therefore calls on the Government to look again at their decision to cut the top rate of income tax. We believe that that decision by the Conservatives and Liberal Democrats is completely indefensible, and that it is the wrong priority at the worst possible time.

In order for the Chancellor to make a properly informed decision on this vital issue next year, we need a proper assessment of the impact of the cut, as well as an analysis of how much the Treasury would gain if the additional rate were returned to 50% in 2014-15. The Chancellor, who claims to find tax avoidance “morally repugnant”, announced his millionaires’ tax cut in Budget 2012 on the grounds that the behavioural response to the 50p rate introduced by Labour was larger than expected. In other words, because some wealthy people found neat ways to avoid paying the top rate, the Chancellor has, in effect, rewarded them with a tax cut. It would be interesting to see his assessment of the behavioural response to his announcement in view of the extensive media coverage of bankers deferring their bonuses until this financial year in order to gain from the lower top rate, but given his apparent continued determination to fight European plans to cut bankers’ bonuses, I will not hold my breath.

[Mr Robin Walker (Worcester) (Con)]

The hon. Lady is asking for an analysis of what the change in tax rate would do to the Government’s revenues. That is exactly what the previous Labour Government failed to deliver when they made their change. Does she not regret the fact that the Labour Government, in their 13 years in power, continued to levy a top rate of 40% and then made their change to the top rate so late in the day that it failed to raise any additional revenue either under their Government or, because they had not undertaken such a behavioural study of what might happen, under the Government who followed?

[Catherine McKinnell]

I do not follow the hon. Gentleman’s logic that that justifies a non-assessment at this stage. He knows very well that there has been a huge intake from the 50p tax rate which this Government fail to acknowledge. He also knows that we suffered a catastrophic international financial crisis in 2008 to which the Labour Government responded by ensuring that those who could bear it most would take the highest burden, therefore introducing the 50p tax rate. This Government took the first opportunity to abolish it, without even allowing enough time for proper analysis of its effect to take place.

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

The hon. Lady says that there was a huge intake from the 50p rate of income tax. What is her evidence for that?

[Catherine McKinnell]

HMRC’s report, “The Exchequer effect of the 50 per cent additional rate of income tax”, but I will go into that in more detail in due course.

The Prime Minister went on record and said in this Chamber that the 50p tax rate was cut because it did not raise any money—the Minister seems to have just made the same assertion—but page 39 of HMRC’s report makes it clear that it resulted in a yield of about £1.1 billion, which is hardly a sum to ignore in these straitened financial times. However, what stands out most from HMRC’s assessment—this point was also raised when we debated last year’s Finance Bill—is the number of times that the words “uncertain” and “uncertainty” appear; I nearly lost count, but it is a staggering 30 times. The Chancellor decided to give a tax cut to his millionaire pals before we had a clear picture of the impact of the 50p rate.

That is not just the view of the Opposition. Robert Chote, chairman of the Office for Budget Responsibility, stated:

“This is a judgement based on not even a full year’s data, based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”

The Institute for Fiscal Studies said:

“By giving out £3 billion to well-off people who pay 50p tax…the Government is 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…There is a lot of uncertainty, a lot of risk on this estimate.”

In its report on the 2012 Budget, the Treasury Committee concluded:

“The costs and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget. We recommend that HMRC publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate.”

We agree. We need a full and proper assessment of what effect the top rate tax cut has had on tax receipts and we need to be sure that the Government continue to estimate what the gain would be if the additional rate were returned to 50%. We need, as the IFS has previously suggested, to get a clear understanding of whether the short-run response to this tax cut has been symmetric to the introduction of the 50p rate. Will people continue to use the avoidance techniques that the Government clearly believe they employed to avoid the 50p rate, or will some or all of that activity come to an end as a result of the new 45p rate? The Government should commit to our amendment’s request for such a review, if they genuinely seek to maximise revenue to the Exchequer and not to give a tax break to their millionaire friends.

[Stewart Hosie (Dundee East) (SNP)]

The hon. Lady is making a good case, particularly on the uncertainty about the reduced revenue yield, but even if the Government and the Red Book are correct and the loss of yield will be only £540 million over the next five years, I am sure she will agree that if £540 million is going spare it would be better to invest it in productive capacity for the future, rather than simply give it away in a tax cut that proves that we are not all in this together.

[Catherine McKinnell]

The hon. Gentleman makes an extremely strong point, and one that I have made repeatedly. This might seem like small change to the Chancellor, but it could make a very big difference to some of the people affected by his failing economic plan.

I am sure, given the concerns recently expressed by apparently senior Liberal Democrats, that Lib Dem Members will join us in calling for a commitment from their Conservative colleagues in the Government. Indeed, only last month a member of the Liberal Democrat tax working group stated:

“While the Treasury’s own figures about the 50p are highly questionable, the politics of cutting tax for the very rich make no sense; there is no reason why a 50p rate shouldn’t be part of a solution for tough times.”

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

I agree with many of the hon. Lady’s points. Plaid Cymru will fight the next Westminster election on a pledge to reintroduce the 50p rate. Will the Labour party do the same?

[Catherine McKinnell]

We have made it perfectly clear from day one that we do not support the cut to the 50p rate now, and we call on the Government to analyse the impact of the introduction and premature removal of the 50p rate. When we come to publish our next manifesto, we will review the state of the economy and whether a 50p rate would be the right response. I hope that Members of other Opposition parties, as well as Liberal Democrats, will support our amendment, because it would help to establish whether the 50p rate would bring in the additional Exchequer revenue that was anticipated—but if the Government refuse to back it today, we will never know.

The President of the Liberal Democrats, the hon. Member for Westmorland and Lonsdale (Tim Farron), said:

“Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”

Their current, or former, Treasury spokesman—I can never work out which he is—Lord Oakeshott—

[Stephen Williams]

He’s never been Treasury spokesman.

[Catherine McKinnell]

Okay. I am pleased that that has been clarified for the record. Other hon. Members will feel the same.

Lord Oakeshott said:

“In such hard times, we should never have rolled over when the Tories wanted to cut the 50p rate unless we got a mansion tax in return. At the next election, both the mansion tax and a 50p rate should be at the forefront of Lib Dem tax policy.”

I have news for him. Liberal Democrats have had the opportunity to vote for the mansion tax, and today they have the chance to vote for their 50p rate. They do not need to wait for the next manifesto. They can make it happen today. Lord Oakeshott’s is an interesting view, however, given the Liberal Democrats’ decision to vote against their own mansion tax policy twice in as many months. I would join him, however, in urging his party colleagues not to roll over for the Tories on this issue, but to support our amendment.

We are obviously disappointed that our amendment to clause 16 was not selected for debate. The clause introduces schedule 3, which provides for the cap on 11 named income tax reliefs for amounts greater than £50,000 or 25% of an individual’s income. This policy was first announced in 2012. Like many others, the Opposition are pleased that this provision no longer includes the original proposal to limit tax relief on charitable giving. In one of the several U-turns on last year’s omnishambles, the Chancellor was forced to back down on this ill-thought-through policy, which threatened the charitable sector with a cut of up to £500 million in income per year. A powerful campaign backed by more than 1,000 charities was given the very simple title, “Give it Back, George.”

Several concerns about clause 16 remain, however, particularly about its potential impact on entrepreneurialism and small businesses. The Association of Accounting Technicians believes that the restriction of small reliefs on losses runs counter to the Government’s apparent commitment to encourage new business start-ups. It stated:

“In the current economic climate, start-up businesses are likely to operate at a loss in their early years, therefore our view is that an imposition of an arbitrary cap will be a further obstacle to entrepreneurship… Furthermore, existing legislation already prohibits relief for ‘artificial losses’”.

That means that any genuine losses sustained in starting or developing a business should be relievable, in accordance with existing legislation, in a way that enables the entrepreneur to recover tax previously suffered as quickly as possible in order to help to fund their new venture.

The Chartered Institute of Taxation shares similar concerns, describing the cap as a “blunt instrument” that could have an

“adverse effect on genuine businesses and the UK economy”

and saying that

“it gives the wrong message to entrepreneurs thinking of setting up a business. The net effect could be to reduce the tax take rather than increase it.”

It has drawn particular attention to concerns that the cap will catch owners of genuine commercial businesses who happen to incur a loss, instead of a profit—for example, where a new business is being established; where a business is weathering economic conditions and concentrating on simply surviving until the climate has improved; and where there has been an exceptional level of business expenditure, such as on the purchase of a major item of machinery or the recruitment of additional staff in anticipation of expansion.

The Institute of Chartered Accountants in England and Wales has said that the measure

“will hit small businesses by restricting loss relief for commercial losses. The measure will reduce cashflow, hamper business growth and could lead to small businesses that are experiencing difficulty in the current economic climate going bust”.

Surely even this Government would not want that outcome as a result of a Budget measure. I would therefore greatly welcome hearing from the Minister that the Chancellor might just be for turning on this issue.

11:59

[Fiona O'Donnell (East Lothian) (Lab)]

It is a pleasure to serve under your chairmanship this morning, Ms Primarolo—[Interruption]. We have just made it into the afternoon. It is also a pleasure to follow my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), who made such a strong case for the Opposition’s amendment to clause 1. It is to clause 1 in the main that I wish to address my remarks.

This week and in the days leading up to the funeral of Baroness Thatcher, Government Members have been proud to proclaim themselves as Thatcherites—no more talk of one nation Conservatives or how “We’re all in it together”. I was pleased that my hon. Friend spoke about the impact of this Government’s choices. That is what we are talking about today: their choices and priorities. Proportionately, they are hitting women so much harder than men, while the benefits they are seeking to give—reducing the 50p tax rate to 45p—will disproportionately benefit men.

That was certainly my experience as a woman at home caring for my children through the Thatcher years. I find it almost incomprehensible when I hear people talk about how much she did for women, because that was not my experience, as I genuinely struggled to put food on the table for my children and keep a roof over their heads. For me, the difference we saw in 1997, with the birth of a new Labour Government—new in every way—was predominantly in the increase in child benefit. That is what changed my ability as a mother to care for my children—to provide for them and give them a better life than I had had. This Government have chosen to freeze child benefit, while at the same time giving a tax break to 13,000 millionaires and 267,000 people earning more than £150,000. I would be interested to hear from the Minister—or from other Government Members, if it is not just the Minister who is going to speak on this issue—how many people earning more than £150,000 have come to his surgery or contacted his office to say that times are so tough that they need a tax break. How many people have contacted the Treasury to say that?

[Sheila Gilmore (Edinburgh East) (Lab)]

During this week, from Second Reading onwards, we have seen a dearth of speakers from the Government Benches, yet we have also seen a rise in unemployment figures and clear signs that on average people are facing real cuts in their earnings. Is it not extraordinary that Government Back Benchers seem not to want to speak?

[Fiona O'Donnell]

As ever, my hon. Friend makes a reasonable and forceful contribution to the debate. This is shocking complacency from Government Members—their constituents and mine will be watching them—as unemployment rises and as families face an average cut of £17 a week as a result of all the changes they have made since 2010.

[Kerry McCarthy (Bristol East) (Lab)]

I might be pre-empting what my hon. Friend is about to say, but with these measures are we not seeing a return to the discredited policy of trickle-down economics, whereby the Government think that if we give more money to the wealthy, they will spend it and boost the economy? However, we know that they are less likely to spend the extra money going into their accounts, whereas people at the bottom, who are really struggling to get by, will spend the money we give them. If we are looking at the economic impact, it is better to give that money to the poorer people.

[Fiona O'Donnell]

Absolutely, and I thank my hon. Friend. I was not about to turn to that point, but I will develop it as it affects the local economy in East Lothian.

East Lothian has a number of small towns, some of them market towns. Often, it is the poorest in those communities who spend their money in local shops in the high street; they are not able to take advantage of out-of-town supermarkets. Those high streets are struggling. The Government are taking money out of local economies—out of small high streets in East Lothian—which is having a negative effect. One group of businesses is, however, growing in our high streets: pawnbrokers and high street lenders, which will not improve the lot of the most vulnerable in my constituency.

[Ian Lucas (Wrexham) (Lab)]

That point about our high streets is incredibly important. It is not simply high streets in Labour constituencies that are suffering. Anyone who attends the meetings of the all-party group for town centres will know that, even in leafy Conservative and, dare I say it, Liberal Democrat seats, high streets are struggling. What evidence is there that the windfall for the richest people in our society will contribute in any way to income in our high streets and in our economy? The money is more likely to be spent in Bermuda than in Birmingham.

[Fiona O'Donnell]

My hon. Friend makes an excellent point. The problem is not restricted to high streets. In small rural constituencies, there may be one village shop, where the local post office is located. The post office network is also being put at risk as such small village shops are unable to make a profit. Therefore, we risk losing post office services. We are facing that now in East Lothian. Post office closures may not be planned, but that may be a consequence of the Government’s economic choices.

It seems almost too simplistic to make this point, but Government Members have boasted about the fact that the Government are hurting the richest 10% the most. However, if the Government choose to take £25 a week from a rich family, it will have a lot less impact than taking £17 a week from a hard-working family. Taking that from the richest will not mean they will present themselves at food banks looking for assistance to put food on the table, but that is what the Government are forcing working families increasingly to do. We look forward—that is perhaps the wrong term—to hearing the Trussell Trust’s latest figures on the number of people it has fed over the past year. All the indications are that the number has increased significantly; it may be over 500,000. That is a matter of real concern.

[Robert Flello (Stoke-on-Trent South) (Lab)]

I am enjoying my hon. Friend’s speech immensely. On that point, just last Thursday, the food bank in Fenton in my constituency had its highest number of visitors yet— 19 people turned up, whereas normally about eight or nine do so. That is a growing trend on top of a growing trend.

[Fiona O'Donnell]

I am sure that Members on both sides of the House are seeing that in their constituencies. I hope that Government Members will visit food banks in their communities to understand the causes of food insecurity. As my hon. Friend the Member for Newcastle upon Tyne North said, it is about the choices the Government are making and their priorities. Earlier we heard the most uncomfortable and distorted logic: when the economy was growing, unemployment was falling, we were investing in health and helping young people into employment, the Labour Government should have taken more money from the rich through a 50p tax rate, just for the sake of it; but when the economy is flat-lining, unemployment has just risen again, poverty and the gap between rich and poor are increasing, it is the right time for this Government to give a tax break to people earning over £150,000. I cannot follow that logic.

The Joseph Rowntree Foundation has estimated that almost 2.5 million families on low incomes will pay £130 more in council tax this year, adding further to the squeeze that working families are suffering. This Government have made their choice, and I think that, as they drive towards the next general election, if they glance in the rear-view mirror, two hazards will make them fail the electoral test. The first is their decision to scrap the 50p rate of tax. The second is their choice to introduce a bedroom tax at the same time. There is a family in Wallyford in my constituency, the Anderson family. Mr Anderson is a full-time carer for his wife, who has a severe form of epilepsy. He is saving this country a small fortune by caring for his wife, but he does it because he wants to, not because he has to. There are times when he needs not to sleep in the same room as his wife—I have his permission to discuss his case in this amount of detail—and he needs to be able to make that choice. He also has a son with spina bifida, who is now enjoying a degree of independence and living away from his family, but he can maintain that independence only by returning home for about three days a week when the weather is bad. Recently, he has been at home for longer—so that bedroom is needed for Mark and his equipment.

I feel ashamed that Mr Anderson should have to come to see me to ask why the Government are choosing to give money to people who are not even asking for it, when he is going to be taxed for having that bedroom. And it is a tax; when the Government take money out of people’s pockets, that is a tax. This Government are choosing to make life much more difficult for a man who has given up work to care for his wife and to support his disabled son and enable him to live as independent a life as possible. That says a lot about the Government’s approach, and it does not surprise me that Government Members are not seeking to contribute to the debate today.

[Jonathan Edwards]

The hon. Lady will be aware that the tax cut for people earning more than £3,000 a week was introduced in the last Finance Bill. Members of the parliamentary Labour party abstained in the vote on that Bill. She has made some pretty strong comments today. Is she now saying that that abstention was a catastrophic political mistake?

[Fiona O’Donnell]

No, I am not. I would say that the catastrophic political mistakes are most often made on the nationalist Benches. We are stating clearly that, if we were in government today, we would not be scrapping the 50p rate. There is no ambivalence or doubt about that. That is the position of Labour Members in the Chamber.

I appeal to Liberal Democrat Members to remember their Lib Dem values, and to all Government Members to think about the people who are contacting them. Are they the people who earn more than £150,000 a year, or are they the families and pensioners who are struggling with the cost of daily living? I urge Government Members to vote according to the representations that they are receiving.

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

It is a particular pleasure to serve under your chairmanship today, Ms Primarolo. I welcome you back, and I am glad to see you in fine health.

I have been spurred on by the hon. Member for East Lothian (Fiona O’Donnell) to speak in the debate and to defend the Government’s policy, which is wise and right and good—[Interruption.] I do not often cheer up the Whips, but if I do so, that will be an added advantage. The amendment tabled by Her Majesty’s official Opposition is completely unnecessary and wrong-headed.

[Ian Lucas]

The hon. Gentleman said that the Government’s policy was wise. He is a moral man, so will he tell me how it can be right for the richest people in our society to have their income boosted while disabled constituents of mine are having theirs reduced?

[Jacob Rees-Mogg]

Because it does not actually work like that. We know from experience that high rates of tax reduce the amount of taxation that is received. The Laffer curve is not a myth. If you put rates up, tax revenues decline.

12:15

[Sheila Gilmore]

I welcome the hon. Gentleman to the debate, as we have been lacking a challenge up to now and it is always good to be challenged. He makes an argument about the Laffer curve. I am sure he would agree that if tax rates are zero, you do not get anything, and that if tax rates are 100%, you would probably not get anything either. However, the question of where it is right to draw the line in between, in any given economic situation, is surely a matter for debate. You cannot simply say, “Oh, the Laffer curve says we can’t put tax rates up.”

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. I remind the Committee that the guidance on conventions and courtesies is quite clear on the language to be used in the Chamber. Hon. Members will know that “you” refers to the Chair as all remarks are made through the Chair. I would therefore be grateful if hon. Members would refer to each other by their constituency names, or as “the hon. Member”, “my hon. Friend” or “the Minister”. They should desist from saying “you”; otherwise, I might feel the need to answer the debate as well, and then we would have disorder. We do not want that, do we, Mr Rees-Mogg?

[Jacob Rees-Mogg]

Ms Primarolo, your answer to the debate would be so fine that it would hold the rest of us silent.

The hon. Member for Edinburgh East (Sheila Gilmore) is absolutely right. It is difficult to say at exactly what point on the Laffer curve revenue is maximised. As I understand it, however, the latest academic studies suggest that around 37% is the level at which income tax revenues would be maximised. That is why I would favour the Government going further and reducing the rate of income tax to the level at which it was kept by the Labour party when it was in office.

[Fiona O’Donnell]

I did not think that I had spurred the hon. Gentleman to speak; given his posture during my speech, I thought that I had woken him from his slumbers. Do we have another split in the coalition here? Lib Dem Members have been criticising the previous Labour Government for not having the 50p rate for longer.

[Jacob Rees-Mogg]

The coalition is, I am sure, united at the highest level, but that does not mean that Back Benchers do not sometimes disagree. My hon. Friend the Member for Bristol West (Stephen Williams) and I often discuss these matters, and we do not invariably agree on every aspect of them. The Lib Dems have their own particular policies, which they will no doubt put forward in an election campaign, but the coalition at large is committed to a single policy.

I want to come back to the amendment, which is about getting back to the 50p rate. We already have a situation in which the top 1% of taxpayers pay nearly 28% of the total income tax receipts—that is, £50 billion. If the rate of tax is put up to too high a level, people will change their behaviour to alter the amount of tax they pay. That is very straightforward, and they can do a number of things. Some people leave the country, so that their tax is paid overseas. Some work less hard, reducing their earnings to reduce their tax payments. Some use pension funds or legitimate forms of tax avoidance to minimise their income. That is all perfectly well known by those on the Opposition Front Bench, who are a fine and intelligent group of people, yet they try to make political points on the argument about fairness. Fairness seems to me to be about doing what is right.

[Julie Hilling (Bolton West) (Lab)]

It seems to me that the argument is not that we should reduce tax so that people will be kind enough to pay it; rather, we should be looking into closing down tax avoidance schemes. We should be presenting the moral case that everyone should be paying in according to their ability to pay, particularly in these difficult times.

[Jacob Rees-Mogg]

However much we tackle tax avoidance, if we set tax rates at so high a level that people decide not to work, no legislation can force them to work to earn more. Unless we want to be like the Russia of the 1980s, we cannot pass a law to prevent people from leaving the country to work elsewhere if the taxes are too high here.

[Sheila Gilmore]

The point is constantly made that the top 1% pay a very high proportion of income tax and that that makes this measure okay, but presumably they pay that because their income is high. The gap in this country between low-income people and high-income people has widened considerably. That happened under the Government of the late Baroness Thatcher, but, admittedly, not enough was done to address it under the subsequent Labour Government. The point, however, is that if people are paying so much, it is because they have the income to do so.

[Jacob Rees-Mogg]

The hon. Lady almost makes my argument for me. In 1979, that hallowed year in which the great lady to whom she referred came to office, the highest rate of income tax was 98%, and the proportion of income tax revenues paid by the top 1% was about 10%. When the rate fell, the proportion paid by the top 1% went up, so more money came from the richest in society when rates were lower. Lower rates of taxation therefore resulted in the advantage of an increase in revenue for the Government and the ability to spend more on the services deemed necessary.

This argument was proved in 1979 when the rate went down from 98% to about 60% and again in 1988 when it went down from 60% to 40%. On both occasions, the amount of tax revenue increased because people were willing to work harder and people were attracted to work in this country—so the burden was, indeed, put on to the shoulders of those best able to bear it.

An argument is made about fairness. We say it is fairer to have a high rate of tax. We say that that is symbolically right—that we should have it so that people know they are doing something difficult and we are all in this together—but what is the symbolism of saying to people we will take less tax from them, and what is the symbolism of having lower revenue for the Government?

[Julie Hilling]

Her Majesty’s Revenue and Customs says that in the one year when the 50% tax rate applied, revenues went up—the figure it is currently giving is £1 billion. It is therefore difficult to argue that we should get rid of this tax rate, especially as we do not yet have all the evidence. We are only beginning to get the evidence now, because people are paying that rate now.

[Jacob Rees-Mogg]

In fact, HMRC came out with figures showing the tax paid by the highest taxpayers declined; there was a loss in revenue of £6 billion, I think. I would prefer to take the actual figures that come in. I may be disloyal on this point—for which I hope those on the Treasury Bench will forgive me—but I think that forecasts from Her Majesty’s Treasury are absolutely useless. We do not want to go on economic forecasts; we want to follow facts, and the facts on the revenue that has historically come in make it clear that lower rates increase the tax take.

[Julie Hilling]

It is my understanding that, although tax takes went down in the first year when people could pre-pay and will definitely go down in this year when people will post-pay, they rose in the middle year, which is the one full year when the rate has applied, and for which people are now paying their taxes.

[Jacob Rees-Mogg]

The problem with that argument is that we have facts that show that the amount of revenue has gone down. Over a three-year period it has gone down very substantially, because the rate was high. The hon. Lady’s comments also serve to illustrate the following point on my behalf, for which I am grateful: when tax rates are raised, people change their behaviour so that the tax they pay is reduced. That is where the Laffer curve comes in. Income is reduced when tax rates are too high.

[Kerry McCarthy]

I am sure that the hon. Gentleman is a student of behavioural psychology, as he is of so many other subjects, so can he explain why the Government believe that if we give more money to wealthy people that encourages them to work harder, whereas the lower paid are encouraged to work harder if we give them less money?

[Jacob Rees-Mogg]

The hon. Lady—my near neighbour, as she represents a Bristol constituency—is very wise and does, I am sure, understand this point. The answer is that the question being asked differs between benefits and earnings, although the argument is essentially the same. Inevitably, where there is a level of benefits that discourages people from working, if that increases more slowly, it encourages people to work. It is an identical argument to the one that says people keep more of the money they earn if taxes are set lower.

[Sheila Gilmore]

The problem for many people at present is that the jobs simply are not out there. In my speech on Monday I explained that I had used the Government’s new universal job match. When I put in “shop assistant” on behalf of a constituent of mine, I discovered there were 76 entries, which sounds good, but 57 of them were for vacancies all over the region, not just in my city, and involved going around delivering catalogues and trying to sell things to people. Those are the kinds of so-called “jobs” that are out there, and that explains why people cannot find work.

[Jacob Rees-Mogg]

I am always doubtful when people are sniffy about jobs that people take. I and others in the Conservative party voluntarily go around knocking on people’s doors trying to sell them party policies. That is known as canvassing, and I wish I got paid for that activity, but I do it out of the goodness of my heart. I do not think one should be sniffy about jobs that people might apply for; they are all welcome and all valuable.

[Fiona O'Donnell]

The hon. Gentleman is completely out of touch on this point. The point is not that people are being sniffy, picky or choosy about jobs. The point is that someone might live in Edinburgh East while the job is in Fife, and we do not all have drivers and chauffeurs to take us to Fife to do the job.

[Jacob Rees-Mogg]

I wish I was in this fortunate position of having a chauffeur or driver to take me to Fife to get a job. When I tried for a job in Fife in 1997, I was distinctly unsuccessful, and came back to a job in London, but that is slightly beside the point.

The overall point is that income at whatever levels has a determinant effect on the employment people seek and the work they are willing to do. That applies to benefits— paying benefits at too high a level can create a benefit trap that makes it not worth while for people to apply for jobs—and it applies very clearly to high tax rates when people decide not to earn.

[Kelvin Hopkins (Luton North) (Lab)]

There is some research that counters part of the hon. Gentleman’s argument. In the 1980s in Germany they found that if the income of people on very high salaries is increased, they want to take more time off to enjoy it. There comes a point when they have so much income that what they want is time, not more money.

[Jacob Rees-Mogg]

As always, the hon. Gentleman makes a very interesting point, but if we aggregate across society at large, the determining factor will be that people want to earn more money. Although some individuals may prefer leisure, of course, many will want to continue earning to increase their standard of living or to provide for future generations. We are slightly moving away from the point, however, and there are some key aspects to which I wish to return.

I mentioned fairness. It is a bizarre definition of fairness to say that it is fair to set tax rates at a level that raises less tax. That is an argument that makes PR and spin and the like much more important than the realities of economics, and it is bad politics as well as dreadful economics.

I also want to tackle the question of the morality of taxation. Is it morally right that people should pay half their earnings over to the Government? I think it is morally wrong. I think there is a moral case for low taxation and allowing people to keep the fruits of their labours, and when the rate gets to 50% that is simply too high in a moral sense, even if it is economically successful, which it is not. I do not believe the state has the right to take half of somebody’s earnings.

[Robert Flello]

Is it morally right that time and again constituents come to my surgery with the figures in front of them, saying, “This is my income and these are my outgoings; I cannot afford to live”, because of the low level of their income and the apparent inability of the benefits system now to support them?

[Jacob Rees-Mogg]

I obviously do not know about the individual cases that come to the hon. Gentleman’s surgery, but with a benefits bill for this country of £220 billion a year, there really ought to be—

[Chris Leslie (Nottingham East) (Lab/Co-op)]

And rising.

[Jacob Rees-Mogg]

It is rising, as the hon. Gentleman says. There is a huge amount of money in the benefits system. If it is not going to the right people, that will be rectified by the reforms being pushed through by my right hon. Friend the Secretary of State for Work and Pensions, which are some of the Government’s most ambitious and important changes.

12:30

To go back to morality, I believe that it is immoral to take more than half of somebody’s earnings in taxation.

I will finish on the point that has been raised about the economic benefit of money depending on where it goes, and whether it is better going into the pocket of somebody on benefit who will spend it immediately or going into the pocket of somebody on £150,000 a year. That economic argument has been taken to an extreme point that ignores many other aspects of the movement of money. There is a basic economic principle that money must find a home. Unless the person who earns £150,000 a year stuffs his mattress with £5 notes, their money goes into the economy—[Interruption.]

[The Temporary Chair (Mr Jim Hood)]

Order. I ask hon. Members to desist from commentary during the contributions of other hon. Members.

[Jacob Rees-Mogg]

Unless such money is put in a mattress, it has an effect, because it goes into the banks. As hon. Members know, the banks have been short of capital to lend out and short of deposits.

[Kelvin Hopkins]

My study of economics, which I also used to teach, always showed that the rich have a lower marginal propensity to consume than the poor. If we want to drive economic growth, we should give money to poor people because they spend it immediately in the domestic economy, rather than hiding their surplus cash in tax havens abroad.

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for that intervention, because it demonstrates an unduly simplistic approach. Indeed, poorer people may have a higher propensity to spend than richer people, but that is not the end point of the economic cycle. There need to be deposits in banks so that money can be lent to businesses—small businesses as well as large—and so that people can take out mortgages. There is a cycle and a flow of money.

[Andy McDonald (Middlesbrough) (Lab)]

Will the hon. Gentleman explain why, when I speak to banks—I had a conversation with Barclays bank not many weeks ago—they say that they do have deposits and the ability to lend, but that money is not flowing out because people are not approaching them? Is that the reason or is it that the terms on which they propose to lend money are so onerous that the transactions do not proceed? Whichever it is, my understanding is that the banks do have the funds.

[Jacob Rees-Mogg]

One of the major flaws that led to the banking crisis was that loan-to-deposit ratios across the banking sector were out of kilter. Banks were lending more than they had on deposit and were therefore entirely dependent on the wholesale market. The wholesale market dried up, which led to a huge calling in of loans. That was at the heart of the financial crisis.

The banks may be saying that they are more comfortable with their loan-to-deposit ratios, but if one looks at the figures, even HSBC’s loan-to-deposit ratio—for its UK business, rather than its international business—is about 100%. Historically, banks have been more comfortable in the 70% to 80% range. We therefore do need more savings in the economy and those come from the better-off saving some of the income that they earn.

[Kelvin Hopkins]

The hon. Gentleman seems to be making a powerful case for the reintroduction of exchange controls, so that money made in the domestic economy goes into the domestic banks and helps us all.

[Jacob Rees-Mogg]

I do not agree with the hon. Gentleman on that at all, because this country attracts a huge amount of foreign investment. Sticking to the example of the Hongkong and Shanghai Banking Corporation, that company was able to ease its way through the financial crisis because it could lend its overseas deposits to its British business. It was on the backs of savers in Hong Kong and China that HSBC was secure during that period.

Rich people saving their income is a good thing economically because it boosts the pool of saving that is available for productive investment, such as loans to businesses and individuals. Even if the argument were right that this policy is a great boondoggle for the wealthy, which it is not, it would be beneficial because it would help the economy get back on to a path to growth by providing the capital that is needed for the banks to lend.

In summary, it is clear that putting rates up leads to less tax. That is not a sensible thing to do when the Government are short of money. It is not fair, indeed it is unfair, because it puts a greater burden on other members of society who have less ability to pay. It is not morally defensible because high rates of tax are not a moral good and low rates a moral evil; in fact, it is the other way round. People have a right to keep the money that they earn, unless the state can show that it is essential to take it. That is economically beneficial because one of the great problems of our economy is a lack of saving. We are not in the paradox of thrift circumstance, in which excess savings deflate the economy.

For all those reasons, the amendment should be rejected and Her Majesty’s Government should be proud of what they have done. Indeed, they should go further and look to get the higher rate of tax down to 40% and perhaps even to that magic figure of 37%, which, as I said earlier, some studies show would be the perfect rate to maximise revenue, encourage people to work hard and continue us on our path to success.

[Andy McDonald]

It is a pleasure to serve under your chairmanship, Mr Hood.

I will address the amendment directly. The lowering of the top rate of income tax to 45p will benefit 267,000 people who earn more than £150,000. In my view, it cannot be right that those who earn more than £1 million a year will receive a tax cut of more than £100,000. Families across the country will be £891 worse off on average as a result of the Chancellor’s changes to tax, tax credits and benefits since 2010. I am at a loss as to how that fits with the concept that we are all in it together. The 1% cap on tax credits and working-age benefits means a cut in real terms. At the bottom, inflation outstrips increases in earnings, whereas at the top, earnings outstrip inflation.

Acres of copy have been written about Baroness Thatcher over the past week, but one of her utterances that has not received the attention that it deserves is her expression of disappointment that, despite having made it possible for a small minority of people to gain control of the majority of the wealth of this country, that has not given rise to a greater degree of charity or generosity. Interestingly, it is often those who have the least who give the most. Two examples of such generosity are imprinted on my mind. The first was in 1984, when people from my community made regular trips up to Easington colliery with bags and boxes of food to assist families in County Durham who were finding life such a struggle.

The second example is from recent weeks, when I visited one of the five food banks in my constituency run by the Trussell Trust. It was heartbreaking to hear from the local director of the trust, Nigel Perrott, that food parcels were being sent to my town of Middlesbrough from places such as York and Thirsk. He hails from the home counties and credits people in that part of the country with tremendous generosity. However, he said that he had been surprised and overwhelmed by the generosity of the people of Middlesbrough. When they come out of the supermarkets, they do not donate the occasional tin of beans or packet of rice, but bags and bags of food. It seems that everything changes, but nothing changes. It is perhaps no coincidence that such desperate need arises when the Conservative party is in power.

We used to hear a lot from the Prime Minister about the big society, although a lot less so recently. The genuine big society is, as it ever was, ordinary people looking after each other.

[Robert Flello]

I am enjoying my hon. Friend’s contribution, albeit that it is tinged with quite a lot of despair. To reinforce his point, last Saturday a trolley push organised by the Trussell Trust gathered more than 325 kilos of food from the people of Stoke-on-Trent for the people of Stoke-on-Trent.

[Andy McDonald]

My hon. Friend makes a telling point and I would not want to diminish the importance of what I am saying by qualifying what he said about despair. As in his constituency, this Friday we will have a wonderful demonstration of generosity in my constituency with the same sort of event—a trolley push. My point, however, which I wish to reinforce, is that there is such a spirit of determination and people are so resilient that they will not be beaten by this situation. However, they will come through it not because of this Government but despite them.

While tax cuts are being handed out to millionaires, 40% of children in my constituency are living in poverty. I cannot see how fairness and the apparent principles of a big society are influencing or informing this Government’s policies one iota. I do not wish to dwell too much on the negativity, but it is unavoidable given that my constituency is the second worst in the country for long-term unemployment. We are asking for fair treatment. North-east England is the only net exporting region in the country; our contribution to the national economy is massive but the people see little of the benefits. It is about fairness.

The Prime Minister and Chancellor have repeatedly said that those with the broadest shoulders should bear the largest load. They claim that the 45p tax rate raises more revenue, but one data point is totally unreliable, as has been exposed in the Chamber today. It is also clear that the richest will arrange their affairs, especially when such a reduction was so well telegraphed. The richest have benefited most from our society, and the amount of tax they pay is proportionately more than their numbers, but proportionately less than their wealth. Relative to their income, the Chancellor’s biggest tax rise—that on VAT—hurts those at the bottom most. The rich still do very well, with company directors getting inflation-busting pay increases, and bank executives getting huge bonuses, which the Prime Minister went to Brussels to defend.

[Geraint Davies (Swansea West) (Lab/Co-op)]

The Committee may already know, and people will be interested to hear that, in the past two years, pay increases for the top 10% were on average 5.5% in both years. The top 10% have increased their pay by 11%. The Government claim that the rich are making a greater contribution, but they have very thick wallets to start with and, frankly, are sitting comfortably.

[Andy McDonald]

That is exactly right. I was going to make that point another way and say that company directors of the FTSE 100 received on average a 50% pay rise in 2011—Income Data Service provided that information. The well-off enjoy the benefits of many interesting incentive schemes that are not available to ordinary working people such as Mrs O’Reilly or Mr Hussain in my constituency, where the average income for a full-time employee is less than £500.

12:45

With your indulgence, Mr Hood, I would like to mention another area where I perceive there to be immense financial irresponsibility. A measure has gone through the House this week that has deprived the Treasury of significant funds that could be much more wisely invested and directed. The Enterprise and Regulatory Reform Bill was discussed in the Chamber some days ago, and I asked myself whether any conversation had taken place between the Treasury and other ministerial colleagues. As a result of that Bill, many people who have sustained catastrophic injuries will not be able to secure the compensation that they deserve or need. We are talking about hundreds of millions of pounds, and that is further evidence of the Government’s direction of travel that punishes and penalises those in greatest need. This is not about lottery wins but much-needed capital and income streams that pay for vital and lifelong care and support for physiotherapy, speech therapy, transport and accommodation.

Without the ability to secure those services from such funds, those with traumatic brain injuries and spinal cord injuries will have to look to the statutory services as there is nowhere else for them to go. As everyone in this Committee is aware, those services are under incredible pressure, and the Bill means that those innocent people will not be able to go out and purchase the services that they need. Somebody suffering from a spinal cord injury must rely on when the district nurse can get to their home to attend to their intimate and personal needs, rather than use funds that would otherwise be available to get on with their lives.

Not only does the Bill remove significant sums of money from the economy, it delivers a windfall to insurance companies. They will be rubbing their hands while innocent victims are left without redress. To add insult to injury, the compensation recovery unit will be deprived of millions of pounds through this system. We are kissing goodbye to the recovery of benefits, the disability living allowance, jobseeker’s allowance and so on. That money will stop flowing into the nation’s coffers. I wonder whether the Treasury realises that it is cutting off its nose to spite its face.

[Geraint Davies]

I am grateful to my hon. Friend for his enormous generosity in giving way. I have a schedule from a constituent that details his personal means. Until the beginning of this month he had £21.25 a week left for food and clothing after paying his utility bills and allowing £6 for bus fares. After the introduction of the empty bedroom tax, which will cost £10.31, he will end up with under £11 a week for food. Some problem could happen along the lines mentioned by my hon. Friend, but assuming that nothing else is needed, he will have just £11 a week. We would not want that desperate situation to happen in a developing country, let alone in Britain. How can we justify giving money to the richest when people are in despair and poverty?

[Andy McDonald]

I absolutely agree. People are getting down to the pennies, not the pounds, yet this month multimillionaires will get an extra £2,000 a week. We should be thoroughly ashamed of delivering that to our people. I sometimes wonder what on earth we mean by patriotism in our land. We can wave our flags and hold the necessary ceremonial events, but where do the people come in? For my money, patriotism must be about our people. We sometimes lose sight of that and get confused by the panoply and array of colourful images of patriotism that do not go to the heart of the living and working conditions of our people.

[Geraint Davies]

My hon. Friend mentions patriotism, which reminds me of yesterday’s great spectacle of Baroness Thatcher’s funeral, which many people would have enjoyed watching on television. However, let us not forget that that £10 million would have kept my constituent going on his previous income for 10,000 years, and on his new income for 20,000 years. Is that not a disgrace?

[Andy McDonald]

My hon. Friend’s point is well made —he expresses it well.

I shall conclude by highlighting the lack, as I perceive it, of any conversion among Departments. There is a desire to offer assistance to the insurance industry, which will no doubt be delighted that it will no longer have to pay compensation to people in the circumstances I have described. I strongly suspect that the measure will not help our industries one jot—I do not foresee any massive reduction in the employers’ liability premiums that will be charged as a result of the measure—and, frankly, the insurance industry is laughing all the way to the bank. I do not know whether it is laughing with or at the Government, but in any event, it is has received a fabulous return at the country’s expense.

All that is happening in the run-up to workers memorial day. It saddens me immensely that we will commemorate the dead and fight for the living on that day when employers know that the regulations we have fought so hard to introduce to our workplaces to promote a safety culture have no teeth whatever. As a result of the measures, there will be an increase in deaths and serious injuries in the workplace. That, too, will be visited on the statutory services. We are compounding error on error. I urge the Government to think carefully about the impact of those policies.

The point is well made that the Treasury is defending the rich and powerful against ordinary working people. The reflex of Government Members is to protect the powerful against the powerless; those with a voice against the voiceless; and those who control the wealth of this nation against those who build it.

[Several hon. Members]

rose—

[The Temporary Chair (Mr Jim Hood)]

Order. Before I call the next speaker, I should say that I am mindful to call the Minister at 1.15 pm. Hon. Members should therefore bear that in mind when they make their contributions.

[Nia Griffith (Llanelli) (Lab)]

I rise to support the proposals in the names of my hon. Friends.

On the one hand, Government Members accuse Labour Members of always wanting to clobber the rich, but on the other they accuse us of not introducing the 50p rate early enough. We had a vibrant economy, but everything changed with the enormous banking crisis in 2008. In response, we had to introduce a deficit reduction plan, part of which was the perfectly logical introduction of the 50p tax rate.

I make no apology for Labour’s firm commitment to the redistribution of wealth through the taxation system. The majority of citizens in western European democracies share that view. The taxation system is not the only redistribution mechanism. Other mechanisms include the minimum wage, which the Labour Government introduced. I hope the Government retain the minimum wage and increase it year on year in line with inflation. It worries me that it is going up by only 1.9% this year, while inflation races ahead. It is important that we have such mechanisms, but taxation is an important mechanism in the redistribution of wealth. The vast majority of people in this country recognise the need for all to contribute to the many public services we enjoy, and the need for some redistribution through the taxation system.

The economic argument that my hon. Friend the Member for Wrexham (Ian Lucas) advanced about money going back into local economies is extremely strong. People on the lowest incomes tend to spend money immediately, so it goes immediately back into the local economy and helps the local high street. Local businesses are going bust because people simply do not have the money to spend. They are struggling. They are turning to food banks—they are unable to buy food, never mind Christmas presents, clothes and the rest of it.

Local economies are struggling enormously. We have heard from many wise sources that the Chancellor needs to get his act together on stimulating the economy, and putting the money in the pockets of people who have the lowest incomes, who will then use it immediately in the local economy, is one way of doing so. That is not happening, which is why the Opposition are so angry about the cut in tax from 50% to 45% when there is an enormous squeeze on those on lower incomes.

One of the most insidious changes is the change to tax credits. They are difficult to explain because they have been designed to suit each individual household, which makes it more difficult to speak about them in a more general sense. Nevertheless, let us look at the changes. First, there has been an increase in the tax credit clawback. The whole point of tax credits is that they are an incentive for people to work if they can find it. Many who are on low incomes cannot get more hours, and the maximum amount that many can be paid for the hours they work in a full-time week still qualifies them for tax credit. Any reduction in that tax credit is therefore counter-productive—it does not help people at all.

The child care tax credit has also been reduced. That is another seemingly mad policy. The money is desperately needed to help people to work. The family element of tax credit has been abolished, as has the 50-plus element, and the working tax credit has been frozen. Given current inflation, the proposed cap of 1% on increases in working tax credit and child tax credit is effectively another cut—it is a cut in what lower-income families can buy with the money they have, with the catastrophic effect that all hon. Members see in our local economies and high streets.

In Wales alone, the tax credit measures will suck some £794 million—much-needed money for lower-income families—out of the economy. The whole point of tax credits was that they were calculated on what it was reasonable for a family to live on, which helped those whose earnings did not meet that rate to keep going.

[Mr Kevan Jones (North Durham) (Lab)]

In communities such as mine and that of my hon. Friend, the poor spend money—they have no saving capability. Does she agree that the measures therefore have a double impact on local shops and economies?

[Nia Griffith]

My hon. Friend makes a good point. That is the iniquity of the cut from 50% to 45%. Effectively, a cut in one place unfortunately means that people suffer in other places. Those on the highest incomes can afford to cushion themselves and do not need to spend money straight away. Even someone who earns just £10,000 above the £150,000 mark will benefit significantly. Instead of paying £5,000 in tax, they will pay £4,500. They will have a gain after tax of £500. Most people do not see anything like that increase in their income—incomes are frozen. If someone earning £50,000 has even a 1% increase, they will not get that £500 because it would be taxed. With all the different changes that are being imposed on them, families are losing far more—they are losing, on average, £895 per year.

[Geraint Davies]

My hon. Friend will know that the Government’s alleged strategy is that the private sector will move in and generate growth as the public sector is pulled back. In Wales, there is a higher proportion of public sector employment and, as she has said, £790 million will be taken out of demand, and savings rates among people in work are increasing because of insecurity. The whole concoction is pushing Wales and similar regions into negative growth. Does she agree that we should stimulate growth by giving more money to people who are poor, because they spend it?

[Nia Griffith]

I absolutely agree with my hon. Friend. We should get more stimulus into the economy and get more people into work doing useful things, such as through infrastructure projects, which he has championed in our local area. It certainly does not help to have more people thrown out of work. It will obviously lower their incomes immediately, but it will also have a direct effect on the local economy.

13:00

What I find most worrying is the amount of destitution. We all know that benefit rates have never really been set at rates that are entirely able to cover people’s needs. We know that there has always been a compromise. This year’s decision to raise benefits only by 1%—less than the rate of inflation—is absolutely unprecedented. Not even in Thatcher’s time was that done. We are now seeing as a result that people simply cannot make ends meet.

The bedroom tax affects 46% of the working age families in social housing who get housing benefit in Wales—40,000 homes. It is actually a cut, as there is nowhere else for them go; they have no alternative. The housing stock has already been allocated and some people on the waiting list do not qualify. With two adults and two children under 10—or two children of the same sex under 16—families do not qualify for a three-bedroom house. As I say, it is just a cut. People are consequently unable to buy food and now have to go to food banks. They are unable to pay their fuel bills and unable to pay their rent bills.

All that seems to me to be mad. The cost of it all to the public purse will escalate in the long term. To get it right, we should keep a redistributive taxation system and keep the 50p rate of tax for the top earners. That would allow us more flexibility in dealing with those on the lowest incomes. That would be much fairer, and I think that the majority of people in this country firmly believe in fairness—and that is what they would like to see.

[Debbie Abrahams]

It is a pleasure to serve under your chairmanship, Mr Hood.

I came to this House just over two years ago, and the main reason I got into politics was my belief in making Britain a fairer society—a more equal society in which the gap between the haves and the have-nots is narrow and in which we protect and look after our most vulnerable people. I believe that to be intuitively right and just, and there is also significant evidence to show that a fairer society benefits everybody in respect not only of life expectancy improvements and mental health benefits, but of educational attainments, improvements in social mobility and in rates of offending. All of us benefit from having a fairer society. Unfortunately, the measures in this Bill contribute not one jot to such a society.

As I said in my speech on the Budget a week or so ago, this Government absolutely fail the anti-poverty test. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) mentioned the analysis by the Institute for Fiscal Studies, but there are also those of the Joseph Rowntree Foundation, the Child Poverty Action Group, the Resolution Foundation, the New Economics Foundation—and the list goes on. They all reached the same conclusion: the poorer people are, the worse off they are.

Raising the personal allowance does little for the lowest-paid workers, many of whom do not pay tax anyway. Over 682,000 working families receiving child tax credit earn less than £6,420, so I am afraid that they will not benefit at all from the increase in the tax threshold. Taken in conjunction with the welfare cuts they are now facing, the lowest earning taxpayers will receive an income boost of 32p a week or £16.80 a year as compared with those not claiming housing benefit or council tax benefit of up to £112 a year. That does not take into account the impact of the 20% VAT hike back in 2011, the additional 26% rise in food prices since 2009 or the 20% increase in energy costs that households face on their household bills. Nearly 8,000 households in my Oldham East and Saddleworth constituency—nearly one in four—already live in fuel poverty. How are they meant to cope? As other Members have said, our constituency surgeries are crammed with families that are desperate about how they are going to cope in the coming weeks and months. My constituency now has a food bank—the first ever in modern Oldham—and the number of recipients of food bank support has trebled over the last quarter. I am deeply concerned about that.

[Geraint Davies]

I visited the food bank in my own constituency only last Monday, and the key issue put to me was that food banks were designed as places of crisis able to give two or three parcels to people in the moment of crisis—for instance, when benefits had been delayed or something had gone wrong. They were not designed to sustain life over time. I mentioned earlier a constituent whose money available for food had gone down from £21 to £11; he just cannot cope on an ongoing basis. If the food banks do not save him, he is on the way out.

[Debbie Abrahams]

My hon. Friend makes an excellent point. We are not talking only about people on out-of-work benefits either, as many of the families affected are working families that are struggling to survive.

As I have mentioned, the Chancellor’s own distributional analysis shows that the cumulative impact of tax, tax credit and benefit measures means net reductions in income for the poorest 40% of households in the country. Although there is strong evidence to show, as other countries have shown, that increasing the spending power of the poorest families helps to boost economies, the Chancellor has done nothing to help them or the economy.

In the short term, the Child Poverty Action Group has estimated that between 2010 and 2015 absolute child poverty will have increased by 600,000 as a result of the Government’s spending plans. Two wards in my constituency have child poverty levels affecting nearly one in two households. That is absolutely unacceptable in a society such as ours. It leads one to question what the Government mean when they say they are committed to child poverty, let alone how they are fulfilling their obligations under the Child Poverty Act 2010.

I also have deep concerns about the impact, particularly of the new benefit changes, on people with disabilities. One in four disabled people already live in poverty, and with the recent welfare changes that is set to increase. I fear that this could be enough to drive people over the edge.

Many of us have already said that these measures are ideologically driven. In tandem with the downgrading of equality and human rights in the Enterprise and Regulatory Reform Bill, which we debated on Tuesday, it is clear that this coalition Government have no commitment to a fairer society. As we have heard before, this is all about choices, and it is quite clear where this Government’s priorities lie. Their response to their failing economic policies is to give tax breaks to the wealthiest in society—£3 billion to more than 300,000 people earning over £150,000 a year, with an average gain of £10,000. What is there for people on low pay? Absolutely nothing. When we take the tax and tax credit benefits into account, we realise that it is not just the poor who are being hit. We know that the average loss to households for this coming financial year is £891.

The Chancellor said in last year’s autumn statement that we needed a welfare system that we could afford. Tax credits and benefits form part of the “automatic stabilisers” that help dampen economies in booms and boost them in recession. That is what we have seen. In spite of the disappointing employment figures yesterday, the effect on unemployment has been less during this recession and in the past because of these stabilisers.

The choices the Government make are underpinned by their ideology—to create an “us and them” culture with power and wealth retained by the wealthy and powerful. By attacking universal benefits such as child benefit, they hope people will start to see our welfare system as irrelevant—and then quietly dismantle it. I am proud of our model of social welfare, born out of the second world war when we literally were “all in it together”. I want to retain this model with its principles of inclusion, support and security for all, protecting any one of us, should we fall on hard times, assuring our dignity and the basics of life, and helping us all back on our feet.

It is often said that the mark of a civilised society is how we care for our most vulnerable. It is a mark of this Government, their ideological priorities and their economic incompetence that they are singularly failing to do that. Fortunately, as recent opinion polls have shown, the British public are seeing through this Government. They are exposing and seeing through the myths peddled by this Government. I shall leave it there to allow more hon. Members to participate in the debate.

[Geraint Davies]

Every week during Prime Minister’s Question Time the Leader of the Opposition asks why, at a time when there is so much poverty and a need for austerity, the richest in society are benefiting from a cut in the 50p income tax rate, and the Prime Minister replies, “We will raise more money from the 45p rate than from the 50p rate.” We all know why that is, and the Minister knows why it is. It is because rich people are able to manage their affairs and can move their income between tax years, and in this instance they will simply move it into the 45p year. The Minister knows that, and he also knows that if we retained the 50p rate on a sustained basis, we would gather more money.

The Minister shakes his head with a smug expression, but he knows that, and he also knows that many people already pay 52p in the pound. Those with incomes of £32,000 or £42,000 are paying 40% in tax plus 12% in national insurance. The Minister’s claim that we could not possibly have a 50p rate because all those rich people would get on their yachts and leave Britain is absolute rubbish.

[Mr Gauke]

Let me make two points. First, I do not know whether the hon. Gentleman has read the HMRC report on the 50p rate, but if he has, he will have seen that a large element of the loss is due to a reduction in economic activity, and has nothing to do with tax avoidance. Secondly, I am afraid that he has got his facts wrong: people stop paying 12% in national insurance contributions as soon as they reach the higher-rate threshold.

[Geraint Davies]

That is not my understanding. According to the Minister’s own analysis of economic activity, which he mentioned, the yield from a 50p rate would be greater over a period. The analysis factors in the behavioural change to which I have referred, namely rich people moving their incomes around. It is also the case that people are paying the rates to which I referred. I have commissioned research from the House of Commons Library. It is all very well for the Minister to sit there nodding away, but that is the fact of the matter. It is completely unjustifiable that, at a time when the incomes of some of my constituents are being reduced to about £11 a week and they are on a starvation diet, his rich friends should be enabled to have this extra money.

The Minister continues to resist calls for a bankers’ bonus tax. At one moment he claims that bankers should be taxed in that way, and at the next moment he gives them 5p back. It is absolutely preposterous. The Minister hopes that the food banks that are now emerging in their thousands will help to cope with the Dickensian circumstances that he is causing, in which people are starving in their own homes, but, as I have already pointed out, unless a supplement to the social security system is introduced such people will not be able to survive.

The Minister is pushing us into a situation in which the state is withdrawing in the hope that the charitable sector will help to sustain certain very poor communities. It is absolutely appalling. We have a dementor Government who are sucking the lifeblood out of our poorest communities. Those people want to spend their money, and would otherwise be reviving our local economies. All that they want is a chance to work, and to do a job.

We should be investing in infrastructure, skills and connectivity. We should be marketing local areas and helping businesses to succeed and create jobs, rather than taking away the demand in those local areas. We should also be promoting spending. At present everyone is saving instead of spending because they are scared of the future, but we do not want a future of fear; we want a future of hope. We do not want a future of division; we want a future that cares and a future that works. We want a “one nation” Britain, rather than a divided and weak society moving forward under the Tories.

I hope that the Minister will think again about the need for those with the broadest shoulders to make the highest contribution, rather than just smirking with his colleagues. I would guess that they—in their richer communities in the divided Britain whose divisions they are accentuating—will not have to deal with the number of people who approach our surgeries in despair, asking what they can do with the very limited amount of money that they have.

Some of the changes in the Budget are completely unnecessary. The bedroom tax was originally expected to raise £490 million. The figure has just been revised to £400 million, but in fact the tax will raise no money at all. It was supposedly intended to confront the problem of rising housing benefit costs, which have doubled over the last 10 years, but we know that 70% of that rise was due to the fact that not enough houses were being built and private-sector rents were going up. The displacement into the private sector of people who are being punished because their children have grown up will simply increase housing benefit costs further.

The Minister knows in his heart, and from the analysis, that such changes are unnecessary. They will not raise money, so why make them? Why not let the rich pay a little bit more towards the public good? Even if the bedroom tax does raise £400 million, the Minister is spending £12 billion on ever-increasing tax thresholds. While that in itself is welcome, the fact remains that these changes are about choices. If the Minister’s choice is to give the richest more and hand a bit from the very poorest to the squeezed middle, he is taking the wrong direction in terms of the prosperous and united Britain that I believe we all want to see.

13:15

[Mr Gauke]

Let me say something about clauses 1 and 16. Clause 1 deals with the income tax charge for 2013-14, which requires legislation every year. I assume that Labour Members will not oppose the clause, given that the legislation raises £154 billion a year. However, a few weeks ago they did oppose the income tax charge in the Budget resolutions. If they had been successful, the deficit would have increased by more than £150 billion a year. Moreover, whereas the Government have taken some 2.7 million people out of income tax, Labour would have taken about 30 million people out of it, including millionaires.

I understood the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) to be opposed to clause 16. I shall say more about that shortly, but let me first comment on the three main parts of her interesting speech. She began by calling for greater economic growth in the economy. That section of her speech was followed by a part opposing the abolition of the 50p rate of income tax and containing no acknowledgment that it was an anti-growth measure which was not helping the United Kingdom to grow, was sending a signal that the UK was not open for business, and was higher than the rates imposed by many of our competitors. The third part of her speech set out her opposition to the cap on reliefs contained in clause 16 and schedule 3. [Interruption.] The hon. Lady says that concern is not opposition, but what she said sounded an awful lot like opposition to me.

[Kelvin Hopkins]

As the Minister may know, in Denmark the standard rate of income tax is about 30% and the higher rate is about 60%. Denmark has a very successful economy. High tax rates do not equal poor economic performance.

[Mr Gauke]

The fact remains that the 50p rate was higher than the rates imposed by many of our competitors. It was also considerably higher than the rate imposed by the hon. Gentleman’s party, a rate that stood at 40p for 155 of the 156 or so months during which his party was in office. I appreciate that he has always been very consistent in this regard, and I assume that he considers even the 50p rate to be too low.

[Kelvin Hopkins]

indicated assent.

[Mr Gauke]

I thank the hon. Gentleman for confirming that. However, I am not entirely clear about the principled position of those on his party’s Front Bench. I do not know whether they think that 50p, 60p, 45p or 40p is the right rate.

[Catherine McKinnell]

rose—

[Mr Gauke]

I will give way to the hon. Lady, who may provide me with an answer.

[Catherine McKinnell]

Is the Minister seriously blaming the 50p tax rate for stagnating growth? If so, can he explain why, although the Government removed the 50p rate in this year’s Budget, the Office for Budget Responsibility has downgraded its growth forecast for each of the next three years?

[Mr Gauke]

We know what the big issues are with growth. We are having to deal with the aftermath of the financial crisis, the eurozone crisis, high commodity prices and the terrible fiscal situation we inherited from Labour. Having an uncompetitive top rate of income tax does not help, a point that previous Labour Governments recognised until we got to the fag end of the previous Government when, as a political ploy, the then Prime Minister put the rate up to 50p. It is striking how the Opposition will not confirm that they will return to a 50p rate.

[Geraint Davies]

I am grateful to the Minister for his generosity in giving way. Does he agree with the trickle-down theory, which is that if we give the rich more money the poor will eventually get a bit more? Or does he believe that it is more of a trickle-up and that if one crushes the poor, like the dementors I mentioned, one can take their money and give it to the rich, so that we have the bloated group of people whom he represents side by side with people in massive poverty?

[Mr Gauke]

The hon. Gentleman refers to dementors, and I am afraid that he is living in the world of fairy tales and Harry Potter with his economics. It is this Government who are taking people out of income tax and this Government who are providing support to low earners. The fact is that a 50p rate was not effective.

We heard many speeches about a tax cut for millionaires and so on. The hon. Member for Newcastle upon Tyne North made it pretty clear that she disliked clause 16 and schedule 3, which introduce a cap on reliefs. Such reliefs exist for good reasons and can encourage certain activities and behaviours that benefit both our economy and wider society, such as entrepreneurship and investment, which help to drive growth. We are committed to supporting such activity, but that support should not be limitless, especially at a time when the priority is to balance the public finances. In the past, some individuals have been able to offset unlimited reliefs against their income to reduce their income tax bills to zero. Those are often very wealthy individuals who can end up paying a lower tax rate than the people they employ to clean their offices. That is simply not right and some individuals have been able to do that year after year.

It is right and fair that we should seek to prevent such activity by limiting uncapped reliefs. That is what clause 16 and schedule 3 do: they cap the use of previously unlimited income tax reliefs at £50,000 or 25% of an individual’s income, whichever is the greater. The cap came into effect on 6 April this year. The changes will affect only around 7,500 individuals and more than 90% of the revenue will come from those with an income of more than £150,000—that is, those who pay the additional rate of income tax. The limit is expected to raise about £200 million a year, significantly more than the cost of reducing the 50% rate down to 45%.

One question that has been asked is whether the provision will hurt start-ups and SMEs. Some 90% of trading losses set against general income in a tax year are less than £15,000 a year, well below the threshold for the cap. Business loss reliefs are not intended to subsidise businesses that have no chance of success. We have a generous regime, but we do not believe that it should be without limit. Unlimited reliefs mean that some people, often with high incomes, can pay little or no income tax year on year. We do not believe that that is fair. There will be no limit on trade or property losses set against profits from the same trade or property business in another year and business loss reliefs are not intended to subsidise established businesses that make losses year after year.

[Catherine McKinnell]

Can the Minister provide reassurance that he has taken on board the concerns raised by a number of accountancy organisations, whose opinions are very reputable, that the change will not only counteract the clamping down that the Government are correctly introducing but hamper the growth of genuine small businesses that are struggling? I would say that those businesses are struggling because of the Chancellor’s failing economic plan.

[Mr Gauke]

Of course, we have consulted on this policy and have listened very carefully to the representations we have received. If we are serious about raising revenue in a way that does not damage the economy, the cap on reliefs is a sensible approach. It is a matter of fairness and I would have thought that hon. Members from all parties would agree that it is wrong for us to have a system whereby people can drive down their tax bill year after year to very low rates despite being high earners. That is exactly what this measure is about.

The measure demonstrates that as a Government we are doing more to raise money from the wealthy. In Budget 2010, we increased higher rate capital gains tax; in Budget 2011, we tackled avoidance through disguised remuneration, which was opposed by the Opposition; in Budget 2012, we raised stamp duty on high-value homes; in the autumn statement 2012, we took action to reduce the cost of pensions tax relief; and in Budget 2013 we announced further measures to tackle offshore tax evasion by high earners. Under this Government, the richest now pay more in income tax than in any year under Labour.

Amendment 1 requests a review, and HMRC published a thorough and very well-researched report at Budget 2012 that showed the effect of the additional rate of income tax. Those matters were debated at considerable length last year and the report shows that the rate was not raising the money that the previous Government intended it to raise. It is illogical to maintain a tax rate that is not effective at raising revenue from high earners and that risks damaging growth. We have found better ways of raising money from the wealthy that raise more money but do less damage to the economy.

We always keep tax rates under review, but I note the inclusion of a request for a review in the amendment. It seems to me that the purpose of the amendment is not just to enable us to have another debate on the 50p rate today but to enable the Labour party to find an escape route from its policy. Until a few days ago, it was against getting rid of the 50p rate. Labour will not answer the question, however, of what it will do at the next election. Its holding position is clearly that it will have a review. The Labour party knows that to go into the next election campaigning for an increase to the 50p rate would simply underline that it is anti-enterprise. It knows such an increase would damage the economy and is trying to find an escape route. Despite all the bluster in all the speeches we have heard today, Labour will not confirm that that is the policy it supports. It is all about posturing, not about practicality. That is why they did not have a 50p rate when they were in government and why they are trying to slip away from it now, hoping that no one will notice. I recommend that clauses 1 and 16 and schedule three stand part of the Bill and we hope that they will have all-party support.

[Catherine McKinnell]

I thank the Minister for his response and the completely fictional rewriting of HMRC’s report on the impact of the 50p rate of tax, which showed very clearly that it brought in additional revenue of about £1.1 billion. Who knows how much more it might have brought in had the Government not abolished it at such an early stage, before there was even the opportunity to collect the data that would have given a picture of the longer-term impact?

We will press amendment 1 to a vote, and we are asking for a proper review of the impact of the 50p rate of tax so that members of the public can know the truth about the amount of revenue it would have brought in had this Government not opted to give a tax cut to millionaires while letting ordinary people bear the brunt of the Chancellor’s utterly failing economic plan.

Question put, That the amendment be made.

13:29

Division 215

Ayes: 203

---

Labour: 193
Scottish National Party: 6
Plaid Cymru: 3

Noes: 264

---

Conservative: 230
Liberal Democrat: 32
Democratic Unionist Party: 1

13:39

More than two hours having elapsed since the commencement of proceedings, the proceedings were interrupted (Programme Order, 15 April).

The Chair put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83D).

Clauses 1 and 16 ordered to stand part of the Bill.

Schedule 3 agreed to.

New Clause 2

Rate of VAT

‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent” substitute “17.5 per cent”.

(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.—(Cathy Jamieson.)

Brought up, and read the First time.

[The Temporary Chair (Mr Jim Hood)]

I call Catherine Jamieson to move the motion.

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

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

Thank you, Mr Hood, for using my full name. My mother will be most impressed, as she is the only other person on the planet who addresses me as “Catherine”, rather than Cathy. She will be delighted.

I am sure that many Government Members are interested in the rate of VAT and perhaps rather relieved that they are not in the same frenzy over it that they were when we debated the Finance Bill this time last year. I see some hon. Members agreeing, because I think that we all learned far more than we ever wanted to about ambient temperatures, pasties and the impact of the VAT proposals on not only hot food, but caravans, churches, sports nutrition products and so on. Perhaps Government Members will be more relieved to talk about our VAT proposals.

We have tabled new clause 2 because, as has been said in earlier debates, we have concerns about the rising cost of living and its impact on ordinary people. In the last debate we heard many passionate speeches from Opposition Members, particularly on how the rising cost of living is impacting on their constituents, and I was struck by the number of Members who referred to constituents having to rely more and more on food banks. Having moved on from the debate on hot food, it is sad that we are now talking about more people having to rely on food handouts. Those handouts, of course, show the generosity of many people in our local communities, and I applaud them for the work they are doing, but surely in this day and age people should not have to rely on such initiatives.

13:45

[Mr John Redwood (Wokingham) (Con)]

Can the hon. Lady tell me her definition of the “strong growth” that her new clause says would trigger VAT being put up again?

[Cathy Jamieson]

I thank the right hon. Gentleman for his intervention. Given that I have not really got under way with all the details of the new clause, I will come to those points later. However, I will say that one thing we know is that the Office for Budget Responsibility has halved the growth forecast for this year and downgraded it again for next year, so we are not in a situation of strong growth. The Government really have to take responsibility for that, because since the Chancellor’s spending review in 2010 the UK economy has grown by just 0.7%, compared with the 5.3% forecast at the time. I do not think that anyone could suggest that that was particularly successful. Last year, of course, the UK went through a double-dip recession and the economy shrank by 0.3% in the last quarter.

[Mr Redwood]

The hon. Lady is quite right that growth has been very disappointing and that the forecasts have been revised downwards, but we are debating her policy, which is that VAT should go up again when the UK economy returns to “strong growth.” It is a very simple question: can she tell us what strong growth would trigger an increase in VAT?

[Cathy Jamieson]

As I have indicated to the right hon. Gentleman, whose views I listen to and who always raises pertinent questions, I will come to that, but the Government must also take responsibility for, as we heard in the previous debate, trying to give all sorts of reasons why the economy has not recovered. As my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) suggested, we were surprised to hear that the latest reason given seems to be the issue of the 50p tax rate, rather than looking at the situation in the round. I want to talk a little more about some of the issues that the economy currently faces and why we think our proposal is one way of stimulating the economy and looking to the future in order to help local businesses.

[Stewart Hosie]

I am broadly sympathetic to the proposal, which could stimulate the economy significantly, but VAT brings in about £100 billion a year, so the question the right hon. Member for Wokingham (Mr Redwood) asks is valid. Does “strong growth” mean consistently positive growth and, if so, at what level and for how long, or would it require a return to trend growth of about 2.5% and, if so, for how long, or would it require above-trend growth and, if so, for how long? To have an open-ended commitment to lose potentially £10 million a year for some years would be quite a serious and significant thing, irrespective of the positive impact it might have.

[The Temporary Chair (Mr Jim Hood)]

Order. I say to the hon. Gentleman, in case he is going to make any further interventions, that he should make them a bit shorter and get straight to the point.

[Cathy Jamieson]

I am interested to hear that the hon. Gentleman has some sympathy with our proposal—I suspect that we might not have the same agreement over some of the other issues up for debate today. He raises important issues. That is why, through new clause 2, we want to ensure that a report would be produced. We are calling on the Government to do that now, rather than put it off into the future. The Government could put in place monitoring measures now; that would allow for a temporary VAT cut, which would help stimulate the economy.

Borrowing to pay for the cost of economic failure has risen—it is now forecast to be £245 billion more than planned at the time of the spending review. That, of course, excludes the one-off transfers of the Royal Mail pension fund and asset purchase facilities. The Government are not going to balance the books by 2015 as the Prime Minister promised. National debt as a percentage of GDP is not now forecast to start falling until 2017-18. It is important to remember that, as it breaks one of the Government’s own fiscal rules.

As this week’s labour market statistics show, halfway through a Parliament, Britain is still being scarred by rising unemployment, an issue raised in earlier debates by many hon. Members, who brought attention to what was happening in their constituencies in the real world.

Not only are more people unemployed than at the election, but the number is rising. Earlier, my hon. Friend the Member for Newcastle upon Tyne North referred to the rising numbers: 70,000 more people are on the dole now than last month; long-term unemployment has risen yet again; and, most damagingly of all, the next generation is paying the brutal price, with youth unemployment up yet again, by 20,000.

People are no longer giving the Chancellor the benefit of the doubt. I think I said that about this time during last year’s debate; I felt that at that stage the public were beginning to lose confidence in the Chancellor’s economic strategy. This week, we have to take note of what the International Monetary Fund’s chief economist said:

“In the face of very weak private demand, it may be time to consider adjusting the original fiscal consolidation plan”.

[Mr Stewart Jackson (Peterborough) (Con)]

I am following the hon. Lady’s speech with interest and read the new clause with greater interest. She really has not addressed the issue raised by the hon. Member for Dundee East (Stewart Hosie). The new clause represents a spending commitment. Given that she is not able to specify what “strong growth” means, how will she fill the fiscal gap? Will she increase another tax, and if so which one? Alternatively, which departmental budget would be cut to pay for the measure?

[Cathy Jamieson]

I thank the hon. Gentleman for his intervention. We argue that the new clause would be part of a package of measures. We have heard about other initiatives that could be brought forward, and it is important to recognise that others in industry and business are also saying that one way to stimulate the economy would be to introduce at least a temporary cut in VAT. There are serious questions to be asked about the other issues, but if we could get unanimity about this issue, it might be possible for the Government to consider it and bring forward further proposals.

In the Budget, the Government had the opportunity to change course, make the necessary changes and kick-start the economy. Sadly, however, more and more commentators are reflecting that all we got was more of the same from the downgraded Chancellor. As a result, the cost of living for people up and down the country is rising day by day. The economy is flatlining, inflation remains high and food bills are rising. Energy bills are soaring, thanks to the Government’s failure to break the stranglehold of the big six energy companies. The Office for Budget Responsibility’s most recent figures show that people will be worse off in 2015 than when the Government came to office.

The reality for people is that real wages are now £17,000 a year smaller than they were in 2010. To add to that hardship, any benefit that hard-working people might have received from the Government’s much trumpeted rise in the personal allowance has been uniformly swept aside by the raft of tax and benefit changes that the Government have made since 2010. Those changes mean that families will be an average of £891 worse off in the new financial year, according to the analysis of figures made by the independent Institute for Fiscal Studies—even more money out of the pockets of hard-working people up and down the country.

The truth is that even if those tax and benefit changes had never happened, any benefit from the rise of the personal allowance would have been wiped out by the Government’s 2011 VAT rise from 17.5% to 20% alone. Research from the TUC confirms that by the time of the next election, families of all incomes will lose more from the VAT rise than they will gain from the increase in the personal allowance and the changes to national insurance, with low-paid workers losing up to four times more per year from the Government’s increase in VAT than they will gain from the raising of the personal tax allowance to £10,000.

[Neil Parish (Tiverton and Honiton) (Con)]

I understand that times are tough, partly because we have to try to bring the economy together after the last Labour Government. The hon. Lady said that individuals are £17,000 worse off than they were. I cannot understand that. Has she added on too many noughts, or what?

[Cathy Jamieson]

I intended to say £1,700; if I said £17,000, I apologise. Obviously, Mr Hood, I need to put my spectacles on when I read the numbers. I am glad that the hon. Member for Tiverton and Honiton (Neil Parish) is accepting my apology.

[Neil Parish]

indicated assent.

[Mr Jackson]

rose—

[Cathy Jamieson]

I want to make a bit more progress. I come back to the point raised by the hon. Member for Tiverton and Honiton about times being hard and the idea that somehow the problem is to clear up the mess left behind, as he described it. People out there in the real world are getting tired of hearing that same old mantra. The Government have responsibility for what is happening now. They have to take responsibility for policy decisions taken in Budgets that impact on the lives of ordinary people.

I go back to the research from the TUC. Some Government Members may look sceptical about it, but I assure them that many ordinary people in my constituency and those of my hon. Friends recognise the value of the work that the TUC and trade unions are doing in standing up for those finding that their individual and collective incomes are being affected.

The TUC research considers the impact of direct and indirect tax changes over the Parliament. It shows that a household with an average weekly income of £195.92, the lowest income band for working people, will gain £1.09 a week—that figure is underlined, so I have not made an error—from the above-inflation rise in the personal allowance by 2015. However, and importantly, the same family will lose £4.26 a week through the increase in VAT, which went up in January 2011, leaving them with a total annual loss of £164.84 as a result of the Government’s tax policy.

Many on the Government Benches may say, “Well, that is not a huge amount.” I repeat what I have said in previous debates: it may not be a huge amount for someone with a decent job and income—I include all of us here in that—but it is a huge amount for those trying to have a reasonable standard of living and ensure that their families have food on the table and that their kids have clothes.

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

rose—

[Mr Jackson]

rose—

[Cathy Jamieson]

I give way first to the hon. Gentleman and then to my hon. Friend.

[Mr Jackson]

The hon. Lady is being most generous in giving way. Surely it is churlish of her not to concede that most independent specialists, such as the Institute for Fiscal Studies, have said that as a result of the fiscal changes since 2010 the biggest impact has been felt among the richest 10% of earners in the country. Is it not fair to put that on the record, too?

[Cathy Jamieson]

I hope I am not being churlish in hoping that the hon. Gentleman will understand that most of those independent commentators also point to what is happening to those on the lowest incomes. Opposition Members feel strongly that those people are taking a disproportionate share. It is not a case of, “We’re all in it together.” When ordinary people see millionaires and those on the highest incomes getting a tax break or a tax cut, it seems unfair to them that their wages or incomes are hit hard by the Government’s policies.

[Andrew Gwynne]

rose—

[Cathy Jamieson]

I will take my hon. Friend’s intervention before I forget about him.

[Andrew Gwynne]

My hon. Friend is absolutely right to call for an assessment of the cost of living. Does she accept, though, that it should not be restricted to the impact of the fiscal changes announced in the Budget but should look more widely at the effect on families of expenses such as increasing fuel prices, increasing transport costs, and interest payments on payday loans?

14:00

[Cathy Jamieson]

My hon. Friend makes a valuable point. So that I cannot be accused of being churlish, let me say that we did welcome the action taken on fuel duty, but if VAT were reduced, as we are suggesting, that would provide a further reduction in fuel costs, which would make a difference to families.

My hon. Friend mentioned payday loans. Many people will be hard hit, with not only those out of work but those in work now finding it much more difficult to manage from month to month. The worry is that many more might feel the need to try to get such loans, believing that they will help but finding themselves further caught in a downward spiral. This is a very serious problem. In my constituency in the past couple of weeks, I have heard about people in that situation, which will be very familiar to other hon. Members. Perhaps equally worryingly, I have heard people say that they fear the impact of the bedroom tax will mean that, for the very first time, they might have to rely on food banks. The saddest aspect is that many of them will not be able to do that over an extended period because food banks are supposed to deal with the crisis points rather than sustaining people, and perhaps folk have not yet fully understood that. They are clutching at any hope to try to maintain their standard of living. James Plunkett, the director of policy at the Resolution Foundation, has stated:

“The squeeze will look worse over the next few years than previously feared”.

With all that going on, it is no wonder that working people feel that their lives are going backwards, because they are.

All this has had an undeniable and damaging knock-on impact on our economy and on our high streets and businesses up and down the country. That is why, for over a year and a half, Labour has been calling on the Government temporarily to reverse VAT back down to 17.5%. That would put about £450 back into the pockets of a couple with children, help to ease the squeeze on our constituents, and give our economy a much-needed stimulus. That is why we are calling for it again today. When consumers have less cash in their pockets, our high streets, local businesses and economy suffer. These are tough times for businesses.

[Mr Iain McKenzie (Inverclyde) (Lab)]

My hon. Friend has noted a number of ways in which people are suffering up and down the country. Does she agree that society suffers the most when the gap widens between rich and poor, that we are now seeing it stretched to the absolute limit, and that the Government either do not recognise that or choose not to do so?

[Cathy Jamieson]

My hon. Friend is a powerful advocate for the people in his constituency who are bearing the brunt of the Government’s policies, and he is absolutely right. It is important that there is no further widening of that gap. This is not just about the money in people’s pockets, important though that is, but the fabric of society and the relationships that people build in their local communities.

It is important to consider the impact on our high streets. For generations, local businesses have offered jobs and the convenience of shopping in the local high street, and have been involved in providing services there. They are now under pressure from the flatlining economy. Consumer spending has been constrained by high inflation and stagnant wages, leading to a 6% fall in real disposable income in 2008, with a devastating impact on our local high streets. Shops are lying empty, with a threefold increase in that trend since 2008. Household names such as HMV, JJB Sports, Blockbusters and Comet have been forced to close a large number of stores or to shut up shop completely. It is estimated that last year 1,800 shops were forced to close—a staggering tenfold increase on the year before. We have heard about the impact on the pub industry, and there has been a call for the VAT rate to be considered in that context.

Not only is retail suffering, but businesses of all kinds up and down the country are feeling the impact of the Government’s failed economic policies and the flatlining economy. That has led, and is still leading, to a lack of confidence, particularly in the construction sector, with many arguing that more must be done to get people back to work and to get projects under way. Sadly, Project Merlin did not deliver the new era of loans that it was supposed to. We learned this week that lending to UK businesses fell by £2 billion in December alone, and it is down by £18.6 billion over the past year, while businesses continue to suffer. The Business Secretary seems perhaps finally to be recognising this failure. He boasted at his party conference that he would set up a Government-backed bank to get billions of pounds to businesses that need it, but we are still awaiting the fine detail of what that bank will do and when and how businesses will be helped. They may well have to wait some time for it to be up and running.

I shall draw my remarks to a conclusion because I want to give other hon. Members the opportunity to raise issues on behalf of their constituents and put the case to the Government. There are things we can do to help businesses and individuals through these tough times. We could reform the funding for lending scheme so that banks can access the lowest rates of funding only if they increase lending to businesses as well as overall lending, and extend it beyond the end of 2013, as currently envisaged by the Government, to the end of 2014. Let us do what every other G8 economy has done and set up a state-backed investment institution to provide credit to small businesses where others will not by establishing a proper British investment bank. As we have argued, that could be done through a new network of regional banks like the German Sparkassen. That would also help to return SMEs to a local relationship with banking, with managers who know what is needed on the ground and have the discretion to make local lending decisions. Regional banks are committed to their regions and in touch with local business. We have called for, and will continue to call for, the Government to bring forward these measures to help boost our businesses and get our economy moving again.

Even if the Government accepted all those proposals and they were acted on today, the benefits would take some time to come to the fore and to be felt. However, the one step we could take now that would immediately make a difference would be for the Government to agree to reduce VAT to 17.5% to put money back into the pockets of hard-working people and give a stimulus to local economies. That would put something back into the pot to help the local businesses we have talked about, whether by reducing fuel costs or stimulating the economy such that people feel that they are able to spend again. We need to get consumers back out there spending their money, supporting our high streets and businesses, and helping our economy to grow again. It is for the Government to explain to the people of the UK why they will not listen to the arguments that have been advanced and are not prepared to take this action as a stimulus to the economy and to help to get things moving again.

[Mr Redwood]

The proposed new clause is designed to stimulate strong growth, which I suspect everyone in this House would welcome. I trust that the Government are in the market for ideas that would stimulate strong growth, but my sad conclusion is that a sudden cut in VAT of undefined duration is neither a sufficient condition for stimulating strong growth in the economy nor even a necessary precondition of such stimulation.

We have to ask what the alternative is to the Opposition’s recommendation, which we all agree is well-intended because they wish to see strong growth. I submit that the prime thing the Government need to do to raise the growth rate and get over this period of extremely disappointing performance is mend the banks. It is surprising that the official forecasters at the Office for Budget Responsibility thought there would be strong growth over the past three years, because they knew that the official policy on the Royal Bank of Scotland, which is largely state owned, was to push the bank through the most enormous slim-down, a continuation of the policy begun in 2008 when it was largely acquired by the state under the previous Government.

So far, £900 billion of assets and liabilities have been removed from RBS’s £2.2 trillion balance sheet since the state foolishly took them on. How can we expect the British economy to grow rapidly when its leading bank is going through a forced slimming programme of £900 billion? This is big money, even for a £1.5 trillion economy. We spend most of our time in this place discussing the odd £5 billion or £10 billion—we are now billionaires in our discussions rather than millionaires— but these figures have very little overall impact on a £1.5 trillion economy, whereas £900 billion is eye-poppingly large. We have to deal in trillions now if we want to see the things that really make a difference to the economy. I submit that the main reason why our economy is not growing rapidly is that the banks, led by RBS and abetted by HBOS, have been on a very sharp slimming programme. It is true that some of those assets were foreign and a lot of them were derivatives and so on, but overall, this massive slimming programme has clearly placed enormous pressure on the UK economy.

In addition, this place, as part of the political debate, has discovered that bankers are even more unpopular than politicians, so it has taken great delight in trying to do as much damage as possible to the banking industry. I understand that the banking industry did not do well for itself—I am enough of a politician to realise the politics of all this—but if we target one of our biggest and most successful industries of the previous decade and force it into slimming down measures and tax it more, we should expect a drop in output, and that is what has happened. One of the reasons why we do not have much growth in this country is that our lead sector of the previous decade has taken such a big hit and is now so politically unpopular that pressures remain to prevent it from growing and recovering as some of us would like.

A third area that has caused considerable problems is oil and gas. We cannot legislate to change the age profile of our reservoirs, many of which have aged a lot recently in terms of the amount of oil and gas left to exploit. There are arguments about other tax policies we could pursue to stimulate more finds and exploitation, but some of the big, successful reservoirs of previous years are now ageing, so whoever was running the country was going to experience a reduction in output from another of our high-value-added sectors—oil and gas—and that was bound to hit the growth rate.

What more can we do to overcome those difficulties in two of our lead sectors? Tax measures proposed by other clauses that we will discuss later could be helpful. Broadly speaking, the lower the tax rate, the better from the point of view of stimulating growth, and there have been some measures in the right direction.

The problem with the proposed new clause’s VAT measure is that it is so expensive and I do not think we would get a big enough return for the colossal loss of revenue that it would cause. We have already heard an estimate of about £10 billion, but the Labour Opposition have given us no figures whatsoever. They have not told us how much it would cost, how long it would be a concessionary rate and on what conditions they would return to the new rate. That weakens their case, because if they wish to make this a serious policy, they need to cost it and explain by how much the deficit would rise in the early stages and at what point the growth would accelerate enough to start to generate serious revenues from increased activity.

The evidence seems to be that, whereas it is possible to do serious damage to the revenues generated by income tax and capital gains tax if the rates are put up too much—I fear that that is what has happened under the Labour and coalition Governments in recent years—it is more difficult to depress the revenues of VAT. Indeed, the increase from 17.5% to 20% actually produced some increase in revenue, despite the poor performance of the economy, so the argument that cutting the rate generates more revenue—economists call it the Laffer curve argument—does not apply in the same way as it does to taxes geared towards gains and income, whereby more realistic rates would do two good things, namely generate more growth and, therefore, more tax revenue. I fear that the problem with the VAT proposal is that this short-term measure would definitely increase the deficit and that the stimulus from VAT would not be sufficient to replace the lost revenue in any serious period of time over which this experiment might be tried.

14:15

Meanwhile, the banks would still underperform, unless we changed regulatory policy towards them, and we would still be under-banked, because I do not believe there is enough banking capacity to fuel a proper domestic recovery and we do not have enough competition in the banking sector so we do not have choice or good value offers. People still tell me that if they try to get certain kinds of lending for business or for property, the answer is either no, or yes, but at an incredibly high cost with all sorts of restrictions and difficulties that make it unattractive.

If we tried to promote growth against the background of some of our primary export markets on the continent collapsing as a result of the foolish euro policy and the extreme austerity policies that are doing so much damage to the continent, we would need to be extremely clever in offsetting the additional headwind caused by that collapse. If we tried to promote growth against the background of major difficulties in our banking sector, we would need to ask ourselves how we can mend that sector, first to finance a better recovery and secondly because one of the main reasons why the output figures are so poor is that the banking sector itself—one of our best performing sectors—is now doing so badly.

I urge my right hon. and hon. Friends on the Front Bench to turn their attention to the central issue that the Opposition have rightly highlighted. I know that the Government are doing that, but I want them to look at splitting up RBS and creating banking competition in the market so that we can finance a better recovery and get some growth in output from the banking sector at the same time. They need to focus on tax rate cuts that would produce more revenue rather than those that would produce less. Although we would like lower taxes, we cannot afford less revenue and the Opposition have hit upon the one tax reduction that would produce less revenue, as I think all forecasts would rightly show. I trust that the Opposition’s good intentions will be welcomed, but that their proposal will be dismissed, because I simply do not think that it would trigger the fast growth that they want and that they have not even bothered to define.

[Albert Owen (Ynys Môn) (Lab)]

I always listen with interest to what the right hon. Member for Wokingham (Mr Redwood) has to say in these debates and he has been very consistent about low taxation over a number of years. I agree with him that external factors such as banking and energy costs are suppressing growth in our country, but I also think that the domestic economy needs a boost and he did not offer any solutions. Small businesses on our high streets are all asking for help from the Government and I believe that the proposed new clause would help them. Money is being taken out of the economy at a time when we need to be putting money back into it.

[Mr Redwood]

The hon. Gentleman makes a fair criticism of my remarks, but to stay in order I did not mention the changes to energy policy necessary to have cheaper energy or the changes to other taxes that I would like implemented to boost to the economy.

[Albert Owen]

As a member of the Energy and Climate Change Committee, I understand the difficulties. I realise that one of the major problems—the price of crude oil and gas—is external and that we could have a wider debate about that, but I am talking specifically about the need to boost the domestic economy.

Small businesses tell me that high street names are folding, first, because they have tight margins, and secondly because, although footfall might be steady, people are spending less money. The 2.5% increase in VAT is making a real difference and taking money out of people’s pockets. I support raising personal income tax thresholds as a way of helping the low-paid, but it can have no impact if cancelled out by a VAT increase. That is what business tells us. A small business leader in my area makes a little joke about the Chancellor: every time that that business leader goes out with his wife, daughter and son-in-law, he has to take the Chancellor with him, because one-fifth of the bill is shared with him. That is not a good state of affairs. If business people are starting to think like that, it means that confidence has been eroded. One way of providing the necessary boost to confidence in the domestic market would be to reduce VAT temporarily.

Those are not just my words; they were also the words of the Prime Minister before the general election, when he said that VAT was a regressive tax, which it is. I am in full agreement with him. The Deputy Prime Minister—there are not many Liberal Democrats here today—said that putting up VAT during a recession would be a bombshell for the economy, yet that is exactly what the Government have done. I have argued consistently for keeping VAT, which is a regressive tax, as low as possible in order to stimulate the economy.

[Mr Robin Walker]

I admire the hon. Gentleman’s consistency, but does he accept that this was a matter of debate during the general election because the then Labour Chancellor was clearly preparing to raise VAT to 20%, as he has subsequently admitted? It is wrong to imply that his party has been as consistent as him.

[Albert Owen]

That argument is completely wrong. It might be Conservative central office’s take on it. The previous Chancellor suggested a VAT rise, but was outvoted by the Cabinet. He was just one individual. The current Prime Minister, however, was clear that he would not put it up, but then did. The hon. Gentleman cannot accuse the previous Chancellor of making an argument and then blame the last Government for not listening to him. It was the leader of the Conservative party, now the Prime Minister, who turned circles on this issue.

This regressive taxation hits the most vulnerable in our society. According to the Office for National Statistics, 9.7% of the money the poorest 20% spend goes on VAT, and they spend more on VATable goods than the richest 20%, for whom that figure is 5.8%. It is an unfair tax, as well as one that takes money out of the economy.

The Conservatives have been consistent in shifting from direct to indirect personal taxation. It was Anthony Barber who introduced VAT, at 10% I think, and a later Chancellor, in 1979, who raised it from 8% to 15%, which had a negative effect for many years. In 1984, it went up to 17.5%. As I said, in opposition, the Conservatives said that they would not do this, yet it was one of the first things they did. They are not getting the revenue yield they expected, because the economy is in such dire straits—it is stagnating, in many ways. My hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) talked about wage freezes and other impacts of Government policy. With a policy of reducing VAT, the Government could actually do something, instead of blaming the previous Government, the European Union or other external factors. Here is an opportunity for them to use one of the levers of power at their disposal.

I hope that the Liberal Democrats will support us. They have made such a big issue of it in the past. There is only one Liberal Democrat here today, the hon. Member for Eastleigh (Mike Thornton), but I would be happy to take an intervention from him, if he feels as strongly as his party did—not him personally—before the general election. It is a big issue. I talk to small businesses, and they tell me that the rate of VAT is having a negative impact on their businesses. Everyone in the House wants to stimulate the economy, and here is a way of doing it relatively quickly.

There is evidence that along with other measures—it cannot be seen in isolation—the previous Government’s VAT reduction from 17.5% to 15% actually helped the economy at a difficult time. The car scrappage and other short-term schemes were also introduced to boost the economy. The Government should be considering those sorts of things, rather than just blaming others. The economy is at a difficult juncture. Unemployment is rising again, after temporarily falling: 2.54 million people are on the dole—that is mass unemployment—and are not spending. Helping them, with their small incomes, by reducing VAT would have a big impact on the economy. The way forward is to create more jobs and get them back to work.

The Government have said—I am sure that the Minister will clarify this matter—that it is not possible to reduce VAT, but that is not the case. I have heard them mention on numerous occasions a mechanism by which Europe can prevent them from reducing VAT, but it could be done as a temporary measure. There are also many variations, zero-rating exemptions and concessions that could be applied to VAT.

[Mr Gauke]

I want to help the hon. Gentleman on this point. There is flexibility when it comes to reducing the rate, but the difficulty is that if one plucks a particular item, such as petrol, and reduces VAT on that alone, as his party advocated, it would need to be consistent with the VAT directives and that would require a derogation, which would take some years. The concerns we raised related to the ill-thought-out specific proposal that those on his party’s Front Bench put forward a year or so ago.

[Albert Owen]

I am grateful for that clarification. I recall that Labour Front Benchers said at the time that the proposal was specific to one thing, but this is a flexible measure. We can exempt certain goods from it. Yes, there are the European directives, but we could do this immediately and in doing so send out a positive message to the country and the business community and increase footfall in our shops and high streets.

The argument about reducing tax and increasing yields is perfectly legitimate. Some say that reducing corporation tax automatically boosts business, but it also results in a drop-off in the money that the Treasury takes. Nevertheless, it seems to be a favourite of the Conservatives, and I, too, support it. I support having a low-tax economy and reducing many of these taxes, but we should be consistent and do the same with VAT. The increase in it was supposed to raise several billions of pounds, but it has failed to do so because spending has fallen.

I support the proposal to reduce VAT. Action is need and needed now. The Chancellor could do it, and if he wanted to, he could do it straightaway. I accept that the poorest in the country, on the lowest wages, will benefit from the change to income tax thresholds, but they will lose out overall. The TUC is not alone in making this point. The Institute for Fiscal Studies has said that the combined tax increases, of which there have been several, both direct and indirect, will make the average family £900 worse off. If families are worse off in this country, spending is reduced and the economy is bound to contract. That is basic economics. We need to stimulate the economy, and one way of doing it correctly is to reduce VAT temporarily from 20% to 17.5%. Let us get the economy moving. The Chancellor has the power to do it, and he should support the new clause.

[Mr Stewart Jackson]

It is always a pleasure to follow the hon. Member for Ynys Môn (Albert Owen). I am not sure that it is necessarily a pleasure for the Whips, because the Committee will know that in the last Budget I was not exactly that supportive of my party on VAT, having opposed VAT on caravans and, by virtue of my being the Member of Parliament for Peterborough, on ecclesiastical buildings.

14:30

I would like to develop some of the points made by my right hon. Friend the Member for Wokingham (Mr Redwood), although I am hesitant to do so, given his expertise. We are debating an Opposition amendment, which I had hoped would be a coherent alternative to the Government’s Budget and this Finance Bill. However, we do not see that clear and coherent alternative, not least because those on the Opposition Front Bench have not really taken into account the externalities that my right hon. Friend touched on. He has forgotten more than I will ever know about the banking crisis, but he touched briefly on the effect on business confidence of the disastrous market conditions in the European Union. Hon. Members will know that I have consistently taken a robust line on the euro and the ongoing bail-out efforts for southern European countries such as Greece and Portugal. Business confidence is suffering, not least because, in the name of German economic policy, we are inflicting destitution and poverty on thousands of working people across southern Europe. That is an issue.

My right hon. Friend also talked about the availability and adequacy of capital. That, too, is an issue that will not necessarily be addressed or ameliorated by changes in VAT.

[Sheila Gilmore]

Would the hon. Gentleman like to comment on the numerous observations and reports suggesting that, in fact, capital is available? Many businesses have capital available; the reason it is not being used to invest is that there is low demand in our economy.

[Mr Jackson]

The hon. Lady anticipates my next point. By any respectable indicators over the past few years, the cash reserves that British business has for investment are enormous. The issue is business confidence. To develop that point, parts of the economy are doing significantly better than others and have not been affected by this cyclical change, which has lasted since the onset of the Northern Rock crisis of 2007-08 and the wider banking crisis.

I am a Conservative, so of course I am in favour of tax cuts. Would that we were in a position to have a tax cut by virtue of the Opposition’s new clause 2, but let us make no bones about it: it is an unfunded tax cut—if it walks like a duck and swims like a duck, it is a duck. I always thought that Labour’s credo in recent times was not to support unfunded tax cuts. With all due respect to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who is a very competent, proficient performer at the Dispatch Box, she failed to answer the points raised by me and the hon. Member for Dundee East (Stewart Hosie) and say where the money would come from. We are talking about £100 billion of indicative funding, which has to be found from somewhere. It is all very well saying, “We’re going to have a progress report at the end of this Parliament to see how things are going,” but once we put in place that tax cut, we would cut off that income stream. We would then have to find other ways to fund core expenditure.

[Albert Owen]

I hear what the hon. Gentleman is saying, but he referred to a figure of £100 billion, which is the total VAT take. We will not lose all of it: there will be a 2.5% reduction.

[Stewart Hosie]

A 10% reduction.

[Albert Owen]

Yes, a 10% reduction. The hon. Gentleman is talking about losing that, but unemployment is going up—these are the factors—and we will be paying more out of the Treasury for those things. We are talking about stimulating the economy, which I understand is difficult to quantify, but it would be positive.

[Mr Jackson]

The hon. Gentleman might say that, but it is incumbent on Her Majesty’s loyal Opposition to specify the amounts and where the cuts would be made in other ways. It is not acceptable to dodge the issue, and that goes even for the simple question of what is “strong growth”. At what stage would that be measured? How would we quantify “strong growth”? It is rather mealy-mouthed.

Let us look at the wider context. Interest rates are historically low. Perhaps the hon. Gentleman is not old enough—or maybe he is—to know that in 1975 they were 27%, under a Labour Government. Inflation was substantially higher through most of the ’70s and ’80s. We now have big cash balances, lower interest rates, relatively low inflation, lots of money in the economy and quantitative easing, which has been in place for many years. Even if we accept the traditional Keynesian view—that just pumping money into the economy will deliver growth, jobs and prosperity, which seemed to inform the argument that the hon. Member for Kilmarnock and Loudoun made—we should accept that it has not worked so far through quantitative easing, with the balances that are available. The issue is business confidence.

In the wider context—wider even than that—between 2000 and 2010, public expenditure rose from roughly £450 billion to more than £700 billion. That is the context in which we should look at these fiscal changes. It is not as if we have starved the economy of money in the public sector. The difficulty for the hon. Member for Ynys Môn in arguing in defence of the Government at that time is that the economy was so unbalanced. It was focused disproportionately on the housing market, public expenditure and financial services. Part of our challenge as a Government is to try to rebalance the economy, so that it can make people prosperous and create jobs across wider economic activities, which is happening organically on its own.

Those on the Opposition Front Bench also fail to take into account the other, bigger policies that the Government have embarked on. I will not pretend that things such as the national insurance holidays or the regional growth fund have been an enormous success. I serve on the Public Accounts Committee and we have been critical of things that the Government have pursued in some areas. Nevertheless—the hon. Gentleman alluded to this—the Government are looking at tariffs for utility bills, the beer duty escalator and the fuel duty escalator. We are looking at substantial changes that will have a fiscal impact on welfare, through the universal credit and so on making work pay, rather than paying for idleness and allowing people’s talents to be wasted. We are also putting money into the mortgage market and assisting new house building. Some 42,000 of my constituents had a tax cut last week as a result of the massive fiscal changes that this Government have made, with 2,000 of my constituents paying no tax at all and 24 million people affected. It seems rather unfair not to take that on board.

I also alluded earlier to the progressive nature of our tax changes. Whatever we say about them, it cannot be argued that we have not looked at the top 5% or 10% of income earners in this country to ensure that they are paying a significantly higher share than others. They are the people who will specifically be more worse off than anyone else, whether the hon. Gentleman likes it or not.

[Mr Redwood]

It is unfair to say that VAT is a very regressive tax. If it were applied across everything, it would be, but because it does not apply to food and some other items that figure much more highly in low-income budgets, it is not nearly as regressive as has been suggested.

[Mr Jackson]

Exactly. We could argue at length about the progressiveness of various taxes—no doubt others would want to—but my right hon. Friend makes an astute point.

The final example is council tax. That depends on the local authority, but in general, most councils have frozen council tax. Therefore, the suite or portfolio of the Government’s fiscal changes that have helped working people is quite significant.

Let me say in finishing that we expect more from an Opposition two and a half years into a Parliament. We expect them to come up with policies that are credible. We expect them to move on from policies that just tick the box of opposition. No doubt the hon. Member for Kilmarnock and Loudoun, who is well connected in the Labour party, will have read the comments of Tony Blair, a three-time election winner, in the 100th anniversary edition of the New Statesman. He cautions the Labour party not to fall back into the comfort zone, not to be a repository of anger, but to be an outward-looking, forward-looking progressive party. I am sure that the Labour Whip on the Front Bench, the hon. Member for Sedgefield (Phil Wilson), would agree with his predecessor and say that that is sage and intelligent advice. It is so because we expect proper, costed policies. What we have had today is an unfunded tax cut that does not help the people I believe the Labour party genuinely wants to assist to have a better life. I would caution the hon. Member for Kilmarnock and Loudoun to come back with more coherent, more intelligent and more credible policies. That is why I will not support new clause 2.

[Alex Cunningham]

Some Members have chosen to talk about billions of pounds. I will speak about the odd pound and the odd penny, because that is what makes the difference to many of the people I represent.

The cost of living is one of the defining issues of this Parliament not only because of what the Government are doing but because of what they are not doing. Following the announcement yesterday of a huge increase in unemployment—12,000 in the north-east of England—in the last hour, we have learnt that another 160 jobs are going at SABIC, a pharmaceuticals company on Teesside. That is not good news.

The Chancellor’s VAT hike has been shown to be a mistake and it is hitting the vulnerable and those on the lower end of the income scale the hardest. Yes, one of the millionaires who uses his £100,000 tax cut under this Government will pay more VAT than the vast majority of other people when he buys himself a luxury car, but that will not make the difference to whether or not he can buy an extra loaf of bread or a pound of mince for his family’s evening meal. A cut in VAT of 2.5% may just buy some extra peanuts when the banker buys his champagne to celebrate his latest million-pound bonus, but it is the people earning peanuts for working hard to support their families who can put the extra pound or two from a cut to good use.

The previous Labour Government showed that that works when they temporarily reduced VAT to 15%. The reduced tax on sales provided an effective stimulus to the economy. Likewise, a VAT hike was always going to suppress consumption, and hit ordinary families in places such as my Stockton North constituency hard.

[Jonathan Edwards]

As the hon. Gentleman is aware, the rise came in the emergency Budget in 2010. There was a vote on the rise and the Labour party abstained. Can he explain the voting record of the Labour party?

[Alex Cunningham]

That is a very difficult question to answer but easy enough to ask. I regret that that happened.

The Chancellor once spoke of the liberal credentials of his public school, so he could change and understand a bit more about the people out there. At the time, The Guardian quoted him talking about St Paul’s. He suggested that everyone was treated the same and said:

“It didn't matter who your parents were. Your mother could be the head of a giant corporation—or a solicitor in Kew”.

I have news for the Chancellor. Contrary to his blinkered view, solicitors and captains of industry do not encompass the full imaginable spectrum of socio-economic status. Not everyone out there can absorb VAT increases and not notice the difference. One has to add teachers, police, social workers, canteen cleaners, domestic staff, joiners, bricklayers, call centre staff, health care assistants and so many more to one’s list of acquaintances if one is really to understand the impact of his policies on people.

The statistics speak for themselves. The impact of the VAT increase will cost the lowest-paid workers four times more than any gain from the £10,000 personal allowance, when it is introduced in 2014. Like other Labour Members, I approve of the allowance being at that level. It is good that hard-working families can get extra money, but when the Government take it away with the other hand and people end up paying more, that is not a good thing.

Food prices are also up. I know it has probably been a long time since the Chancellor has nipped around the supermarket to do his weekly shop, if he ever has done so, but if he did so regularly he would see that food and other grocery shop prices are somewhat higher than he imagined and, for many items, way ahead of what his inflation figures are suggesting. Whether it is the price of caulies or a budget chicken, my constituents tell me they are having to pay more, or sadly just do without. Families at the bottom of the income scale—on average, on £53.81 a week—will suffer a 6.3% drop in their overall income following the VAT rise, personal allowance increase and other minor tax changes.

14:45

I am unsure why the Government would oppose reducing this regressive burden, and I very much support my Front-Bench colleagues in arguing for a temporary cut, which would put extra pounds and pennies in people’s pockets, which they would spend in our economy. However, it is not just VAT that is making life more expensive for those without well-paid jobs, investment portfolios, or savings to support them, like the Chancellor’s solicitor friends in Kew.

The National Housing Federation estimates that, across Stockton borough, there are 2,806 losers from the imposition of the bedroom tax. There is a shortage of one-bedroom properties for tenants to move to, so they have nowhere to go. Why are the Government penalising my constituents for choosing not to move to properties that do not exist? How can that be fair? Any reduction in VAT, if not used to put a better meal on the table, could at least contribute a little to that extra rent burden.

Again, I say that it is not only VAT and the bedroom tax. Changes to council tax benefit are adding yet more to the cost of living in areas such as my own. Hundreds of my constituents will see their council tax rise by around £3 per week, or £156 a year—money taken away by the Government.

One man who suffers from a degenerative condition came to my advice surgery to tell me that he had a choice: either he paid the council tax contribution, or he bought his prescription certificate, which provided best value for money for his medication. As he buys medicine, food and little else, I know that any cut in VAT would put only a few extra pence in his pocket, but he is simply desperate. Ministers—I nearly said monsters—will be delighted that he blamed the local council for that new expense, but rest assured that he is now in no doubt about who is responsible for taking the very medicine out of his mouth, and I am looking across the Chamber at them.

We are also feeling the impact of the 1% increase in annual benefit rates, which as hon. Members will know is a real-terms cut. There are 7,900 people in my constituency claiming working tax credit, and 15,000 across Stockton borough as a whole. Each of those people will see a real-terms cut thanks to higher inflation, which has been caused, in part, by the VAT rise.

The same goes for the minimum wage. Although the Government have talked about an increase, this is a real cut in the value of the wage of some of the hardest working and poorest paid in our society. Cutting VAT would allow us to increase the spending power of those on the minimum wage, although I for one would rather see the wage index-linked at least as we move towards a real living wage.

In my constituency, people on very low incomes will be asked to pay sums of money they simply cannot afford. Like the VAT rise, these policies impact on those least able to bear the burden of their weight, and combine to place near unbearable pressure on them. I support the new clause because I recognise the immense strain that the sky-rocketing cost of living is imposing on people across the country.

A lower VAT rate would not just ease the strain on families and individuals buckling under the weight of the cost of living; it would also help to lower the cost of those things that contribute to that weight. I know VAT is at a lower rate on domestic fuel bills, but I return yet again to the fact that a cut in VAT for everything else, including petrol and diesel, would make life easier for energy customers who have never needed it more than they do now. Everyone is aware of the rocketing cost of energy. Electricity and gas bills have risen by 145% over the past decade, and at £1,653 a year they account for almost one fifth of household costs and represent the second biggest share of household expenses, having overtaken council tax. Yet even this week, we read in The Observer that the big six energy companies are making more profit per household than ever before.

A recent survey by uSwitch found that 14% of households were in debt to their energy supplier, with the average amount owed standing at 4% higher than last year at £131. This is pushing people into fuel poverty. Department of Energy and Climate Change projections for 2012 show that the number of people in fuel poverty across the country is likely to rise to 3.9 million, a situation that is fuelled by increases in energy prices.

In Stockton borough, my local council has pioneered a unique external cladding and insulation project that has focused on private sector homes and helped to bring energy bills down. Unfortunately, the Government’s failure to take any meaningful action on soaring energy bills has not only cancelled out the council’s good work but reversed any progress that has been made.

The same goes for vehicle fuel. The Chancellor has repeatedly made great play in his Budgets of freezing fuel duty, but he has increased the cost with the increase in VAT. A temporary cut would put money in the pockets of motorists and help to stimulate our economy, making it easier for people in rural areas and commuter towns to get to and from work. More than that, it would reduce costs for haulage companies who would charge less for transporting the goods that we need in our shops, again helping to cut prices.

I urge all Members to support the amendment to reduce VAT, which would put more cash into the pockets of the people most likely to spend it on the essentials in life. Such a measure would make life easier for everyone in this country, stimulate much-needed economic growth, reduce unavoidable costs such as fuel costs and provide much-needed respite for my constituents and for people across the country.

[Mr]

McKenzie: It is a pleasure to serve under your chairmanship, Sir Roger.

It is blatantly obvious that families up and down the country are paying the price of the Government’s failure to come to terms with the economy and to create growth and prosperity for all. The cost of living has never been higher. I speak as someone who brought up a family in the 1980s, and I thought that times were hard then. I am now seeing those circumstances repeated in my constituency. My constituents, especially the working families, are finding it extremely hard.

One of the indicators is the rise in unemployment, yet again, across the country. That illustrates that times are doubly hard for those who can least afford it and who are struggling to get employment. In my constituency, we have been fortunate in keeping unemployment down. Before Government Members jump to their feet saying, “We did it for Inverclyde”, however, let me advise them that they did not. The reason that we have been so successful in reducing youth unemployment is that my Labour-led council has put its money where its mouth is and continued with the future jobs fund for the past two years, to ensure that our young people have a future. It has ensured that they have employment not just for a few weeks or months, and it has gone back to the employers and the young people to ensure that their employment is sustainable for years. Now, 80% of those given employment places have remained in them for more than a year, and we are glad that that success is doing something to alleviate unemployment among young people in Inverclyde.

Unfortunately, however, there has been little impact on those who have been unemployed for more than two years, and the Government have offered them no assistance other than shipping them off to a private firm to be placed in employment somewhere for a week or two. It is clear that only Labour can guarantee those people a job with a living wage.

Prices are rising faster than wages. The Office for Budget Responsibility has confirmed that, by 2015, people will be worse off than they were in 2010. That illustrates the result of this Government’s policies. Most people in my constituency feel that, while Ministers might have read economics at university, it is they who are actually living the economics, day in, day out. The cost of living has never been higher, and that is partly due to increased food prices. I encourage any Member to go round their local supermarket and do their weekly shopping, as I do. I see less and less going into the trolley, and more and more going into the till at the end of my shopping trip. Even those families who are thrifty and who shop around and buy own-brand items are seeing a dramatic increase in their food bills. They are being pushed into using food banks, which is another indicator that times are indeed hard.

In my constituency, we have the i58 project, in which one of the local churches has been running a food bank since last September. I was staggered when I visited it at Christmas. It thought that the numbers of people being referred to it had peaked at 1,000—mine is not a large constituency, after all—but the figure has continued to increase in the new year. It is deeply regrettable that we are not seeing any reduction in those numbers. Ever more families, including working families, have been referred to food banks.

Even with the steps we have taken in my area to insulate homes to try to keep energy bills as low as possible, there have been dramatic increases in households’ energy costs. That seems to happen year in, year out. There seems to be no stopping the price rises introduced by the energy companies. These ever-increasing bills spread fear, particularly among the elderly and those on low incomes. People are struggling to pay to heat their own homes. In my area of Scotland, investment in home insulation has been in place for four or five years, yet people are still struggling to pay their energy bills.

Rents have increased recently, too. Not enough homes are being built, so increasing numbers of people are unable to find social rented accommodation. They are pushed into the private sector, which has taken full advantage by pushing up rents time and again. That, too, is having a dramatic impact, particularly on those who can least afford to pay.

We have already heard about the high fuel prices. Those who are fortunate enough still to be able to afford to run a vehicle find that the price of petrol at the pump increases year after year. A number of approaches to the Government have been needed to get them to halt the increases in prices, but we continue to ask for VAT to be removed from fuel. That has one of the biggest impacts on fuel prices, as was pointed out in an earlier intervention. It was also pointed out that we can drop VAT, on an individual basis, from fuel.

There is more evidence of hard times to be seen on the high streets, with shop after shop closing, and brand name after brand name disappearing. The shops that are replacing them are loan shops, bookmakers and pawnbrokers, which shows that those on low incomes are increasingly having to make visits—perhaps on a weekly basis—to such shops in order to bridge the gap between what they are receiving and what they are having to spend on the bare essentials.

The way to deal with the increasing costs of living is through employment. All wealth comes from employment and we must make sure there are as many jobs as possible. We must create jobs by stimulating the introduction of projects throughout the country. We welcome the large projects, of course—we had great success with the Olympic games, and in Scotland I am sure we will have great success with the Commonwealth games—but the smaller projects in and around our communities need to happen as well, to stimulate local economies and get things moving. We all know of shovel-ready projects in our areas that need to go ahead, but they are not progressing.

Last year, the Government gave additional funds to the Scottish Government for shovel-ready projects. Where that money has gone remains to be discovered, as to date only £10 million has seen the light of day in projects across Scotland.

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

What my hon. Friend says highlights one of the advantages of the proposal to cut VAT. Even with the best will in the world, investment in infrastructure can take a long time to get through all the resistance, which is why even now, after up to three years of trying, we are still not seeing the full benefits of that, whereas a cut in VAT would have an immediate effect on the high street, and on construction and many other sectors of our economy. That highlights why it is so important that the VAT cut should go ahead.

[Mr McKenzie]

My hon. Friend makes a good point. I visited some of the employers in my area in the Easter recess. Time and again they told me they needed a stimulus to the local economy from a VAT cut, to get people spending and buying things. My local construction firms in particular said they needed a reduction in VAT to get people to consider going ahead with smaller projects such as house improvements, thus creating employment locally. They felt a VAT cut would serve to stimulate that local growth and get things moving; otherwise, they could see only a bleak future, if any future at all, for the construction industry. They also brought up the continuing difficulty of being closed out of local and national Government contracts. The procurement process still seems to be far too complex and to exclude the small and medium-sized businesses that could stimulate the local economy.

15:00

The problem, as we all know, is that there is no growth in the economy. It has flatlined. There has been no demand for the products that businesses say would allow them to grow and create employment, and thereby help the economy. I support the new clause and think that it would stimulate growth in the economy.

[Mr Gauke]

It is a great pleasure to serve under your chairmanship, Sir Roger.

I will deal with new clause 2 in a moment, but what has driven this debate, initiated by the Opposition, is the cost of living. That is an important matter for our constituents and the Government recognise the pressures that households face. We are taking action to support households with the cost of living, within the fiscal constraints that exist.

A key part of that has been to increase the personal allowance. Clause 3 will ensure that the benefits of that increase are shared fairly. In 2010, when the coalition was formed, individuals could earn just £6,475 before they began to pay income tax. Thanks to the actions of this Government, from April next year, the figure will be £10,000. That is an increase of £3,525, which means that the personal allowance will have risen by more than 50% in just four years, thereby helping our constituents with the cost of living. Our priority has been to help those on low and middle incomes, and we have. The changes in clause 2 mean that a typical basic rate taxpayer is already nearly £600 better off in cash terms under this Government. From next year, that figure will rise to more than £700.

That is not the only action that we are taking to help households with the cost of living. The fuel duty increase that was planned for September will be cancelled. The Finance Bill keeps fuel duty frozen at current levels, maintaining the longest freeze in fuel duty for 20 years. That is helping households and businesses with the cost of motoring. Fuel duty is 13p per litre lower than it would have been had we implemented the Labour party’s planned increases. We have also taken action to help local authorities in England to freeze their council tax for the third year in a row and to cap rail fares for commuters.

[Albert Owen]

The Minister and his Front-Bench colleagues are always talking about the freeze in fuel duty, which I welcome and for which I campaigned. However, has the Treasury made any calculations on the extra 2.5p in each pound that ordinary hard-working families spend on their petrol at the pump because of their measures?

[Mr Gauke]

Of course, that has been far outweighed by the steps that we have taken to reduce fuel duty. The net effect has been a substantial reduction in the amount of tax collected for every litre of petrol.

New clause 2 returns us to the big, fundamental economic argument that we have been having for some years on deficit reduction. I could deliver the standard speech that we give in such circumstances about how it is a strange way to deal with a debt crisis to try to increase borrowing. However, this is one of those rare occasions when the Opposition have put forward a policy and we have an opportunity to ask questions about it. I know that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) will be keen to enlighten the House on the policy she has set out in new clause 2, and if I may, I will ask a number of questions—[Interruption.] I am sorry; there seems to be some objection from the Labour party. New clause 2 is being proposed by the Labour party. I want to ask questions about the policy behind it, so let me ask those questions.

First—this is the point raised by my right hon. Friend the Member for Wokingham (Mr Redwood)—new clause 2 states that VAT will be reduced until “strong growth” is achieved. What is strong growth?

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I cannot believe he said that.

[Mr Gauke]

That term is used in a new clause tabled by the Labour party.

[Chris Leslie]

rose—

[Mr Gauke]

I would give way to the hon. Gentleman, but he was not here for the early part of the debate. He may not have read the new clause, but the policy depends on the definition of “strong growth” and the Labour party has not provided a definition.

Secondly, the cost of this measure will be £12 billion to £13 billion a year. How will that be paid for—an issue raised by my hon. Friend the Member for Peterborough (Mr Jackson)? Will it be through higher taxes, a reduction in spending or—as we believe—an increase in borrowing? What consideration has been given to the impact on the cost of borrowing? A 1% increase in Government bond yields would add around £8 billion to annual debt interest payments by 2017-18 and result in an increase of £12 billion in households’ mortgage interest payments—the equivalent of £1,000 for a household with an average mortgage in its first year. Has the Labour party considered the consequences of that discretionary fiscal stimulus?

What is Labour’s view on the profile of deficit reduction? We believe that over the whole deficit reduction period, 80% should be achieved through spending cuts and 20% through tax increases. The Darling plan had two thirds on spending cuts and one third on tax increases. What is the view of the Labour party, given that it has put in front of the Committee a proposal for a £12 billion or £13 billion tax cut? Does it suggest that the ratio should lean more towards public spending cuts rather than tax rises? What assessment has Labour made of the impact of different taxes on the economy? My right hon. Friend the Member for Wokingham mentioned the fact that VAT is, as many economists would argue, less harmful to growth than other taxes. Is that the view of the Labour party? Why has VAT been picked as a particular issue?

The Labour party does not come forward with policies often, but I am pleased that it has done so today so that Labour Members have the opportunity to tell the Committee exactly what their policy is. They can explain that policy, and if they would care to answer those questions the Committee will be able to judge whether it should support new clause 2. My advice to my right hon. and hon. Friends is that this is just more of the same from the Labour party. It is more borrowing and more debt, and it fails to get to grips with the fiscal situation and the mess in which the Labour party left this country and which we, the coalition Government, are addressing.

[Cathy Jamieson]

It is an interesting experience to see Ministers ask a whole range of questions without addressing why we introduced the proposal. The Minister failed to recognise work that shows how VAT hits those on lower incomes disproportionately hard. He shakes his head but we can point to research which backs that up and businesses that say—I have spoken to people personally as I am sure have other hon. Members—that a temporary cut in VAT would help to stimulate the economy and growth. The Minister asks what the definition of strong growth would be. It certainly is not what this Government have provided.

[Mr Gauke]

The Opposition propose a new clause that depends on the definition of “strong growth” but do not tell us what that means. They object to questions being asked about what the new clause means. It is the hon. Lady’s new clause, so will she tell the Committee what she is getting at, why she has chosen VAT, what the fiscal implications will be, and what will happen if borrowing goes up by £12 billion or £13 billion?

[Cathy Jamieson]

I am sure the Minister has heard what I have said. We believe that the new clause is one measure that can be introduced now to ensure that there is a stimulus in the economy.

The Government believe that consistently high rates of VAT are helpful to the economy. The Opposition disagree and believe there is an alternative. I find it interesting that the Minister constantly presses Opposition Members to define “strong growth” when it is clear that the Government’s policies are introducing something that is far from strong growth. It is important to recognise that, once again, the Opposition are standing up for the people whose incomes are being squeezed and who are being hit hard by the Government’s policies. The Minister can shake his head as much as he likes, but he knows in his heart of hearts that the Opposition are speaking out for the people who are hit hardest by the Government’s policies. That is why I intend to press new clause 2 to a Division.

Question put, That the clause be read a Second time.

15:11

Division 216

Ayes: 193

---

Labour: 181
Scottish National Party: 6
Plaid Cymru: 3
Green Party: 1
Democratic Unionist Party: 1

Noes: 244

---

Conservative: 212
Liberal Democrat: 31

Clause 3

Basic rate limit for 2013-14

[Cathy Jamieson]

I beg to move amendment 10, page 2, line 11, at end add—

‘(3) The Chancellor shall produce a report on subsection (1) which shall include an assessment of the impact of changes to taxation on the living standards of basic rate taxpayers which shall be placed in the House of Commons Library within three months of Royal Assent.’.

[The Temporary Chairman (Sir Roger Gale)]

With this it will be convenient to discuss clause 3 stand part.

[Cathy Jamieson]

It is a pleasure to be back at the Dispatch Box. Had amendment 4 been selected for debate, we could have engaged in further discussion about the mansion tax and the 10p income tax rate. However, I think that some of the broader issues that I shall raise in relation to clause 3 are relevant to that subject.

Clause 3 sets the 2013-14 basic rate limit for income tax at £32,010. In doing so, it overrides the indexed amount, which would otherwise have been set at £35,300 as announced in the 2012 autumn statement. The explanatory notes on the clause state that it is

“part of a package of measures”.

I shall say something further about the implications of that package of measures as we go on. Effectively, the rise in the personal allowance from £8,105 to £9,440 for this year and the rise to £10,000 from 2014, however welcome they are and regardless of the difficulties raised concerning those who will not necessarily benefit, will in part be clawed back by the measures implemented in this clause and a further reduction in the basic rate limit next year to £31,865.

15:30

We have heard a lot of warm words from the Government about the package. The Chancellor called the rise in the personal allowance an

“historic achievement for this Government and for hard-working families across the country.”—[Official Report, 20 March 2013; Vol. 560, c. 944.]

However, as we heard in the previous debate, there is not that much celebration going on at the moment among most ordinary hard-working families across the country who are seeing their incomes squeezed. There is concern that the announcement and the clause are just smoke and mirrors.

I do not want to repeat the points we made in the earlier debate, but extensive mention has been made of the fact that the Opposition will welcome any steps that will help families and hard-working people through these tough economic times. However, we do not believe that these measures go nearly far enough to make up for what many basic rate taxpayers have already lost thanks to the tax and benefit changes made by this Government. Those measures have indisputably taken money out of the pockets of people who need it.

It is important that we consider the changes in the round rather than focusing on individual measures. That is why we, through a fairly mild-mannered amendment, are calling on the Government to produce a report that would comprehensively assess the impact of changes to taxation on the living standards of basic rate taxpayers. As we all know, times are incredibly tough for families up and down the country, for pensioners and for hard-working people who are paying taxes.

Basic rate taxpayers, who work hard and try to dothe right thing, are the ones who are hurting. That has been backed up by various external organisations and commentators, including Citizens Advice, which said about the rise in the personal allowance for basic rate taxpayers:

“This is obviously helpful to all basic rate taxpayers. A single person with earnings of £30,000 a year will for example, gain £5.12 a week in April and will have gained the full £11.37 from the rise in the personal allowance…However”—

and this is the important point—

“this does not mean that families on low or even middle earnings will see an actual gain of this much: any rise in net earnings leads to a reduction in housing benefit and council tax benefit.”

We feel that the assessment and report are important because, in reality, 2.4 million families on low incomes will pay on average £138 more in council tax in the year 2013-14 as a result of cuts to council tax benefit, according to the Joseph Rowntree Foundation; 660,000 people will lose an average of £728 a year or £14 a week as a result of the “bedroom tax”, according to figures from the IFS; and child benefit will be frozen for a third year, while tax credits and other working age benefits will increase by just 1%, causing problems for many families. Those are real-terms cuts that will affect 9.7 million households, of which 7.3 million, or 75%, are working households, according to the IFS.

If we take into account all of the tax and benefit changes introduced since 2010, including the personal allowance package of which the Government are so proud, analysis of figures published by the independent IFS shows that families will be £891 worse off on average in the new financial year. If the Government do not want to listen to independent figures, how about looking at their own figures? According to the distributional analysis issued by the Treasury after the Budget, the cumulative impact in cash terms for the bottom 10% of households from tax, tax credit and benefit measures in 2013-14 would result in a £200 reduction in incomes for the poorest group in society. What the Government are giving with one hand, they are taking away, and more, with the other. Perhaps the most shameful and the most concerning of all are the Government’s own figures revealing that the changes to support, including in-work support for basic rate taxpayers, will push a further 200,000 children into poverty. That is the real package that we should be concerned about.

The Government have an opportunity here to take that on board, carry out the assessment and provide the report. That would be important for both parts of the coalition. Some people have chosen to characterise the changes that the Government have made as marking the return of the nasty party. Perhaps we would not be entirely surprised at the steps that the Conservatives have taken, but many supporters of the other part of the coalition, the Liberal Democrats, who voted in these measures, will be surprised, and I hope Liberal Democrat Members will consider supporting us to ensure—I see heads shaking so I can only assume they are supporting the Conservative cuts and the measures that the Conservative part of the coalition is taking. I am disappointed that they would not even support the production of the report that the amendment calls for.

If the Government are confident of their actions, if they have nothing to hide, and if members of the coalition, including the Liberal Democrats, honestly believe that all the changes they are making are for the best and that Labour has got it wrong—as they consistently try to portray in the face of evidence and despite the opinion of independent commentators—and that the changes will help basic rate taxpayers, will make work pay and will help boost the economy, why do they not agree to commission a report, which would look straightforwardly at how the changes will impact on the living standards of basic rate taxpayers? With regard to the impact on those brought into the higher rate of tax, I hope the Minister will be able to clarify the number of people affected.

We in the Opposition do not believe that the measures in the package proposed by the Government go far enough. We have outlined other elements that could be included to help those who are suffering as a result of the failed economic policies. As I said in an earlier debate, we do not accept the Government’s mantra that we are all in it together—not while cuts to tax credits, in-work support, council tax and housing benefit, maternity pay, sick pay and a range of other benefits are impacting on people who are hard at work. Those changes are being made in the very same month as 267,000 people earning over £150,000 will benefit from a cut in the top rate of tax, including 13,000 people earning over £1 million, who will each receive an average tax cut of £100,000. Again, I am using the Government’s own figures to make those comparisons.

People throughout the country are saying that that simply is not fair and it is not good enough to get the economy working and growth moving again. People believe it is not fair that while some of the wealthiest in our society are receiving £100,000 back from the Government, those at the other end of the scale, those least able to do so, have been asked to shoulder a bigger burden.

I am conscious of the time. Other hon. Members want to speak and we want to hear the Minister’s response. I ask the Minister and those on the Government Benches to recognise the amendment as a straightforward request for a report to be provided. If the Government are confident about what they are doing and if they have nothing to hide or to fear and they want to produce such a report, we of course will work with them on that. Sadly, I have my doubts whether that offer will be accepted but I am always open to being surprised by the Minister, and I look forward to hearing that, for once, he will accept our mild-mannered, straightforward amendment and commit to producing the report.

[Mr Robin Walker]

It is a pleasure to take part in this debate and to speak about one of the most important and beneficial changes announced in the Budget. In dealing with the clause stand part element of the debate, I intend to talk about the level of the basic rate of income tax and, more importantly, the increase in the threshold, which, as the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, are directly linked.

I would first like to clarify one point, having been contacted by a very concerned constituent who had heard that the basic rate for the top level of tax was being reduced to £32,000 and, as she earns £35,000, was worried that she will suddenly become a 40% taxpayer. It is important to clarify that the basic rate thresholds are set on top of the threshold for paying income tax and that no one is being asked to pay the 40p higher rate until they earn £41,450.

[Stewart Hosie]

Of course, that is only part of the story, because the threshold before one pays 40% has gone down from £37,500 to £32,000, a reduction of over £5,000, while the 20% threshold has gone from £6,500 to £10,000, which is an increase of only £3,500. In fact, 670,000 more people are now paying the 40p rate than were doing so three years ago, so many more people now fall within a tax band that used to be only for the rich.

[Mr Walker]

I take the hon. Gentleman’s point. I had thought that his party was in favour of progressive taxation. Certainly, I believe that raising the income tax threshold and taking many people out of tax is one of the coalition Government’s great achievements. It was a Liberal Democrat policy at the general election, and on this occasion I will admit that they had an excellent idea.

The coalition Government are right to recognise that it is vital to make work pay and that that cannot be done through welfare reforms alone. By also ensuring that people can keep more of the money they earn, we will stimulate the economy, reward work and alter the balance between dependency and opportunity.

I am delighted that Ministers have been able to bring forward planned changes to the income tax threshold by a year so that workers at the lower end of the wage spectrum will not have to wait until 2015 to pay less tax. As a result of the changes announced in the Budget, more than 34,000 people in Worcester will receive a tax cut and 3,370 people who would have been paying income tax in 2010 will pay none at all. That will not only reward those people, but directly stimulate our local economy—we have heard from Labour Members about the importance of people having money in their pockets to spend in the shops. In four years, the threshold at which people have to pay tax will have been raised by 50%, which is good news for millions of part-time workers who have been taken out of the tax system altogether and full-time workers on average earnings who benefit from a reduced burden of income tax.

The Opposition have downplayed those changes and focused on changes to tax credits to argue that some working families will be worse off. In doing so, they show a profound misunderstanding of the pride people take in the money they earn and their desire to support themselves. It is far better for the individual and their family to earn their money, keep the fruits of their labour and be able to spend it as they see fit than for it to be taken away and for the individual to be dependent on the faceless benignity of an all-knowing state that might choose to hand a proportion of it back—might—but that, if Labour ever gets control of the Treasury again, might find itself without the means to do so.

To listen to some of the speeches we have heard from the Opposition over the past few weeks, one might be forgiven for believing that the tax credits system, as it currently stands, was a vital part of Attlee’s welfare state and a bastion of the post-war consensus; it is not and it was not. In its current form, it is the creation not of a Beveridge or a Bevan, but of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who so rarely graces the House with his presence. I am glad that that complex system, which takes money away from working people to feed it through the Government sausage machine and re-allocate some of it, is to be rolled into universal credit and reformed to ensure that work will always pay.

It is far better to remove the tax from thousands of hard-working people in my constituency, and millions across the country, so that they can keep the money they have earned for their needs, their homes and their families. If we are to support families, it is far better, as the right hon. Member for Birkenhead (Mr Field) has argued, to use public money to invest in early intervention than to use it to prop up a complex system of credits that fails properly to support work and has always failed to reach millions of the people who, in theory, are eligible for it.

The fact that the Government are increasing the tax threshold shows that we are rewarding work at the same time as simplifying the tax system. The fact that we have been able to bring forward those changes shows that there is a sense of urgency about delivering an unalloyed public benefit, which many Labour Members have supported today.

I would argue that the same sense of urgency should be brought to the issue of child care support for working families. The Prime Minister set out exciting policies on that before the Budget but my constituents are being asked to wait until 2015 for the support. I have heard from many constituents who are delighted to hear that it will be available through the tax system but are then devastated to realise that by the time it is implemented, their children will have grown out of the eligibility criteria.

If a thing is worth doing, it is worth doing now. I urge the bright and brilliant men and women of the Treasury to bend their backs to the task of bringing those valuable initiatives forward in the shortest possible time. While they are at it, I urge them to consider a proper transferable married person’s tax allowance to support the family.

I welcome many initiatives in the Budget and I hope that the Chair will not rule me out of order if I touch briefly on a few of the others that will make a real difference to people in Worcester. Freezing once again the duty on fuel is more than welcome and much appreciated. Removing the much loathed beer duty escalator will raise a toast in many of Worcester’s pubs. The employment allowance will help more small businesses to create vitally needed jobs.

Returning to my opening remarks and the matter under consideration, I make one suggestion for the future, and I sincerely hope that Treasury Ministers can take it on board. Raising the income tax threshold is and has been the right thing to do, and it remains so. It is wonderful that we have brought forward to 2014 the date at which the threshold will reach the magic number of £10,000. However, today we should open a debate about that number. The figure of £10,000 was not worked out by economists or in careful consultation with employers and workers, nor was it based on any reflection of financial reality; it was drawn up as a manifesto promise in a party conference on the eve of an election.

In my view, the Conservative party missed out by not making that promise ourselves. Today we should start to consider the level at which the threshold for income tax should be set in the future. I believe that it should be the same as the earnings of a full-time worker on the minimum wage.

[Stephen Williams]

I was hoping that my hon. Friend would make that point. He has already acknowledged the Liberal Democrat pledge on the £10,000 threshold at the last election. We have already decided that at the next general election we are going to link the income tax threshold to the national minimum wage, which is currently £12,071. If my hon. Friend is about to say that he endorses the Liberal Democrat position at the next general election, I will welcome that.

[Mr Walker]

I will certainly urge my party to adopt a similar position. Raising the threshold to £11,500 or £12,000 in future Budgets would help millions more people and provide further stimulus. That, along with other policies that my party supports, and which the Liberal Democrats do not always support, such as keeping a freeze on council tax, could make a real difference. Raising the threshold would extend the legacy of that valuable change and do even more to make work pay. I urge Ministers to consider it for the future and commend them on the difficult job that they are doing well.

[Sheila Gilmore]

The hon. Member for Worcester (Mr Walker) has perpetuated some of the myths about some of the last Government’s policies. For example, he suggested that it would be better to put money into early intervention—presumably, that would involve paying things such as tax credits. Of course, it was not an either/or.

Anyone looking at the setting up of Sure Start and all the reports that were done on the importance of early intervention would see that we did not think, as is sometimes suggested, that the only solution to deprivation, child poverty and so on was simply to put money in. Money is part of the issue, but we certainly did not see things in terms of either/or. All the people up and down the country who have seen reductions in Sure Start services, for example, see that now it is not only not either/or—in many cases, it is neither/nor.

It is all very well for the Government to say, “We’re leaving you your own money so that is fine,” but the bottom line is that people have less money in their pockets. What has been suggested is a give-away in income tax is more than balanced, for many low-paid workers, by the reduction in tax credits and other provision. What matters to those people is how much they have to spend. Saying, “Oh, it’s wonderful that you’re getting to keep your own money” is no use. They cannot necessarily buy the things that they need.

The situation with child care is similar. The hon. Member for Worcester was right to say that the Government measure on that is not coming in right now; moreover, many people have already seen a cut in help. Child care tax credits were cut by the Government for many low-paid working families, so it has already happened.

The tax credits system was particularly beneficial for single parents, over 350,000 of whom went into employment as a direct result. There are serious concerns about universal credit as the answer to all this, particularly for single parents. Gingerbread and other organisations representing single parents have pointed out that their position could be worse under universal credit.

15:45

Not only that, but there are changes to the restrictions and conditions put on to single parents when they go back into work. Under the previous Government, they had real flexibility and an understanding that the kind of work they could do had to tie in with their family and caring responsibilities. Those flexibilities are going to be swept aside under universal credit. The regulations now contain only one from a whole group of flexibilities. For that group in particular, and possibly for others, this system, far from being better, may well be worse.

In other respects, strangely, the Government are not so keen on people keeping their own money. Some changes have actually punished people for saving and being careful. One of those was the restriction on the receipt of employment and support allowance to a year. That means that at the end of that year, people who have savings, or have an early retirement pension because they retired sick, or have a partner in work but often only part-time work, no longer receive the benefit, so suddenly their income is reduced by as much as £91 a week. The argument we were given was that people should use up their own savings first before the state helps them.

Under universal credit, somebody in employment who has capital over the level of £6,000 will begin to have any benefit they get reduced as a result, and if they have more than £16,000, they will lose it altogether. People who may have been saving for their retirement or saving with a view to being able to buy a house, will find that they have to use that money up, because that is what the Government are saying. Not all these policies are even coherent. Let us look properly at the effects of tax rates on all income groups, because it would be very helpful to everyone if we did so.

[Mr Gauke]

Clause 3 sets the basic rate limit for income tax for the 2013-14 tax year. Let me make it clear at the outset, as I did in the previous debate, that we understand the financial pressures faced by households. As a Government, we have taken action to reward employment and to support hard-working families. That is why we have increased the personal allowance. I endorse the remarks made by my hon. Friend the Member for Worcester (Mr Walker) in support of the policy we have pursued. Budget 2013 announced that we will go further, with the personal allowance increasing by a further £560 to reach £10,000 in 2014-15, meeting the Government’s commitment a whole year early. These changes will benefit 25 million individuals and will take 2.7 million people out of income tax altogether by April 2014.

Clause 3 reduces the basic rate limit by £2,360 to £32,010 in 2013-14. When combined with the £1,335 increase in the personal allowance provided for by clause 2, the higher rate tax threshold for 2013-14 will be reduced to £41,450. This allowance increase will benefit all taxpayers with incomes below £116,000 by £200 a year on average in real terms. About 30% of the gains from the personal allowance increase for 2013-14 will be shared with most higher-rate taxpayers. The national insurance upper earnings and profits limits remain aligned with the higher rate tax threshold.

It might be helpful if I set out the reasons for this change. I have explained that this coalition Government are committed to creating a fairer tax system that rewards work, with real-terms progress every year towards increasing the personal allowance to £10,000. We are meeting that target one year ahead of schedule and the final step towards it will be legislated on in next year’s Finance Bill. For now, the £1,335 increase in the personal allowance, introduced by clause 2, represents a major milestone on the journey to £10,000. The changes that we are making for the 2013-14 tax year will lift an additional 1.1 million individuals out of income tax altogether and give 24 million taxpayers an average real-terms gain of more than £200 a year. For the typical basic rate taxpayer, that will mean an extra £267 of cash in their pocket for 2013-14, which is an extra £5 a week since the start of the new tax year.

On the specific issue of gains for higher rate taxpayers, when increasing the personal allowance by £10,000 in 2011-12 we also had to make sure it was consistent with bringing the public finances under control. Therefore, higher rate taxpayers did not benefit from that increase. However, we decided that the benefits of later increases should be shared with higher rate taxpayers. This supports growth by increasing the rewards to work for a wide range of individuals.

The £1,335 increase from April 2013 was announced in two parts. For the increase of £1,100 announced at Budget 2012, rather than pass on the full benefit of the personal allowance to higher rate taxpayers, an equivalent amount of funding was provided to assist in the fair implementation of the child benefit reforms. However, gains from the additional £235 increase announced at autumn statement 2012 have been passed on equally.

At that time the Government also decided that the higher rate tax threshold—the point above which the higher rate tax starts to be paid—will increase by 1% in both 2014-15 and 2015-16. These will be cash increases, the first in this Parliament, and they will ensure that higher rate taxpayers will gain equally from future increases to the personal allowance. The Government recognise that these are below-inflation increases, so they also raise about £1 billion in revenue to support our efforts to deal with the large deficit we inherited from the Labour party. We make no attempts to conceal that and have been very open and up front about it.

Opposition amendment 10 calls for a report on the cost of living for basic rate taxpayers. As I have said, we recognise the pressures that households face and we are taking action to support them with the cost of living. Indeed, in our debate earlier this afternoon I set out some of the policies. I have touched in this speech on the personal allowance and one could also point to our policies on fuel duty and beer duty, which were announced in the recent Budget, and on council tax, which are all intended to relive households from some of the pressures they face.

The Government have taken unprecedented steps to publish a distributional analysis alongside each Budget and autumn statement document. Such analysis shows the impact of all the Government’s policies on household incomes and separates the impact of tax measures from their other policies. It is important to consider all the Government’s policies, not just their taxation measures. The distributional analysis published at the Budget shows that the top 20% of households continue to make the greatest contribution towards reducing the deficit, both as a percentage of their income and in cash terms. We believe that producing a further report to supplement that would be unnecessary and a waste of money.

We have debated the wider point of the cost of living in two debates this afternoon, although admittedly this second debate has been short. As I made clear, the Government recognise the considerable pressures, consequent on rising commodity, food and fuel prices, that our constituents have felt strongly in recent years. The Government have taken difficult decisions to try to reduce the deficit, and undeniably that has had an impact on people, but we ought to be straight with the British public: whoever is in government will have to take measures to reduce the deficit. Anyone in a position of responsibility has to recognise that we cannot continue borrowing 11% or 12% of our economy. [Hon. Members: “But you are!”] While in office, we have reduced the deficit by a third.

Having listened to Opposition speeches this afternoon, I do not for one moment doubt their sincerity, but there has been the temptation to ignore the fact that there is a very large deficit that has to be dealt with by raising taxes, cutting spending or a combination of the two, and to pretend otherwise is to not be straight with the British public. Some of this afternoon’s speeches have given every indication that Labour is content with being a repository for people’s anger. To use even stronger language, Labour often gives every indication of being simple fellow-travellers in sympathy, but not leaders. That is Labour’s approach.

[Sheila Gilmore]

Would the Minister not rather be understanding of people’s very real anger than just ignore it? [Interruption.]

[Mr Gauke]

As the Financial Secretary to the Treasury points out, people should be angry about the state of the public finances left to us by the Labour party. I described Labour as the “repository for people’s anger” and as a “simply fellow-traveller in sympathy”, not leaders, because those were the words of the last successful leader of the Labour party, Tony Blair. I am afraid that Labour is too often in its comfort zone. We know that there are pressures on living standards, but ignoring the deficit is no way to deal with them. The Government are prepared to take those difficult decisions, while Labour is failing to address them.

[Cathy Jamieson]

I am disappointed to hear the Minister resort once again to the same tired old mantra.

We have listened this afternoon to some passionate speeches from Opposition Members talking about the very real experiences of their constituents, and it is disappointing that once again the Government choose not to recognise them. They do not seem to recognise their responsibility for the deficit and debt now—for the fact that they have to borrow more, for the lack of growth, for the fact that people are not getting back into work in the way we would want and for the problems with living standards.

Sadly, we saw some crocodile tears from the Minister, who on the one hand wants to say, “Yes, we understand the impact on people”, but on the other is not prepared to do anything about it. Opposition Members are rightly angry on behalf of their constituents. They are angry about the bedroom tax and about the fact that the Government have chosen today not to do something on VAT that would have made a difference to people in our communities who will also be angry that the Government will not even accept a mild-mannered request, as I described it earlier, for a report on the impact of the Government’s policies on basic rate taxpayers. For that reason, I intend to press the amendment to a vote.

Question put, That the amendment be made.

15:59

Division 217

Ayes: 192

---

Labour: 180
Scottish National Party: 6
Plaid Cymru: 3
Green Party: 1
Democratic Unionist Party: 1

Noes: 248

---

Conservative: 216
Liberal Democrat: 31

15:46

More than four and a half hours having elapsed since the commencement of proceedings, the proceedings were interrupted (Programme Order, 15 April).

The Chair put forthwith the Question necessary for the disposal of business at that time (Standing Order No. 83D).

Clause 3 ordered to stand part of the Bill.

New Clause 3

Long haul rates of duty (Scotland)

‘After section 30A of the Finance act 1994 there shall be inserted—

“30B Scotland long haul rates of duty

(1) This section applies to the carriage of a chargeable passenger if—

(a) the carriage begins on or after the relevant day,

(b) the only flight, or the first flight, of the passenger’s journey begins at an airport or aerodrome in Scotland,

(c) the passenger’s journey does not end at an airport or aerodrome in the United Kingdom or a territory specified in Part 1 of Schedule 5A, and

(d) if the passenger’s journey has more than one flight, the first flight is not followed by a connected flight beginning at an airport or aerodrome in the United Kingdom or a territory specified in Part 1 of Schedule 5a.

(2) Air passenger duty is chargeable on the carriage of the chargeable passenger at the rate determined as follows.

(3) If the passenger’s journey ends at an airport or aerodrome in a territory specified in Part 2 of Schedule 5A—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the Scottish Parliament for the purposes of this paragraph, and

(b) in any other case the rate if the rate set by an Act of the Scottish Parliament for the purposes of this paragraph.

(4) If the passenger’s journey ends at an airport or aerodrome in a territory specified in Part 3 of Schedule 5A—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the Scottish Parliament for the purposes of this paragraph, and

(b) in any other case, the rate is the rate set by an Act of the Scottish Parliament for the purposes of this paragraph.

(5) If the passenger’s journey ends at any other airport or aerodrome—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the Scottish Parliament for the purposes of this paragraph, and

(b) in any other case, the rate is the rate set by an Act of the Scottish Parliament for the purposes of this paragraph.

(6) The rate of £0 may be set for the purposes of any paragraph.

(7) The same rate may be set for the purposes of two or more paragraphs.

(8) Any rate set must not exceed the rate which would apply if this section were not in force.

(9) Subsections (5) to (7) and (10) to (12) of section 30 apply for the purposes of this section as they apply for the purposes of that section.

(10) “The relevant day” means the day appointed as such by an order.

(11) Section 42(4) and (5) does not apply to any order under subsection (10).

(12) An Act of the Scottish Parliament means an Act passed under section 28 of the Scotland Act 1998.”.’.—(Mr MacNeil.)

Brought up, and read the First time.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

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

[The Temporary Chairman (Sir Roger Gale)]

With this it will be convenient to discuss the following:

New clause 4—Air passenger duty: Wales

‘Schedule (Air Passenger Duty: Wales) has effect’.

New schedule 1—‘Air Passenger Duty: Wales

‘Air Passenger Duty: Wales

Part 1

Rates of Duty from 1 April 2013

1 Section 30 of FA 1994 (air passenger duty: rates of duty) is amended as follows.

After subsection 4D insert—

“(4DA) Subsection (4DA) applies if—

(a) the passenger’s journey is a relevant Wales journey, and

(b) apart from subsection (4C), subsection (2) would not apply to the journey.

(4DB) The applicable rate in subsection (2) applies to the journey instead of the applicable rate in subsection (3), (4) or (4A) (as the case may be).

(4DC) A passenger’s journey is a “relevant Wales journey”—

(a) in the case of a journey which has only one flight, if the flight begins in Wales, and

(b) in any other case, if the first flight of the journey—

(i) begins in Wales, and

(ii) is not followed by a connected flight beginning at a place in the United Kingdom or a territory specified in Part 1 of Schedule 5A.”

The amendments made by this Part of this Schedule have effect in relation to the carriage of passengers beginning on or after 1 April 2013.

Part 2

Devolution of Wales Long Haul Rates of Duty

2 Chapter 4 of Part 1 of FA 1994 (air passenger duty) is amended as follows.

3 (1) Section 30 (rates of duty) is amended as follows.

(2) After subsection (1) insert—

“(1B) Subsection (1) does not apply to the carriage of a chargeable passenger to which section 30B below (Wales long haul rates of duty) applies.”

(3) Omit subsections (4DA) to (4DC) (as inserted by paragraph 1 above).

(4) The amendments made by this paragraph have effect in relation to the carriage of passengers beginning on or after the relevant day as defined in section 30B of FA 1994 (as inserted by paragraph 4 below).

4 After section 30A insert—

30B Wales long haul rates of duty

“(1) This section applies to the carriage of a chargeable passenger if—

(a) the carriage begins on or after the relevant day,

(b) the only flight, or the first flight, of the passenger’s journey begins at a place in Wales,

(c) the passenger’s journey does not end at a place in the United Kingdom or a territory specified in Part 1 of Schedule 5A, and

(d) if the passenger’s journey has more than one flight, the first flight is not followed by a connected flight beginning at a place in the United Kingdom or a territory specified in Part 1 of Schedule 5A.

(2) Air passenger duty is chargeable on the carriage of the chargeable passenger at the rate determined as follows.

(3) If the passenger’s journey ends at a place in a territory specified in Part 2 of Schedule 5A—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the National Assembly for Wales for the purposes of this paragraph, and

(b) in any other case, the rate is the rate set by an Act of the National Assembly for Wales for the purposes of this paragraph.

(4) If the passenger’s journey ends at a place in a territory specified in Part 3 of Schedule 5A—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the National Assembly for Wales with the purposes of this paragraph, and

(b) in any other case, the rate is the rate set by an Act of the National Assembly for Wales for the purposes of this paragraph.

(5) If the passenger’s journey ends at any other place—

(a) if the passenger’s agreement for carriage provides for standard class travel in relation to every flight on the passenger’s journey, the rate is the rate set by an Act of the National Assembly for Wales for the purposes of this paragraph, and

(b) in any other case, the rate is the rate set by an Act of the National Assembly for Wales for the purposes of this paragraph.

(6) The rate of £0 may be set for the purposes of any paragraph.

(7) The same rate may be set for the purposes of two or more paragraphs.

(8) Subsections (5) to (7) and (10) to (12) of section 30 apply for the purposes of this section as they apply for the purposes of that section.

(9) “The relevant day” means the day appointed as such by an order.

(10) Section 42(4) and (5) does not apply to an order under subsection (9).

(11) A Bill containing provision authorised by this section may not be passed by the National Wales Assembly except in pursuance of a recommendation which—

(a) is made by the Minister of Finance, and

(b) is signified to the Assembly by the Minister or on the Minister’s behalf.

(12) “Passed”, in relation to a Bill, means passed at the final stage (at which the Bill can be passed or rejected but not amended).

(13) Duty paid to the Commissioners in respect of the carriage of chargeable passengers to which this section applies must be paid by the Commissioners into the Consolidated Fund of Wales.”

5 (1) Section 33 (registration of aircraft operators) is amended as follows.

(2) After subsection (2A) insert—

“(2B) If the Commissioners decide to keep a register under section 33B below, an operator of a chargeable aircraft does not become liable to be registered under this section just because the aircraft is used for the carriage of chargeable passengers to which section 30B above applies.”

(3) In subsection (3)(b) after “applies” insert “or, if the Commissioners have decided to keep a register under section 33B below, that no chargeable aircraft which he operates will be used for the carriage of chargeable passengers apart from the carriage of chargeable passengers to which section 30B above applies.

(4) In subsection (7) after “section 33A” insert “or section 33B below.

6 After section 33A insert—

33B (1) The Commissioners may under this section keep a register of aircraft operators.

(2) If the Commissioners decide to keep a register under this section, the operator of a chargeable aircraft becomes liable to be registered under this section if the aircraft is used for the carriage of chargeable passengers to which section 30B above applies.

(3) A person who has become liable to be registered under this section ceases to be so liable if the Commissioners are satisfied at any time—

(a) the he no longer operates any chargeable aircraft, or

(b) that no chargeable aircraft which he operates will be used for the carriage of chargeable passengers to which section 30B above applies.

(4) A person who is not registered under this section and has not given notice under this subsection shall, if he becomes liable to be registered under this section at any time, give written notice of that fact to the Commissioners not later than the end of the prescribed period beginning with that time.

(5) Notice under subsection (4) above shall be in such form, be given in such manner and contain such information as the Commissioners may direct.”

7 In section 34 (fiscal representatives) in subsection (5)—

(a) in paragraph (a) after “33A” insert “or 33B”.

8 After section 41B insert—

41C (1) An officer of Revenue and Customs may disclose to the Secretary of State, the Treasury or the Department of Finance in Wales any information for purposes connected with the setting of rates of duty under section 30B above, including (in particular) to enable the setting of rates under that section to be taken into account (payments by Secretary of State into Consolidated Fund of Wales).

(2) Information disclosed under subsection (1) above may not be further disclosed without the consent of the Commissioners (which may be general or specific).

(3) In section 19 of the Commissioners for Revenue and Customs Act 2005 (wrongful disclosure) references to section 18(1) of that Act are to be read as including a reference to subsection (2) above.”

9 In section 44 of CRCA 2005 (payment into Consolidated Fund) after subsection (2)(cb) insert—

(cc) sums required by section 30A(15) of the Finance Act 1994 (air passenger duty: Wales long haul rates of duty) to be paid into the Consolidated Fund of Wales,”.

10 In column 2 of the Table in paragraph 1 of Schedule 41 to FA 2008 (penalties for failure to notify), in the entry relating to air passenger duty, after “33A(4) “insert “or 33B(4)”.

11 The amendments made by this Part of the Schedule have effect in relation to the carriage of passengers beginning on or after 1 April 2013.

12 The rate of duty in force under this Schedule shall not be greater than the rate which would be in force if the Schedule had not been enacted.’.

Clause 183 stand part.

Clause 184 stand part.

[Mr MacNeil]

I shall speak to new clause 3 and against clause 183 stand part.

Air passenger duty is fast becoming one of the most damaging interventions by the Westminster Government in the Scottish economy, which over the past 30 years has provided more tax per person per year than across the United Kingdom as a whole. The chairman of VisitScotland, Mike Cantlay, says he is “extremely fearful” of the long-term impact of air passenger duty levies on the long-haul market to Scotland, which have left the country at a competitive disadvantage compared with countries such as Ireland. He added:

“To say to a potential visitor to Scotland from Australia, for example, that before you even book you will be paying hundreds of pounds extra for the sake of coming here, because the UK has a deficit to fund, is not an easy sell. It is lunacy for our industry.”

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

How many journeys would be affected by the new clause?

[Mr MacNeil]

I am sure that the hon. Gentleman knows the answer to that question better than I do. It will affect thousands, if not hundreds of thousands, of journeys. It is estimated that the present arrangements have cost Scotland about 2.1 million visitors since the introduction of air passenger duty a few years ago, and the effect of that on the Scottish economy is mammoth.

[Mr Donohoe]

May I draw the hon. Gentleman’s attention to the wording of new clause 3? Does it not in fact cover only long-haul flights? It does not cover connecting flights through Heathrow or any other airports. How many actual journeys will it therefore cover? I understand that there are only two such long-haul journeys per week to Northern Ireland, for example.

[Mr MacNeil]

The hon. Gentleman will understand that this covers all aspects of journeys feeding into Scotland, and he will know full well that air passenger duty is adversely affecting the Scottish economy. Does he take a contrary view?

[Mr Donohoe]

As the chairman of the all-party parliamentary aviation group, may I remind the hon. Gentleman that we have reported on this matter? The duty has a great effect on everyone in the United Kingdom, not just those in Scotland.

[Mr MacNeil]

I do not dispute that it has a great effect on everyone in the United Kingdom, but Scotland is currently in the United Kingdom and it therefore affects Scotland. I look forward to hearing the hon. Gentleman’s speech. I am sure that the points he raises will be very welcome.

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

My hon. Friend referred to numbers, and I am sure that he, like me, will have noted that the hon. Member for Central Ayrshire (Mr Donohoe) is the only Scottish Labour Member who has bothered to turn up for this debate, such is their concern about the issue we are addressing.

16:15

[Mr MacNeil]

My hon. Friend is right—[Interruption.] Yes, there is, of course, a Scottish Labour Member on the Front Bench, but the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) is present because of duty, rather than will, which is why the hon. Member for Central Ayrshire is here.

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

rose—

[Mr MacNeil]

If the hon. Gentleman will be patient, I will make some progress before giving way to him.

[Mr Reid]

rose—

[Mr MacNeil]

I am sure the hon. Gentleman will be patient. He is usually a patient man, and I am sure he can display some patience now.

The chief executive of the UK Airport Operators Association, Darren Caplan, recently said:

“Our eye-wateringly high levels of APD already mean we pay the highest passenger tax on flying in the world—and this is not disputed by anyone in Government.”

The truth is that APD rates are having a devastating effect on the UK, and especially on Scotland. Let me pass on the views of some key people in Scotland. Jim O’Sullivan, managing director of Edinburgh airport, said on the BBC news on 6 December 2011:

“APD is already costing Scotland passengers and having an impact on tourism revenues. We know from discussions with our airline partners that it is a major factor in their decision to connect further routes to Scotland. We would urge the Westminster Government to see Scotland as it does Northern Ireland and understand the need to both reduce and devolve this unfair and damaging tax.”

Amanda McMillan, managing director of Glasgow airport, said:

“On the question of devolution of APD, Glasgow Airport has always been supportive of this proposal given the Scottish Government’s more progressive approach to aviation and its greater appreciation of the role the industry plays in supporting the growth of the Scottish economy.”

Scottish Government Transport Minister, Keith Brown, said:

“We need to be able to deal with the competitive and connectivity disadvantages that Scotland faces and if APD were devolved now we could provide the means to incentivise airlines to provide new direct international connections to Scotland, benefiting our aviation industry and our passengers and supporting the growth of the Scottish economy. The UK Government needs to listen to the many voices in Scotland who clearly want to see full devolution of the policy on APD.”

[Phil Wilson (Sedgefield) (Lab)]

Is it not true that APD was devolved to Northern Ireland because of the flights that would have left Belfast airport and gone instead to Dublin? The specific APD problem for Northern Ireland is that there is an international border between Northern Ireland and Eire.

[Mr MacNeil]

The hon. Gentleman is making my case. Airports are joined by air, not by land or sea. I am sure Prestwick is about as far from Belfast airport as Dublin and Shannon are, so if this is good enough for Belfast and Northern Ireland, it is good enough for Scottish airports.

[Mr Reid]

The hon. Gentleman forgets one point: Northern Ireland is attached by land to the Irish Republic and Scotland is attached by land to England but is not attached by land to Ireland. The difference here is that people were driving from Belfast to Dublin to catch connecting flights, whereas, obviously, people cannot drive from Glasgow to Dublin to catch connecting flights.

[Mr MacNeil]

That is a very strange argument for a Member who, like me, represents islands. It also could be argued that a passenger travelling from Stranraer would have a far shorter journey to Northern Ireland than a person travelling overland from Cork to Northern Ireland. The hon. Gentleman may not be aware that aircraft travel through the air, not overland or across the sea.

[Mr Reid]

On the question of islands, the hon. Gentleman knows the following information as well as I do, but it is important that the Committee be given it: flights from the islands in our constituencies are exempt from APD.

[Mr MacNeil]

The hon. Gentleman is right about that to an extent. For some flights, however, APD is paid on one of the legs going into the islands, so he is not entirely correct, and the flights that are exempt are those capable of carrying under 20 passengers with a take-off load of less than 10 tonnes. He should know the details of what he is talking about.

May I ask the UK Government a simple question? Why are they not devolving APD to Scotland? Is it because the UK Government do not want to see Scotland doing better? Is it because the UK Government care only about collecting revenues from Scotland? Or is it that they think that once one tax goes, all taxes will go—and that the often peddled myth that Scotland receives extra money from the indebted UK will be seen for the lie it is? Is there a fear of APD today, oil revenue tomorrow, so the mantra is that it is better to keep taxes together at Westminster?

The Government refuse to listen to sensible voices in Scotland. Robert Kerr, the chairman of French Duncan and the Scottish accountant of the year, said:

“More helpful would be a reduction in the rate of air passenger duty (instead, the Chancellor announced in his Budget that it would increase at the highest level of inflation for two years)”.

He continued:

“Scotland is preparing to welcome the world in 2014, when it hosts the second Year of Homecoming, the Commonwealth Games and the Ryder Cup. If we are to maximise the economic opportunities such events present, then we need more help from our governments rather than hindrance.”

I would add that when the referendum is won, Scotland will be in the world’s focus and many more people will want to travel to it. We do not want them to be penalised by the outgoing UK Government in Scotland.

APD should clearly be devolved. The UK Government have had enough time to think about the matter. Even the Calman commission, which was set up by the Tory-Labour tag team and their Liberal friends, recommended the devolution of APD. The UK Government’s response was to refuse to devolve it on the grounds that they were exploring whether to replace it with a per-plane tax. That decision has been made and the per-plane tax has been rejected, so what is the excuse now? I say that looking at the hon. Member for Argyll and Bute (Mr Reid). We look forward—if that is the right expression—to hearing the latest excuse from the Government.

[Pete Wishart]

My hon. Friend is correct that the Calman commission recommended the devolution of APD, but so does the jam-tomorrow Labour commission. At its conference in Inverness this weekend, Scottish Labour will be discussing the devolution of APD. I would be interested to hear whether the two Scottish Labour Members present will boycott that conference.

[Mr MacNeil]

I am sure that the hon. Member for Central Ayrshire will be on his feet presently to confirm his attendance in Inverness.

[Mr Donohoe]

That has nothing to do with this debate. The hon. Gentleman should know that his proposal, which is what we are discussing, does not constitute the devolution of APD. What he is talking about is the equivalent of what happens in Northern Ireland, which affects one flight a day. What I and the all-party aviation group are suggesting is that APD be taken away completely. If he proposed that, I would support him. Is the SNP likely to consider that?

[Mr MacNeil]

I am sure that the hon. Gentleman has investigated the level of APD on flights from London airports to Inverness. Doubtless, he will be flying to the happy band that is the Labour conference this weekend. [Interruption.] As my hon. Friend the Member for Perth and North Perthshire (Pete Wishart) says, he will no doubt do so with enthusiasm.

Not only does APD receive a lot of criticism in Scotland and the UK; it has attracted international derision. Two days ago, at a conference in Trinidad and Tobago, it was not only criticised by Caribbean countries as discriminating against the region, but was described as

“a clear market distortion and barrier”

to tourism worldwide by a senior UN tourism official, Carlos Vogeler, the UN World Tourism Organisation’s regional director for the Americas. He added that APD

“can actually produce a net damage to the economy, particularly in those destinations which are so dependent on air travel, such as the Caribbean”.

Surely, on a social union basis, we should treat other Commonwealth countries, such as the beautiful Bahamas, on a fairer basis. At £332 for a family of four flying economy, its air tax is higher than the £268 in tax when flying to Hawaii.

I will give four reasons why APD should be devolved to Scotland. First, APD is making Scottish airports uncompetitive in their efforts to attract new direct international routes. It is needlessly restricting Scotland’s ability to realise the economic and business benefits that direct air connections bring.

Secondly, APD is designed for the circumstances in the south-east of England, not the rest of the UK. It is, at best, a demand-management tool for Heathrow—a stretched airport that will have no further runways until one is built in a panic in a few years’ time, as Ryanair’s Michael O’Leary predicts. Heathrow needs demand to be limited because it is at capacity and the Chancellor therefore has a coincidental fiscal cash cow. Scottish airports have the capacity for growth and this tax blocks it. Independent control over APD through devolved powers would give Scotland the ability to meet its own needs rather than Heathrow’s. My view of demand management is supported by the chief executive of the Scottish Chambers of Commerce, Liz Cameron, who said:

“Current rates of APD seem more suited to controlling capacity constraints at Heathrow than they do with the needs of regional airports, and devolution of this tax would afford the Scottish Government the opportunity to create an air transport package for Scotland designed to improve our direct international connectivity.”

Thirdly, a Scottish aviation tax regime would incentivise the introduction of new direct international services, which is important for business connectivity and in-bound tourism. We could do that by reducing the rate of duty, or indeed exempting it, in the early years of a new service—the most challenging financial period—until a route is established.

Fourthly, the Treasury said that it is devolving “aspects” of APD in Northern Ireland, making great play of the “unique” commercial challenges it faces—that was perhaps mentioned earlier by the hon. Member for Argyll and Bute. Scotland’s aviation sector also has specific and long-running competitive disadvantages that need to be addressed, and only the devolution of APD will do that. It is unacceptable that the UK Government are still not prepared to commit to the devolution of APD to Scotland, and I warn that such intransigence angers people at first, but when they calm and look rationally at the situation, they see the need for independence, which will be voted for a year next autumn.

According to a report published in October 2012 by York Aviation,

“by 2016 Scotland’s airports will be handling around 2.1 million passengers per annum fewer than they might have been if the APD changes since 2007 had not been implemented.”

It concludes:

“Constraining the growth of Scotland’s airports via APD can ultimately only have a negative impact from this perspective. APD makes it harder for airports to attract new routes or improved levels of service. Over time this will impact on Scotland’s attractiveness as a place to invest and its competitiveness in international markets. This in turn will negatively impact on Scotland’s international economy, including key sectors such as banking and finance, oil and gas, creative industries, technology businesses and advanced manufacturing”.

By establishing the highest passenger tax on flying in the world, the UK Government have finally managed to become the best in the world at something: unfair taxation. They are blocking growth with a gatekeeper tax.

The SNP Government are building a better Scotland. Scottish GDP grew by 0.5% during the fourth quarter of 2012—[Interruption.] The hon. Member for Sedgefield (Phil Wilson), who is from north-east England, might laugh, but I am sure a successful Scotland on his border would benefit north-east England as well. Would he rather have an independent successful Norway on his border or a Scotland that at the moment is in hock to whatever decisions are made by the Tories at Westminster? “Better Together with the Tories” is the Labour mantra.

[Phil Wilson]

If air passenger duty is devolved to Scotland that will impact on the airports at Newcastle and Durham Tees Valley. To go further and say that independence will help north-east England is ridiculous.

[Mr MacNeil]

The hon. Gentleman should look to opportunities rather than scaring and fear-mongering. I imagine the opportunity that cheaper flights might afford his constituents would be welcomed, but he can answer to them on that. While Scottish GDP grew by 0.5%, that of the UK fell by 0.3% in the last quarter of 2012. Debt levels in Scotland are lower than in the UK as a whole, and just yesterday new figures revealed the largest rise in employment for 12 years, with unemployment below 200,000 for the first time since 2009. Unemployment in Scotland is 7.3% versus 7.9% in the UK.

Recent figures also show a new record that is very different from the UK Government’s record on APD. Ours is a record of the participation of young people in higher education—a rate that is considerably higher than in England thanks to a policy based on the ability to learn rather than the ability to pay. There is a different philosophy in Scotland. However, we do not measure ourselves against the rest of the UK; after independence we look to have a society and economy that in many aspects matches Norway, Switzerland, Iceland and Denmark, among many others. We know that we can do even better, but we must listen and do what industry is telling us. The message is clear: APD is too high and must be devolved so that the Scottish Government can deliver a better connected Scotland.

The UK Government have been ignoring industry, the people and the Scottish Government for far too long. That is why support for independence will grow, as more come to understand the continuing damage that Westminster does, whether by omission or commission. What is at the root of all the wrong-headedness? The fact is that the UK Government are caught in a trap with their devotion to the cult of austerity. That is seen in the bedroom tax, which will make matters worse pulling by pulling £1.6 billion from the Scottish economy, according to an article that I read, I think, in the Financial Times.

The focus is wrongly on austerity; the focus should be on growth and, as I have laid out, this tax is the enemy of growth. What matters is not debt itself, but debt to GDP ratio. There is then the issue of servicing that debt—the interest obligation, as Professor Robert Pollin said this morning on the “Today” programme when challenging the underpinning philosophy of austerity. With interest rates low, not only is the Government’s focus wrong, their understanding is wrong, and with the cost of borrowing low, the underpinning arithmetic is wrong. This tax is part of the wrong philosophy that the Government are following at Westminster and to which Labour bind us with the Better Together campaign.

I understand that the Labour party leader in Scotland, Johann Lamont, who is the boss of all Labour MPs in the Chamber, including the hon. Member for Central Ayrshire, is presenting a paper to the Labour conference in Inverness that, it is reported, includes the devolution of APD so that it is independently controlled in Scotland. My goodness! Labour is coming round to the independence agenda. Scottish National party Members are delighted with those steps. Surely Labour Members will come through the Lobby with SNP Members this evening rather than deliver a slap in the face to their leader by not attending the conference en masse, or by sitting on their hands today, now that they have lately left what has been known as the Bain principle, whereby Labour Members refuse to support anything the SNP does simply because it is done by the SNP. They could come through the Lobby with us this evening and display not only sound thinking, but their loyalty to, and support for, their leader and boss, Johann Lamont.

I extend the hand of welcome to the hon. Member for Central Ayrshire. I am sure Labour will not want to give anybody in the Committee the impression that Labour in Scotland is not a happy band.

16:30

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

What about a Miliband?

[Mr MacNeil]

Mr Miliband will not be there long—do not worry about him.

Surely the SNP and Plaid Cymru will not be the only champions of economic growth and the travelling public, and particularly the less wealthy travelling public of Scotland, Wales, Northern Ireland and England. The travelling public seem to have no champions other than the SNP and Plaid Cymru for their businesses and holidays. I encourage other hon. Members to support the cut of the poll tax on our skies: businesses want it, hard-working families want it, and economic growth needs it.

[Ian Paisley (North Antrim) (DUP)]

When I arrived in the Chamber and listened to the speech of the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), I had to check that the debate was on the Bill and not on Scottish independence.

I am opposed to airport duty tax. It is a regressive tax and it is wrong. It is a tax on business and tourism, and on our skies and travel. It is wrong not just for little Northern Ireland and little Scotland; it is wrong for every citizen of the UK. I am certainly not taking the position that we should scrap it in parts of the UK. It should be scrapped for all of the UK—the UK Government need to get that message loud and clear.

[Mr MacNeil]

Given what the hon. Gentleman says, I assume he will support SNP Members in the Lobby when we try to strike down clause 183.

[Ian Paisley]

I will come to that in a wee minute. The hon. Gentleman will have to bide his time and be patient, or, as we would say, houl yer whisht. Perhaps he knows what I mean by that.

It is important to put on the record that Northern Ireland has an international connection and an international carrier from Aldergrove airport to Newark airport, which is just outside New York. It flies every day in peak season—one flight a day in, one flight a day out. We have no other international carrier. However, the same carrier operates from Dublin, which is 90 miles down the road, to Newark. In the last number of years, the business in Northern Ireland was put under threat for one reason only: the airport authority and the carrier had to subsidise one another to the tune of £1.5 million. Had they not done so, the business would not exist, and people would be forced to travel 90 miles down the road and pay a lesser tax.

The price difference was staggering—it meant that it was possible to travel 90 miles down the road. Filling a car with petrol or diesel and driving to Dublin costs about £50—there would also be a car park charge—but the APD for that international flight from Northern Ireland was £150. The duty in the Republic of Ireland was €3. The difference would have ruined that business. It was essential on those terms that we got rid of APD for that international flight. My position is that I want the duty removed for the whole UK. That is what the debate is about. The measure is about internal flights in the UK, including, of course, our glorious and noble Scotland.

I am concerned that there is an element, or even a huge big bit, of fudge, which we should avoid. The policy, which should be set out loud and clear, should be the scrapping of APD for all of the UK.

[Jonathan Edwards]

It is with pleasure that I introduce my new clause 4 and new schedule 1; I hope to press the new clause to the vote at the appropriate time.

The UK Government’s Commission on Devolution in Wales, headed by Sir Paul Silk, published the first phase of its report in November 2012. This phase concentrated solely on fiscal powers. Here we are, five months later, still waiting for the UK Government response, which was originally said to be due this spring. In a matter of a few weeks, the cricket season will be upon us and it will be summer, yet we are none the wiser about the intentions of the UK Government.

In short, the Silk commission recommended that powers over stamp duty land tax, the aggregates levy, air passenger duty for long haul, landfill tax and business rates be devolved in their entirety and as soon as possible. It also advocated a sharing arrangement for income tax. In addition, it argued—importantly—that should corporation tax be devolved to Northern Ireland, Wales should not be left behind. I reiterate the point that I made on the closing day of the Budget debate—that we are very interested to see the strong lobby, led by the CBI, coming from Northern Ireland. In total, the fiscal powers advocated by Silk for immediate devolution—the minor taxes—together account for about £1.2 billion of the Welsh Government’s budget.

[Hywel Williams (Arfon) (PC)]

Does my hon. Friend find it strange, as I do, that no one representing the Labour party in Wales is present to back the policy of the Labour Government down in Cardiff?

[Jonathan Edwards]

I am extremely grateful for my hon. Friend’s intervention, as we had a debate in the Welsh Grand Committee on this issue, and Labour speaker after Labour speaker lined up to say that they not only were in favour of the Silk recommendations on minor taxes, but wanted them devolved immediately. They went even further, saying that the Finance Bill was the appropriate vehicle for achieving that.

[Mr MacNeil]

I have a certain understanding of the word “immediately”, and I am sure that my hon. Friend does, too. Does he think that that understanding of the word is shared by Labour in Wales?

[Jonathan Edwards]

That is the exact point. This was said to be the appropriate legislative vehicle for devolving airport duty to Northern Ireland, and if it is good enough for Northern Ireland, it is certainly good enough for Scotland and Wales.

Needless to say, the proposed powers fell far short of what Plaid Cymru was advocating as a party. We wanted a more comprehensive list of job-creating and economy-boosting powers, including VAT, corporation tax, resource taxes and capital gains tax. In the interest of compromise, however, and not second-guessing Silk, we are happy to proceed as the commission recommended—not least because the fiscal powers recommended by Paul Silk and his team in the commission’s report are desperately needed for the sake of the Welsh economy. The minor tax powers, the income tax sharing arrangement and the borrowing powers that would be triggered as a result would enable us in Wales better to deliver job-creating and economy-boosting measures and policies to help turn around the continuing dire state of the economy.

Yesterday’s unemployment figures showed a small drop in unemployment in Wales, but the number of economically inactive people went up by 7,000. The rate is still 0.4% higher than in the UK, and there are still nearly 50,000 more people unemployed in Wales than there were before the recession began, and another 50,000 more people who are under-employed. That is on top of the extra 50,000 public sector jobs we expect to be lost in the coming years on top of the 24,000 that have already been lost.

Last week’s research by Sheffield Hallam university and the Financial Times, to which my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) referred, highlighted that more than £1 billion is due to be taken out of the Welsh economy over the next year by cuts to social security. This will have a devastating human cost, which is becoming all too clear.

The private sector is already on its knees in Wales due to the depression caused by the disastrous economic policies pursued by both Labour and Conservative Westminster Governments, which have destroyed the productive economies within the British state. It will deteriorate further as money is sucked out of local economies through further austerity. We are yet to see any realistic plan of how jobs and growth will come about in these depressed areas or any effort to counterbalance the austerity cuts, despite the high rhetoric of geographical rebalancing.

There are three important reasons why the Welsh Government should be empowered with fiscal powers as advocated by the Silk commission and as proposed in my new clause. First, it would make the Welsh Government more accountable. Secondly, it would incentivise the Welsh Government to concentrate on developing the economy to raise the necessary revenue to invest in public services. Lastly, an independent fiscal stream would enable the Welsh Government to access the borrowing powers they have agreed with the UK Government.

Labour’s proposals for substantial cuts in Welsh capital spending in the last Budget that it presented before losing office were supported in the Conservative-Liberal Democrat comprehensive spending review in October 2010, which cut the Welsh capital budget by 42%. Announcements in subsequent UK Budgets or autumn statements have meant that the final cut is about 39%. Although that is admittedly a smaller reduction than the one planned by Labour, it represents a huge hit for economic activity in Wales. The devolution of minor taxes and the triggering of borrowing powers would go some way towards filling the gap, enabling the Welsh Government to invest in infrastructure projects and generate economic momentum.

[Hywel Williams]

I thank my hon. Friend for giving way again; he is being very generous. Does he agree that the term “minor taxes” is a misnomer, given that those taxes constitute a key that could unlock substantial moneys which the Welsh Government could invest in dealing with our economic difficulties?

[Jonathan Edwards]

That is exactly the point. We have experienced twin processes in Wales. We have had the Silk commission, but there has also been a bilateral negotiation between the United Kingdom and Welsh Governments. The consequence of that negotiation was that the Welsh Government would be given borrowing powers if it had an independent fiscal stream. That is why my new clause is so vital for the Welsh economy.

In January, the Welsh Grand Committee debated the commission’s part II recommendations. Although there was a difference of views over the proposals for income tax-sharing arrangements, it was broadly accepted on all sides that the minor taxes recommendations should be implemented as soon as possible. I must confess that during that debate I became slightly confused. Unionist politicians were in favour of full devolution of some taxes, but opposed to a sharing arrangement between the UK and Welsh Governments in relation to income tax. My natural conclusion following the debate was that as there was a consensus at least in relation to the minor taxes, we ought to get on with devolving them swiftly rather than waiting for what could be years for a new Government of Wales Act.

The most prominent of the minor taxes is covered by the air passenger duty recommendation. It is difficult for us to table amendments relating to the other minor taxes at this stage because consideration in Committee is in the hands of the usual channels, from which my party is excluded, but we are at least able to consider the devolution of air passenger duty. I suggest that that should serve as a spur for the implementation of the other minor tax powers recommended by the commission.

[Mr Mark Williams (Ceredigion) (LD)]

Does the hon. Gentleman acknowledge that the Silk commission said that his package should be viewed as such—as a package? I share the hon. Gentleman’s impatience as we wait for the Government to respond to part I of the Silk recommendations, but we should nevertheless see them in that light.

[Jonathan Edwards]

I think that the question for the hon. Gentleman is this: if he favours the devolution of fiscal powers to Wales, should he not walk through the Lobby with us rather than waiting for another Government of Wales Bill? When will that Bill come before the House? When will the legislative gap arise? If he is promising me that the Bill will be in the Queen’s Speech, we may consider whether or not to press new clause 3 to a vote.

If the Committee supports the new clause, I shall expect the Treasury to include the other minor taxes and business rates as the Bill proceeds, and to implement fully this aspect of the Silk recommendations.

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

My hon. Friend is making a powerful case. Is it not strange that no Welsh Labour Members are present to debate air passenger duty, given that the Labour First Minister of Wales has spent many millions of pounds of Welsh money on buying an airport in Cardiff?

[Jonathan Edwards]

My right hon. Friend makes an excellent point, to which I shall return. Fifty million pounds of Welsh taxpayers’ money has been spent on buying an airport, and no Labour Member from Wales is present this evening to vote for a proposal that would enable the Welsh Government to make the most of that asset. It is a disgrace, and I hope that the Welsh media are listening to the debate and will report on it fully.

[Mr MacNeil]

Is the hon. Gentleman actually informing the House that Labour at Westminster does not want to give powers to Labour in Wales because it wants to leave those powers with the Tories in Westminster? Is that the situation with which we are dealing? Does Labour prefer to put power in the hands of the Tories rather than in the hands of Labour? Does Labour trust the Tories more than Labour trusts Labour? This is bizarre.

[Jonathan Edwards]

I believe that that is indeed the case.

Admittedly the revenue gathered from the minor taxes, although not insignificant, is relatively small in comparison with the revenue that would be available through the income tax-sharing arrangement recommended by the Silk commission. That would make the Welsh Government responsible for 10p in every pound of income tax raised in Wales. It would enable the Welsh Government to increase their borrowing capacity substantially, and would strengthen the accountability test. My intention is to return to that at a later stage of the Bill’s progress. It would also undoubtedly incentivise the Welsh Government to grow the economy in Wales and provide responsibility for its expenditure. It is also clear that fair funding and the proper resolution of the blatant inadequacies of the Barnett formula, whereby we estimate that Wales loses out on an average of £500 million a year, are desperately needed, but that resolution must not be used to block the partial devolution of income tax or the minor taxes.

16:45

Non-domestic rates, or business rates, are another minor tax that it would have been ideal to devolve to Wales in this Finance Bill, thereby incentivising local authorities in Wales to expand their economic bases. Long-haul air passenger duty was devolved to Northern Ireland in last year’s Finance Bill and the Silk commission has recommended the devolution of long-haul APD to Wales.

[Ian Paisley]

I appreciate that the hon. Gentleman is clarifying the matter. The power has been devolved but it has not yet been implemented and, like him, I would urge our Executive to implement it. It will help business and the whole of the United Kingdom could benefit, including Wales, Scotland and England, if they get on with it.

[Jonathan Edwards]

The hon. Gentleman makes a powerful point. That is especially the case in Wales, as the Welsh Government own our national airport.

It is clear that the Bill is the appropriate legislative vehicle to move this issue forward. There is a clear precedent and, as I said, I believe the Treasury should accept the amendment, as it includes all the minor taxes recommended by Silk.

The Labour Welsh Government have recently acquired Cardiff airport, and the ability to attract long-haul flights to Cardiff would significantly improve the airport’s competitiveness. Cardiff airport has 1.5 million people in its catchment area and long-haul flights could attract people from even further afield. The development of Cardiff airport could act as a spur to growth in the south Wales economy, bringing in greater foreign direct investment through better business links, in turn bringing jobs and growth.

Quite frankly, I am amazed that the Labour party has not tabled its own amendment. That goes to show that the First Minister has absolutely no influence over his bosses down here. On Tuesday of this week, he stood in the National Assembly telling the Members and the people of Wales that

“the most important thing is to ensure that Silk part 1 is progressed”.

I would expect Labour MPs to file through the Aye Lobby when we vote, or his authority will be fatally undermined—but as the Labour Whips have sent them home, that will not be the case.

The fact that the Treasury has not used the Finance Bill to implement Silk also shows once again that Wales is an afterthought in the machinations of the British state. Those powers should be devolved, yet there is delay even though it is apparent that there is broad consensus among the main parties who represent Welsh constituencies, as evidenced in the Grand Committee debate and despite the fact that the commission received representations from all parties. Each month that passes by without these powers being devolved, the Welsh economy further deteriorates with job and economic prospects diminished, hopes and dreams shattered and lives ruined.

Over Easter, I attended a major forum meeting organised by Carmarthenshire county council to move the proposed Llandeilo bypass project forward. Despite being high up the Welsh Government’s priority list as a transport infrastructure project, it is being held up as a result of the savage cuts to capital budgets in Wales. If the amendment is successful, it will enable the Welsh Government to access borrowing powers to move the scheme and many others like it forward. In Carmarthenshire there is cross-party support for the project, and I would like to close by kindly informing my political opponents that should they fail to support the amendment their grandstanding in supporting projects such as the Llandeilo bypass will be exposed and there will be a heavy political price to pay in my constituency—a constituency I believe the Labour party view as a target seat come the next Westminster election.

[Pete Wishart]

No chance, not with you there.

[Jonathan Edwards]

Well, I am grateful for that comment.

Plaid Cymru has made jobs and the economy its absolute priority. That is why we have tabled this amendment on air passenger duty. We want to create a modern and prosperous Wales, and unlike our political opponents we have little faith in London Governments of whatever colour achieving that ambition. That is why we want the tools to get on with the job ourselves without delay.

[Mr Reid]

It is important to set out first of all what the debate is not about. It is not about whether air passenger duty is a sensible tax; it is about whether we should be devolving air passenger duty on long-haul flights to Scotland and Wales. I must admit that I was disappointed by the lack of preparedness of the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) for the debate, as he was not able to answer a simple question from the hon. Member for Central Ayrshire (Mr Donohoe). It must be remembered that the SNP has the whole Scottish civil service machine to back it up. I am extremely surprised that the hon. Gentleman did not come armed with an impact assessment produced by the Scottish Government to show the benefits of devolving the tax to Scotland. He had no impact assessment whatever.

[Mr MacNeil]

Is the hon. Gentleman for or against the devolution of APD to Scotland?

[Mr Reid]

I am waiting for somebody to advance the case for that. The Scotland Act 2012 contains provisions whereby, if the Scottish Government make the case to the UK Government for any tax to be devolved, that tax can be devolved. I am waiting for the Scottish Government to make the case.

[Mr MacNeil]

The hon. Gentleman is a politician, a Member of Parliament elected to Westminster. Is he unable to advance the case himself to devolve APD to Scotland? That is a shocking state of affairs.

[Mr Reid]

It is the hon. Gentleman who tabled the new clause and spoke to it today. It is incumbent upon him to make the case. I do not have the benefit of the entire Scottish civil service machine at my beck and call, which the SNP has.

[Angus Robertson (Moray) (SNP)]

Could the hon. Gentleman please tell the Committee what is the policy of the Scottish Liberal Democrats, the party he represents? What is his party’s policy?

[Mr Reid]

What we are debating today is a proposal from the SNP and Plaid Cymru to devolve certain aspects of APD relating to long-haul flights from Scotland and Wales. I was expecting an analysis to be presented, but hon. Members could not even tell us the number of flights that would be affected. When the hon. Member for Na h-Eileanan an Iar moves amendments in future, he should present detailed analysis of the benefits and everything else that would be affected.

To compare the situation of Scotland with that of Northern Ireland is not accurate. As I said in an earlier intervention, the justification for devolving air passenger duty to Northern Ireland was the land border with the Irish Republic, which means that people from Northern Ireland would be attracted to travel to airports in the Irish Republic for long-haul flights to take advantage of the lower taxation. That situation clearly does not apply in the case of Scotland and Wales. People would not save money by travelling from Scotland to the Irish Republic in order to take a long-haul flight.

[Mr MacNeil]

Will the hon. Gentleman conduct a little thought experiment? Imagine that the Irish Republic had the same level of air passenger duty as the United Kingdom. What would the net effect be? It would be fewer people flying, which would dampen our economic growth. The point of having APD devolved is to enable economic growth. I hope the hon. Gentleman can grasp that fundamental point. I also hope that if the Liberal Democrats have a policy of devolution of APD, it is to devolve it to Scotland. If they do not have a policy, I would be very pleased to provide the SNP’s policy, which they can adopt free of charge.

[Mr Reid]

As the hon. Gentleman perfectly well knows, the SNP policy is clearly for independence, not for devolving particular taxes. He may put forward a good case for not having APD at all, but that is not what we are debating today. There are perfectly good arguments for abolishing APD or for a lesser rate of APD outside London and a higher rate of APD for the likes of Heathrow. The Heathrow tax was mentioned. Good arguments could be advanced but that is not the debate today. The debate today is on the specific proposal to devolve APD on long-haul flights from Scotland and Wales. I am disappointed that with all the back-up that the SNP has from the full Scottish civil service machine, it was not able to present a proper impact analysis today.

As I was saying, the Scotland Act contains provisions that allow the Scottish Government to request that extra taxes be devolved, so there is a system for doing that. I suggest that the way forward for the SNP is to request that the UK Government, under that Act, consider that. We could then have a proper, detailed debate with all the facts and figures at our disposal.

[Mr MacNeil]

One of the quotes I gave earlier mentioned the fear of the loss to Scotland of 2.1 million passengers before 2016. Would that information not at least encourage the hon. Gentleman, if he is going to develop a policy, to develop one in favour of the devolution of APD?

[Mr Reid]

Well, that is something the Scottish Government could put forward to the UK Government as an argument for devolving the tax. I will take an intervention from any SNP Member who can—

[Angus Robertson]

I will ask the hon. Gentleman my question a second time: what is the policy of the Scottish Liberal Democrats?

[Mr Reid]

I gave way to the hon. Gentleman on the assumption that he would answer my question, rather than coming up with another one himself. I think that we have exhausted this debate. In conclusion, the SNP and Plaid Cymru have not made the case today, so I will not be following them into the Lobby.

[Cathy Jamieson]

It is always entertaining to hear the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), who moved new clause 3 on behalf of the SNP. I have shared a few flights with him, both short-haul and long-haul, and know how passionately he speaks on these matters. I hope to take a flight to Inverness in the not-too-distant future—[Interruption.] It is great to hear that SNP Members are so keen for me to get to the Labour conference, along with the other Scottish Labour MPs who will be playing a full part in proceedings.

[Angus Robertson]

Will the hon. Lady give the Committee a sneak preview and explain to Members on both sides of the Committee whether she will be voting in favour of the Scottish Labour party adopting a policy of devolving APD, and will she be joining the SNP in the Lobby later?

[Cathy Jamieson]

I will not be joining the SNP in the Lobby, and I will explain why shortly. I will first take this opportunity to remind hon. Members who have chosen to portray in a slightly different way the consultation exercise that the Scottish Labour party conducted that there is going to be a consultation process. I suppose it would be too much to hope that the SNP will contribute constructively to that process. I am sure that we will continue to have interesting debates and discussions.

Let me deal with the arguments relating to new clause 3 and new schedule 1. I think that my hon. Friend the Member for Central Ayrshire (Mr Donohoe), who speaks with some authority on these matters, and the hon. Member for Argyll and Bute (Mr Reid) have made clear the limitations of the new clause and the new schedule proposed today. They would not address all the issues on APD, which have been well rehearsed in a number of debates on the Floor of the House. In the Back-Bench business debate held in November last year, hon. Members on both sides of the House raised real concerns about how APD was operating. There was a suggestion that the Government should produce a report, a point I will return to later.

[Phil Wilson]

We should set aside the selfish approach shown today by the SNP, because APD is an issue not just for Scotland and Northern Ireland, but for many UK regions, including the north-east of England. Durham Tees Valley airport, in my constituency, is under capacity. One way to ensure that we fill such airports to capacity is to have a regional variation in APD. Would that approach not satisfy the whole UK and not just Scotland?

17:00

[Cathy Jamieson]

My hon. Friend makes an important and interesting point. In that debate in November, a number of hon. Members from different parts of the UK acknowledged that there were concerns and there needed to be a fresh look at the issue of APD, not only to tackle congestion in the south-east, but to recognise some of the representations made not only by Scottish and Welsh airports, but by those in the north-east—specifically, Newcastle and Manchester airports.

At that stage, the general view of those representations was that the issue did not affect only Scotland and Wales; it affected the wider UK. Air passenger duty puts a significant amount of funding into the Treasury so it is important to consider the issue in the round. A number of airlines as well as airports have made representations and different business and tourism concerns have been raised.

The issue of the perceived anomalies around the Caribbean destinations was raised as something that ought to be investigated further. The Caribbean Council has raised a number of issues; I believe that it has made direct representations to the Minister, as have some of my Labour colleagues, I understand, in the hope that something could be done.

I am also aware of the “A Fair Tax on Flying” campaign, as part of which more than 200,000 e-mails were sent. Many MPs received hundreds of e-mails during that time from constituents concerned about the issue.

[Kate Hoey (Vauxhall) (Lab)]

Obviously, my hon. Friend will know that there were special circumstances for Northern Ireland; the Northern Ireland Committee, of which I am a member, made that clear. Does she not accept that the United Kingdom has the highest air passenger duty of any part of Europe and that we should be moving towards taking the duty completely away? In the meantime, does she not feel that devolving the matter to Wales and Scotland might be a way forward?

[Cathy Jamieson]

I thank my hon. Friend for that intervention. I know how much of an interest she has taken in the issue. My concern is to look at the matter sensibly in the round. The problem is that, if the amendments were implemented, we would once again have a piecemeal arrangement in which something might happen for Scotland and Wales, but nothing would happen across the wider UK.

As SNP Members reminded us, we are a United Kingdom and we want to ensure that we have the benefits of the United Kingdom and continue to do so. The comments from the SNP suggesting that somehow the 2014 referendum was a done deal and that Scotland would be independent are far from the reality on the ground when we speak to the people of Scotland. Without wishing to open up earlier debates, I should say that I have absolutely no difficulty in arguing for a strong United Kingdom. That does not mean that I would support everything that the Government would do, as some suggested. I am sure that the Minister and others know that that is far from being the case.

[Mr Llwyd]

How closely has the hon. Lady monitored the views of Welsh Members on this issue? The right hon. Member for Neath (Mr Hain), the former Secretary of State for Wales, said:

“Given the Secretary of State’s admission that this measure could be included in a Finance Bill, it could be in the Finance Bill”—

this one—

“in a few months’ time. Then we could get on with it.”—[Official Report, Welsh Grand Committee, 23 January 2013; c. 30.]

The shadow Secretary of State for Wales, the hon. Member for Pontypridd (Owen Smith), said:

“Why on earth are we waiting and not pressing ahead? The people of Wales need growth in the economy.”—[Official Report, Welsh Grand Committee, 23 January 2013; c. 17.]

[Cathy Jamieson]

The right hon. Gentleman asks how closely I have been monitoring the situation. I have not only been doing that; I have had discussions with a number of Members, including those from Wales. My hon. Friends from Wales, and from Scotland, appear to be able to distinguish between what has been put on today’s Order Paper as a political fix or stunt in order to grandstand and make some wider arguments, and having a sensible debate about the real issues, which is entirely different.

[Jonathan Edwards]

On a point of order, Mr Evans. Since when has an amendment agreed by the Clerks of this House been a political stunt? This is what the Labour party is saying in the media. It is a disgrace and it brings dishonour on this Chamber. [Interruption.]

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

Order. Everything that is being debated today is in order; otherwise it would not have been selected. It sounds to me like part of the current debate.

[Cathy Jamieson]

Thank you, Mr Evans.

I have no concern about whether what is on the Order Paper is in order; of course, if the Clerks have accepted it, it is indeed in order. I recall some of the Members who are bickering and heckling from the Back Benches making similar remarks about perfectly legitimate amendments that Labour Members have tabled in the past, and perhaps making similar suggestions. I am criticising not what is on the Order Paper but the fact that hon. Members apparently wish to widen this debate to the whole question of breaking off certain parts of the United Kingdom instead of focusing on the specific issue.

This is a very serious matter, as was highlighted during the Back-Bench debate that we had back in November. At that time, we as a House came to an agreement that the issue should be looked at in more detail. I would be interested to hear from the Minister what action has been taken. Prior to the election, the Conservatives gave a commitment to look at the per-plane duty. The resulting report was not taken forward for very good reasons; certainly, the industry did not support it. Following all the representations that have been made and the Back-Bench debate that took place, is the Minister now in a position to respond to some of the issues that have been raised today and to say whether a further report is necessary?

[Pete Wishart]

We do not have a clue what the Liberal position on APD is, and the hon. Member for Argyll and Bute (Mr Reid) does not have a clue himself. We have the “jam tomorrow” commission looking at this, but what is the view of the hon. Lady and the Labour party on APD?

[Cathy Jamieson]

Our view is that we will not support the new clause because we do not believe it is the correct way forward. The Labour party’s position, as already outlined by the leader of the Scottish Labour party, is to put forward some points for consultation. That is the right and proper thing to do. It is of course for the Liberal Democrats to answer for themselves rather than for Labour to do it for them.

[Mr Reid]

Let me put it on record that I will not support the new clause because, as I said, the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) did not make the case for it. There has been no proper impact assessment. There are mechanisms by which the case could be made, but SNP Members have not done so today.

[Cathy Jamieson]

I thank the hon. Gentleman. He has put his position firmly on the record in exactly the way I would anticipate, because I know from the work that he has done on the Scottish Affairs Committee and elsewhere that he takes this issue extremely seriously and is not slow to make points that are often not entirely in line with his Government colleagues if he feels that that is the right thing to do. His comments are very important.

I want to finish by probing the Minister further to see where the Government intend to go with this. Although representations have been made, the Government have not committed to anything other than looking at the rates for this year and the year ahead. It is unclear whether they intend to address any anomalies and conduct further work—perhaps building on various independent reports and the work of the Transport Committee—in order to consider the issue in more detail.

Those who tabled the amendments will not be surprised to hear—I suspect they expected me to say this—that we will not support them. I look forward to hearing what the Minister has to say about how we might usefully take this issue forward, not just for the benefit of Scotland, Wales and Northern Ireland, which are very important, but for the benefit of the various regions and areas of England where hon. Members are making a case on behalf of their constituents.

[The Economic Secretary to the Treasury (Sajid Javid)]

I thank all hon. Members who have taken part in this energetic debate, which has aroused strong passions in some parties.

Clause 183 sets the air passenger duty rates for 2013-14. These rates were first announced at Budget 2012 and took effect from 1 April 2013. The rates have increased by inflation only. Because of rounding, band A has remained the same, so about 80% of passengers have seen no cash-terms increase in the rates they pay.

Clause 184 gives Her Majesty’s Revenue and Customs the power to require payments on account in relation to the APD annual accounting scheme, which was introduced to minimise administrative burdens for the extension of APD to business jets and will improve the fairness of the tax overall. The clause also updates the list of territories in band B of APD to include the new nation of South Sudan.

It is important to recognise the need for the aviation sector to make a fair contribution to the public finances. I remind hon. Members that no tax is levied on the fuel used in international and almost all domestic flights. Moreover, no VAT is levied on international flights and, unlike many other countries, the UK does not charge VAT on domestic flights.

It was in recognition of the fact that aviation was under-taxed compared with other sectors of the economy that APD was first introduced in 1994. It was introduced purely as a revenue-raising tax and it remains a vital revenue-raiser today. However, despite the challenge of the budget deficit that we inherited, this Government have limited increases in APD to inflation only in the period since 2010-11. During this period, rates have increased by only £1 for the vast majority of passengers. Furthermore, recognising the sector’s need to plan ahead, we have provided greater clarity on future rates. Budget 2013 set out that the rates for 2014 and 2015 will rise in line with inflation only. The real burden of APD will remain unchanged for a further year.

[Phil Wilson]

On the effect of APD on regional airports such as Durham Tees Valley airport in my constituency and Newcastle airport a few miles from the Scottish border, will the Government consider regional APD variations that might incentivise airliners to fly from airports other than Heathrow and Gatwick?

[Sajid Javid]

As the hon. Gentleman will know, the Government have looked at that in the past and have ruled it out thus far, because the evidence shows that it would lead to significant distortions in the UK market. He will also know, however, that we keep all taxes and duties under review to see whether improvements can be made.

Before I move on to the proposed devolution of taxes, I want to touch on the extension of APD to business jets. A new higher rate has been introduced for passengers travelling on planes offering an enhanced level of comfort. APD on these flights is double the prevailing standard rates for business and first class. These changes improve the fairness of the tax overall.

New clause 3 proposes devolving to the Scottish Parliament and the Welsh Assembly the power to set APD rates on direct long-haul flights from Scotland and Wales. New clause 4 and new schedule 1 also propose cutting the rates for direct long-haul flights from Wales to the short-haul rate in advance of devolution from 1 April 2013. The issue of APD devolution is a complex one. As we have heard, it was considered in the 2011 consultation and has been debated several times since then, including here today.

17:15

One of the questions raised is, “Why have the Government devolved elements of APD to Northern Ireland, but not to Scotland and Wales?” The Finance Act 2012 devolved to the Northern Ireland Assembly the power to set rates on direct long-haul flights. The rate on short-haul flights remains the same as for those from the rest of the UK. The decision to devolve direct long-haul rates to Northern Ireland was a reflection of the unique challenges faced there. As we heard from the hon. Member for Central Ayrshire (Mr Donohoe) and my hon. Friend the Member for Argyll and Bute (Mr Reid), Northern Ireland is the only part of the UK to share a land border with another EU member state with a lower rate of aviation tax. The UK Government are committed to devolving tax powers where it is to the benefit of the UK as a whole. This is evident from the devolution to Scotland of the stamp duty land tax and the landfill tax, which amounts to the biggest transfer of fiscal powers from London to Scotland in 300 years.

[Mr MacNeil]

Is the hon. Gentleman saying that there is a competitive disadvantage from APD only where there is a land border with another country or member state? Is that the position of the UK Government?

[Sajid Javid]

The hon. Gentleman knows the answer, but I shall provide it anyway. As he knows and as we heard from my hon. Friend the Member for Argyll and Bute, passengers who might go to Belfast have the opportunity to travel to Dublin by car. Clearly, that opportunity does not exist in Scotland.

We are working closely with the Northern Ireland Executive to consider options for rebalancing the Northern Ireland economy, and we are carefully considering the recommendations of the Silk commission in Wales. Any devolution of APD, however, must take into account the broad range of views on this subject. In response to the 2011 consultation on APD, a substantial number of stakeholders raised concerns about devolution complicating the APD system and creating distortions in the markets for flights. This concern was reinforced in a recent report by HMRC suggesting that the devolution of APD could lead to market distortion as a result of passenger redistributions between UK airports, without substantially increasing demand for aviation overall.

In considering whether to devolve APD, hon. Members will surely agree that we must assess the risk of replicating the same problems that Northern Ireland faced from lower aviation taxes in the Republic of Ireland. There is clearly a concern about an immediate cut in APD rates for direct long-haul flights from Wales. The Government therefore believe that the devolution of APD is a subject that requires continued and careful evaluation, if we are to be confident about its potential effects across the country as a whole. In undertaking this evaluation, we should take note of recent data showing that passenger numbers are growing at Scottish airports. Between 2010 and 2011, numbers grew by 5.5% and continued to grow last year as well. In fact, Glasgow airport achieved growth of 4% in 2012, Aberdeen airport recently achieved 24 months of consecutive growth and Edinburgh airport will provide more choice to passengers in 2013 than ever before.

[Hywel Williams]

Will the Minister tell the House what happened to passenger numbers from Cardiff airport over the same period?

[Sajid Javid]

I do not have the numbers to hand for Cardiff airport, but I am sure that the hon. Gentleman knows the answer. If he wants me to find out for him, however, I shall write to him with the numbers, if they are available.

Talking about Wales, we are considering the Silk commission’s recommendations, as I have said, but we must also take note of the concerns of Bristol airport, which has expressed deep concerns to me that devolution to Wales would have a significantly detrimental impact on its business. In presenting his amendments, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) referred to the report by the CBI in Wales. However, I have an extract from—I believe—the same report he referred to, which says that

“high mobility between Wales and the UK…is a reason for the rate to remain consistent between the countries.”

Our analysis needs to be based on a full examination of the evidence. We will not be rushed or pushed into making premature judgments. On that basis, I ask hon. Members not to press their new clauses.

Briefly, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) raised the issue of APD rates to the Caribbean. As she rightly said, I recently met a delegation of hon. Members to discuss that important topic. I am the first to accept the valuable contribution that British people of Caribbean heritage make to our country. I have promised to reflect on the important points raised by that delegation and many others that have brought up the same issue.

We have a plan to cut the deficit and we have already cut it by a third. Our country’s credibility comes from delivering that plan. APD revenues make an important contribution to the public finances and this year’s inflation-rate increase is necessary. The extension of APD to business jets makes the tax fairer overall. I therefore urge that both clauses in this group stand part of the Bill and ask hon. Members kindly to consider withdrawing their proposed new clauses.

[Mr MacNeil]

I can tell the Minister straight away that we will not be withdrawing our new clauses; we will be pressing them to a vote.

This has been an enjoyable debate. I certainly enjoyed the contribution from the hon. Member for Central Ayrshire (Mr Donohoe), who is not in his place at the moment. [Interruption.] I am told he is on a plane to Inverness. I wonder. I have found an exchange in Hansard between him and me from March this year, when I pointed out to him in an intervention that the UK’s tax

“is reputed to be the world’s most onerous tax on air travel, and I am sure the hon. Gentleman will agree that it is damaging Scottish airports terribly.”

From everything that he said today, we might be under the impression that a certain answer was given, but no. The answer he gave was:

“I do agree with the hon. Gentleman on this occasion; it is not very often I can say that. The Government are doing absolutely nothing for air passengers, the aviation industry and those who work in it. They continue with this tax, while our competitors throughout the world are laughing at us.”—[Official Report, 25 March 2013; Vol. 560, c. 1332.]

I just wish the hon. Gentleman was here now, to come through the Lobby with us and put some meaning into his words.

The hon. Member for North Antrim (Ian Paisley) made a very good speech when, as I see it, he described air passenger duty as a win-win situation. I welcome the fact that air passenger duty was devolved to Northern Ireland and I wish those in Northern Ireland well. I hope it succeeds and I hope the economy there grows from strength to strength. The devolution of air passenger duty to Northern Ireland will benefit us all, whether we live in Scotland, England, the Republic of Ireland or Wales. We have nothing to fear, only fear itself. In years to come, when the Northern Ireland economy—hopefully —develops with that, we will see the wisdom of devolving that power and the folly of not devolving it to other parts.

My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) made a very strong speech—a star speech, in fact. He mentioned the Silk commission and Labour’s immediate need to devolve APD—it was the other week, but of course there is no sign of Welsh Labour in this place today. The word “immediate” has a different meaning for Labour Welsh Members from its meaning for the rest of the English-speaking world. The hon. Gentleman certainly gave us a scary update of the economic situation in Wales, where people face the double whammy of Labour in Cardiff and the Tories in London, with their wee pals in Westminster, the Liberals, giving them a hand. He reminded my colleagues just how fortunate we are to have the SNP Government in Scotland, led by luminaries such as Michael Russell, Kenny MacAskill, Nicola Sturgeon, Alex Neil, John Swinney and, of course, Alex Salmond, the First Minister.

The hon. Gentleman reminded us that the Westminster branch of the Labour party does not want to give powers to the Labour Cardiff branch. Clearly, the Labour brothers in Wales are as happy a band as those in Scotland. We wonder whether they will send an ambassador to Inverness this weekend—I doubt it. They are probably having a punch-up, one with the other, in Cardiff.

Talking of punch-ups, that brings me to the hon. Member for Argyll and Bute (Mr Reid), who offered himself to the Chamber as a punch bag and was taken up on that offer. My hon. Friend the Member for Moray (Angus Robertson) repeatedly asked him what his policy was and he repeatedly failed to answer the question. He was even offered the policy free by the SNP, but he would not adopt it, just in case, such was the level of uncertainty. He is a nice fellow but his politics are sadly lacking. The arms are open—if he wants to cross the Floor and join the SNP, he will be welcome. It is his politics he has to change.

The hon. Gentleman said that the SNP had not made the case. Hang about. Any daft case the Conservatives make and the Liberals happily wander through the Lobbies, be it on tuition fees, the bedroom tax—whatever it is, it is yes, yes, yes from the Liberals. He seems to be unable to make the case himself for APD to be devolved to Scotland—that was sadly lacking. Will he vote tonight for clause 183? Will he come through with us on clause 183? Will he vote against the increase or will he vote for it?

[Mr Reid]

The hon. Gentleman was asked a simple question by the hon. Member for Central Ayrshire (Mr Donohoe): how many flights will be affected? In the half hour since then, has he managed to find out?

[Mr MacNeil]

The hon. Gentleman has not said whether he is voting with us in the Lobby or voting for an increase in APD. On the fourth time of asking, he is still unable to tell us what the Liberal Democrat position in Scotland is on devolution of APD.

The hon. Member for Sedgefield (Phil Wilson) made me pause and think for a while. He wants to bring in differences in the UK, which I welcome, but sadly he carped at the SNP. I think he took the wrong approach there. I would be happy to see economic growth in the north-east of England. I would not feel diminished in any way if the economy of the north-east of England were to improve, and he should not feel diminished either by Scotland advancing. I suggested to the hon. Member for North Antrim earlier that it is a win-win situation. The view of the hon. Member for Sedgefield is that it is a lose-lose situation. I am pleased to say that that view was not shared by the hon. Member for Vauxhall (Kate Hoey), who could see the benefit of devolving APD to Scotland and Northern Ireland.

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) certainly understands the need to devolve APD, but then argued against it. She said the proposal was piecemeal, but did not want to make a start on it anywhere. Cannot she see that with or without independence more growth in Scotland benefits us all, as more growth in the Republic of Ireland and France surely benefits us all? We should be moving with a big heart to ensure that that can happen everywhere and not be stifling growth. The hon. Lady is a sensible woman and in her heart of hearts she knows the wisdom of the proposal. Of course she strayed a little far and upset my hon. Friend the Member for Carmarthen East and Dinefwr, but I am sure that she will reflect that she possibly went too far.

Labour unfortunately is employing again the Bain principle: no matter what the SNP does, no matter how sensible or wise, Labour will not vote for it. If Labour has one other principle, it is the Kilbrandon principle, which it established in 1970, whereby it prefers a Tory Government to independence for Scotland. We have seen that time after time, particularly through the damaging 1980s.

The Minister mentioned inflation, but the Government have decided increase the duty at the highest level possible. I am glad that he is looking at what is happening to our friends in the Commonwealth and in the Caribbean in particular. Disappointingly, he was unable to say whether the duty caused a competitive disadvantage to the UK compared with other countries that we do not share a land border with. I hope that the finest minds in the Treasury can go and research that and perhaps in years to come we will have an answer. For Wales there were no figures.

The upshot of this is that the UK Government are continuing to hamper Scotland. At first, it was a policy of omission, but we can now see that they are clearly hampering Scotland by commission. That is why we must vote for independence in the autumn of 2014.

Question put, That the clause be read a Second time.

17:29

Division 218

Ayes: 10

---

Scottish National Party: 5
Plaid Cymru: 2
Green Party: 1
Democratic Unionist Party: 1
Labour: 1

Noes: 237

---

Conservative: 210
Liberal Democrat: 26

New Clause 4

Air passenger duty: Wales

‘Schedule (Air Passenger Duty: Wales) has effect’.—(Jonathan Edwards.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

17:40

Division 219

Ayes: 11

---

Scottish National Party: 5
Plaid Cymru: 3
Democratic Unionist Party: 1
Labour: 1
Liberal Democrat: 1

Noes: 233

---

Conservative: 207
Liberal Democrat: 25

Clause 183

Air passenger duty: rates of duty from 1 April 2013

Question put, That the clause stand part of the Bill.

17:51

Division 220

Ayes: 237

---

Conservative: 210
Liberal Democrat: 26

Noes: 9

---

Scottish National Party: 6
Plaid Cymru: 1
Democratic Unionist Party: 1
Labour: 1

18:02

More than six hours having elapsed since the commencement of proceedings, the proceedings were interrupted (Programme Order, 15 April).

The Chair put forthwith the Question necessary for the disposal of business at that time (Standing Order No. 83D).

Clause 184 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill (Clauses 1, 3, 16, 183, 184 and 200 to 212 and Schedules 3 and 41) reported, without amendment (Standing Order No. 83D(6), and ordered to lie on the Table.