Autumn Statement
Charlie Elphicke Excerpts(13 years, 2 months ago)
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Mr Osborne
First, may I congratulate the hon. Gentleman on his election in Corby? We were talking earlier about construction projects that had not been started. I saw for myself on an enjoyable visit to Corby, which was ultimately unsuccessful in terms of the by-election, the Corby link road which is being built—I hope he would welcome it. As I say, we have set out the public finance numbers, and we have taken the decision to use the spectrum money to help with further education and to fund the annual investment allowance, which starts in January next year—in this financial year.
Charlie Elphicke (Dover) (Con)
What action is my right hon. Friend taking to close the tax gap and enable British business to complete on a level tax playing field, after the serious failure to modernise or enforce our business tax system over the past decade by the previous Labour Government?
Mr Osborne
My hon. Friend has been a powerful advocate for a more competitive business tax system in this country, and we have reduced again the headline rate of corporation tax. That makes it even more of an advantage for companies to headquarter and pay their taxes here, and it is part of what we are doing to win the global race. I congratulate him on the advice and support he gives in this area.
Income Tax
Charlie Elphicke Excerpts(13 years, 2 months ago)
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Rachel Reeves
Thank you, Mr Speaker.
The increase in the top rate of tax from 40p to 50p was introduced to help to reduce the deficit because the last Labour Government thought that it was right that those with the broadest shoulders paid a little bit more towards achieving that. The fact that this Chancellor has reversed that and is reducing the top rate of tax shows that he thinks exactly the opposite—that his priorities are not with ordinary working people but with the richest 1%. [Interruption.]
Rachel Reeves
I will—and if the hon. Member for Beverley and Holderness (Mr Stuart) has an intervention to make, then he can make it.
Charlie Elphicke
Does the hon. Lady accept the calculation by the Office for Budget Responsibility that this proposal would cost £100 million—yes or no?
Rachel Reeves
Let us look at what Robert Chote, the chair of the OBR, says about the cut in the 50p rate:
“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.”
Indeed, we know that a series of larger-than-usual dividends were paid in the days and weeks just before the introduction of the 50p rate. For example, the Prime Minister’s friend Emma Harrison, who is the Government’s adviser on their welfare-to-work programme—we know how successful that has been—was paid on 1 April 2010, before the new tax year, which meant that her dividend was taxed at the old 40% rate, saving her £800,000.
That is why the Government’s claims about the yield of the 50p rate do not stand up. People have had the opportunity to anticipate the introduction of the new taxation rate by bringing their income forward, as they did when the rate was reduced. As the Office for Budget Responsibility and the Institute for Fiscal Studies said, it is difficult to produce a definitive estimate for the long-term yield of a tax that has been in place for only a short period, and it is fiscally irresponsible and wholly misleading to use figures from the first year to justify the policy.
Charlie Elphicke
I thank the hon. Lady for giving way again, but let me press her a bit more on this point. The OBR said that its calculation was a “reasonable and central estimate.” Does she disagree with that?
Rachel Reeves
Robert Chote has said:
“This is a judgment based on not even a full year’s worth of data”
and the estimates are very uncertain. Another group of experts at the IFS stated that
“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.”
If the Government think that lots of millionaires who were not paying the 50p rate of tax will start flooding to these shores to pay the 45p rate—well, we will see what happens when the numbers come out.
Charlie Elphicke
Let us talk about those millionaires. Today’s Daily Mail states that the number of millionaires slumped from 16,000 to 6,000 after the 50p rate of tax was introduced, and that revenues fell from £13.4 billion to £6.5 billion. Does that show that if the rate of tax is increased too much, it will have a negative impact on the public finances?
Rachel Reeves
I thank the hon. Gentleman for at least highlighting that thousands of people with declared incomes of more than £1 million who were paying the 50p rate will get a tax cut next year. His figures show that in 2010-11 there were 6,000 people with declared incomes of more than £1 million, and 10,000 in 2011-12. A written answer that I received from the Exchequer Secretary to the Treasury on 19 June stated that 70% of people earning more than £250,000 were paying more than 40% in tax, and 80% of those earning more than £500,000 were paying the 50p rate. In the new year, each and every one will get a large tax cut.
If the Government honestly want people to pay their fair share of tax, they should spend more time and resources on tackling tax avoidance, not compensate the wealthiest by cutting the headline rate of tax. No wonder they have cut staff numbers at Her Majesty’s Revenue and Customs by 11%—they have just given up.
I am happy to debate the Government’s record on raising revenue through taxation. Last autumn, as a result of the slowing economy, projected income tax revenues across the board had to be written down by £51.2 billion by the Office for Budget Responsibility because of the weakness of the economy and the double-dip recession. Only last week, the Office for National Statistics released statistics showing that public borrowing in October was £2.7 billion higher than for the same month last year.
Over the first seven months of financial year 2012-13, the Government have borrowed around £5 billion more than for the same period last year. Why are we seeing that increase in borrowing? It is not as if the Government have not put up taxes for ordinary people or cut public services. The Chancellor’s flatlining economy has forced a 10% slump in corporation tax revenues, and VAT revenues are expected to be down by 2.5%. The Government can spend all the time they like defending a tax cut for millionaires, and Ministers as much time as they like in Cabinet arguing among themselves about why there has been no growth, but it is time they changed course and adopted a plan for jobs and growth.
Mr Gauke
My hon. Friend is right, and harks back to what I was saying a moment ago. We have to bear in mind that the ability of high-earning individuals to be mobile has increased over time. It is striking, for example, that the number of UK citizens moving to Switzerland in 2010 increased by 29%. That demonstrates the fact that individuals will respond to fiscal incentives. They will respond to one of the highest rates of personal tax in the developed world, which was the position that the UK was in.
Charlie Elphicke
Is not the Minister’s point thrown into sharp relief by the fact that millionaires were paying approximately £13.4 billion before that measure was introduced, and that that went down to £6.5 billion? Is it not dangerous for our public finances to start jacking up the rate and driving people out of the country, as the previous Government did?
Mr Gauke
My hon. Friend sets out some dramatic numbers. They are the correct numbers, although it would be right to say that an element of that had to do with forestalling and people moving their income around. However, Opposition Members should not take great comfort from that. They demonstrate the enormous amount of behavioural change as a consequence of high rates. That level of forestalling is striking. What is also striking is that when the previous Government made their estimate of what would happen with income, no allowance was made for forestalling whatsoever, which again demonstrates flaws with the methodology that was in place.
Mr Gauke
Very simply, different taxes have different elasticities. It is perfectly simple: people are more likely to respond to high direct rates of income tax than to stamp duty. Of course, the OBR took into account the behavioural impacts when it assessed how much revenue would be raised on, for example, stamp duty land tax. As Tony Blair sets out in his memoirs, which I was flicking through last night, direct rates of income tax are not a good way of raising income.
Charlie Elphicke
I thank my hon. Friend for giving way once more; he is being incredibly generous.
On the point about elasticity, is income tax not notorious for raising more revenue, the more it is cut? We saw that throughout the ’80s, when it fell from the sky-high levels of Labour to 60% and then 40%. Each time, the take increased. Is it not the case that, if we cut the rate of income tax, broadly we end up increasing the take?
Mr Gauke
It depends where we are on the Laffer curve, but, if we have the highest rate of income tax of any of the G20 economies, we are clearly in a vulnerable position. That was the position we inherited and why we were right to remove it.
I want to touch on the HMRC report laid before the House of Commons at the time of the Budget. It contained the assessment of the 50p rate. It showed that the additional rate was distortive, inefficient, and damaging to our international competitiveness, and that the previous Government greatly understated its impact on the behaviour of those affected. High earners were able to bring forward about £18 billion before the new rate came in, which the previous Government did not account for in their revenue projections. The 50p rate has failed: it has been criticised by business, damaged the UK economy and raised much less for the Exchequer than the last Government had hoped. In fact, it could have generated a net loss. The HMRC report estimates that it raised at most only £1 billion, and, when indirect taxes are taken into account, could have raised less than nothing.
The Government have decided not to stifle the economy further and to show that we are open for business, which is why we will reduce the rate to 45p from April next year. This move to 45p, based on the central estimate of the taxable income elasticity, will cost only £100 million—a small price to pay to regain some of the international competitiveness we lost as a result of the previous Government’s decisions. In fact, when indirect taxes are taken into account, this move could even result in a positive yield.
The 50p rate not only harmed our economy and contributed little to the Exchequer, but placed us in the unwanted position of having the highest statutory rate of income tax in the G20. Our decision to lower the rate will see us drop below Australia, Germany, Japan and Canada. In 2011-12, the top 1% of taxpayers paid about 25% of income tax revenues, and for over a decade our dependence on them has grown. Owing to this considerable economic contribution to the UK, each highly mobile earner who is driven out by internationally high tax rates hits the Exchequer and results in less revenue for public services.
Opposition Members might not care when internationally mobile individuals leave, but, given our dependence on high earners, we want them working in the UK, creating wealth and paying taxes, not moving abroad or retiring early. A competitive tax environment is unambiguously in the UK’s interests, and failing to act decisively as we did would be to ignore our long-term interests, as the 50p rate continued to drive high earners out of the country.
Charlie Elphicke (Dover) (Con)
It is a real pleasure to follow a maiden speech, particularly that of the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I congratulate on his excellent speech. He has a hard act to follow, as he acknowledged, having had two illustrious predecessors: “Sunny” Jim Callaghan and Alun Michael, late of this House. We will all watch his career with interest to see whether the constituency can provide a trio of senior Cabinet Ministers in due course. I must warn him, however, that no one ever tells us before we come to this place how busy it is and how hard-worked we are. I hope that he will still find the time to go and see Cardiff City play, and to pursue his singing hobby, which I understand he is partial to.
Moving on to the matter of income tax, I believe that the right policy is one of fair taxes, not only in regard to the higher rates but across the piece. For me, that means taking the poorest out of tax altogether, as well as taking the middle classes out of the higher rate and not allowing them to be consumed by fiscal drag as they have been over the past decade. It also means avoiding punitive rates that drive people out of the United Kingdom altogether, and ensuring that multinationals pay their fair share of tax on their UK revenues. Putting all that together would create the system of fair taxes and tax justice that this country urgently requires.
Did Labour do any of those things when it was in office? It did not do much to take the poorest out of tax. Indeed, many of the comments from the Opposition today on our policy of increasing the personal rate to £10,000, which I hope to see, have been mealy-mouthed at best. They appear at times even to oppose it.
Sheila Gilmore
Does the hon. Gentleman accept that there are different ways of assisting those on lower wages? The Institute for Fiscal Studies has suggested that tax credits are more efficient than raising the tax threshold, which is very expensive. Furthermore, once people have fallen below the threshold and out of tax, they get no further help. It is at least arguable that the Government’s much-vaunted raising of the personal allowance will not help the poorest families, and that it will come at a very high price.
Charlie Elphicke
I prefer aspiration to the welfare dependency that Labour has offered over the past decade.
We have cut income tax for 25 million people in this country, and we are taking 2 million people out of tax altogether. I am proud that this Government have done that. We are increasing the personal allowance to £9,205 in April 2013, and I want to see it increased to £10,000 in due course. These are real achievements for the Government. It was wrong that the previous Government allowed so many people on middling incomes to get stuck in the 40p rate, where they should not have been. I hope that, as the public finances recover, we will be able to find more space to take middle-earning people out of the higher rate. They are not rich people; they are the people in the squeezed middle created by Labour when it was in power, and I hope that that situation will change over time.
The most important thing is to look at the effects of the punitive rates that Labour introduced. Let us face the facts. Today’s Daily Mail reports that about two thirds of Britain’s highest earners “deserted the UK” after the 50p top rate of tax was introduced. It found that in 2009-10 some 16,000 workers with an income of over a million quid paid tax, but that the number then dropped to 6,000 after the former Prime Minister brought in new tax rules.
I would like to congratulate my hon. Friend the Member for West Worcestershire (Harriett Baldwin) on asking the questions that drew forward these important figures. The tax paid by top earners fell from £13.4 billion to just £6.5 billion in 2010-11. That is the issue, is it not? If the rate is increased so much that it becomes punitive, people will leave the country, squirrel away their income, not declare their income, leave it in companies—personal service companies—or cash boxes where it is not subject to tax. When that happens, tax revenue is lost.
Charlie Elphicke
I will give way to the hon. Gentleman if he can tell me whether the Labour party, if it formed a Government, would scrap this Government’s move?
Gregg McClymont
I thank the hon. Gentleman for giving way, although I am not sure that it is within his purview to specify what subject I should intervene upon. If what he says about the 50p tax rate is all true, why is it so popular with the electorate, as evidenced by poll after poll after poll?
Charlie Elphicke
I think the most important thing is to look at how we get the most money in. We have a massive deficit—a massive amount of debt caused by the Labour party when it was in government and overspent for years and years and years. It created a massive structural deficit in our public finances, shattered our public finances and maxed out on our country’s credit card, so we need to get the maximum amount of money in to repair that chaos, that mess, that economic mismanagement.
What we are doing today is ensuring that we say that the country is open for business, that we are interested in companies growing and doing really well and that we want to encourage aspiration, not envy. I think this is an important gulf that lies between the Government and the Opposition. As I say, the most important thing is how to get the most money in, and if we jack up the rate, as the Labour party did, we will not get more money; rather, people will leave the country and we will lose the wealth creators. That is why what Labour did with a little grenade just before it left office was so dangerous and so toxic. It did so through political opportunism, damaging the people of this country and damaging our economy—shame on it for doing so.
Gregg McClymont
I thank the hon. Gentleman for giving way again. I am listening to his speech. Is the issue one of a failure of communication on the Government’s part? If everything he says is true, one would think that the public would support the Government’s tax cut for millionaires, yet every single poll shows that the 50p rate is popular.
Charlie Elphicke
On that basis, I am sure that the hon. Gentleman will jump up next to say that he is in favour of hanging, along with most of the British people. I do not see him or his Labour colleagues supporting that particular measure—or, indeed, a measure to leave the European Union, which is what most people in this country say they want when they are polled. I urge the hon. Gentleman to be cautious when it comes to these issues; he needs to be careful about what he wishes for.
I think that the Treasury is right to cut the 50p rate to a more sustainable level. We know it will cost £100 million, but we also know that five times that amount has been raised by taxes that are less elastic. This measure is right for the public finances and it is the right economic policy to encourage growth and prosperity in this country. It is also the case that if we cut the rate, we up the take; and I suspect the Treasury figures might turn out to be a little bit better—or perhaps it has been a little more cautious—than we think. I suspect that we might well end up with more money in the bank as a result of these measures.
Broadly, what the Government have done is right. It is important to remember that if we encourage millionaires to stay in Britain and to set up and run businesses here, they will do so far more effectively. It is important, too, for the Government to look at multinationals and ensure that they pay a fair share. We should also note that in the past decade, the Labour Government allowed multinationals to flout our tax law and not pay a fair share of tax. The reason we are talking about the super-rich—Apple, Amazon, Google and all the rest of these large combines—today is that the Labour Government let them completely off the hook. They were so determined to be the pro-business party that they did not collect the revenue from these companies that they should have done. They did not keep our tax law up to date for the internet age.
The Opposition may well want to talk about millionaires and the people who earn amounts that lead to the 50p rate, but it is wrong for them to do so while they completely let off the hook the really large businesses that have substantial revenues that they could and should pay in the UK but do not. Shame on them for that. Let us face the fact that the working nation under Labour saw income taxes rise by about 80%, whereas non-oil corporation tax revenues went up by just 6%. I do not think that is a record of which the Labour party should be proud; it is not a good record or a justifiable record, and people are very angry about the fact that Labour was completely asleep at the wheel on that score.
I think the Government took the right measure in dealing with tax avoidance by the super-rich. It is not just about the 50p income tax rate, as it is also about tackling tax avoidance. An important consultation on tax avoidance is taking place, along with the introduction of the general anti-abuse rule. It is important, too, that we are raising more money from less elastic taxes as a result of getting rid of the 50p rate. We have a package of measures, such as stamp duty land tax, cracking down on tax avoidance and introducing a cap on uncapped income tax reliefs. Reducing the 50p rate for millionaires is not the right way to approach these things; the right thing to do is to look at the inelastic taxes.
It is very revealing that we have seen interventions by Labour Members today attacking the measures on stamp duty land tax, implying that they are almost the wrong thing to do. It is important to go for the less elastic taxes and use the elastic taxes to encourage entrepreneurs, wealth creators and those who will create jobs and money. It is important, too, that the figures in the Office for Budget Responsibility report and from Her Majesty’s Custom and Excise show that the 50p rate raised next to nothing. Analysis showed that the 50p rate meant £16 billion to £18 billion of income was deliberately shifted into the tax year before it was introduced.
Charlie Elphicke
I have already given way.
Self-assessment receipts for 2011-12 are below the forecast by £3.6 billion and the increase from the 40p to the 50p rate raised only a third of the £3 billion that the Labour Government said it would raise. It is easy for Labour to say, “Ah, but eventually this money will pop up”—but not necessarily. The money could be kept in a personal service company, as so many Labour Members and, indeed, the former Labour Mayor of London have done, and lent to oneself with a beneficial loan, helping to avoid paying tax. People can take those sorts of measures, or they can capitalise their income and invest it in something else, meaning that the money never comes into charge. That is why super-high rates are unwise. It also means driving people abroad. That is exactly what happened: people were driven abroad by the Labour Government’s penal tax rates. Again, that is not the right thing to do. We need to look at how to repair our nation’s finances, not look at how to play politics with the politics of envy.
It is important to remember that the former Chancellor of the Exchequer said that the 50p rate was always meant to be temporary and that the Revenue has been very effective in cracking down on tax avoidance, which is where the really big numbers lie. The 50p rate does not raise a whole of lot of money and it discourages a whole load of people by sending out a negative message on the competitiveness of Britain, while the tax avoidance and evasion yield has jumped to a record £21 billion. It is important to crack down on all those tax avoiders and tax evaders, making sure that they pay a fair share.
Finally, I would like to quote what the OECD says about the effect of the 50p rate on our competitiveness and on our economy. Back in July 2010, it said:
“Consider reducing the top rate of PIT”—
personal income tax—
“which is substantially above the OECD average and likely adversely to affect work incentives and entrepreneurship, particularly of high skilled workers. Consideration should be given to reducing the top rate of personal income tax to close to 40 per cent”.
It is very telling that an international organisation is saying that a country’s tax system is going to drive people away, particularly the high skilled, highly able, highly job-creating, highly entrepreneurial people that a country most needs to have. The Government have been very brave in putting the economics before the politics in the last Budget. I commend them for what they have done and for taking the tough decisions that are right for our economy.
Harriett Baldwin
I seem to recall that in my lifetime—under the Government of, I think, the predecessor but one of the hon. Member for Cardiff South and Penarth—income tax was set at more than 90%. If it were set at 100%, we should have no income tax revenue, because no one would consider it worth while to work.
I then ask my students what would happen if we lowered the rate of income tax from 100% to 70%. Would we raise more or less revenue? Again, I should welcome interventions from Opposition Members. Everyone realises that we would raise more revenue, because if the rate was 70%, we would take home 30p in the pound. I notice that the new socialist Government across the channel recently introduced that income tax rate. We will see how that stacks up over time, but I expect that it will prove to be a deterrent to additional work, too.
The motion contains the seeds of its own mathematical inconsistency, because the Opposition are extrapolating a linear relationship between the income tax rate and the amount of income tax revenue raised. They are also extrapolating that those who can, in what is a global market, take their labour to any other country in the world will not take into account any difference in tax rates between the UK and other nations, yet all the evidence shows that that is not the case.
The Labour motion refers to 8,000 people paying income tax on income of £1 million or more. In 2009-10, which is the last tax year in which we had the 40p tax rate, some 16,000 people had an income of £1 million or more. Through raising the tax rate from 40p—a rate that was in place for all but one month of Labour’s entire 13 years in office—we can see that millionaires can do other things with their income. They can take their entire labour overseas, or they can decide to shelter their income or not to take a dividend that year, or they can use any of the other methods to ensure they do not pay that increase in income tax. There was a reduction of £7 billion in revenue after the income tax rate went up from 40p to 50p.
Harriett Baldwin
I think that I have already taken two interventions, and I have only a minute and a half, unfortunately.
The Government have reduced the number of ways in which people on high incomes can reduce their taxable earnings. The Opposition opposed measures to reduce the amount people could put into their pension fund from more than £250,000 to £50,000. I also voted for the abolition of disguised remuneration, which was quite rampant under the previous Government. That also serves to limit the ways in which people on high incomes can reduce the amount of income tax that they pay.
The relationship between the rate of income tax and the amount of revenue raised by the Chancellor is non-linear. Between 0% and 100% there is a curve, and we need to agree about the optimal point on it—the point where the Treasury can get the most revenue from those at the highest end of the income spectrum. I suspect that 45p will be a lot closer to that optimal rate than 50p was.
The Government are focusing on tax cuts for those who are on the lowest incomes, lifting them out of income tax, and ending this tax cull on millionaires.
Mr Meacher
My hon. Friend makes her own point. It is very difficult to reach a final conclusion on this matter, because of forestalling and because this change is seen as temporary. The very rich will, therefore, ensure that most of their income is put forward until the rate is lowered.
Charlie Elphicke
On tax avoidance, would the right hon. Gentleman support a higher tax on second and third homes?
Mr Meacher
I believe that second or third homes—and all other non-primary homes—should incur a higher rate of tax. I never supported the discount given for second homes, which has now been raised to a level nearly equal to that for first homes, and there is a case for the rate for empty homes being raised above that.
As I was saying, HMRC’s report shows that the loss will be £3 billion a year, as opposed to the sum that the Exchequer Secretary kept on talking about today: the £100 million that Treasury Ministers signed off originally, on the basis of arcane taxable income elasticity calculations, about which the Government’s own Office for Budget Responsibility said there was huge uncertainty.
A table given in Hansard on 25 April this year, at column 898, is also interesting. It shows that 80% of those earning more than £1 million paid more than 40% in tax. In other words, tens of thousands of people were—and are—paying the 50p tax rate. They were unable to dodge it. That is an important point, because it serves to destroy the Government’s argument that the 50p rate is a very inefficient method of raising tax revenue and that its abolition will have a negligible effect. I think it will have a very significant effect.
The Exchequer Secretary’s other argument in support of cutting the 50p rate was the old Thatcherite canard—which he stated repeatedly in his speech—that we should not tax the wealthy more because we depend on them for our future. That is the old trickle-down theory. However, we know that the opposite is, in fact, the case. Over the past 30 years, there has been a steady trickle-up effect. There has been a ballooning of inequality, with most middle England incomes having stagnated. That would not be so bad if the trickle-up effect made us more competitive.
The fact is that since 1987, when the top rate went down from 83% to 40%, we have not had a surplus on our current account in the balance of payments for the past 35 years. Our share of world trade was 6.5% in 1970, but it has dropped by two thirds to just 2.3% and our deficit on traded goods last year was £100 billion. That is a monument of uncompetitiveness.
Not only did the Chancellor originally impose £18 billion cuts on the poorest families in the country, but he is now proposing a further £10 billion of cuts to fill the gap left by his failed deficit-cutting policies. The housing benefit cuts that are coming in next April will remove thousands of families across the country from their homes because they simply will not be able to pay the rent. The disability living allowance cuts will leave thousands of disabled people housebound. Atos is cutting a swathe through thousands on incapacity benefit who simply cannot get a job. The poor are being punished for what they did not do, and the rich, who have a great deal to answer for, are almost getting off unscathed.
The second reason for keeping the 50p rate is that the very rich are in a far better position at this time to contribute to meeting Britain’s needs. According to The Sunday Times rich list published this April, the richest 1,000 people—a tiny group who make up 0.003% of the adult population—racked up gains in the past three years of austerity of £155 billion. If those gains were charged to capital gains tax, about £40 billion would be raised. Perhaps the real figure would be less and only £20 billion or £30 billion would be raised, but if it were well invested, it would be enough to kick-start the economy and begin to reduce the deficit in a way that we need to do—by real growth.
The third reason for keeping the 50p rate is the real anger building up across the country about what rich individuals and rich multinationals are getting away with on tax avoidance. I return to the Exchequer Secretary’s table, because it shows that 9% of those earning more than £10 million, which is more than £200,000 a week, paid tax at a lower rate than their cleaning ladies—
Bank of England
Charlie Elphicke Excerpts(13 years, 2 months ago)
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Mr Osborne
Fiscal policy is the responsibility of the elected Government and the House of Commons, but I would say that all the business organisations have supported our plan to deal with the deficit because they know how important it is to securing low interest rates and stability. Frankly, I have yet to hear what the current alternative is from the Labour party. I will save this for next week, but the Opposition used to have a five-point plan and I have no idea whether they are still committed to it. They claim that they want to be responsible with the deficit, but they have absolutely no plans to cut the deficit. I am just getting warmed up for next week, but we will wait a week to have those arguments.
Charlie Elphicke (Dover) (Con)
Will the Chancellor and the new Governor examine the possibility of bringing in depositor preference with a view to reducing the risk of bail-outs and nationalisations of UK banks in future?
Mr Osborne
Depositor preference does not exist in the UK, but it does exist in countries such as the United States and Switzerland. It is something that we are planning to introduce and it was one of the recommendations of the Vickers commission.
Fuel Duty
Charlie Elphicke Excerpts(13 years, 3 months ago)
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Cathy Jamieson
I shall give way to the hon. Member for Dover (Charlie Elphicke), who I am sure is going to tell me how many of his constituents have contacted him asking him to back our motion.
Charlie Elphicke (Dover) (Con)
I am not sure that this will quite fuel the hon. Lady’s bandwagon, but why did the Labour Government, in their closing stages, include in their Budget six further rises for this Parliament?
Cathy Jamieson
It may have escaped the hon. Gentleman’s notice that his party is now in government, and it has to take responsibility for its actions, including the Chancellor’s VAT rise, which has added 3p to the price of a litre of petrol, costing motorists on average over £100 more.
Cathy Jamieson
I want to move on, because it is important that we get to the meat of the debate.
As has been said in earlier discussions on the economy, any recovery we have seen so far is fragile at best. Labour has put forward proposals that we believe the Government should put in place: a jobs plan to boost the economy, including using funds from the 4G mobile auction to build 100,000 affordable homes; a temporary VAT cut, which would cut around 3p off the price of a litre of petrol and give an immediate £450 boost for a couple with children; help for our high streets and pensioners; and a bank bonus tax to fund jobs for young people who are out of work. The Opposition believe that the Chancellor should use his autumn statement to help those on low and middle incomes with the rising cost of living.
Cathy Jamieson
I have given way to the hon. Gentleman already and want to make some progress.
We believe that the Chancellor should rethink his plan to give a tax cut to millionaires in April while putting up taxes for pensioners. As the shadow Chancellor announced on Friday, we believe that the Chancellor should cancel the 3p rise in fuel duty planned for January until at least April.
Charlie Elphicke
There is opportunism not only on fuel duty but on tax avoidance. Under the previous Government, income tax paid by hard-working families in the working nation rose by 81%, but Labour Members let business off the hook, with corporation tax receipts going up by only 6%, because they were so obsessed with the prawn cocktail circuit.
Sajid Javid
My hon. Friend has done a lot of work in this area and speaks with great knowledge. He is absolutely right to point out Labour’s inaction.
Oral Answers to Questions
Charlie Elphicke Excerpts(13 years, 3 months ago)
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Danny Alexander
Rather than the proposal to use revenues from the auction, there are other policies that we can use to support the objective highlighted in the question, including those highlighted by the hon. Member for South West Devon (Mr Streeter)—planning reform, releasing public sector land and other fiscal steps that the Government can take which do not involve committing to this policy now.
Charlie Elphicke (Dover) (Con)
Will the Minister confirm answers to my written questions—that the reserve for the auction is £1.4 billion and that half has been allocated to science and higher education investment? Is this a case of Labour spending money that we do not have, yet again?
Danny Alexander
It is exactly that. The reserve price is £1.4 billion, of which £600 million has been allocated to important science projects, such as the Graphene institute in Manchester. Were we to follow the advice of the Opposition, we would have to cancel significant science projects which are vital to growth in this country. That would be the wrong policy for the British economy.
Beer Duty Escalator
Charlie Elphicke Excerpts(13 years, 3 months ago)
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Richard Fuller (Bedford) (Con)
I very much welcome this debate and would like to draw attention to two aspects. I want to call for the economic and social impacts, both of which are equally important, to be covered in the review.
On the economic impact, there is the principle of the automatic above-inflation tax increases enshrined within the escalator principle. I shall address myself directly to the Minister, who is new to his post. I do not wish to test his mettle today, but he will be keen to make an impact so I ask him this. What ethics lead to a Government’s presuming that they should increase taxation—automatically, year on year—on such staples of life as beer and fuel? I can think of no more regressive taxation than to continue with above-inflation increases on those items.
We have already had a debate on the automatic fuel duty escalator; I am sure that the Minister heard the strong voices of those on the Government Benches arguing that the Government should abandon that policy. The same applies to beer duty. Many hon. Members have talked about the economic impact of the brewing sector in their constituencies. My constituency of Bedford is home to the largest family-owned brewery, Charles Wells, maker of Bombardier beer. What could be more patriotic than drinking Bombardier beer on St George’s day—or, indeed, any other day of the year?
Brewing is now taxed at 50% of its turnover. A 50% tax on brewing turnover will almost certainly tax our brewers out of existence. This is not an issue that the Treasury can avoid, and that is why so many hon. Members have spoken in favour of the motion.
Richard Fuller
I will not, if that is all right, because time is limited.
I would like to mention the social aspect of pubs. As part of “MP in a pub” week, which must be one of the easiest campaigns to organise that I have heard of, I met Nickie and Roger McGlory at The Half Moon. I am sorry for the impact on the profitability of The Half Moon during my session there! I have also spoken to Nigel and Sue Anstead at The White Horse, who, every single week, do something to support local charities and endeavours. This Saturday, many of us will be joining Paul Davies at The Cricketers Arms as Bedford Blues rugby club gets ready to thrash Newcastle in a very important game. Whether it has to do with sports or charities, pubs are an essential part of what we do in our communities.
The vital point, as several hon. Friends have said, is the role of pubs in ending pre-loading. When the Minister deals with this issue, will he also consider the imposition of minimum pricing such that the health benefits can more than outweigh the reduction in revenues from scrapping the beer duty escalator?
Multiannual Financial Framework
Charlie Elphicke Excerpts(13 years, 3 months ago)
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Greg Clark
The hon. Gentleman may have known me for a long time but he has a faulty memory. It was his Government—he served, I think, as Europe Minister in that Government—who gave away half of our rebate, which caused the increase that we have seen.
Though they are ready to lecture others on fiscal discipline, it is fiscal incontinence that characterises the approach of the European institutions. Administrative costs need to be hammered down to bring them into line with the modern world, yet the response of the Commission’s spokesman has been little short of insolent. The British Government asked the Commission to model cuts of €5 billion, €10 billion and €15 billion to its staffing budget, and the Commission refused. Its spokesman said:
“We declined as it’s a lot of work and a waste of time for our staff who are busy with more urgent matters…we are better educated than national civil servants. We’re high fliers, not burger flippers”.
As the Prime Minister has pointed out, one in every six of the Commission’s employees earns over €100,000 a year. The ordinary working people of this country have run out of patience with the attitude displayed by the Commission. The British public are ready to make sacrifices to put Britain back on its feet, but not to featherbed a self-styled elite and its agenda. We are not rolling back wasteful public spending in this country only to see it re-imposed from Brussels.
Charlie Elphicke (Dover) (Con)
My right hon. Friend is far too generous to the Labour party on the matter of the rebate. The House will recall that for every one of the 13 years of Labour government, there were above-inflation increases in the European Union.
Greg Clark
My hon. Friend is totally right. The last time the country had the misfortune to be in the hands of a Labour Government, including the shadow Foreign Secretary, who was Europe Minister at the time, far from agreeing even a real-terms freeze or a cut, they increased the budget over seven years by 8%. That is the record of the Opposition.
It is not just the overall total. Once more we see the usual suspects circling round Britain’s budget rebate. That rebate was secured for future generations by Margaret Thatcher at Fontainebleau—the rebate which Tony Blair and his Europe Minister, now the shadow Foreign Secretary, put on the table in 2005, in the negotiation of the current multiannual financial framework. Of course, when I say negotiation, what I mean is unconditional surrender, giving away in perpetuity a large part of the rebate in return for nothing. If seven days is a long time in politics, seven years is even longer. The amendment to the motion would delete all mention of this betrayal. The act would be forgotten, but the consequences have not gone away.
Infrastructure (Financial Assistance) Bill
Charlie Elphicke Excerpts(13 years, 5 months ago)
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Danny Alexander
I had the pleasure of spending some time in Cornwall earlier this year, and of driving down that stretch of road. I understand the case that my hon. Friend makes. It has been made to me by Cornish colleagues from both coalition parties, and we will of course look sympathetically at any requests that might be made. It is always welcome to see local funding coming forward, and to see a local area taking responsibility for what it wants to do.
Charlie Elphicke (Dover) (Con)
The way in which the guarantees will be structured will be incredibly important for the planning by the financiers who wish to unlock these important projects. Will this involve credit support for the land or undeveloped infrastructure, credit support for the development finance piece, or credit support for the off-take or use of the infrastructure at the end of the day?
Danny Alexander
As I shall explain, we are not seeking to circumscribe unnecessarily the nature or structure of the guarantees, either through the Bill or through the announcements that the Government have made. We are willing to have discussions with those involved in projects that meet the criteria that have been set out, and it might well be that different structures of guarantee will be appropriate for different projects. I do not wish artificially to circumscribe the flexibility of the scheme in advance of the discussions with the individual projects. I am sure that those involved in the projects will be well able to have discussions with Infrastructure UK about the nature of the guarantee that would suit them best.
I was explaining the convention that the Government should not rest significant expenditure under common law powers on the sole authority of general supply legislation. Accordingly, to offer the support we want to see, Government need Parliament’s authority to incur expenditure in connection with agreements to provide financial assistance and to pay out on liabilities should they be called upon.
Today we seek authority for the Treasury to incur up to £50 billion of expenditure in connection with giving financial assistance to infrastructure across the UK. That financial assistance might take the form of guarantees, loans, indemnities or other support backed by public funds. It could be used—
Danny Alexander
The Secretary of State will have to make a decision in the normal way. I am sure that he will have heard my hon. Friend’s comments, and I shall ensure that they are passed on.
Danny Alexander
I must make some progress, but I will give way again later.
Housing guarantees, alongside a wider package of housing and planning reforms, will contribute to the construction of up to 70,000 homes, including affordable housing, and opportunities for first-time buyers to get on to the housing ladder. That will ease conditions in overcrowded and overpriced residential areas, and will enable people to locate near to jobs.
The steps that we plan to take, and which the Bill enables us to take, will help more companies in a wide range of sectors to grow and flourish, not just in the south-east of England but throughout the UK, and will give more people access to a wider range of opportunities. The benefits will also be felt in Scotland, Wales and Northern Ireland. The UK’s hard-won fiscal credibility should benefit the whole of the UK.
Danny Alexander
I hear the case that the hon. Gentleman is making. We have made important announcements recently, particularly in relation to rail links in and to Wales, which I hope he welcomes. I will not support specific projects that may be in gestation, but we will work with the Welsh Assembly Government, who are principally responsible for such proposals. If there are projects for which a guarantee is appropriate, we will consider that very positively in the light of the representations made to us.
As the hon. Gentleman will know, great interest has already been expressed by investors and those involved in projects since the UK guarantees idea was launched six weeks ago. Since then, about 40 companies and project sponsors have come forward, responsible for projects worth well over £5 billion and covering high-priority investment in areas such as energy, transport, water, waste and telecommunications. Detailed discussions are already taking place with, for example, those involved in the Mersey Bridge Gateway project, which is considered to be one of the world’s top 100 infrastructure projects. We have also indicated that we would be willing to consider a guarantee relating to the green deal.
There should be no doubt that the Government are in a position to deliver this policy, and the investment it will unlock, only because of the decisive action that we have taken to reduce the deficit, and the credibility that that has secured for this country. When we came to office, the UK taxpayer was paying interest rates comparable to those of Spain and Italy. Were that still the case, the course of action that we are taking now would be impossible. Because we made tough decisions to regain control of our public finances, we now enjoy interest rates of only about 2%. That is the result of a responsible approach to spending and a credible long-term commitment to regaining control of the public finances.
Despite those tough decisions, we are already spending more on critical transport and communications infrastructure directly as a Government than was spent at the height of the spending boom. We are providing £18 billion-worth of rail investment, supported by the spending review, and a further £9.4 billion of infrastructure enhancements for the rail network was announced in the summer. Ten super-connected cities—the hon. Member for Swansea referred to super-connectivity—will enjoy ultrafast broadband and high-speed wireless connectivity as a result of Government investment, with funding set aside for a further 10. We are also focusing on how we can reduce burdens and keep costs low so that investment, whether public or private, goes as far as possible.
Last week we announced a package of measures to reduce burdens on business still further, including the reform or removal of more than 3,000 regulations to reduce their impact. That constitutes the most ambitious action ever proposed by a modern British Government to set business free. Our spending plans have prioritised capital spending that supports balanced sustainable growth across the country, and our efforts to reduce burdens on businesses mean that investment has gone even further. That approach is producing results despite difficult conditions. More than 1 million private sector jobs have been created under this Government, and this year we rose from 10th to eighth in the World Economic Forum rankings of international competitiveness. The Bill could allow us to unlock even more investment without placing material additional burdens on the public finances, enabling the Treasury to support infrastructure delivery so that we can make better use of private sector finance, skills and incentives, while also managing exposure to the taxpayer.
Under the previous Government, the UK fell in the infrastructure world rankings from seventh in 1998 to 33rd in 2009—behind Namibia, Slovenia and Cyprus. We are now up to 24th and taking the necessary steps to make the further improvement this country needs. There can be no argument with the view that we are delivering far more than under the plans we inherited from our predecessors.
The Bill contains appropriate safeguards and checks to ensure transparency and accountability to Parliament for actions taken under it. It imposes an upper limit on the amount of expenditure that the Treasury and Secretary of State may incur, which can be increased through affirmative resolution. It also requires the Treasury to update the House regularly. In answer to a point that was made earlier, where expenditure is charged on the Consolidated Fund, the Bill requires the Treasury as soon as practicable to lay a report before Parliament specifying the amount paid. Any expenditure or contingent liabilities will be reported in the whole of Government accounts.
Charlie Elphicke
One of the key sensitivities is that one does not want a guarantee to end up like quantitative easing, whereby guarantees are issued and nothing actually comes out the other end. To what extent and how will the Treasury monitor the situation, to ensure that this is a results-based guarantee that brings forward such projects and really makes them happen?
Danny Alexander
I am not sure I accept my hon. Friend’s characterisation of quantitative easing. One of the strengths of the tight fiscal policy that this Government have run and will continue to run is precisely that it allows the monetary activism that we have seen in this country and, indeed, in other parts of the world. However, he is right that the purpose of the Bill is to enable infrastructure projects to come forward quickly. That is why one of the key criteria by which we will decide whether to issue a guarantee to a particular project is that it can get under way within 12 months of the guarantee being issued, and that it has the necessary consents in place. This is about bringing forward projects now; it is not about offering guarantees now for projects where nothing will happen for many years to come.
Charlie Elphicke
Can the hon. Lady clear up a bit of confusion? Today, she wrote in The Guardian that the Labour party would fix all this with a bankers bonus tax to build new affordable homes. However, it seems that this tax has been spent a number of times. Back in March, the Leader of the Opposition said it was going to be used to fund the young unemployed. Which is it?
Rachel Reeves
The bank bonus tax is being used to do two things: first, to create 100,000 jobs for young people; and secondly, for the construction of 25,000 new affordable homes. The Opposition believe that the priority right now is construction and getting young people back to work. The Government believe that the priority is a tax cut for the bonuses. That just shows how out of touch this coalition Government are.
Nothing better illustrates the long-term costs of this Government’s short-sighted complacency than the shocking shortfall in infrastructure investment. If we want to build a productive, competitive economy for the future, we need to invest in the road and rail systems that keep this country moving; in the energy supplies that power our industries; in the information and communication networks that turn ideas into real innovations. With study after study confirming Keynes’s original insight—that construction projects can maximise the multiplier effects of new investment, creating skilled jobs in the construction sector as well as in engineering and design—there is no better time than now.
Instead, we have had from this Government countless speeches, statements and strategy documents. People are asking, “Where is the delivery?” As the CBI is asking, where are the diggers on the ground? When are we going to start turning blueprints into bricks and mortar? It was the Prime Minister who said,
“This autumn, the government is on an all-out mission to unblock the system and get projects underway”.
That sounds promising—until we realise that he said this a year ago. Since then, what have we seen? None of the road building projects in the autumn statement package have begun construction. The number of housing starts is down on 2011. Planning applications are taking longer to approve. I agreed with the Prime Minister when he said:
“In terms of job creation today, getting construction projects off the ground is critical.”
But in the year since he told us that barely one in 10 of the projects listed in the Government’s construction pipeline have moved forward to procurement or construction, and almost as many of them have moved backwards. Total UK construction output is down by more than 10% and last week’s jobs figures showed that the number of jobs in the construction sector has fallen by 89,000, bringing the total number of construction jobs lost since this Government came to power to 120,000.
The Deputy Prime Minister has promised that support for infrastructure and other private sector projects from the regional growth fund would offer a
“boost to business, which will jump start growth and create jobs that last in the places that really need it.”
That sounds like just what we need, but that was said a year ago. We know that since then just £60 million of the promised £1.4 billion has been released to businesses, creating barely 5% of the 37,000 jobs promised.
The Chancellor of the Exchequer announced £20 billion in new infrastructure investment to be funded by the pension funds—that was a year ago. We now know that this scheme will be launched next year, with funds amounting to only a tenth of what was promised back then. As the failure of this Government’s promises increases, their rhetorical displays have become ever more strident. Two weeks ago, in response to questions from my right hon. Friend the Leader of the Opposition, the Prime Minister said:
“If we look at what is planned by this Government, we see that between 2010 and 2015 we will be investing £250 billion in infrastructure.”—[Official Report, 5 September 2012; Vol. 549, c. 230.]
It is true that the national infrastructure plan sets out £250 billion-worth of projects— would government not be easy if you were judged only on what you had planned? If we look instead at what has been delivered, we see that the picture is rather different. The Office for National Statistics shows that new infrastructure orders since the second quarter of 2010 average less than £2 billion a quarter. At this rate, it will take not five years but more than 30 years for the Government’s grand plan to be delivered. The latest construction output figures released last week show that progress is slowing, not accelerating. It is no wonder that the director general of the British Chambers of Commerce has described the national infrastructure plan as
“hot air, a complete fiction”.
Oral Answers to Questions
Charlie Elphicke Excerpts(13 years, 5 months ago)
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Charlie Elphicke (Dover) (Con)
If the Government were to adopt that unfunded mandate and the other £200 billion of unfunded borrowing suggested by the Opposition, what would be the effect on interest rates and our national credit rating?
Finance Bill
Charlie Elphicke Excerpts(13 years, 7 months ago)
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Nigel Mills
It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills
My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Charlie Elphicke
I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”
I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
Charlie Elphicke
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Madam Deputy Speaker (Dawn Primarolo)
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
Catherine McKinnell
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
Charlie Elphicke
Would the bank bonus tax proposed in the new clause be in addition to or replace the Government’s bank levy?
Catherine McKinnell
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
Catherine McKinnell
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
Charlie Elphicke
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Grahame M. Morris
Does the hon. Gentleman agree that part of the problem with the banking crisis is the excessive bonus culture? Perhaps shareholders and Governments should have dealt with that, but we will discuss that on Thursday. Is this proposal not an attempt to address that issue and to ensure that those with the broadest shoulders, who have done so well over the past 10 years with their huge bonus payments, make a contribution now that times are tough?
Charlie Elphicke
The hon. Gentleman makes an interesting point, but there are two problems with his argument. First, the tax would fall not on the greedy employees and bankers whom he wants to whip, but on the bank. Secondly, during his Government’s period of office—he will correct me if I am wrong—Fred Goodwin received some £15 million in bonuses, which he paid tax on at the old tax rate. The hon. Gentleman is therefore seeking to close the door after the horse has bolted.
Grahame M. Morris
The hon. Gentleman is being very generous and accommodating, as always. Does he know what the bonus figure has been for Bob Diamond over the past two years, while the hon. Gentleman’s Government have been in office?
Charlie Elphicke
For me, the issue is the size of the bonuses not in the private banks, but in the taxpayer-owned banks. That is the real concern that we ought to be focusing on. That is why the Government’s bank levy is the right way forward.
Charlie Elphicke
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
Catherine McKinnell
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
Charlie Elphicke
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
Mark Lazarowicz
I am a little unclear about the logic of the hon. Gentleman’s position. He is against taking money out of the banks in the form of a bank bonus tax because it would affect the capital that they can lend to businesses. I think that is a fair assessment of his position. However, that criticism also applies to the bank levy that his Government are in favour of. How is it that he is in favour of a bank levy that takes capital out of banks, but against a bank bonus tax that is paid for by the people who get the bonuses?
Charlie Elphicke
My position is that the bank levy strikes the right balance. That is why I asked the shadow Minister whether her proposal would be in addition to, or an alternative to, the bank levy. That is significant. She is arguing, on the gross figures, for more than £3 billion more to be pulled out of the banking system. That would have an immediate effect on the capital that banks can lend to small businesses and hard-pressed home owners.
Bill Esterson
The hon. Gentleman says that his solution is to get the banks lending again. This Government have categorically failed at that. What we are coming forward with is a concrete set of proposals. He has acknowledged that youth unemployment in his constituency is a problem and that it has doubled since his Government came to power. Why will he not accept concrete proposals that would deal with the blight that faces many young people in his constituency?
Charlie Elphicke
The hon. Gentleman is simply suggesting that we give with one hand and take away with the other. He might think that he can throw lots of money at dealing with the problem of youth unemployment, but he would meanwhile be constraining businesses in getting the capital that they need to create new jobs and maintain their existing jobs. That is the central flaw in the Opposition’s argument. They want to take more money out of the banking system when capital and lending are already constrained.
The issue that we need to deal with is bonuses. The Government have taken action on bonuses in the taxpayer-owned banks. They have said that there will be no cash bonuses of more than £2,000 at the taxpayer-owned banks. It is right to have longer-term share incentivisation schemes, which align people’s interests with the success of the banks over the longer term.
Grahame M. Morris
The hon. Gentleman is developing an interesting argument. Does he agree that bonuses have been too high not just in the state-owned banks but in the privately owned banks, and that shareholders should do their duty and exercise some control over bonus pots? Bonuses have been paid in banks, such as Barclays, where performance has clearly not justified them.
Charlie Elphicke
Shareholders have been exercising control. Under this Government we have seen the shareholder spring and real action by institutional investors to restrain pay in the boardroom, which grew so much under the previous Government. Under the current Government, there has been action to ensure that shareholders have far greater power over remuneration reports and can push down the excessive rewards that have been given for not enough success.
It is right that an honest day’s work means an honest day’s pay and really good work deserves really good pay, but it is fundamentally wrong to say that the Government have not taken action. They have encouraged shareholders to do their bit as business owners to ensure that we do not have the excessive pay of yesteryear. A responsible Opposition would say, “We congratulate the Government on ensuring that excessive pay is stopped, and we take responsibility for the fact that when we were in government, we allowed a something-for-nothing culture in which everyone knew the price of everything and the value of nothing.” We need an understanding of the value of things once again. The Government have got it right by saying that there will not be excessive bonuses in the taxpayer-owned banks. Although the Project Merlin agreement was not perfect, it was a move in the right direction, as is the permanent bank levy that the Government have introduced, which raises £2.5 billion a year.
Bill Esterson
The hon. Gentleman keeps saying that the amount raised by Labour’s levy was lower than £3.5 billion, but the Office for Budget Responsibility has given only one figure. Can he confirm what it was?
Charlie Elphicke
The OBR has given so many different figures that I do not know exactly which one the hon. Gentleman is referring to. I will read him what Lord Sassoon said:
“The net yield raised by the bank payroll tax is estimated to be £2.3 billion, while gross receipts were £3.45 billion. An explanation of the methodology underlying the estimate of net yield can be found in”
a previous written answer. He continued:
“In line with guidance from the Office for National Statistics, the yield from the bank payroll tax was allocated to the 2010-11 tax year, as this is the point at which the tax was passed into legislation.”—[Official Report, House of Lords, 20 January 2011; Vol. 724, c. WA57.]
The current Government’s levy on banks therefore raised more than the previous Government’s levy.
The previous Government said that their levy was meant to be a one-off, but now Labour is in opposition it is saying, “Let’s make it permanent.” It also wants to make it additional to the permanent bank levy, and it is using the recent scandal, of which Barclays is the first bank to be found guilty publicly, as an excuse to do that. It should be more responsible in opposition than that.
Bill Esterson
As the hon. Gentleman will not admit to the figure that the OBR gave for Labour’s levy, I will tell him that it was £3.5 billon. The Government set up the OBR as an independent organisation to give such figures, so I am absolutely amazed that he will not rely on it. That is nearly double the amount raised by the current bank levy in its first year, and significantly more than is predicted for coming years. As we have heard from the shadow Minister, the predicted figure is falling because of the recession that has been created in Downing street.
Charlie Elphicke
I believe that the OBR’s figure was for gross receipts, which were not £3.5 billion but £3.45 billion. We need to examine the net yield raised, which was £2.3 billion. That is a lower figure than the £2.5 billion raised under the current Government’s system. I appreciate that the difference between net and gross can be confusing, because not all of us are accountants—I certainly am not. Nevertheless, more cash is coming through the door under the current Government’s arrangements.
The hon. Gentleman’s argument misses a central point, which is that the Opposition want their bank bonus levy to be an additional impost on the banks. My concern is that that would pull more capital out of the banking system. Right now, we need to lend to business and kick-start the economy.
Grahame M. Morris
The hon. Gentleman says that accountants know the cost of everything and the value of nothing, but how does he weigh the cost to the banks against the cost to this lost generation—the 100,000 people in Dover, Easington and the constituencies we represent—consigned to a life on the dole?
Charlie Elphicke
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
Catherine McKinnell
I appreciate the theory that the hon. Gentleman is putting before the House, but is he aware that the Welfare Reform Act 2012 is projected to cost £25 billion more than was predicted in 2010? So his theory is just not working.
Charlie Elphicke
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
Charlie Elphicke
I have taken enough interventions. I have been generous in giving way and in dealing in detail with the hon. Gentleman’s points in particular.
The Opposition are saying, it seems, that we should take more money out of the banking system, but that would be irresponsible because it would constrain banks’ ability to lend. The Opposition use Barclays as an excuse to blame everything on greedy traders manipulating the LIBOR interest rate. I would urge caution, however, because I have looked through some of the internal documents floating around, particularly the note of a conversation involving Paul Tucker of the Bank of England. If I may, Madam Deputy Speaker, I shall briefly read it to the House by way of scene setting and to demonstrate the Opposition’s mischievousness in seeking to impose this tax.
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sure that the hon. Gentleman is about to make a fascinating point, but he will of course assure me that it is relevant to the new clause.
Charlie Elphicke
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
Catherine McKinnell
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
Madam Deputy Speaker
No, not okay. All interventions are supposed to be brief, and that includes Front-Bench interventions. I think we have got the gist of it now.
Charlie Elphicke
What I have set out also highlights the previous Government’s role in failing to regulate and, it seems, in indulging in a bit of market manipulation pressure of their own. I do not think that is acceptable. In her scene setting, the shadow Minister was basically saying, “What happened at Barclays is outrageous; therefore we need to do this.” What I am saying is that we should be careful what we wish for, because banks need enough capital to lend to small businesses, to create the jobs and money that we need to expand the economy and make this country a great success in the next 10 years, building Britain back up to the sort of success that we saw in the ’80s.
Ian Lavery (Wansbeck) (Lab)
New clause 13 is extremely important and deals with the bank bonus tax for youth jobs. It is an admirable new clause.
It is indisputable that the financial services industry is an essential part of our economy, but equally, there must be an acceptance that the industry—the banks and the financial institutions—needs to pay its way. The June 2010 Budget announced that a levy based on banks’ balance sheets would be introduced from 1 January 2011. Labour supports the bank levy, but we want to go further. We want to repeat the bankers’ bonus tax, which brought in an estimated £3.5 billion. We can argue about net and gross, as the hon. Member for Dover (Charlie Elphicke) explained; however, as far as we on this side of the House are concerned, the bankers’ bonus tax brought in £3.5 billion. Despite slight increases in the rate of the levy, the Government’s failure to repeat Labour’s bank bonus tax—and, in the meantime, create more than 100,000 jobs for young people—means that the banks simply received tax cuts last year and will do so in future years. It is wholly unacceptable, when we have a double-dip recession, for us to allow banks off with fortunes and tax cuts year on year.
In the last financial year, the amount raised by the bank levy was just over half the amount raised by Labour’s bank bonus tax—£1.8 billion, compared with £3.5 billion. The Chancellor’s spending review plans have simply failed. The Government’s austerity measures have led to the flatlining of growth in the economy, resulting in long-term youth unemployment spiralling to record levels. In the last year it has gone up by 112%, while the number of young people out of work for over a year has gone up even more, by around 156%. That is the result of the Government scrapping the future jobs fund, immediately after they came to power, without putting a viable alternative in place. They had no idea what would replace the fund or how on earth they would be able to create any employment, for young people in particular. The Work programme started only a year later, in June 2011, and we all know now, from people coming to our surgeries, about the difficulties that the workfare and other programmes have created.
That is why we are calling for Labour’s youth jobs guarantee, which would redress the Government’s scrapping of the future jobs fund. On a cautious estimate, we believe that the bank bonus tax could raise at least £2 billion this year, which the Government could use to build thousands of affordable homes and introduce the real jobs guarantee for young people who are long-term unemployed.
As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million, and would provide a six-month job for every 18 to 24-year-old who had been on jobseeker’s allowance for 12 months or more. We estimate that it could assist up to 110,000 people in that category. The Government would pay full wages directly to the business, which would cover 25 hours of work per week at the minimum wage. That would equate to about £4,000 per job. In return, the employer would be expected to cover the young person’s training and development for a minimum of 10 hours a week. The ultimate objective would be the opportunity of a permanent job at the end of the six months. New clause 13 would tackle the issue of youth unemployment, and make the banks pay their way.
Charlie Elphicke
Why then make it harder for banks to lend by taking more money out of them through the Opposition’s proposal?
Graeme Morrice
That may be the hon. Gentleman’s opinion, but I reiterate the point that, because of the Government’s policies of the past two years, the official figures show that banks lent £9.5 billion less to SMEs last year than in the previous year, so there is a problem now.
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Catherine McKinnell
I give way to the only Conservative Member to contribute to today’s debate.