The Economy
Lord Hanson of Flint Excerpts(13 years, 4 months ago)
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Mr Osborne
My hon. Friend is absolutely right. In the last week alone, not only has the shadow Chancellor made a huge unfunded tax promise, but Labour voted against the welfare Bill, with its billions of pounds of savings. It is perfectly right for an Opposition to say, “I don’t agree with that, and I’ve got an argument with you on this,” but Labour’s voting against the entire welfare Bill was a catastrophic error of judgment, and we will remind it of its failure to reform the welfare system from now until the end of this Parliament. The Labour leader recently said that his party had become known as the friend of the welfare scroungers and the bankers. He was absolutely right about that.
The shadow Chancellor’s central argument was that the reason why we are undertaking this deficit reduction plan is because it is all part of some great partisan ideological plot. I therefore have a question for the shadow Treasury team: presumably therefore, the Bank of England is part of this plot? Is that the case?
Mr Osborne
So it is a Tory plot, is it, and the Bank of England is part of it? What about the IMF; is it part of this Tory plot? The right hon. Gentleman probably thinks the CBI is part of it.
What about PIMCO, the world’s largest bond fund: is it part of the Tory plot? It is based in Los Angeles, so it must represent the international branch of the Tory plot. It said this:
“We think the UK is implementing what is probably the best combination of fiscal and monetary policies”
in the western world. These groups—the serious commentators—have all come to the same conclusion as the coalition Government: that we need a credible deficit reduction plan to get our market interest rates right—to make sure that, even though we inherited a budget deficit higher than Portugal’s, our market interest rates are similar to those of Germany.
Mr Osborne
We put forward in the Budget targeted cuts for business. We are cutting corporation tax by 2% this year and a further 3% in coming years. We have put in place more generous research and development tax credits to help businesses. We have cut the small companies tax rate—
Mr Anderson
Sit down and shut up.
The Tories have made deliberate decisions and claimed that there are no alternatives. When my party came back into government in 1997, the people from where I came from said they wanted us to put right the attacks that had happened in the 1980s. They said, “We’re sick of living in second-class conditions.” That is why I am proud, and my party is proud, of what we did.
Mr Anderson
I was not going to discuss the Liberal Democrats because they are obviously not relevant to this country any more. I thought that perhaps they were outside unveiling a new placard about the bombshell or signing a few pledges; obviously, they are too busy to come in here.
Oral Answers to Questions
Lord Hanson of Flint Excerpts(13 years, 4 months ago)
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Mr Osborne
I think the CBI’s view reflects those of almost the entire business community in Britain and almost all international commentators on the United Kingdom economy. When the CBI was asked explicitly what it thought of the Labour party’s plans, its chief economic adviser said:
“The economy would be weaker because of the impact of a loss of confidence in the markets.”
Mr David Hanson (Delyn) (Lab)
Since the Government came to power, the growth forecast for this year has been downgraded by 1%. The IMF has also said that the speed of Government cuts poses a risk of higher inflation, lower growth and rising unemployment. Does the Chancellor agree with the IMF, which he is keen to support, that if
“a prolonged period of weak growth”
—which we have at present—
is in prospect, “temporary tax cuts” should be considered?
Mr Osborne
First, the right hon. Gentleman has misquoted the IMF. Perhaps he will give the House the full quotation. The IMF did not say “at present”, which the right hon. Gentleman slipped into the quotation. [Interruption.] Perhaps he will take the opportunity to correct the record later. Secondly, the IMF said:
“Strong fiscal consolidation is underway and remains essential”.
The managing director of the IMF could not have been stronger in his endorsement through article IV.
I note that three Opposition Front Benchers have asked questions, and that not one has mentioned the new policy of the shadow Chancellor.
Oral Answers to Questions
Lord Hanson of Flint Excerpts(13 years, 5 months ago)
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Danny Alexander
I agree wholeheartedly. That is why we have set ourselves the agenda of both reforming the welfare system and lifting the income tax threshold to £10,000, which will significantly benefit millions of people on low and middle incomes.
Mr David Hanson (Delyn) (Lab)
Value added tax up, losses of about £1,500 for middle-income families, child benefit frozen, child tax credit cut, working families tax credit frozen: can the Chief Secretary tell me why, when such decisions are made, it remains the Government’s priority to cut the 50p tax rate for the highest earners in the community?
Finance (No. 3) Bill
Lord Hanson of Flint Excerpts(13 years, 6 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to begin today’s proceedings by winding up today’s debate, or at least the first of our debates this afternoon, which was one of our debates this morning. It is on clause 4, which sets out the main corporation tax rate for the financial year beginning on 1 April 2011, reducing it to 26%. The measure introduces a further reduction of 1% for this financial year, in addition to the 1% cut that was legislated for last year. Further 1% reductions to the main rate will be made in each of the next three years, taking the rate to just 23% in 2014-15.
Those changes will lower the tax bill of around 45,000 companies that pay tax at the main rate, and of 40,000 companies that are taxed at the main rate but that benefit from the marginal relief. To explain that further, the changes will affect incorporated businesses that have profits of between £300,000 and £1.5 million that pay corporation tax at the main rate reduced by marginal relief, and those that have profits of more than £1.5 million that pay corporation tax at the main rate in full. As I said, clause 4 sets the rate at 26%—the adjustment to the marginal relief fraction is made in clause 6.
Clearly, a thriving private sector must be at the heart of our plan for growth. As we reduce spending, as we must if the UK is to live within its means, only the private sector can spearhead the recovery. We must therefore show that the UK has an attractive tax system and is open for business. This Government are taking action to show the international business community just that. The UK is the right place to do business, and our tax system is one reason why. Our priority is securing strong, sustainable and balanced growth, and clause 4 will help to see to that by supporting investment and by incentivising activity across the economy.
Mr David Hanson (Delyn) (Lab)
I realise that we debated this much earlier this morning, but much of our discussion was on the outcomes of this process. The Opposition do not object to the purpose of the corporation tax cut, but I would welcome clarity from the Minister. How many jobs does he believe will be saved because companies do not move abroad because of the cut, how many new jobs will the cut attract by bringing new investment into the country, and what growth does he expect to result from the investment that we are taking away? As was said last night, we are forgoing a considerable sum of corporation tax income, and I should like clarity on what the Minister believes will be the solid outcomes of that.
Mr Gauke
First, I warmly welcome what the right hon. Gentleman says about supporting the reduction in the corporation tax rate. In seeking to persuade investors to invest in the UK, it is important that we have a strong, solid, cross-party consensus that the UK should have competitive, low rates of corporation tax. To the extent that the official Opposition take a clear, supportive view of what the Government are trying to do, that is helpful to our ambitions, and I welcome it. I am keen to ensure that they maintain that position.
The right hon. Gentleman asked about the specific impacts and outcomes of the measure. If he will be patient and let me first set out why I think the steps that the Government have taken on corporation tax are helpful, I will say as much as I can about the likely outcomes later. I should also thank him for quoting at considerable length one of my speeches on this subject. I am tempted to refer him to his own speech when he quoted my speech, but that would be a little circular.
Mr Gauke
Let me turn to the impact of this measure. When the OBR analysed the corporation tax package that was announced in 2010, it made it clear that that would help with the cost of new capital investment in the UK. It expected that the recovery would be supported by business investment, and the reductions in corporation tax underpinned its forecast for strong business investment growth over the next five years. In June, the OBR increased its estimate for expected investment and gross domestic product in response to the corporation tax package. Its analysis was that the resulting 3% reduction in the cost of capital would
“promote a higher level of business investment…than would otherwise have been the case.”
In total, that resulted in a forecast of an additional £13 billion of business investment by 2016.
The right hon. Member for Delyn asked about particular businesses and sectors. However, the best way to run an economy is not the Government dictating from the centre. Running an economy is about providing a competitive environment in which businesses from all sectors can grow. Making sectoral forecasts tends to be difficult, and there are severe accuracy questions.
Mr Hanson
I am trying to be helpful and to seek clarity on what the Exchequer Secretary would regard as success, given the investment he is making through not collecting the previous level of corporation tax. In our discussions on the National Insurance Contributions Act 2011 before Christmas, an amendment was tabled to ensure an opt-out in certain parts of the United Kingdom. An assessment was made of the number of jobs that would be created by the measure. I am asking whether he has made a similar assessment with his officials of the potential of this measure to have an impact on growth and jobs in our economy.
Mr Gauke
Let me make this point. The hon. Gentleman talked about being in west Worcestershire. I was there two weeks ago for a meeting with local businesses. I met manufacturers who had full order books and were expanding, investing, welcoming the opportunity to expand their businesses and recognising that the Government were putting in place the conditions for strong private sector growth. It is through such growth that we can have sustainable public finances and we can afford to have the public services that we would all like. However, it is no good spending money that we do not have. The move towards a lower rate of corporation tax will enable us to have stronger, sustainable public finances and a dynamic private sector. It supports the Government’s ambition to achieve the most competitive tax system in the G20, and I therefore commend clause 4 to the Committee.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 10
Plant and machinery writing-down allowances
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss clause stand part.
Mr Hanson
You have caught me slightly off guard, Mr Hoyle. I was expecting my hon. Friend the Member for Hayes and Harlington (John McDonnell) to participate in the previous debate, but I shall plough on as ever. It is good to see you back in the Chair. I hope that you had a refreshing evening’s sleep after we had considered earlier matters.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend is making an important point that is indeed linked with the previous clause. Clause 4 deals with the corporation tax cut, which is one side of the coin, but the other side is obviously investment. Constituencies such as mine are still heavily dependent on manufacturing industries—indeed, almost disproportionately so. Although local businesses that have spoken to me about the Budget measures have welcomed the corporation tax cut, they are incredibly concerned about the changes to capital allowances, which they think will serve as a disincentive for them to invest in the long term.
Mr Hanson
My hon. Friend makes some valid points. I know that he defends his constituency and the whole of the north-west region strongly when it comes to the importance of manufacturing industries. One issue that I want to explore with the Minister is the very question of whether the capital allowance reductions proposed in clause 10—as well as other in clauses, which we will consider in due course upstairs in Committee—will have an impact on the job creation and investment proposals that we are considering today. Unemployment in my hon. Friend’s region in the north-west will be very high, at around 9%, which again indicates the importance of generating and regenerating manufacturing industries in those areas.
Capital allowances allow businesses to write off the cost of certain capital assets, including plant and machinery, to arrive at their business profits. Capital allowances take the place of commercial depreciation, which is not allowed for tax. There are certain first-year capital allowances that allow 100% of a business’s expenditure on specific, environmentally-beneficial plant or machinery to be written off in the year that the expenditure is incurred. There is also the annual investment allowance, which allows businesses to write off the whole of their expenditure on most plant and machinery, up to a limit in the year in which it is incurred. Expenditure on plant and machinery not covered by the allowances also attracts writing-down allowances, at either the main rate or a special rate.
The changes in clause 10 are part of the package of corporate tax reforms announced in the Government’s 2010 Budget, as the Minister will undoubtedly explain later. The amendment calls for a review of the impact of the Government’s abolition of capital allowances for smaller businesses in 15 to 16 months—that is, October next year—when these allowances will have been operational and we can see what the growth potential in the economy has been over that period thanks to the corporation tax measures in the Budget, as well as the impact of stringent public spending cuts and rising unemployment across the UK.
Jim Fitzpatrick (Poplar and Limehouse) (Lab)
In the debate yesterday evening and earlier today, there were many references from Opposition Members to the concerns raised by the British Chambers of Commerce and the Federation of Small Businesses, and my right hon. Friend has referred to the CBI. Can he say whether those organisations support the review that is being requested, and whether he has had a chance to discuss the Government’s plans with them?
Mr Hanson
I want to refer to a number of comments that have been made in this debate. Perhaps I could start by being helpful to my hon. Friend and referring him to what Lord Northbrook said. Lord Northbrook does not take the Labour Whip in another place or even the Liberal Whip; he takes the Conservative Whip. He considered a range of issues on Second Reading in another place, and said of this proposal:
“How does the reduction in capital allowances square with the Government’s wishes to encourage a more manufacturing-based economy?”—[Official Report, House of Lords, 26 July 2010; Vol. 720, c. 1172.]
That is a tempered criticism, but it raises the very question that I wish to raise with the Minister. On the one hand, to help growth we have corporation tax cuts—which the Committee has just supported, although we want to see an estimate of the outcomes—but on the other hand, we have massive reductions in capital allowances, which are specifically designed to encourage businesses to invest in plant and machinery, and environmentally efficient equipment, all of which will help to build jobs and growth for the future. However, I will return to my hon. Friend’s point in due course.
The key reason to consider the matter in depth is that, as the Office for Budget Responsibility—the Government’s own creation—has said, even after this year’s Budget, which the Chancellor has dubbed a “Budget for growth”, growth will be lower this year and next year than it was predicted to be around this time last year, when my right hon. Friend the Member for Edinburgh South West (Mr Darling) was Chancellor of the Exchequer. Slower growth and rising unemployment will make it harder to make the deficit fall. It is therefore even more important that we encourage as much growth, manufacturing and manufacturing investment as we can, to help counterbalance the massive effects of large spending cuts, which will put many people out of work and have a knock-on effect in the private sector.
Even after the measures in the Budget are taken into account, the OBR has said that growth will be much lower this year and next. In 2011, growth is now forecast to be just 1.7%, compared with a forecast of around 2.6% a year ago. The estimated rate of unemployment has been revised upwards to 8.2%, from 8%. Despite all the discussions and the measures that we have seen so far, there is still fragility out there. We are not sure how the economy will perform in the next 12 months, nor are we sure whether it will retain its strength and grow, or whether manufacturing investment in particular will grow. We are taking a potential risk by balancing the growth in corporation tax, which the Minister believes will occur because of the cuts that have been proposed, against the cut—admittedly of 2%, but still a cut—in capital allowances proposed by clause 10.
The amendment simply says that at some point in the future—October 2012—we should have a break point, when we review what has happened since the allowances came into effect, which will be next year, against the corporation tax cuts, which come into effect now, and the other issues in the economy, which, although they are not before the Committee, are still relevant to this debate. As I did last night, I wish to refer to the fact that unemployment is still high across the United Kingdom. We need to grow the economy and grow manufacturing jobs, yet the cut in clause 10 may well impact on our current fragile growth. As I mentioned last night, unemployment in the UK is highest in the north-east, at 10.2%. I notice that my hon. Friend the Member for Hayes and Harlington is here, as well as my hon. Friend the Member for Poplar and—
Mr Hanson
I still think of my hon. Friend as the Member for Canning Town; it is a habit that is hard to break. Just as I was about to say “Canning Town”, I realised that I was wrong, which is why I paused for a moment. In London—including the constituency of my hon. Friend the Member for West Ham (Lyn Brown)—the unemployment rate is 9.4%. London is a centre of prosperity, and it has growth in many parts, but if we are to encourage manufacturing industry in London to soak up those unemployed people and get them back into jobs and spending, it will be necessary to have an assessment of whether, downstream, the capital allowance cuts have been good or bad for unemployment rates.
The unemployment rate in the west midlands is 9.9%. In Yorkshire and the Humber, it is 9.3%. In my own region, Wales, it is 8.7%, and in Scotland it is 8.1%. Those are high levels of unemployment, and I want the Government to make an assessment of whether the capital allowance cuts will particularly hurt manufacturing industry in the north, the north-west, Yorkshire and the Humber and in the north-east, where my hon. Friend the Member for Tynemouth (Mr Campbell) has his constituency, more than it might do in the south, the south-east and the south-west, where the unemployment level is only 6%. That level is still high—it is 100% for those people who are unemployed—but it is still only 6%, compared with the higher levels at the heart of challenging constituencies in London and in the north and north-east.
Jim Fitzpatrick
When I won the seat of Poplar and Canning Town in 1997, the level of unemployment there was almost 17%. When Labour left office last year, it was down to about 9%. That was still between two and three times the national average, but it was a lot less than it was when we won the election in 1997 because of the efforts that the Labour Government put into attacking unemployment as the scourge of our economy. My right hon. Friend is making a strong argument that unemployment is not now going to be attacked as aggressively as we would hope, because of the economic policies of the coalition Government. I would like him to continue in this vein and to outline how we think it ought to be attacked, because it is the scourge of our economy.
Mr Hanson
I am grateful to my hon. Friend for making that valid point. I know that he is committed to bringing jobs and investment to his part of east London, as indeed my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) is to the north-west and elsewhere.
I am not saying that we will not approve the cuts in capital allowances in due course. I am simply asking the Minister to monitor their impact, and if they are becoming detrimental, given the corporation tax cut to which they are inextricably linked, we shall need to look at how the process will continue.
Andrew Gwynne
My right hon. Friend is right to say that we shall need a regular assessment, because the regional economies do not stand alone. The decisions taken in one region might have an impact on another. An example is Mono Pumps, a manufacturing company in the Tameside area, part of which my constituency covers. It was one of just 50 schemes announced in the regional growth fund, and it is to relocate to a new facility on the Ashton Moss regional employment site in my constituency. That move is now being jeopardised because of supply chain issues with a manufacturing company based in Gloucestershire and south Wales. We need to ensure that manufacturing as a whole is supported across the United Kingdom, and only the kind of assessment that we are proposing will ensure that such regional disparities are properly looked into.
Mr Hanson
My hon. Friend makes my case for me very powerfully. I am simply saying to the Committee that these are important changes. We have approved the corporation tax cut, but we are still sceptical about whether the capital allowance cut will be a successful policy, rather than simply an addition to the public spending cuts that the Government are making across the board, which will have a knock-on effect on the private sector just as much as on public sector jobs.
Mike Freer (Finchley and Golders Green) (Con)
Just a quick question: if the higher corporation tax and the capital allowances were so valuable, why did manufacturing jobs shrink under the previous Government?
Mr Hanson
The hon. Gentleman will know that there are many challenges across the board, and manufacturing is always going to be a changing, moving field. In my area of north Wales, for example, manufacturing grew quite dramatically. In my constituency, we make the Airbus aeroplanes, which you will know very well from your constituency in Bristol, Ms Primarolo. That has been a major growth industry, in partnership with Government investment, Government backing for investment and Government loans and grants to help to grow the private sector and create jobs. The people who have those jobs then spend their wages in the local economy, creating further jobs in shops and in other manufacturing areas across the board. It is therefore an ever-changing field.
I have tried to make it clear to the Minister that we support the general direction of travel on cutting corporation tax, because we do not want the UK to be uncompetitive with our neighbours. In our discussion on clause 4, I was simply seeking an assessment of how the Minister will measure the success of the provision, because we will be forgoing a considerable amount of resource and we will need to measure a success that we do not yet know. The proposal on capital allowances goes hand in hand with the proposal on corporation tax. We will be paying for that cut in part with a major slashing of investment allowances by £2.6 billion under these proposals. Again, I am simply asking for an ongoing assessment of the impact of the measure, because it might work and it might not. I fear that cutting the allowances will lead to a lack of investment, a lack of growth and a further reduction in the manufacturing industry that the hon. Member for Finchley and Golders Green (Mike Freer) is seeking to protect and develop. I want to test the Minister on these issues so that he can justify to the Committee why he is making these cuts.
Nigel Mills (Amber Valley) (Con)
The right hon. Gentleman is making an interesting case. Would he care to comment on whether any work was done by the previous Government when the capital allowance rate was reduced from 25% to 20% to determine whether that cut had the kind of damaging consequences that he now envisages with the cut to 18%?
Mr Hanson
To be honest, I do not know. I was not a Treasury Minister in the last Labour Government. I spent my time in Northern Ireland, in prisons, in probation and in the Home Office—[Interruption.] Perhaps that is not an area into which we should progress this afternoon, however. In the spirit of cross-party discussion of these matters, I acknowledge that the hon. Member for Amber Valley (Nigel Mills) has made a valid point, but, whatever the previous Government did or did not do, the economy was stronger than it is now when those cuts were made to the capital allowances. We can debate the reasons for that for a long time, and we can disagree or agree on the issues, but we now have growing levels of unemployment, slowing growth and public spending cuts that have not yet hit the public and private sectors. There are estimates that up to 500,000 people in the public sector will lose their jobs, which will have a knock-on effect on the private sector. We are seeing the squeezing of the middle in relation to child benefit and working families tax credits, and poverty and wage freezes are hitting hard.
All those factors are going to hit the economy hard in the next 18 months to two years. The Minister is proposing to cut the capital allowances from April next year, and all we are asking in this modest amendment is that the Government review where we are in October 2012, given the tortuous procedures that we are going to go through in the next 18 months as the squeeze has its effect. The Minister will undoubtedly accept that that is going to happen, because it is part of the Government’s policy to make it happen, and we are keen to ensure that, at the end of that period, we do not lose valuable manufacturing capacity and jobs.
Mr Love
Is not the key point here the Minister’s inability to give us hard figures on the improvement in growth and employment? Our request, through the amendment, is that we look carefully at that, because the Government are making major claims about growth in the economy as a result of these measures, as well as rebalancing the economy away from financial services towards manufacturing. Surely the amendment will give us the opportunity to test those claims.
Mr Hanson
Indeed. We are dealing specifically with clause 10, but it overlaps, as will be discussed further, with clauses 11 and 12. Manufacturing is a key part of our economy, but it needs support in order to fuel future jobs growth. The Government thus need to explain today and later in Committee upstairs why they are cutting investment allowances for manufacturers by about £75,000 and using that money to give a corporation tax cut that will go predominantly not to manufacturing, but to financial services industries.
I have made a claim, and I am happy for the Minister to challenge it and to explain why the corporation tax cut we considered and agreed in clause 4 will be skewed towards the financial services industries which are not creating manufacturing jobs. I originally hoped to have clauses 4 and 10 considered in tandem as they are inextricably linked. The key issue is that the corporation tax cut is going predominantly to a certain sector, while the manufacturing capital allowance cut will predominantly hit manufacturing industry. We need to reflect on that.
I will refer briefly back to clause 4, but it is relevant, Ms Primarolo. The Chancellor’s “Budget for growth”, which he trumpeted in March, included an additional 1% corporation tax cut at the final moment. We know that, because the Office for Budget Responsibility said in paragraph B13 of the Budget 2011 policy costings:
“The OBR was notified of the change to corporation tax and the 1p cut in fuel duty from 1 April 2011 too late to incorporate any indirect effect of these measures in the economy forecast.”
If so, the capital allowances under clause 10 will come into effect with that reduction next year, but there is no assessment of whether the additional corporation tax cut, along with the fuel duty rise and other issues I have mentioned, will impact positively or negatively next year. Given the lack of thought and consultation on those issues, we need to reflect on them at an early stage, which is what the amendment says.
John McDonnell (Hayes and Harlington) (Lab)
There is anxiety about the lack of assessment; it was undertaken so perfunctorily by the OBR because it was a last-minute decision by the Chancellor. Will my right hon. Friend comment on the grounds for that decision being taken in such a last-minute manner? Was it a political stunt? Was there a rationale for it? How does he understand not just the decision itself, but the fact that it happened literally in the final 24 hours—at the last minute—before the Budget?
Mr Hanson
I could speculate on those points for my hon. Friend, but the Minister might be in a better position to comment on them. I will give my hon. Friend one thought, however. Perhaps the Chancellor realised that unemployment is rising because of the squeeze on public spending over the year; that growth is slowing because people feel uncertain in their jobs and businesses are not willing to invest; and that the level, depth and speed of public spending cuts over the next two years will lead to growing unemployment—not just in the public sector, but in the private sector, as people in private businesses depend on public investment. For those reasons, I suggest, the Chancellor has had to make additional changes to do what I believe is the right thing: to try to stimulate private sector growth.
If last-minute thought has been given to the impact of corporation tax changes and if full assessments have not been made of the impact of VAT on public spending cuts, we need to be aware that capital allowance reductions are coming into effect in April next year. The amendment simply says:
“The Chancellor shall publish, by 31 October 2012, an assessment of the impact of the changes to capital allowances on the UK economy.”
I find it difficult to think of anybody who would object to that. I am sure that the Treasury would make such an assessment as a matter of course in any case. Any good business—and the Treasury is a good business—would look at its outputs, outcomes and impacts and reflect on how they will affect the customer base, which in this case is manufacturing industry.
I have real concerns about the decision to reduce the rate of writing-down allowances for new and unrelieved expenditure, as I believe it could impact adversely on smaller businesses and on businesses that are more likely to invest, such as manufacturers. I say this because the Government regularly claim that small businesses are the key to future growth in the economy. Who depends on a capital allowance more—a very large or a smaller business? The argument I put to the Minister is that small businesses would be more affected.
Nobody disagrees with the fact that the UK should have a competitive tax regime, and the corporation tax cut should help with that in principle. The Government are paying for it by the measures in clauses 10, 11 and 12—slashing investment allowances by £2.6 billion. The package will penalise companies that invest, particularly manufacturing companies, in order to offer tax cuts that will disproportionately benefit the banks and the financial sector. At a time when the Government claim they are rebalancing the economy by trying to encourage manufacturing, this package could—I say could—do the reverse.
The Institute for Fiscal Studies has said:
“The largest beneficiaries from the package of measures”—
including corporation tax and capital allowances—
“will be high-profit, low investment firms”,
such as financial services, while the cuts to allowances under clauses 10, 11 and 12 will
“have the largest impact on those firms with capital-intensive operations”,
such as manufacturers. That is a direct quote—from page 229, for the Minister’s reference—from the IFS Green Budget 2011. The IFS also agrees:
“The losers would be firms that invested heavily but made little profit—notably in the manufacturing and transport sectors but also some capital-intensive service-sector firms. The winners will be less capital-intensive but more profitable firms, historically typified by the financial sector.”
I do not know whether it will pan out like that in real life, but my point is that if it does, clauses 4 and 10 together will mean giving a corporation tax cut that benefits the financial services sector most and a capital allowance cut that damages the private sector of small and medium-sized manufacturing industries most. That cannot be a good recipe for growth in the economy.
Andrew Gwynne
One of my concerns is that as we try desperately to rebalance the economy, we need to invest in some of the new high-tech and emerging industries, particularly in the renewable energy sector, which is incredibly capital-investment intensive. Does my right hon. Friend worry, like me, that these changes could put off growth in that emerging technology?
Mr Hanson
My hon. Friend makes a valid point, as it is exactly those companies that require capital investment support. The move will penalise companies that invest in manufacturing—for example, the car industry, advanced manufacturing, wind turbine manufacturing, and research and development across the board. These big manufacturing concerns are going to create the jobs of the future as well as protect current manufacturing jobs at a time when consumer demand might well be fragile because of high levels of unemployment, high levels of public spending cuts and general concerns about the squeeze on the economy and on people’s living standards and incomes generally.
PricewaterhouseCoopers has said:
“Many clients will balance the modest reduction in the capital allowances rates with the staggered reduction of the rate of Corporation Tax…Whilst the declining rates of capital allowances, in isolation, do not produce any winners, some businesses will benefit when the CT rate change is also taken into consideration. Capital intensive businesses”—
this is the key point—
“are likely to feel the reductions more, since they will have larger capital allowances pools.”
Deloitte has said:
“For some businesses the reduction in writing-down allowances for plant and machinery will be offset by the reduction in the main rate of corporation tax from April 2012.”
We accept that.
“However”—
and this is the key point—
“capital intensive companies…may not benefit to the same extent.”
John McDonnell
As my right hon. Friend said earlier, all these clauses are linked and it is difficult to disaggregate them. Clause 10 is certainly being used a mechanism to fund the allowances being distributed to companies overall. As I say, I find it extremely difficult to link that to the rationale that has been given by both the Chancellor of the Exchequer and the Prime Minister in the past.
John McDonnell
That is exactly the point that my right hon. Friend the Member for Delyn made and that I wish to reiterate. Capital allowances were introduced as a method of the Government’s trying to shape behaviour within industry as best we could. They were a way to stimulate sectors of the economy, but they have also been used to stimulate innovation. The Government are committed to the stimulation of the green economy and I, like other Members on both sides of the House, deeply regret the Government’s failure to act sufficiently swiftly to establish the green investment bank and to get it up and running, but that is a subject for another debate.
The role of capital allowances, particularly in the environmental field, could be key and cutting them with this broad-brush approach will deny the opportunity to the environmental industries, particularly those involved in the development of renewables, to become world leaders as the Government envisaged that they would in the coming period, an idea that we all supported. This is my right hon. Friend’s point: if a review of the impact of the capital allowances were linked to the disastrous corporation tax policies overall, we would have the opportunity to consider the implications sector by sector and industry by industry as well as the design of the appropriate mechanisms, allowances or other things to stimulate those sectors of industry.
Mr Hanson
Does my hon. Friend accept that one key factor is the lack of a focus on outcomes in the consideration of the impact of the changes in both clause 4 on corporation tax and clause 10 on capital allowances? One key thing that the review would do, if we can secure from the Government today an aspiration to find out what the changes will mean for real jobs and the manufacturing industry, is test in 18 months’ time whether those changes have been successful.
John McDonnell
Let me put it this way, as mildly as I possibly can: we hardly have a description of evidence-based policy making before us. Let us go back to the example of the additional 1p cut given by my right hon. Friend. When the Treasury Committee considered the matter, it invited evidence and Paul Johnson, the director of the Institute for Fiscal Studies, was questioned about the impact it would have. He said that we did not know about that with any precision. We do not know with any precision what the impact of the overall cut in corporation tax will be and we certainly do not know with any precision, globally or sectorally, what the impact of the capital allowances cuts will be. We are stepping into the dark and going down the wrong path and that is why we should have the review.
I fear that a number of companies might have planned their development in advance based on the capital allowances that they thought were secure and would be forthcoming because of the statements of the previous Government as well of the Chancellor of the Exchequer over the past 12 months. They will now not proceed with that investment and as a result, the companies might not be put at risk but they will certainly not expand in the way that they planned and that will have consequences for jobs. In certain areas—my right hon. Friend has mentioned at great length the higher unemployment rates in certain regions—the effects on individual communities will be fairly catastrophic if this job growth does not go ahead.
I oppose the reduction in corporation tax, as I think it is misguided. I would prefer it if, instead of cutting taxes to companies and forgoing that income, we could use the income from the top companies and corporations to invest in public infrastructure projects that will get people back to work and stimulate the economy overall. The last thing I would suggest the Government should do, even if they are cutting corporation tax, is pay for that cut with cuts in capital allowances. In my view, that flies in the face of everything that the Government have said about rebalancing the economy, stimulating the manufacturing base and shaping behaviour so that there is a longer-term view of investment in the capital and manufacturing infrastructure of this country based on security and the knowledge of the income that a company will have to invest in the future.
Even if the Government cannot withdraw these provisions on the cuts in capital allowances and reconsider those on the corporation tax, I urge them at least to allow us to reconsider the matter within 18 months, as the amendment says, to see the implications overall. I honestly do not understand the fear within Government of having an open examination of this matter within that time scale. If I were a Minister, I would welcome it. If I were an advocate for this policy, I would welcome the opportunity to come back in 18 months or so and, if necessary, to gloat at its success. I certainly would not want to feel that I was on the run and hiding from the consequences of the decisions that I had proposed in a Finance Bill of this nature.
The First Deputy Chairman of Ways and Means (Mr Nigel Evans)
I call Mr Hanson.
Mr Hanson
Good afternoon, Mr Evans. Can I welcome you to the Chair of this seemingly unending Committee, which has been going on for the past couple of days?
I have listened very carefully to the Minister, but I think that the amendment is very modest: we are asking for a report in 18 months’ time, in October 2012, on the impact of the changes. We ask for that, because my right hon. and hon. Friends retain an element of concern that the cut in manufacturing capital allowances will damage some manufacturing sectors. Based on those concerns, we wish to continue to reflect on those matters, and I therefore wish to put the amendment to a Division, so that we can place on the record our concerns about the capital allowance cuts and state that we wish to review the matter very clearly in 18 months’ time, in October 2012.
Question put, That the amendment be made.
Mr Hanson
Once again, Mr Evans, I welcome you and look forward to your time in the Chair as we debate clause 35 of the Finance Bill. You will of course be aware that we tabled an amendment to the clause that you have chosen not to select, which is your prerogative; we are relaxed about that. However, it is important that we test and discuss the issues in the clause with Ministers to examine its impact, as well as the impact of other changes that form part of this package of measures.
Our concerns centre on the effects of the various changes that have been made to child care support. Clause 35 introduces changes to the higher rate taxpayer relief for child care—an issue that caused some discussion in the last months of the previous Labour Government and will undoubtedly cause further discussion today. We need to look at the clause not only in its own context but in the light of the wider taxation and benefit policies that the Government are progressing. This is part of a number of measures that will address a range of issues to do with child care and families generally. I also want to consider some of the technical matters that outside groups have raised with me and with other hon. Members regarding the wording of the clause and, if I may slightly stray outside the scope of the debate, the wording of schedule 8, which is related to it and to which we will return in Committee in due course.
The background to clause 35 will be familiar to my right hon. Friend the Member for Edinburgh South West (Mr Darling) because it had its genesis in discussions that took place as part of the previous Labour Government’s proposals. Members will be aware that in 2009 my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Prime Minister, announced to the Labour party conference proposals that he brought before the House later that year regarding child care relief and basic rate relief.
In government, Labour’s plan was to use the savings from limiting child care relief to basic rate relief to fund an expansion of child care places for two-year-olds in England, with potential consequential reliefs and amendments for Wales, Scotland and Northern Ireland. There was some controversy and discussion on those matters. The Exchequer Secretary will be aware that there was extensive discussion in the Labour Government about those matters, and that under the leadership of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, they settled on limiting child care relief to basic rate relief, with the purpose of funding an expansion of child care places for two-year-olds.
I would like clarification from the Exchequer Secretary today on—[Interruption.] Don’t worry, I am still here. The hon. Member for Crewe and Nantwich (Mr Timpson) will know that one picks up the occasional sedentary remark. Unless I reflect back on the last remark, it will not appear in Hansard, and on this occasion, I will not reflect back on it. As can be seen, Government Members have expressed an interest in my speech.
The Government have made changes to the Labour Government’s proposals on basic rate relief and the expansion of child care places for two-year-olds. Indeed, the Government’s proposals are markedly different on the child care element, to which the relief is linked. The Labour Government had planned some 250,000 child care places for two-year-olds from low-income families, although I accept that that was scaled down to about 65,000 child care places. The Government proposals before the Committee will increase from 10 to 15 the hours for the pilot of child care places for 28,000 children. There is a significant expenditure saving in clause 35, compared with the Labour Government proposals. I think that it is worth focusing on those issues today, because if the scope of the discussion that I have given is accepted, this measure cannot be divorced from the reasons why the Labour Government intended to undertake the purpose of clause 35 and what the current Government are now doing with that resource.
From January this year, value added tax will cost families with children an extra £450 a year on average. That is one of a range of measures on the table that will press hard on the ability of individuals to provide child care at affordable levels.
The Government are pressing ahead with the change that my right hon. Friend the Member for Kirkcaldy and Cowdenbeath proposed in government to pay for the trebling of the number of free child care places available to the most deprived two-year-olds. We accept that the relief, which is manifested in clause 35, was badly targeted. That is why we made those changes in government, and our proposal would have paid for more of the poorest in our society to have child care. I want the Exchequer Secretary to explain how the resultant savings from the proposals will be invested to support issues such as child care for people in our community.
At the same time, the Government are hitting family finances in other ways, such as through child tax credits and through child benefit being frozen, and indeed being cut for many people in the years ahead. The families who will be affected by this measure will soon be affected by other measures, particularly that on child benefit. The taxation changes in clause 35 need to be seen in the light of the decision to withdraw child benefit from April 2013 from households containing at least one higher rate taxpayer.
Mr Gauke
I am following the right hon. Gentleman’s speech closely. Will he clarify for the Committee whether the Labour party has a specific proposal on what the savings from this measure should be used for? Is it committed to using them for nursery places, or for something else?
Mr Hanson
As I have said, the Labour Government’s original proposal, which was announced by the then Prime Minister, was to use the resources saved from this badly targeted tax relief to support the extension of child care for two-year-olds in poorer families. Our purpose at the time was to expand the number of places to about 250,000. There were discussions in the Government, and the Exchequer Secretary knows that the figure we settled on was about 65,000 child care places. I understand that he proposes to stick to the pilot of 28,000 places, and I would be grateful for clarification on that, and to extend the number of hours to 15 hours per week. That is significantly less than what was proposed by the previous Government.
Mr Hanson
Actually, Ministers answer the questions and the Opposition ask them. I have been clear with the Exchequer Secretary about the proposal that we outlined in government, and that will be our view. We are potentially four years from government.
I am simply pressing the Exchequer Secretary to explain what the impact is of clause 35, and why there has been a significant change—unless he wishes to clarify that further—to the proposals announced by the previous Government on extending child care for two-year-olds. It is important that we know not just what the clause means, because it will restrict child care support for higher rate families. The purpose of our proposal in government was to expand child care arrangements for poorer and lower-income families. The Government are now squeezing the middle while—unless the Exchequer Secretary clarifies that the contrary is the case—not providing the same level of child care places that were originally proposed by the Labour Government.
This measure is coupled with a range of other measures, which are not before the Committee in clause 35, but which I hope you will give me the scope to touch on, Mr Evans. There are real-terms cuts to child benefit, which is frozen at £75.40 this year for families; the baby element of child tax credits, which is worth £545 a year, has been scrapped; benefits have been set on a permanently lower path of inflation; the basic and 30-hour elements of working tax credit have been frozen; and the second income threshold for the family element of child tax credit has been cut. Those measures all add to the pressures on child care responsibilities and on families.
Andrew Gwynne
My right hon. Friend has set out a series of measures that the Government are implementing in the Budget. Does he find it ironic that those measures come from the Conservative party, given that the Prime Minister claimed before the general election that he would lead the most family friendly Government in history? Those measures are penalising hard-working families, and women more than men.
Mr Hanson
Indeed. It is a fact of life that child care often remains the prime responsibility of the woman. Child benefit is paid to the woman for that purpose. Clause 35 does not deal with child benefit—I do not wish to test your patience, Mr Evans—but, in principle, the purpose of the Labour Government’s original policy proposals was to expand free child care for people who could not afford it otherwise, to help to support women to get back into work and to help individuals to support their children.
As I understand it—I am willing to be contradicted and to hear clarification from the Minister—the impact of the proposals is that fewer child care places will be available than the previous Labour Government proposed. That must be a matter of some concern. Indeed, in our original amendment, we proposed a review of child care provision to consider the impact of all these measures. Clause 35 proposes changing higher-rate relief to basic-rate relief for higher-rate taxpayers, but we should not consider it in isolation; it is only one change among many on child benefit and the other issues that I have mentioned that raise concern among the official Opposition.
Mr Geoffrey Robinson (Coventry North West) (Lab)
My right hon. Friend touches on the great steps made under the previous Government to alleviate child poverty. Was he by any chance present during Prime Minister’s Question Time today, when the Prime Minister made it clear that we had reached the end of the road in terms of taxation measures to achieve that? In particular, he said that he was absolutely against further redistributive measures. The proposals, which are separate from straightforward taxation measures, will take further steps to aggravate, not alleviate, child poverty.
Mr Hanson
The Minister has an opportunity to clarify the Government’s approach to the provision of child care. That is clearly linked to clause 35, because the Labour Government’s original proposals were designed to meet the objectives that my hon. Friend has indicated. That point is made, and I want the Minister to clarify his approach to child poverty and how the Government propose to fund child care places for two-year-olds.
Agencies and organisations outside the House have made a range of comments on clause 35. It is worth giving the Minister an opportunity to respond to them, and I hope that he will offer some reassurance. Some of the comments also relate to the accompanying schedule. I appreciate that the Committee is not considering that now, but it is very much linked to the clause.
The Low Incomes Tax Reform Group, which, as the Minister will know, is an initiative of the Chartered Institute of Taxation, has raised with me some real concerns about clause 35 and schedule 8. It is concerned about the complex interactions of tax-free vouchers with tax credits and child care cost support, the dynamics of which it believes changed again after 6 April 2011. It is important that the Minister responds to its concern about the poor channels of advice for employees and employers about the implementation of the scheme proposed under clause 35.
The group believes that there may have been errors—under the previous Government, I admit—in HMRC’s online calculator, and it is concerned about how the implementation of these measures will be taken forward. It is particularly concerned that although the system is designed for fairness, the results that it produces may not be fair. I shall give some examples, if I may, of its concerns about clause 35.
The group is particularly concerned that the clause will remain reliant on interpretation according to guidance published in draft on HMRC’s website, which it believes is inconsistent with the clause. I am not making any assessment of the group’s judgment call on that matter, I am simply placing it on the table because this Committee debate gives the Exchequer Secretary the opportunity to examine whether that concern is justified. He may be able to provide some comfort by giving his interpretation.
The group has raised the concern that under schedule 8 —the schedule will be discussed in the Public Bill Committee, but it is worth mentioning now—the changes will apply only to those whose employer estimates them to be higher rate or additional rate taxpayers at a particular point in time, rather than to those who are actually found to be so by a final assessment. It is important that either now or when we discuss schedule 8 in the Public Bill Committee, the Exchequer Secretary reflects upon that concern and provides some clarity about when the assessment will be made on whether individuals are higher rate or additional rate taxpayers. We need to know at what stage in the financial year that assessment will be made, who will make it, how much of a burden it will be on employers and employees and whether the figures and facts that HMRC will use in the calculation are sound and to his satisfaction. They must be seen to be just and fair.
The Low Incomes Tax Reform Group has expressed concern that the change may have equality impacts, for example on employees who become long-term sick or disabled, on women or on those who switch to part-time work in the course of the year. It suggests that there should be some flexibility in the interpretation of clause 35 and schedule 8.
The Library has calculated that overall, families will be some £1,700 a year worse off due to the Government’s tax and benefit changes, of which clause 35 is one. As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) mentioned, the Prime Minister promised to lead the most family-friendly Government ever, and I should like to hear from the Exchequer Secretary where the proposal, when linked to the proposals on child benefit and the working tax credit and the others that we know about, fits into the Government’s overall strategy for child care.
We accept that there will have to be difficult and challenging decisions, and I reconfirm that the previous Labour Government wished the targeting now set out in clause 35 to progress.
Grahame M. Morris (Easington) (Lab)
Is there not also an issue to consider about clause 35 breaking the principle of universality—the idea that benefits apply irrespective of income?
Mr Hanson
There is, and my hon. Friend will know that we have been very clear that the Government’s wider proposed changes to child benefit are not fair or equitable, and that child benefit should remain universal. The former Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, and the former Chancellor, my right hon. Friend the Member for Edinburgh South West, decided that child care was poorly targeted, but that if universality was to be broken, we must provide help and support to the poorest families to ensure that they had child care for two-year-olds. The Labour Government planned some 65,000 to 68,000 child care places as a result of the measures that are now in clause 35. The current Government have accepted those measures in principle, as we did, but unless the Exchequer Secretary tells me otherwise I do not believe they are delivering the outputs that we planned as a benefit of saving resources.
John Cryer (Leyton and Wanstead) (Lab)
We know that whenever means-testing is put in place, there is a cost because of the bureaucracy that is needed to administer it. Does my right hon. Friend have any idea how much this particular method of means-testing will cost?
Mr Hanson
My hon. Friend raises an interesting point. That is another issue that we wish to explore not just today, but when we debate schedule 8 upstairs in Committee at a later date. The element of complexity and randomness in the application of the clause has been raised with me by the Low Incomes Tax Reform Group. It is incumbent on the Exchequer Secretary to answer those criticisms before we consent to the clause.
There are choices to be made in tackling the deficit and we must look at the options. The then Labour Government made the same choice, but would have ensured that more child care places were available.
Andrew Gwynne
My right hon. Friend makes his case on clause 35 and says that the previous Labour Government considered the possibility of targeting. However, they did so in the context of a wider range of measures available to families to support them in the upbringing of children. Does he share my dismay that clause 35 is being introduced against a backdrop of absolutely clobbering families hard and removing benefits that have made a huge difference to them in my constituency, and no doubt in his?
The First Deputy Chairman of Ways and Means (Mr Nigel Evans)
Order. I am delighted that Members mention clause 35 from time to time, but it is really quite specific. This is not a general debate on child care or indeed on other policies. Perhaps we could focus more on the provisions contained in clause 35.
Mr Hanson
We have known each other since our elections to the House on 9 April 1992, Mr Evans, and as ever, I shall try to keep to your strictures as the good Chairman that you are. You will note that amendment 8, which you did not select, would have prompted a wide-ranging discussion on the impact on child care. I am trying to focus on clause 35 and not to stray into amendment 8 or the issues that my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) touched on. However, those issues are important when we are looking at the impact of clause 35 on a particular group of people, because that same group of people will lose child benefit and a range of other child care support measures because of their income, and that will shatter the principle of universality that my hon. Friend the Member for Easington (Grahame M. Morris) mentioned.
The Opposition will listen to the debate on clause 35, but we might oppose it. However, there are important points to be examined and answered in detail today. First, how do we use the resource? Secondly, how do we implement the policy? Thirdly, will the Minister answer the challenges made by external bodies about the operation of the clause in practice?
Grahame M. Morris
As my right hon. Friend the Member for Delyn (Mr Hanson) has already indicated, clause 35 introduces schedule 8, which contains the provisions for reducing child care relief for higher earners. My understanding is that the latter measure will be dealt with at a later stage upstairs in Committee.
As has been indicated, Labour considered proposing a similar change, but at its heart, it was trebling the number of free child care places available for the most deprived two-year-olds. That is the problem with the Government’s measure. The Labour party considered better ways of targeting support for child care to support both child care and the family throughout its time in government, but it seems that the coalition is taking money away from families completely, without retargeting it at those who are most in need. There is a basic contradiction between Labour’s position and that of the coalition Government. Indeed, the Government’s policies across the board seem to be an attack on families, and other groups in our society. Under their policies, middle-income and working-class families are hit harder than those at the top of society, and their policies do not redirect money into better-targeted child care.
Mr Hanson
Does my hon. Friend accept that the original proposals of the previous Labour Government to increase the number of child care places for two-year-olds in the poorest areas would have benefited Easington, County Durham and many other poor areas in the north of England, as it would have benefited similar parts of constituencies elsewhere? That is why we are focusing on the impact of clause 35 not just on tax relief for higher earners but in respect of what could have been done with the spending.
Grahame M. Morris
I am glad that my right hon. Friend has taken the opportunity to place that excellent point on the record.
I hope that the Government will take the opportunity to take a breath and reflect further on clause 35 rather than digging into the position announced last October, as the provisions will not be implemented until two years from now. Why does the Chancellor not agree to look again at the effect of his taxation policies? He has an opportunity to do so before 2013. He needs to reflect on the impact of the removal of child care tax relief, child benefit and child tax credits, which, taken together, mark an attack not just on families but on the welfare state as a whole.
Andrew Gwynne
Absolutely. The funding of these measures needs to fit within the wider context, as set out perfectly eloquently by my right hon. Friend the Member for Delyn (Mr Hanson). He was given a certain degree of leeway by the Chairman to put all this in the context of the wider changes that this Government have introduced on family policy.
Clause 35 goes some way towards dealing with the issues raised about tackling child poverty. The clause intends to ensure that extra resource is released for early years provision, and we support that. As I said, we proposed to do that when we were in government and, as my right hon. Friend mentioned, it highlights the real progress that was made on tackling child poverty during the Labour years, as was highlighted in the OECD report. I do not know whether the clause will have any impact on the Government’s ambitions to tackle child poverty, because that remains to be seen, but some of these changes could well start to have an impact. The explanatory notes state:
“Approximately 450,000 parents currently qualify for the relief.”
I am sure that the Treasury stands by that figure, as it produced the explanatory notes. Those 450,000 people will be concerned by these changes and the Government will have to answer the question that they will be asking: what do they get out of the system? If they are to miss out on this relief as a result of the Government’s changes and the extra child care places are targeted, the Government will have to deal with the points that my hon. Friend the Member for Easington was answering on the general principle of universality.
Having said that, it is important that this Government maintain a commitment to early years education. There is a degree of consensus across the House on the benefits of ensuring that children can start their education as young as possible, whether or not that is education through play in the context of early years provision—I think that we probably all agree on that. I note that the Under-Secretary of State for Education, the hon. Member for East Worthing and Shoreham (Tim Loughton), who has responsibility for children, is in his place. During the last general election campaign he visited a Sure Start centre in Horton Green, in my constituency, with the Conservative candidate. He also had his photograph taken outside my house as part of that campaign, and I was pleased that the then Opposition had visited a Sure Start children’s centre in my constituency. That underlined the background motive of the clause, which is to ensure that more resource is put into the early years.
However, as my right hon. Friend the Member for Delyn made clear, people have concerns that this Government are not family-friendly, because what they are giving with one hand, they are taking with another. Many of the measures that they have introduced in this Budget, of which clause 35 is part, are deeply damaging to families.
Mr Hanson
As I mentioned in my speech—it is further confirmed by the Institute of Chartered Accountants in England and Wales—the provision in clause 35 is based on an estimate of whether the employer will have earnings that exceed the higher rate limit on a particular payday. That causes some difficulties with fairness because there will be people who work part time, who change circumstances or who are on maternity leave for part of the year and the implementation of this is as potentially worrying as the policy—
The First Deputy Chairman of Ways and Means (Mr Nigel Evans)
Order. The shadow Minister is talking about the schedule, which, as he knows, will be discussed in the Public Bill Committee.
Mr Hanson
Does my hon. Friend agree that the context in which the Labour Government decided to restrict the tax relief on child care for higher earners, as under clause 35, did not include the proposal to freeze and then cut child benefit for higher rate taxpayers? The context is therefore entirely different, even though some of the objectives in clause 35 are similar to those of the previous Government.
Kate Green
My right hon. Friend is right. Family budgets are under pressure, including the family budgets of higher-income families. They are under pressure from the serious and regrettable attack on the universal principle. The means-testing of child benefit at the top will put those families under financial pressure. We know, too, that families are facing higher living costs. We have talked in other debates about the rise in living costs, through VAT, fuel prices, food prices and so on. Families that are suffering the loss of a tax break for their child care costs are also seeing other costs going up.
Child care costs themselves will continue to rise. I cannot recall one year since the Daycare Trust began its annual survey of child care costs when they came down. It is highly likely that they will continue on an upward trajectory, and on a dramatic upward trajectory in some parts of the country. That is certainly the case in London, as it has been for a number of years.
Kate Green
Of course, my right hon. Friend proposed a full review of the overall impact of the Government’s provisions on child care. Naturally, a full review would be informed by the fullest possible input from experts in the field, including child care professionals and providers, families and even children and young people. I certainly am not aware of any such consultation or discussion.
It would have been very useful if the Government had carried out such a consultation, because they would have begun to understand the impact of this provision not just on individual families but on the child care market. The impact of clause 35 on the child care market is just as important an issue because of the wide social and economic consequences that it will have for the Government. I am confident that a proper consultation at this point, taking account of the economic context and the other financial measures brought forward by the Government in the emergency Budget, the spending review and this year’s Budget, would produce useful input from experts and families on the pressures and stresses that would be faced, and on the consequences they would have, not least on the propensity to take, extend or remain in paid work. I think we can all agree that paid work will be key in getting our country out of recession, and into recovery and economic growth.
Mr Gauke
Clause 35 makes changes to ensure that all recipients of employer-supported child care who joined schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. After all the talk about the attack on universality, it is worth pointing out that clause 35 ensures that everyone receives the same amount of income tax relief as basic rate taxpayers.
Reform of this provision was announced in 2009 by the previous Government. One might therefore have expected the Labour party to support the measure. When the right hon. Member for Delyn (Mr Hanson) spoke, it seemed likely that they would do so, but then we heard clearly and unambiguously from the hon. Member for Hackney North and Shoreditch (Ms Abbott) that she would oppose it—of course, she is a Front Bencher and a leading light within the Labour party, and she very nearly became its leader. The hon. Member for Easington (Grahame M. Morris), in a lengthy speech, condemned the measure, although he may in fact have been talking about another measure altogether, and the hon. Member for Denton and Reddish (Andrew Gwynne), in an important speech—his word, not mine—also set out his opposition.
It is striking that the Opposition are now walking away from a proposal of the right hon. and absent Member for Kirkcaldy and Cowdenbeath (Mr Brown) and a policy of the previous Government, just as they walk away from any attempts at economic credibility.
Mr Hanson
I want to make it clear to the Minister that I have said from the Dispatch Box that this measure had the support of the previous Labour Government, but it had that support on the basis, first, that through the funds saved it would provide child care places to the poorest in our community, and, secondly, that there would be no cuts to, or freezing of, child benefits. That support was also given in the context of the other measures that my hon. Friends have outlined today. There is a difference.
Mr Gauke
That is very clear, and I am grateful for that intervention. Clause 35 will result in a saving to the taxpayer of £100 million per year, because higher and additional rate taxpayers will no longer receive beneficial treatment. That target would not be met if the clause was defeated. The Opposition’s position is therefore very clear: they would spend this money on child care. That is an additional spending commitment that we will add to their considerable total of spending commitments. I understand that all additional spending commitments from the Labour party have to be cleared by the shadow Chancellor and the Leader of the Opposition, so I am sure that they have gone through that process. However, we note that additional spending commitment. We believe that we need to get the deficit down. I am sorry that the Labour party does not accept that, or at least does not have proposals to do it. We note also that even in this time of financial crisis in the public finances, it is making additional spending commitments.
Mr Hanson
I am sure that we will be drawing to a conclusion shortly, but I want first to place on record my thanks to my hon. Friends the Members for Easington (Grahame M. Morris), for Hackney North and Stoke Newington (Ms Abbott), for Denton and Reddish (Andrew Gwynne), for Coventry North West (Mr Robinson), for Stretford and Urmston (Kate Green) and for Leyton and Wanstead (John Cryer) for their contributions. They have highlighted the concerns that we have expressed by asking for the clause to be debated today. Those concerns were summarised in the points that we made at the beginning. The Minister has not really answered those points to our satisfaction, although I will not press the clause to a vote today, because as I have said to him, whatever—[Interruption.] I am grateful to the Under-Secretary of State for Education for his contribution. It is good to see him here. Perhaps he would like to answer the questions that the Minister has not answered about why this Conservative Government have refused to invest those resources in child care provision for the poorest in our community, as the previous Labour Government planned to do.
The key question in this debate is about that very issue. When the Labour Government originally produced clause 35-type proposals, we were investing those resources in helping poorer families with child care, at a time when wider considerations about child tax credits, child benefits and the pressures of family life were not on the agenda, as my hon. Friends said. Clause 35 ties down an anomaly, which the official Opposition think is the right thing to do in the current circumstances—not as a spending commitment, but as a supportive measure for the Minister—just as we believed it was right in previous circumstances. The previous Labour Government’s financial commitments and budgeting planned for that investment to be used to support wider child care. This Government have reneged on that promise.
We will look in detail at schedule 8, which clause—[Interruption.] [Hon. Members: “Clause 35.”] I am sorry, Dr McCrea, it has been a long 24 hours. Clause 35 brings schedule 8 into effect. When we reach schedule 8, we will make a decision on whether to support the proposals put forward by the Minister today. With those few comments, I thank my hon. Friends for raising important issues about the impact of the measure on already hard-pressed families. I will allow the Minister the opportunity today to have his clause without a Division, but we will return to schedule 8 in due course.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
The Deputy Speaker resumed the Chair.
Bill (Clauses 4, 7, 10, 19, 35 and 72), as amended, reported, and ordered to lie on the Table.
Finance (No. 3) Bill
Lord Hanson of Flint Excerpts(13 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr David Hanson (Delyn) (Lab)
The amendment before the House declines to give the Finance Bill a Second Reading for simple reasons: because it will increase unemployment, it fails to tackle higher petrol prices, and it lets off the banks with their bonus tax being lower than it need be. The Bill will fail the British people and we will oppose it this evening.
We have had a good debate, in which we have brought out the differences between the Government and the Opposition on these key issues. There has been some agreement, for example, as the hon. Members for Watford (Richard Harrington) and for Elmet and Rothwell (Alec Shelbrooke) said, on the need to tackle the deficit. We do agree that we need to grow the economy and to reduce unemployment, and we should do those things in a fair and equitable manner.
However, the differences between the Government and the Opposition are wide and deep, and during the passage of this Bill they will be shown to be based on principle. The backdrop to the Bill is important and cannot be spoken about in isolation—indeed, hon. Members have not done that today. From January, VAT increases have cost families with children an average of £450 extra. As my hon. Friend the Member for Edinburgh South (Ian Murray) has said, we face cuts to the amount parents can claim on child care. We face child benefit being frozen for three years and the scrapping of the baby element of child tax credits, which is worth £545 a year to people. Benefits are being set on a permanently lower path of inflation, and basic and 30-hour elements of the working tax credits are being frozen. The second income threshold for family elements of tax credit is being cut and the withdrawal rates for tax credits are being increased to 41%.
This Government are clearly determined to hit families hard, and this Budget and Finance Bill do nothing to take those issues forward in a positive way. The Government’s argument is that we need to tackle the deficit. We agree with that and we had a plan to tackle the deficit by cutting it over four years—the Department in which I was a Minister in the previous Government planned to save £1.4 billion. This Government’s measures go too far and are too deep, and they will increase the debt in this country considerably through the levels by which unemployment and benefit expenditure will increase.
The Labour Government had a plan to lower the debt, and before the worldwide crash our national debt was lower than that of America, France, Germany and Japan. The actions of the banks caused the recession and the deficit, and without the support of active government, from which this Government seek to withdraw, we would have faced even more unemployment and even more house repossessions. We are clear that these cuts are too deep and that they are being made too fast, as my hon. Friend the Member for Walthamstow (Stella Creasy) said.
If the Minister does not wish to agree with me, perhaps he will agree with the Member who said:
“If spending is cut too soon, it would undermine the much-needed recovery and cost jobs.”
He also said:
“Do I think that these big cuts are merited or justified at a time when the economy is struggling to get to its feet? Clearly not.”
Those things were said by the leader of the Liberal Democrats one year ago this very week. He called for no cuts in public spending. He wanted cuts to be not so deep and not so fast, but he has changed his tune now.
We accept that getting the deficit down is important, and what happens to jobs and growth in our economy is crucial. That is why when last year the economy started growing, unemployment was falling. But cuts in public spending are now hitting not only people in the public sector and families and people who need support; they are hitting the private sector and private sector businesses harder. I heard the hon. Member for Newton Abbot (Anne Marie Morris) say that she was concerned about the private sector. This morning, I visited businesses in Ipswich and I was told that because of the fear of public spending cuts and the actual public spending cuts people were not buying things in the shops any more. I was told that the cuts were too deep and too fast, and that they were damaging the growth in our economy as a whole.
Last year’s Budget should have contained a bank bonus tax creating more than 100,000 jobs, building 25,000 affordable homes, rescuing construction apprenticeships and boosting investment in businesses, but this Government have failed to take those actions. As well as cancelling the fuel duty rise—we did the same in government when oil prices were rising—the Government should have reversed the VAT rise on petrol, which adds £1.35 to the cost of filling a 50-litre tank. The 1p fuel duty cut in the Bill does not go anywhere near far enough towards offsetting the increase in VAT that the Chancellor imposed in January this year.
The Finance Bill contains no real plan for growth. In clause 10, the Government cut Labour’s proposed allowances for manufacturers by £75,000, using that money to give a corporation tax cut that disproportionately benefits the banks when we could have had more investment in research and development and tax relief for small businesses as a whole. On living standards, the rise in allowances given to people in the Bill is taken away by the VAT increase in January. The House of Commons Library has shown that families will be £1,700 a year worse off because of the Government’s tax and benefits changes.
We know that the Government have not done enough to help drivers. We have seen the planned fuel duty rise delayed, which Labour Governments did when world oil prices were rising, but the Chancellor has done nothing to help individuals by increasing VAT, which has added to the cost of filling up tanks with unleaded petrol over the past three months. The cut in fuel duty gives only 1p back, while the VAT rise has cost almost 3p per litre.
We know that this year there have been tax cuts for the banks. Labour said we wanted an additional bank levy from the Government this year and that we should have repeated the bank bonus tax and raised at least £2 billion so that the banks did not get a tax cut and so that funds were provided to invest in jobs, growth and housing. The Government have said no. In future years, the Government should increase the bank levy to ensure that the banks continue to pay their fair share of tax, so that taxpayers are not left to pick up the bill for the banking crisis.
Finally, clear concerns have been expressed by my hon. Friends the Members for Linlithgow and East Falkirk (Michael Connarty) and for Aberdeen North (Mr Doran) and by the hon. Members for Dundee East (Stewart Hosie), for Waveney (Peter Aldous) and for East Antrim (Sammy Wilson) about the investment proposals for North sea oil and the risks that the Government are taking. At the very last minute, with no consultation, the Government have made proposals to tax North sea oil still further. Oil and Gas UK has criticised the Government’s decision and uncertainty has been expressed from organisations across the board about this hasty move. The Government took the decision at the very last minute with no consultation and next Tuesday we will seek to discuss the matter in more detail and to ensure that we get further consultation.
The Government are cutting too far and too fast and the Finance Bill does nothing to help gain confidence, increase employment or secure the future for our society as a whole. The Government have implemented front-loaded cuts, which are hitting vital services and families, while giving the banks a tax cut. The Government need to think again about the devastating impact of their policies on our economy. We shall scrutinise the Bill in Committee and we shall undoubtedly welcome certain aspects of it in due course. Tonight, however, I ask my hon. Friends to vote for the amendment and against the Bill. The Bill will damage our economy, it does nothing for our society and I urge my hon. Friends to reject it.
Coinage (Measurement) Bill
Lord Hanson of Flint Excerpts(13 years, 7 months ago)
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Mr David Hanson (Delyn) (Lab)
I congratulate the hon. Member for Milton Keynes North (Mark Lancaster) on piloting the Bill to Third Reading and through Committee and Second Reading. He will know that my hon. Friend the Member for Bristol East (Kerry McCarthy) has supported the Bill to date. That support from the official Opposition will continue today.
The Bill makes an important contribution to ensuring that we can celebrate the Olympics next year and potentially, as the hon. Gentleman mentioned, consider the provision, through Her Majesty the Queen and the Chancellor, of further commemorative coins at suitable occasions in the future. As he said, the Bill is required to ensure that we establish a legal background for the change in size of the coins. I am particularly pleased that we can put in place this coin for the Olympic games. As the then Northern Ireland sports Minister, I remember standing in Trafalgar square on 6 July 2005 when the Olympics were awarded to the United Kingdom. I think it is fair to say that it was one of the achievements of the previous Labour Government that the Olympics were awarded to the UK, with cross-party support from both sides of the House. It is certainly something that we look forward to next year.
The coin itself will provide an opportunity to add value to the Olympics, allow us to celebrate them and send the message to the rest of the world and collectors across the globe that London is a place to do business. I hope that the sale of the coins will bring some value to the Treasury. We have had many discussions with the Minister about the level of the deficit. I am sure that this will bring in at least some money to offset some of the draconian measures that the Government will introduce. However, far be it from me to inject a note of discord into what is a day when we accept that the Bill is needed, fulfils a purpose and will serve a useful function. I congratulate the hon. Gentleman on piloting the Bill. He has our full support, and I look forward to many sales of the commemorative coin next year and to a successful Olympics. In future years, when commemorative coins are introduced on the many more occasions when we require them, he will be noted as the Member who introduced the Bill. I trust that the hon. Member for Wellingborough (Mr Bone) does not take too unkindly to the fact that kilograms are in place today. I am sure that there are many areas on which we can agree, and although his scepticism about Europe reaches into a number of areas, I hope that he, too, will fully support the Bill and its objectives.
Justine Greening
It may well end up with that nickname, which would be appropriate for a coin that, as we heard, will not just be minted to commemorate the Olympics but could be used to commemorate a whole range of special events in this country where we think that coin collectors might be interested in adding to their collections.
With their large size, the kilogram coins will be an exciting, artistic and eye-catching piece of numismatic art that will no doubt be treasured and passed on to future generations. At almost 1,100 years old, the Royal Mint is a tradition in itself. The production processes—from design and modelling, to the blast furnaces, and the striking of blanks and ultimately coins—are the epitome of a successful manufacturing company. As my right hon. Friend the Chancellor of the Exchequer said in last week’s Budget speech, manufacturing is crucial to the rebalancing of our economy. Under this Government manufacturing is now growing at a record rate, with 14,000 more jobs created in the sector in the last three months alone.
As the House will be aware, the Budget announced several measures to help promote and further develop British manufacturing, over and above the efforts that the sector is already making. I have no doubt that the Royal Mint will continue to pioneer new processes and develop as a pivotal part of British manufacturing. The Royal Mint has been based in south Wales since the 1960s and employs 850 people. I had the chance to meet them last year when I went down there to look at their production process and learn more about the practicalities of minting coins. I had a fascinating trip, but also learned an awful lot about the skill that the employees have to use to ensure that the coins that are minted—the coins that end up in our pockets and that we spend in shops every day—are ones that we can rely on.
Mr Hanson
Does the Minister recall that the establishment of the Royal Mint in south Wales was the result of a decision by the then Chancellor of the Exchequer, James Callaghan, to decentralise government activity from London to the regions? I would like to impress on the Minister the advantages of considering such moves again in the future.
Justine Greening
The right hon. Gentleman makes a valid point. It struck me how important the Mint was to the local economy when I visited it. The broader point that he rightly makes is that, as the economy grows in the coming years, we need to ensure that more growth is in manufacturing, and that more of that manufacturing growth takes place outside London and the south-east, so that we end up with a more balanced economy.
It is also worth pointing out that the Royal Mint produces not only coins but all our British military medals except the Victoria cross, and, as we have heard, it has won competitive tender procedures to produce medals for sporting events such as the 2005 Ashes series and the 2012 London Olympic and Paralympic games.
My hon. Friend the Member for Milton Keynes North also mentioned the 50p sports series, and the House should note that the 29 designs are not only available as collectors’ items but featured on circulating coins currently being issued to the general public. Fourteen of the 29 designs have already been issued in line with natural demand for coin, with the remainder entering our pockets in the lead-up to next summer’s games. The 50p sports series also helped the Royal Mint to enter the record books when, last October, 1,697 newly minted Olympic 50p coins were flipped simultaneously, setting a new world record. I doubt that that record will be surpassed using kilogram coins, but that shows that the Royal Mint is part of the fabric of our British culture in a broader way than many of us realise.
The London 2012 Olympic games will be an event of huge importance for the whole country, and this legislation is important in ensuring that it can be appropriately celebrated. I believe that my right hon. Friend the Prime Minister was right in saying:
“I know that everyone in the UK is eager to make London 2012 the best Olympic and Paralympic Games ever seen, and I believe that the London 2012 Coin Programme will be one of the greatest and most successful in the history of the Games”.
I would like to thank my hon. Friend the Member for Milton Keynes North for introducing the Bill, which will help the Royal Mint to achieve such an ambition. We all wish it a safe and swift passage through the other place.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Amendment of the Law
Lord Hanson of Flint Excerpts(13 years, 7 months ago)
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Mr Marcus Jones (Nuneaton) (Con)
I will be a Jones who shows some brevity out of courtesy for his colleagues on both sides of the House.
I welcome the Chancellor’s Budget and congratulate him on it, because this is a difficult time to be a Chancellor and to deliver a Budget, as it will be for the rest of this Parliament. As much as Opposition Members like to deny it, the Chancellor is constrained by the straitjacket of the deficit and the debt left behind by Labour. We must view the Budget in context. We are paying £120 million a day in interest alone on our debt—£43 billion this year, which is more than we spend on the armed forces, the Foreign Office and the Department for International Development combined—which is a scandal.
I therefore commend the Chancellor for what is, in the circumstances, a first-rate Budget. It goes some way to recognising the financial pain that is being felt in the country, and serves to set a clear tone for the business community. This Government take businesses far more seriously. They recognise that people and businesses and not the state create jobs—sustainable jobs—and that if we are not serious about business, the country cannot sustain in a settled fashion the important public services on which we all rely.
There are positives in the Budget for individuals and businesses, but I shall also respectfully mention one or two concerns about it. I welcome the announcement on fuel, which is currently the biggest issue for my constituents. People will tonight breathe a sigh of relief that the 5p a litre increase programmed into the Budget by the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), has been deferred. I am delighted that that has happened. People will also breathe a sigh of relief that the Government recognised the importance of that, and decided to get off the escalator at the right time, unlike the previous Government, who did not know when to get off, as we saw in 2000 when our fuel depots were blockaded by truckers and angry motorists, which I hope will not happen now.
Oral Answers to Questions
Lord Hanson of Flint Excerpts(13 years, 7 months ago)
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Mr Osborne
I thank my hon. Friend for those words of support. I know that he has personal experience, through the work his family have done with children in care, of the contribution that society can make to helping these children. Frankly, all Governments have struggled to provide a decent level of care for the children to whom we owe the greatest obligation. As I said, I will engage with interested Members of Parliament, particularly my constituency neighbour, the right hon. Member for Wythenshawe and Sale East, and the two charities that produced the report to make this a reality and get it up and running as soon as possible.
Mr David Hanson (Delyn) (Lab)
May I remind the Chancellor that he broke his original election promise—a promise he made in the general election and ripped up on 3 January—to provide a trust fund for the poorest third of families? I welcome his announcement today, but we will look at the detail. We pushed on this issue in Committee on the abolition of the child trust fund Bill, and my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has pushed outside that Committee. We welcome this announcement, but can the Chancellor say what that contribution will be and, given that this is a Department for Education issue, as he has said, whether the provision will extend to Scotland, Wales and Northern Ireland, as the trust fund originally did?
Mr Osborne
First, of course we will ensure that the scheme is available across the UK, although the exact design has to be determined with the charities. I have listened to the case made not so much by those on the Opposition Front Bench—if the right hon. Gentleman does not mind my saying so—but by the right hon. Member for Wythenshawe and Sale East and the two charities concerned. The sum of money involved will be around £5 million.
HM Revenue and Customs
Lord Hanson of Flint Excerpts(13 years, 8 months ago)
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Mr David Hanson (Delyn) (Lab)
I thank right hon. and hon. Members across the Chamber for their contributions to the debate, particularly the Chairman of the Treasury Committee—the hon. Member for Chichester (Mr Tyrie)—and my hon. Friend the Member for Leeds East (Mr Mudie), who chairs the Sub-Committee. I begin by placing on the record the value of the work of Her Majesty’s Revenue and Customs. Clearly, it has faced significant challenges, which have been mentioned by hon. Members across the House, not least of which was the merger and the implications of bringing two big organisations together to deliver a large public service. However, as someone once said, we are where we are, and I want to look to the future and some of the challenges, rather than revisit old territory.
Between HMRC’s formation in April 2005 and March 2010, it collected £2,188 billion in tax and paid out £157 billion in benefits. That is a big operation by any standards, and its functions relating to tax credits, taxation, child benefit, child trust fund endowments, the national minimum wage, which my hon. Friend the Member for Foyle (Mark Durkan) has mentioned, and the supervision of a range of money laundering regulations are key issues that are impacting on the Government as a customer, in relation to raising taxation, and on members of the public as customers. I understand that, as the hon. Member for Witham (Priti Patel) has pointed out, there are many areas in which that interface causes severe frustration and difficulties in relation to customer service. The service to both the customer and the recipient, including the Government, needs to be improved in those areas.
A key thread of today’s debate has been the level of service, especially outward-facing service. We need to reconsider how to improve the response of the service to members of the public who engage with it. That includes not only phone responses, which the hon. Member for Redcar (Ian Swales) mentioned, letter responses and complaints procedures, but the whole issue of how the public interface with the service, how they use it to help them to pay their taxes in an effective way, and how difficulties are resolved. People should expect a level of public service and should know what that level of service is, and we in the House, both in opposition and in government, should look at how we can help to support that. There are real problems here, and if the Minister dealt with the strategy to help improve the service to the public, so that there was clarity and transparency about the issues that hon. Members have raised in connection with what the public should receive, I would welcome that.
HMRC’s main customer remains the Government. It is a tax-collecting agency and it needs to perform that function effectively and efficiently. It is important to maximise revenue flows and to improve compliance. One of the key issues in today’s debate has been how to raise those issues in a positive way to ensure that we take forward tax collection to maximise the available tax-take in a fair and effective way. To do that, we need a dedicated work force with good morale; hon. Members have touched on the changes and the fact that staff morale in the service has been low. To bring about those changes effective leadership is required from the Minister, which I am sure he will give, and from the staff who lead the organisation, focusing on HMRC’s core objectives of delivering services to the public and to the Government. A key issue in that regard, which was touched on by my hon. Friend the Member for Leeds East in particular, is that in a time of global recession and public spending challenges, we need to ensure there is fair and effective taxation and compliance in relation to the taxation issues in our community at large.
One of the key themes in today’s debate, which was reflected by my hon. Friends the Members for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and for Hayes and Harlington (John McDonnell), is how we manage effective tax compliance and revenue collection at a time when, by the Minister’s own admission, he is reducing HMRC’s settlement by 15% overall as part of the efficiency savings that he seeks to make. Despite the fact that he is investing £917 million in tax collection and compliance, the £2 billion cut in the service causes concern.
My hon. Friend the Member for Luton North (Kelvin Hopkins), on a topic that he has raised in the Chamber on many occasions, drew attention to the fact that the PCS and the Association of Revenue and Customs believe that the compliance figure for each officer amounts to a yield of about £650,000. There are many opportunities for the Minister to enhance compliance in the future. Like my hon. Friends, I am concerned that the 25% potential efficiency savings and the £2 billion cut in the budget will result in job losses, which will equate to revenue losses and lower morale among the staff whom my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East represents, and staff elsewhere, as my hon. Friend the Member for Hayes and Harlington mentioned.
I want to hear from the Minister, in the time he has at his disposal, how he expects those efficiency savings of £2 billion to be made, over and above the £917 million that he has put in place to support revenue collection. I want to hear an answer to the question from my hon. Friend the Member for Leeds East: how much of the money that will be raised by the extra £917 million is to be collected before the 2013-14 deadline, given that the Minister said that he expects to raise an extra £7 billion by that time? I want to hear from him about the service that HMRC will provide. With that £2 billion reduction, I worry that service issues identified by the hon. Members for Witham, for Dover (Charlie Elphicke) and Hereford and South Herefordshire (Jesse Norman) will be exacerbated as a result of insufficient legal resources for litigation, lower response times, increased compliance costs and more difficulties in delivering the efficient service that we all seek.
The Minister needs to give the House an account of his future strategy for the effective collection of revenue by HMRC. We saw last year, with the PAYE debacle in which 1.4 million people were asked to make up an underpayment worth about £2 billion, that the service impacts on everybody’s life, as has been pointed out by Members speaking about their own constituency experiences. Mistakes that are made, from child tax credits to tax demands, cause stress and worry. The efficiency of the organisation is desirable not just because it is a public service, but because of its effect on people’s day-to-day life.
I want to hear from the Minister how he expects to manage revenue collection and compliance over the next few years, and how he intends, with officials, to improve the service and sharpen its focus at a time of reduced resources. Those who work in the service care as much as we do about it, and about its future direction. The trade unions have emphasised to me the need to invest in training and support for tax professionals, the need to ensure that we have an effective deterrent against non-compliance, and the need for measures to reduce the tax gap and ensure that we provide a service to customers out there who are our constituents.
I think that we have a clear role to look at where we have come from and to focus HMRC on its core business, which is providing a service to the public and raising the revenue that we seek to spend. I simply put down as a marker for the Minister the fact that the Opposition will be watching carefully to see how his efficiency savings either hit or support that public service and revenue collection. HMRC’s role is key to helping us fund the public services that we all want, and it is his job to ensure that it does so in the most efficient way possible.
Economic Regeneration (Glasgow)
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Mr David Hanson (Delyn) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gale. I begin by congratulating my hon. Friend the Member for Glasgow East (Margaret Curran) on securing this debate, which is of crucial importance not only to Glasgow and to those who have a concern about and an interest in Scotland, but to the wider UK economy. I am pleased that she has been supported today by my hon. Friends the Members for Glasgow Central (Anas Sarwar), for Glasgow North East (Mr Bain) and for Rutherglen and Hamilton West (Tom Greatrex) and by my hon. Friend the Member for Glasgow North (Ann McKechin), the shadow Secretary of State for Scotland, who is speaking in a personal capacity today. I also very much welcome the contribution from the hon. Member for East Dunbartonshire (Jo Swinson).
What struck me about the debate is that my hon. Friends have made an important case that is applicable not only to Glasgow, but to many other parts of the UK. The key to economic growth and the success of local economies is partnership. It is about not only what government, the voluntary sector or individual entrepreneurial spirit can do, but the partnership that brings those things together. My hon. Friends have discussed national UK Government investment in Scotland, economic projects that link Scotland to other parts of the United Kingdom, the clear benefit that public expenditure brings to Scotland and how such public expenditure relates to the private and voluntary sectors and to the social progress of people who live and work in the great city of Glasgow and the surrounding community.
My hon. Friend the Member for Glasgow East began by pointing out that Scotland has a great manufacturing, cultural and social history, including shipbuilding, the automotive industry and football—one of Glasgow’s great exports is Kenny Dalglish, who has brought great success to my part of the world. The key point is that that manufacturing history and support is where we need to build that partnership for the future. What I have taken from the debate is the issue of partnership. Secondly—my hon. Friends have touched on this, and I shall return to it—a strategy for growth is needed that involves the public sector, looks at key infrastructure projects and helps to develop the voluntary and private sectors. There is also a need—this is key to where the Government are currently failing—for that strategy, that partnership, that development, and that active government to focus on social fairness. Even at a time when there are challenges with the deficit, which we have all recognised, the way in which the Government implement their deficit reduction strategy can, as my hon. Friends have touched on, damage social fairness and the social fabric of our communities.
That is particularly important because—I do not yet have the figures for Scotland—unemployment in the United Kingdom rose by 44,000 in the last month to 2.5 million people. Particularly worrying is the rise of 66,000 in youth unemployment, which has now risen to 965,000 people between the ages of 16 and 24, which makes a total unemployment rate of 7.9%. When the Labour Government left office in May last year, unemployment was starting to fall and there were signs of growth after a difficult period. Sadly, I have to report that unemployment will undoubtedly hit the city of Glasgow, as it will elsewhere in the United Kingdom.
My hon. Friends made the case that the Minister has to explain key policies that he has promulgated in the House and now has to follow. Those policies are having and will have a severe impact on Glasgow’s economy. We need to challenge them, as my hon. Friend the Member for Glasgow East has by securing this debate, and look at alternatives. We must ensure that however we tackle the deficit, which we need to do in part—the Minister knows that when I was a Labour Minister in the Home Office, the Department had plans to make £1.5 billion of savings, so it was something that we were planning to do. However, the scale, pace, depth and front-loading of this Government’s cuts are severely damaging communities in Glasgow and other parts of the UK.
The budgets for the devolved Administrations—this is key to my area, Wales—show that the capital budget, which impacts on housing, education and infrastructure in Glasgow and elsewhere, is being cut by the Government, and in Scotland that process is being supported by the unfair application of the cuts by the Scottish National party-led Government. The £3.4 billion of capital spending in 2010-11 that was planned by the Labour Government will be cut by this Government to £2.3 billion of capital spending in 2014-15. The cut is from £3.4 billion this year to £2.5 billion in 2011-12, which makes a £900 million cut in the capital programme.
My hon. Friend mentioned that her constituency has had no investment in schools thanks to the SNP Government in Scotland and that it faces difficult challenges in respect of housing and infrastructure. Those issues will be magnified tremendously by this Government’s £900 million cut to the Scottish Executive’s budget. Again, there are ways in which we can tackle deficit reduction, but that level of drop front-loaded in the first year will hit Glasgow and other parts of the UK extremely hard. The £900 million cut for Scotland will mean that the private sector, which is so dependent on recovery in Scotland, will suffer. It will be hit by not being able to create the jobs that would have met some of that capital expenditure demand. My hon. Friend pointed to real challenges in her contribution and was supported by other hon. Friends. The Minister needs to recognise that the front-loading will cause real difficulty. The cuts, which are too quick, will exacerbate unemployment, as we have seen with the rise today.
I am sorry that there is no one here from the SNP, but I do not wish to intrude on private grief. I represent a constituency in Wales. The nationalists in Wales, to give them their due, would have been here to argue their case if the debate had been on the economy of Cardiff or Swansea. I am sorry that we have not had a contribution from SNP MPs. They might have explained how they would implement the draconian cuts at a local level. Perhaps that is something that we will return to at a later date, perhaps even outside this Chamber. My hon. Friend may wish to raise this issue elsewhere and discuss the SNP’s lack of interest in this debate and in Glasgow.
The capital cuts and, indeed, the revenue cut, which, cumulatively, is a 7% reduction in real terms in the resource budgets of the Scottish Parliament, will impact heavily on the ability of Glasgow to weather what is still a difficult period coming out of a recession which, as my hon. Friend said, was not the fault of the people of Glasgow East, yet they are the very people who will have to bear the real hardships caused by public sector reductions and the Government’s social policies. The rise in VAT and cuts to housing benefit will be extremely difficult. The unfairness of those changes hit hardest the poorest people in Glasgow, whom my hon. Friend has represented for 12 years here and in the Scottish Parliament.
There are some good news stories which should not be forgotten in this debate. Hon. Friends from both sides of the Clyde have mentioned the Clyde Gateway project and the importance of progressing it. I want to support them from the Opposition Front Bench in their endeavours to influence not only the Scottish Executive but the Westminster Government to ensure that it is a success. The project embodies the partnership that my hon. Friends have discussed today. It has the potential to develop large areas of the east end of Glasgow plus Rutherglen and Shawfield in South Lanarkshire. It involves investment of more than £62 million between 2008 and 2011, with Scottish Enterprise hopefully bringing forward £42 million to 2016. It will lever in private sector investment of up to £1.5 billion for private development, which will create jobs and homes.
The project is symptomatic of why the Government’s approach to public spending is so wrong. The Clyde Gateway scheme shows that public-private partnership can create jobs, homes and social progress. It is not a one-size-fits-all scheme, in which the public sector appears to be the devil to all other aspects of society. The Government are committed to reducing the public sector, not only to reduce the deficit but because they do not like public spending and public investment as a whole.
I hope that the Minister will endorse and support the Clyde Gateway scheme, that the UK Government will give it succour, and that that will also apply to the 2014 Commonwealth games. As my hon. Friends have said, the games will be a key economic generator and will put the spotlight on Glasgow’s tourism potential. They will be a showcase for the great skills of the people of Glasgow and for the city’s great attributes. They will involve £1 billion of investment in infrastructure, 1,000 additional jobs and 15,000 volunteers—the big society will be alive in Glasgow, irrespective of any Conservative party initiatives, which mean, in effect, a small state. I hope that the Minister will touch on that proposal today, recognise that it will result in economic growth and development in Glasgow, and support it.
Despite those positives, the Government’s policies on public spending and also on social issues will damage the economy of Glasgow. My hon. Friend the Member for Glasgow East picked up on various points. Linking local housing allowance to the consumer prices index will result in lower income for people locally. The cut to housing benefit ignores the fact that, in an area with rising unemployment, long-term unemployed people who are trying their best to find work, who are going to interviews and sending out applications and who are turning up at the Jobcentre but are still unable to secure employment will face a reduction in their income.
My hon. Friend knows that if the people of Glasgow East find that they are unemployed and that their housing benefit has been cut, the money that they lose will not be spent in Glasgow. They will not be spending in local shops, supporting the local economy and voluntary organisations, or creating local jobs with that resource in the east end of Glasgow. We add poverty to poverty by taking unfair cuts forward.
Glasgow has a younger population compared with the rest of Scotland, and, sadly, youth unemployment will disproportionately hit that area hardest. The future jobs fund has been mentioned. It had the potential to create 200,000 full-time, paid jobs for young people up and down the country, and Glasgow would have had its share. There will be real problems in the future because of that cut.
I was pleased that my hon. Friend the Member for Glasgow North East mentioned the living wage campaign. That is a big society issue: companies, voluntary organisations and the council are agreeing to pay a living wage and working together because they recognise, without the Government telling them to be part of a big society, that they have a partnership interest in the future of Glasgow. Many of the challenges are self-evident, but the Government are adding to them by front-loading public expenditure cuts too fast and too deep. However, Glasgow has real positives for future growth, such as the Commonwealth games and the Clyde Gateway, which we should celebrate on a UK basis.
Another issue that has been mentioned today is tourism. I was struck by the strong representations to extend the high-speed rail link along the west coast main line from the current proposal, which would run from London to the west midlands and through to Manchester. I use that London to Glasgow main line, because I get off at Crewe and go west. There is an argument for looking at such investment over the long term, to ensure that we enhance the high-speed link.
My hon. Friends pleaded for serious consideration of developing new industries in Glasgow and made a strong case for the green investment bank to be placed in the city, growing the financial services sector not only in Edinburgh but in Glasgow. The growth and development of renewable energy projects, with the support that the UK Government can give, are real and positive things.
My hon. Friends and I came to the debate with severe criticisms of Government policy. While needing to tackle the deficit, the Government have gone too far, too fast. However, we can work with the UK Government on some real positives, as well as with the Scottish Executive which, hopefully, will be under the control of the Labour party after May this year. We could build on the strengths and the will of the people of Glasgow to develop their own future by attracting new businesses and visitors, and by ensuring that the success of the Commonwealth games showcases that great city to the rest of the United Kingdom.
I am grateful for the opportunity provided by today’s debate, which is the first that my hon. Friend the Member for Glasgow East has secured in Westminster Hall; I hope that it will be a success. I look forward to the Minister defending his draconian cuts but also, I hope, working with my colleagues to ensure that he can mitigate those cuts and develop a strategy for growth for Glasgow into the future.