Stamp Duty Land Tax

Lord Redwood Excerpts

Thursday 4th December 2014 Commons Chamber

[Mr Marcus Jones (Nuneaton) (Con)]

I warmly welcome the motion. I congratulate the Financial Secretary to the Treasury and the Chancellor on the help that they are giving to home buyers. I thank the Financial Secretary for listening, not just to the concerns of Members, particularly on the Government Benches, about stamp duty, but about how the Government may implement the policy. The Government have done absolutely the right thing to effect this policy immediately.

Back in the dark days of the great recession under Labour in 2009, when I was conveyancing residential property, the property market was on its knees. The Government of the day brought in a very welcome stamp duty holiday. That said, there were six or seven weeks between its announcement—at the Budget, I believe—and its implementation, depressing further an already very depressed property market. So I welcome what the Government have done and my hon. Friend’s taking on board those points.

The Government have taken the right approach to dealing with the problems associated with stamp duty. The major problem was the slab rate and the effect that it had, not just for people buying property who have to pay the stamp duty, but for people selling property. Those selling property at an asking price of £255,000, £265,000 or £275,000 have for some time been faced with the prospect of either having to do some dodgy deal involving carpets, curtains and other chattels, in which after the Finance Act 2004 and changes to stamp duty legislation most firms of solicitors were not willing to participate, or changing their price, often having to reduce it considerably, below the £250,000 mark, where 1% stamp duty would be payable and the buyer would have to pay £2,500 rather than £7,500. The reform will make a massive difference to people selling property.

[Mr John Redwood (Wokingham) (Con)]

One of the most persuasive points that we were able to make to the Chancellor when we lobbied him was that there were bands in the market where there were effectively no transactions at all because people could not get buyers to pay that little bit extra. That was distorting the value of their homes.

[Mr Jones]

I agree. Some of the people in that position will probably have enough equity now to move on and buy second and third homes. The measure will be extremely valuable to such people.

Stamp Duty (Housing Market)

Lord Redwood Excerpts

Thursday 4th September 2014 Westminster Hall

[Mr Jones]

That can also happen.

We need to look at the slab rate again and to consider the distorting effect that it has on the market and the difficulties that it causes people, whether buying or selling—for people who want to sell because they want to downsize, or people who want to sell because they want to move on. That is one of the reasons why some of the suggestions that I have heard over the years to charge stamp duty to the seller would also be completely inappropriate and unacceptable; it would place a massive burden on those trying to sell the investment that they have often worked for over many years.

I make a final plea to Ministers. If they are ever minded to make any changes to how stamp duty is charged or to its rates, will they be extremely careful about how they do it? Back in the dark days of the great Labour recession in 2008, following pressure from the Conservative party, the then Prime Minister and Chancellor decided to create a stamp duty holiday. They announced it with great fanfare in the press and on the media, but it was probably six or seven weeks before the policy was implemented.

I can tell hon. Members that a flat property market was depressed further, because people did not want to conduct transactions between when that announcement was made and when the measure came in, because that would not make financial sense and they could save money. I implore Ministers to make any changes carefully and to consider the implications for the overall housing market, which is extremely important to our economy. The housing market is now on the move, which is part of the reason why our services sector in this country is doing so well.

I ask Ministers to consider the issue extremely carefully. It affects not only the south-east or London, but all parts of the country in differing ways. It creates massive distortion, because of the slab rate. I ask the Minister to consider it carefully not only in reply to the debate, but in his work on our party manifesto.

[Mr John Redwood (Wokingham) (Con)]

rose—

[Mr Clive Betts (in the Chair)]

Order. I say to the right hon. Member for Wokingham (Mr Redwood) that it is slightly unconventional to come into the Chamber halfway through the debate; as he is aware, other people have spoken and a debate is normally about exchanging views and listening to other people. On this occasion, however, we have plenty of time and I will still call him.

[Mr John Redwood (Wokingham) (Con)]

I am grateful, Mr Betts, and I give my apologies to you and to the Chamber, but my constituents also wanted me to make it clear that Wokingham supported the puppies motion in the main Chamber. I felt that I had to do that first, before coming to debate the important issue of stamp duty. I pay tribute to my hon. Friend the Member for St Albans (Mrs Main), who proposed it as a subject for debate. I supported her, so it would have been wrong not to attend and pledge my support.

I have three main reasons to advance for why the Government should do something to reduce the imposition of individual stamp duty on property transactions. First, the existing stamp duty regime has an adverse impact on home ownership, which the Government should wish to promote. Secondly, the regime does not optimise the revenues; we could get more revenue out of stamp duty if we had lower and different rates. Thirdly, it distorts the housing market adversely, meaning that many people are deterred from buying and selling and from obtaining the kind of housing that they most need or want by the extra charges that the Government have imposed on this most essential of goods and services.

I strongly support the Government in their wish to see home ownership promoted. As they are well aware, however, in many parts of the country house prices are high relative to incomes and have been rising in recent months as a result of the Government’s success in stimulating credit, transactions and activity in the economy again.

Although we welcome the general growth and that upward movement, as well as the fact that some extra houses are now being built, the Government must be aware that housing is extremely expensive for many people who wish to get on the first rung of the housing ladder or who would like to trade up from a smaller house to a location where they can accommodate their children and make a good family home for them.

One reason for that expense is that many people now face paying stamp duty on quite modest homes. Such people are often not rich but are having to pay substantial sums—many thousands of pounds—to the Government for the privilege of getting their first home or moving to a home that is more suited to their needs. I would hope that the Government would want to find a way of easing the burden on people who wish to buy their first home or the right home for their family, particularly if that can be done without having much or any adverse impact on revenues.

My second reason is that if we look at the pattern of stamp duties, we see that the Government have not got total revenues back to their level prior to the crash, yet we now have extra higher rates in the system. We should ask whether the rates are now acting as a kind of deterrent to people undertaking transactions, particularly at the top end of the market, leading to revenues being depressed. We need to bear in mind that in the most expensive parts of the country—indeed, in large areas of the country—house prices are now at or higher than their level before the crash. Stamp duty on shares is now also reflecting the fact that share prices are back at new highs thanks to the success of the general economic policy. There is a case for saying that we would get more transactions if we had a different structure of rates or, in some cases, lower rates, and that there would be a volume offset to the obvious loss on individual transactions.

The third reason is the damage being done to the general market. I know quite a few people who would like to move down the housing ladder—their families have left home and they could do with a smaller place—but the total costs of the transaction put them off. The fact that the buyer has to pay a large stamp duty on the house they are going to buy might be a further deterrent to the transaction taking place at all, because that will affect market prices.

We can see an obvious market distortion because the Government have inherited and lived with the slab-rate approach to stamp duty taxation. If someone moves from trying to buy a flat or house at £125,000 to trying to buy one at £125,001, they suddenly have to pay £1,250 in tax, whereas they pay none when the price is £1 lower. At the £250,000 threshold, there is a sudden slab increase of £5,000 in extra tax if the flat or house someone is trying to buy goes up from £250,000 to £250,001, and at the £500,000 threshold there is a £5,000 increase if the price goes up by £1. In practice, people will not try to sell properties at £250,000 plus a little bit or at £500,000 and a little bit, because the huge increase in tax incurred when that threshold is crossed makes that unrealistic.

We therefore now have zombie price ranges in the marketplace, in which there are very few or no transactions. People hold fire: if they have a property worth £250,000, and the market is rising, they think, “Well, I’ll wait until it is worth £275,000 or £300,000. I won’t sell now because it will be very difficult to sell at £255,000: everyone will want to knock me down by £5,000 or so, to avoid the big increase in stamp duty.” We are creating a distortion, which is another reason why there are parts of the market in which people are much more reluctant to bring their properties to the market at all, because the stamp duty is getting in the way of proper price formation.

What could be the answer to all those problems? I do not like taxes very much at all, as the Minister knows, but I know that our constituents want good schools and good hospitals, and that those cost money; I also know that we are still borrowing too much as a country. The Minister therefore has a problem and needs to maintain revenues from a variety of sources. We need a system that still enables him to collect revenue from property—that is the situation he inherited and that is the current need—but we also need one that is more likely to produce a bit more revenue while easing some of the burdens.

My first suggestion, then, is that we taper the tax rather than having a slab rate. If we put in a taper, it would make homes more affordable at £125,000 to £150,000 and at £250,000 to £300,000. The market would start to clear again in those quite popular price ranges, which are currently being restricted or removed altogether. That would also help with extra transactions.

That is how I would start off. The Minister will doubtless have some figures from his Treasury model claiming that that would produce too big a revenue loss. He will also know, however, that the Treasury has always been wildly pessimistic about any kind of Laffer effect on taxation and that the policy of cutting top-rate income tax from 50% to 45% has produced a massive surge of revenue. There was obviously no loss there, but in fact quite a big increase. Conversely, we know that moving the capital gains tax rate up from 18% to 28% has done a lot of damage to revenues and did not produce the expected increase.

The same could be true of stamp duty. We need to experiment. The Minister could try the idea at one or other of the thresholds, rather than the whole lot, if he is really nervous and cannot get the Treasury numbers changed, but we need to find out. I think I will be right. I would start at the lowest end, because that is where most people are affected and where affordability is the biggest issue of all. I urge the Minister to do that. We need more home ownership, which means having a lower and a different profile of tax, and better market clearing so that people can buy and sell and have the property they want of the size they want, which will also help. I urge him to do it for the revenue as well.

Finance Bill

Lord Redwood Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

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

It is a pleasure to start the Report stage of the Finance Bill, Mr Speaker. We had many good and long debates in the Bill Committee, and I am sure we will continue that trend over the next couple of days.

The new clause, which stands in my name and those of my right hon. and hon. Friends, would require the Chancellor of the Exchequer to publish within three months of the passing of this legislation a report on the additional rate of income tax—the top rate, which was 50p until last year, when it was cut by this Government to 45p. The report we envisage would set out the impact on Exchequer receipts of an additional rate, set at 50p, in the first year of the next Parliament. The Chancellor would also be required to set out the impact of reducing the additional rate for last year, 2013-14, and the amount of income tax paid by all additional rate payers, those with incomes over £250,000 a year and those with incomes over £1 million a year. Finally, the report would set out the impact of the reduction in the additional rate in 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.

Since the coalition Budget of 2012, we have had a number of debates on the Floor of the House and in Public Bill Committee on the Government’s decision to cut the additional rate from 50p to 45p. Indeed, the Minister has referred to such debates being an annual event during the passage of the Finance Bill. Why is it so important that we continue to press the Government on this one decision, made in 2012, after they have refused to listen to all and any attempts to get them to change course? It is because if there is one decision taken by the Government that tells us all we need to know about their priorities and who they stand for, this is it.

The Government who said, “We’re all in it together,” and the Chancellor who promised that he would not balance the books on the backs of the poor, saw fit to give, at a time when ordinary working people were seeing their living standards fall and when the combined impact of tax and benefits changes has left households on average more than £974 a year worse off, an absolutely huge tax cut to the wealthiest in our country. For millionaires, this tax cut is worth an average of £100,000—a vast sum, far out of reach for the majority of working people. So although this may appear to be simply an annual event and part of the House’s debates on the Finance Bill, it is much more than that. This Government made a bad choice—the wrong choice—when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it.

[Mr John Redwood (Wokingham) (Con)]

How does the hon. Lady explain the fact that income inequality rose under Labour and has fallen under the coalition?

[Shabana Mahmood]

I am pleased that the right hon. Gentleman is here. I recall in the debate in Committee of the whole House that he argued for a further cut in the rate to 40p, citing in evidence the increase in revenues resulting from the cut, but as he should know—I am sure he does—that is a result of bonuses being deferred. I shall return to that point, but I think it tells us all we know about where the Government stand on fairness.

--- Later in debate ---

[Shabana Mahmood]

My hon. Friend makes a good contribution, which I agree with.

[Mr Redwood]

The Government have published all the figures and they show that after the tax cut the better-off are paying more, not less.

[Shabana Mahmood]

The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.

Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.

--- Later in debate ---

[Shabana Mahmood]

The hon. Gentleman has made that point in previous debates, and I repeat the answer that I gave then. We have said that we would increase the rate to 50p in the next Parliament as we get the deficit down. I could not be clearer than that.

It is the richest in our country who are benefiting the most from the recovery delivered by the Government. The return of economic growth has overwhelmingly benefited the top 1%, as shown by analysis of HMRC figures by the House of Commons Library, which covered the year when GDP growth returned and the top rate of income tax on earnings over £150,000 was reduced. The share of post-tax income of the top 1% of taxpayers—300,000 people—rose from 8.2% in 2012-13 to 9.8% in 2013-14. Yet during the same period, the bottom 90%— 27 million taxpayers—have seen their share of post-tax income fall.

This cut to the 50p rate cannot be justified when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the Office for Budget Responsibility to have powers to audit manifestos ahead of the next general election, because we believe that that scrutiny will add to public understanding about the choices that are being made—a call the Government only last week rejected—so too we think that a report as envisaged by the new clause would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them.

[Mr Redwood]

Let me deal first with an old canard from the Labour Benches that is simply untrue and unfair: the idea that Conservatives welcome tax cuts for the rich, but do not think that tax cuts are appropriate for anybody else. Government Members believe strongly that tax cuts work for everybody, and that is why the Government have given back a lot of tax revenue to people on low pay by taking them out of tax altogether. We have supported and welcomed that, and that is where the missing revenue that Labour worries about is concentrated.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

The right hon. Gentleman says that the Government are taking many low-income people out of tax. But he must recognise that by raising value added tax, the least progressive of taxes, which everyone purchasing goods has to pay, regardless of their income, they are increasing the burden on the lowest paid.

--- Later in debate ---

[Mr Redwood]

VAT is not as regressive as the hon. Lady suggests, because I am pleased to say that important items, such as food and children’s clothes, are VAT exempt, which makes it a little less unpalatable. I agree with her that all tax rises are bad news, but they are a necessity given the large deficit that we inherited, and when some important public services need financing. I also entirely agree with Labour that, given that we have a large deficit and need to spend money on important benefits and public services, we need to get that money from the rich and the better off. They are the people with money, and we have to find the best way to get the money off them.

[David Wright]

Why is the right hon. Gentleman so scared of the new clause? All it does is request a report. Surely he supports the idea of having a report on these issues so that we can get to the bottom of the matter.

[Mr Redwood]

If I am given a chance to develop my argument, I hope I will satisfy any independent-minded people on the Labour Benches that we already have the evidence. We have had a long-term experiment on this very subject, which satisfies some Conservative Members that the way to get more money off the rich is to set a rate that they are prepared to pay and will stay and pay. If the rate is set too high, they leave. If the rate is set too high, their clever lawyers and accountants find entirely legal ways to pay rather less tax than we would like.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) did not answer my intervention when I asked her to confirm that the Red Book has made it clear that after the cut in the rate, the amount that the better off and the rich paid went up—of course it did. That is the experience we would expect. The hon. Lady is left trying to say that there are special reasons. I will give her this point: it is probably best to judge these things over a longer period than a year or two. One can get odd variations, which is why I want to give the evidence to the House that it has clearly forgotten, which relates to the big reductions in top rate tax that were put through in the 1980s. The Conservative Government reduced the top rate of tax in two stages, from 83% to 60% and then from 60% to 40%, and the Labour Government kept that rate right up until they knew that they would lose office. They were wise to do so, because over those years the amount of cash paid by the rich went up, the real-terms amount of tax paid by the rich went up and the proportion of total income tax revenue paid by the rich went up. What is not to like about that treble win?

[Graeme Morrice (Livingston) (Lab)]

The right hon. Gentleman said earlier that if the top rate of tax was too high people would leave—I presume he meant that they would leave the country. How many rich people have returned to the country as a result of the top rate being reduced from 50p to 45p?

[Mr Redwood]

We will be able to answer that question in due course, because these are still early days, but there are encouraging signs that more revenue is coming in from the rich. We will know the results of the latest experiment later, but we know fully the results of the 1980s tax cuts. They were clear enough to convince not only all sensible Conservative MPs at the time, who were happy to vote for the tax cuts and kept them throughout their period in office, but, more importantly, the long-running Chancellor of the Exchequer who took office in 1997 and held it for a decade before becoming Prime Minister. He is not an easy man to convince to be nice to the rich. I think that he decided to run with that tax rate because he was entirely convinced that he would get more money out of the rich at 40% than he would at 83% or 60%.

[Steve McCabe]

Does not the evidence show that any increase in the tax paid by the rich is the result of their share of income rising at the same time as everyone else’s living standards are falling?

[Mr Redwood]

The main reason they pay more tax, of course, is that they generate and declare more income here, which is surely what we want them to do. If the Labour party is with me so far in wanting decent public services, and if it is with me in accepting that the money for those services has to come from the better-off, because by definition we do not want to tax the poor, then surely it is with me in wanting to have more rich people here to venture, save, put their money at risk and to make more money with their money so that there is more of it to tax. This country is now very dependent on income tax from the top group of earners, who produce 30% of income tax, and on the capital gains tax, stamp duty and other taxes that apply mainly to rich people with big assets. That is sustaining public services. It is very important that Members of this House, who might not like those people—clearly the Labour party dislikes them intensely—recognise that they are very useful members of society and that their revenue is crucial to being able to redistribute money across the country. If Labour Members wish to have more equality, they must think about the optimising rate. Surely it is best to try to find the rate that maximises revenue, rather than a penal rate that satisfies people’s sense of jealousy—or whatever it is—about those who have or make a lot of money.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

The right hon. Gentleman is wrong about the Labour party disliking rich people intensely and should retract that statement. If he is not prepared to do so, perhaps he will explain why many people feel that his party dislikes ordinary families and poor families intensely, as highlighted by their policies.

[Mr Redwood]

That is simply not true. I am delighted to hear that the hon. Lady likes rich people—there are quite a few in her party, so let us hope she gets on well with them—but it is absolutely false to suggest that Conservatives have no interest in people who are out of tax altogether or who are on low incomes; we are desperately concerned that they should get better educational standards and have more opportunities so that they can get a job and then go on to get a better job. We wish them well, and we are very keen to work with all those in our constituencies so that they can take advantage of opportunities. We would like them to be on higher incomes. In the meantime, unlike the Government she supported, we have taken many more of those people out of tax altogether, because we think that those on an income of less than £10,000 a year should not have to pay tax. They will probably be receiving some benefit assistance.

Another point that the hon. Member for Birmingham, Ladywood did not respond to was the fact that the latest figures show that inequality rose under the Labour Government but has actually fallen a bit under the coalition, mainly because we have taken an awful lot of people at the lower end of the income scale out of tax. We have a very progressive system: the income tax system now exempts anybody on less than £10,000 and has a 47% rate, if we take national insurance as well on the highest incomes; and the benefit system rightly gives a lot of money to people at the low end of the scale and should not give any money to people at the top end.

[John McDonnell (Hayes and Harlington) (Lab)]

The right hon. Gentleman has made a number of assertions in his last few sentences. I wonder whether he has seen the report published this week by the Joseph Rowntree Foundation, which states that the cuts in child benefit and tax credits

“have typically created losses double the amount of tax allowance gain for working couples, and nearly four times the amount for working lone parents.”

I wonder whether he has seen the latest HMRC report, which states that the Gini coefficient started to rise significantly in 2012-13.

[Mr Redwood]

The figures I have been using refer to the whole coalition period and show a reduction in inequality, which I hope the hon. Gentleman will welcome. I do not recognise his figures on the child tax changes. The overall effect of taking a lot of people out of tax has been a very positive impact on their net incomes, as we would hope.

[Ian Murray]

If the right hon. Gentleman disputes whether an increase in the additional rate of tax would bring in more money, does he agree with the new clause’s call for a report? If it shows that the 50p tax rate brings in more money, will he and his Conservative colleagues advocate increasing it again?

[Mr Redwood]

I thought that I had dealt with that point. As far as I am concerned, it was proven conclusively in the ’80s that taking the rate down from 83% to 40% increased the revenue very substantially and on a sustainable basis. That was sufficient to persuade the official Labour party—perhaps not some Labour colleagues here today—not to increase the tax rate from 40% throughout its long years in government until the very end.

[Bill Esterson]

Does the right hon. Gentleman not recognise that the economic circumstances are now rather different from those he is talking about. Surely we need a study, as the new clause proposes, to enable us to look at what is happening now.

[Mr Redwood]

I do not think that the economic circumstances were as different as the hon. Gentleman thinks. In the early ’80s the Conservative Government inherited an economic crisis from Labour, just as this Government did. There was a lot of unemployment and a big task in getting people back to work and getting the economy growing again, rather like today. The Government at the time managed to do that, just as this Government are, so I do not accept his point.

However, I find the fact that Labour is going backwards on these issues rather perturbing. Why can the modern Labour party not understand the basic points that the Labour party that was victorious between 1997 and 2010 understood fully? Why can it not understand that it is possible to take the tax rate too high and get less revenue? The Treasury has now accepted the doctrine of the Laffer curve and understands that putting the tax rate above the optimising rate would surely be a very foolish thing to do. It knows that that applies to capital gains tax, as it clearly does to income tax. I submit that 50% was well above the optimum rate, because we collected rather less revenue than many people would have liked. I welcome the fact that the Government have started to put that right.

I do not think that we need the study that the Labour party is recommending today, and I advise it to think again about what it learnt in the ’80s and ’90s but appears now to have forgotten. It shows that the former Labour Chancellor was clearly not crowd-pleasing when he refused to increase the rate from 40%—he was clearly antagonising many of his Back-Bench colleagues by not doing so—so there must have been a good reason for it. I think that reason was a sensible one: it would have raised less revenue, rather than more. I urge the Government to reject new clause 14.

[Rushanara Ali]

It is worth considering some of the context of our debate today on the Finance Bill. Almost 15 years ago, the then Labour Government introduced the national minimum wage. That historic measure increased the value of work for around 2 million people across the UK. At its heart was fairness and dignity for all at work. Yet today we are debating the impact of a substantial tax cut for 13,000 millionaires introduced by this Government. At a time when more than four out of five people surveyed in a recent Ipsos MORI poll said that they faced a cost of living crisis, the contrast cannot be overstated. It would be almost impossible to find so clear a contrast between the ambitions and motivations of two Governments. The bottom line in this debate is that the Government’s proposals in the Finance Bill do almost nothing to address the cost of living crisis.

--- Later in debate ---

[Frank Dobson]

I strongly support new clause 14. It would appear that the Treasury’s Orwellian motto is “Ignorance is strength”. It is not just that the Treasury will not have this study done, but it has not had it done and does not know the answer. The Government are clearly afraid of the answer; what have they got to hide? That is typical of the current Treasury position. On a number of occasions I have asked the Treasury what estimate it has made of the income that would come to it from the implementation of a Tobin tax or Robin Hood tax—a tax on financial transactions such as that being sensibly suggested by Mrs Merkel for the rest of Europe. The answer I get is that the Treasury has never made any such estimates. Having never made any estimate of the possible income—and apparently never estimating what it would cost the City of London—the Treasury nevertheless states that it would be fatal for the City to impose a tax of 0.05% on financial transactions, when every other business in the country pays a 20% tax on transactions known as VAT. It appears that the Treasury is into “Ignorance is strength”.

We constantly hear from those on the Tory Benches about the wonders of Mrs Thatcher and how we should follow her example, so I remind them that for nine of the 11 years that she was Prime Minister, the top rate of income tax was 60p in the pound. Apparently, people managed to pay it. Apparently the money came in, and even rich people did not need a greater incentive to turn up at work.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.

One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,

“recompense for loss, suffering or injury”.

Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.

--- Later in debate ---

[Mr Gauke]

I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.

The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.

We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.

[Mr Redwood]

Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?

[Mr Gauke]

That is correct. It is a higher proportion than ever; it is more than was being received under Labour—

Finance (No. 2) Bill

Lord Redwood Excerpts

Wednesday 9th April 2014 Commons Chamber

Without wishing simply to list the problems, it is salutary to remember recent scandals and the implications of them for people, including the mis-selling of interest rate swaps, which affected small businesses. Small businesses thought they were doing the right thing in trying to mitigate risks such as fluctuations in foreign exchange rates, but the largest banks have had to put aside more than £3 billion to provide against compensation claims by customers, which shows how serious that was.

[Mr John Redwood (Wokingham) (Con)]

Will the hon. Lady remind hon. Members how much she wants to raise from the tax in the first full year? What impact would it have on banks’ capacity to lend?

[Cathy Jamieson]

I will come to that. In discussions I have had with banks they say that they want to lend and have the resources to do so, but some of the schemes have not necessarily encouraged people to come forward and have not been as successful as they might have wished. I have also heard the criticism from some banks, not all, that perhaps another levy or a different approach to the bankers bonus tax would have implications for capitalisation of the banks and so on. However, when we look at the scale of some of the bonus pots, it is difficult to make the argument that the money will not be there. The money appears to be there in some instances for excessive remuneration and bonuses, rather than other schemes.

Compensation costs for the mis-selling of payment protection insurance—the PPI scandal—have now reached £22 billion, an astonishing sum, with Lloyds alone incurring compensation costs not far short of £10 billion. Significant fines have been imposed on Barclays, RBS, Lloyds and Deutsche Bank for attempts to rig LIBOR, doing huge damage to the banks’ credibility and showing how important it is to change the culture and behaviour. That change has been much talked about, but has yet to be delivered entirely.

I am not trying to bash the bankers, as it is sometimes portrayed. I well understand the difficulties faced by front-line staff in the banks—the people in the lower tiers of the management system. They operated in and had to comply with the prevailing culture, and were set particular targets and given sales incentives. When we look back at that approach, we can begin to pinpoint the move away from the notion that the bank was there to look after people’s money, both individual depositors and local businesses, towards the retail culture, in which the emphasis was on selling and making profits without, in some instances, due care and attention to fiscal responsibilities and duties to the customer. I hope that changes brought about by recent legislation will see an end to that culture. Many of the banks are talking about that, and it will understandably take time, but we need the nudges, the pressures and the reminders, not just from the regulators, but through public opinion. Unless a watchful eye is kept on the banks, the change in culture will not necessarily succeed.

Despite having racked up billions of pounds in fines, several of the big banks still proposed significantly higher bonuses for 2013—the latest year for which figures are available—than for the previous year. They went up 10% to £2.4 billion at Barclays; up 8% at Lloyds to £395 million; and up 6% at HSBC to £2.3 billion. RBS, which is 81% owned by the taxpayer, has also announced a bonus pool of £588 million this year. I know that some of the banks claim that their overall bonus pool is coming down, but for the ordinary person in the street the figures are more than they would ever hope to win in a lottery in their wildest dreams, never mind expect to earn in the course of a year. They also find it astonishing that the banks might seek to breach the EU cap on bankers bonuses. It is difficult to understand why people who are paid in excess of £1 million, and have a range of other benefits, seek bonuses of twice their annual salary.

Finance (No.2) Bill

Lord Redwood Excerpts

Tuesday 8th April 2014 Commons Chamber

[Shabana Mahmood]

I assure the hon. Gentleman that Labour Members are passionate about business and our policy of a business rates cut for small and medium-sized businesses, which I will come to later.

The Government’s impact assessment says that the 1% cut in 2015 will lower the bills of 40,000 businesses that have profits of more than £1.5 million and pay the main rate of corporation tax. It will also benefit a further 41,000 businesses that have profits between £300,000 and £1.5 million and pay the main rate of corporation tax but receive marginal relief.

The Department for Business, Innovation and Skills estimates that the UK has 4.8 million private sector businesses, the majority of which, around 3.6 million, are sole proprietorships, and a further 1.02 million have fewer than 10 employees. That means that if 81,000 businesses benefit from cuts to the main rate of corporation tax, fewer than 2% of the total businesses in the UK are benefiting.

[Mr John Redwood (Wokingham) (Con)]

I would be grateful if the hon. Lady explained how the Treasury should go about making the calculations that she wants it to make. How would the Treasury know the consequence of that one particular tax change, and how would it know what it would be like without it?

[Shabana Mahmood]

I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.

--- Later in debate ---

[Shabana Mahmood]

What I primarily regret is that, as a result of the choices they made, this Government choked off the economic recovery that was under way when they came to office. That is the most regrettable thing: it led to three damaging years of flatlining, and it is ordinary people who are paying the price.

Following a vocal campaign by a number of business groups, ahead of the autumn statement the Government decided not to go ahead with the planned 3.2% increase in business rates and decided instead to cap them at 2%. The Government also announced in the autumn statement that they would provide additional help to retailers. That was action—it was relatively late in the day but it was action—but it does not go far enough, and the Government’s policy does not compare favourably with ours ahead of the next general election.

Ultimately, business rates are still set to rise this month by an average of £270. The Government’s autumn statement offer of £1,000 business rate relief was welcome for retailers, but it excluded workshops and offices used by high-tech start-ups. I particularly have in mind small jewellery makers in my constituency, which is famous for the jewellery quarter at its heart. Such businesses will not benefit from the Government’s announcements in the autumn statement and, as I have said, a significant rise in business rates is still envisaged for small businesses.

Our proposal for a switch spend from corporation tax to business rates is a much more comprehensive measure that would offer genuine and more far-reaching support to small and medium-sized enterprises. Given the scale of the problem, our policy seeks to offer practical help that would truly make a difference on the Witton road, the Coventry road and the Soho road in my constituency. The Exchequer Secretary will be pleased to know that it would also make a difference in his constituency. The Office for National Statistics report “UK business: Activity, Size and Location 2013”—a great read—tells us that more than 80% of the 5,750 VAT or PAYE-based enterprises in South West Hertfordshire employ no more than four people, while almost 75% of them have a turnover of less than £250,000. They are therefore not affected by the changes to the main rate of corporation tax, which he himself oversees; they are more likely to be in properties with a rental value of £50,000, and are therefore more likely to benefit from Labour’s proposal to cut and then freeze business rates in 2015-16.

In conclusion, we believe that our policy is the right one for helping small businesses. It meets the scale of the challenge that they face on business rates, and it makes the right choice about how to pay for the policy. We will want to vote on our amendment later this afternoon to highlight the impact of this Government’s decisions and the imbalances in their approach.

[Mr Redwood]

I remind the House that I offer advice for an industrial company and an investment company, although not on these subjects.

I thought that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) started her speech very promisingly. I admire her background, and I can think of a former great Member of Parliament who came from a very similar background and who deduced some very sound principles about how economies and shops work. I thought that the hon. Lady was going to develop in that style. I was delighted when she said that she is now a convert to tax reduction. She said that she and the Labour party now think that taking corporation tax down from 28% to 21% was right. It is wonderful news that we seem to have cross-party accord on the fact that lower tax rates can bring businesses to Britain, keep more profit in Britain and, if we let such policies fructify for long enough, even lead to more revenues and help to promote the economic growth that we all want.

The hon. Lady went even further and thought up another tax reduction that she wants. I am not normally one to let a tax reduction opportunity go by, and she said that a reduction in business rates would be a very good idea. She said that it would be good to find a way to make a further reduction in business rates, because that would be very welcome after years of increases.

I was then disappointed, however, because the hon. Lady said, “Oh, you can’t have too much of a good thing. It might start to work. You’ve got to have a tax rise, as well as a tax reduction.” She did set one part of the business community against another, although she claims that she did not do so. I find that rather curious, because we are meant to be debating the Opposition’s amendment 2, which does not propose a reduction in business rates or an increase in the corporation tax rate, although she says that that is their policy. The amendment allows us to talk about that because it is very wide ranging. We can talk about any kind of tax because it invites us to look at alternatives to corporation tax in ways that she spoke about.

We have a contradiction: the Opposition say that they have a settled policy to put up the corporation tax rate for larger companies and to cut and then freeze business rates. However, we are asked to vote on a much weaker amendment, which just says that the Chancellor of the Exchequer should conduct a review of the impact of cutting the corporation tax rate from 21% to 20%, as well as of other options, presumably including the one that the hon. Lady has already adopted.

--- Later in debate ---

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

Does the right hon. Gentleman accept that the primary cause of that increase in revenue is income shifting from one year to the next? Many individuals held back income in the year when the rate was 50%, and brought it forward when the rate was reduced to 45%.

[Mr Redwood]

I do not accept that at all, because the revenue in the previous year was very similar to the figure for the year before that, which was before people knew that there might be a cut in the tax rate. I suspect that next year will also see good levels of revenue. I do not expect a sudden reduction of £9 billion in revenue in the financial year we are just starting. As always, the hon. Gentleman is peddling misery for no good reason. Labour Members should rejoice and accept the fact that if we cut a rate, we sometimes get more money. They always want to spend other people’s money, so surely they should listen to how we can maximise the amount we get out of people.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the right hon. Gentleman explain where, following the rate change, this money has suddenly come from if it is not re-phased income? Is he suggesting that people have somehow avoided tax or that people have suddenly come into this country to pay it? He must have some reason for the increase, if he does not accept the one given by my hon. Friend the Member for Edmonton (Mr Love).

[Mr Redwood]

We are talking about people who are a serious amount richer than any of us on MPs’ salaries, and if the hon. Lady meets such people occasionally she will discover that they have many more freedoms than other people on when and where they earn income, what they invest in and where they organise their affairs. Some of them were not in this country before and came here when the rate was lowered. Some have some money in one country and some in another, and they can quite legally shift their money around and decide where they are going to earn more income. That is what companies do, as she has discovered and sometimes complained about. Rich people have a lot of flexibility, which means that a country that sets sensible tax rates attracts and keeps more of them and gets them to do more things.

There is also a disincentive effect, because someone who is legally here and keeps all their money here might not do extra work—why should they, when they are going to be taxed at too high a rate? Or they might not take an extra risk with their investments—why should they? If it works they will get taxed, and if it does not work they will take 100% of the loss. We can therefore change the climate by setting a competitive rate to encourage more confidence and action.

[Mr Love]

rose—

[Mr Redwood]

I will give way again, if the hon. Gentleman wants another go.

[Mr Love]

I do, because I want to explore the Arthur Laffer effect. The right hon. Gentleman seems to be saying that if we reduce income tax, we increase the amount of money we take. How far would he take that? Would he make income tax 40p in the pound, or 35p? Would he abolish income tax entirely and raise even more money?

[Mr Redwood]

The hon. Gentleman is now being completely stupid, is he not? There are two rates of tax that will raise no money—0% and 100%—and there is a curve between the two, which, as he rightly said, was first drawn by Mr Laffer, I believe on a napkin. Most people, including the Treasury, accept that there is a Laffer curve, and that it is a question of judgment where the rate is that maximises revenue. It is quite clear from the evidence in this year’s Revenue and Customs figures that 50% was too high a rate to maximise revenue, and that 45% gets us more revenue than 50%. I believe that 40% would get us more revenue than 45%. I am pleased to hear today that a Liberal Democrat, of all people, is writing a book on the subject. I welcome that and look forward to more progress in coalition talks about the maximising rate of income tax. If it were taken down to 20%, we would clearly lose a lot of money, so somewhere between there and where we are now is the maximising rate, and getting it right is partly science and partly trial and error. We can be sure that we are now moving in the right direction, having gone in the wrong one previously.

It is interesting that the previous Prime Minister, during all his time as Chancellor of the Exchequer, never took the top rate above 40%. I do not think that was because he liked rich people or wanted to be unkind to the left wing of the Labour party. I believe it was his judgment that anything over 40% would have cost him revenue. As a modest man, I therefore accept that there was something about which he was absolutely right—he was correct in not raising the top rate of tax above 40%.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

The right hon. Gentleman has made a case about corporation tax and about the top rate of income tax being reduced from 50p to 45p. Would he apply the same logic of Laffer to indirect taxation? It would be interesting to hear his comments about the raising of VAT to 20%.

--- Later in debate ---

[Mr Redwood]

It is clear from the figures that the raising of the rate to 20% increased revenue. Yes, there is a Laffer effect in VAT, and 20% is clearly below the optimising point if our only interest is in increasing revenue. Going from 17.5% to 20% has not got us to the point where it costs us revenue. If it had, I would have been the first to tell Ministers that it was a ridiculous idea. I understand their need for more revenue, because they inherited such a huge deficit.

[Tom Blenkinsop]

Of course, companies often pay VAT before they even make a profit.

[Mr Redwood]

Indeed, there are timing issues with VAT, as the hon. Gentleman says, but I do not really see how that affects the argument about whether putting the rate up brings in more money. That is in the figures.

I fear that we are drifting a bit far even from the wide subject of the amendment, but I suppose the alternative options to help business could include cutting VAT. However, it is clear that if we cut the rate of VAT again, there would be a substantial loss of revenue, whereas we have just cut the income tax rate and there has been a colossal revenue gain. We should learn from those points.

I think the shadow Minister suggested that there would be no loss of revenue to local government from cutting and then freezing business rates. I do not know whether she wants to intervene, but that was my understanding of what she said. I think the Labour party has been converted to the Laffer effect. It now asserts—I do not know on what evidence—that if we cut and then froze business rates, we would collect the same amount of revenue. I would need persuading about that, because I am not sure that business rates are at that point yet, but if they were, it would be a sensible proposal for the coalition Government to take up. It would make it an even bigger pity that Labour has not bothered to table a proposal along those lines for us to vote on today, which might even have drawn me into the Lobby against my own party’s Front Benchers if the case had been well made and I felt that the Laffer effect of lower business rates was well established. I have profoundly shocked my Front-Bench colleagues now, having earned myself a brownie point through my earlier remarks. As they are well aware, they are quite safe, because there is no proposal on the amendment paper to cut business rates. [Interruption.] The Whip has just found that out—she needs to do a little more homework before coming to these debates. [Interruption.] Now she is complaining that she did not say that. As she will be in the record as having said nothing, who am I to disagree?

Before I get into any more trouble, I will conclude my remarks by saying that I will not support the amendment. I do not believe that a review would help, and I do not understand how it would be judged. Nor does it seem that it would have any impact on Labour policy. I am perplexed by the fact that when Labour has a clear policy for once, it has not tabled a proposal so that we can debate it fully and vote on it. I strongly support lower corporation tax rates, which will be very helpful.

[Kelvin Hopkins (Luton North) (Lab)]

It is a great pleasure to speak briefly in this debate. There is everything to be said for reviewing the effects of changes in tax rates, but to do that one must eliminate all other factors. A great surge in demand over a certain period, with unemployment going down and output going up, and all sorts of other factors can affect tax revenues. It is not just tax rates. As my hon. Friend the Member for Edmonton (Mr Love) said, if there was a direct relationship between lower tax rates and increased revenues, a zero tax rate would mean big revenues and a higher tax rate would mean lower revenues. It is just not like that.

I also suggest that marginal changes to tax rates will not make much difference. Everybody in business likes lower taxes, and no doubt most citizens do. It is in the nature of things, because they have more money in their pocket. At the same time, in a civilised society—I like to think that we still have some remnants of a civilised society—taxation is vital to pay for the things that make it civilised. I would personally like higher revenues, so that we could spend more on the things that make our society worth living in. Over the past few decades, there have been some regrettable cuts in tax revenues. Perhaps we should not go back to the 98% top rate of the 1970s, but when Nigel Lawson got rid of the 60% rate and brought in the 40% rate, it led to substantial income for better-off people.

[Mr Redwood]

Would the hon. Gentleman not accept that cutting the top rate from 83% to 40%, or from 98% to 40% for so-called investment income, meant a huge surge in revenue? Rich people not only paid more in cash terms and real terms but paid a bigger proportion of total income tax. What’s not to like?

[Kelvin Hopkins]

We can argue about particular cases, but when we measure the impact of tax changes, we have to ensure that we are not measuring other factors. I met some people in the City just after Nigel Lawson cut the tax rate, and a lot of them were aghast at the Budget, saying, “Why has he cut the taxes? We don’t need the money.” They were clearly not of the same mind as the right hon. Gentleman, but they were civilised, decent people who thought that good tax revenues and higher taxes were a good thing.

[Mr Redwood]

As they were civilised people who did not need the money, all they had to do was give it away. They could have given the money to the state or to charity.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate. If there is one attraction to the amendment, it is that it allows a broad-ranging debate on any tax measure one can think of. Perhaps I could talk about the impact that a carrier bag tax would have on small businesses, especially a tax on bags that would allow the biodegradable element to get into the recycling stream, which damages recycling businesses in the plastics industry. That would perhaps stretch the debate a little too far away from the main rate of corporation tax, even though hon. Members might agree on such a measure.

We are going in exactly the right direction in trying to get the main rate of corporation tax down to 20%. That has been the direction of travel for this Parliament and it is the right place to be. I suspect that, if we get it to 20%, that will be the end of the journey, for the very good reason that having a corporation tax rate lower than the basic rate of income tax creates lots of interesting tax planning opportunities, as the previous Government found out when they had a small companies rate of 10%. Lots of strange people incorporated themselves as businesses—they looked a lot like one-man bands who ought to have been self-employed and made interesting tax deferrals or savings when pretending to be companies.

If we get to 20%, that is the end. I suspect that that is why we can no longer have a small companies rate of corporation tax that is lower than the large companies rate. If we lower one rate, we encourage behaviour that we do not want to encourage. It is right that we get both rates down to 20% and to have one rate of corporation tax. We can then scrap the hugely complex marginal relief calculation and everyone will know what rate of tax they pay on their profits. That has to be the right situation. A small growing business, whose profit increases during the year and suddenly hits more than a quarter of a million pounds, will wonder what tax rate it will pay in that year, so losing that whole calculation completely is a huge advantage.

[Mr Redwood]

Does my hon. Friend agree that the review could very usefully come up with a 20% capital gains tax rate, too? I would settle for 20% capital gains tax, 20% corporation tax and 20% income tax. There would then be fewer tricks.

[Nigel Mills]

A symmetry of tax rates would make perfect sense. Whatever form of income one had, one would know what rate one was paying.

--- Later in debate ---

[Sheila Gilmore]

We must review constantly what we do to get it right. The suggestion is that a review in itself causes uncertainty, but there are many uncertainties in business. The constant discussion about the EU, Britain’s place in it and whether there should or should not be a referendum is an uncertainty. I am sure that many people who feel strongly about that nevertheless feel it is so important that they are willing to risk that level of uncertainty.

[Mr Redwood]

The Labour Front-Bench team made a great deal of the need for banks to lend more money to small businesses being crucial to their future. How would an increase in the corporation tax rate and a special bank levy on payroll help? Would not that mean that the banks had less money to lend?

[Sheila Gilmore]

We still see high levels of remuneration and bonuses at banks while small businesses are told that there is no money to lend. Sometimes, of course, we are told the opposite is the case: banks allege that it is not a lack of money, but that businesses are not coming forward and do not want to expand. For a lot of small businesses who want to borrow, it is galling to find that banks are still seemingly able—despite all the difficulties they allege they have—to pay out so much in bonus payments.

To review these matters and to make a genuine attempt to provide additional help for the small businesses we all say we want to help would be useful. The terms of the amendment would enable us to get details of the impact of the cut in corporation tax to see exactly what the impact has been and what the impact of the suggested minor and very small increase might be before a decision is made.

--- Later in debate ---

[Mr Gauke]

As a result of our corporation tax reforms, businesses are moving their headquarters here. The north-east of England, for instance, has benefited from Hitachi’s investment. However, if the hon. Lady’s point is that the job has not yet been done and that further steps are needed to make our economy more productive and competitive, I entirely agree with her. That is why we must stick to the long-term economic plan.

[Mr Redwood]

Does the Minister agree that increases in investment require consumption growth? Does he agree that the whole point of investment is to satisfy future consumption increases, and that we need both for a balanced recovery?

[Mr Gauke]

Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.

Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four-hundredth, and the ring-fence fraction at eleven four-hundredths.

Finance (No. 2) Bill

Lord Redwood Excerpts

Tuesday 1st April 2014 Commons Chamber

[Richard Harrington]

I thank my hon. Friend, who characteristically makes a very good point. The problem is that to give the kind of detailed personalised advice that people want, the fee has to be at a certain level to reward professionals for doing the job, but smaller pension pots make that very difficult. That is nothing to do with regulation; it is simply about being able to charge the correct amount for their time. I hope that there will be alternative systems, although they may not perhaps give quite the bespoke advice that is available for people with larger pots. In other fields, such as accountancy, there are ways in which people can get good advice without having to spend the vast amounts of money available to those with larger pots.

My second point about changes in pensions legislation is just a thought. Many billions of pounds will become available that would have been dealt with directly in the insurance market through the annuity system. Have the Government given any thought to providing a facility involving national savings in which the Government or an organisation acting on their behalf deal with it on a managed fund basis? There is a similar system in Australia and New Zealand, where there is a kind of sovereign wealth fund that comes from people’s pensions pot, accrued together, with the necessary caveats about risk, a portfolio approach and all such matters. The Government thereby take advantage of the savings system, so that people can retire with a very good, solid and Government-guaranteed choice—of different types of products and risks—about what to do with their money. It would be very simple, with perhaps one or two choices; it obviously could not compete with the great panoply of schemes of the large fund management companies. It would be simple so that people could understand it, and I hope that it would provide a vehicle for funds that are safe and give a good return for the public, while also providing the Government with extra funds, as happens with National Savings & Investments.

On the Budget generally, which I support fully, my fear is that this country still lacks a business culture. Both this Government and the previous one quite rightly focused on small and medium-sized enterprises, businesses and apprenticeships, with different schemes and systems to try to help them. When I speak at schools in my constituency—as for all hon. Members, they are a regular feature in my diary—it is interesting to talk to young people about what they want in life, yet very few of the brighter ones seem to desire to go into a business environment. Those who do have such a desire tend to be interested in graduate schemes with larger multinational companies or the professions. There is nothing wrong with that—some of them, heaven forbid, want to be politicians—but these are the very people whose families often have small businesses in my constituency, and there are 1,600 businesses in Watford that employ between two and seven people. It seems to me that the establishment—schools, parents and everyone else—very much look for brighter young people to go into the professions and find alternatives to self-employment.

It is very hard to change that culture, but I want to commend the Government for what they have done to help small businesses and to help people to start up businesses. Wenta in Watford—the Exchequer Secretary may be familiar with it, because it is near his constituency —is an incubator for many start-up businesses. I saw several of them when I was there only a couple of weeks ago, including a small business started by James Morgenstern in which, in arrangement with Google, people who find an image of a building on Google Earth can then see a video of its interior. He started it in his bedroom and has now moved to an office at Wenta, and the business will expand.

To use James Morgenstern’s business as an example, his next big step is to have a first employee. I can speak with a little authority, because many years ago—I am probably about the same age as his parents or, depressingly, his grandparents—I was in that position. One starts a business and it is all great: one does everything oneself, being up 20 hours a day, and all that—it is a great pity that the shadow Chief Secretary is not in his seat at the moment, because he would be very interested in this, so perhaps I should brief him fully outside the Chamber—and the next step is to have a first employee.

I am very pleased that the measures taken by this Government have helped somebody to take that step. There have been different schemes relating to national insurance, and in particular schemes that have made it very reasonable for small companies to take on apprentices, who are given a tailor-made programme. To get to employees Nos. 1, 2 and 3—after employing only oneself—is the biggest step for a small business. From the point of view of the economy, in reducing expenditure on welfare, while people benefit from earning money themselves and eventually pay tax, that step is most critical. Many of the measures in this Budget and in previous Budgets will help with that.

In the end, most people set up businesses for one reason. It may be a noble reason or a selfish reason, depending on one’s perspective, but people set up businesses to make money for themselves and their family. When I speak to students in my constituency, I always commend those who want to be teachers, social workers and doctors because when they graduate, they will give their lives to help other people in society. However, to those people who put their hands up and say that they want to become rich, live in a big house and get a Ferrari—there are a few of them—I say that, provided that they pay their taxes and employ people, they will benefit society just as much as the first group of people. I really believe that. I believe in everything that the Government have done in the Budget and in the Finance Bill to help people to do that.

The tax cut for millionaires is a mantra for the shadow Chief Secretary. I am sure he is having his cup of tea and saying the same thing to anyone around the table who cares to ask. However, I do not believe that what he says holds water, because we want people to become millionaires. I want my constituents to want to become millionaires. By the way, on the first million, they will pay about half a million in tax and will hopefully spend another 200 grand on the Ferrari. Can we please let people become millionaires? The Government should help people to generate wealth and a lot of tax to support the people in this country who really need help.

[Mr John Redwood (Wokingham) (Con)]

Are not people who set up businesses performing a public service in their own right? They are not just given a million pounds because they want a million pounds. They have to open a chemist shop and provide pharmaceuticals to people or whatever. Is that not as much of a public service as anything else?

[Richard Harrington]

My right hon. Friend makes a valid point. That is another benefit. That is another way in which setting up a business is a public service.

Many of the things that the Government are doing involve not only the Treasury, but other Departments. I mentioned the pension changes, which relate to the Department for Work and Pensions. There are also changes in skills and education. The new university technical college in Watford completed on its property in Colonial way today. That has been put together by David Meller of the Meller Education Trust, who has several projects in the area, and myself. It will provide pre-apprenticeship education for businesses in the area that have jobs and that want trained people.

The UTC is sponsored by the Hilton hotel group, which is based in Watford. In fact, it runs the world from Watford. Everyone in Watford thinks that they run the world from there, but Hilton actually does. For the sake of clarity, people should understand that that excludes the United States, the rest of the world being a region of the United States in many people’s perception. The important point is that such firms are thinking, “If we want skilled employees to build up our business, we need them to be trained from quite an early age.” Hilton and Twin Technology, which is an IT company, are the two main sponsors of the UTC. They helping to design the courses because they are prepared to guarantee that there will be work experience and apprenticeships for people who come through the college. The Government have helped to facilitate that through the Budget and the Finance Bill.

In the dream world of the Opposition, they say, “Hey, everybody should get a job and it is guaranteed for a year.” No one has explained to me where those jobs will come from. I saw people working in the park as a result of the last Government’s attempt at that. People were taken on for a year to help the park keeper, but the job disappeared because it was not really a job. I am pleased that this Government have done their best to avoid that trap.

--- Later in debate ---

[Stephen Doughty]

My hon. Friend is exactly right. I have met many such individuals in my constituency. Two of the main food banks in my constituency are Cardiff Foodbank and the Tabernacle food bank, which is run independently by a church in Penarth. During the festive period in the run-up to last Christmas, demand for the Tabernacle’s services was eight times higher than it had been over the previous festive period, and demand in Cardiff overall doubled. I found that information very revealing. If it does not give an impression of what is really going on—of the hardship that people are facing, and the number of people who are on the edge as a result of the cost of living crisis—I do not know what else does.

[Mr Redwood]

Since devolution and the advent of a Labour Government in Wales, there has been more public spending per head in Wales than in London and the south-east, yet the economy of London and the south-east has greatly outgrown that of Wales. Why should that be?

[Stephen Doughty]

I am interested that the former Secretary of State for Wales should want to make comparisons between the economic performance of Wales and that of the rest of the United Kingdom. As I said earlier, the Jobs Growth Wales scheme has secured work for 12,000 people who would not otherwise have obtained it. In fact, Welsh unemployment is now lower than unemployment elsewhere in the UK. I think that the Welsh Labour Government are doing a very good job, notwithstanding the constant war on Wales being waged by the Conservatives, which the right hon. Gentleman appears to want to continue.

What I have described is the reality of life in Britain today for the constituents I have met at food banks, because of the cost of living crisis. We want the Government to take the steps we have recommended. We would like to see a Finance Bill that froze energy bills, reformed the broken market, returned people to work—not just in Wales, but throughout the UK—with a compulsory jobs guarantee, cut taxes for 24 million people on middle and low incomes by introducing a 10p rate, and cut business rates for small firms rather than cutting corporation tax for the biggest. A moment ago, we were talking about the Welsh Labour Government. It was only yesterday that their Economy Minister announced a new business rates relief scheme for retail companies. That is another example of the way in which they are prioritising small businesses, whereas this Government are prioritising those at the top. Of course, we would also reverse the £3 billion tax cut for people earning more than £150,000 a year.

amendment of the law

Lord Redwood Excerpts

Monday 24th March 2014 Commons Chamber

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

Before I start, may I say what a pleasure it is to see the right hon. Member for Leeds Central (Hilary Benn) replying to the debate? The House had an opportunity last week to express its great affection for his father. But no matter how distinguished or old a person is when they depart, to lose a parent, as those of us who have lost a parent understand, is a bitter blow. I just wanted the right hon. Gentleman to know that we express our deep condolences to him and his family at this very difficult time, and we wish him very well.

By sticking to our long-term economic plan, we have brought the deficit down by a third, we have helped a record number of people into work and we are continuing to boost Britain’s resilient economic growth. This is a Budget that literally places new pounds in the pockets of taxpayers. It is creating opportunity and putting Britain on a path to a secure future, and it will reward pensioners, savers and hard-working families. It has drawn a clear distinction between a coalition Government doing everything in their power to bolster Britain’s recovery, and a Labour party that just offers more borrowing, more debt, and more taxes, and ducks the major challenge.

We want to see a fair and fast recovery across the country. This can only be achieved by galvanising all forms of growth—whether inside a local enterprise zone or on a building site—and by firing up businesses and home builders, getting them investing, exporting and creating jobs. Local economies are providing the solid foundation for a national recovery. The economy is stronger and more resilient, and is rewarding the hard-working British public.

The Budget has recognised those who were so badly affected by poor winter weather. Some £300 million has already been announced to support the individuals, businesses and councils that were hardest hit by the flooding and storms. The Chancellor has made available an additional £140 million—money that will go towards immediate repairs to, and maintenance of, damaged flood defences across Britain. The £200 million pothole challenge fund will fill holes in the road that have already been a blight to road users.

Getting these communities back on their feet after such a devastating period of weather remains a high priority across government.

[Mr John Redwood (Wokingham) (Con)]

Those are very welcome announcements. Is my right hon. Friend also going to take action to stop rapacious councils making a misery of the lives of normally law-abiding motorists who slightly overstay their welcome at parking places and are then treated as if they were criminals? I am sure it would lift confidence if they were spared some of the excess.

[Mr Pickles]

My right hon. Friend and I are as one on that matter. He will recall that the Government have consulted on this and on other issues related to parking, and that the consultation period has recently ended. We hope to make an announcement in the very near future.

New measures in the Budget will also help to support the building of a further 200,000 new homes for hard-working people, on top of the work we have already done to kick-start house building. New house building and construction output in England is now at its highest level since 2008, and new housing construction orders are at their highest levels since 2007. More than 170,000 affordable homes have been delivered since 2010, and £20 billion has been invested in affordable housing over the spending review period.

More council housing has been built under this coalition Government than in all the 13 years of the previous Government. I honestly do not understand why Labour Governments do not build council houses. Since the last quarter of the last century, the two really big builders of houses have been the Thatcher Administration and this coalition Government.

The number of first-time buyers is at its highest since 2007, and mortgage arrears at their lowest since the Bank of England’s figures began in 2007. The number of empty homes is at its lowest rate since records began and, in the last year, new housing registrations rose by 30% in England and by a massive 60% in London. In fact, the number of new homes registered in London last year was the highest since electronic records began more than 26 years ago.

By contrast, new home registrations fell in Labour-run Wales. House builders have shifted their business across the border to England because of the Welsh Government’s anti-business policies. This is due to Labour’s extra red tape, and to its botched implementation of home ownership schemes. By contrast, thanks to this Government, more than 17,000 people have already bought a home through Help to Buy. Overwhelmingly, these are first-time buyers, and they are mainly outside London and the south-east. This shows how we are supporting all parts of the country, north and south. Help to Buy is a key part of our long-term economic plan, giving thousands more people the security and independence that comes from owning their own home.

The Budget’s pension reforms will offer freedom of choice for people who work hard. It would be helpful if the right hon. Member for Leeds Central could clarify whether the Opposition support these reforms, or whether some ambiguity still exists. Our pension reforms, such as allowing the newly retired to pay off their mortgage and be liberated from the banks, will also lead to greater security in old age. I do not agree with the doom-mongers who say that this will somehow lead to a problem with buy to let. This Government are dramatically expanding the opportunities for institutional investment in the private rented sector, through guarantees and our build to rent schemes. These offer the opportunity for savers to invest in new built rented accommodation and to receive long-term, stable returns from the property market.

--- Later in debate ---

[Mr Pickles]

My right hon. Friend has carefully, and with his customary style, signposted where developers should go, from his constituency to parts of Kent. The top-down eco-towns built nothing but resentment, but this Government are working with communities to support large-scale development. As he said, this works only if local councils are in favour, and we work with local developers and with the local community to build something together in a proper partnership.

[Mr Redwood]

My right hon. Friend might like to know that about a decade ago I wrote a pamphlet called “Thames Reach”, recommending a new town in the Ebbsfleet area. I recommended it to the Labour Government, as I am full of generous good ideas and thought they might want to take it up. I think they agreed with it, but they did absolutely nothing. Can he explain why?

[Mr Pickles]

No, I cannot explain why. I suspect that my right hon. Friend’s reputation as a scourge from the right may have put the Labour Government off. I suspect they never got further than the title page, but had they gone on they would have seen some very sensible suggestions. We are free from that prejudice and, of course, he is an inspiration to us all.

Further support will come in due course from the second round of the local infrastructure fund and a prospectus on support for locally led garden cities. Increased output, increased supply and increased jobs, with stable recovery, low interest rates, and support for firms and sites of all size—we have got Britain building again. Labour’s threats of land grabs and a new development tax on house builders would cut the level of house building and undermine investment in complex land assembly projects. Against a backdrop of anti-business sentiment, perhaps epitomised by the Labour Department for Communities and Local Government team’s campaign against free Waitrose coffee, it is no surprise that this week’s Investors Chronicle warns savers to sell their shares in house builders if Labour were to win the election. That is not going to build more homes; it is a recipe for stagnation and for unemployment. As Wales shows, Labour’s anti-business dogma will have a chilling effect on jobs and the economy.

By contrast, this Government welcome enterprise and the free market. Enterprise zones have led the way in creating jobs all over the country, as well as helping the UK to become a world leader in a range of technologies and for inward investment.

--- Later in debate ---

[Mr Hain]

Absolutely.

It was not Labour’s public spending that triggered Britain’s or the world’s economic crisis; it was the global inter-dependency of reckless banking that the Conservatives wanted to be less regulated that in 2008 triggered an economic meltdown in Britain and right across the globe. [Interruption.] Labour responded by boosting public spending and borrowing to offset the catastrophic collapse in private sector spending, and the £90 billion spent on bank bail-outs plunged the public sector into record annual deficits, but these were deficits that stopped a shocking slide into a fatal slump and laid the basis for recovery from the biggest shock to hit the world economy in peacetime since the 1930s great depression. [Hon. Members: “Give way.”] If I have time at the end, I will.

Contrary to right-wing free market mantras and Tory-Lib Dem history rewrites, it was the banking crisis that caused debt to rocket, the deficit to rise and borrowing to rise as well. The low yields on UK Government bonds before, during and after the credit crunch under Labour bore eloquent testimony to the fact that the international markets had full confidence in its policies, and that they were not clamouring for the right-wing dogma subsequently visited upon Britain. Indeed, so desperate was the right hon. Member for Witney (Mr Cameron) to identify with Labour’s success on spending, investment, jobs and growth that he pledged to match Labour’s spending plans for three further years in September 2007 up to 2010. [Interruption.] Members on the Government Benches shake their heads, but that is what he did. If we had spent too much—if all the charges made by the Conservatives were true—why on earth would the current Prime Minister have backed our spending plans for three years ahead? It would help the quality of this debate and the quality of assessment of the Chancellor’s Budget if the Conservatives and the Liberal Democrats had the decency to acknowledge that essential fact, including this Prime Minister’s support for our spending programmes, instead of ploughing on regardless, with no end to austerity in sight.

[Mr Redwood]

Why did the new and very expensive and complicated regulators the Labour Government introduced fail to control the banks when people like me were telling them they did not have enough cash for capital?

[Mr Hain]

I agree with the right hon. Gentleman to this extent: we did not regulate the banks well enough or carefully enough, but his party—not necessarily he, but his leadership—was saying that there should be less regulation of the banks at that time, yet now they have the temerity to attack our spending plans when we brought borrowing down. [Interruption.]

Budget Resolutions and Economic Situation

Lord Redwood Excerpts

Wednesday 19th March 2014 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

It is my job to take away the political punchbowl, just as the party was just getting going. What we have just heard is the most difficult speech that anybody has to make in the House of Commons, and I am sure we will all read it with interest.

First, I should like to say a few words in a personal capacity about what has been announced on savings. They look extremely interesting and long-term reforms. For a start, the ISA reform is resonant of PEPs; that goes right back to the beginning, as those introduced the savings allowance. It was a tremendous idea. I am really pleased that the cash and equity ISAs have been merged and that we have raised the cap. The Treasury Committee will have to look at the provisions. I hope I will not have to come to the House and say that it has a different view.

Getting rid of the defined contribution rules that force people into annuities is a tremendous achievement—a very far-sighted announcement. The last Labour Government were also looking at that for a while, but they could not find a way to do it. This Chancellor has found a way to do it, and we should commend him for that.

Before I say a few words about some of the other measures in the light of past Treasury Committee recommendations, I should like to say a few personal words about the deficit. When the Chancellor set out his initial Budget judgment on behalf of the new coalition, many thought that the coalition would collapse—that the political strains of implementing spending cuts would be too great and shake the coalition Government apart. Well, the opposite has been the case. The coalition has stuck with it and the deficit reduction plan has become the cement of the coalition.

Both sides deserve credit for the fact that the coalition is still going and dealing with the deficit. Particular credit goes to the Liberal Democrats. If I may say so—I hope they do not mind—I never thought they had it in ’em. But they have, and they have stuck with it.

[Mr John Redwood (Wokingham) (Con)]

Will my hon. Friend give way?

[Mr Tyrie]

May I make a bit of progress?

The deficit is down from the stratospherically high figure of 11% of gross domestic product to just below 7%, and next year it is forecast to fall to 5%, as we have just heard announced by the Office for Budget Responsibility. The consolidation is already significant. It has been achieved despite a massive external shock which was not built into the forecast four years ago and which I do not think the Chancellor mentioned—the eurozone crisis and the economic stagnation in our largest export markets. It was primarily that crisis that forced the deficit reduction plan to fall behind schedule. The key question for the Government a couple of years ago was whether to relax fiscal policy sharply in response to the almost 4% loss of forecast GDP, most of which was a consequence of the eurozone crisis.

Rightly, in my view, the Government showed considerable flexibility within the overall framework, in two important ways. First, they authorised the Bank of England broadly to double the quantitative easing programme; and secondly, equally importantly, the so-called economic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—were allowed to kick in.

To give an idea of the importance of the stabilisers and QE on policy, it is worth reminding ourselves of the numbers. Since the election, an additional £175 billion has been put into the economy through QE and £140 billion has been put in through the automatic stabilisers. The latter figure is based on Institute for Fiscal Studies estimates; no one knows exactly, but it is of that order of magnitude. These are very large numbers. That showed flexibility by the Government.

[Mr Redwood]

Does my hon. Friend agree that the Government’s flexibility included putting public spending up every year in cash terms over the period and relying on higher tax receipts to get the deficit down, which is how they maintained political agreement to the policy?

[Mr Tyrie]

I do not know about the political agreement point, but of course the effects of the stabilisers operate on both the tax and the spending sides. I think the Government were right to do what they did.

The Government have also been right to see off calls fundamentally to alter fiscal policy by sharply relaxing deficit reduction and increasing public spending. One of the main reasons it was important that they did not listen to those calls is that credibility in fiscal policy is hard won. It is built up over time—over many years—and it can easily be squandered. The Government resisted that temptation.

I will say a few words about the historical context. Looking to the 1930s, when stagnation set in and the agony was prolonged, partly because automatic stabilisers were suppressed and partly because far from engaging in QE, the then coalition Government did exactly the opposite: they lengthened the maturity of the debt and sucked money out of the economy. That is why the 1930s were so painful.

Now that we have a recovery, some are complaining that it is not the one we ordered. They complain that the recovery is consumer-led or uneven across sectors, regions and income groups. Well, of course it is. All recoveries of any value trigger a reallocation of resources, and therefore all recoveries change the shape of the economy. A recovery rarely takes root where the jobs were lost or the firms failed; it was ever thus and it will be the same this time. As the Chancellor stressed in his speech, jobs are being created at a record rate, but we cannot expect those jobs to be in exactly the same places as the jobs lost in the downswing. I am confident that, as in all previous recoveries, if we can sustain this recovery—and even if it is uneven, as it will be—it will, in time, deepen and spread through the whole economy. The figures for previous upswings support that.

The crucial question now, though, will be whether we can sustain the deficit reduction plan. A threat to deficit reduction will come from siren voices who say, “With the recovery under way, we can go back to spending money we haven’t got.” We are already hearing that. We need to remind ourselves that we are still spending about £7 for every £6 we collect in tax. It is true that we are in better shape, but with a deficit of about 6.6% of GDP, as the Chancellor announced today, we will remain vulnerable to economic shocks unless we do more to tackle it.

Another risk to deficit reduction is one of simple arithmetic caused by ring-fencing—something that the Treasury Committee has flagged up on several occasions. It will become increasingly difficult to find cuts to an ever-shrinking share of non-ring-fenced departmental spending. In other words, with ring-fencing of nearly half departmental expenditure, finding these savings will get tougher year by year. The Chancellor has argued, rightly, that polling evidence shows that that ring-fencing reflects public preferences. I think that is true for health and education, but it is not supported in the area of overseas aid. Spending on aid has risen by over a third in real terms and will rise even more because it is linked to GDP. Politics always points to ever-more ring-fencing; economics to less. Eventually, ring-fencing will have to be revisited, however difficult it is for all political parties.

Perhaps I should say a little about the risks—

--- Later in debate ---

[Mr Hoban]

My hon. Friend is absolutely right. I think this should be seen as the first stage in a series of reforms, because as the Chancellor also said in his statement, the Office for Budget Responsibility predicts that the savings ratio will continue to fall. As well as ensuring that we can provide a better deal for those in retirement, a better way for them to spend their pension pot and encouragement for them to build up more through individual savings accounts, we need to do more. I will come back to that in a moment.

These are radical reforms. I welcome another part of the package that goes hand in hand with the increased flexibility. The challenge that many pensioners face is finding advice and someone to help them through complex decisions about what they should do in retirement. Recent surveys have shown just what a bad job some of the comparison websites do for people trying to buy an annuity.

The right to advice is an important part of the package of reform, but I suggest to those on the Treasury Bench that we need to go further. The auto-enrolment savings system assumes that people do not think too hard about saving but save automatically. We then expect them at the point of retirement to engage in saving. We need to make sure that there is more advice and guidance available before they retire, to help them think about what age they want to retire at and what sort of income they want to retire on. I think that a key part of the next stage of reform should be to take that right to advice and see how we can provide better advice for people in the run-up to retirement in order to help them provide more for their retirement.

[Mr Redwood]

Is there not also a very cruel dilemma in public policy, in that savers want a better rate of interest but we need low interest rates to promote economic growth and to service the Government debt? There is a trade-off, and that is why tax breaks are particularly welcome at a time of low interest rates.

[Mr Hoban]

Absolutely. My right hon. Friend provides me with the opportunity to praise the Chancellor for introducing the pensioner bond. Those higher rates of interest will provide not only an attractive way of enabling people to save, but some support to the Treasury.

My hon. Friend the Member for Mid Norfolk (George Freeman) made a point about the savings culture. We must recognise that we need to help people on low incomes to improve their savings, too. Although the minimum contributions under auto-enrolment help people get on the savings ladder, they are not high enough to provide them with a reasonable replacement income in retirement that is proportionate to their income in work. Those higher up the income scale tend to do better. Not only do they qualify for higher tax relief, but their pension contribution rates need to be higher, too. They also tend to have additional sources of income and savings in retirement.

I encourage my right hon. Friend the Chancellor to look carefully at this area. I welcome the fact that we have increased personal allowances for those on low incomes. In a constituency like mine, where the average wage is £24,000 a year, increases to the personal allowance are valuable. However, as well as helping the low paid while they are in work, we should think about how we help them prepare for retirement. That would help provide a rounded package of measures to help people build up savings for their retirement and then, once they are in retirement, think about how they will get best value for money from those savings.

In conclusion, it is not possible simply to repair 13 years of damage in just a few years of this first term of Government. The problems we inherited were deep-seated and challenging: an economy that was unbalanced—it was too dependent on the south and on financial services—and a Government addicted to spending, taxing and borrowing. Tackling those problems against the backdrop of economic uncertainty abroad was not easy. Plenty of commentators, including from the Labour party, said that it could not be done. They prophesised huge increases in unemployment as we cut back the public sector, and they said we were cutting too far and too fast.

They have been proved wrong: the economy is recovering, growth in the UK is expected to outstrip that of our main competitors and more people are in work than ever before. Now is not the time for complacency. We need to continue with our reforms and drive the recovery forward.

--- Later in debate ---

[Sammy Wilson]

I listened intently to the Chancellor, and I was pleased when he made the point that he wanted to ensure that growth occurred in all the regions of the United Kingdom. However, I was disappointed to listen to the rest of the speech, because I wanted to know what policies would be introduced to effect that more even distribution of growth. I welcome the setting up of the enterprise zone in Coleraine, but one has to bear in mind that that will just balance out the 350 jobs that have been lost in that town, where severe unemployment had already been caused by the closure of some companies. It is intended to balance out the impact that the central Government’s decisions have had on my constituents in Northern Ireland.

[Mr Redwood]

I would just like to correct the record. The forecast is for only a 4.7% increase in exports next year and an 8% increase in investment, which I think is achievable.

[Sammy Wilson]

The percentage growth in exports was 0.8% last year, and in the next year it is forecast to be 2.6%. By any calculation, that is more than a three times increase in the rate of growth. The Government have talked about the reduction in the cost of finance for exporters, but measures that were introduced in previous years did not have the intended effect. Of course, that is against the background of a strengthening pound, so there will be a difficulty there. On what is the Government’s optimism based? If it is on export and investment-led growth, past patterns do not show that happening.

My second point is about the Chancellor’s throwaway lines saying, “I am not in the job of easing up just because things are getting better”, and “We don’t want to spend more.” I am not asking the Government to spend more; I am asking them to spend differently and better. Of course we have to get the deficit under control, but what is the increase in that deficit at the moment? Of the percentage of our GDP that is debt, what is most of it made up of? It is made up of paying people to sit on their backsides doing nothing, instead of spending on investment in infrastructure projects, which would have a return. It would put people back to work, increase tax revenues and stimulate growth. We can examine the infrastructure projects in Northern Ireland, such as in tourism. For modest amounts of money, the Titanic signature project is now bringing in millions of pounds and half a million visitors a year, mostly from outside the state. There has also been the extension of the gas pipeline. Many Members have talked today about the cost of living, and one way of bringing fuel prices down is to give people alternatives. For modest public investment, we have been able to increase the coverage of gas pipelines in Northern Ireland, bringing people cheaper fuel and helping to bring down their cost of living.

--- Later in debate ---

[Mr Mitchell]

I believe that Minouche Shafik is an absolutely outstanding public servant, and she has been appointed as a deputy governor of the Bank. I am sure the whole House will agree that it is an outstanding appointment.

The economic plan that has been introduced is right. We had to make those decisions, because the United Kingdom has racked up far too much debt. Siren voices effectively urge us to head back in the direction from which we have come, but it does not seem likely to me that the public will accept that. Today’s Budget enhances and underlines the difference between the Government and the Opposition, and in my view it will stand the test of time.

[Mr Redwood]

Has my right hon. Friend noticed that despite all the efforts to control the debt, which we need to do, debt interest will still be £60 billion next year, which is more than the education budget?

[Mr Mitchell]

My right hon. Friend is absolutely right, but can he imagine what it would be like today if the Opposition’s policies were being pursued?

I wish to make a point that the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), will not agree with, although I thought his speech was excellent in every other respect. The Government deserve huge praise for sticking to their plans on international development. The House will be aware that as a result of the all-party support for that policy, countless lives have been saved. Hundreds of thousands of children are alive today in the horn of Africa who would not have been but for British leadership on the issue.

Through the House strongly supporting the Government’s policy to vaccinate, the British contribution means that we will vaccinate a child every two seconds in the poor world, and every two minutes it will save a child’s life from the effects of diseases that none of our children die from today. As a result of reforms introduced by the Government, such as building up governance structure and ensuring that poor countries have the benefit of effective taxation, independent media and so forth, we should all be incredibly proud of the success of that policy. I am enormously proud to have served in a Government who stuck to their promises to the poorest people in the world, and who did not seek to balance the books on the backs of the poorest, either in Britain or overseas. That is also hugely in British interests—this is not just soft-hearted altruism—because it is not only aid from Britain, but aid and development for the benefit of Britain. It enhances the security and stability of our generation and of future generations, and it builds on the prosperity that our generation enjoys, and that future generations will enjoy to a greater degree as a result of those successful international development policies.

I also believe that the Chancellor was right to raise the threshold at which tax becomes payable, and—at a time of great austerity—to target help on those who earn the least. Of course the 40% level bites much earlier than we intended, but the austerity we have faced was harder and deeper, and inevitably those with a little more have had to pay a little more in those circumstances. I am clear, however, that the 40% band needs to be raised as soon as we can, and the drag of people into that band should be reversed once the economy can withstand it.

--- Later in debate ---

[Mr Harris]

Yes. I absolutely believe that when the minimum wage was introduced, it was set at the right level. It disappointed a lot of people who wanted it to be higher. There will always be those who want the minimum wage increased beyond what the market can sustain. The hon. Gentleman is absolutely right: it has to be generous, but it has to be moderate so that we do not have the negative effect of losing workers.

But what about help for ordinary working families? I am loth to use some of the more overused phrases that we are encouraged to use like “cost of living crisis”—trademark patent pending—but the fact is there is such a crisis. If average wages in real terms have dropped by £1,600—and I have yet to hear any Minister saying that is not the case—that is something of a crisis if not for people in this House then certainly for families and workers in my constituency. Yet despite the high number of headline-grabbing announcements, many of which I would support, there is absolutely nothing in what the Chancellor said that will address this urgent issue that faces the whole nation.

[Mr Redwood]

The hon. Gentleman is right that there has been quite a big fall in real wages, but will he accept that the biggest part of the fall occurred in 2008-10?

[Mr Harris]

I am, as always, very grateful to the right hon. Gentleman for intervening as I was just about to get on to the events of 2008-09. I want to address the deficit, because so many Government Members have raised it in the House whenever they have got the chance in a way that I find completely disingenuous, not worthy of an adult debate and not related to what actually happened in 2008-09.

An observer from Mars who tuned into what the Chancellor said today might have come to the wrong conclusion that when the right hon. Gentleman was in opposition he somehow opposed the last Labour Government’s spending plans. That is not the case: right up to November 2008 the official Conservative party policy was to support our spending plans. That either means that the Conservatives believe the deficit was created in the 18 months from that point until the general election, which frankly none of us believes, or that they are now saying something that is completely the opposite of what they were saying in opposition. I remember sitting on those Government Benches—in a couple of years’ time I hope to be back there—and I do not recall any Conservative Member, or indeed Liberal Democrat Member, calling for an end to spending on their local schools, their local hospitals, their local roads. The fact is that the deficit was almost entirely caused not by profligate spending by the Labour Government, but by a disastrous fall in tax revenue caused by an international recession—the deepest any of us have seen in our lives. That is the truth of the matter.

Conservatives and Liberal Democrats—and I have to say especially Liberal Democrats, who seem to get more incensed about this than anyone, even though they said not a word about it in opposition—stand up and demand all this nonsense about apologies for the deficit and for mistakes that were made. Of course all Governments make mistakes, but let us be honest with the British public about how the deficit was created. It was not created because new schools were built. It was created because of a recession that put a lot of people out of work and that cut off revenue to the Treasury. That is why we are where we are. It is not because of Labour’s spending plans.

There are some items in this Budget that I welcome, but I fear it will be most notable not for the issues it addresses, but for those issues it needs to address and, sadly, ignores.

[Mr John Redwood (Wokingham) (Con)]

I would like to remind the House of my declaration of interests: I provide some advice on global economies and investments to an industrial company and an investment company.

I greatly welcome this Budget, because I think it is right that we need to do more to help the promotion of exports, industrial investment, the rebalancing of our economy and continuing the long process of getting the deficit under control. In our exchanges already I have highlighted the fact that debt interest will be higher than the education programme next year, despite the Government’s best endeavours, and that unless we carry on to make good and rapid progress to get the deficit down and eliminate it, that debt burden will build up and future Governments, whoever they may be, will find they are spending more and more money on debt interest and have less and less for the public services that our electorates expect us to provide.

I would like to clear up a common misunderstanding about how that is being done that I think has occurred because of the use of jargon and economists’ language in describing the process. The reduction in the deficit has been described as 80% by spending cuts and 20% by tax rises. That is true if the programme is successfully completed by 2018 and if we measure it as a percentage of GDP at that point, but that is not how most people think about how an excessive deficit is curbed. If we have a large deficit in our own accounts, we have either to find a way of earning more money or to make immediate cuts in the amount of cash that we spend. I think a lot of people outside the House think that, because we inherited a deficit of £160 billion, 80% by spending cuts meant £132 billion-worth of cash cuts in public spending. Of course it does not, and I am very glad that it does not, because that would have done huge damage to important public services.

What the Government have decided to do is limit the rate of increase in public spending and promote a more active economy so that tax revenues eventually catch up, and we are in that long process. The first three years of this Government saw very little growth in the economy, which delayed the reduction in the deficit because we did not get the surge in tax revenues we were hoping for. Now it looks as if there is better news, with faster growth coming through, and so the process can be completed, assuming the economy still recovers.

I had thought we might cut public spending in real terms in the first two or three years, but it appears from the latest figures that there was a small real increase in public spending. In the first three years, current public spending went up by more than inflation, and if we look at the impact on the economy as a whole, it gives the lie to all those who suggest too much was cut too soon, and that that reduced output and was the cause of the delay in growth. If we look at the attribution of growth and decline in activity and incomes, we see that the public sector made a small positive contribution to the economy in every one of the first three years of the coalition Government. I hope that reassures some of those on the Opposition Benches who felt too much was being cut and damage was being done. The good news is that it was not. There will have to be some reductions in some programmes in the years ahead in order to hit the targets, however, because although public spending will continue to rise in cash terms, there will need to be a little bit of a real reduction in the next Parliament; and because some of the programmes need to go up quite a lot—debt interest will go up quite a bit anyway—we will have to make reductions in other programmes, whoever is in office.

[Mr Newmark]

My right hon. Friend is making an excellent point. Does he agree that, notwithstanding the austerity he is talking about and the fact that more than 500,000 jobs were lost in the public sector, what is particularly remarkable about these tough times was that 1.7 million jobs were created in the private sector?

[Mr Redwood]

Yes, that was magnificent news and it shows that the private sector is remarkably resilient despite all that has been thrown at it. That is why we can now look forward to both better living standards and a better public sector: we need all those people to be in work and paying more tax in order to pay for those public services that are much-wanted by our constituents.

I would also like to deal with the argument from the Opposition, which I thought was put in a very exaggerated form by the Labour leader in his response to the Budget, in what was a rather partisan appearance which was out of sympathy with his new style at Prime Minister’s questions. I am not one to condemn partisan debate, as I think sometimes it livens the place up, but it was a very partisan speech by the Leader of the Opposition.

[Charlie Elphicke (Dover) (Con)]

It was a rant.

[Mr Redwood]

The Leader of the Opposition’s rant, as my hon. Friend says, had just one basic message: the wrong belief that the Conservatives want tax cuts for the rich and misery for everybody else. What we want is tax cuts for everyone, and what this and the previous Budget offer is tax cuts for everyone.

Let me explain how we have different types of tax cut for people at different levels of income. We take those on the lowest incomes out of tax altogether, so they get a genuine tax cut: they go from paying something to paying no income tax at all. The House is, I think, united on the wisdom of that. At the top end, we cut the rate, and what happens is that the rich and successful people actually pay more tax, not less. That seems to me to be magic, because then everybody is happy—or they should be. Only the very jealous should be miserable, because what we then have is the rich staying here, investing here, creating jobs here, creating more money here and paying more tax because the rate is lower. What is not to like about that proposition?

What is odd is that the Labour party in office, until the last couple of days, knew that and kept the top rate of tax below the level that we inherited and below the level we have now fixed. It is a bit rich that Labour is now complaining that we are light on the rich, given that our tax rates are collecting a lot more tax from the rich and are higher than the rates that Labour imposed. Indeed, we could collect even more tax from the rich if we brought the rates down a bit more, which I hope, come a Conservative Government, we might be able to do. Surely what we want is to maximise the revenue from such people, not to make a political point and drive them abroad, so that we have a society with less money, fewer jobs and less creativity.

I am pleased that the Chancellor made some moves on energy. We need a much bigger and stronger industrial recovery than we have generated so far. The first thing we need to do to have such a recovery is to ignore the advice of the Green MP, and to go for cheap energy. America is going for cheap energy, and it is re-industrialising very quickly. America is now super-competitive against companies in the European Union. A leading chemical major in Germany has recently said that it will put more of its investment abroad, outside the EU altogether, because, in the light of the energy crisis, the gas feed stock is uncompetitive. We need to find that gas and to get it out as quickly as possible. We need to match the United States’ shale revolution if we wish to save our high-energy-using industries and to re-industrialise and give some hope to the northern cities in particular, with their long tradition of industrial activity, because they need much cheaper energy.

We need to do more for savers, and I am delighted by an elaborate and interesting set of measures from the Chancellor on saving. Savers have had a miserable time after the collapse. Rightly, successive Governments and Governors of the Bank of England have kept interest rates on the floor, as they had to do, to try to stimulate activity and to prevent a worse collapse than we experienced in 2008, at the height of the crisis. That has been very bad news for savers. The tax changes will help savers, and the pensioner bond offer, if the rates are around the level we are now looking at, makes sense and would be a bit more attractive and something for pensioner savers to look forward to. I also welcome more flexibility for pensioners generally. Annuities are not good news at the moment, and if people can put that off or have a better choice, that may well be an excellent answer.

This Budget needs to be good for savers, for industry and for exports, and we are going in the right direction. It will help to promote a bit more growth, and only if we get a lot of growth will we get out of this debt bind.

[Stewart Hosie (Dundee East) (SNP)]

I start by welcoming a number of the measures that the Government announced, such as the increase in the revenue non-compliance budget, increased export funding and the further doubling of the annual investment allowance. If the Government carry on like this, we will be back to having an industrial buildings allowance policy, which should never have been scrapped in the first place. There is also the halving, at last, of bingo duty—my favourite cause. All these one-off measures are very sensible, could be implemented by any Government and ought to be welcomed by everybody.

However, that does not change this Government’s underlying direction of travel or the underlying shape of the economy as described to us in the Red Book. Scotland has suffered an 11% cut in the fiscal departmental expenditure limit, a 27% cut in capital and a real-terms 9.9% cut in the overall budget. The numbers announced today imply a further real-terms cut in the budget. I do not want to speak too much about Scotland, but it is important that we get on the record just how damaging this Government continue to be.

What the Budget speech and the Red Book tell us is that, by every measure the Chancellor has set for himself, he has failed. In his first Budget, he told us that in 2013-14 the current account deficit would be 2.3% of GDP, borrowing would be reduced to £60 billion and the net debt would be 70% of GDP. Today, he told us that for the same year, the current account deficit is higher, borrowing is actually at £95.6 billion and the net debt is around 75% of GDP.

Let me be generous: any Government can make a mistake for one year, so what about the big targets the Chancellor set for himself? They were: that debt would begin to fall as a share of GDP by 2014-15; that the current account would be in balance the following year; and that in the same year, public sector net borrowing would fall to £20 billion. Debt will not begin to fall until 2016-17—two years late. The current account will not be back in the black until 2017-18—two years late. Public sector net borrowing in 2015-16 will not be £20 billion; rather, the forecast figure—£68 billion—is more than three times that. Not a single one of the Chancellor’s key targets has been met.

[Mr Redwood]

Has the hon. Gentleman noticed the forecasted very sharp fall-off in petroleum revenue tax, and is that reflected in SNP plans?

[Stewart Hosie]

It is extremely convenient that, once again, we have a “North sea oil price crash” story on Budget day, some six months before the referendum. If the right hon. Gentleman keeps saying it, I am sure someone somewhere will finally believe him. I am not dreadfully convinced.

The bottom line is that—just like the right hon. Gentleman’s intervention—the Chancellor’s speech was hugely political. He did not tell us about recovery; he did not tell us that he is trying to lift the burden from hard-working families; he did not apologise for trying to rebalance the economy on the backs of the poor. This Budget speech was a political platform for the next election, and if it was supposed to be a vindication of his policies, then it failed, because the policies have failed.

The Chancellor did of course have a deal to say about tax. He is right to increase the basic rate threshold to £10,000, and then to £10,500. Raising the threshold from £6,500 to £10,000, resulting in savings this year of £700 for the average person, is sensible, but of course, that is only part of the personal tax story. This Government have pushed ahead with a tax cut for millionaires and have continued to squeeze the middle—the genuine middle class. The threshold for those paying the 40% rate of tax has come down from £37,500 to under £32,000, so for every penny saved at the bottom, they have had to pay more than a penny at 40%. I therefore welcome the fact that the 40% threshold is going to be increased, but that is not until 2014-15. It will not change the fact that the proportion of people paying the 40% tax rate has doubled over the past two decades, and there are now 2.1 million more people paying a rate of tax that was previously only for the rich.

It is not just the middle: it is the poorest in society who have been hit hardest. We know—the right hon. Member for Wokingham (Mr Redwood) told us—that the proportion of tax cuts to tax rises is 4:1. We knew from previous Budgets that the impact of the discretionary consolidation would be £155 billion. Interestingly, the Government have removed that figure from the Red Book: they have removed the year 2016-17 from the forecast, and are now telling us that the discretionary consolidation will be only £126 billion. However, that forecast goes only to 2015-16, and I am concerned that they are not making a longer forecast, so we can see the real scale of the damage they are trying to do.

We in the SNP know where the pain of this Budget and of this Government’s policy direction will be felt. It will be the 144,000 households in Scotland who are losing some £3,500 each through changes to incapacity benefit. It will be the 372,000 Scottish households who have seen tax credits reduced to the tune of £800 a year. It will be the 620,000 families hit by changes to child benefit, who have lost an average of £360 a year. It will be felt by the 55,000 people who are losing an average of £3,000 a year as disability living allowance is removed. Those are the people whom we should be thinking about and who should be helped. Instead, the Government continue to try to balance the books on the back of the poor.

I welcome the fact that the Budget forecast at least says that there will be some growth, but it is once again heavily predicated on business investment growth. In Budget after Budget, the Government have produced five-year growth forecasts. In 2010, growth was predicted to be between 8% and 10% a year, but by the time we got to 2011 it had turned negative and they had to set yet more ambitious targets for the next five years. So it went on, and we find in the Red Book that the forecast business investment growth for last year turned negative again. I am desperate to see positive business investment growth, and the jobs that come with it, but we keep seeing the same story from the Government. They keep failing.

What should the Government have done? There are any number of policies that they might have adopted. Instead of tinkering with air passenger duty, they might have cut it properly or acted sensibly to boost international connectivity. Instead of simply freezing fuel duty, they might have introduced a real fuel duty regulator to smooth out future spikes. They might have cancelled some of their austerity measures, or at least removed the cap on discretionary housing payments to help the poorest. There are so many things that they might have done.

In the North sea, the Government announced that they would implement the Wood review in full. That will save the industry some £45 million, and it is to be welcomed. However, they are keeping the offshore chartering regime that they announced last year, which will cost the industry £600 million. They keep getting it wrong every single time.

Fairness and Inequality

Lord Redwood Excerpts

Tuesday 11th February 2014 Commons Chamber

[Stephen Crabb]

My hon. Friend is exactly right. There is nothing fair, progressive or just about loading future generations with more debt and the consequences of debt. If we are a responsible political generation in the House, we will take care to ensure that our decisions minimise the impact on future generations.

This country continues to face deep-seated, long-standing economic challenges. The UK underwent an economic trauma between 2008 and 2010, and we are still living with the consequences. As a result of that trauma in those two years, there was a huge destruction of value in the economy, and a destruction of wealth, and we are still recovering from that, even in 2014. Although it is difficult for Opposition parties to admit, the Government have made difficult, challenging decisions and taken practical steps to reduce the deficit and restore stability and order to our national finances, which is the starting point—the foundation—for tackling all the other social and economic issues that the hon. Member for Carmarthen East and Dinefwr and others have begun to raise in the House this afternoon. As a coalition Government, we are ambitious that the emerging economic recovery should be a recovery for all parts of the UK, including Scotland and Wales, and for all people from all walks of life in our country. That is at the heart of our vision of fairness as a coalition Government.

[Mr John Redwood (Wokingham) (Con)]

Does the Minister agree that the socialist remedy is so often to think of tax and regulations to get rid of the rich from London to abroad, and hopeless in thinking of ways of promoting other people to good jobs and success so that they can enjoy and share the prosperity?

[Stephen Crabb]

My right hon. Friend is exactly right. There seems to be a blind spot in the left in that respect. We have begun to discuss fiscal powers for Wales and Scotland, and as that debate continues, what we should see from all the parties in Wales and Scotland are new, creative ideas to increase wealth and incentivise entrepreneurialism in those two challenged parts of the country.

Before I set out what the Government have done to tackle inequality and build a recovery for all, I want to deal with some of the issues that are already starting to be raised in this important debate. On the issue of spending and the necessary cuts to spending that we still have to make, the simple truth is that the previous Government left Britain borrowing more than £400 million every single day to pay for Government spending. As a result of the difficult decisions that we have taken, the deficit is now down by a third and we are borrowing nearly £3,000 less for every hard-working family in the country. However, there is still a long way to go. We are still borrowing around £100 billion a year and paying half that a year in interest just to service our debts, so there remain some difficult and challenging spending decisions further down the line. Whichever party or parties are in government after the next election, they will have to meet those decisions and challenges head on.

--- Later in debate ---

[Stephen Crabb]

We touched on this point during the opening speech of the hon. Member for Carmarthen East and Dinefwr. I remind hon. Members that the most recent gross value added figures show that parts of the United Kingdom far from London are rebounding strongly with growth and starting to narrow some of the economic gap that we are all concerned about.

[Mr Redwood]

I think the Minister could agree that the former Prime Minister and Chancellor was not responsible for Lehman Brothers, but by the same token, should my hon. Friend not remind the House that the right hon. Gentleman was responsible for the competition and banking regulation regime that led to the collapse on his watch of the Scottish banks RBS and HBOS?

[Stephen Crabb]

My right hon. Friend makes the point perfectly well.

It is the firmly held belief of this Government that it must pay to be in work, and we are restoring the incentives to work; restoring the value of work in our society. That is one of the reasons why we have brought in the benefit cap, opposed by the Opposition parties, to ensure that families are always better off in work rather than claiming benefit. We are also increasing the incentives in the tax system, putting money back into the pockets of working people by raising the income tax personal allowance to £10,000, taking 2.7 million people, many of whom are on the lowest wages, out of income tax altogether. In Wales alone, that will benefit 1.2 million workers, taking 130,000 people out of income tax altogether. For the record, in Scotland 2.2 million workers will benefit and 240,000 will be taken out of income tax altogether.

Autumn Statement

Lord Redwood Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

The right hon. Gentleman and I are both looking forward to the Higgs centre at Edinburgh university, which is a reminder of the scientific collaboration that can happen across the entire United Kingdom. We are, of course, incredibly proud of Professor Higgs.

The right hon. Gentleman makes a very good point about oil and gas receipts in the forecast from the entirely independent Office for Budget Responsibility. Its forecast today for the whole of the UK is that oil and gas receipts will be £3.5 billion in 2016. That compares with the £6.8 billion on which the SNP Scottish Government have based their premises and their claims for independence. It is twice as much as the OBR has independently assessed, and that is another example of how they are not being straight with people about the facts in relation to independence. It would of course mean that there was a black hole in an independent Scotland’s public finances that would cost the Scottish people £1,000 each. It is yet another example of how they are not being straight; the independent facts refute their case.

[Mr John Redwood (Wokingham) (Con)]

Will the Chancellor confirm that the independent official forecast shows that the more successful he is in future years in curbing spending and cutting borrowing, the faster the economy will grow, just as America has shown that by cutting the deficit, it can get more growth?