Budget Resolutions and Economic Situation
Jonathan Edwards Excerpts(8 years, 8 months ago)
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Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Diolch yn fawr iawn, Madam Deputy Speaker. It is a pleasure to speak in the debate, and to respond to the Budget on behalf of Plaid Cymru. Of all the commentary I have read in the weeks leading up to the Budget, the piece that by far most struck a chord with me was the article by Paul Mason in The Guardian. As we are all aware, the economic skies are darkening, and the Chancellor admitted as much in his statement. In my view, we are in the third stage of the great recession that hit the global economy in 2008. First came the banking crash in 2008, followed by a crisis in the eurozone, and now we face a major slowdown in the emerging economies, which will prove to be a massive headwind for the global economy.
It is no wonder, therefore, that the Chancellor’s prognosis is far darker than that in his autumn statement of only a few months ago. If a week is a long time in politics, three months is clearly a very long time in economic forecasting. In the OBR’s report, the very first point in the executive summary, point 1.1, states:
“In the short time since our November forecast, economic developments have disappointed and the outlook for the economy and the public finances looks materially weaker.”
That sums up this Budget in one small point. The Chancellor’s economic strategy since 2010 has been built around monetary expansion by the central bank to counteract his fiscal contraction. The major consequence of that has been a failure to rebalance the economy on a sectoral basis. We are even more reliant on consumer spending than we were before 2008; it accounts for two thirds of UK GDP. We are also facing another obvious bubble in house prices.
What we needed in the Budget was an emphasis on exports and business investment. Exports, according to the BBC in the lead-up to the Budget, are 6% down on 2014. Chart 3.35 of the OBR report forecasts that exports will be 36% lower than the UK Government’s aspiration in the 2012 Budget of an increase in their cash value to £1 trillion by 2020. Thirty-six percent below projections is an incredible figure. Business investment, according to the OBR, fell by 2.15% in the last quarter of 2015, and EEF, the manufacturers’ organisation, notes that investment confidence is plummeting. Productivity is chronically low compared with that of G7 competitors, and it is a staggering 18% below pre-recession levels. The trends have again been reversed downwards by the OBR today.
According to Credit Suisse, wealth inequality continues to grow, despite growing evidence that tackling inequality is an economic growth driver.
Margaret Ferrier
The Chancellor stated that the richest 1% are paying 28% of all income tax revenue. What he did not mention is that 26 pence in every £1 of wealth created went to the richest 1%, while only 7 pence went to the poorest 50%, or that the richest 1% increased their collective wealth by 79% over the last 15 years. With that in mind, does the hon. Gentleman agree that the Chancellor was talking nonsense when he said “inequality is down”?
Jonathan Edwards
I am extremely grateful to the hon. Lady for her intervention. We saw today tax measures that will exacerbate those growth inequalities, as highlighted by the former shadow Chancellor, the hon. Member for Nottingham East (Chris Leslie), in his contribution, which was fantastic, if I may say so. The tycoon tax cut in capital gains tax will exacerbate those differences.
That brings me back to Mr Mason. The Chancellor’s biggest crime is that not only has he failed to fix the roof, but he has failed to change the foundations on which the UK economy is built. So much for the rebalancing we were promised. So much for the march of the makers. So much for tackling geographical and individual wealth inequality. The Budget included the much-heralded extra cuts of £3.5 billion in response to the slowdown in projected growth. Those cuts are deemed to be necessary only because of the fiscal mandate and charter, which the Treasury imposed on itself. As we warned at the time, the mandate is a Trojan horse to enforce austerity, and it was very disappointing that Labour party colleagues, even under the current leadership, supported the Tories in the Lobby on that measure. At this point, I should note that even the Institute for Fiscal Studies, in its green budget, was very critical of the mandate and its impact on fiscal policy.
The public continue to be at risk from another catastrophic failure of the banking sector. In my party, we have always maintained that we need to split retail and investment banking. It is interesting that Sir Mervyn King, the former Governor of the Bank of England, and Sir John Vickers, the chair of the Independent Commission on Banking, which was set up following the crash in 2008, have called for greater safeguards and criticised the Treasury for watering down plans to rein in the banks and reduce the risk of a future banking collapse. Given the darkening global economic skies and the possible exposure of London banks to the slowdown in emerging markets, we were very disappointed that there were no measures in the Budget to protect the public from another banking failure.
We are also very disappointed that there was no guarantee in the Budget that Welsh public sector pension assets would be pooled into a Welsh-specific fund for investment in Welsh infrastructure. We have no opposition in principle to the Treasury plans to have five sovereign wealth funds, as it calls them, out of pension assets, but our assets in Wales will clearly be less than the figure that it has set of £25 billion. Our assets are worth about £16 billion. There are huge dangers for us in Wales if our assets are pooled with an English region, because it would mean a lot of that investment would once again flow out of my country.
The Budget completely failed to secure parity for Wales with Northern Ireland and Scotland on fiscal responsibility. There are full corporation tax powers for Northern Ireland and full income tax powers, as well as powers on airport duty tax, for Scotland. Even Labour in Wales is now calling for the devolution of air passenger duty to my country. On two occasions, I have tried to amend the Finance Bill to devolve the tax, and I will return to that when the Finance Bill is introduced in the House. As we say in Wales, tri cynnig i Gymro—three attempts for a Welshman. I hope my Labour colleagues will join me in the Lobby in the next month or so.
The big question is: why does the Treasury continue to treat Wales as a fiscally second-class nation? We need an arm’s length body to deal with such major fiscal and funding issues across the UK. I was very glad to see the recommendations, only yesterday, of the Finance Committee of the National Assembly, under the chairmanship of my colleague Jocelyn Davies, calling for such a body to be set up so that the Treasury loses its ability to manage such vital funding decisions.
We are very happy to see the sugar tax policy in the Budget. I might add that it is a long-held Plaid Cymru policy. It was rubbished at the time by the Labour party and the Conservative party in the National Assembly. We are delighted that our project has become a mainstream one. As always, where Plaid Cymru leads, the other parties will follow.
The announcement on the Severn bridges will gain many headlines in Wales. What the Chancellor neglected to tell the House is that the bridges will of course return to public ownership in 2018. He has in effect announced today the political equivalent of taking a fiver out of somebody’s back pocket, giving them back some change and expecting them to be grateful.
Our other big demand in the Budget was to increase infrastructure spending sharply to at least pre-recession levels—the equivalent of 1% of GDP—which is about £19 billion extra per annum for the UK and £1 billion extra per annum for Wales. The lead-up to the Budget was heavily trailed with announcements about projects for the north of England—primarily HS3 and the proposed Manchester to Sheffield road tunnel, but also Crossrail 2. These multi-billion projects only go to show the Treasury’s failure to ensure fairness for Wales in relation to HS2. The statement of funding policy that came with the comprehensive spending review gave us a 0% rating, whereas Scotland and Northern Ireland both had 100%, which has set a very worrying precedent. I was extremely disappointed that rather than standing up and fighting for our country, the Labour Government in Wales decided to throw in their lot with the Tories on that specific issue, which will come back to haunt us for years to come.
Short Money and Policy Development Grant
Jonathan Edwards Excerpts(8 years, 9 months ago)
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John Penrose
The measures will in due course come to the House for a vote, and rightly so. They will be subject to proper democratic scrutiny in due course, so the hon. Gentleman will have his opportunity to try to persuade others of his point of view, but I again draw a crucial distinction between the provision of public money, funded by taxpayers, who do not have a choice about whether the money goes to political parties, and voluntary political donations made by whoever it may be—individuals or trade unions. In the end, people should have a choice. That is the crucial distinction between those two sources.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Short money and the policy development grant are vital for parties such as mine in developing ideas and policies, which are the vital ingredients of any functioning democracy. If the UK Government are serious about cutting the cost of politics, why do they not reduce the membership of the over-bloated other House?
John Penrose
We are extremely serious about cutting the cost of politics. As you know, Mr Speaker, we have plans to reduce the size of this Chamber from 650 to 600 MPs, as was agreed in the last Parliament. The number of peers is going up, but the cost of the upper House is falling. I am sure the hon. Gentleman will welcome that news and the news that there are ongoing political discussions on a cross-party basis on how other reforms might be effected in the House of Lords.
Bank of England and Financial Services Bill [Lords]
Jonathan Edwards Excerpts(8 years, 10 months ago)
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Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Diolch, Madam Deputy Speaker.
I want to concentrate on four main themes: the issuing of Welsh-specific banknotes, the accountability of the central bank to Wales and her people, the name of the central bank, and the remit of the bank when it comes to setting interest rates.
The Bill aims to provide some flexibility in relation to who can issue sterling banknotes in Scotland and Northern Ireland. Currency issued by banks in Northern Ireland and Scotland is legal, and can be used throughout the United Kingdom. Among the many historic anomalies between Welsh nationhood and the nationhoods of our neighbours is the fact that Wales remains the only nation that is prohibited from producing its own distinctive banknotes. The Royal Mint does produce Welsh-specific coins, so my proposals raise no major issue of principle.
Like other parts of the UK, Wales was once awash with small banks covering relatively small geographical areas which were allowed to issue their own banknotes. The Bank Charter Act 1844 brought an end to Welsh banknotes, and, indeed, to provincial banknotes in England, but that did not apply to Ireland or Scotland. Four banks in Northern Ireland and three in Scotland have the authority to issue their own banknotes provided that they are backed by Bank of England notes.
Plaid Cymru is proposing today that Lloyds Banking Group, which holds the rights to the Bank of Wales brand and which is in part publicly owned—a share is, of course, owned by Welsh taxpayers—should be given the right to issue Welsh banknotes in the same way as is permitted for the three clearing banks in Scotland and the four in Northern Ireland. I believe that such an outcome would give a welcome boost to the Welsh national character, and the recognition of Wales as an equal nation and an economic entity.
In Northern Ireland, Bank of Ireland, Danske Bank—formerly known as Northern Bank—First Trust Bank and Ulster Bank notes are used to celebrate the recognition of individuals such as J.B. Dunlop, Harry Ferguson, Sir S.C Davidson and James Martin, while also celebrating architectural splendour such as that of Belfast City Hall. In Scotland, the Bank of Scotland, Clydesdale Bank and Royal Bank of Scotland are entitled to issue banknotes. They pay tribute to the fantastic bridges of their country, and recognise the contribution of people like Sir Walter Scott and Robbie Burns.
The question that naturally rises, therefore, is this: why can we not similarly issue banknotes in Wales to recognise our historic landmarks such as Castell Carreg Cennen, in my constituency, Pont Menai and Yr Wyddfa, and our historic greats such as Owain Glyndwr, who was nominated the seventh most important person of the last millennium by The Times, David Lloyd George, the originator of the welfare state, Aneurin Bevan, the architect of the NHS, and Gwynfor Evans, the first Plaid Member of Parliament and the father of modern Wales?
Sammy Wilson
Does the hon. Gentleman accept that the downside of having our own banknotes in Northern Ireland is that anyone who tries to pass them on in England is looked on as some kind of conman?
Jonathan Edwards
I am always grateful for interventions from my great friend, who speaks with a huge knowledge of financial matters. Those notes are legal tender and a legal currency, and I think that we need to move forward. The issue was raised with me on television today. The fact is that Scottish and Northern Ireland banknotes can be legally used anywhere in the United Kingdom.
Before I was distracted, I was making the case for some people who might be pictured on Welsh banknotes. A notable case could also be made for what is arguably the most famous Welsh painting of all: “Salem”, painted by Sydney Curnow Vosper in 1908. His painting of Sian Owen aged 71 at Capel Salem, a Baptist Chapel at Pentre Gwynfryn in the north of my country, is a national icon, much as Constable’s “The Hay Wain” is in England.
Notes that are currently used in Wales recognise people including Elizabeth Fry, Charles Darwin, Adam Smith, Matthew Boulton and James Watt. Previous notes have portrayed Charles Dickens, Sir Edward Elgar, Michael Faraday, Sir John Houblon, Sir Isaac Newton, Florence Nightingale, William Shakespeare, George Stephenson, the first Duke of Wellington, and Sir Christopher Wren: all great people, but none, to my knowledge, with any direct link to my country. Many pounds from many Welsh people have contributed to the UK over many years, from the industrial revolution through to the bank bail-outs, and I deem it entirely appropriate that Wales’s contribution and standing within the sterling zone should be recognised. That would put right what appears to be a clear injustice. I pay tribute to the work of my colleague Steffan Lewis on this issue, and I look forward to seeing him take his place in the National Assembly after the elections in May.
On the issue of accountability to my country and to the other devolved Governments, I want to put forward proposals in the spirit of the so-called partnership of equals, as it was labelled by the Prime Minister and the Unionist campaign during the recent Scottish independence referendum. The British state is rapidly changing as power and responsibility flow from Westminster to the devolved countries, although the pace is perhaps not as quick as someone like me would want. It is undeniable that the UK is now a vastly different place from the one it was 20 years ago. Central to recent developments has been the increasing fiscal devolution to Scotland, Northern Ireland and even Wales. The Scotland Act 2012 fully devolves income tax, and Northern Ireland has recently been awarded full powers over corporation tax. Wales, as always, is in the slow lane, but even we will soon have an income tax sharing arrangement, if the draft Wales Bill reaches the statute book.
Measures relating to major fiscal levers are flowing from the Treasury in London to the devolved countries. This increases the political accountability of the devolved Governments to their respective electorates and, critically, incentivises those Governments to boost economic performance in order to invest in public services. The co-ordination of monetary and fiscal policy is vital in any economic policy. I understand that the central bank is politically independent, but there is obvious co-ordination between the Treasury and the central bank. Similar protocols and links need to be developed with the Welsh, Scottish and Northern Irish Exchequers. The national Parliaments should nominate a member to serve on the Monetary Policy Committee to ensure that those involved in the interest rate setting process have an understanding of economic conditions and events in Wales, Scotland and Northern Ireland. All MPC members are currently either bank staff or nominated by the Treasury. My proposal should also apply to the Financial Policy Committee and the soon-to-be-implemented Prudential Regulation Committee, which will be created by the Bill.
Political scrutiny of monetary policy remains the preserve of Westminster despite increasing fiscal decision making at devolved levels. Although we are not privy to the meetings between Treasury Ministers and the Governor and his senior team, we can safely assume that those meetings are frequent. On top of that, in regard to parliamentary scrutiny, the Governor and his team meet the Treasury Select Committee here at Westminster at least five times a year. Considering the fiscal powers that have been devolved or are in the process of being devolved, I would hope that the central bank agrees that it is in its interests to strengthen relations with the devolved Governments and Parliaments. I am not aware of any formal structures for meetings between the Governor and Ministers of the devolved Governments. In the interest of mutual respect, those structures need to be formalised.
In addition, I strongly believe that the Governor should attend a meeting of the relevant economic committee of the devolved Parliaments at least once a year. Evidence sessions of that sort would be vital in helping political parties in the devolved Administrations to formulate their own fiscal policy and would recognise the reality that fiscal and economic policy is no longer the sole preserve of Westminster when it comes to Wales, Scotland and Northern Ireland.
A further issue is the name of the central bank, currently named the Bank of England. It is a contentious issue for me as a proud Welshman that the central bank that decides monetary policy in my country is named after another country. The Bank of England was created in 1694 before the present British state was constructed. Wales was annexed in 1536, Scotland in 1707 and Ireland in 1801. The central bank was therefore created to serve a political entity that consisted only of Wales and England. If the British state is a partnership of equals, all its institutions must reflect that reality, including perhaps the most important institution underpinning its financial system: the central bank. If it would be helpful to the Minister, I have a suggestion, which is to rename the Bank of England the “Sterling Central Bank”. This would reflect the fiscal and political reality we live in, and it would show that those in this place genuinely believe in the respect agenda and a partnership of equals.
I am very interested in the emerging debate on changing the remit of the MPC in regard to setting interest rates. The MPC is specifically charged with keeping an inflation target of 2%. Other central banks such as the US Federal Reserve have a dual mandate which goes beyond price stability. In 1977, the US Congress amended the 1913 Federal Reserve Act and mandated the central bank to achieve long-term moderate interest rates and, critically, maximum employment, in addition to reaching inflation targets. As the Bill progresses, I hope to return to these themes in more detail. I would also be more than happy to support the amendments tabled by Labour and the SNP when it comes to the vote.
The Economy
Jonathan Edwards Excerpts(9 years ago)
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Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The Chancellor is known for being a very political operator. Economic historians will pay tribute to the manner in which, following the 2010 election, he successfully framed the economic debate by focusing on the deficit. This enabled the Conservative party to challenge the economic competence of its predecessors while also allowing it the political space to pursue its ideological obsession with reducing the size of the state. The Chancellor has endeavoured to portray the economic recovery as one made in No. 11 Downing street. This ignores the fact that the last recession was the longest in economic history and was most certainly exacerbated by the deep contraction in public spending at the beginning of the last Parliament.
What is often conveniently ignored in debates such as this is the role of monetary policy. As I have said in the past, the UK economy continues to be on the life support of ultra-loose monetary policy. Central bank interest rates continue to be at an historically low level of 0.5% and the economy has been kept afloat with £375 billion-worth of quantitative easing. One of the perverse side-effects of QE has been to increase wealth inequalities as assets increase in value, a theme I will return to later. Monetary policy by the central bank filled the void left by the Treasury’s fiscal cuts, but it has led to a greater imbalance in the UK economy, where economic performance is now even more reliant on consumer spending, as opposed to public investment, exports and business investment. According to the House of Commons Library, household consumption now accounts for over 60% of the UK economy, and it should be an urgent Treasury priority to rebalance and boost business investment and exports.
The Bank for International Settlements—or, to give it its other name, the central bank of central banks—has warned that the danger with the current ultra-loose monetary policy is that the western economies will become hooked on low interest rates and that any normalisation will lead to significant economic headwinds. In other words, there is a danger that the abnormal in monetary policy will become the new norm. The obvious consequence, if there is no normalisation of monetary policy, is that the central bank will be impotent when the next downturn comes. Let us remember that, since the second world war, the average economic cycle has lasted between seven and 10 years, which means that we might be due another downturn very soon.
Jeremy Quin
I am not certain what the hon. Gentleman is asking for. Is he suggesting that we should be hiking interest rates now? No one likes the extent of unconventional monetary policy, but hiking interest rates would come as a shock to many.
Jonathan Edwards
I am grateful to the hon. Gentleman for that intervention, because I was about to make the point that the Treasury needs to be very careful with our fiscal policy.
A study by Credit Suisse shows that since the turn of the century the UK has been alone among the G7 members in seeing its wealth inequality grow. Even the International Monetary Fund argues that reducing wealth inequalities is a key economic growth strategy. Unfortunately, the recent Budget, with its assault on tax credits, is likely to lead to an increase in income inequalities and wealth inequalities. Considering the pressure faced by the public finances and the cuts being imposed on support for the poorest in society, we oppose the intention to end inheritance tax on family homes worth up to £1 million. Inheritance tax raised more than £4 billion in 2015-16 and it should be an important element of a more balanced approach to fiscal consolidation, as opposed to the Tory obsession with cuts. The decision to scrap maintenance grants for the poorest students at the same time as introducing the regressive changes to inheritance tax will not solve the major social mobility problems in the UK.
The Chancellor has eased what the Office for Budget Responsibility had described as a “rollercoaster” fiscal policy, whereby cuts would be front-loaded, with a spending splurge at the end of the political cycle. However, spending on public services by the end of this Parliament as a percentage of GDP will be at its lowest level since 1964-65, according to the OBR.
The economy faces several major challenges. The first involves the grotesque geographical wealth inequalities within the British state and the over-reliance on London and the south-east of England. This problem has built up under successive Governments, to the degree that the UK is now by far the most unequal state in the European Union. Regrettably, the communities I represent are at the bottom of the pile. To be fair, the current UK Government at least acknowledge that there is an issue. Their response has been to devolve significant taxation powers to Northern Ireland and Scotland, which have received powers over corporation tax and full income tax powers respectively. Significant powers are also being devolved to English city regions.
In the case of Wales, however, we are getting minor taxes and an income tax sharing arrangement pending a referendum many years down the line. The key question that the UK Government need to answer is this: what economic disadvantage do they envisage Wales facing as a result of our second-class settlement? Direct economic control from Westminster is clearly failing my country. We deserve equal respect with the other constituent parts of the UK and we need the same job creation levers that are being devolved elsewhere.
Secondly, the UK faces major challenges in relation to chronic levels of business investment and productivity. The Treasury Budget briefing note itself acknowledges that business investment levels in the UK are the worst of all major economies apart from Italy. To address this, the Treasury needs to return infrastructure investment to pre-recession levels, as advocated by the IMF. That would equate to around an extra 1% of GDP—£19 billion of extra investment across the UK with a share for Wales of around £1 billion. That is what we will be looking for when the Chancellor stands up next week to deliver his comprehensive spending review in his autumn statement.
Finance Bill
Jonathan Edwards Excerpts(9 years, 1 month ago)
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Mr Gauke
It certainly is the case that there has been no shortage of representations received by the Treasury on the changes we have undertaken in this area. As always, it is necessary to strike a balance between ensuring we move swiftly to address any risk to the Exchequer and ensuring the legislation is adequate and achieves what the Government seek. I am satisfied that in these circumstances we have struck that balance successfully, and that there has been the opportunity to understand the implications of this legislation while at the same time ensuring we have been able to protect the Exchequer.
While I am on my feet, and perhaps to anticipate some of the points that will be made on this somewhat diverse group, I shall address the related matter of new clause 3 tabled by Scottish National party Members. It proposes a review within six months of Royal Assent on the tax treatment of investment fund managers’ remuneration. Legislating for a review in six months is unnecessary. The Government have already launched a consultation in this area to ensure rewards will be charged to income tax when it is correct they are, according to the activity of the fund. That consultation closed on 30 September and we will be publishing our response along with any resulting draft legislation in due course.
In anticipation of remarks I know we will hear from the hon. Member for Salford and Eccles (Rebecca Long Bailey) about vehicle excise duty, let me also turn to amendments 91 to 93. They would require the Chancellor to replace the changes made by clause 42 and introduce a new VED system that addressed none of the challenges of the current VED system. The amendments call for first year rates of VED to be extended to cover the first three years of ownership and thereafter for rates to be based on a shallower graduation of CO2. By continuing to base annual rates of VED on CO2, these amendments would recreate the sustainability challenge of the existing VED system. As new cars become more fuel efficient, more and more ordinary cars will fall into the lower rate of VED bands for their entire lifetime. The changes would also weaken incentives for people to purchase the very cleanest cars. The system Opposition Members propose would therefore need updating regularly to keep pace with technological change. Unless Opposition Members are proposing to retrospectively tax motorists every time the system needs tweaking, an entirely new VED system would need to be created each time. This would create uncertainty for motorists and car manufacturers, something they have repeatedly asked the Government to avoid. These amendments would also mean the VED system remains regressive and unfair for motorists. Poorer families with older, less fuel-efficient cars would still end up paying more tax than richer ones who were able to buy a new car every few years.
In contrast to amendments 91 to 93, the changes made by clause 42 do address the fairness and sustainability problems of the current VED system. These changes base annual rates of VED on a flat rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth above £40,000 to apply for the first five years in which the standard rate is paid. These changes improve fairness for all motorists and ensure that those with expensive cars pay more than those with ordinary family cars. Those who can pay more will pay more.
They also provide long-term certainty in VED revenues. This supports the creation of the new roads fund so that from 2020 all revenue raised from VED in England will go into the fund. It will be invested directly back into the English strategic road network. The changes made by clause 42 still support uptake of the cleanest cars. They maintain and strengthen the environmental signal where it is most effective in influencing people’s choice of car in the highly visible first-year rates.
By returning VED to a flat rate while continuing to support the cleanest cars, clause 42 provides a simple, fairer, more certain and more sustainable long-term solution. It allows for the creation of a new roads fund which will ensure that our roads network will receive the multi-billion programme of investment it needs. I commend clause 42 and urge the house to reject amendments 91 to 93.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
How will the roads fund work when applied to Wales, Scotland and Northern Ireland, with the duty coming from Welsh, Scottish and Northern Irish car taxes?
Mr Gauke
I can assure the hon. Gentleman that the Government are talking to the devolved Administrations about exactly how we are going to do that. We are conscious that these are devolved matters, and we are actively engaged with the devolved Administrations.
I hope that the new clauses and amendments to which I referred earlier in the context of the enterprise investment scheme, venture capital trusts, corporation tax instalment payments and restitution interest payments will be able to stand part of the Bill and have the support of the whole House.
Jonathan Edwards
If there is any evidence in future years of significant behavioural changes, which some of us are concerned there might be, would the Government be willing to revise their position?
Mr Gauke
The Government and the Treasury keep all taxes under review, and were contrary evidence to emerge, we would of course look at it and, if necessary, adapt the policy. We have, however, made a judgment on the evidence before us, and consumer research demonstrates that first-year incentives are by far the most important when customers come to choose new cars.
The hon. Member for Salford and Eccles asked why the Government are now taxing plug-in and hybrid vehicles the same as conventionally fuelled cars. Such cars will still benefit from cheaper rates. The updated CO2 banding on first-year rates in the new VED system will strengthen the incentive to purchase the cleanest cars, including plug-in and hybrid vehicles. As I have said, the evidence suggests that up-front incentives are the most effective in influencing behaviour. We will continue to support hybrids and plug-in vehicles with beneficial rates of company car tax and enhanced capital allowances, as well as through the plug-in car grant. The Government have guaranteed that £5,000 grant until February 2016.
Our longer-term plan will be announced after the spending review. To drive down carbon emissions and air pollutants, we will give the greatest incentives to zero-emission cars—those that produce no air pollution or CO2 whenever they are driven—which pay no VAT.
Rob Marris
I agree that it sometimes seems that the policies of this Government are not only to shrink the state, but to give to those who already have and take away from those who have not, for example in terms of tax credits. I will not be drawn by my hon. Friend on the subject of tax credits, but it does seem a rum state of affairs. It is the sort of thing that drew people like me to join the Labour party, to fight for that kind of equality and to fight against regressive taxation.
Jonathan Edwards
The hon. Gentleman has been inviting interventions on this issue. On new clause 9, why has he tied in the holy grail of a Budget surplus with asking for a review? As he has said, the Government proposals in the Finance Bill will make it more difficult to reach a Budget surplus.
Rob Marris
That is in the interests of having some clarity as to when this should kick-in. The Government could do it now if they chose. They do not need primary legislation to do it, but the proposal for a review of inheritance tax is in the context of the Government now being five years behind the original projections made by the current Chancellor as to when we will be in surplus. We are giving the Chancellor a lot of latitude now. We hoped that there would not be draconian cuts, which are now being planned by the Government, to public spending and that we could, through adopting a growth strategy, get to a Budget surplus with no deficit earlier than 2019-20, but I fear we will not do so. So a review now is fine, but Labour Members are reasonable people and we are giving the Government lots of latitude. They ought to think again on this regressive tax, as on others.
Air Passenger Duty: Regional Airports
Jonathan Edwards Excerpts(9 years, 1 month ago)
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Julian Knight
The right hon. Gentleman highlights an issue to do not only with his own airport but the wider UK aviation industry. Both Derry airport—also in Northern Ireland—and Cambridge airport in England claim that they are being prevented from expanding their services by APD. My argument is that the hub status of the major London airports, in particular Heathrow, allows them more easily to absorb the shock of air passenger duty, but that is not the case for some of the regional airports.
There have of course been successes in attracting new long-haul routes to Birmingham, for example. We have Air India now flying its routes to Delhi and Amritsar daily; American Airlines has begun daily flights to JFK, alongside the daily flight to Newark—that is not Nottinghamshire; Emirates has launched a third daily flight to Dubai; and this summer Hainan Airlines operated 34 twice-weekly flights between Birmingham and Beijing.
As was made clear to me in my recent meetings with the Ontario Teachers Pension Plan, which owns Birmingham airport and is a responsible trustee, my local airport would love to have a regular direct flight between the UK and China week in, week out, rather than only for the summer, and it is a real failing that in the week in which the Chinese President is visiting we do not have a regular scheduled flight between the UK’s second city and Beijing. We cannot separate the issue of APD and devolution, which is a central plank of the Government’s approach to reforming and reinvigorating the UK economy.
It is hugely important that the fruits of growth that come from devolution extend to our connectivity as well. That must include greater use of our regional airports for short and long-haul flights.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
I, too, congratulate the hon. Gentleman on securing this important debate. We have a strange situation in Wales. The Welsh Government own our own national airport, but the UK Government will not devolve APD to them so that they may utilise their asset. Does he agree that that is a slightly strange situation?
Julian Knight
I thank the hon. Gentleman for his contribution. I am about to turn to those particular points.
Danny Kinahan (South Antrim) (UUP)
I thank the hon. Member for Solihull (Julian Knight) for securing the debate. Belfast international airport is in my constituency. It employs some 4,000 people—a huge number, given the Northern Irish economy—and helps some 200 businesses nearby. It is phenomenally important, just as Belfast city airport is, which is only 20 minutes away, and Londonderry, an hour away. As we have heard, Northern Ireland needs its connections, especially by air, because everything else is slow. While other hon. Members have the benefit of rail and roads in their constituencies, if we take them it is either through Scotland and down, or through Dublin and across. It is long-distance, so the only way to do things economically and quickly is to fly. Air travel is therefore vital to us.
Figures that I was given a year ago show that 47% of passengers going to Dublin airport are from Northern Ireland. I was recently told that the figure is now 52%, so we are draining our population, who are disappearing to travel because of three things: air passenger duty, good roads in Ireland that mean people can get to the airport quickly, and the fact that they are going to a hub that takes them to the rest of the world. The other alternatives include Manchester and Birmingham. Air passenger duty, therefore, is one of the three things that we are really asking the Government to tackle and remove. The point was well made by others about the impact on the less well-off who want to travel. We are adding more than £100 to the travel costs of a family of four. That is sometimes more than the ticket itself, if they have booked early enough. We need to review this.
I am nervous hearing hon. Members talk about different levels of air passenger duty in different parts of the United Kingdom, just as I am nervous about all the matters that break up the Union. Although we want the freedom to travel, we have to be very careful, or all we will end up doing is stealing our own labour forces from one another.
Jonathan Edwards
On that point, does the hon. Gentleman therefore oppose the move to devolve corporation tax to Northern Ireland?
Danny Kinahan
No. I like the fact of corporation tax. I have just said that we have to be careful, so I am being careful on that matter. We need to find the right balances that work between us. That is why I want to see an all-party group on the Union, so that we can talk through these ideas.
Tourism in Northern Ireland is run by Tourism Ireland, which runs it all from an all-Ireland basis, focusing only on tourism in Northern Ireland. So if Ireland decides as part of its rail policy to put in a direct line from Dublin to its airport, making it easier to get there, that is not part of the tourism policy that we have a say in, and it further damages our economic chances. I am told that, as a result of the block grant in Northern Ireland, if we lost air passenger duty and had to pay for it there would be a staggering cost of £55 million. I would love to know the details behind that. Yet I am also told that Belfast international airport thinks that if we got rid of air passenger duty, it could bring in 5,000 jobs and some £5 million. That should open up the whole economy to working better, which is what we want to see.
I want to mention one rather dour side of this: our way out of the troubles in Northern Ireland in the past was a thriving economy, with people travelling the world and seeing how other things work. We want everyone to travel. We want them to come home and to bring back ideas. Air passenger duty is severely damaging us, and we therefore want to see it removed. Even if it is removed in stages, can we at least start to look at that? We want to see Northern Ireland open for business, just as we want to see the United Kingdom open for business.
Rebecca Long Bailey (Salford and Eccles) (Lab)
It is a pleasure to serve under your chairmanship, Sir David, especially since this is my first speech as shadow Exchequer Secretary to the Treasury. I am pleased to be working with the Financial Secretary to the Treasury today; no doubt we will spar together on other occasions. I offer my thanks and congratulations to the hon. Member for Solihull (Julian Knight) on securing an important debate on a topic that is of concern to me not only in my capacity as shadow Exchequer Secretary, but because my constituency will be affected.
I thank the hon. Members who spoke in the debate. The hon. Member for Central Ayrshire (Dr Whitford) gave a passionate account of the impact that air passenger duty has on her local airport, Prestwick. The hon. Member for Fylde (Mark Menzies) spoke about the plight of Blackpool airport, especially in the light of its closure not so long ago and its struggle to get back on its feet. My hon. Friend the Member for Blackley and Broughton (Graham Stringer) rightly questioned the future viability of APD generally. The hon. Member for Strangford (Jim Shannon) made some important points about how Belfast has suffered in its competition with Dublin airport. The right hon. Member for Meriden (Mrs Spelman) highlighted the fact that the time for debate is now: it is an important issue and we need to get a grip on it quickly. The hon. Member for South Antrim (Danny Kinahan) made some fantastic points relating to Northern Ireland, and there were also fantastic contributions from the hon. Members for Kilmarnock and Loudoun (Alan Brown) and for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry).
Air passenger duty was highlighted in recommendations by the Smith commission. I reiterate my party’s support for the implementation of the commission’s recommendations as set out in the Scotland Bill. Inevitably, that will have consequences, but that should not undermine the principle of devolution for Scotland, and indeed Wales and Northern Ireland. That said, we cannot escape the fact that the Scottish Government’s anticipated reduction of air passenger duty by 50% in the next five years and their intention to abolish it altogether when finances allow are predicted to have a significant effect on regional airports in England, especially those close to the border. HMRC research conducted in 2012 suggested that the number of passengers using Newcastle airport would decline by 10% the short term, and that Manchester, the closest airport to my constituency, would lose almost 5%.
My hon. Friend the Member for Blackley and Broughton, whose constituency neighbours mine, cited evidence in a previous debate on this issue that if one easyJet and one Ryanair flight were moved from Manchester to Glasgow, the Treasury would lose £2.9 million and 450 jobs would be lost in Manchester. That is of course a forecast, but we can already see the effects of variable rates of air passenger duty by examining the situation in Northern Ireland. Belfast International has suggested that it loses between 570,000 and 1.5 million passengers a year to Dublin airport, where no APD is levied. Dublin airport has run a marketing campaign specifically targeted at attracting Northern Ireland passengers, and in 2013 the number of passengers from Northern Ireland using Dublin airport increased by 12%. With the possibility of powers to determine APD rates being devolved to Wales in due course, the issue is set to have an impact not only on airports in the north of England, but on those in the south-west.
Jonathan Edwards
As the hon. Lady has mentioned my beloved homeland, will she confirm that it is now the policy of the Labour party to support the devolution of APD to Wales? Previously—I appreciate that it was before the hon. Lady was elected to the House—the Labour party abstained on such votes on Finance Bills. I should be grateful for clarification, because that would be quite a shift in her party’s policy.
Rebecca Long Bailey
I shall come on to my party’s position in due course.
I was saying that the possibility of powers to determine APD being devolved to Wales could lead to an impact on airports in the north of England and the south-west. York Aviation has predicted that, with Cardiff airport no longer subject to air passenger duty, Bristol airport would lose 440,000 passengers, up to 33 routes, 1,500 jobs and more than £800 million from local GDP. That concern has been cemented by a warning from Ryanair’s commercial chief that the company could double its profits per passenger by flying from Cardiff instead, should APD rates be set to zero there. It is therefore clear that the devolution of powers to set air passenger duty will have a profound effect on England’s regional airports, so I am glad that the Conservatives heeded the advice of my colleagues the then shadow Chancellor Ed Balls and my hon. Friends the Members for Streatham (Mr Umunna) and for Barnsley East (Michael Dugher) when they wrote to the Government in September last year, calling on the Treasury to start work on a mechanism to prevent English regional airports from being disadvantaged by devolution to Scotland or anywhere else.
I welcome the Government’s publication of a discussion paper outlining three possible options for tackling the issues affecting our regional airports. I have a few specific concerns about the consultation, on which I am sure the Minister will be able to put me at ease, but first I ask the Minister for an update on the progress of the consultation as a whole. It is my understanding that the closing date for submissions was 8 September, but as yet there has been no published evidence and no conclusions from the Government. Will the Minister say when the Government’s response will be published? More specifically, one solution discussed in the paper is to devolve the power to set rates of air passenger duty to local or combined authorities, either partially or fully. That seems to have implications for our compliance with EU state aid rules. The Labour party supports reform of the EU state aid rules, which would be a much better subject for renegotiation that those chosen by the Prime Minister. None the less, the current rules will apply.
One problem is that the Government cannot vary national tax rates in a way that is more favourable to specific regions. For that reason funding for the relevant local authority would be reduced by the full value of air passenger duty receipts in that area. HMRC research indicates that full devolution to a local authority containing one medium-sized airport would require a staggering reduction in funding of £45 million a year. The point of devolving the powers is to allow regional airports to avoid undercutting by rivals. Can the Minister confirm that under that option a local authority that took that course would receive no extra funding from central Government and would have to deal with a cut of £45 million? He will understand our concern that even the devolution package the Chancellor proposes will not contain much in the way of revenue-raising powers, nor anything like the scope that the devolved Administrations have to make savings elsewhere. Also, does he share my concern that if local authorities are able to set their own levels of APD, it will start a race to the bottom, which, taken to its logical conclusion, would result in an overall loss to the Treasury of £3.2 billion?
Mr Gauke
The Government have made significant progress on the devolution of taxes generally. The hon. Gentleman will be aware of the announcement made by the Chancellor of the Exchequer on the retention of business rates, for example. I know that business rates are already devolved in Scotland, but allowing English local authorities to retain business rates is an example whereby through aligning incentives, as it were, we can create the conditions for economic growth in every part of the United Kingdom.
I will deal with the specific points on APD in a moment, but first let me address the issue of the regional airports review, because, as part of that review, the Government published a discussion paper at the summer Budget this year. The paper explored three potential options for supporting regional airports affected by devolution: the first was devolving APD to regions within England; the second was varying APD rates within England; and the third was providing aid to regional airports.
The paper explored how the options could work and highlighted key points for consideration. The period for feedback on the options is now closed. We received a large number of responses and would like to thank all interested parties for their valuable responses to that consultation. We are carefully considering the views and evidence that we have received. We appreciate that the aviation industry values stability and certainty in the UK tax system and we will respond to the views expressed on the options in the discussion paper in due course. The response will set out how the Government wish to take the matter forward.
Jonathan Edwards
The Government have devolved APD to Northern Ireland and Scotland. The draft Wales Bill, published today, is glaring in its omission of any mention of APD being devolved to Wales. Is there a reason why the Government are rolling back on devolving APD to Wales?
Mr Gauke
I refer the hon. Gentleman to the remarks that I made a few moments ago. In accordance with the St David’s day package, we are considering the case and options for devolving air passenger duty to Wales. That consideration is ongoing. Once a conclusion has been reached, I am sure that he will be looking very closely at our response.
If I may, I will respond to some points that have been made in this afternoon’s debate. The hon. Member for Blackley and Broughton (Graham Stringer) raised the issue of whether APD is a good tax or whether we should just scrap it. It is worth bearing in mind that it raises £3.2 billion each year, which is an important part of the Government’s overall revenues. We consider that APD is a fair and efficient tax that ensures that the aviation sector contributes to the public finances. The amount of tax paid by people who can afford business class travel or luxury jets is much more than that paid by a passenger going to the same destination in economy class.
In recent years, we have reduced long-haul rates of APD and frozen short-haul rates for five years, and we are exempting children. APD is the main way in which the aviation sector is taxed. International treaty agreement means that there is no tax on international aviation fuel and no VAT on international flights. Unlike many countries, the UK does not charge VAT on domestic flights. It is also worth pointing out that the aviation sector is performing strongly. Passenger numbers grew by 4% in 2014 compared with 2013.
My hon. Friend the Member for Crawley (Henry Smith) referred in an intervention to a PwC report arguing that abolishing APD would boost GDP, create jobs and pay for itself. We do not agree with the assumptions behind the 2013 and 2015 PwC reports on APD. Our view remains that abolition would have a limited effect on GDP and cause a net loss of tax receipts. As I said, APD makes a contribution towards the public finances. Abolishing it would put pressure on the Government to increase less efficient and more regressive taxes.
Charter for Budget Responsibility
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Matt Warman (Boston and Skegness) (Con)
In the course of the election campaign, my Conservative colleagues and I spent a great deal of time talking about a long-term economic plan. I did not know at the time that “long-term” meant anything longer than two weeks, but now we know. Tonight, I hope that we will see this, as I know the people of Boston and Skegness do, as the culmination of a policy made possible only by economic credibility. It is only with such policies that more people are in work than ever before, and that more people from workless households are coming into employment than ever before. In Lincolnshire, we see money going to revive deprived coastal areas such as mine in Skegness. We see the fruits of an economic plan coming on stream.
I hope that, with this policy tonight, we will see a genuine commitment that will be supported by Governments of all stripes throughout the future to making sure that we not only fix the roof when the sun is shining, but make sure we do not run the obscene surpluses—sorry, deficits—that caused so much damage in the past.
Matt Warman
I am afraid that this is a time-limited debate. In the little time I have remaining, I want to emphasise that it is not a ludicrous ambition to have a target for a public sector surplus, as Opposition Members suggest. With economic credibility, it is possible and sensible to do so. In fact, for a credible Government, it should be the only option available.
Matt Warman
I am afraid that I cannot give way.
I would like colleagues not just from the Conservative side of the House but from both sides of the House to accept that this policy will not just put us on a sustainable economic footing for the future, but make sure that that sustainable economic footing is locked into this House’s legislation. The hon. Member for Bassetlaw (John Mann) said that it was not right to put what he calls “a gimmick” into legislation, but surely it is right to lock in responsible behaviour, given that we know that that was not the case under previous Governments.
I hope that the House is able to agree that what we can do through legislation is to make sure that only an economically credible policy is the one that a sensible Government is able to offer. With that, I know that the people of Lincolnshire and, I hope, Members from across the House and people across this country understand that economic credibility must to be the defining characteristic of any Government. It is certainly the defining characteristic of this one.
National Insurance Contributions (Rate Ceilings) Bill
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Kelvin Hopkins
I can only refer the hon. Gentleman to the excellent article by the economist Ben Chu, which goes into detail showing why Labour was not to blame and was not responsible. The crisis caused the deficits, but if we had not recapitalised the banks, where would we be now?
Let me go back to the instability mentioned by the hon. Member for North West Hampshire (Kit Malthouse), who is no longer in his place. He talked about businesses wanting stability. Instability arises because of the globalisation of financial markets. Before 1979, we managed financial markets with exchange controls. The breakdown of the Bretton Woods agreement is what caused the problems.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Gentleman is completely right to say that this is purely a gimmick by the Government. There is no need for a legislative vehicle to enact this policy; the announcement could be made in a Budget statement or an autumn statement, as appropriate. Does he agree that, if the Government were serious about helping working people, and people on low incomes in particular, they would increase the threshold at which national insurance contributions kick in to the level of personal allowances for income tax, rather than implementing the pure gimmick of this Bill?
Kelvin Hopkins
That would certainly be one way of dealing with it, but I think that not cutting tax credits, which are coming up for debate this afternoon, would be a much more important way of helping people on low incomes. We should certainly do that.
Greece
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Mr Osborne
My right hon. Friend has made a very good observation. The people who suffer when Governments get their economic policies wrong are often the poorest in the countries concerned. Sadly, we know that to our cost, given what happened in this country five or six years ago.
My right hon. Friend has also made a good point about the sustainability of debt repayments and the like. One of the big challenges that are looming is the repayment that is due to the European Central Bank. The discussion between Greece and its creditors has always been about ensuring that Greece pays what it owes but pays in a way that it can afford, and ensuring that it can grow its economy and undertake the structural reforms that are necessary to sustain its repayments. Indeed, that is an element of the discussion that is taking place now.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
In 1934, following the great depression, most of Europe’s Governments had a significant amount of their liabilities written off for good. In the case of the United Kingdom, that was about 25% of its debt. We have already heard about the London debt agreement of 1953 in relation to Germany. Is it not the case that, as The Daily Telegraph reported in February, debt write-offs are not unusual at times of crisis, and does that not indicate that crippling austerity is not the only way forward for Greece?
Mr Osborne
Debt sustainability is clearly one of the big issues for the Greek Government, but—and this, I believe, was also true of the discussions that took place in the 1950s—there must also be some agreement on the creditors’ part that economic reforms are in place that will allow the country to grow and thrive in the future. At present, the two sides cannot agree. The Greeks want the restructuring, while the eurozone wants more conditionality, and more evidence of the structural reforms that it believes will help the Greek economy to grow. What we are doing is urging the two sides to try to reach some kind of agreement.