Finance (No. 2) Bill

Kelvin Hopkins Excerpts

Tuesday 1st April 2014 Commons Chamber

[Jacob Rees-Mogg]

That does not follow. It is like looking at the weather forecast on the BBC and saying that it is the fault of the newsreader if the weather then turns out to be different. The two are not the same. The forecasts were made in good faith, based on what was known of the global economy at the time. But of course, things change and responses are different. The global economy continued to be relatively sluggish, but the figures that have been achieved by the Government are enormously respectable. There has been economic growth pretty much since 2010 and, most importantly, in the past couple of years. Everyone knows that economic policies have a long-term impact. If a Government come to office in May 2010, we cannot expect the figures in June 2010 to be the result of that Government’s policies—there is inevitably a lag. The effects, as we have seen, have been positive; the economy is now growing, and growing increasingly strongly.

The problem that the Government faced when they came to office was severe. The deficit in 2009-10 was 11.2% of GDP, falling to 10% of GDP in 2010-11. That is not the structural deficit but the actual real money deficit. I happen to think that is a much better figure than the structural deficit, which is to some extent speculative, as economists try to work out what is structural and what is not. If we deal with actual fact, the figure was minus 11.2% in the last year of the socialists, falling very slightly to minus 10% in the first year of the coalition.

The reason the deficit was so high was of course in part the global financial crisis, but it was also because Government spending was simply too high. It had reached 47.4% of GDP in 2009-10, when revenue was only 36.2% of GDP. That latter figure for tax revenue ought not to be any surprise. One of the most remarkable things about this series of figures, going right the way back to Harold Wilson’s prime ministership, is that Governments find it incredibly difficult to get much more than 37% of GDP in taxation. It is interesting that, since 2010, although the Government have increased taxation and the tax take has gone up from 36.2% to 37.4%, the amount has not risen as much as was anticipated. The reason is that it is actually very hard to tax much more than 37% from an economy.

[Kelvin Hopkins (Luton North) (Lab)]

In Scandinavia, tax receipts in previous years have been much higher than 37%.

[Jacob Rees-Mogg]

Indeed they are in France as well, but in our economy there seems to be a resistance at about that level. It is almost unprecedented to get much over 38%. That has been managed in two years out of the past 40. That may tell us something about our society, about the willingness to pay tax and the incentives when tax rates are set. A realistic Government therefore need to think of public spending levels of around 37%, which is the level that can actually be afforded through ordinary taxation.

[Kelvin Hopkins]

Does the hon. Gentleman know how much of that situation is due to the abolition of exchange controls when Mrs Thatcher first came to office, and the fact that we now have an enormous tax gap because of tax avoidance and tax evasion, much of it overseas?

[Jacob Rees-Mogg]

The calculation from the removal of exchange controls is not one that I know or would be able to make. The effect of their removal has been to create a much larger economy for the United Kingdom, so we are talking about 37% of a larger pie rather than getting a higher rate in a closed economy. However, it is worth bearing in mind that in the years before exchange controls were lifted in 1979 we still were not getting a tax take of more than 38% of the economy. The series goes back longer than the abolition of exchange controls.

I part company from the Government to some degree on the question of tax avoidance and tax evasion. It is measurably important not to elide the two. Tax avoidance is perfectly legal—indeed, the Government come up with schemes in every Budget to encourage it. One example is saving for pensions—that is tax avoidance on people’s income. ISAs are a form of tax avoidance, as is duty free. In the Budget and the Finance Bill there are schemes for investing in films and television programmes that actively encourage tax avoidance. Such schemes become part of Government policy for growing the economy.

Governments then get very upset when people use the tax avoidance schemes, which the Government themselves have put into legislation, for purposes that the Government had not thought of. That strikes me as a fault of the legislative process and an incompetence of the legislators—I am sorry to say, Mr Deputy Speaker, that it is our fault—for allowing such loopholes. It is not the fault of the taxpayer for using them. Any sensible, intelligent taxpayer will pay the minimum amount of tax that is legally required. To elide avoidance and evasion is, I think, against the rule of law: it undermines the rule of law by pretending that something that is innocent is nefarious.

It is important to crack down on tax evasion, which is rank criminality, but the Government should not take excessive measures against that which is legal. Instead, they should write simple tax law because, to go back to the point I was making, Governments manage regularly to raise 37% of GDP in taxation almost regardless of the taxes they levy—they change a tax here and a tax there, but still get roughly 37% of GDP. Simple tax laws can probably get us to that level without the need for complex anti-avoidance legislation that undermines the rule of law. That is the one part of the Bill about which I have my doubts.

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[Jacob Rees-Mogg]

Without being too hard on that specific case, I am clear that some of the cases reported as tax avoidance were tax evasion, and HMRC has taken on some of them successfully. I absolutely agree that it is right for HMRC to challenge schemes to see whether they are, in fact, evasion. Most of the schemes that gave extraordinary results seemed to be evasion rather than avoidance, but we must remember that, day by day, honest people avoid tax that they are not required by law to pay.

[Kelvin Hopkins]

I thank the hon. Gentleman for giving way yet again. The big losses from tax avoidance and evasion are to do with the corporates. The cosy relationship in recent years between HMRC and some of the corporates, particularly Vodafone, is appalling. I am sure the hon. Gentleman would like to talk about that.

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for that intervention. The thing about corporation tax is that a lot of corporations can be taxed almost anywhere in the world. That is why I think the Government are absolutely right to bring down the rate of corporation tax. It will help businesses to be headquartered in the United Kingdom, which is good for the UK in terms of employment and, indeed, tax revenues, by which I mean not just corporation tax revenues, but the other tax revenues paid by companies, namely business rates and employer national insurance contributions, as well as the taxes paid by their employees. We get a larger, more successful economy if we are relatively generous to corporates.

Northern Ireland Members have spoken of the particular circumstances there and the competition Northern Ireland faces from the Republic of Ireland. That is a very good case of tax competition between neighbours and it can be seen very bluntly in Northern Ireland because of the land border. We see less of it on the mainland of the United Kingdom because we do not cross borders quite so easily and we do not necessarily focus on it as much as we should. I think that the Government are absolutely right on corporation tax and that they should continue down that line.

The Government have also been right on the raising of thresholds and I hope they will continue with it. It makes sense, as my hon. Friend the Member for Redcar (Ian Swales) has said, because it is not logical for people on the minimum wage to be paying taxes. There is no point in taxing people who are low earners merely to pay them benefits with their own money. Although it was a Lib Dem policy in the last election and they deserve credit for that, it was suggested earlier by Lord Saatchi and Peter Warburton in a booklet they produced for the Centre for Policy Studies. The Conservative antecedents of the policy are pretty good and solid. It is a Tory policy in origin and it ought to continue.

The aim of the Government in the long run should be that people on the minimum wage should pay neither tax nor national insurance. In that way, the amount of benefits that needs to be paid to them will be very significantly reduced, as will the administrative burden. Roughly speaking, tax collection costs 1% of the amount collected, and benefit payments cost about 2% of the benefits paid out, so if we tax people to pay them benefits, the overall cost will probably be about 1.5% of the total amount paid and received. The policy is very good and welcome.

Another policy that must be welcomed is the change to pensions. Questions about pension funds came up when my right hon. Friend Chief Secretary to the Treasury spoke. What the Government are doing is very simple: they are allowing people to keep their own money. That is not very popular among Labour Members, who seem to have the view that it is the Government’s money and should be distributed as they, rather than individuals, wish. Conservative Members and, indeed, Liberal Democrats who still have some residual liberal attachment believe that the money belongs to the individual taxpayer.

The policy has a very clear advantage for the tax authorities, because it clarifies the idea that pension saving is nothing but a tax avoidance boondoggle. It is about taxing people once, rather than twice. People are taxed when they withdraw the money from their pension fund, with a 25% exemption, rather than taxed when they put it in. It is worth bearing in mind that if that was at any point reversed, the withdrawal would be taxed as a capital gain rather than as income, and the rates that applied might be very different from those that currently apply to withdrawals from pension funds. Any Government who intend at any point—whether at the higher or the lower rate—to withdraw the benefits of saving through a pension fund should consider the ultimate pay-out, and how the policy is a fair means of taxing people and ensuring that they are not taxed more than once.

As my hon. Friend the Member for Dover (Charlie Elphicke) said, this was a “steady as she goes” Budget. It is very impressive. The Government have not gone for cheap gimmicks, as parties sometimes do before elections; they have gone for continuing the work, which they started in 2010, of getting the country back on track. They are doing so in a way that benefits the least well-off in society the most. It is absolutely striking that the real incomes of every decile other than the highest-paid decile will rise by more than prices this year, as they did last year.

That Government achievement is helping where help is most needed: it is helping business to allow it to invest; doing more to help exporters; helping to rebalance the economy for the long term; and—gloriously, splendidly and rejoicingly—it is doing something to ensure that people have their own money. What a fine Conservative principle that is. We believe that the individuals and their families who build up society have the greatest wisdom about how they spend their money, not the tax authorities that dish it out. What is being done with pensions is the clearest statement of that. Yes, if people buy Lamborghinis, Bentleys or Porsches, they will spend it unwisely—

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 11th March 2014 Commons Chamber

[Danny Alexander]

I totally agree with my hon. Friend and I congratulate him on the work he has done in his constituency to promote the take-up of apprenticeships. The fact that there have already been 1.6 million apprenticeship starts during this Parliament compared with about 1 million during the previous Parliament shows the additional emphasis, even in these tough financial times, that this Government are putting on making sure that young people have the right skills for today’s economy.

[Kelvin Hopkins (Luton North) (Lab)]

Britain has a growing and enormous trade deficit with the rest of the European Union, which is overwhelming evidence, if it were needed, that we have an inappropriate exchange rate, which means that we are in effect exporting more than 1 million jobs. When will the Government develop a sensible exchange rate policy?

[Danny Alexander]

Monetary policy is, rightly, the preserve of the independent Bank of England. I would also point the hon. Gentleman to the fact that 3.5 million jobs in this country are linked to British membership of the European Union. That is why I believe so strongly that Britain should stay a full member of the European Union.

Sixth-Form Colleges (VAT)

Kelvin Hopkins Excerpts

Tuesday 17th December 2013 Westminster Hall

[Lisa Nandy]

The hon. Lady is absolutely right. I am grateful to her for raising that issue. The culture in sixth-form colleges is enormously beneficial to such young people, and the staff are obviously passionate and determined to ensure that those young people reach their potential.

In conclusion, Ministers have accepted that this situation is unfair, so will the Minister who is here in Westminster Hall today take steps to create a level playing field for sixth-form colleges?

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend may be interested to know that my very first debate in Parliament, 16 years ago, was about sixth-form colleges and took place in this room, but that is beside the point. At that time, I described sixth-form colleges as the geese that lay golden eggs; I think she has made that point today. Of course, one other thing that sixth-form colleges do is to bring together young people from different schools and different communities. They are often situated in areas of diversity and they are a tremendous force for social cohesion. Does she accept that point?

[Lisa Nandy]

My hon. Friend is absolutely right, and his expertise on sixth-form colleges is well known; not only does he sit on the governing body of a local sixth-form college but he is chair of the all-party group on sixth-form colleges, which has done so much good work on this issue. I have to say to him that when he was first raising issues about sixth-form colleges in this place, I was actually at a sixth-form college in the constituency of the hon. Member for Bury North (Mr Nuttall). That shows that nothing changes.

As I was saying, Ministers have accepted that this situation is unfair, so will the Minister take steps to create a level playing field for sixth-form colleges? Will he make this important sector a promise that there are no more of these cuts to come? And will he join me in paying tribute to the extraordinary contribution that sixth-form colleges, such as my local one, make to young people and communities across the country?

--- Later in debate ---

[Mr Stuart]

I am grateful to my hon. Friend for saying so.

There is another aspect that it is worth pointing out briefly. At the moment, because of the freedoms for schools that I think are broadly supported across the House—there is certainly support for them on the Government Benches—there is a danger that we are sleepwalking into the creation of more small sixth forms, which we know, from sustained evidence gathered over time, perform poorly. At the same time, we are undermining institutions that have a long track record of success in raising standards for all, and in closing the gap between rich and poor. We cannot allow that to happen, so we need the Government to wake up and recognise the jewels that they have in the form of sixth-form colleges.

Far from seeing sixth-form colleges cut back, sliced and reduced in capacity and capability, I would have thought that, having found a delivery system that works better than others, we should desperately look at expanding and supporting it in a way that is fair to other providers. I do not want in any way to be prejudiced against sixth forms, but I would like a level playing field, because we have the exact opposite: we are seemingly strengthening those with the weakest record, and weakening those with the strongest record.

[Kelvin Hopkins]

rose—

[Mike Thornton (Eastleigh) (LD)]

rose—

[Mr Graham Stuart]

I had better give way to the hon. Member for Luton North (Kelvin Hopkins) first, and then I will sit down.

[Kelvin Hopkins]

I congratulate the hon. Gentleman on his speech; I agree with every word of it. However, does he agree that the Government ought to be looking to create many more sixth-form colleges across the country?

[Mr Stuart]

I agree. If a system is most successful and cost-effective, establishes high standards, particularly for the poorest, and closes the wealth gap, I would think people would be delighted to see it expand. I will give way to my hon. Friend the Member for Eastleigh (Mike Thornton), and then I will draw to a close.

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

Thank you, Mr Bayley, for calling me to speak. It is a great pleasure to serve under your chairmanship. I congratulate the hon. Member for Wigan (Lisa Nandy) on securing this debate, and on making her case so strongly. Indeed, it is noteworthy that this is a well-attended debate, as she has mentioned.

In the light of the remarks made by my hon. Friend the Member for Beverley and Holderness (Mr Stuart), I should mention that I am here as a Treasury Minister, as the debate relates to the VAT system. In respect of House of Commons workings, this is a Treasury matter, and this week the Treasury, rather than the Department for Education, was up for debates, although the hon. Member for Wigan has been most ingenious in getting a debate on sixth forms in a week in which Department for Education Westminster Hall debates were not occurring.

The hon. Lady has highlighted how sixth-form colleges interact with the VAT system. Let me say a little bit about that. VAT can be a rather complex matter. It might help if I provided some background, before turning to the specific issue of sixth-form colleges. One basic feature of VAT is that businesses are able to reclaim the VAT that they pay on their inputs. However, this does not apply to purchases, acquisitions or imports made in relation to non-business activities, such as the provision of free education. This means that bodies such as schools can end up with VAT costs on the goods and services that they buy in.

Clearly, it is always an option to meet these costs by increasing the funding made available to schools, for example. However, there is a risk of the burden of that funding falling on local taxation, as the state education system in England and Wales has historically been delivered by local authorities. To deal with that, in 1973 the Government introduced a scheme, now under section 33 of the Value Added Tax Act 1994, allowing local authorities to recover the VAT incurred on goods and services purchased relating to non-business activities. Local authority maintained schools are able to recover VAT under the umbrella of the local authority.

Since then, there have been extensions to that scheme, in particular to cover the position of academy schools. The Finance Act 2011 introduced a new VAT refund scheme, under section 33B of the 1994 Act, to ensure that funding for academy schools’ non-business VAT costs was consistent with that for local authority maintained schools. The specific purpose of the scheme is to ensure continuity in the funding of institutions that are leaving local authority control to become academies, so that they are not put at a financial disadvantage.

I hope that this slight historical excursion has made it clear that there is clear logic to the VAT treatment of local authority schools and academy schools making the move out of local authority control. That logic is rooted in the nature of the service being provided and the relationship to public sector local authorities.

Let me turn to the campaign by sixth-form colleges, of which hon. Members in the Chamber are well aware. The campaign has gained the support of 74 Members representing constituencies that contain, or are serviced by, sixth-form colleges, and the likes of my hon. Friend the Member for Beverley and Holderness. They wrote to the Secretary of State for Education, expressing their concerns.

Hon. Members have welcomed the introduction of the new 16 to 19 funding formula, which will mean that all 16 to 19 education providers are funded in the same way, and which is reducing the historical disparity between school sixth forms and colleges. However, the 74 hon. Members feel that the way that sixth-form colleges interact with the VAT system leaves them at a disadvantage, compared with local authority or academy schools. In particular, as we heard today, they have asked for their differential VAT treatment to be recognised in the way that they are funded.

[Kelvin Hopkins]

My memory goes back to when sixth-form colleges were grouped—by mistake, I think—with further education colleges and put into the FE sector. That is why the VAT mistake was made. Had sixth-form colleges been kept in the schools sector, this would not have occurred. Does the Minister agree?

[Mr Gauke]

I think that is probably a fair description, historically. Schools have been treated one way, in part, because of the relationship with local authorities and funding at local authority level, whereas other elements of the public sector do not get funding for VAT in the way that local authorities do. Sixth-form colleges and further education colleges are examples of that.

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[Mr Gauke]

I am grateful for the opportunity to complete my remarks. The academies VAT refund scheme is very specific. The Treasury has no plans to extend that scheme to colleges, and many other providers of public services are expected to cover their VAT costs from their funding allocations. That funding model is applied to many bodies delivering public services, and to some spending by Departments and non-departmental public bodies.

The Department for Education, however, has considered whether adjustments could be made to funding for 16 to 19 education to recognise the differential VAT treatment of different types of providers. In particular, the Department for Education has considered whether it could additionally fund sixth-form colleges by an amount equivalent to their typical VAT costs. The Department for Education has concluded that that is not affordable in the current fiscal climate. The £20 million estimate applies only to sixth-form colleges; extending extra funding to further education colleges, which have a similar case to sixth-form colleges, would cost some £150 million.

[Kelvin Hopkins]

I echo the Chair of the Select Committee on Education, the hon. Member for Beverley and Holderness (Mr Stuart), by saying that the amounts are small in the scheme of things. They are piffling amounts compared with the volume of the Government’s public spending. One penny on the standard rate produces £4 billion, and we are talking about £30 million for sixth-form colleges. It is a tiny amount of money.

[Mr Gauke]

I am not entirely surprised by the hon. Gentleman’s comments. I have no doubt that he would not hesitate to put up income tax by 1p. In the context of the current fiscal situation, we have to be very careful with public expenditure. The Department for Education will, of course, keep the sector’s funding under review.

Although I recognise that colleges have concerns, the reform of 16 to 19 education is one of the Government’s priorities. The Government remain committed to moving towards fairer funding of 16 to 19 education by levelling the rate of funding for schools and colleges by 2015.

Interest Rate Swap Derivatives

Kelvin Hopkins Excerpts

Thursday 24th October 2013 Commons Chamber

[Guto Bebb]

I am grateful for that intervention. I will come to hidden swaps later—“embedded swaps” is the technical term; “hidden swaps” is a fairer way of describing them—because they are a big issue and we need to address them.

The setting up of the redress scheme was the reason why we called this debate. It has taken months to reach an agreement to ensure consistency across the 11 banks involved. Originally we were told that Christmas was the deadline for completion. However, at this point in time there are 30,000 businesses in the cohort—I think that that figure is an underestimate, because of embedded swaps, for example, and the way the sophistication test works—so frankly the Christmas target will not be met.

[Kelvin Hopkins (Luton North) (Lab)]

rose—

[Guto Bebb]

Before I take any further interventions, it is worth making this point. I was recently involved in a mediation meeting with one of the banks and one customer, whom I cannot name, even with parliamentary privilege, apparently. The bank in question made it clear that it could not promise a date for paying redress before 2015. As such, although the intention of achieving consistency is correct, we have to put pressure on the FCA to ensure that we move at a faster pace.

One of the big frustrations felt by the businesses affected and the APPG is that since the pilot scheme was completed, the banks involved have spent upwards of £300 million on the administration of the scheme and recruited up to 3,000 people to deal with it, yet by the end of September only 32 businesses had been offered redress, to the total value of £2 million. I understand the complexity of getting this right, but it is simply not good enough for the banks to be spending that much money and for the businesses that need redress not to be getting it.

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[Natascha Engel]

That is a very good point. We have had any number of cases where they have been passed from pillar to post. One of the terrible aspects of all this is that the individuals affected do not know where they can go to get justice, and they certainly do not have very much time to do that, because their businesses are going bust while they are waiting for justice.

[Kelvin Hopkins]

This very morning I have been speaking to a constituent who has been driven to the edge of bankruptcy by what the banks have done, and I have helped him to some extent. My hon. Friend is making a point about the lack of force behind the action that has been taken so far. Is there not a case for strong Government action now and, indeed, as the hon. Member for Bedford (Richard Fuller) mentioned, for criminal sanctions?

[Natascha Engel]

Indeed, and I am going to finish on both those points.

One way to make sure the banks cannot drag their feet in the way that they have is to impose a moratorium on the payments. That would really focus their minds. If the money is not coming in, I am sure they would try to settle this matter once and for all much more quickly. The number of suspensions of payments—and only in those cases where people are suffering significant hardship—is an absolute scandal. The fact that 30,000 businesses or individuals are waiting for some kind of redress and only 32 have had redress is also an absolute scandal. Something must be done.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 10th September 2013 Commons Chamber

[Mr Osborne]

There is a record number of business start-ups in this country at the moment, and I congratulate the business community and people in Chester who want to set up their own business. We are doing everything we can to support them. The new employment allowance will help many hundreds of businesses in my hon. Friend’s constituency. Together, as Cheshire MPs, we can of course make a broader argument that Cheshire is a great place to invent.

[Kelvin Hopkins (Luton North) (Lab)]

T3. To sustain strong economic growth, to restore full employment and to support manufacturing for the long term, it is vital to establish an appropriate exchange rate. Does the Chancellor accept that case and, if so, what is he doing about it?

[Mr Osborne]

I make it a practice, like previous Chancellors, not to comment on the exchange rate, but let me make a broader point about monetary policy. At the Budget, I set a remit for the Bank of England to consider the use of forward guidance. Since we last met, the Monetary Policy Committee has, of course, made an independent judgment to take that up and has made a very clear statement about the future path of interest rates.

Age-related Tax Allowances

Kelvin Hopkins Excerpts

Monday 9th September 2013 Westminster Hall

[Kelvin Hopkins (Luton North) (Lab)]

I beg to move,

That this House has considered the e-petition relating to age-related tax allowances.

It is a pleasure to serve under your chairmanship this afternoon, Mr Hollobone. We have been allocated three hours, but my speech will not last that long or anything like it. I am, however, pleased to have the opportunity to speak about age-related tax allowances, setting them in their historical context and in the context of today’s pension provision.

I first declare an interest as a person of pensionable age and as chair of the parliamentary support group of the National Pensioners Convention, the radical and progressive campaigning organisation that has been fighting to advance the cause of pensioners for more than 30 years.

The NPC’s first president was Jack Jones, the late and great former general secretary of the Transport and General Workers Union. Forty years ago, I worked for Jack Jones as a TUC staff member servicing the TUC’s transport industries committee, of which Jack was the chair. Jack had no equal in his principled commitment to the pensioners’ movement, such that, when he retired from his union’s leadership, he donated his entire leaving gift of some thousands of pounds to the National Pensioners Convention.

Speaking today, I am acutely conscious of the history of the NPC and of the struggles of the pensioner movement over the decades. Today’s debate has been prompted by the online petition on age-related allowances initiated by Arthur Streatfield on behalf of the NPC and all pensioners. The petition was signed by considerably more than 114,000 people before its closure in March, and it demonstrated the strength of feeling generated by the Government’s freeze on age-related allowances announced in the Chancellor’s March 2012 Budget.

I speak not only for myself or the active members of the National Pensioners Convention—even the thousands who signed the petition are only a fraction of those affected—as we in this House should always be conscious of the fact that there are more than 11 million pensioners in Britain, or nearly 20,000 per parliamentary constituency. Pensioners are among those who follow politics most closely and are some of our most well-informed electors. They are most likely to vote in elections, so we would all be wise to take proper and full account of their views.

The moral case for pensioners and their interests, however, is most important. They have spent a lifetime serving the economy in employment, sometimes serving the country in times of war, and giving their all in raising families. Elderly pensioners often become frail and live on low incomes; they have earned the right to be treated well by the society to which they have given so much. We should respect and care for our elders and ensure that they have the incomes necessary to live in comfort and security.

I have a few things to say on the timing of today’s debate. It was originally tabled to take place before the freeze on the age-related personal tax allowances had come into force, but the proroguing of Parliament, and the Queen’s Speech, denied us that opportunity. By the time the Backbench Business Committee had been re-elected and was able to allocate time, we had reached the summer recess. Although a debate may now seem something of an afterthought, it at least gives MPs the chance to discuss the matter in detail, which was never the case when the Chancellor made his initial announcement. It also provides us with the opportunity to see how the policy relates to the much wider issue of older people and the effect of austerity on their living standards and general well-being.

For decades there has been an acknowledgement of the need to provide additional support through the taxation system to older people in retirement. In 1925, old-age relief was introduced to help those aged over 64 with incomes of £500 a year or less. The Chancellor at the time, Winston Churchill, said that the modest savings of pensioners should be exempt from tax. The basis of today’s age-related allowance was introduced in 1975, and in 1987 further assistance was given by the introduction of an increased allowance for taxpayers aged over 80—reduced to those aged over 75 in 1989.

The decision by the Chancellor in the March 2012 Budget to freeze the age-related tax allowances, therefore, not only went against a widely held consensus that had been in place for more than 50 years, but caused serious concern about the future income levels of older people throughout the UK. The Chancellor announced in the House that he would freeze the age-related allowances from 6 April 2013 at the level of £10,500 for someone aged 65 to 74 and at £10,660 for someone aged 75 or over until those allowances aligned with the ordinary personal allowance. People retiring after that date—in effect, those born after 5 April 1948—are therefore to receive a lower personal tax allowance of £9,205, which is £1,295 less than they would have been expecting. It is estimated that the measure will save the Exchequer £3.3 billion by 2016-17 and, according to Treasury figures, will result in 4.4 million existing tax-paying pensioners losing between £63 and £83 a year, while future pensioners will suffer a loss of between £285 and £322 a year after tax.

Understandably, the announcement caught the headlines the following day, but it came as a surprise to many, and it was unexpected for a number of reasons. Only the year before, the Chancellor had told the House that the allowances would continue to rise for the lifetime of the Parliament in line with the retail prices index. There was no indication that he was preparing a change of policy. Twelve months later, he clearly decided to break that promise.

Astonishingly, while announcing a freeze on the tax allowances of pensioners at the same time, the Chancellor said that he would give those earning more than £150,000 a year a 5% cut in their tax rate, from 50% to 45%, which was an enormous windfall to those on the highest incomes. Someone on an income of £1 million taxable at the highest rate stood to benefit to the tune of £50,000 a year. It is hardly surprising, therefore, that older people felt as if those on modest incomes, seeing the purchasing power of their tax relief decreasing, were effectively subsidising a tax cut for the super-rich and for better-off pensioners. One blatant unfairness arising from the Chancellor’s decision was that while pensioners with annual incomes of less than £25,000 saw their tax bills rise, those with incomes in excess of £29,000 saw their tax relief increase by £268.

At the time of the announcement, there had been much erroneous nonsense in the media suggesting that older people had somehow escaped the effects of the Government’s austerity measures and that they needed to feel the pain just like everyone else. Think-tanks such as the Intergenerational Foundation and the Nuffield Foundation were quick to point out that older people were a burden on society’s finances, and individual politicians from the Deputy Prime Minister to the shadow Chancellor mentioned how universal benefits would have to be taken away from Britain’s apparently greedy older generation.

Since 2010, an argument has been put in some quarters suggesting that we can no longer afford older people. No doubt that background noise had some influence on the Chancellor’s decision in the 2012 Budget. The revenue collected by the state from older people, however, whether directly through a range of taxes or through costs that older people bear that would otherwise be paid by the state, adds up to a staggering £175.8 billion every year, compared with total expenditure on older people through pensions, welfare payments and health care of £136.2 billion. The overall net contribution by pensioners to the economy is, therefore, almost £40 billion and is estimated to rise to almost £75 billion by 2030. Most importantly, that is more than enough to pay for the current range of age-related benefits, as well as the personal tax allowances that we are debating today.

We have only to look at the voluntary and charitable sector to see how older people are keeping many of its organisations going, and how without them many of the networks of support that hold our communities together would start to crumble. Not only that, but millions of working families rely on the help of grandparents to provide unpaid child care, enabling parents to go out to work. Through volunteering, caring and of course paying taxes, Britain’s pensioners continue to give back to the country, rather than simply taking from it, as some would have us believe. As history often shows, however, an economic crisis can provide the conditions in which sections of society are scapegoated and blamed for the problems that we face. This time it appears to be pensioners and the elderly who are being targeted as the source of our economic woes, rather than the activities of a largely unregulated and irresponsible finance industry and the feeble Government policies to deal with it.

One of the biggest problems with the debate over the freeze on age-related tax allowances has been the myths that it has promoted. Following the Chancellor’s Budget statement, the newspapers dubbed the freeze the “granny tax”, although the truth is that around 60% of those affected are men. It has been widely acknowledged that our poorest pensioners tend to be women, many of whom do not even have enough income to pay any tax at all. A lifetime of caring responsibilities, or of part-time or low-paid work, means that many of them now struggle on less than £10,500 a year. Even the inadequate minimum wage would give people an income of over £12,800. Therefore, many older women are among the 6 million pensioners in this country who do not pay tax because they simply do not have enough money. To argue that they have escaped austerity when they have been living in austerity for years is outrageous nonsense. To suggest that someone on £15,000 is well off and can afford to face an increase in their tax bill when older people are facing many other financial pressures is either naive or callous, or both.

The inflationary impact on older people is higher than that which the country as a whole is experiencing, largely because pensioners spend a greater proportion of their limited income on things whose cost is rising fastest, such as food, fuel and health. It is estimated that average living costs for those over 75 have risen by 6.2%, which is considerably higher than the official consumer prices index would suggest.

The Chancellor was disingenuous to suggest that the freeze in the tax allowance was a mere simplification of the taxation system, when many people rightly saw it as a tax increase. Within hours of the Budget, a petition was set up on the Government’s website by retired civil servant Arthur Streatfield and was promoted by the National Pensioners Convention. I pay tribute to the NPC for its work in bringing this issue to the fore and for promoting tirelessly over the years other issues, such as pensions, social care, fuel poverty and universal benefits. I am grateful to it for its advice and assistance to me for today’s debate.

When the petition was launched, NPC’s general secretary, Dot Gibson, said:

“Since the Budget announcement, we have been inundated by messages from pensioners like Arthur who are outraged that the Chancellor has given a tax cut to those earning over £150,000 whilst pensioners on little more than £11,000 are having their tax allowance frozen. There has been a lot of nonsense about pensioners having been cushioned from the government’s austerity measures, but they’ve already seen cuts to their winter fuel allowance, a reduction of their state pension increase because it’s now linked to the lower Consumer Price Index rather than the Retail Price Index, rationing of care services in the community, closure of day care centres, changes to disability benefits and caps on housing support.”

Dot continued:

“It’s time we came out fighting and this petition is just the start. The government needs to recognise that older people are an asset not a burden. We not only need to reverse this latest attack, but also to campaign for higher state pensions, proper care and an end to fuel poverty.”

I absolutely agree with Dot.

In the Government’s mid-term spending review on 26 June, the Chancellor announced that universal benefits for older people, such as the winter fuel allowance and the concessionary bus pass, would for the first time be included in an overall cap on welfare spending. That seems to be just a way of cutting universal benefits by the back door. At the same time, the Department for Work and Pensions released figures showing that between 1.9 and 2.1 million older people are living below the official poverty line, and the older the age of the pensioner, the greater the likelihood of low income.

Pensioners living in a household where someone is disabled are almost three times as likely to suffer material deprivation as those living in a household where no one is disabled. Pensioners from minority backgrounds—there are many in my constituency—are also more likely to live on low incomes. When more than 1 million pensioners tell the DWP that they would be unable to pay an unexpected bill of £200, it speaks volumes about the need for a higher basic state pension for everyone and the need to take another look at the decision to freeze age-related tax allowances.

Despite what many might assume, we do not treat our older people with sufficient dignity. The UK state pension remains among the least adequate in Europe, with the risk of poverty among older people ranked fourth of the 28 EU countries. Some 5.6 million older people have savings of £10,000 or less. Nearly 2.5 million pensioner households live in fuel poverty and spend more than 10% of their income on fuel. That figure is rising. Almost a quarter of all pensioners—24%—do not go out at least once a month; 41% do not take a holiday away from home; 10% are unable to have their hair cut regularly; 5 million older people consider the television to be their only source of company; and one in 10 pensioners say they feel completely cut off from society, family and friends. That does not strike me as an impressive advertisement for Britain being a great place in which to grow old.

Despite that picture, the Chancellor’s decision to freeze age-related personal tax allowances has, for at least the next few years, penalised more than 4 million older people who are already struggling to cope. I agree there is merit in the long-term policy objective of securing a single personal tax allowance based on income rather than age, but it must be recognised that age-related personal tax allowances were designed to help with the additional expenses, such as home maintenance, that older people face. Such allowances will continue to be relevant for as long as the state pension remains disgracefully inadequate.

We have as a society recognised the need to provide additional assistance to older people because they face additional challenges brought on by ageing. We also recognise that after a lifetime of contributing to society, which continues in retirement, there are ways in which older people should be rewarded and justly so.

If the Chancellor had thought a bit harder, he might have realised that a much fairer way of achieving a change in the personal tax allowances would have been to uprate age-related allowances by inflation, and increase the under-65 allowance by more than inflation so that over time the two would eventually harmonise and older people would continue to get an increase in their allowance.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Surely the hon. Gentleman accepts that one of the Government’s aims is to simplify tax allowances and have one allowance regardless of how old someone is. Is it sensible for an hon. Member over 65 to have higher take-home pay, simply because of age, than someone under 65?

--- Later in debate ---

[Kelvin Hopkins]

I made the point about levelling up rather than levelling down. If we level up the allowances for those under 65, the point will come when they meet what pensioners now get. That would be fairer than damaging pensioners’ incomes now.

The Chancellor in his announcement in last year’s Budget suggested mistakenly that pensioners had somehow been protected from the economic crisis. He implied that they were a burden on the public purse that could not be afforded and that it was right to take more money away from those on £10,500 a year, while giving a tax cut to a small number of very rich pensioners and others with incomes over £150,000.

In his 2011 Budget, the Chancellor promised that the age-related allowance would increase in line with the retail prices index until at least 2015. Just a year later, he broke that promise. Ros Altmann, then director general of Saga, the over-50s group, and a campaigner for pensioners for many years, said:

“It’s astonishing to see a categorical promise broken like this without any acknowledgment and without any measures to offset the effects…It’s just not acceptable.”

I agree with Ros. The decision was wrong, and it should be reversed. I call on the Chancellor today to do just that and to deliver his original promise to pensioners.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I did not intend to make a speech, but a year or so ago I co-authored a policy to try to simplify allowances and national insurance. I will not dwell on that today, but I thought it was important to put on record the fact that I support the Government’s proposals to simplify taxation, which is what this policy does.

I have received criticism from constituents because a quarter of them are over 65, which is a higher proportion than 10 years ago. Suffolk Coastal, like many coastal areas, is a place where many people choose to retire, partly because they are attracted by its wonderful scenery, lifestyle and so on. It is important to say that we will do what we can to help pensioners on low incomes, and also to make a start on tax simplification, which I believe this policy does.

I understand why the hon. Member for Luton North (Kelvin Hopkins) outlined pensioners’ concerns, including about inflation, but I am proud of what the Government have done, including by introducing the triple lock on pensions, meaning that they will rise by a minimum of 2.5%, by the consumer prices index or by average earnings, and through the pension reforms that will come into place in a few years whereby we move to a flat-rate system so that people will not be penalised for saving towards their own pension. That will also remove the burden of, and the embarrassment that some people feel about, trying to seek help through means-testing, credits and so on. I do not recognise the suggestion that the Government are turning their back on pensioners.

[Kelvin Hopkins]

I am following the hon. Lady’s speech with interest, but the fact is that some pensioners—more granddads than grannies, if I may say, and as a granddad myself, I feel this personally—will find that their incomes reduce as a result of the Government’s 2012 Budget, while those on the highest incomes will see their incomes increase. Is it right for pensioners on low incomes to see their income transferred to those on the highest incomes?

[Dr Coffey]

I hear what the hon. Gentleman is saying, but my understanding is that people will not be affected in cash terms, although they may be in real terms.

There is a significant increase in the number of people who continue to work beyond the age of 65. Some might say that that indicates that there is a pensions crisis as people cannot afford to stop working. It might be true that people have got used to a certain income and that, as other costs have risen, they continue to work if they can do so. They have been helped by the Government’s revolutionary change of scrapping the default retirement age, which was controversial on many fronts. To a large extent, people are working longer because we are healthier and living longer, which is why it is fixed in law that the default pension age will increase regularly.

As people will be working longer, I come back to the rather simplistic point of why somebody should have different take-home pay simply on the basis of their age, rather than any other criteria. I recognise that a number of people who have unearned income will be affected, but the hon. Gentleman will be aware that the age allowance is phased out when people’s income is above a certain amount.

I support the Government on the initiative. I do not believe in any way that old people are a burden—they are certainly not; they are an asset. However, everyone should do their bit to ensure that we continue to have a tax system that rewards appropriate levels of work and those who have worked, and we should continue to try to simplify the tax system as a whole. Although the hon. Gentleman talked about levelling up allowances, it has not been the policy of the Labour Opposition—or, certainly, of the previous Labour Government—significantly to increase tax allowances, as the coalition Government have done. We will get to an allowance of £10,000 sooner rather than later, and who knows what all the parties will offer in their 2015 manifestos? It was sensible to move to one tax allowance, on which point I shall conclude.

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

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Luton North (Kelvin Hopkins) on securing the debate, which is somewhat belated, given that it was meant to take place many months ago. However, I commend him for his persistence in pursuing the matter and not letting it lie.

The measure was one of a number that I and my colleagues in the shadow Treasury team discussed at great length, and on which we pressed Ministers, during consideration in Committee of this and last year’s Finance Bill. We are therefore not debating a new issue, but I commend my hon. Friend for his passionate speech in which he highlighted the very real cost of living crisis faced by many pensioners and the situation in which the Government’s changes have left a number of pensioners.

The hon. Member for Suffolk Coastal (Dr Coffey) spoke in favour of tax simplification and discussed the perceived merits of the Government’s measure. She put forward an interesting argument of which there was much to commend but, despite that, I shall explain why we do not support the reforms and especially the way in which the Government have gone about bringing them into play.

[Kelvin Hopkins]

Is it not the case that what is called tax simplification is sometimes simply a cover for making the tax system less progressive and therefore less advantageous to those who are less well off?

[Catherine McKinnell]

My hon. Friend makes a powerful point. The Office of Tax Simplification expressed surprise at the way in which the measure was introduced, and I shall go on to quote from the office as I set out the reasons why we do not support the Government’s policy.

It might be helpful to recap what has happened. Until the beginning of this tax year, individuals aged 65 or over were entitled to receive an additional age-related allowance, with a further addition for those aged 75 and over. Since 1977 and what was known as the Rooker-Wise amendment, all income tax allowances had been required to increase in line with the retail prices index, unless Parliament specifically determined otherwise.

As we are all aware, in Budget 2012, it was announced that from 2013-14—from this April—the availability of those age-related personal allowances for income tax would be restricted. The allowance for people aged 65 or over was frozen, as was the allowance of £10,660 for those aged 75 or over. Additionally, people turning 65 on or after 6 April 2013 were not entitled to any age-related allowances at all, meaning that the general personal allowance was all that applied to them.

On the basis of the speed with which the changes were introduced and our opposition to them, we tabled an amendment to this year’s Finance Bill that called on the Government properly to consider the impact of the changes to the personal allowance system on the group of people who are affected. We put that proposal forward at a time of overwhelming opposition to the changes. A whole body of evidence showed that the impact on pensioners would be hugely detrimental. As my hon. Friend pointed out, this came at the same time as a tax cut for those earning more than £1 million, who the Government were handing an average tax cut of £100,000.

The e-petition that has led to the debate is testament to the measure’s impact on pensioners and their level of concern about it. I commend Arthur Streatfield and his valiant efforts in obtaining 114,488 signatures, meaning that the debate could be secured.

My hon. Friend quoted Dot Gibson, the general secretary of the National Pensioners Convention, when she gave her backing to Arthur Streatfield’s e-petition, but it is worth repeating what she said:

“Since the Budget announcement...we have been inundated by pensioners like Arthur who are outraged that the Chancellor is giving a tax cut to those earning over £150,000 whilst pensioners on little more than £11,000 are having their tax allowance frozen. There has been a lot of nonsense about pensioners having been cushioned from the austerity measures, but they’ve already seen cuts to their winter fuel allowance, a reduction of their state pension increase because it’s now linked to the…Consumer Price Index rather than the Retail Price Index, rationing of care services in the community, closure of day care centres, changes to disability benefits and caps on housing support…The Chancellor’s decision to freeze the age related tax allowance is really the last straw for pensioners who feel they are being asked to pay for the mistakes of the bankers and politicians.”

The Opposition agree, which was why we voted against the changes during the passage of last year’s Finance Bill. It is absolutely the wrong priority at the wrong time, and in the current economic climate, the Government should be prioritising ordinary families, ordinary pensioners, the young and the long-term unemployed, not millionaires.

--- Later in debate ---

[Catherine McKinnell]

Again, it would be helpful if the Minister could confirm for those taking part in the debate and for those following it—the many pensioners who have called for the debate and who want to know—what consideration the Government have given to their position and to the fact that pensioners are suffering a cost of living crisis. The Government seem to be taking no account of that.

[Kelvin Hopkins]

I think the point is that pensioners face extra costs in their lives. They often spend more time at home and need more heating in their homes, for example. Someone as far back as Winston Churchill recognised that, which was why he initiated the idea of a greater tax-free allowance for pensioners to help them with their additional living costs. That is the case that I made in my speech.

[Catherine McKinnell]

I thank my hon. Friend. The point that he and I make is that the concern about the Government’s change is the lack of notice that many pensioners have had of it. It has not been introduced gradually to give pensioners a chance to readjust their savings plans or earnings plans; they have not been given time to adjust to the change. I will go on to say just what a shock it was to many pensioners, and to the Office of Tax Simplification itself, when the change came about, but it is worth reflecting first on the number of pensioners affected.

We are talking about 4.41 million people who are worse off in real terms, with an average loss of £83. Those are the Government’s own impact figures, but in addition The Daily Telegraph has estimated that many people could be £479 worse off as a consequence, or £511 if they are aged over 75. It could cost a couple nearly £1,000. Those are not insignificant numbers for pensioners who are watching their household bills rise month on month. They are now watching their income diminish as a result of these changes.

It is also helpful to consider region by region the number of constituents affected by the changes. Many MPs have been contacted by constituents who are most aggrieved by the changes and, in particular, by the lack of notice that they were given of them. We know from written answers that the Minister was unable to identify exactly how many people would be affected by the change in the age-related allowance—the granny tax, as it has been dubbed, or indeed the granddad tax, as my hon. Friend the Member for Luton North rightly pointed out. However, Her Majesty’s Revenue and Customs has been able to produce figures for the number of people over 65 paying income tax by region. The House of Commons Library sensibly suggested that that could be used as a proxy to estimate the number of people in each region affected by the freeze, so we know that 170,000 of those affected live in the north-east, 480,000 in the north-west, 340,000 in Yorkshire and Humber, 320,000 in the east midlands, 370,000 in the west midlands, 450,000 in the east of England, 410,000 in London, 710,000 in the south-east, 460,000 in the south-west, 240,000 in Wales, 370,000 in Scotland and 90,000 in Northern Ireland. Those figures are something for everyone to consider when we think about the number of constituents in our own areas who are affected and the sheer volume of engaged voters up and down the country who, as my hon. Friend pointed out, will not forget these changes quickly.

However, the critical group of people whom we should be seriously concerned about are those reaching their 65th birthday this year. I would be grateful if the Minister could update us on whether the Treasury has undertaken any research to try to understand the true impact of the changes on that group, because it is a group of approximately 360,000 people who will be roughly £322 a year worse off as a result of being excluded from the age-related allowance. For that group, the incredibly short notice of the change has been completely unacceptable. We are talking about people who are very close to retirement age and have little chance to change their plans.

As I mentioned, at the time of the 2011 autumn statement the Chancellor made this categorical commitment:

“To ensure employers and older people do not lose out, for the duration of this Parliament the annual increases in the employer NICs threshold, and the age related allowance and other thresholds for older people, will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

Let me repeat that:

“To ensure...older people do not lose out, for the duration of this Parliament the annual increases in the...age related allowance....will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

And when was that statement made? It was made just four months before Budget 2012, when the Chancellor decided not to “over-index” the age-related allowance and not even to increase it by the RPI, but to freeze it permanently for those born before 6 April 1948 and scrap it altogether for those born on or after that date.

It was dressed up as a “simplification” measure. It was justified on the back of the Office of Tax Simplification’s interim “Review of pensioners’ taxation”. What the Chancellor did not mention at all in the statement was that that review stated:

“We would stress...that the OTS has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations”.

Indeed, in his evidence on the 2012 Budget to the Select Committee on the Treasury, the director of the Office of Tax Simplification, John Whiting, commented:

“I was surprised that it was taken forward so quickly...The context is that we undertook to do a two-stage review of pensioner taxation. The first would document the problems and codify all the problems...Stage two was to go ahead and look at them and try to work out what might be the best way forward.”

Of course, we know why the Chancellor did not want to wait for the final OTS report, through which he could have properly understood the impact of the changes on current pensioners and particularly on those who are turning 65 this year. He needed a soft target for a tax grab to help to fund his indefensible tax cut for millionaires. This is a measure dressed up as tax simplification that will actually increase revenue to the Government by £360 million in 2013-14. That will rise to £1.25 billion in 2016-17.

[Dr Thérèse Coffey]

rose—

[Kelvin Hopkins]

rose—

[Catherine McKinnell]

I will give way to the hon. Lady and then to my hon. Friend.

[Catherine McKinnell]

I will give way to my hon. Friend the Member for Luton North and then deal with both points.

[Kelvin Hopkins]

I hope my hon. Friend will agree that the Government would do rather better to look at the £84 billion profit that Vodafone has made on the sale of assets. By careful avoidance measures, it is avoiding billions in taxation. The Government would do better to look at that rather than at pensions.

[Catherine McKinnell]

We run the risk of digressing into a broader debate on tax avoidance and taxation rates, and it would be an injustice to the pensioners who are affected by the change in the age-related allowances to allow that. However, I take on board both points that were made in those interventions. My hon. Friend’s was about the crucial measures the Government need to take to clamp down on tax avoidance and evasion, close the tax gap and ensure that all revenue due to the Exchequer is brought in. The Minister and I regularly debate those issues. I also take on board what the hon. Member for Suffolk Coastal said. I appreciate her point, but I dispute her analysis. She should look at the figures for the shift in income that took place to forestall and then avoid the 50p tax rate, and then at the bumper tax take as soon as the rate dropped to 45p; those who are savvy, and in a position to do so, are able to take advantage of the reduction.

Like so many of the Government’s decisions, the change is completely arbitrary. It is likely that this year somebody celebrated their 65th birthday on 5 April, retaining their age-related allowance, while somebody down the street born the very next day lost their allowance and as a result will find themselves substantially worse off for the remainder of their retirement. That was why the Opposition voted against the measure in last year’s Finance Bill and tabled an amendment calling on the Government to conduct a proper review of the impact of the change on that group of people in particular and on pensioners in general. Some people did not have the common sense or ability to ensure that they were born before 5 April 1948, and as a consequence of that total lack of foresight, they will be much worse off for the remainder of their retirement. That is a deeply unsatisfactory situation for the people who prompted the debate today, on whose behalf we speak.

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

It is a great pleasure to serve under your chairmanship, Mr Hollobone, for, I think, the first time. I congratulate the hon. Member for Luton North (Kelvin Hopkins). He put his case with great eloquence and passion. I thank my hon. Friend the Member for Suffolk Coastal (Dr Coffey), who, as she says, represents a large number of pensioners in her constituency, including my uncle Norman. Hon. Members have had the opportunity to discuss these matters a number of times, as the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) said. In fact, we last debated the topic during proceedings on the Finance Act 2013, not to mention the lengthy debates during proceedings on the Finance Act 2012. I am pleased to have another opportunity to explain the Government’s position.

As hon. Members are aware, a phased withdrawal of age-related allowances was legislated for through the Finance Act 2012, meaning that there would be no new recipients of such allowances from April 2013. The existing age-related allowances have since been kept at their 2012-13 levels, meaning that we have frozen the age-related allowances at £10,660 for individuals born before 6 April 1938 and £10,500 for individuals born over the following 10 years. Once the personal allowance aligns with those levels, there will be one personal allowance for everyone. I appreciate that there is opposition to the measure, but we believe that in the light of the other changes we have made, particularly those that relate to the basic state pension, those steps will help us achieve a fairer, simpler tax system.

The Government’s first priority for income tax has always been to increase the personal allowance, and the allowance has seen above-inflation increases in every year since we came to office. Given his earlier remarks, I am sure the hon. Member for Luton North supports that. In this financial year, the allowance rose by £1,305—the largest cash increase ever—and next year it will continue to rise by a further £560. Those steps mean that we will meet our target of increasing the personal allowance to £10,000 a year early, taking the number of taxpayers who have seen the benefit of our increases to 25 million. We remain committed to ensuring that personal allowances are set high enough that pensioners who are solely reliant on the basic state pension do not pay any tax. As such, half the people over 65 will not have to pay any income tax at all in this financial year.

[Kelvin Hopkins]

The point being made is that many pensioners do not pay tax because their incomes are simply too low.

[Mr Gauke]

In a moment I will turn to what we are doing with the basic state pension and the steps we have taken to ensure that it is rising more quickly than it otherwise would have.

My hon. Friend the Member for Suffolk Coastal touched on simplification. We want to make the tax system simpler and easier for people to understand, and the changes to age-related allowances are an important part of that. It is worth pointing out that we are not the only people to conclude that such allowances add unnecessary complications to the tax system. A 2009 report by the Public Accounts Committee commented:

“The age-related allowance rules are complex and hard for older people to understand and place too much emphasis on older people having to prove their eligibility, resulting in errors in claims and potential overpayments of tax.”

And, in March last year, the Office of Tax Simplification published its interim report on pensioner taxation, highlighting no fewer than nine complexities.

The taper feature is one of the main sources of complication in age-related allowances. It is worth setting out how it works, to demonstrate the degree of complexity in age-related allowances. The taper removes an individual’s age-related allowance where their income exceeds the aged income limit,—£26,100 in 2013-14—at a rate of £1 for every £2 over the limit. The age-related allowance is reduced up to the point at which the income tax allowance is exactly the same as the normal personal allowance. That taper creates a 30% effective rate of tax for individuals on modest incomes and, most importantly, brings hundreds of thousands of people into the self-assessment system when, in many cases, they would otherwise have no need to complete a tax return.

Our changes to age-related allowances will remove such complexity and confusion for older taxpayers. The simplification is not only of benefit to taxpayers; a simpler tax system is also easier for the Government to administer, enabling HMRC to focus on reducing the tax gap, which I know the hon. Member for Luton North cares about passionately.

--- Later in debate ---

[Mr Gauke]

The hon. Lady makes an important point about the difficulties faced by many of those who rely on their savings to support themselves. It is in all our interests that we have a strong and growing economy, and in the current economic climate it is right that we have low interest rates. We acknowledge that that creates difficulties, but the alternative—higher interest rates—would have significantly damaged the economy over recent years. Importantly, we have been able to bring in the triple lock, which has enabled us to increase the state pension at a faster rate than before and has included the largest-ever cash increase. That demonstrates the Government’s commitment to supporting pensioners wherever we can.

It is also worth re-emphasising that as a result of the decision to remove age-related allowances no one will pay more tax than before. Other factors, such as wage inflation and increases to the basic state pension, may, of course, affect tax liabilities, but no one will pay more tax from one year to the next because of the policy change alone. In fact, people over the age of 65 who pay no income tax at all—about half of all pensioners—are completely unaffected by the reform.

It is also worth reminding right hon. and hon. Members that, as the Chancellor announced in the Budget two years ago, the Government remain committed to exempting pensioners from national insurance contributions. There is a strong, principled case for that, because people have contributed throughout their working lives on the basis of a return, and I distinguish that argument from the one about personal allowances. I have debated this matter on a number of occasions and have never heard a strong case for those under the age of 65 having a lower personal allowance than those over that age.

[Kelvin Hopkins]

The Minister is doing his best to provide comforting words to pensioners but the reality, according to the Institute for Fiscal Studies, is that the average annual loss in the current year from all the tax credit and benefit changes since 2010 is £245 for a single pensioner and £470 for a pensioner couple. Those are substantial sums.

[Mr Gauke]

The hon. Gentleman refers to the Institute for Fiscal Studies, and it is worth remembering that last year the IFS concluded that pensioners are the group least affected by the Government’s tax and benefit changes.

I will run through some of those changes in a moment, but I want to come back to the point about how pensioners are taxed in comparison with those who are not pensioners, taking into account national insurance contributions. There is a good reason for the national insurance measure; I am not critical of it, and it is worth bearing in mind in the context of this debate.

Let me give an example of the burdens faced by pensioners compared with those faced by people of working age. Even under the freeze, a 69-year-old with an income of £16,000 in this financial year will still pay less than half as much tax and national insurance as someone aged 30 earning the same amount. A 69-year-old further up the income scale, earning £26,000 a year, still pays only 56% of the amount of tax and national insurance their working-age children pay. Someone born before 6 April 1948 earning £26,000 would have previously been eligible for age-related allowances but, following the withdrawal of the allowance, they will still see their total tax and national insurance bill reduced by 40% when they reach state pension age.

It is only right that we do not consider the changes to age-related allowances in isolation—I appreciate that I have made that point a number of times already this afternoon. Only about 40% of pensioners currently receive the age-related allowances but, by contrast, almost every pensioner in the UK—more than 11 million people—receives the basic state pension. Those 11 million pensioners have already benefited significantly from our decision to introduce the triple lock for the basic state pension, and they will continue to do so.

Last April, the basic state pension increased by the consumer prices index inflation rate of 5.2%, which represented the largest-ever cash increase in the basic state pension. This April, the triple lock guaranteed an increase of a further 2.5%, which was larger than the corresponding increases in inflation and average earnings. In contrast, under the previous Government’s plans, the basic state pension would have increased by only 2.8% last April and only 1.6% in the current fiscal year. In addition, we must not overlook the other benefits available to this age group, including winter fuel payments, free bus passes and prescriptions, and free TV licences for those over the age of 75. As I have said, the conclusion of the IFS is that pensioners are the group least affected by the tax and benefit changes implemented by the Government.

We are doing our best to protect this group of society, and to ensure that older generations can live with the dignity and respect they deserve. Taken as part of our wider policies on pensions, our changes to age-related allowances will reduce complexity while maintaining a more generous tax and national insurance regime for pensioners than for other groups. It is perhaps for those reasons that we hear none of the main parties advocating the return of age-related allowances, and I can confirm that the Government have no plans to reverse our policy in that area.

[Kelvin Hopkins]

I am pleased to have the opportunity to respond to some of the points made in the debate. There is no getting away from the fact that the changes are having a negative effect on the income of quite large numbers of pensioners—about 4.4 million—at a time when they are suffering from the effects of austerity in other ways, with rising fuel prices being a particular problem.

The National Pensioners Convention’s point, which I mentioned in my speech, is that all those problems could be overcome if there were a substantial increase in the basic state pension. It is still among the lowest in Europe. Some 12 or 14 years ago, it was the lowest in the European Union—we were on about £90 a week for a single person, while the Germans, the next lowest, were on £150 a week. Other benefits that pensioners get add up to more than the basic state pension, but a substantial increase in the basic state pension would overcome many of the problems. That is not necessarily the policy of my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) and our Front Benchers, but it is certainly my view and that of the National Pensioners Convention, and I have put that case on several occasions.

Rolling all the additions to the basic state pension that pensioners currently get into a much bigger basic state pension would be the way forward. The problem will get worse as time moves on, with the progressive crumbling and demise of occupational schemes, particularly in the private sector, which is now happening apace. A time will come when, for survival in old age, pensioners will look more to the state than to occupational schemes because, particularly in the private sector, such schemes are disappearing rapidly. Private pension schemes are often inefficient, and they are not a good way of providing for pensioners.

My view is that we must look not just to a much bigger basic state pension, but on top of that to a state earnings-related scheme with guaranteed returns at the end. With a large private pensions industry it will not be an easy job, but that is the way forward. Once we start to move in that direction, the problems we have discussed today will begin to disappear. Many pensioners still live on incomes that are far too low, and the Government’s measure has made many of those incomes still lower. As politicians or as Governments in general, we have a major job to do better by our pensioners for the longer term.

Question put and agreed to.

Resolved,

That this House has considered the e-petition relating to age-related tax allowances.

Financial Services (Banking Reform) Bill

Kelvin Hopkins Excerpts

Monday 8th July 2013 Commons Chamber

[John Thurso]

May I begin by apologising to you, Mr Deputy Speaker, and to the Minister for the fact that I arrived after the start of the debate? The flight down was fine, but the Gatwick Express was not. Had it not been for that, I would certainly have been here.

May I briefly echo the words of my hon. Friend the Member for Chichester (Mr Tyrie) in praising the staff of the commission, who did a truly outstanding job? One thing we did was to break out into panels—he chaired one, as did I and nearly everyone else at some point—where we had individual staff, and they were very impressive and helpful.

I wish briefly to address a question raised by the hon. Member for Chichester, who chaired the commission, by explaining why I feel it is of the utmost importance that the proposals we made are not only taken seriously but passed into statute, and why we came to some of our conclusions. We deliberated on the issues for hours and hours. As anyone who has read the transcripts of the Treasury Committee’s meetings from years gone by will know, I started out seeing things from a full separation point of view. I am a fairly unreconstructed Glass-Steagall supporter, but I do think that one needs to be guided by the evidence. The commission received a great deal of evidence, and I came to the view that although that principle is still one that I adhere to and think is right, there were greater complications in today’s modern operation of the financial services and markets than perhaps had existed when Glass and Steagall got together and that it was wise, therefore, to listen on that. So what I looked for, as did other colleagues who came at it from different angles, was to give the best effect to what we were seeking to achieve.

The right hon. Member for Wolverhampton South East (Mr McFadden) rightly said that the commission linked structure and culture, and I was struck by the way in which the different cultures in banking are competing. One of the easiest ways to look at this, whether we are considering the Volcker rule, prop trading or whatever, is that there are two distinct cultures in every large banking organisation. The first of those is the professional culture of the people seeking to work with and to help individual clients, who are involved in investing or looking after depositors. I do not deny that the vast majority of people operating in the world of banking are professional, wish to be professional and wish to have high standards. The second is the completely separate trading culture, where there is no client at the end of the day; it is a zero-sum game where two people, or two sets of people, are trading specifically to make money and to beat the guy on the other side of the trade.

The problem so often was that although trading was necessary to give effect to that desired on the investment side, when the trading side took over in terms of profit and culture it infected the other side. The whole thing is about seeking to keep the cultures apart. People have talked about high-street commercial banking as being good and investment merchant banking as being a casino and being bad, but I do not take that view. I would split the types into three, because there is retail and commercial banking, investment banking and trading. All three have their uses, and how they relate and how they are governed is the important thing.

The universal bank clearly works, but if all the banks are universal banks, it does not, and that is the problem with it. If everybody is pursuing the same model, there is a real danger that the riskier side infects the more prudent side.

[Kelvin Hopkins (Luton North) (Lab)]

The ordinary depositor—the ordinary working person who puts their money in their bank and wants to use it—would be deeply worried if they felt, and if it were the case, that their money was being gambled with by these risk-taking buccaneers in the City. Is there not a very strong case for making sure that ordinary people, such as me, who do not gamble in that way can have their banking protected from such gambling?

[John Thurso]

The hon. Gentleman makes exactly the point I am in the process of making, but he does it more simply, and I thank him for that. That is the key point about the ring fence. The utility aspects of banking, which are operating the payment system and taking deposits, should be so constructed within an entity that when a bank fails—I say when, not if, because there will be another bank failure and our purpose is to try to make it easier for banks to be resolved so there is less likelihood of taxpayer intervention, meaning that the bank will be more likely to be allowed to go under and that bankers will be likely to be more prudent—the ring fence enables that while protecting the ordinary depositor and the payment systems.

This is a long and complicated subject, as I learned over many hours, and the flow of capital from the lady who puts some money into the bank to the company that needs it to expand and grow the economy is necessarily complex. One must therefore be careful—[Interruption.] I know that other hon. Members want to speak and I promised that my remarks would be brief, so before I get a beady eye from you, Mr Deputy Speaker, I ask the hon. Member for Luton North (Kelvin Hopkins) to let me move on.

The critical point, which I completely accept, is that the compromise we came to is the ring fence. The compromise holds good, however, only if the ring fence works properly. Our conclusion was that it would not work if it were not reinforced, and the term “electrified” was coined. The point made by the right hon. Member for Wolverhampton South East was that if one has at one’s disposal the ability to do something—the armoury, call it what you will—those who are engaged in the activity will check whether they are being looked at before they engage in it. It is the modern equivalent of the Governor’s eyebrow. If we do not have that, we will simply have a lot of regulation that might lead not to a successful conclusion but to a long dialogue that leads nowhere between the regulator, the Treasury and the institution. People must believe that when the weapon, whatever it is, is deployed, it will have a consequence. That is the essential point.

In conclusion, I think all members of the parliamentary commission came to a unanimous view. We started from different viewpoints and with different concepts, but we agreed—all five from this House, all five from the other place: all 10 of us together—that to give effect to the ring fence it needed to be reinforced. We thought it could be done in this way and my hon. Friend the Member for Chichester has laid out the arguments perfectly.

Economic Growth

Kelvin Hopkins Excerpts

Wednesday 15th May 2013 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

First, may I say how much I enjoyed the speeches of the hon. Members for Dover (Charlie Elphicke) and for Redcar (Ian Swales), and their comments on tax evasion and tax avoidance? I have been raising those issues for more than a decade in this House, and we are now starting to take them seriously. If we collected the tax that is owed, we would go a long way towards solving any spending problem we have. The speech made by the hon. Member for East Antrim (Sammy Wilson) was also first class, and I agree with what my hon. Friend the Member for North East Derbyshire (Natascha Engel) said as well.

I want to focus on the economy. Clearly, austerity is failing, and I was among those who predicted its failure. Early in the life of this Government, I quoted Paul Krugman and his view that the Government were going in precisely the wrong direction. What Britain needs is a reflationary programme, not austerity, with a boost to public spending in specific target areas. We have 2.5 million people unemployed, so it is logical that additional spending should be directed to areas of high labour intensity: construction and the public services, which are precisely the areas that have suffered the most savage Government cuts. Construction output has fallen by 12% since 2010 and by 20% since 2008, and thousands of jobs have been cut in the public services. Jobs in construction and the public services have the added advantage of pumping additional economic demand primarily into the domestic economy, so maximising the reflationary multiplier effects to boost growth. Reducing unemployment quickly and substantially will cut the bill for benefits, raise tax revenues and bring down the Government’s spending deficit into the bargain. Moreover, the kind of jobs created by such a programme will go to those whose marginal propensity to consume is high, thus putting their newly increased income straight back into the economy as they spend their new wages. If, indeed, additional borrowing is required—it may not be required if we just collect the taxes we are owed—the kick-start should not be expensive. I do not think reflation will be a problem. Interest rates are in any case very low so the costs of borrowing are also very low.

There is, however, a serious problem with such a reflationary programme. Although construction and the public services have minimal import content, meaning that additional spending goes initially into the domestic economy, the additional spending will quickly begin to suck in imports and Britain already has a massive and growing trade deficit, largely with the rest of the EU. The figures are stunning. We had a deficit on the current account in 2012 of minus £57 billion, up from minus £20 billion the year before. The goods deficit was more than £106 billion in 2012, more than £2 billion a week. The bulk of this deficit is with the EU 27 and rose from £4.8 billion in January this year to £5.1 billion in February, on course for a deficit of more than £60 billion this year and possibly £70 billion, as was said before. This is a massive problem.

There is a goods deficit with the rest of the world too, up to £4.3 billion in February from £3.4 billion in January, so the deficit is not just with the EU, but the EU is the major problem. Britain therefore has a desperate trade problem that can be solved only by rebuilding and expanding the UK manufacturing sector. It is a shocking fact that manufacturing as a proportion of GDP in the UK is half that in Germany, and it is no surprise that we have a gigantic trade deficit specifically with Germany.

This phenomenon is not new, of course. I have with me a copy of a pamphlet published 24 years ago by the Institute for Public Policy Research called “The German Surplus”. Even then, there was a massive problem that had grown quickly over that decade. It was just such trade imbalances that Keynes knew would cause economic damage and, if they were not addressed, would ultimately cause serious economic and political tension between economies and between nations. The 1944 Bretton Woods conference decided to provide for essential devaluations by deficit countries, and Keynes proposed too that countries with large trade surpluses should be required to revalue their currencies. The latter proposal was rejected by the US, but the necessity of appropriate exchange rates was recognised. This is why the euro is such a disaster and is doomed to fail.

Mercifully, Britain avoided the euro trap and is able to flex its exchange rate. However, it is glaringly obvious that we need to depreciate our currency to become competitive again and to maintain an appropriate exchange rate so that we can rebuild our manufacturing industry. We have seen manufacturing deteriorate over several decades and we need to reverse that trend.

--- Later in debate ---

[Pete Wishart]

The hon. Gentleman is not on particularly steady ground when it comes to the debate on Scottish membership of the European Union. To answer his question, we will not be joining the euro but instead will follow Sweden’s example.

The Scottish people are observing two futures. In one future they remain shackled to the United Kingdom, which will become increasingly shackled to an intolerant, right-wing agenda. The hon. Member for Mid Bedfordshire (Nadine Dorries) has already said that she will have a joint UKIP-Conservative candidacy at the next election. I do not know how many more Conservative Members will adopt that stance. What we are seeing is a realignment of the right. All I have heard from the 1922 committee, which has not been very pleasant recently, with all the disagreements about Europe, is that there is a faultline running through the Government. The Scottish people have a choice: they could have that future, or they could have their own future, determined by them and based on their values.

[Kelvin Hopkins]

The hon. Gentleman is making the case that Euroscepticism is an entirely right-wing view. In fact, across Europe the majority of Euroscepticism is on the left, among socialists, trade unionists and working-class people.

[Pete Wishart]

That might be true, but that is not how it is being demonstrated politically.

What we have observed is a total realignment. There are two different countries, and one is emerging south of the border with increasing UKIP results. It is absolutely certain that UKIP will win the next European election, and Conservative Members should be very careful about all that. They are right to be wary, because it could deprive them of office. I do not know what will happen, but Scotland has a choice—thank goodness—to do something different. We can remain shackled to an increasingly right-wing United Kingdom, almost relaxed about its continuing decline, or we can decide to have a future of our own, a future determined by the Scottish people, based on our social values and the type of community we want to develop and grow. We can choose to be a consensual and helpful friend in Europe, rather than one that likes to criticise, is semi-detached, does not really enjoy being there and is on its way out. Thank goodness we have that choice.

I know the type of future that my fellow countrymen and women will choose. They will opt to ensure that their future is in their hands. They will determine the type of Scotland they want: a Scotland standing proud in a coalition of nations around the world. That is the country I want and I am absolutely certain that that is what my fellow Scots will choose next year.

Section 5 of the European Communities (Amendment) Act 1993

Kelvin Hopkins Excerpts

Monday 22nd April 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move,

That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.

I welcome this opportunity to listen to Members’ views on the British Government’s submission to be made this year under section 5 of the European Communities (Amendment) Act 1993. It is nice to see the hon. Member for Nottingham East (Chris Leslie) in his place. I think we have spent more time opposite each other than we have with our respective spouses in recent weeks.

As in previous years, the Government will provide information to the European Commission on the UK’s economic and budgetary position in line with our commitments under the EU stability and growth pact. This submission, known as the convergence programme, is a legal requirement under agreements this country has entered into, and of course the British Government take such commitments seriously. One must also say, however, that its very name represents something of a relic from a past age—a time when Britain was still ruled by a Government committed in principle to joining the single currency. I can assure the House that that era is well and truly dead and buried.

Members might well ask what purpose is served by this annual exercise and the associated debate in the House. [Interruption.] I thought that this might find an echo in the Chamber. Without wishing to anticipate Members’ contributions, which I look forward to, I would like to suggest three areas for this afternoon’s discussion. I wish first to debate British economic policy within the still relevant context of Europe; secondly, to consider the co-ordination of national economic policies across the EU; and thirdly to reflect on our great good fortune in not having joined the single currency, despite the siren voices heard in this place and elsewhere—thanks, in no small measure, to those who had the courage and foresight to speak against British involvement at a time when their warnings were subject to such derision.

[Kelvin Hopkins (Luton North) (Lab)]

I remember a time when all three major parties, the TUC and just about every good and great person across the land supported joining the exchange rate mechanism. I was one of those who from the beginning said that we should not do so. At the moment, we are all against the single currency, but I remember a time when even the Minister’s party was moving in that direction.

[Greg Clark]

I do not think that that is entirely right, although I happily acknowledge that the hon. Gentleman was on the side of right throughout. I remember working for the Foreign Secretary when he was leader of our party. In November 1997, when, as the hon. Gentleman said, the received opinion was that our joining was inevitable, my right hon. Friend made the courageous decision to set out in a lecture to the conference of the CBI, which then was in favour of joining, the forensic reasons why it would not be in our interests. He committed then, right at the beginning of the parliamentary process that resulted in these measures, to campaign for Britain to stay outside it. While I acknowledge the hon. Gentleman’s distinguished record, I think he would acknowledge that the Conservative party was the first party to commit itself to oppose these measures.

The Government plan to make their submission by 30 April, with the approval, we hope, of both Houses of Parliament. It explains the Government’s medium-term fiscal policies, as already set out in the 2012 autumn statement and Budget 2013, and includes the Office for Budget Responsibility’s forecasts. We think it right and proper to draw from previously published documents presented to Parliament, rather than incur the cost and time to produce bespoke documents for this purpose.

--- Later in debate ---

[Greg Clark]

In fact, some countries are recognising that, but we want to set an example. It is important that we stick to our plans and continue to benefit from the confidence that the markets have shown through the level of interest rates. We also say in our deliberations in Brussels, as well as making the point in budget discussions, that when times are difficult, belts need to tightened.

[Kelvin Hopkins]

I must say that I am astonished. It is almost as if no one in the Chamber has read the newspapers over the weekend and seen the IMF report that it got the premise for austerity completely wrong. Owing to a mistaken figure in a spreadsheet, we are all going for austerity, which is a terrible mistake. Is that not the reality?

[Greg Clark]

I do not agree with that. The hon. Gentleman will be aware that the IMF recommends to many countries around the world, not least in Europe—this is the point my hon. Friend the Member for Bury North (Mr Nuttall) referred to—that they should get their public finances in order.

When the Office for Budget Responsibility revised its forecast for global economic growth—and eurozone growth in particular—and world trade downwards, that had an inevitable impact on UK growth, given that the euro area is the destination for 40% of UK exports. Over the past year, net trade was the key factor in the underperformance of the economy relative to earlier OBR forecasts, as well as in the downward revision of the forecasts this year and the year after. Fiscal consolidation, on the other hand, has not had a larger drag on the economy than the OBR expected in June 2010. Indeed, the UK’s fiscal situation argues strongly in favour of maintaining our commitment to deficit reduction.

Opposition Members sometimes accuse us of going too far, too fast, but there is further to go and we must get there as fast as we sensibly can, not least because so much rests on the market-tested credibility earned by this Government. The near historic low gilt yields that underpin the low interest rates that are so important to millions of households and businesses cannot be put at risk. As shown by global developments, the consequence of losing market confidence can be sudden and severe. A sharp rise in interest rates would be particularly damaging to an economy weighed down by the burden of so much public, corporate and personal debt, built up during a time when it should not have been.

--- Later in debate ---

[Chris Leslie]

These Benches are not massively more empty than those on the Government side of the House. She will have to accept that this can, at face value, appear to be quite an obscure issue. [Interruption.] There are not many people on her side of the House, but I do not want to get into a contest on that matter.

[Kelvin Hopkins]

I want to pay my hon. Friend a compliment by saying that Labour Members do not need to turn up because they have such confidence in our shadow Minister and they know that he will speak for us.

[Chris Leslie]

That is one way of looking at it.

The point that concerns me is that the Government have in recent days tried to shove this issue off the Floor of the House and sweep it upstairs to a Delegated Legislation Committee. The Minister has said that this is a busy time of year and that the Government do not want to waste the House’s time with these questions, but we are already faced with an opaque description of the legislation, so it is no wonder that they are trying to push it out of parliamentary time. It is, in fact, the kind of legislation that ought to be advertised more to hon. Members.

--- Later in debate ---

[Chris Leslie]

Long-term interest rates reflect a number of factors. Government Members would like to think that low bond yields were a reflection of fiscal policy measures alone—[Interruption.] The Minister should hear me out. He likes to think that that is the one test. As I say, it used to be retention of the triple A credit rating, but that has gone, so something else has had to be found. Long-term bond yields, however, are also a reflection of who is purchasing them. I do not know whether the Minister can help us out by elaborating on who exactly is purchasing the Government bond yields, because the Bank of England seems to be doing an awful lot. One branch of the UK Government institutions is helping out the other branch of Government institutions—depressing, of course, that yield. The Minister should not be too proud of market expectations that things are going to be so bad for so long that our interest rates are at the ultra-low level. It is not a reflection of fiscal policy; it is a reflection of expectations of future economic performance and of the interventions in monetary policy by the Bank of England.

[Kelvin Hopkins]

Is it not simply the case that bond markets can get things terribly wrong as well? We know of the 1929 crash and the 2008 crash, for example. I have no doubt that some have great optimism about the future of the world and national economies, but they can get it wrong, too.

[Chris Leslie]

That is why some in the bond markets in the City and even the IMF and other economic commentators and business leaders are increasingly saying—as PIMCO did today in its intervention on these issues—that we have to do something about this. Demand in the economy is cripplingly bad; we have to do something to take a different course. The Chancellor’s plan is not just failing; it is adding to our problems with the public finances. We will see the state of the deficit reduction plan and what is happening with this trajectory when we see the figures tomorrow. We hear of blaming the snow, blaming the royal wedding, blaming all sorts of other players including the European Union; it is amazing how we never hear that it is the fault of those who currently occupy the Treasury.

--- Later in debate ---

[Kelvin Hopkins (Luton North) (Lab)]

I rise to speak briefly in support of my hon. Friend the Member for Nottingham East (Chris Leslie) about the nonsense of presenting the fiction of the Red Book as though it represented the truth about our country. Another organisation—perhaps the Institute for Fiscal Studies—would do a better job.

Last week, in a speech in the Chamber, I reminded colleagues of an organisation that used to get forecasts right: the Cambridge Economic Policy group. But it was a left-leaning Keynesian group and the Conservative Government of the time withdrew its funding, because they did not like its answers and chose to follow the London Business School, which always got the forecasts wrong. The Sunday Times always gave it nought out of 10. Let us not pretend that all forecasts speak the truth. Officials will never present the Chancellor with a gloomy picture; they try to put as big a gloss on things as possible so that the Chancellor can say nice things to us in the Budget speech.

I only wish that the colour of the Red Book represented some of the policies inside, but I am afraid it does not. The antiquated language is nonsense. The Minister drew our attention to the fact that the reference to convergence was born of the past assumption that all countries would be in a single currency, we would all be growing nicely together, and poorer countries would become rich countries. That has all been washed away; it is all complete nonsense. It seems the only convergence we seek now is with an area that might be in terminal decline—the European Union. It is in serious economic difficulty, so do we want to converge with it? I suggest we want to diverge from it and make our economy work.

Although there are areas where we would have definite disagreements, the hon. Member for Stone (Mr Cash) often says things I agree with. He said we were talking about a German European Union. In 1989, the Institute for Public Policy Research published a document called “The German Surplus,” which was quickly suppressed because it was too explosive. The whole political establishment was moving towards a pro-euro, “Let’s join the single currency and the exchange rate mechanism at the wrong time” approach. I still have a copy of the document and I think it can still be found on the internet. It said that Germany had built an economy around itself, such that it could sustain low parity for its currency against all the others. Building that low parity for their currency into the euro meant that the Germans would always have a competitive edge over the other countries and could export to them freely. What they did not appreciate was that over time those countries would run out of money and Germany would have to lend them money to buy German products, which is what has been happening. Germany either has to dissolve the whole arrangement or carry on giving vast sums of money to other members of the eurozone to help them buy German goods.

[Mr Cash]

The hon. Gentleman may find it interesting to read the book by the Institute of Economic Affairs on that very subject.

[Kelvin Hopkins]

I shall certainly look it up.

Ministers go on and on about the importance of exports to the rest of the European Union—our Ministers did too—but they rarely talk about imports. We have a gigantic trade deficit, which is getting worse and worse every year. Even between January and February, the goods deficit with the EU rose from £4.8 billion to £5.1 billion. It now looks as though the trade deficit this year may be £60 billion. That is enormous; it is more than £1 billion a week. We are buying £1 billion more goods from the EU every week than the EU buys from us. That is not a sensible way to run an economy.

[Mr Nuttall]

Does that statistic not put the lie to all the people who claim that 3 million jobs would be lost if we left the EU?

[Kelvin Hopkins]

Indeed. If we just maintained balance, we would gain a million jobs overnight. If we go back to the Bretton Woods arrangements following 1944, Keynes was concerned about trade imbalances and he wanted arrangements to be put in place across the world that would avoid big deficits and big surpluses. Also, he wanted to require those with big surpluses to appreciate their currencies, as Germany should have done a long time ago. We are just going through the motions of arrangements made years ago which no longer have any serious meaning.

Germany is now in trouble. It has faced a savage reduction of 17% in car production in the space of one month. It is in difficulty and will have to look to itself to solve that problem. George Soros has suggested that one of the ways out of all the present problems is for Germany to leave the euro and to recreate the deutschmark, which would naturally appreciate. All the countries now tied into the euro would then have difficulty. Denmark, for example, would want to devalue straight afterwards. Others are now talking about what George Soros said. There are people in Germany who want to leave the euro.

There was an extremely interesting article in The Guardian this morning, suggesting that the only way out of this is for all the countries of the European Union to recreate their own currencies and to find appropriate parities for those currencies. If a country has its own currency, it can borrow and it can print money. It may be forced into a devaluation but it manages its own economy nationally and it can adjust the shock absorbers of separate currency, which are vital. The example used is Japan, which has had serious problems but is managing its economy internally.

I draw Members’ attention to the one country that has come out of the current crisis rather better than all the others—that is, America. It is surprising, but American growth is at 2%, whereas ours is well below 1%. Although America still has serious difficulties and serious unemployment, it is doing better than Europe because it is pursuing growth policies, which necessarily mean more borrowing.

I know that hon. Members on the Government Benches are horrified at the thought of more borrowing, but I urge them to read the great book by John Kenneth Galbraith, “The World Economy since the Wars”, where he pointed out that during wars—classically, the second world war—America borrowed vast sums from its own citizens. They finished up with lots of war bonds which they cashed in, and the American economy started off as the strongest economy in the world, stronger than it has ever been because of the massive investment in manufacturing that took place during the war. Its debt was based on borrowing, which was paid back over time, as the American economy grew, with full employment.

I could go on, but I will not. Debating the motion every year is a nonsense. We ought to be looking at more sensible ways of running our economies.

Finance (No. 2) Bill

Kelvin Hopkins Excerpts

Thursday 18th April 2013 Commons Chamber

[Jacob Rees-Mogg]

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

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

[Kelvin Hopkins (Luton North) (Lab)]

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

[Jacob Rees-Mogg]

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

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

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

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[Jacob Rees-Mogg]

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

[Kelvin Hopkins]

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

[Jacob Rees-Mogg]

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

[Jacob Rees-Mogg]

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

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

[Kelvin Hopkins]

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

[Jacob Rees-Mogg]

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

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

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

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

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[Mr Gauke]

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

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

[Kelvin Hopkins]

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

[Mr Gauke]

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

[Kelvin Hopkins]

indicated assent.

[Mr Gauke]

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