Finance Bill
Lord Beamish Excerpts(14 years, 11 months ago)
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Mr Kevan Jones (North Durham) (Lab)
Does my hon. Friend agree that the measure will also have an effect on the wider economy? For example, Newcastle airport in the north-east is a huge economic driver, and East Midlands airport, near my hon. Friend’s constituency, is a huge employer. The measure could have an impact on the business of those two airports—and many others.
Chris Leslie
There will be consequences if, because of the extra cost of a family holiday, our constituents are disincentivised from going abroad or travelling. The Chancellor of the Exchequer’s imposition of a holiday tax is something that I hope many travel pages in the Sunday newspapers and supplements will focus on, perhaps by modelling the costs for a typical family. About £400 million of travel insurance business is carried out in this country each year, and that accounts for a significant part of not only the insurance industry, but the economy more generally.
Mr Gauke
That is not what I am saying. I am saying that the increase in insurance premium tax, which is payable by insurers, is likely to be passed on to consumers. We are not denying that; in simple terms, we need the money.
Even if the increases to the standard and higher rates of IPT are passed on in full, the impacts will be very modest, costing households less than 20p a week on average and businesses an average of less than 0.01% of annual turnover, even for smaller businesses.
Mr Kevan Jones
I am not sure whether the hon. Gentleman has renewed his car insurance or household policy recently, but he will find that most insurance policies make it clear exactly how much tax is paid, so I do not think it is the case that they will withhold the increase and not pass it on to the consumer.
Mr Gauke
I am grateful to the hon. Gentleman for underlining an earlier point that I made—that it is not necessary to introduce regulation in this area. As I say, we anticipate that it will be passed on, but it is not mandatory. I am not denying that position.
Despite these modest impacts, the IPT rate increases will contribute more than £450 million a year to reducing the deficit. As I said, such decisions have been forced on us by the economic circumstances that the UK finds itself in, and they have not been taken lightly. We are confident, however, that this modest rise in IPT, which leaves the main rate of the tax significantly lower than that of many of our European competitors, is a means of raising much-needed revenue that will not have a significant impact on households, businesses or the insurance industry.
Mr Kevan Jones
Over the past few weeks since the coalition came into being and the announcement of the Budget, the rhetoric that we have heard has been all about fairness. The Prime Minister and the Chancellor have said on many occasions, “We’re all in this together.” The other phrase is, “There’s no alternative.” We have heard the accusation that the previous Labour Government did not have a deficit reduction strategy. Well, this element was a key part of that—£3.6 billion of it.
I am quite sad that only one Government Back Bencher is in the Chamber, and I notice that the Liberal Democrats have not been here throughout this debate. During the election, we heard nothing about the VAT rises, but we also heard nothing about the fact that one of the things that the Government would do in their first Finance Bill would be to give a £3.6 billion tax give-away to the richest 2% of pensioners. I am sure that that would have gone down very badly with the electorate if the Government parties had been honest with us at that time. During the past week, the Liberal Democrats and the Conservatives, in their great coalition together, have been arguing that VAT is not regressive, although a key exception is the hon. Member for St Ives (Andrew George), who has found this policy very difficult. However, one cannot say that the measure we are debating is progressive at all.
Sammy Wilson
Does the hon. Gentleman accept that if the amendment, which would require a distributional analysis of any changes, were accepted, we would be in a position to make a judgment on whether a system that is complicated, as the shadow spokesman said, was at least being replaced with a system that was fair and did not, as the hon. Gentleman says, give a huge amount of money to the very richest people?
Mr Jones
I entirely agree with the hon. Gentleman. There seems to have been confusion from the Minister in the sense that she is saying, “Nudge nudge, wink wink, say no more”—in other words, that the Government might not actually introduce this measure. If this change is to be made, we need to know who it will affect lower down the income chain. If the top 2% are not going to carry their share of the burden, people lower down the tax scale will be affected, such as pensioners, who are already being hit by VAT and other implications of this Budget.
This proposal affects 300,000 people—2% of pension savers and 1% of working age taxpayers. We are being told that it is fair, just and progressive to abolish what was put forward by the previous Labour Government, which would have raised £3.6 billion to help to reduce the deficit that was created because of the lending we had to provide following the economic crisis. I am sorry, but I do not accept that that is fair, and I think that if this were explained to most members of the public, they would agree. Currently, no one who earned under £130,000 a year would be affected by this measure. If someone is in a Cabinet packed full of millionaires, that perhaps skews their perspective on what poverty is and what income buys. However, the average member of the public, certainly in North Durham, would be appalled by the fact that we are going to let off people who are earning what is not just a good wage but, for most of my constituents, a fantastic, unimaginable wage.
Thomas Docherty
My hon. Friend is obviously very much in touch with the north-east of England. Would he care to speculate as to whether, among the 2% of the population who will benefit, there will be an equitable distribution across the UK, or whether the vast majority who will benefit will be located in certain parts of the country not too near his constituency or mine?
Mr Jones
My hon. Friend raises a good point. Clearly the net beneficiaries will not be in the north-east of England, Northern Ireland or Scotland. They will be those in the south-east of England. The disposable income of those individuals will be a lot greater than that of a lot of our constituents, who will be hit by the VAT increase.
We have seen that give-away, but there is something else in the Budget that I find absolutely amazing. We heard the other night that under the corporation tax proposals, the banks will be given a cash-back of £400 million. The same individuals will no doubt benefit from the proposals that we are currently discussing. We have been hearing the mantras in the past few weeks that there is no alternative and that Labour left the economy in the mess.
Mr Jones
Let us not forget that one. However, the proposal in clause 5 will leave a big black hole in the deficit reduction strategy. The Economic Secretary hinted, “Well, we might not do it, or we might do something different.” I am sorry, but if we are to have a thought-out plan to reduce the deficit, that is not the way to approach the matter. What we need is firm figures that do not make the poorest in society pay, which the proposal clearly will. She needs to explain to the House why neither she nor the Liberal Democrats went into the election saying that they would make this change. A lot of pensioners will find it very difficult to stomach.
Ms Angela Eagle
Does my hon. Friend agree that neither partner in the coalition Government went into the general election telling pensioners that they would change the definition of indexation from the retail prices index to the consumer prices index, either?
The Temporary Chair (Mr David Amess)
Order. I hope that before the hon. Gentleman responds, he will reflect on the fact that the point that has just been made is not really relevant to the matter being discussed.
Mr Jones
I would not want to go against your judgment, Mr Amess, but may I say that my hon. Friend’s point is another example of how hard-working pensioners in my constituency will be affected by the Budget? However, I defer to your wise counsel and would not want to get on the wrong side of you.
Distributional analysis is needed before anything is done. We also need to know, if the relief charge is not going to go ahead, where the money is going to come from. It will affect pensioners lower down the income scale. Many on quite small incomes, who have saved all their lives for their pensions, will basically be paying for a give-away to the richest 2% in the country.
I hope that we can get the message out loud and clear from today’s debate that we have a Government who are clearly taking care of their friends, the top 2%. They have to start being honest with the British people—this Budget is not about deficit reduction. It is about an ideological approach to where the burden of taxation should fall and to the size of the state, and it will not help many of my constituents in North Durham.
Geraint Davies
It is a great pleasure to follow my hon. Friend the Member for North Durham (Mr Jones), who puts his finger on one of the key points. Obviously, the previous Government were attempting to raise £3.6 billion to tackle the budget deficit. They targeted the top 2% of people—those earning more than £150,000, including employer contributions. Those people anticipated that increase and budgeted for it and now, in the ashes of the economic downturn imported from the United States, the impact of raising the £3.6 billion is being spread across a much wider pool—10% of the people.
As has already been said, the suggestion that we are all in it together rings hollow. Public sector workers are on pay freezes and the incomes from their pensions, like those from private sector pensions, will be reduced by 16% over 20 years through the other change that has been mentioned—the link to the consumer prices index. On top of all that, the tide of the £3.6 billion will break over them. The impact will be great, and I very much regret it.
Mr Kevan Jones
Does my hon. Friend also agree that the 2% of taxpayers who will get the £3.6 billion cash give-away are also in a position to take tax and accountancy advice, which could reduce their tax liabilities? That will not be open to pensioners who are paying the VAT increases or the public sector workers to whom he referred.
Geraint Davies
My hon. Friend is right. The status quo proposal of getting the £3.6 billion from the top 2% was based on standing back and considering whether there should be greater tax relief for those who are already the richest. The answer was no. At difficult times, those with the broadest shoulders should bear the greatest burden, but now, the burden is being taken from them and placed on much weaker consumers. That will undermine the attractiveness of pension schemes among larger numbers in middle income groups.
In essence, the proposal is to reduce the tax allowance from £255,000 a year to some £30,000 to £45,000. That creates an enormous difference in how many and which people are captured, and generates great anxiety in the industry—the providers that it represents and consumers whom it serves.
Justine Greening
Many people on the minimum wage will not view it as progressive for someone who can afford to pay upwards of £100,000 a year into a pension fund to be given a 20% marginal rate tax break. In fact, that was not the only problem. Having listened to the concerns of the pensions industry and employers, this Government have real reservations about the approach towards pensions tax relief that was adopted in the Finance Act 2010. We believe it could have unwelcome consequences for pension saving, bring significant complexity into the tax system and damage UK business and competitiveness. The director general of the CBI said of the previous Government’s measure, brought forward in the Finance Act 2010:
“This will have serious consequences—it will make it much harder for UK business to attract and retain global talent… In every way, it’s a bad move.”
In addition, a number of features of the approach adopted in the Finance Act 2010 were unfair. For example, it included a very complicated income test, which made it difficult for individuals and advisers to understand. It also made it difficult for individuals to plan, as they would not know their final income until the end of the tax year so they would not know until then whether or by how much they would be affected. The income test also created many perverse incentives, avoidance opportunities and anomalies. For example, different charges could arise, depending on whether an individual or their employer made the pension contributions.
Under the approach in the Finance Act 2010, individuals on the highest incomes, who are able to put in very large pension contributions—upwards of £100,000 to £200,000 in one year—would have continued to get pensions tax relief, as they would still have been able to get relief at the basic rate rather than the higher rate. That is worth up to £51,000 a year. Given our concern for fairness, we believe—
Justine Greening
We are proposing a different approach, which would address that very measure. The decision for the hon. Gentleman to take tonight is on whether people who are able to pay £100,000 to £200,000 a year into their pension fund should be able to get tax relief at the basic rate. That is the question for him to answer.
Finance Bill
Lord Beamish Excerpts(15 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John McDonnell (Hayes and Harlington) (Lab)
I beg to move amendment 11, page 1, line 6, at end insert—
‘(2) Subsection (1) shall not have effect unless the Chancellor of the Exchequer has laid before the House of Commons a report on the extent of avoidance and evasion of corporation tax and on the measures he proposes to take to ensure the payment of tax which is due.’.
I almost feel like apologising for returning to the issue of tax evasion and tax avoidance, which I have pursued for a number of years since the debate that we had about the merger of Inland Revenue and Customs and Excise to form Her Majesty’s Revenue and Customs. The amendment is fairly straightforward in seeking that a report be prepared by the Chancellor of the Exchequer before corporation tax and capital gains tax measures are agreed by the House. I will not repeat myself in relation to amendment 12 to clause 2, although I will move amendment 12 formally. We have argued consistently about how to tackle evasion and avoidance and the investment required to do so.
Let me explain the rationale behind the amendment. I listened to the Second Reading debate into the early hours, including the discussions about Randalls of Uxbridge, which were enlightening at that point in time—
John McDonnell
As my hon. Friend says from a sedentary position, the discussions were refreshing, to say the least. I think there is another sale on at the moment.
The debate was about how to resolve the deficit that has arisen as a result of the credit crunch and the economic crisis that we face. Clearly, the division was around the level of reductions in public expenditure required and the time scale for their implementation. There was fierce debate about the level of public expenditure decreases and their implications for jobs losses, cuts in services and the impact on communities.
What was absent from the debate was a discussion of increasing tax revenues as an alternative to cuts. Everyone appreciated that the deficit needs to be reduced. There was some agreement, even across Benches, on some cuts, particularly with regard to ID cards and, perhaps, Trident. With regard to cuts in education and welfare benefits, however, there were strong differences. We need to look again at tax avoidance and evasion. There has been confusion about definitions in previous debates. Tax evasion is defined closely as the illegal non-payment or under-payment of taxes, usually resulting from the making of false declarations, or from no declarations of taxes to tax authorities, and can result in legal penalties. Tax avoidance is seeking to minimise a tax bill without deliberate deception, but contrary to the spirit of the law.
John McDonnell
The difference is clear with regard to legality and illegality. The technical implementation of tax legislation can be complex, so people can misunderstand which side of the fence they fall. During earlier debates in the House, the Denis Healey quote was cited that the difference is a prison wall. The implementation of measures to tackle tax evasion in particular is critical to the sound management of public finances and, obviously, to probity in the management of tax resources.
Chris Leslie
My amendment is quite simple. It does not seek to alter the rate of corporation tax suggested in the Budget, except in one respect: it should not apply to banks and banking institutions. Surely few issues can highlight the unfairness and injustice of the Government’s Budget more effectively than the suggestion that, of all the sets of institutions that should benefit from more advantageous tax arrangements, the banks should be given such a windfall at such a time.
I was prompted to table the amendment by a flurry of reports that appeared immediately after the Budget statement, suggesting that the banks would be net beneficiaries. Deutsche Bank analysts were reported as saying that the Budget was a “good outcome for banks”, and John-Paul Crutchley, an analyst at UBS, expected that Lloyds and HSBC would benefit by 2012 as a result of, particularly, the cut in corporation tax.
We must look at this measure in the context of the other Budget provisions. While the Finance Bill is, I suppose, substantial to a degree, it addresses only one short set of Budget measures that presumably will be brought before the House in different Bills at different times in the coming year, and it is a shame in a way that we will not get a chance to address this corporation tax measure in that wider context. I do not think any Members are opposed in principle to the banking levy that the Chancellor announced, although many might question whether it is tough and stringent enough.
Mr Kevan Jones
Does my hon. Friend agree that this cut will be unfair to small businesses in that while the major banks that got us into the financial mess two years ago will benefit from it, many small and medium-sized businesses will have to pay for it through the cut in the annual investment allowance from 2012?
Chris Leslie
Indeed, I think there is a set of unfairness issues that affect not only public services and our constituents, but business to business. Many small businesses will be incredulous at this giveaway to the banks, which are having their corporation tax cut. HSBC’s own banking analysts agreed that they would be better off. One of them was quoted in the media as saying:
“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-Budget.”
Analysts at Redburn Partners said that Lloyds in particular would see a 3% rise in its earnings per share by 2012, especially as corporation tax is planned to be reduced to 24% over time. The measures in this Bill make only a 1% change in that tax from 28% to 27%, but as the years pass the banks’ gains clearly will accrue and become even greater.
It was no coincidence that the share prices of some of our leading banks leapt after the Budget statement, even though, paradoxically, it included a banking levy that they supposedly feared. Lloyds shares gained 2.7% the morning after the Budget, and others were similarly jumping for joy. The Daily Mail—a journal of great repute—reported that a city insider was privately very happy, saying that
“some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly.”
It will be for the Minister to defend this measure of course, and I look forward to hearing him explain why, of all institutions, the banks deserve this windfall at this time.
The interplay between the banking levy and the impact of the corporation tax cuts must be at the heart of our considerations this afternoon, and I am glad that my Front-Bench colleague my right hon. Friend the Member for East Ham (Stephen Timms) and the hon. Member for St Ives (Andrew George) have tabled amendments that also seek to probe that issue. My amendment would have the effect of not passing on the corporation tax cut, and theirs’ would insist that at the very least the Treasury conduct a review of these matters.
My concern remains that the banking levy was set at far too low a rate—starting at 0.04% and rising to the heady heights of 0.07%. I gather that might even be about half the level at which the Americans set their banking levy. The notion that this was all done internationally at the same level is absolutely not the case. For some bizarre reason, the Chancellor really held back. He made great play of this levy in the Budget statement because he knows the general public are angry about the situation the banks have left in this country. They are furious that the banks were the source and cause of many of our national debt problems and the deficit we face today. I am glad that the Government say at page 26 of the Red Book that they will consult on the final details of the banking levy, and I urge the Minister to think carefully about how that levy will play in relation to the corporation tax reduction, because if the banks are gaining from that, it must be possible to ensure that they pay their fair share at some point .
Chris Leslie
I may be wrong, but it is my recollection that a number of countries simultaneously came out with their banking levy arrangements, on the continent as well as America, and it was, of course, the natural point at which to introduce a banking levy. It is a matter of nuance whether we get a collection of large industrial countries to act simultaneously or we act on our own as a country, but I think it is necessary to have a banking levy that recoups all the payments that the banks took from our taxpayers.
Mr Kevan Jones
My hon. Friend refers to page 26 of the Red Book, which states at paragraph 1.63 that
“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage banks to move to less risky funding profiles.”
The paragraph concludes by saying:
“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
Does my hon. Friend agree that that actually supports his amendment, in the sense that we should not take decisions on the banks’ corporation tax rates before this levy is introduced?
Chris Leslie
I could not agree more. It would not be in order to stray too far from the topic of corporation tax, but it is important that we see this change in context. It appears that the Chancellor press-released the fact that he was taking, in some brave measure, an amount of money from the banks through the banking levy, but failed to publicise that he was also giving that back with the other hand through the reduction in the corporation tax rate.
We are talking about significant and serious amounts of money, and the Minister ought not to be so careless with this revenue as it is needed to repair our deficit and to protect our public services. I am very surprised that the Treasury did not take action to plug this loss of revenue, but chose instead to apply the reduction in corporation tax across the board.
We must not forget that the banks have already benefited from an enormous amount of largesse from the taxpayer more widely. The Royal Bank of Scotland and Lloyds Banking Group had £76 billion of their shares bought by the taxpayer. The Bank of England had to be indemnified against losses incurred in providing more than £200 billion of liquidity support. There have been guarantees of up to £250 billion of wholesale borrowing by the banks to strengthen liquidity. Also, £40 billion of loans and other funds were made to Bradford & Bingley and the Financial Services Compensation Scheme. There was insurance cover of more than £280 billion for bank assets as well. These changes were not unnecessary at the time; they were absolutely vital as a way of ensuring that our banking system—our credit system—did not collapse entirely.
Had the coalition parties been in power at that time they would have had to fulfil exactly those same commitments, assurances and undertakings to make sure that our banking system did not collapse. That is why it infuriates so many members of the public to hear Members on the Government Benches claiming that that was a partisan cause or that our spending such a large share of our national income on public services is the real cause of our deficit, when in fact responsibility lies squarely at the feet of our banking sector.
Chris Leslie
That is entirely so. Those with significant financial wherewithal—the corporate advisers, the consultants, the accountants—are always exceptionally adept at lobbying Ministers and making their points in their detailed ways, often with the general public entirely unaware that such measures are being put in place to their advantage. Clearly, the banks have been very aggressive in lobbying for these changes. It appears they may well have been successful in watering down the banking levy, while at the same time gaining benefit from this corporation tax change.
The Minister may argue, “Ah well, some of our banks made very significant losses in previous financial years, and because of the complexities of our corporation tax law, companies have certain rights to recoup some of those losses from the corporation tax they paid previously.” In my view, the banks should also be excluded from making such claims—or at least, their ability to do so should be lessened. I was unable to frame my amendment in that way—that takes a certain level of drafting—but we must ensure that the Treasury does not allow the exceptionally clever and highly paid advisers whom the banks can employ to find their way round the provisions and take even more money from the taxpayer.
Mr Kevan Jones
Reference has already been made to Barclays, whose full-year profits increased, I understand, by 92% in 2009 to stand at some £11.6 billion. Does my hon. Friend agree that Barclays will also gain from what is now proposed?
Chris Leslie
That is especially true over the longer term, and, as I was saying, although clause 1 refers only to the financial year 2011-12, the Government clearly intend to go even further even faster.
There may well be a case for saying that all companies need to be treated the same and that it would be wrong to discriminate against a particular class, and the Minister may argue that there are other sets of corporations—large oil companies, the privatised utilities and so on—that the public would frown on if they regained a corporation tax benefit, for example. In my view, the public are getting wise to the cause of the reduction in public spending, some of which, naturally, is driven by Conservative party ideology. However, the reductions that are driven by the existence of the deficit are largely the result of the costs incurred in bailing out the banks and the subsequent recession. Because of the lack of credit available in the wider economy, we had fewer tax receipts. In fact, the real story of the deficit is not that we are spending so much on public services, but that tax receipts are considerably lower.
Chris Leslie
I just wanted to place the hon. Lady’s comments in their particular context.
It is certainly true that the general public have a distaste for the excessive bonuses and remuneration of those in the banking industry, but such remuneration would not be possible were it not for the high profit rates that the banks were able to post and report on so many occasions. We are indeed all shareholders in many ways—either directly, or indirectly through our pension funds or as taxpayers—and Members on both sides of the House will hope that, over time, the banks will be returned to some level of normalcy. However, necessarily, they must not, as institutions, evade—or avoid; I want to use the correct parlance—paying their fair share.
Mr Kevan Jones
It is not just the general public who feel that way. On 20 April 2010, the now Deputy Prime Minister—I think he and his party are still one and the same—called bankers “reckless and greedy”, saying that they have been allowed to hold a gun to our heads.
Chris Leslie
My hon. Friend is right. Before the general election, there was a lot of tough talk and rhetoric from both Conservatives and Liberal Democrats. Indeed, The Sun—a journal of great repute—said on 20 March that the then Leader of the Opposition
“singled out the banking industry as one example of ‘vested interests’ he is determined to confront and who he accuses Prime Minister Gordon Brown of failing to stand up to. ‘We had the biggest bank bail-out in the world. We can’t just carry on as if nothing happened’”.
I am afraid we may well be carrying on as if nothing had happened, especially if the banking levy is offset by this giveaway in corporation tax.
Chris Leslie
I would not want to set the hare running across the City of London that the long arm of the law is necessarily about to grab them on the shoulder, but I understand the frustration and anger of the British public more widely, and all politicians in this House should be angry. While it is fun and games for the Conservatives and Liberal Democrats constantly to say, “Ah well, it was the Labour party that left us in this predicament”, they know very well that the root cause was the greed and excess of the banking sector, which ought to pay its fair share.
Chris Leslie
The hon. Lady makes her case. We can all, in hindsight, say that regulatory improvements should clearly have been made. The British Government could claim that work should have been done to ensure that that was the case in America, in every country in Europe and all the around the world. It is absolutely true to say that the whole worldwide banking system ought to have been more closely regulated, but that was the first time I have heard a Conservative Member defend the reduction in the corporation tax rate—that is the specific measure that we are discussing. There may be a need to debate the regulatory changes that should apply to the financial services industry—I look forward to those proposals being made—but I still do not understand her argument about anti-competitiveness. It is important to hear why the Government believe that the banks deserve this particular cut.
Mr Kevan Jones
The hon. Member for South Northamptonshire (Andrea Leadsom) has just said that we should not have a differential rate of tax, but may I again cite paragraph 1.63 on page 26 of the Red Book, which comments on the introduction of the banking levy? Its final sentence says:
“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
Is that not exactly what we are going to see here?
Chris Leslie
Quite, and this is important. We could send a signal from this House that we, as politicians and representatives of the general public, believe that that particular industry has to pay back the cost it is has left upon the shoulders of the general public. Is it not always the case that the general public—the ordinary working people—have to dig us out of the hole created by those affluent and comfortable individuals who work in the banking system?
Chris Leslie
If some analysts, who on the secondary evidence before me are saying publicly that they believe that the corporation tax—
Chris Leslie
If they are saying that the corporation tax cashback, as my hon. Friend says, will offset the levy, perhaps by less than the banking levy or perhaps by more, then I think this would be wrong. It sounds as though the hon. Member for West Suffolk (Matthew Hancock) is defending the cashback arrangement that he wants to implement—[Interruption.] The hon. Gentleman says he is in favour of cutting the corporation tax rate for the banks. Government Members will vote that way. I am incredulous about that.
Andrew George
I am not sure that I am qualified to advise, but I am sure that the hon. Gentleman is right. If the Treasury could be encouraged to adopt this approach, I hope that it would at least ensure that it was sufficiently free-ranging to deal with any of the consequential behavioural activities that might arise as a result of such proposals.
Mr Kevan Jones
Although we are rewarding the banking sector, the proposals on annual investment allowances, which are cut in the Budget from £100,000 to £25,000, will directly affect many small and medium-sized businesses. Surely it is wrong that we are rewarding the people who got us into this mess in the first place, but penalising small businesses, which are getting a double whammy, because they are penalised by the lack of lending from the very institutions that we are rewarding.
Andrew George
Opposition spokesmen and the Treasury Ministers will have heard that intervention, which further embellishes the point that the hon. Gentleman wishes to make. I have no further comments to add, and I look forward to the Minister’s response.
Mr Kevan Jones
It is a pleasure to follow the hon. Member for St Ives (Andrew George), who has become a rather lonely figure on the Government Benches. Last week, he was the only Liberal Democrat who was not defending the indefensible, for which I pay him credit. At least he is prepared to come to the Chamber and argue against the measures in the Budget that will affect his very poor community in Cornwall, unlike some of his colleagues, who make comments in the press, but are absent from debates on the Finance Bill. I hope that on at least one or two occasions he will join us in the Lobby to stop the effects of the measure on his constituents and mine, although I know that he feels uncomfortable about voting against the coalition.
In 2008, in the run-up to the general election, bashing the bankers was something that everyone wanted to do. It is strange that we now have a Finance Bill that will reward them. There has been a change in the past few months from the stance that the Deputy Prime Minister adopted on 20 April, when he described bankers as “reckless and greedy” and holding
“a gun to the head”
of the country.
I support the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) and by my right hon. Friend the Member for East Ham (Stephen Timms), and the amendment tabled by the hon. Member for St Ives. I wish to deal with the effect on other sectors, which that amendment raises. We have discussed the banking sector a great deal, but it is important to look at other sectors, too. There has been a feeding frenzy, which suggested more or less that the previous Government got things wrong, and that we should be penalising the banking sector. That view was reinforced by the Prime Minister himself who, when he was in opposition, said on Channel 4 in December 2008 that
“more senior bankers should be sent to prison.”
On another occasion, he should that they should do voluntary work rather than earn large bonuses in the City. The Conservative party went very quiet at the election, possibly because, as the Deputy Prime Minister said—and I agree with him—it is
“completely in hock to the City”.
We have seen that position defended tonight.
A number of banks have clearly made huge profits. Barclays, as has been mentioned, had a 92% increase in profits in 2009, and stand at £11.6 billion. The Royal Bank of Scotland—remember that?—paid its investment bankers £1.3 billion in bonuses, despite making just £1 billion in profit. Lloyds has made a profit of up to £1 billion. The proposals in the Finance Bill to reduce corporation tax rewards the banks for the mess they got us into, and do not acknowledge the fact that the individuals in question have been carrying on regardless, even though, as several hon. Members have said, the people who have suffered will have their services cut. The members of the public who are the victims are somehow to blame for the financial mess that we are in.
I do not understand how—well, I can, because they are called Conservatives—in the lead-up to the election, people can speak tough words against the banking sector, but one of the first things they do is to reduce corporation tax and reward the individuals who got us into the mess in the first place. Those same Conservatives—this was raised by my hon. Friend the Member for Nottingham East—opposed all the measures that we took not only to ensure that the banking sector did not collapse but to protect the British economy.
Chris Leslie
My hon. Friend is making an extremely strong case for the amendments. Is it not the case that the Government absolutely have to try their best to pin the deficit on the Labour party, rather than, correctly, on the banking sector? If they took the latter course of action, they would have to increase the banking levy and would not make these changes to corporation tax. They are clearly not prepared to see justice done to those truly responsible for the situation we are in.
Mr Jones
That is true. The Government’s drive to reduce public spending has very little to do with reducing the deficit. It is more an ideological move to reduce the size of the state. Unfortunately, like a boa constrictor, they have wrapped themselves round the Liberal Democrats, and will slowly squeeze the life out of them in the coming weeks, months and years. That is dawning on the hon. Member for St Ives, who does not want to be the mouse that gets squeezed at the end of the day. Let us hope that he will escape the clutches of the boa constrictor, which is slowly strangling the lifeblood from the modern Liberal Democrat party. I should not be too sympathetic to the Liberal Democrats, however, because I have spent a lifetime opposing them both in local government and nationally, so their demise might not be an unwelcome consequence of that strategy.
My hon. Friend the Member for Nottingham East has tabled an amendment that suggests that there should be a 28% tax on the profits of the banking industry, as defined by section 2 of the Banking Act 2009. The reason for that is supported very well in the Red Book. Paragraph 1.63 on page 26, which is entitled “Bank levy” says that
“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage the banks to move to less risky funding profiles. The Government believes that the banks should make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. Final details of the levy will be published later this year, following consultation. The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”
We have seen a very strange Finance Bill this year, with a very short preamble to be followed later by major changes. If we are going to have a major change which, in the Government’s own words, is going to rebalance
“the burden of taxation between banking and other sectors”,
I cannot understand why they are allowing the reduction in corporation tax for this year to apply to the banking sector. To me, it would seem right to wait for whatever the banking levy comes up with. That fits in very well with what my hon. Friend the Member for Nottingham East is proposing.
Matthew Hancock
I thank the hon. Gentleman for inviting me to intervene. He has just admitted something that the hon. Member for Nottingham East (Chris Leslie) could not deny, but did not admit. After this Budget, because of the banking levy, the banks will be paying more tax relative to other sectors of the economy, and that is stated on page 26 of the Red Book. I am very grateful for that important admission.
Mr Jones
No, I am sorry, we do not admit that. I am not sure what point the hon. Gentleman is trying to make or whether when he went into the general election in May, he had on his election leaflets, “Yes, we will be tough on banks for the rhetoric in the lead-up to the election, but if we get into power we will do a con trick where we take the money with one hand and gave it back with the other.” If, as the hon. Member for St Ives said, we do not know what the figures are, that makes it worse. We are asking the public to take severe cuts in public services and higher taxation, while at the same time the people who are still being paid high bonuses will get money back. That was reflected in a comment made earlier about the increase in bank share prices that took place once the Budget had been announced.
Clive Efford
To correct the hon. Member for West Suffolk (Matthew Hancock), it is just not true to say that the banks are going to pay more. Deutsche Bank has said:
“Taking 2% off the 2012 tax rate for the five banks listed in the UK would increase profit by £1.16bn, that is it should almost offset all of the banks tax. Overall a good outcome for the banks.”
Similarly, HSBC said:
“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.
Mr Jones
I am grateful for my hon. Friend’s intervention, which completely blows a hole in the myth that this coalition Government are somehow being tough with the banking sector. Not for the first time, we are seeing rhetoric overtaking reality. The spin and presentation that is the hallmark of the Prime Minister is clearly catching up with him now he is in power and able to help his friends in the financial sector.
This policy also has an effect in terms of the banking sector itself, because the banks that are being rewarded are the ones that got us into the mess in the first place. Most people will rightly be horrified by that prospect.
Ian Lucas
Does my hon. Friend agree that what makes it even worse is the fact that the banks are still not lending? We all have examples in our constituencies of businesses that have good business cases but are not securing the lending from these banks that are making massive profits.
Mr Jones
That is a good point. We have heard about banking codes and other ways of forcing the banks into lending, but many small and medium-sized enterprises will be paying for this. They are facing a double whammy, because they are paying for it not only through the reduction in investment allowances but, as my hon. Friend rightly says, through not getting access to the lifeblood of working capital that they need.
That brings me to what the hon. Member for St Ives said about other sectors. Amendment 50 says:
“This section shall not come into force until the Treasury has laid before the House of Commons an assessment of the impact of this section on—
(a) the banking sector, and
(b) all other sectors to which corporation tax applies.”
That makes an important point about how this cut in corporation tax is being paid for—that is, through the reduction of the annual investment allowances, which from 2010 will fall from £100,000 to £25,000. That will affect a lot of SMEs in the manufacturing sector. One need only look at some of the comments that were made on Budget day. The Engineering Employers Federation, representing manufacturers, said:
“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”
That reflects a key point made in the amendment—the need to look at the effects on other sectors of the economy and how they are paying for this.
Even members of the coalition are feeling some concern about the corporation tax plans. The Secretary of State for Business, Innovation and Skills signalled a recognition that they could hinder the interests of British industry when he said in the Financial Times on 14 May:
“The one thing I would want to make sure is that the productive parts of the British economy are helped and not hindered by corporation tax changes…I will certainly make an input to the debate defending the interests of British industry and making sure there are proper incentives to invest.”
We are now seeing this time and again in policy areas. The Liberal Democrats can protest all they wish, but they are being overruled on every single occasion, and this is clearly another example of that happening.
The Institute for Fiscal Studies and the EEF have both criticised the Government for reducing investment and capital allowances. The IFS’s post-Budget briefing on business and capital taxes dated 23 June said:
“Biggest benefits go to low-investment, high-profit firms—banks and supermarkets rather than manufacturers”.
The Budget talked about rejigging the economy away from the public sector and the banking sector into manufacturing, but this will not assist the manufacturing sector in any way at all. One can add to that the pressures that are resulting locally from the abolition of the regional development agencies and the nonsense that is going on with the freezing of grants for business investment. For example, Geka Manufacturing in my constituency, which vitally needs such a grant to secure 130 jobs in Stanley, has had it frozen by the Government. Local manufacturing SMEs are not only being hit by the corporation tax changes in the Budget but affected by the winding up of the RDAs in terms of the small business support that is vital for their investment decisions.
If we are to consider the effect on other sectors, as the hon. Member for St Ives suggested, we need to ensure that that includes not only SMEs but the manufacturing sector. If the Red Book is to be believed, I do not understand how the levy will result in a rebalancing of the burden of taxation between banking and other sectors. Clearly the SME sector will pay dearly, and that is in addition to some of the other matters that will affect it.
The cuts in capital allowances will prevent many SMEs from investing in vital equipment. That is no way to grow the economy in the way that the Government are suggesting. Despite the rhetoric that we heard before the election about bashing the bankers—[Interruption.] I say to my hon. Friend the Member for Glasgow East (Margaret Curran), who looks at me in horror, that I said “Bashing the bankers”. Instead, the Government are going to give back to banks the money that they will take from the levy. As my hon. Friend the Member for Nottingham East pointed out, it would have been right to wait for the results of the 1 January review, whenever they come, before introducing the decrease for the banks.
I ask hon. Members to support the amendment, which makes sense. Once the public recognise what the Con-Dem Government are doing, they will be disappointed that the Government are basically letting the banks off scot-free.
Sajid Javid
I shall keep my contribution brief. I congratulate my hon. Friend the Member for Lincoln (Karl MᶜCartney) on making a very good maiden speech, and I draw hon. Members’ attention to my entry in the declaration of Members’ interests.
Sajid Javid
That is not relevant. The hon. Gentleman can read the entry in the declaration of interests.
If we are to address the amendments properly and consider the changes to corporation tax that the Government have proposed not just for banks but for all companies, we cannot get away from the serious mess that the economy is in. As Members have heard on a number of occasions, as an inheritance from the previous Government, the Government are borrowing some £3 billion a week and our budget deficit is £155 billion, which is 12% of GDP—the highest in all G7 countries and the highest in Europe.
To address the issue, we need to consider how to restore growth to the economy and start paying back our debt. That will not just be through the changes in the Budget, such as raising extra taxes and cutting spending, but through restoring growth in our economy. That is at the heart of the changes to taxation, especially corporation tax, put forward in the Budget. The gradual reduction of corporation tax from 28 to 24% is all about giving business people and entrepreneurs incentives once again to take the risks that are always involved in starting and running businesses. It is such growth that will rejuvenate our economy and create the employment that we need to push up GDP and help us repay the debt that we have inherited.
Mr Kevan Jones
I know that the hon. Gentleman is a banker, and therefore possibly a bit detached from the SME sector and others, but how can cutting the investment allowances of SMEs and rewarding bankers with cuts in corporation tax make sense as a way to generate and grow new businesses?
Sajid Javid
I am not detached from small business, because my father was a small business man, I grew up in a small business and I know what it takes to make a small business grow. As well as hard work, it takes low taxes, less regulation and a desire for Government to get out of the way of business people. That is what this Government are desperately trying to restore after 13 years of the opposite.
Finance Bill
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Danny Alexander
I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.
Mr Kevan Jones (North Durham) (Lab)
The right hon. Gentleman just told the House that the previous Government’s plans for a reduction were not credible, but how can he say that when the Office for Budget Responsibility’s latest independent analysis found that the Labour reduction plan would have more than achieved the target to halve the deficit over four years from 11.1% in 2009-10 to 5% in 2013?
Danny Alexander
I am grateful for that intervention. As the OBR set out both in its pre-Budget forecast and in the forecast published with the Budget, the comparison that the hon. Gentleman is seeking to make is based on interest rate assumptions that took into account market expectations under this Government’s measures, not market expectations of the measures that the previous Government were taking. He should read the OBR report if he does not agree, because that is an accurate account of what it says. It is clear that, had the previous Government carried on with their plans, interest rates would have been different. The risks that we are seeking to avoid through the Budget are those of higher interest rates, lower growth and fewer jobs, which I believe would be the consequence.
Danny Alexander
I am sorry, but I do not accept the figures that the hon. Lady set out. If she looks at the information presented in the Red Book, she will find that it shows that the richest 10% of the population pay the greatest contribution, both as a share of their income and in cash terms. That is what I mean by fairness, and that is what we have set out. It is worth pointing out to her that this is the first time that a Government have chosen to set out in detail in the Budget documentation the distributional impact of the Budget measures. That is not a measure that the previous Government took, for example, when the 10p tax rate was being abolished.
Danny Alexander
I will give way to the hon. Gentleman and then to the right hon. Lady.
Mr Jones
I know that the right hon. Gentleman is doing his apprenticeship, but does he not understand the difference between the proportion and the actual tax take? Surely for a family in my constituency who are earning the minimum wage, the VAT situation alone will mean that the effect on the proportion of their income will be larger. If he looked at the research paper that has been ably produced in the House of Commons, he would find that it points out that fact.
Danny Alexander
I ask the hon. Gentleman to look at the tables on page 67 of the Red Book. I draw his attention to chart A2, which is on the
“Impact of all measures as a per cent of net income by income distribution”.
He will find that it makes it clear that the impact on the top decile is the highest as a share of income. Other charts make it clear that it is the highest in cash terms and that the impact is broadly progressive across income distribution.
Danny Alexander
I will not give way.
Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.
Danny Alexander
I will not give way on that. The hon. Gentleman can make his points in the debate.
The emergency Budget takes decisive action to tackle the deficit that we inherited and to confront the greatest economic risk to our country. It is tough, but it is fair. We have set the course for a balanced budget and falling national debt by the end of the Parliament. We have to pay the bills of past irresponsibility, but in doing that, we have ensured that those with the broadest shoulders carry the greatest share of the burden.
The Budget and the Bill represent a break with past traditions. They demonstrate a genuine shift in approach from that of the previous Labour Government. Our decisions are in the best interests of the economic cycle; those of the previous Government were dominated by the news cycle. Our actions are based on hard facts and the real world; theirs were based on wishful thinking and, in some cases, complete denial of the economic reality. We have been guided by independent forecast, not political whim. We are acting responsibly; they remain in the mindset of profligacy, which led them to make spending promises that they knew could not be kept while they were in government.
The Opposition now say that they will oppose many of our measures, but without giving any indication whatever of what they would do instead—not a single suggestion. They are in denial; the Government are facing up to reality. The provisions in the Bill are fair. They will help to put our public finances on a solid footing and provide a strong platform for economic recovery. I commend the Bill to the House.
Mr Byrne
I am happy to withdraw comments published in the Daily Mail.
The point that I was about to make was that the business community, having had a chance to reflect on the Budget, has come to some conclusions, and I was surprised not to hear about them in the Chief Secretary’s remarks. A fortnight ago, the Chancellor told us that the Budget was
“a balanced package that will send the signal that Britain is open for business.”—[Official Report, 22 June 2010; Vol. 512, c. 176.]
In the weeks since, it is fair to say that business has not been hanging out the bunting. The stock market has now recorded its worst quarterly fall for eight years, as it fell to its lowest point for 10 months. Goldman Sachs has warned that tighter fiscal policy now
“would make it hard to deliver improving growth for all, or possibly any”
country. The chief economist of the British Chambers of Commerce has said that the scale and severity of the Budget
“inevitably increases the danger of an economic setback”.
The Chartered Institute for Purchasing and Supply has said that its managers have
“voiced grave concerns that budget cuts and VAT will tip the scales and amplify the likelihood of the UK slipping back into recession”.
The confidence of Britain’s finance directors has fallen to a 12-month low—just one in four is optimistic, and two thirds say that tighter fiscal policy will hurt their business. Yesterday, the confidence of Britain’s supply chain had its largest monthly fall since 1997. It is for those reasons that a wise man once said that
“the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.”
That was, of course, the Business Secretary in April—once a prophet and now a lost cause.
Mr Kevan Jones
Does my right hon. Friend agree that one of the important sectors in the economy is the service sector? Has he seen the Markit/CIPS purchasing manager index this month, which has recorded its largest drop in confidence in the last 14 years?
Mr Byrne
That news was somehow absent from the Chief Secretary’s remarks. He and the Chancellor may now think that everything is fine. I know whose verdict I would rely on, and it is not the Chancellor’s.
I do not want to depress the House unduly and I have a little bit of good news—
Mr Kevan Jones
Does my right hon. Friend agree that the Chartered Institute of Personnel and Development not only made predictions on unemployment, but also said that the Government’s targets for job creation were not achievable? Its chief economist, John Philpott said:
“There is not a hope in hell’s chance of this happening.”
Mr Byrne
My hon. Friend is absolutely right. Very few people in the country believe the Budget’s forecasts for employment growth, which is not surprising given how hard the Budget is hitting growth.
I want to move on from the economics of the Bill, and the possibility that it may work, to a wider question that I know we will want to debate this afternoon.
Lorely Burt (Solihull) (LD)
The Bill is short, and I will keep my remarks short in keeping with the Bill’s size. This is a coalition Bill, just as the Budget was a coalition Budget. It incorporates Liberal Democrat policies such as our policies on capital gains tax, raising the earnings threshold and the restoration of the earnings link. It also incorporates elements of Conservative policy, which is right because that is what a coalition does. In some respects it is a bit like Hovis, which calls its mix of white and brown bread “Best of both”. That is what we have in the Bill.
Among the Bill’s main elements is the capital gains tax increase from 18% to 28%. The Liberal Democrat policy would have taken it further, but we could run into the law of diminishing returns. We need to be not only practical but fair. It is fair because the well-off, who pay less tax than those who clean their offices, will start to pay a lot more tax. That loophole was never closed by the Labour party, and the measure will make a big difference in fairness and in the level at which those well-off people pay tax.
The entrepreneurs relief should be welcomed by hon. Members on both sides of the House.
Mr Kevan Jones
Does the hon. Lady agree with the Deputy Prime Minister, who before the election, on the Radio 4 “Today” programme on 7 April, described VAT as a “regressive tax”?
Lorely Burt
I am grateful to the hon. Gentleman for that intervention. I am dealing with entrepreneurs relief at the moment, but I will be pleased to deal with VAT, which I will speak about quite fully, later. I know that the Labour party has had great fun bashing the Liberal Democrats over VAT, so I look forward to being taken to task on that.
The entrepreneurs relief is the reward that business owners are due. They often put everything into building a business. That should be recognised. We greatly welcome the continuance of the 10% rate and the increase in the lifetime limit for gains from £2 million to £5 million.
On corporation tax, the reduction from 28% to 27% in 2011, the 1% reduction in each of the following three years to 24%, and the small business rate tax cut, contrast greatly with Labour’s tax on jobs. It means that we now have the ability to stimulate business, which generates the wealth that we need to pay for the services that we need. We need secure growth for business. Business needs the confidence to invest in that growth.
I come now to VAT. I am sure that the hon. Gentleman—
Mr Jones
Will the hon. Lady answer the question put by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne), who said that the measure in the Bill is for one year only? How will that give confidence to any business wanting to invest? It will have to take decisions on a one-year basis.
Lorely Burt
I am glad that the hon. Gentleman raised that point, and that I gave way to him. This is a commitment. The four-year commitment is in the statement. It is in the Budget.
Lorely Burt
The four-year commitment is in the Budget itself. As the Chief Secretary said, the normal way of doing it is one year at a time. The hon. Gentleman can look forward next year, and the year after that and the year after that, to a further 1% reduction.
Simon Hughes
My hon. Friend is right. I just wish to say to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) that, as he knows, my party has been supportive of increasing autonomy and self-government in Scotland and in Wales. That has happened in Scotland and it is on the agenda for Wales, and he knows—[Interruption.] It is on the agenda for Wales; it is not agreed and it is not committed, but it is under discussion in relation to Wales. He knows that my party has always been positive towards the idea of allowing greater self-government, both in Scotland and in Wales, but that is different from the regionalisation of UK taxes such as corporation tax.
Mr Kevan Jones
On a point of order, Mr Deputy Speaker. Is it in order that the Liberal Democrats should now have two Front-Bench spokespeople on the Treasury? Is it completely out of order for the hon. Member for Bermondsey and Old Southwark (Simon Hughes) to be rescuing and answering on behalf of his party?
Mr Deputy Speaker (Mr Nigel Evans)
If I had seen anything out of order, I would have called hon. Members to order myself.
Helen Jones (Warrington North) (Lab)
It is a pleasure to be able to speak in this House again after several years of being allowed to say only things like, “Beg to move” and, “Tomorrow”. I crave the indulgence of the House, as I am not used to making substantial speeches any more.
I want to go back to what we have heard over the past few months from both the Prime Minister and the Chancellor. It has been a constant refrain of, “We’re all in this together.” Now that we have seen their Budget and the Finance Bill, we can see how hollow that soundbite was. What is taking place under this Con-Dem Government is very simply an attack on the poorest people in this country conducted by people who think poverty is not being able to afford the uniform for the Bullingdon club. It is an attack on working families on low wages conducted by people who are the inheritors of trust funds. It is an attack on jobs fronted up by two people—a Prime Minister who got his first job after a phone call from Buckingham Palace, and a Deputy Prime Minister who got into the European Commission because his next door neighbour knew the right man to ring. If only it was as easy for everyone else out there.
It is clear from a simple analysis of the Budget that the poorest are affected three times as much by the increase in VAT as the richest; that the poorest 10% of the population lose as a percentage of their income twice as much as the richest 10%. It is significant, when we look at the measures in the Finance Bill, that a private client partner from Ernst and Young was quoted in The Guardian as saying:
“the fiscal impact on the higher earners is largely restricted to the increase in CGT together with some fiscal drag caused by the freezing of the higher rate threshold.”
That is what we are seeing in this Bill.
Mr Kevan Jones
Has my hon. Friend seen the excellent Library note on VAT? Does she agree that the lowest 10% of households are worse off because they pay some 18% of their disposable income in VAT while the richest spend less than 10%?
Helen Jones
My hon. Friend is right. It is often forgotten in the discussion on VAT that much of the spending of the richest households is discretionary, while the spending of the poorest households is necessary. That is what the Government propose to tax.
Helen Jones
My right hon. Friend is absolutely right. That serves to show us the ignorance on the Government Benches of the lives of some of the poorest people in this country. I could forgive them if their Budget and Finance Bill were simply the product of ignorance, but they are the product of ideology. It is the Government’s decision to take £40 billion out of the economy, to raise VAT and to cut investment allowances for business, and it is a purely ideological decision. They pin their hopes on an increase in growth, yet even their own leaked Treasury figures tell us that we will lose 1.3 million jobs as a result of these measures, not only in the public sector but in the private sector.
We know already the plans of the Government parties for jobs. They began early on by cutting the future jobs fund—118,000 jobs for young people, 18,000 in a region such as mine, wiped out. I want to quote what the Liberal Democrat candidate in my constituency, described on his leaflet as the strong local candidate, said before the election. He was so strong that he managed to come third in the parliamentary election and third in what was previously a Liberal Democrat council seat. He said:
“Lib Dems believe that if you are unlucky enough to lose your job you should be helped there and then to get another one.”
Yet the measures in the Bill and the Budget will destroy jobs and introduce no measures to create them.
Mr Kevan Jones
Does my hon. Friend agree that the problem with the cuts announced yesterday in Building Schools for the Future and the massive cuts in local government is the belief “public sector bad, private sector good”? A couple of weeks ago, I met the Civil Engineering Contractors Association in the north-east, which told me that its members were relying on BSF and investment in roads. The cuts will have an impact not just on their businesses but on jobs in my constituency.
Helen Jones
My hon. Friend is right. The Treasury’s own forecast shows a huge loss of private as well as public sector jobs. Many private firms depend on public sector contracts to keep going. More to the point, enterprise does not flourish when so much money is taken out of the economy that it becomes devastated. If the Government cut benefits, freeze wages and cut public sector jobs, that does not lead to a vital entrepreneurial culture but to a culture of fear in which people do not take risks.
Let me take one example of the way in which the Government have failed to consider the knock-on effect of the Finance Bill. They propose to increase VAT. That will have a damaging effect on the retail sector, yet that sector provides many entry-level jobs and jobs for women who wish to combine work with looking after children. It provides jobs for the women whom the Government want to get back to work when their children go to school. If those jobs are not there, where will those women go? There is simply no joined-up thinking here.
Helen Jones
I want to finish my point first. We are talking about an attempt by the Government to switch lane by saying that what is happening is not a decision of the Government, nor the fault of the banks, which brought us into global economic meltdown because of their irresponsible lending and reliance on financial instruments that they did not understand. The Government’s treatment of the banks compared with their treatment of some of the poorest people is significant.
The Chancellor made great play of his levy on the banks, which will raise £2 billion a year, but the big five banks alone will gain £1.6 billion from the changes he set out to capital gains tax. No attempt has been made to rein in City bonuses—in fact, rather than coshing the banks over the head, he tickled them with a feather duster. So good was the news for the banks that their shares actually went up.
Compare that with the treatment that the Chancellor has meted out to industry. We hear much about the fall in capital gains tax, although the Government are legislating that for one year only. What we do not hear is that that is being paid for by cuts in investment allowances, which hit manufacturing the hardest. There we have it: those who want to invest for the long term and capital intensive industries that want to create jobs in the future will be hit. This is a Bill for industries that are less capital intensive but that are making vast profits—industries that, as the Institute for Fiscal Studies said, are “typified by the financial sector”. What we have here is simple: rewards for those wanting to make a fast buck and a hit for those who are interested in long-term investment. It is the Del Boy Bill—it could have been written by Trotter’s Independent Trading. I am only sorry that Rodney has disappeared from the Dispatch Box.
Mr Kevan Jones
Does my hon. Friend agree that those same banks are continuing to build up their balance sheets by not lending to small businesses—precisely the businesses that need investment now to grow, if we are to achieve the growth forecasts? There is nothing in the Budget that will force the banks to make sure that vital capital is supplied to those growing industries.
Helen Jones
Indeed—that is correct. What is more worrying is that linked with that is the Government’s failure to provide in the Bill any hope or assistance for British firms that want to compete in the global market and create jobs in the long term. It is a tale of two cities: on the one hand, there is the City of London; on the other, there is Sheffield—what the Deputy Prime Minister called throughout the election, “my city of Sheffield”. Well, we have seen what he plans for Sheffield—absolutely nothing. The Government’s attitude can be summed up in two words: Sheffield Forgemasters. There is nothing in the Bill or in the Budget that helps manufacturing industry in the long term.
Helen Jones
I am grateful to hon. Gentleman for intervening, because I want to say to him that his party is in government. If the Liberal Democrats want to do something about that, they can, but they have singularly failed to do so.
Let us consider the people who are paying the price of this Finance Bill—those who will be affected by the rise in VAT and who are already being hit by the cuts announced by the Government in their Budget. The Chancellor talks a lot about those on benefits. The implication, unstated but always there, is that they are all scroungers. Nothing could be further from the truth. Most people who will be hit by the cuts that he has announced are from hard-working families on low incomes. He has already announced that those on family incomes of a little more than £15,000 will see their tax credits cut. By 2012-13, anyone with a family income of more than £30,000—£15,000 each—will lose their tax credits. Child benefit has been frozen, which is an effective cut of £116 a year, but those people will have to pay the VAT increase that the Government have imposed on their spending.
Mr Kevan Jones
Is my hon. Friend also aware of the fact—unannounced, I think, because it did not get many headlines—that the Government are going to cap mortgage interest relief for those who become unemployed? That will affect hard-working people who, through no fault of their own, become unemployed, and it will lead to evictions. That is in stark contrast with the previous, Labour Government, who protected those people.
Helen Jones
Indeed, and if my hon. Friend will permit me I shall come on to that issue in a moment.
Before I move on, I want to mention the cuts that will specifically hit families with young children, including the scrapping of the baby element of child tax credits and the scrapping of the new toddler credits for one and two-year-olds. That will cost an eligible family more than £1,000 a year, even before they start paying the price of the VAT rise.
Helen Jones
The hon. Gentleman ought to be wary of making jokes about mental health. I entered this House from a constituency where children growing up in 1997 had never known what it was to see someone in their household go to work. A Labour Government changed that and invested in decent homes, but Liberal and Tory councils constantly sold the pass on affordable homes by allowing developers to buy themselves out of their obligations, so we will take no lectures from him on employment or housing.
The National Housing Federation states that the Government’s planned housing benefit cuts alone will put 200,000 more people at risk of homelessness and concentrate social and economic problems in the more deprived areas. It is the ultimate Tory nimbyism to want to move people out of city centres. They used to say, “Get on your bike and look for work.” They now say, “Get on your bike and get out of my sight, because we don’t want to know anymore.”
Someone in London with rent of £350 a week would lose £35 in housing benefit if they were unemployed for 12 months. I ask Government Members what is the jobseeker’s allowance for a single person? Anyone? No, I thought not. It is £65.45 a week. If those people meet the shortfall in their rent, they will be left with £30.45 to live on, to buy food and clothes and to pay for utilities and the increased VAT rate that this Government will impose on them. Not only is that not the mark of a civilised society, but it leaves those people with less money to live on in a week than many Government Members would spend on a meal—a lot less in some cases.
Mr Kevan Jones
My hon. Friend provides the example of London, but on Friday I met the chief executive of a local housing organisation who told me that she is unsure of what the cap will be on rents in Durham. If it is as low as £57 a week, which has been mooted, she says large numbers of individuals will have to make up the difference and some, including pensioners, will be evicted.
Helen Jones
My hon. Friend is right. It will also cause huge damage to social housing providers, who will face more and more arrears. That is the problem with the Finance Bill and with the Budget. They do nothing to create the jobs that the Government tell us we need, and they squeeze the poorest.
Let us look at what the Government plan for disabled people. The vast majority of people with disabilities would like nothing better than to have a job, and the previous Government did much to get them back into work. However, this Government plan what they call a simpler process—something that they say will reduce dependency and promote work. But the major flaw is that getting people with disabilities back into work is not a simple process. What happens to those with fluctuating conditions or mental health problems? They cannot be assessed by a simple test; that is exactly the point. We are bound to conclude that it is simply an exercise in cutting the budget by £1.4 billion.
There will be no jobs if we go down the road suggested by the Bill. At the end of that road, we encounter the risk of a double-dip recession, billions being taken out of the economy, the poorest and their spending attacked and reduced, and major cuts in benefits. That will not support the economy; it will undermine the growth of the economy. I say to my hon. Friends that this Finance Bill risks devastating the economy, dividing communities and producing the kind of recession that we saw in the 1980s. That is not a risk that we Labour Members are prepared to take, and that is why we will vote against the Bill.
Stewart Hosie
Indeed. It is worth making the point, though, that on paper there is a rigidity about this. I remain concerned that if growth forecasts, downrated sensibly, are not met, there will have to be these necessary adjustments.
I welcome the phased reduction in corporation tax, but question whether it makes sense to pay for it through changes to capital and other investment allowances. The Road Haulage Association has said:
“We are concerned about the reduction of the investment allowance for small firms to £25,000 from £50,000 which will have a detrimental impact on small haulage companies.”
That trade body probably speaks for many in its approach to the change to the annual investment allowance.
I am pleased by the way in which the Government have handled the capital gains tax changes, keeping the rate unchanged for basic rate payers to encourage and allow modest investment but increasing the rate for higher taxpayers. Closing the gap removes a perverse incentive to take income that could be taxed as capital rather than through income tax, but keeps a sufficient distance between the rates of income tax and capital gains tax to encourage real investment. That was handled quite well.
I have a question, though, about the rationale for the increase in insurance premium tax. I heard the explanation that it has previously mirrored the VAT rate, but there is no reason why that should still be the case. It will bring in some £2 billion in additional tax over the next five years, and I can only hope that that decision does not come back to haunt this Government in the way that the abolition of advanced corporation tax on pensions came back to haunt the Labour Government. The Conservative party in particular has made a great many criticisms about how that pension change was made and the impact that it had. Indeed, it was a smash-and-grab raid that the Chancellor described as “disastrous” in Accountancy Age last year. I hope that the insurance premium tax increase will not be described in that way in future.
Incidentally, in the same interview, on 6 October, the Chancellor also stated his aim to get the country saving again, which makes it even more difficult to explain the coalition Government’s intention to scrap the child trust funds. We have spoken about savings and savings ratios in the past, and the Red Book forecasts future ratios of just over 5%. However, that is about half the savings ratio that the Labour Government inherited and about the average through the whole of 2004 and 2005. It is not particularly ambitious, if the Government’s intention was to get the country saving again.
However, the real damage in this Finance Bill, as many Members have mentioned, is the determination to put up VAT. That directly contradicts the stated intention of both coalition parties to create a fairer society. Although it may well be the case that in cash terms the wealthiest will pay more VAT, it is clear that the poorest 10% will pay nearly three times higher a percentage of their disposable income than the richest 10%. That is all because of the wrong-headed view, to some extent shared by Labour, that deficit consolidation must be achieved quickly. That is based, I believe, on a flawed assessment of the Canadian model, rather than a credible one perhaps based on the New Zealand model, which certainly worked. The consequence of the VAT changes, at least according to Save the Children, is that the VAT bill for the poorest could rise to more than £31 a week.
Mr Kevan Jones
The hon. Gentleman mentions the Canadian model, but does he agree that what we are seeing today is very similar to the Canadian model in that it was not necessarily just about deficit reduction, but was ideologically driven to reduce the size of the state in Canada?
Stewart Hosie
I think that was certainly a consequence of the actions that were taken, but the reason I say that the assessment was flawed is that Canada sat on the northern border of a booming American economy, and its recovery was export-driven. That was a sensible approach to take. I would love our economy to be export-driven as well, but given that the European Union is our biggest trading partner with more than 60% of our goods by volume going there, I cannot see how an export-driven recovery can be achieved to the extent that is hoped for. I would love it to be, but from looking at the numbers, I cannot see how it will happen.
Stewart Hosie
That is absolutely correct. It is a pity that there is merely one Liberal left in his place to hear that argument. My hon. Friend makes a very good point that the deficit forecast now is less than that forecast in the Budget and the pre-Budget report. That certainly confirms the case that we made for a fiscal stimulus. Another criticism that comes from his intervention is not simply that Liberals do not understand the numbers but that the Labour Government left the UK as one of only two countries in the G20 without a fiscal stimulus, fully withdrawing it in 2010 before recovery was secure.
To wind gently back to VAT, I said that the increase would perhaps be socially unforgivable. It also makes little sense in economic terms. The British Retail Consortium has described it as “disappointing”, which was something of an underestimate given that it went on to state, bluntly:
“We didn’t want a VAT increase. It’ll hit jobs.”
Simon Newark of UHY Hacker Young warned that the rise could push up prices on the high street by about 2%, which could have a significant impact on inflation. He went on to warn:
“Higher inflation could trigger interest rises, risking the spectre of the double dip recession.”
Still others are warning that the rise will exacerbate cash flow problems.
Mr Kevan Jones
I wonder whether the hon. Gentleman read The Herald of Scotland this morning. He knows that I read the newspapers carefully. It states that because of the VAT increase, the Commonwealth games in 2014 will cost an additional £20 million?
Stewart Hosie
That is absolutely right, and VAT will not just hit building and the purchasing of supplies for the Commonwealth games or the Olympics, and it will not just hit the private sector and families. It will hit the public sector, which buys VAT-rated supplies and goods of all sorts. It will effectively mean spending power going out of the economy and straight to the Treasury.
Stewart Hosie
I suffer from the advantage of tabling many new clauses and new schedules to the Fiscal Responsibility Bill to establish a medium-term fiscal consolidation precisely to avoid the slash-and-burn approach of a massive hike in the most regressive form of tax. Instead of the VAT increase, I would not tackle the deficit and debt over a fixed term—certainly not a short fixed term such as the Government propose—but do it in the medium term, not least to benefit from the £50 billion of medium-term savings from cancelling and not replacing Trident. The Liberals appeared to be in favour of that midway through the election campaign, but were not towards the end, when it looked as if their leader would be in a position of some influence and power. I will stop there because the Liberals have had a hard enough time, but I will return to the subject shortly.
It is not simply what is in the Bill that causes problems, but what is not in it, and the missed opportunities that that represents. The reasoned amendment outlines those. For example, the Bill could have taken its lead from the second and final report of the Holtham commission—the Independent Commission on Funding and Finance for Wales—which repeated its call for an immediate “Barnett floor” on departmental expenditure limit payments to Wales. My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned that earlier. That came a year after the commission’s first report recommended that such a floor, which would prevent further convergence between Wales and the England average, should be a multiple of 114% spending in Wales for every 100% in England. The Scottish National party and Plaid Cymru were delighted that the Chief Secretary confirmed earlier that there would be no further convergence in funding for Wales in the next few years at least. I am sure that my hon. Friends in Plaid Cymru will hold the Government to that.
The Bill also missed an opportunity to deliver real progress on intergovernmental relations with Scotland. The Government could have ensured the release of the fossil fuel levy—nearly £200 million sitting in a bank account—without a corresponding cut to the Scottish block. Such a move would have been welcomed, and have provided a much-needed boost to the Scottish Government’s attempts to secure economic recovery and kick-start jobs in the green economy. Better still, the Government could have moved to a position of full fiscal responsibility for Scotland, so that Scotland would make all its tax-and-spend decisions and find its own solutions to ensure that we did not enter another recession.
There was also an opportunity to deliver a fuel duty regulator—a fuel duty stabiliser—and fair play on fuel, not least for the haulage sector. Instead, the Chancellor plans to go ahead with Labour’s inflationary package of three fuel duty increases in the next year. The Road Haulage Association’s chief executive said that that
“will simply further widen the gap between UK diesel duty and that of our EU competitors.”
As my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) said several times, the Government have missed an opportunity for a fuel duty derogation now for remote and rural areas. I hope that that idea has not been kicked into the long grass, never to be seen again, and that the Liberals in the Government might find a little steel before they are ground down completely, and deliver something beneficial to remote and rural areas throughout the UK.
Mr Kevan Jones
Does the hon. Gentleman agree that the proposals in the Bill for insurance premium tax will affect many of my rural constituents, who rely on cars as their sole form of transport? Youngsters will be particularly hard hit because they pay a larger percentage through high premiums than other drivers. Cars are not a luxury in rural communities; they are essential items.
Stewart Hosie
They are absolutely not a luxury. Insurance not only on cars but on homes and foreign travel, particularly for those who are slightly frail, is a vital matter. Taking £2 billion out of that sector is damaging enough, but if it is a disincentive, which stops people taking out the appropriate insurance, we could experience all sorts of difficulties in future.
Let me revert to the fuel duty derogation, and read out a quote:
“The case for a fair fuel deal for remote and rural communities is absolutely clear. People face longer journeys, much higher pump prices and few if any public transport alternatives. A lower rate of fuel duty is already available for remote and island areas in many other European countries.”
Those are not my words, but those of the Chief Secretary to the Treasury less than three months ago on 12 April. I hope that he reads today’s Hansard, remembers those words and begins to deliver.
There was an opportunity, had the Government chosen to take it, to stick to their own recently published stricture in the Spending Review Framework,
“to protect, as a far as possible, the spending that generates high economic returns”.
They could have done that by keeping tax relief for the video games industry, protecting more than 2,000 jobs and creating 1,400 new ones; saving £300 million in investment and encouraging £146 million more; protecting £282 million in revenue yield and increasing that by £133 million. However, they did not, and that is hugely disappointing for that sector and for growth in a modern industry in this country.
Mr Lammy
That is patent nonsense, which is why so many hon. Members are shouting from a sedentary position.
What we see in the Bill is absolutely ideological. It is not the first time that the House has debated such ideological decisions, which have huge social consequences for people a long way from Westminster. On one side, we have an orthodoxy, a Conservative position, that says that we must reduce deficits at all costs, despite the social consequences. Behind that there is a desire to reduce the state and welfare at the same time. On the other side, consistently, over generations, we have progressive parties, and at the centre of those is the Labour party, which understands that the private and public sectors are co-dependent. They rely on each other.
There are times during difficult recessionary periods when the public sector must borrow to ensure growth. That is why I am hugely proud of the future jobs fund. That was a classic example of our Government borrowing £1 billion to create jobs and to ensure that the social plight that constituencies such as mine have seen in the past did not come to pass again. What an outrage. What a shame. How can hon. Members look at the young people of Tottenham, who now do not have that scheme and who will join the unemployment queues as a result of yet another catastrophic decision? We on the Labour Benches remember the failed youth training scheme, a joke scheme that was not really about jobs; it was about gerrymandering the figures, which started to look so bleak in the depths of unemployment in the 1980s and 1990s.
Mr Kevan Jones
Does my right hon. Friend agree that the VAT increases that are in the Budget will make it worse for the poorest in his constituency—not only the unemployed but those on low pay and on limited incomes?
Mr Lammy
My hon. Friend is absolutely right. In the midst of a growth in unemployment, which has been predicted by the OBR, there is a VAT rise that will affect the poorest families.
In debating the Budget, we have to defend the hope and prospect that there is a different economic way. That is articulated not just by the usual suspects—economists such as David Blanchflower have been mentioned in the debate—but Martin Wolf in the Financial Times, Samuel Brittan and George Joseph Stigler. A number of economists are saying that this is the time for fiscal stimulus, for an FDR-type new deal, for an LBJ-type offer. This is the time for that big society that they dreamed about.
When this country lay in rubble after the second world war, we did not shrink back. The Attlee Government invested. We built the NHS, we built housing, we built schools. That is the example that we should be following. Instead we get this false smoke-and-mirrors game.
Mr Lammy
I commend the hon. Gentleman for his defence of his hon. Friend, who, let us face it, is having a bad few days. This is not the moment to say that the private sector should step in. What are the chances of one of my constituents wanting to go into the private sector, as many of us have encouraged our constituents to do, given the uncertainty about what will happen to their housing benefit? None. The people who are in social housing will stay there, despite conditions such as those that I have described.
This is the time to walk the walk, I say to the Liberal Democrats. This is the time to demonstrate compassion, care and empathy—to walk alongside those who are poorest in our community. That is test of whether this is an effective Finance Bill, and it does not meet that standard.
Mr Kevan Jones
It will not only be private sector tenants who are affected. If a cap is introduced either in London or in my North Durham constituency and that cap is less than the current social market rent, the gap will have to be filled by the tenant. Some will be unable to afford it, and they will either be evicted or have to move out.
Mr Lammy
My hon. Friend is absolutely right. There will be a significant increase in evictions as a result of the housing benefit measures. Many Members will remember London in the 1980s and the early ‘90s. We remember what it was like walking under Waterloo bridge—sometimes it seemed as though whole families were living there, homeless. We remember the stories of “cardboard city”. That is what we remember, and that is what we will see again as a result of this Bill.
To say it is fair if a Bill places a £2 billion levy on the banks but imposes on hard-working people cuts and VAT rises that combined in total come to £24 billion is to treat people like fools. Of course it is not fair. How could it possibly be fair? That is why I repeat that Members who know a lot better and who have relied on the votes of those hard-working people should be ashamed of voting for this Finance Bill. I urge them, in the time left as we continue to debate the Bill, to hear those voices in this place and beyond that say that this moment, as tough as it is for our economy, can be a moment of hope, can be a moment of growth and can be a moment of fiscal stimulus. I urge those Members not to line up alongside the ideological orthodoxy that always sees the opportunity not just to cut a deficit but to cut the state and to cut welfare, but to say once again, as we have in progressive moments in the past: no, we can act differently. I am proud and very lucky to stand here having grown up in a constituency such as mine was in the past, but there are many young men and women who faced years of unemployment and many who, sadly, spent too many years serving at Her Majesty’s pleasure, as a direct consequence of decisions that were made about our economy at that time.
Jacob Rees-Mogg
The hon. Lady ought to allow me to get over-dramatic before accusing me of being so. Her point is to some extent valid; of course we need to consider these things rationally and deal with them in a sensible and prudent fashion. That is exactly what we have done. The point that I am trying to establish is that the level of debt needs to be tackled urgently. I am not saying that the United Kingdom is bankrupt; there are studies that show that there has been no default on our debt since 1688. I do not believe that the situation was going to lead to a default on gilt-edged securities. We had not reached that stage.
Jacob Rees-Mogg
However, I do not believe that it would have been impossible, purely because of our strong history, for us to have reached that stage if we had not done something early—sooner rather than later. Does the hon. Member for North Durham (Mr Jones) still want to intervene? I shall be delighted to give way.
Jacob Rees-Mogg
The hon. Gentleman is absolutely right. That is why, as I was saying, it is right to address the problem now, when we are in a strong enough position to do it and take the pain. Nobody denies that cutting is painful. It is always difficult.
Having, I hope, established the seriousness of the situation, I want to move on to the balance between tax rises and spending cuts and why I think, once again, that Her Majesty’s Government have exactly the right balance. One figure has not been drawn out in these debates, but it is noteworthy. If we take net tax receipts and national insurance contributions as a percentage of GDP, we see that they will reach 36.4% in 2013-14. That level has not been achieved in any single year of socialist government from 1970-71 onwards. We are having the highest level of taxation as a percentage of GDP because of a Conservative Budget, of all things. Incidentally, the same figure was reached under the chancellorships of Lords Howe and Lawson. So the Conservatives are willing to tax when it is necessary to ensure the financial stability of the country.
Mr Kevan Jones (North Durham) (Lab)
I congratulate the hon. Member for North East Somerset (Jacob Rees-Mogg) on his contribution. I am really pleased that the Rees-Mogg family are all in this together with us in the tough times ahead, and I hope that the financial strain that the Rees-Mogg family will have to face will not mean that the hon. Gentleman’s tailor is somehow deprived of business.
It is a pleasure to speak with you in the Chair for the first time, Mr Deputy Speaker. This is the first time that I have spoken in a debate in this Parliament, and it is an opportunity not just to recognise the dangers of the Budget but to pay tribute to the benefits that we in North Durham received from the 13 years of the Labour Government.
I congratulate the hon. Member for North East Cambridgeshire (Stephen Barclay), my hon. Friend the Member for Scunthorpe (Nic Dakin) and the hon. Members for Ipswich (Ben Gummer) and for Weaver Vale (Graham Evans) on their excellent maiden speeches. They all rightly paid tribute to their predecessors, and will be strong advocates for their constituencies.
This Finance Bill is a bit odd in that it is a two-stage Bill. Some of us have been used to having the Second Reading debate on the Floor of the House, and then the Members who had either upset the Whips or were financial saddos went into a Committee Room for several weeks for the Committee stage.
Mr Jones
It will, and I shall refer to that later. It will affect many people in my constituency, including some of the poorest.
In introducing his Budget, the Chancellor said:
“This emergency Budget deals decisively with our country’s record debts. It pays for the past, and it plans for the future. It supports a strong, enterprise-led recovery, it rewards work and it protects the most vulnerable in our society. Yes, it is tough, but it is also fair.”—[Official Report, 22 June 2010; Vol. 512, c. 166.]
His apprentice, in the form of the Chief Secretary to the Treasury, came before us today. He is wheeled out every time the Conservative party wants to do a nasty deed. I would have thought that he would wake up to the fact that the Conservatives use him and the Liberal Democrats as a shield.
Mr Jones
I am not sure that it is, because the Chief Secretary knows what he has signed up to. With his great experience as press officer for the Cairngorms national park, I am sure that he knows danger when he sees it. We need to expose the Liberal Democrats’ rank hypocrisy. They went into the election campaign arguing against most of the things to which they have now signed up. They have abandoned decades of commitment to some of the poorest in our society.
Those actions are predicated on a myth. The hon. Member for Dundee East (Stewart Hosie) identified it earlier when he mentioned Canada. That is a worthwhile example, because if we want to explain what is happening, we need to examine in detail what happened in Canada in the 1990s. The Government are copying not only every single measure that the then Canadian Government introduced but the tactics, including the great consultation with the Canadian people about how to cut the budget.
Clive Efford
I am interested in my hon. Friend’s argument, particularly his comparison of the consultation that is about to take place with what happened in Canada. Will he confirm that the consultation in Canada took place on the basis that the Government would reinvest in the public sector after they had got through their budget deficit, whereas this Government are making an ideological change whereby they will cut back the state for ever? They are inviting people to take part in a consultation not to ascertain where we should take short-term measures, but to cut from the state services that people will never see again.
Mr Jones
My hon. Friend is right, but in Canada people fell for the trick, because they cut back and did not reinvest.
The Budget is ideologically driven. It is not about deficit reduction, but about driving down the state and ensuring that we can somehow con the British public into accepting the unthinkable.
We must always have someone with whom to compare ourselves and say, “We could be like that.” The current tendency is to compare us with Greece, whereas in Canada in the 1990s, New Zealand was used an example. The process followed the same pattern as today. The starting point is to convince the public that the debt is so horrendous that there is no alternative to ideologically driven debt reduction; some hon. Members have claimed that today. The next step is to whip up the media and get a friendly think-tank or other supportive organisation to put forward selective facts about the size of the deficit. To crank up the national debt as high as possible, everything is added in, including future private finance initiative funding. Revenue accounting is added to capital costs, without explaining to people that capital investment is investment in this country’s economy. That is how to try to scare the public.
As happened in Canada, the next step is to say that if the cuts are not made, the consequences will be dire. Guess what the Canadian Liberals did? They threatened, “If we don’t do this, the IMF will come in tomorrow.” We heard that during the election campaign. There is nothing new about what is happening here. The Conservative party has clearly copied the Canadian model, and even adopted the playbook. Unfortunately, it has been able to con the Liberal Democrats into being its human shield.
Mrs McGuire
Does my hon. Friend agree that some of the leaks that apparently came out of the Government in the past two or three days concerning 40% cuts are designed to set the context of fear that he is describing? When interviewed at the weekend, one senior Government Minister said that nobody would be asked for 40% cuts, and that that was only scenario planning. Are the Government trying to set the context so that people might be relieved that the cuts are less severe than those paraded in the media?
Mr Jones
As a former trade union negotiator, I can tell my right hon. Friend that that is an old trick. People go into negotiations asking for 50% knowing that they will come out with 5%. It is exactly as she portrays.
If anybody wants to read about the Government’s game plan, or war plan, I recommend an excellent book—someone sent me a copy from Canada—called “Shooting the Hippo” by Linda McQuaig. It is nothing to do with wildlife, and I say to the more delicate individuals in the Chamber that it is not actually about murdering hippos, but where the title comes from is interesting. Part of the media hype in Canada centred on the example of the baby hippo that would have to be shot because the zoo could no longer afford the size of compound it needed. We thereby get into a self-fulfilling prophesy, in which there is somehow no alternative.
Hon. Members have mentioned the comparison with Greece; the Canadians used the example of New Zealand. The Tories and the Liberal Democrats have justified the emergency Budget by talking about our “sovereign debt crisis” as though it were the same as Greece’s, or that of some other southern European country. That has been the entire justification for the proposals. The hon. Member for North East Somerset referred to gilts and other investments as though they would be at risk if nothing were done, and actually claimed credit for the Government for the change in the gilt yield. However, the 10-year bond yield in the UK today is around 4.5%, but it actually dropped to 3.5% in February, way before the election.
Mr Jones
To somehow attribute that decline to— [Interruption.] From a sedentary position, the hon. Member for Chelsea and Fulham (Greg Hands) asks me to give way. I am glad he is now either a Parliamentary Private Secretary or some other kind of bag carrier on the Back Benches, because it will stop him making his fatuous contributions. I hope that the Exchequer Secretary is a good Minister to carry bags for, unlike the Minister for Equalities or one of the other Liberal Democrat Ministers. I shall give way with pleasure to the hon. Member for North East Somerset.
Jacob Rees-Mogg
The financial markets in February had the intelligence to work out that there was an election in May and to consult the opinion polls. It was not exactly a case of consulting Mystic Meg.
Andrew Bridgen
The hon. Gentleman seems to have the impression that the world has an insatiable appetite to buy UK Government debt. If that is the case, why did at least one Treasury gilt sale fail to be fully taken up?
Helen Goodman
I am sure my hon. Friend is aware that a large proportion of British Government debt is bought by domestic savers rather than overseas savers. That is another reason why the British Government are much less at risk from the international markets.
Mr Jones
I am grateful to my hon. Friend for raising that point. A Bank of International Settlements report that I looked at this morning—it is worth looking at, and I suggest that anyone who has a spare half hour, or who suffers from insomnia later tonight, read it—contains an interesting graph showing exactly where debts are: 70% of Greek debt and 50% of US debt is held by non-residents, but for the UK the proportion is 30%. That makes my hon. Friend’s point well.
Ministers increasingly raise the spectre of Greece. For example, last week the Secretary of State for Energy and Climate Change said that the Chancellor had said that the Budget was necessary because otherwise Britain would be in danger of not being able to pay its way in the world. Public debt in Greece is the highest in the euro area at about 120% of GDP. It also has one of the highest fiscal deficits in the OECD, with 14% of GDP. I do not seek to minimise the UK’s debt—it needs to be dealt with, and we set out a clear plan to tackle it—but it rose 20% in the last couple of years for a very good reason. We faced a massive economic downturn, and investing the money was the correct thing to do to ensure that we did not go into not only a recession, but a long-term depression. I remind new Conservative Members that when those who are now in government were in opposition, they got it wrong on Northern Rock and wrong on how to deal with the banking crisis. Did they ever oppose anything that we did on that? No, they did not; they supported our measures. Their approach would have got us into a complete mess.
The UK debt is 68% of GDP, which is much lower than the euro area average of 79%. Our fiscal deficit is 11%. However much people try to portray our borrowings as on a par with those of Greece or some of the other basket cases—as the press call them—that is just not so. It is the same with the return on bonds. In the US it is 3.58% and in Germany 2.5%. In addition, we have to recognise what type of debt we have. Those who are following the war plan to frighten everyone might fall for the suggestion that somehow our debt has to be repaid tomorrow. We are even hearing some of the nonsense that we heard in the Thatcher era about the idea that the UK economy—or a business—should be run like a personal bank account. That is complete nonsense. If people look at the chart on page 68 of the Bank for International Settlements report, on the maturity of debt, they will see that for the UK it is 14 years. In the US and Germany it is under nine years, and Greece has some debt on short-term loans of two years, with an immediate requirement to repay. The idea that we are in such a mess that we have to repay debt now, and so need this emergency Budget—with all the damage that the VAT increase and everything else will do—is utter nonsense.
Sajid Javid (Bromsgrove) (Con)
While what the hon. Gentleman says about the duration of the Government’s debt is correct, what is of more importance now is the amount of borrowing that the Government have to do on a weekly basis because of the size of the deficit, which is—at 13% of GDP—the largest in Europe. We are borrowing roughly £3 billion a week, and that has nothing to do with the duration of the debt. Regardless of the duration, if the deficit is not addressed we will still be in the market trying to borrow £3 billion a week. That is one of the reasons why the auction that my hon. Friend the Member for North West Leicestershire (Andrew Bridgen) mentioned earlier failed in the markets.
Mr Jones
The hon. Gentleman misunderstands. No one is suggesting that we do not need to reduce the debt: the Labour Government did reduce the debt. I know that during the election the stock in-phrase was “Labour didn’t mend the roof while the sun was shining”. Well, I am sorry, but we did. We actually paid off debt. For example, the 3G licences for mobile phones raised in excess of £20 billion, which went directly to paying off debt. However, we are now in danger of doing what happened in the 1980s with the Thatcher Government: borrowing money not to invest, which we were doing, but to pay unemployment and other benefits. The Government are going to slash welfare benefits, exactly as happened in Canada, and blame the poor. It was not the poor, unemployed or disabled in my constituency who got the debt this high; it was the international bankers and the people who are now to be rewarded by the Budget proposals on corporation tax as part of this stimulus.
Phil Wilson
On the 3G licences, is my hon. Friend also aware that we paid back more debt then than all the Governments since 1945 put together?
Mr Jones
Yes, we did, and that was the responsible thing to do. My right hon. Friend the shadow Chancellor set out what our Government reductions were going to be.
On the recession, if anyone says we are out of the woods, they should look at the provisional gross domestic product figures: 0.3% growth in the first quarter of this year, and 0.4% growth in the final quarter of 2009. The new Office for Budget Responsibility thinks that the economy will grow by 1.2% in 2010, and by 2.3% in 2011. So the Budget is a great gamble. However, this is not just about what is in the Budget and the Finance Bill, which will take money out of the economy at this crucial time when we need to put money in; the Government are also gambling on the complete and utter nonsense that there are two different economies in the country—the private sector, which is good and which we look up to and say, “It’s a wonderful thing,” and the public sector, which is bad and which we boo whenever we talk about it—and that somehow we can separate the two. I shall return to that point in a minute.
On the proposed deficit reduction, the Government’s fox has been shot by their own Office for Budget Responsibility. Its independent analysis is that Labour’s deficit reduction plan would have more than achieved the target of halving the deficit over four years, from 11.1% in 2009-10 to 5% in 2013-14. The OBR also said that the Labour plan would reduce the structural deficit by nearly three quarters, from 5.2% of GDP in 2010-11 to 1.6% in 2014. The plan as outlined to halve the budget deficit within four years would have met the timetable set out at the recent G20 summit on 27 June 2010. Government Members and commentators say that the previous Government did not have a plan, but they did, and even the Government’s own Office for Budget Responsibility recognise that. That plan, however, is now being crammed into two years, which cannot be done without a cost to jobs.
Mrs McGuire
Does my hon. Friend agree that, given the scenario he has painted and the fact that the previous Government’s budget deficit plan would meet the international criteria, one would suspect that the current plan is more about ideology than economics?
Mr Jones
My right hon. Friend is right as usual: the Government’s plan has nothing to do with that, but is being used as an excuse for an ideological attack, because what they actually want is a smaller state in this country. I return to the point that the Government’s plan is about saying, “Private sector good; public sector to be sneered at, public sector workers to be denigrated and not valued,” and that if we reduce the size of the state, that will somehow lead to nirvana, at which point we can all go off into the sunset and live happily ever after. However, the Government suddenly announced yesterday that they were basically going to shelve the Building Schools for the Future programme, affecting exactly those jobs that the local construction industry—I met the Civil Engineering Contractors Association a few weeks ago—was relying on to ensure that the recovery continues. Therefore, to argue that we can somehow cut back the public sector without having any effect whatever on the private sector is complete nonsense.
We all know that in regions such as mine in the north-east, as well as those in Northern Ireland and others that have a larger public sector dependency than other areas, the effect of what is outlined in the Budget will be even worse. However, I give hon. Members this warning: we ain’t seen nothing yet, because the Finance Bill will work by salami slicing, which is a technique that the Government are using to slip the news out. The biggest crackdown will come—we all know this—with the public sector spending round in October. That is when the real cuts in both capital budgets and other investments will be made.
Phil Wilson
I thank my hon. Friend for giving way again, and he is absolutely right. The Government have an objective of trying to create a big society, but does he agree that if we continue down this road, what they will produce is a little Britain?
Mr Jones
Yes, they will, and there is something else that they will do. Interestingly, the hon. Member for Ipswich, who made an excellent maiden speech, talked about prison reform, saying things that he really meant, on an issue to which he is committed. However, he will soon be disabused of that, when he finds that the prison reforms being put through the Ministry of Justice have nothing at all to do with the penal system, and everything to do with budget restraint.
As for the other measures , the VAT increase will have a disproportionate effect on my constituents and those in regions such as mine, because it is, in part, one of the poorest communities. As for the Liberal Democrats—we saw a half-hearted attempt earlier to defend the increase in VAT—the measure will indeed affect the poorest.
Grahame M. Morris
On the point raised by Government Members about the impact assessment, will my hon. Friend comment on the impact of the VAT increase on the third sector? I had meetings at the weekend, and I know that many in the voluntary and community sector rely on trading activity and are concerned about what the increase will do to their income levels.
Mr Jones
The increase is going to affect every single organisation that provides public services, including local councils––the increase will cost them a lot of money. As we saw earlier, certain commitments were given on VAT, and I have here the Liberal Democrat poster from 8 April—and I must say that it is very good. I am sorry if I am going to pour more scorn on to the Liberal Democrats, but I enjoy doing it, and I am sure that some of their Tory colleagues will enjoy it as well. The poster says:
“Tory VAT bombshell.
You’d pay £389 more a year in VAT under the Conservatives”.
The Deputy Prime Minister, the right hon. Member for Sheffield, Hallam (Mr Clegg) made quite a few comments on VAT before the election. He referred to it on the “Today” programme on 7 April 2010, saying that VAT
“let’s remember, is a regressive tax”.
What has changed since then? What is being proposed will affect the poorest in our society.
The Deputy Prime Minister is not the only one who has form in this area. When the then Leader of the Opposition appeared in Exeter in something called Cameron Direct on 8 May 2009, he said:
“You could try as you say put it on VAT, sales tax, but again if you look at the effect of sales tax, it’s very regressive, it hits the poorest the hardest. It does, I absolutely promise you.”
So what is different now? What has actually changed, apart from the fact that the Government now have their posteriors on the Treasury Bench and in their ministerial limousines?
Ms Angela Eagle
My hon. Friend is making a perfectly good point and an extremely good speech. I should like to update the House about the website of the Deputy Prime Minister. The “Tory VAT bombshell” poster, which was on the website until very recently, has just been removed.
Tom Blenkinsop
In my constituency, I recently met representatives of the North East Federation of Small Business, who were concerned about their members who worked in retail on the high street. The increase in VAT to 20% will affect them very badly.
Mr Jones
I will come to that in a moment. Let me be honest—I have never considered shopping a leisure activity, and I think people are quite strange if they do. Unfortunately, my family and large numbers of my constituents think that it is. The VAT increase will have an effect on that leisure activity, which will have a direct effect on jobs that occupy a large proportion of the local economy in many areas. My hon. Friend’s constituency has been affected by events at the Corus steelworks, and one possible result of that is that people will be looking for other jobs, including in retail, but those jobs simply will not be there.
Mrs McGuire
My hon. Friend said that we needed to look at the whole package. Will he reflect on the fact, linked to some of the cuts in maternity benefits, that new parents will have to pay 20% VAT when they buy a pram, for example? The VAT increase will apply not only to the big common items such as fridges, washing machines and cars but to basic goods that families have to buy daily.
Mr Jones
That will be a double whammy for those new families. Something like 30,000 children in the north-east will also lose out through the abolition of the child trust fund. Their families will then be hit by the VAT increase, on top of the huge expense of a new child, which will have a disproportionate effect, as my right hon. Friend points out. It will have an even greater effect on low-income families and people who are on benefits.
We spoke earlier about where the burden of the cuts will fall. It was obviously a first outing for the hon. Member for Solihull (Lorely Burt), and the Government have obviously run out of people to put on the Front Bench, judging by the performance that we saw. She tried to argue that VAT was not a regressive tax, although the Liberal Democrats said throughout the election campaign that it was. She also tried to argue that the increase would not affect the poorest in society.
One of the great things about being a Member of Parliament is that we have access to a great Library here. I suggest that all hon. Members go and take a look at the excellent document on VAT and the new standard rate of 20%. Turn to page 4, which has a very useful graph that shows that, as a result of this increase, the poorest will pay some 19% more as a proportion of their net household income, while the richest will pay less than 11%. People in North Durham who are on benefits and those made unemployed over the last few weeks will find themselves being hit straight away next year by this tax. Also affected will be a lot of small businesses, shops and others.
Kate Green
Does my hon. Friend agree that the reason why the poor are hit so particularly hard is that for them this is not discretionary spending, but spending on essentials? While the rich might face paying out a higher proportion of their expenditure, that is because they choose to incur that extra expenditure, while poorer families are being fleeced for expenditure on items for which they have no choice but to spend.
Mr Jones
My hon. Friend makes a very good point. Unlike the hon. Member for North East Somerset, who might be able to forgo a visit to the tailor once this year, some of the families he is talking to will not have a choice about whether to buy a new pram or other essential equipment for their baby. I have some further examples to put to the House.
Mr MacNeil
I am grateful to the hon. Gentleman for letting me into the debate. The reason I often hear from the Liberal Democrats for their support for the increase in VAT is that the figures were far worse than they expected them to be. However, the pre-Budget report said that the deficit would be £176 billion, yet when it came to the Budget proper, it was £149 billion. In the build-up to the election, the Budget deficit was greater than anticipated and the Liberals were against the VAT rise; then, when they found a decrease in the deficit, they were suddenly for the VAT rise. I am perplexed. Can the hon. Gentleman help me understand those figures?
Mr Jones
The Liberal Democrats do say one thing and do another. As I say, that will come as a great shock to the hon. Gentleman, but let us be honest, anyone who has fought Liberal Democrats in local government is used to them saying one thing and doing another locally, as well as nationally.
Mr Jones
Yes, we have been asked directly whether this came suddenly as a shock. The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) has just raised the very clear point that the actual size of the deficit was smaller than projected. No, this is a coalition deal, as we all know, by the push-me, pull-me coalition. We obviously have two leaders who can hardly be told apart in terms of political objectives, and we have some very unhappy individuals, such as the hon. Member for St Ives (Andrew George). When he made his speech trying to justify this in the House last week, he looked very uncomfortable. I feel for him; all I would say is that if he feels so unhappy, he should come and join us.
Barry Gardiner
My hon. Friend is making a tremendous speech and I hope he goes on making it for a good deal longer. He talked about the impact of VAT on small businesses, but does he agree that one of the most damaging effects on those businesses in his part of the world will come from the loss of One NorthEast? The very support that businesses in his area require is going to be lost.
Mr Jones
Yes, another myth that people have been peddling is that development agencies like One NorthEast were somehow profiting and spending. I will tell anyone what One NorthEast did in my constituency. It helped out a perfectly viable business in the middle of the recession, which could not get a £2 million loan that it needed to be underwritten. When One NorthEast stepped in, 20 extra jobs were created in that small business and another 50 were safeguarded.
Chris Leslie
Are not small businesses doubly affected because of the cash-flow problems that they may experience? With VAT at 20%, it is difficult to persuade customers to pay up on time. Many businesses may go to the wall, and insolvencies may arise as a result of the VAT change.
Mr Jones
That is a very good point. The Budget offers no help whatsoever for the small businesses to which my hon. Friend referred. However, it is not just small businesses that are affected. Some supermarkets are very wary about the increase because of what they fear will happen to their businesses. The finance director of Tesco has called on the Government to freeze VAT at 17.5% because, he says, the economy is very fragile, saying:
“The recovery is happening but it’s fragile and therefore the balance is important”.
He says VAT
“is going to be part of the austerity package but it is a question of when you do it. The best thing would be to wait a bit.”
Let me also give Sainsbury’s a mention. According to Eye Spy MP, the Chief Secretary has been shopping there and buying Quavers. I am not sure whether they were intended to sustain him during tonight’s debate. Justin King, the chief executive of Sainsbury’s,
“warned the incoming UK government to refrain from increasing VAT amid speculation it could be an option considered by”
the coalition Government.
As has been pointed out, the VAT increase will have a real effect on retail business large and small. As for the consumer viewpoint, Mike O’Connor, chief executive of Consumer Focus, has said:
“Thousands of the things we buy every day are going to get more expensive. The VAT rise will hit the poorest consumers hardest as people who earn least already spend proportionately more of their income on VAT and it will be even more important for consumers to shop around for the best bargains.”
Lilian Greenwood (Nottingham South) (Lab)
Will not many of the poorest families be doubly hard hit? Not only will they face rising prices as a result of the VAT increase, but at the same time their benefits will be uprated in line with the consumer prices index rather than as previously with the retail prices index.
Mr Jones
There will indeed be a double effect on those families. It is all very well saying that people can shop around, but in my constituency—a rural constituency but, as I said in my maiden speech, one with urban problems—they cannot do that when they have no access to a car and the only option is public transport. Those are the communities who will be hit hardest, and I am sure that they exist in all constituencies. The new hon. Member for North East Cambridgeshire, for instance, spoke of the pockets of deprivation in his own constituency. Those rural poor families will be hit harder than most.
Grahame M. Morris
The VAT increase will have an impact not only on small businesses and enterprises, but on working men’s clubs. Tonight there was a meeting of the all-party parliamentary group on non-profit making clubs, which is very concerned about the increase. Many clubs in our area are operating on the margins, and it will have an immediate impact on their costs because the transport costs are all passed on to them. Has my hon. Friend any thoughts about the impact on such clubs, which provide a real social centre for many people?
Mr Jones
As a member of the Sacriston workmen's club, I have to concur with my hon. Friend. As he knows, following the smoking ban, the change in the way people access alcohol and supermarket price cutting, many such clubs in the north-east of England have been struggling. Many have closed, sadly, in my constituency. We hear a lot about rural pubs, but we hear very little about the Club and Institute Union movement. In many places, including his constituency and mine, those clubs are the centre of the community. Once they have gone, they will not be replaced. The VAT increase will be a severe blow for them at this difficult time, when they are struggling already.
Barry Gardiner
My hon. Friend has been most generous in giving way. Before he moves on from VAT, has he had the opportunity to consider the costs to businesses of reprogramming their tills for the change in VAT? My understanding is that many of the large supermarket chains find that that process costs them millions of pounds. That is a real cost to the economy that does not seem to be factored in.
Mr Jones
My hon. Friend makes a good point. There will be a cost not only to large businesses but to small businesses. That brings me neatly on to the British Retail Consortium, which has grave concerns about the VAT increase. It recently said that it could cost up to 163,000 jobs and affect some £3.6 billion of spending. Again, in many communities those jobs are vital. This is on top of the very difficult economic climate that businesses are facing. In my constituency, retail-led development is a catalyst for regeneration. If, for example, the new Tesco in Stanley does not go ahead because of these proposals, it will have a knock-on effect on the regeneration of an entire town.
Nadhim Zahawi (Stratford-on-Avon) (Con)
On that point, I wonder whether the hon. Gentleman protested as much when the previous Government raised VAT on businesses? Did he make that point in the Chamber?
Mr Jones
The way the Government are going with this Budget, I am not sure that it will be. The hon. Gentleman will have to get used to the fact that we will question the Government on the proposals because they will have a draconian effect on my constituents in North Durham.
I must refer not just to the retail trade or charities, but to the Conservative grass roots. Tim Montgomerie, on his website ConservativeHome, said:
“First, it hurts the poor most of all and, second, both the Conservatives and the Liberal Democrats said they had ‘no plans’ to increase this tax. At a time when trust in politics is so low we don’t need ‘plans’ to emerge tomorrow.”
That was in advance of the announcement that is contained in the Bill.
The other sector that the Bill will have a dramatic effect on is the construction sector. Yesterday, we saw the Building Schools for the Future programme decimated, directly affecting thousands of jobs. I am glad that my hon. Friend the Member for Halton (Derek Twigg) is back. He mentioned the decimation not only of BSF in his constituency but of other projects that have been put forward. Again, business and construction will have to carry the cost of the VAT increase.
Another sector that will be affected will be charities and the work that they do. I know that under the new Conservative approach, as part of the big society, charities are supposed to be stepping up to the mark, but they will be the ones that will be affected.
Helen Goodman
Has my hon. Friend noticed with respect to charities that the Government have now proposed to let welfare-to-work contracts on such a basis that only large companies with a lot of capital will be able to deliver them to unemployed people, thereby ruling out the voluntary sector from being involved in that worthwhile work?
Mr Jones
Exactly, and if these bodies are then to be burdened by this VAT increase, that will severely affect them.
On the VAT issue, I wish now to discuss an excellent document, which I believe has been sent to all hon. Members, produced by Save the Children and headed “Why the rise in VAT must be cancelled”. It makes all the arguments that the excellent Library note makes about the poorest being affected the worst, but it also gives some very good examples. A table on page 3 shows that the essential items to which my hon. Friend the Member for Stretford and Urmston (Kate Green) was referring are not luxuries but items that a family would require. I am talking about things such as washing machines, electric ovens and hobs and children’s bed frames, which will all be affected by this increase. The hon. Member for Solihull said that people should rush out to buy these things now to avoid the VAT increase in January. What she does not understand is that some individuals do not have the disposable income to be able suddenly to go out, shop around and get them. Many of these people rely on credit, so they face a double whammy of credit, usually at a high interest rate, and the effect of the coming VAT increase.
The Liberal Democrats should hang their heads in shame for supporting this Budget and especially these proposals, which are not progressive but will hit the hardest up in our society. I just hope that when it comes to the votes on the VAT increases they have the courage to oppose them; otherwise, they will have an electoral price to pay at the ballot box in local elections and others.
The proposals in the Budget to increase the insurance premium have not been given a lot of attention tonight.
Mr Jones
From a sedentary position, my hon. Friend rightly says that this is a stealth tax, and again, it will affect some of the poorest in our community. Earlier in the debate, we were talking about the level of fuel duty and rural communities where a car is not a luxury but an essential item that enables people to get around. This Budget will increase the insurance premiums for those drivers, with young drivers being particularly affected. Just because of their age, those drivers pay the highest premiums and they will have to pay an extra 1% under this Budget. In some cases, that will stop young drivers being able to get access to insurance.
Helen Goodman
On that point, does my hon. Friend agree that this will inhibit young people from learning to drive? Being able to drive is often an extremely important skill for people to have when looking for a job.
Mr Speaker
Order. I apologise for interrupting the hon. Gentleman, but a very large number of private conversations are taking place and there is a substantial hubbub in the Chamber. It is as though, after the first 53 minutes of his speech, the attention of the House has wandered a little. However, I know that a hushed atmosphere will be resumed and the House will want to hang upon his every word.
Mr Jones
What this proposal will lead to—this is my fear—is an increase in the number of uninsured drivers in those communities, and thus to the prospect of many people endangering not only their own lives but those of the people involved in their accidents.
My hon. Friend the Member for Nottingham East (Chris Leslie) referred to the tax on travel insurance as a stealth tax. It will be a tax on individuals, but it has also been condemned as a tax on the industry, although the industry thought the tax would be higher. It is an example of the Government’s negotiation tool of leaking or briefing that something is going to increase by x and then introducing a smaller increase as if somehow that is a great concession. Insurance premium tax will increase from 5%, but the higher rate of IPT for travel insurance will increase from 17.5% to 20%. That will have a direct effect on every constituent who goes on holiday next year. I fear that people will go abroad without proper travel insurance, and the taxpayer will have to pick up the bill in many cases.
Chris Leslie
My hon. Friend is right. Often the taxpayer is lumbered with having to rescue people abroad who have found themselves in precarious situations owing to the lack of proper insurance. Does my hon. Friend agree that this rather mean-spirited holiday tax will have all sorts of unforeseen consequences?
Mr Jones
Yes. For many of my constituents a holiday is one of their largest annual expenditures. So if an extra tax is added there will be a danger that people, especially the young, will not take out proper holiday insurance and the taxpayer will have to pick up the bill on occasions. There is also the distress caused to families.
There is a little-known item on MPs’ expenses in the Bill. I tried to ask the Chief Secretary a question about it early on, but he ignored it. I know we should not be speaking about our expenses and that many hon. Members cannot mention the IPSA word without using unparliamentary language. I am not going to do that; I actually got some money out of it yesterday.
The proposals in the Finance Bill allow our expenses to be treated as they were before in terms of their tax status. I cannot understand why the deposit that we are to be given for the rental of our second homes in London is taxable. I do not know whether it is a mistake or why that has been excluded. I am sure that if we send a tax bill to the Independent Parliamentary Standards Authority it will not pay it.
Already we are treated for tax purposes as though we run a small business. Before, we were allowed to claim legitimate expenditure for the filing of tax returns. IPSA has taken that away from us and we now have to pay that cost, which in my case will be something like £600 next year. I would like to see all our expenditure such as that on equipment, on which there is capital depreciation, taken out of tax. That would solve the issue in terms of our being looked at as small businesses.
I rued the day a few years ago when I knocked the door through in my office and found out that I had a tax liability for it of more than £1,000. Do not ask me what I will do with the door in the office when I stand down as a Member of Parliament, but I have paid that tax. I jest, but I seriously suggest that we need to look at this area. Clearly, IPSA and the court of public opinion said that we could no longer claim for legitimate tax advice. That is fine. I do not need a tax adviser, unlike some hon. Members, to handle my personal tax affairs. So we need to have a look at that point.
Finally—[Hon. Members: “No—more!”]—I come to corporation tax and an issue that has emerged from tonight’s debate. The Budget statement said that corporation tax would be reduced over a four-year period, but the Bill reduces it for only one year. What confidence does that give businesses looking to make long-term investments? Are we to have some sort of assurance, or is the Bill to be amended to ensure that corporation tax is reduced to the 24p proposed?
I have never spoken about Northern Ireland affairs, but I thought this one was too good to miss. There is an issue that affects Northern Ireland more than other parts of the country: the possibility of driving corporations south to the Republic of Ireland. The Chief Secretary said how wonderful it is that our corporation tax rate will be among the lowest, but the rate in Ireland is 12.5%. I know that Members of the Northern Ireland Assembly are concerned that, even with the decrease, it might be attractive for businesses to move from the north to the south. When the Government look at how to rebalance the Northern Ireland economy, it will be important to take that point on board.
The pain in the Budget will affect many constituents of mine. Thirteen years of Labour Government transformed the infrastructure of North Durham. We have two new hospitals, five new primary care centres and GP surgeries, new dentists and new schools. Not only did that have a beneficial effect on the life chances of many of my constituents, but it put money into the local economy. Now, with yesterday’s announcement on Building Schools for the Future, we see that that tap is to be turned off. We are going to go back to the days when I was chair of school governors in Newcastle. Yes, as the Secretary of State for Education said yesterday, education is about good teaching—I passionately believe that—but teachers cannot do that if they have to have a bucket to catch the water leaking through the roof.
The other measure that will have a big impact on my constituents is the freeze in public sector pay—something I feel passionate about. When I was a Minister, I helped not only Labour Members but all Members in standing up and arguing for our servicemen and women. Frankly, the pay freeze announced by this Government is a disgrace. When we have people risking their lives in Afghanistan, to impose a pay freeze on them is a disgrace.
I thank everyone for listening tonight. I shall enjoy the debates on this Finance Bill, because it is right that it gets proper scrutiny and that we explode the myths that are being propounded. That way, when people in my constituency and elsewhere are having their housing benefit cut and they are being evicted, they will know the reasons why. It is more important that we stop some of the more horrendous measures in the Bill happening at all, but if they do happen, we need to be able to lay the blame in the right place. We expect this from the Conservatives. The north-east suffered under the Conservatives for 18 years. What we do not expect is the collaboration that we are seeing from the Liberal Democrats in the coalition, or the pathetic excuses we heard the hon. Member for Solihull give to justify the horrendous measures that are coming my constituents’ way and hers as a result of this Budget.
Clive Efford
The hon. Gentleman misses the point. The point is what the Liberal Democrats said about capital gains tax before the election and what has happened afterwards. I cannot find any record of anybody saying, “Thank God we have the Liberal Democrats to water down this horrible Tory Budget.” No one is saying that—[Interruption.] As much as the Liberal Democrats try to dance on a pinhead over the VAT increases and how they have looked for an investigation into VAT so that they can all cuddle up at night and sleep well knowing that they have not made life awful for poor people—they claim that they have forced the Government into a review—what will they really do about it?
Mr Kevan Jones
In fact, the hon. Member for Solihull (Lorely Burt) not only did not make excuses for the increase, she tried to justify it.
Clive Efford
What we have heard in several debates is so much hand wringing that I have almost started to feel sorry for the Liberal Democrats. They must be in agony from all the crushed fingers they have from wringing their hands so tightly in trying to explain away the impact of the VAT increase.
Clive Efford
I agree with my hon. Friend. There are plenty of eminent economists saying that this is not the time to draw back the fiscal stimulus.
However, the point that I want to make is that the reduction in the debt that the then Chancellor was able to announce in the March Budget was due to the intervention of the Government. There was less unemployment, we were paying out less in unemployment benefit, and there were more people in work and more businesses; therefore, the tax income was higher than had been predicted, indicating that the way through the recession is not this austere Budget, but continuing with the stimulus until growth is stronger.
However, the worrying thing now is that, following the emergency Budget, businesses are starting to question whether growth is on its way. As the Financial Times has said:
“Britain’s…services sector expanded in June…at the slowest rate in 10 months…The Markit/CIPS UK services Purchasing Managers Index…for June was weaker than consensus forecasts among economists, showing a 54.4 headline reading, down from 55.4 in May. Economists had expected a more modest decline…of 55…It was the weakest reading since August 2009…Business expectations went from a reading of 72.1…to 64…The Services PMI is particularly closely watched because it accounts for the greatest share of private sector business output…‘Worrying signs for the UK service sector appeared in June as growth slowed in response to another below par increase in new business…Confidence declined to the greatest extent in 14 years of data collection in reaction to the government’s austere emergency budget, with concern expressed that the fiscal tightening could push the country back into recession.’”
According to the Financial Times:
“The Purchasing Managers’ Index figures came in amid signs that global manufacturing took a hit in June, with China, the US and the eurozone all seeing weaker growth in the sector. The report on exports came as a survey of credit conditions by the UK Bank of England underlined the concern at the prospects for demand in the UK. Credit conditions were expected to deteriorate by the most since the first quarter of 2009, when the recession was at its deepest.”
What we are seeing there is the extreme concern in the business sector since the Budget was announced—[Interruption.] I hope the Liberal Democrats are listening to this. The construction sector in particular accounts for 10% of our GDP, and public sector expenditure accounts for 40% of the construction industry. The announcement yesterday—such as it was—from the Secretary of State for Education that he was drastically cutting back on schemes such as Building Schools for the Future will make it even more difficult for the Government to deliver growth in employment and growth in the private sector, because they are rowing in completely the opposite direction.
Mr Kevan Jones
Does my hon. Friend agree that the VAT rise will have an effect on new house starts in the construction sector, which is very fragile in my constituency and many others? The increase will have a dramatic effect not only on new builds but on the local builders who rely on building extensions and loft conversions.
Clive Efford
It will indeed; my hon. Friend is absolutely right.
The Guardian website on Sunday 4 July stated:
“CBI disappointed by extra £4 billion capital spending cut. Spending on building and infrastructure projects, many of them to support private sector businesses, will fall faster than expected after the chancellor announced £6.2 billion emergency cuts three weeks ago, with £2 billion of the total from capital expenditure projects. The CBI said: ‘Capital investment is crucial to driving the economy forward and the government needs to make sure we get back to the long-run average of 2.25% of national income as soon as possible’.”
Are you listening on the Liberal Democrat Benches? What they are voting for is just above 1%.
Mr Jones
One of the economic drivers in Luton is the success story of Luton airport. Does my hon. Friend agree with me that the Budget’s proposals to increase insurance premium tax from 17.5% to 20% is going to have a terrible effect on that success story, as Luton airport employs huge numbers of people in his constituency?
Gavin Shuker
I thank my hon. Friend for his characteristically timely intervention, rightly making the case that within these green pages tonight are a series of measures that will have a profound effect on each individual constituency. In Luton South, I could pick out the particular effect on the airport and I could talk more about our position within the UK. In each community and in each constituency, we will have to go back to our constituents and explain why we voted either for or against the measures in the Bill. I for one will vote against the Bill, and I would like to encourage Government Members from the east of England to do so as well. If they do, they can go back to their constituents with their heads held high and say that they stood up for their constituents and their region on a night like tonight.
Barry Gardiner
Not in the slightest. Why should I be surprised? It is what I would expect of Government Front Benchers.
The Child Poverty Action Group has passed its judgment on this “unavoidable” Finance Bill:
“This is a disappointing budget for child poverty and increases the risk of the government failing to meet its 2020 goal of ending child poverty.”
It says:
“The increase in VAT is a regressive measure which will impact hardest on poor families.”
Robert Caro, the great biographer, once wrote:
“It is said that power corrupts: what is more true is that power reveals.”
With the Liberal Democrats, power has certainly revealed. No longer can anyone be excused for thinking that the Lib Dems are progressive and principled. They are regressive, ruthless and prepared to sell out any policy for a whiff of office.
In the course of debate over the past week, Government Members have repeatedly asked Labour Members what we would do. They have suggested that they have taken the unavoidable and necessary action, whereas we would have taken none at all. So I refer them to the Red Book in March, where my right hon. Friend the shadow Chancellor set out the swiftest and most straightforward deficit reduction plan that then existed in the G7.
The plan proposed: £3.5 billion of savings by freezing public sector pay—but that of the better paid, rather than of the poorest public sector workers; £1 billion of savings from public sector pensions; £18 billion of savings to capital spending; £11 billion of savings from Whitehall reform; £19 billion in new tax rises; £14 billion of savings from reduced benefit payments as unemployment came down; and £5 billion of savings from programme cuts.
Mr Kevan Jones
The right hon. Member for Uxbridge and South Ruislip (Mr Randall) is chuntering from a sedentary position and trying to intervene on my hon. Friend. Does my hon. Friend agree that the people who are going to be affected by the VAT increase will be those in the retail trade, in which I understand the right hon. Gentleman has an interest?
Barry Gardiner
My hon. Friend is entirely correct. I believe that the point may have been made earlier. [Interruption.]
Owen Smith
I welcome your guidance, Mr Speaker. Many Labour Members have tried to say this key thing today, but I will try to encapsulate it. There are various items and taxation measures listed in the Bill.
Mr Kevan Jones
Pontypridd is not dissimilar to North Durham, both being ex-mining communities with rural areas and, very importantly, a Labour MP. Does my hon. Friend agree that the changes to VAT in the Bill will have a disproportionate effect on many of his constituents who are on low incomes or benefits, and that that is not fair, when some of the wealthier parts of the country, such as Uxbridge, have been let off and will not be affected?
Owen Smith
I thank my hon. Friend for that intervention. He is entirely correct that my Pontypridd constituency will be badly affected—[Interruption.] Sorry, I cannot make out the mumblings coming from those on the Government Benches. Equally, however, if the growth projections from the OBR and the Treasury leak were likely to offset the impact of those VAT increases, and if people were more likely to be in work in my constituency as a result of the measures in the Bill and the Budget more generally, I would be less concerned about the VAT rises.
Some specific comments have been made about the VAT rises and other measures in the Bill. Only this week, 125 chief finance officers of some of Britain’s biggest companies reported that their confidence in growth was at a 12-month low, with two thirds of them warning explicitly that the measures in the Bill would damage their companies and risk a double dip recession—hardly creating the conditions for them to employ more people. In manufacturing, Deloitte’s global manufacturing competitiveness index also anticipates decline, and in the service sector, the purchasing managers index—an established barometer of health in that sector, as the right hon. Member for Uxbridge and South Ruislip (Mr Randall) will know—reported last month the largest drop in business confidence in the last 14 years of its history.
Where are we going to grow, and how are we going to export? Government Members have cited other parts of the world where we should look for our examples. The US has sometimes been mentioned, and it was an engine of growth in the last century, but the statistics there offer us no comfort, with non-farm payroll reporting last week just 83,000 private sector jobs created. That is important because the Government expect us to believe that through the measures in the Finance Bill they will create 2.5 million jobs in the five-year period following the Budget. I have been researching that important and bold claim, and I received an answer from the House of Commons Library suggesting that only once in any five-year period since 1970 has the British economy created more than 2.5 million private sector jobs, the period in question being 1980-85. That was a statistical anomaly, however—the result of wholesale privatisation. Perhaps that points us to a secret or hidden agenda in the Government’s plans—another major round of privatisations.
My suspicions about that may be shared by someone who was, until recently, one of the Government’s allies— Sir Alan Budd, formerly of the Office for Budget Responsibility. I have no idea whether his hasty exit from the OBR is prompted by unhappiness about the new office perhaps having its integrity compromised, but I point Members to an interview that he gave a couple of years ago, which is of relevance to the Bill. He was asked whether he felt any discomfort when he was advising the Thatcher Government that perhaps some of the decisions he was making as an economist—[Interruption.]
Chris Williamson
Thank you, Mr Speaker. I merely wanted to make a brief reference to President Obama’s letter. I think that Government Members are familiar with it. I referred to it in a previous speech, and I will therefore move on.
From the historical precedents to which I have referred, and indeed the precedent of the Attlee Government in 1945, it is clear that by investing in our economy and not taking the course of action that the Government are taking in relation to VAT, corporation tax and the insurance premium tax, we can secure greater opportunity for recovery. If we can put people back to work by investing in our economy, that will ensure that the tax take is increased.
Mr Kevan Jones
Does my hon. Friend agree that, in his constituency, the VAT increases in the Finance Bill will have a disproportionate effect on the poorest individuals? Will that not hamper not only the recovery but the personal circumstances of those individuals?
Chris Williamson
I am grateful to my hon. Friend. Certainly the increases will impoverish countless people living on modest incomes in my constituency. That is very clear. The point that I was trying to make, though, was that growth is the key to recovery, and by investing in our economy we can secure that growth.
Banking Reform
Lord Beamish Excerpts(15 years ago)
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Mr Kevan Jones (North Durham) (Lab)
I welcome the Minister to his new position. I know that County Durham will be proud as he is a son of Country Durham. Has he given any advice to the regulator on the position of non-executive directors on banks’ boards, particularly regarding their role, remuneration and qualifications? He will know that one problem with Northern Rock was the fact that the non-executive chair’s only qualification appears to have been that he was a member of the Ridley family—he inherited it from his father.
Mr Hoban
The hon. Gentleman makes an important point about the qualifications of non-executive directors. That is why the FSA has already instituted a process of interviewing senior members of staff and directors, before their appointment to boards or positions of responsibility, to ensure that the qualifications and experience that they bring to those important roles is checked.