Debate Excerpts: Albert Owen vs Robin Walker

Finance (No. 2) Bill

Debate between Albert Owen and Robin Walker

Thursday 18th April 2013

(11 years, 8 months ago)

Commons Chamber

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Albert Owen

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As a member of the Energy and Climate Change Committee, I understand the difficulties. I realise that one of the major problems—the price of crude oil and gas—is external and that we could have a wider debate about that, but I am talking specifically about the need to boost the domestic economy.

Small businesses tell me that high street names are folding, first, because they have tight margins, and secondly because, although footfall might be steady, people are spending less money. The 2.5% increase in VAT is making a real difference and taking money out of people’s pockets. I support raising personal income tax thresholds as a way of helping the low-paid, but it can have no impact if cancelled out by a VAT increase. That is what business tells us. A small business leader in my area makes a little joke about the Chancellor: every time that that business leader goes out with his wife, daughter and son-in-law, he has to take the Chancellor with him, because one-fifth of the bill is shared with him. That is not a good state of affairs. If business people are starting to think like that, it means that confidence has been eroded. One way of providing the necessary boost to confidence in the domestic market would be to reduce VAT temporarily.

Those are not just my words; they were also the words of the Prime Minister before the general election, when he said that VAT was a regressive tax, which it is. I am in full agreement with him. The Deputy Prime Minister—there are not many Liberal Democrats here today—said that putting up VAT during a recession would be a bombshell for the economy, yet that is exactly what the Government have done. I have argued consistently for keeping VAT, which is a regressive tax, as low as possible in order to stimulate the economy.

Mr Robin Walker

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I admire the hon. Gentleman’s consistency, but does he accept that this was a matter of debate during the general election because the then Labour Chancellor was clearly preparing to raise VAT to 20%, as he has subsequently admitted? It is wrong to imply that his party has been as consistent as him.

Albert Owen

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That argument is completely wrong. It might be Conservative central office’s take on it. The previous Chancellor suggested a VAT rise, but was outvoted by the Cabinet. He was just one individual. The current Prime Minister, however, was clear that he would not put it up, but then did. The hon. Gentleman cannot accuse the previous Chancellor of making an argument and then blame the last Government for not listening to him. It was the leader of the Conservative party, now the Prime Minister, who turned circles on this issue.

This regressive taxation hits the most vulnerable in our society. According to the Office for National Statistics, 9.7% of the money the poorest 20% spend goes on VAT, and they spend more on VATable goods than the richest 20%, for whom that figure is 5.8%. It is an unfair tax, as well as one that takes money out of the economy.

The Conservatives have been consistent in shifting from direct to indirect personal taxation. It was Anthony Barber who introduced VAT, at 10% I think, and a later Chancellor, in 1979, who raised it from 8% to 15%, which had a negative effect for many years. In 1984, it went up to 17.5%. As I said, in opposition, the Conservatives said that they would not do this, yet it was one of the first things they did. They are not getting the revenue yield they expected, because the economy is in such dire straits—it is stagnating, in many ways. My hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) talked about wage freezes and other impacts of Government policy. With a policy of reducing VAT, the Government could actually do something, instead of blaming the previous Government, the European Union or other external factors. Here is an opportunity for them to use one of the levers of power at their disposal.

I hope that the Liberal Democrats will support us. They have made such a big issue of it in the past. There is only one Liberal Democrat here today, the hon. Member for Eastleigh (Mike Thornton), but I would be happy to take an intervention from him, if he feels as strongly as his party did—not him personally—before the general election. It is a big issue. I talk to small businesses, and they tell me that the rate of VAT is having a negative impact on their businesses. Everyone in the House wants to stimulate the economy, and here is a way of doing it relatively quickly.

There is evidence that along with other measures—it cannot be seen in isolation—the previous Government’s VAT reduction from 17.5% to 15% actually helped the economy at a difficult time. The car scrappage and other short-term schemes were also introduced to boost the economy. The Government should be considering those sorts of things, rather than just blaming others. The economy is at a difficult juncture. Unemployment is rising again, after temporarily falling: 2.54 million people are on the dole—that is mass unemployment—and are not spending. Helping them, with their small incomes, by reducing VAT would have a big impact on the economy. The way forward is to create more jobs and get them back to work.

The Government have said—I am sure that the Minister will clarify this matter—that it is not possible to reduce VAT, but that is not the case. I have heard them mention on numerous occasions a mechanism by which Europe can prevent them from reducing VAT, but it could be done as a temporary measure. There are also many variations, zero-rating exemptions and concessions that could be applied to VAT.

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