Finance Bill

Andrew George Excerpts

Tuesday 20th July 2010 Commons Chamber

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

I beg to move, That the Bill be now read the Third time.

We have enjoyed a lively and wide-ranging debate during the Bill’s progress. I would therefore like to start by thanking all Members who have taken part in the four days of debate on what is a short but significant Bill—despite its brevity, it makes fundamental changes to Britain for the better.

The Bill follows the emergency Budget and puts in place many of the measures that are necessary to strengthen the economy and ensure fiscal discipline. It was a crucial Budget, and this is a crucial Bill because this is the time when we finally get to grips with our deficit. The Bill re-establishes the credibility of the country to the rest of the world. It shows that where tough choices are needed, the Government have the courage to make them, and it provides for a fair and productive society.

The Budget was tough, but it was also fair. It set out a decisive and credible plan to deal with this country’s record deficit and to tackle the other problems that were left behind: a structural deficit £12 billion larger than we had been told; a deficit that was the largest in the G20 and second only to Ireland in the European Union; one in every four pounds of public spending coming from borrowing; an uncompetitive tax environment; and endless complexity and unfairness throughout the tax system. Our plan will pave the way for sustainable private sector-led growth, keep interest rates lower for longer and protect jobs. It is the right approach for the country.

Last week the OECD said in its report on the UK:

“The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point. It signals the commitment to provide the necessary degree of fiscal consolidation over the coming years to bring public finances to a sustainable path, while still supporting the recovery.”

Despite containing only nine substantive clauses, the Bill represents a clear change from the past and a new direction of travel, and it meets the three principles of responsibility, freedom and fairness set out by my right hon. Friend the Chief Secretary on Second Reading.

First, the Bill shows that we are taking responsibility for the problems we inherited, and it follows a Budget more honest, more transparent and more pragmatic than those before it. We have been honest about the scale of the challenge, and we have been honest about the actions needed to take it on. If we are to bring down the deficit without cutting vital public services, raising VAT is unavoidable. We recognise that Members have concerns about that, but for the first time we have published analysis of the distributional impacts of Budget measures. It shows that fairness underpins the tough choices the Government have taken to tackle the deficit.

[Andrew George (St Ives) (LD)]

Will the Minister give way?

[Mr Gauke]

Not for the first time in this debate, I will, with great pleasure, give way to my hon. Friend.

[Andrew George]

I am very grateful to the Minister for giving way. He refers to the Budget as being both honest and disciplined. On VAT and the theme of fairness, which he says underpins the Budget, will he ensure that there is an opportunity transparently to review the VAT measurer in clause 3? He has rejected the concept of a sunset clause, but will this be evaluated, as proposed in the Government’s published taxation policy? If it is going to be evaluated, at what stage should it be evaluated and when will the House have an opportunity to analyse it and debate the issue?

[Mr Gauke]

I am grateful to my hon. Friend for that intervention. As he knows, with this Budget we have set out more distributional analysis than any previous Government have ever done before. On the VAT increase, I say to him that all tax matters are kept under review. He has a fine reputation for finding opportunities to raise particular points in Parliament, and I am sure that he will do so on this matter. I am sure that there will be opportunities for him, and for other hon. and right hon. Members, to raise these matters in future. For the moment we have put in place an increase in the VAT rate. We cannot make any promises to change it, and it would be dangerous for us to do so, given some of the points that we debated in Committee; a promise of a VAT cut in future is likely to result in a deferral of expenditure. However, this is an ongoing debate and I am sure that he will contribute to it fully, just as he has contributed to this debate fully over the past few days.

We believe that this Budget has been demonstrated to be a progressive Budget that deals with the deficit fairly; all sections of society contribute, but the richest pay more than the poorest. I also have to make the point to the House and to my hon. Friend that, of course, we should not look at the VAT increase in isolation, because it is part of a wider package that ensures that the most vulnerable in society are protected. It is also worth making the point that during these days in which we have debated this matter we have learned that support for the VAT increase was more widely spread than we ever realised. With exquisite timing, we learned from Lord Mandelson that the previous Chancellor wanted to raise VAT.

--- Later in debate ---

[Mr Gauke]

We have taken measures to secure the public finances for the longer term, but we have done so by protecting the poorest in society. We have provided a triple guarantee for pensioners and we have finally restored the earnings link that our predecessors did not succeed in restoring in 13 years. In addition, we have taken steps to increase the child tax credit by £150 next year and by £60 in the following year. As a result, levels of child poverty after the Budget will remain unaffected, taking into account all the measures of the next couple of years.

[Andrew George]

I hate to drag the Minister back to VAT, but he moved on from it very swiftly after the shadow Chief Secretary’s question about the alleged black hole in the finances. Given that there is no, or very little, likelihood of a sunset clause in the Bill or a further evaluation of VAT within this Parliament, will the Minister confirm that each of the zero ratings and exemptions from VAT, as well as the reduced levels of VAT that are available, will be retained and protected? That is very important in order for him to advance his point about the protection for lower-paid people.

[Mr Gauke]

That is our intention. The Chancellor has made it clear that we have no intention of reconsidering the zero ratings for food or children’s clothes. There are occasional border disputes regarding goods that are zero-rated and those that are fully rated, but on the fundamental question of zero-rating we have made it absolutely clear that we do not intend to revisit those areas. We are also increasing the personal allowance on income tax.

--- Later in debate ---

[Mary Creagh]

We have had a debate on the higher-rated goods, which will be permanently more expensive following the votes that we will have this evening, but I also want to talk about the cuts to Labour’s child trust fund.

[Andrew George]

Will the hon. Lady give way on VAT?

[Mary Creagh]

Yes, I give way.

[Andrew George]

I agree with many of the points that the hon. Lady has made on child care issues, but I wish to put something on the record for her. I understand that on children’s car seats, which have been mentioned, the VAT rate is limited to 5%.

[Mary Creagh]

I thank the hon. Gentleman for that clarification.

I now want to discuss the child trust fund, which is also being cut. When I visited Greenhill school in my constituency to talk about financial education, I asked 10 and 11-year-olds how much money they had saved up in their bank accounts and the answers given by those little 10-year-olds ranged from £50 to £80; that was their life savings. But those children knew that their little brothers and sisters had got £250, and in some cases £500, from the Government through the child trust fund.

--- Later in debate ---

[Andrew George (St Ives) (LD)]

I shall bear your advice in mind, Mr Deputy Speaker, because I know that many right hon. and hon. Members wish to take part in that debate, which is fundamentally important to the vast majority of Members of Parliament. I hope that I have demonstrated such self-restraint in my contributions to the debates on the Finance Bill and will do so again this evening.

It is a pleasure, of course, to follow the hon. Member for Wakefield (Mary Creagh). Her concluding remarks, in which she used fictional characters to make her point, were a piece of fiction that was very entertaining, but that is probably as far as it will go.

The Finance Bill—after all, we are debating the Finance Bill and, perhaps sadly, not the Budget as a whole—has, as the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) made clear, nine clauses. It is rather limited. There will be a further Finance Bill in the autumn and, of course, there were other measures in the Budget—the hon. Lady referred to some of them—including the public spending restrictions of which we will learn more from 20 October onwards. Those issues will no doubt be debated in the future in the House. The debate this evening is narrowly focused and has been defined by Treasury Ministers as they have brought forward a limited number of measures from the Budget.

I wish simply to make a couple of points. Primarily, I want to focus on the issues that I have raised through probing amendments to the Bill—in particular, those to do with VAT, its impact and what alternatives there might have been to the 2.5% rise proposed in clause 3. Before I do so, it is worth while to make it clear for the benefit of the hon. Lady and other Opposition Members that I shall support the Finance Bill on Third Reading, primarily because the Budget as a whole contained a number of measures for which the Liberal Democrats have been campaigning for many years, including the increase in personal allowances, the triple lock on pensions and the introduction of a banking levy. That levy is not at the level at which I should have liked it to have been, as I have made clear in earlier debates, but none the less it is a move in the right direction. I shall be encouraging Ministers to lever it up still further. Other such measures include improvements in child tax credit, protections for lower paid public sector workers and closing tax loopholes such as that on capital gains tax, which was brought in by a Labour Government. Although I want to see that increase still further, with protections—particularly for certain groups that will still use capital gains tax as a means of avoiding paying their rightful tax—it is still a move in the right direction. In view of all those measures, and in spite of my misgivings about other aspects of the Bill, I shall support the Government on Third Reading.

As I have made clear, I had a number of misgivings. The Government are well aware that I refused to support them on the increase in VAT, as the voting record clearly shows. In the conclusion to the Budget, the Chancellor made it clear that the intention was to ensure that

“the burden is fairly shared”

and that the aim was to have

“The richest paying the most and the vulnerable protected”.—[Official Report, 22 June 2010; Vol. 512, c. 180.]

I shall not rehearse all the arguments contained in the Red Book and the Institute for Fiscal Studies’ analysis of the impact of the VAT rise, but, having considered the impact on public services, on charities, on rural dwellers dependent on an old banger to get around because of the inadequacy of public transport and on poor families, I believe that the increase in VAT is regressive. That is clearly not a view held by Ministers, but it is still relevant.

Let me refer to three elements of the impact of the VAT increase on charities. First, a briefing has been supplied to me by Save the Children that states that

“we will pay more in VAT but will not be able to charge VAT on our income as other companies do. This is a real concern.”

Save the Children’s analysis of the figures presented in the Red Book points out that the deciles that are identified in the graphs include the most wealthy decile, which commences at £49,700 per annum. A lot of the very wealthy receive an income of significantly more than that. Save the Children states that

“the graph measures the impact at 2012/13 which doesn’t include the impact of the tax & benefits changes in the Emergency Budget over the whole parliament and probably fails to pick up the changes in the measurement of the uprating (RPI to CPI). The essential point is that although the highest earning households pay more, they still pay proportionately less of their household income on the tax increases than poorer households.”

In previous debates, I have said that the impact on those households with children is clearly regressive according to Save the Children.

Mencap has also provided me with a briefing on the impact that the measure is likely to have on its services for the learning disabled. Mencap provides important services and accommodation for the learning disabled and it estimates that for the 15 months from January 2011 to April 2012—that is, until the end of the next financial year—the cost to it will be £450,000, nearly half a million pounds. That figure includes non-recoverable VAT incurred by its housing subsidiary, Golden Lane Housing, which plays a significant role in Cornwall, where it provides an important service. I received the advice from one of Mencap’s trustees who lives in my constituency, Colin Rogers. His concern as a trustee is that

“as much of Mencap’s income is earned and not donated and since these earnings come from service provision which is also likely to be cut, we are potentially facing a dire financial position which can only be managed by reducing the many services which we subsidise or provide free-of-charge to people with learning disability and their carers. As a rough guide, the 12 month figure of £370,000 would each year pay for around 20 full-time community support workers”.

I hope that the Government will take the impact on charities on board.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Is not the tragedy of the increase in VAT and its effect on charities the fact that we know that it will cost £150 million across the sector, but the human cost of the recession is now feeding into the system and we have not yet reached its peak? The pressure on services is increasing all the time at a time when costs are also increasing.

[Andrew George]

In the context of the extremely difficult circumstances in the economy, the VAT rise will certainly make things doubly difficult for charities, because where they depend on donation income to make up the shortfall that has been created as a result of the VAT rise, that will be significantly more difficult. A number of charities are already reporting that charitable donations have decreased in recent times and this will make the environment significantly more difficult for them to survive in.

Let me give as a local example Penwith Housing Association. Its chief executive, Andy Moore, has provided me with a briefing regarding the impact that the rise would have on that association and its management of its stock

“due to VAT being chargeable to PHA for all our repair and maintenance expenditure and many other service costs.”

He said that as it does not charge VAT on its rented homes, it has little opportunity to recover the tax. Penwith Housing Association anticipates that the cost to it will be about £182,000 a year. That money will probably have to be found through increasing tenants’ rents, but its tenants are already on low earnings. Given that tenants’ housing benefit might be cut as well, the VAT rise will create significant pressure.

In an intervention on the Exchequer Secretary in his opening remarks, I emphasised a point that I and the hon. Member for Nottingham East (Chris Leslie), who is not in his place, had brought forward in amendments that we had proposed—the possibility of introducing a sunset clause in relation to the VAT increase. That would have chimed with the Government’s claimed tax policy as set out in chapter 3 of the tax policy document that was published alongside the Budget. There was a strong sense that the Government had an opportunity to demonstrate that, as the Budget was an emergency Budget and the VAT rise was therefore an emergency measure, the VAT rise could be time-limited and that there might at least be an opportunity for a sunset clause. Ministers could have accepted the measure then or it could have been introduced on a more acceptable date. There could at least have been a promise of a formal evaluation of the impact of the VAT rise and an opportunity for Parliament properly to scrutinise both the impact of the rise and whether, in the context of the emergency Budget, the fiscal situation had improved by the time the review and evaluation took place. Parliament could then come to a conclusion as to whether it was satisfied with the measure.

I am very disappointed that the Exchequer Secretary has not accepted the proposals either for a sunset clause or for an evaluation of the impact of the VAT rise. I hope that Treasury Ministers will review this issue in due course.

[Ms Angela Eagle]

I am listening to the hon. Gentleman’s arguments very carefully. Will he tell us whether he is so disappointed that he will now finally consider not going into the Lobbies to support the Budget on Third Reading?

[Andrew George]

Perhaps the hon. Lady was not listening to my opening remarks when I said that on balance, because there are many measures that I approve of, even though I am disappointed by this particular measure, I will be supporting the Government. This is, of course, a Finance Bill and not the Budget as a whole.

I was reassured, but I seek further reassurance from Treasury Ministers, regarding the promise that the Government will not revisit the current list of zero-rated and 5%-limited VATable products and services and that they certainly have no intention of reducing those lists or in any way cutting the number of VAT-exempt, zero-rated or VAT-limited products and services such as those that we have been debating.

[Toby Perkins]

Will the hon. Gentleman give way?

[Andrew George]

I am just bringing my remarks to a close and I know that a lot of people wish to engage in the Backbench Business Committee debate later, so I hope that the hon. Gentleman will bear with me.

It has been a pleasure to take part in the debates throughout the proceedings of the Finance Bill. I put on record my disappointment regarding the VAT measure in particular and I hope that Treasury Ministers will reflect on the debate and come forward with an evaluation in the months and years ahead.

--- Later in debate ---

[Mr Umunna]

No I will not; I will make some progress first, and I will give way in a bit.

What we are witnessing now is a gross and distorted rewriting of history and repainting of the picture to justify the imposition of a Finance Bill and Budget that are less about economics and all about politics.

On 23 June, in an insightful piece in the Conservative house journal, The Spectator, its political editor described the Chancellor’s Budget thus:

“The mission, as Mr Osborne sees it, is to shrink the public sector and grow the private sector—the classic goal of the modern British centre-right.”

That is what the measures in the Bill and the emergency Budget are all about.

Let us address the Chief Secretary to the Treasury’s claims that the Bill is fair. He said:

“This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden.”—[Official Report, 6 July 2010; Vol. 513, c. 203.]

Just a few weeks ago, a Liberal Democrat leaflet was pushed through thousands of letterboxes in my constituency under the headline, “Clegg delivers on promises”, proclaiming that the Government are reducing the deficit in as fair a way as possible. It made a series of claims in relation to the Bill and the emergency Budget. First, it claimed that there will be “more money for schools”. We have seen now how accurate that claim was: consider the Building Schools for the Future debacle that we have witnessed over the past few weeks.

Secondly, the leaflet claimed that

“tax credits for needy households”

will be

“saved”,

yet the emergency Budget, in fact, freezes child benefit, thus producing a real-terms cut for more than 14,000 in my constituency who receive the payment. Thirdly, it claimed that the emergency Budget included

“a tax cut for low and middle income families by raising tax allowances”.

That neglects to mention that the increased allowances are completely outweighed by the panoply of regressive measures in the Budget—most notably, the unfair VAT rise that will be introduced under clause 3.

During the general election campaign, my Liberal Democrat counterpart and I spoke at an international Save the Children event in my constituency and we both talked of the need to reduce child poverty. Save the Children is running an excellent campaign in opposition to the VAT hike—a hike that the Liberal Democrats now sanction. I note that there is but one Liberal Democrat Member, I think, in the Chamber at present.

[Andrew George]

Three.

[Mr Umunna]

Okay; three.

The charity said:

“A 20% VAT rate means that the poorest parents will see their VAT bill rise to at least £1,600 a year—affecting already overstretched budgets—and driving some into the arms of loan sharks”,

as my hon. Friend the Member for Wakefield (Mary Creagh) has just mentioned.

The fourth and final claim in the Liberal Democrat leaflet is that they stopped

“Tory plans for a huge Inheritance Tax give-away for the wealthy.”

Even if we accept that claim—I do not—the omission of that giveaway from the Bill pales in comparison with the appallingly regressive overall impact of the Budget, which the Institute for Fiscal Studies and others have looked into. It has calculated that the total effect of the tax rises and spending cuts will cost the average family in the top income decile £1,135 a year. It will cost the average family in the bottom income decile £1,344—£209 more in real terms. The poorest will be 20.5% worse off, and the richest will be 1.6% worse off. So when it comes to social justice, the Government have absolutely nothing to boast about.

The suggestion made in the leaflet that those who are on low incomes should rejoice at the fairness of a Budget that places a larger real-terms burden on the poorest than the richest is an utter disgrace. What is even more disgraceful is the fact that the measures in the Bill and the emergency Budget were a choice. Whatever rewriting of history the coalition indulges in, it cannot distract us from a simple fact: the coalition Government have actively chosen to do this to my community.