Capital Gains Tax (Rates)

Andrew George Excerpts

Monday 28th June 2010 Commons Chamber

[Andrew George (St Ives) (LD)]

I wish to approve the headline description of the emergency Budget and what it is intended to achieve, which, as my hon. Friend the Member for Bradford East (Mr Ward) has said during the Budget debate, is that the richest pay the most and the vulnerable are protected. We must test that claim as we proceed. The coalition Government face many challenges in achieving that, in circumstances in which the public finances are in a very serious state, which I do not need to describe again this evening.

I wish to give the Budget a fair wind at this stage, and of course as a Liberal Democrat I gather a degree of satisfaction from a number of measures that I and my colleagues have campaigned for, namely the increase in the tax allowance with a target of an allowance of up to £10,000, taking many thousands of people on low income out of tax altogether; the restoration of a meaningful annual increase in the basic state pension, for which pensioners have been crying out for decades; increases in the child care element of the child tax credit for the poorest; the closing of the gaping tax avoidance loophole created by the previous Government through changes to capital gains tax; the introduction of a banking levy; and the protection of lower-paid public servants. There are a number of measures that I applaud and welcome very much.

This is a coalition Government and a new arrangement altogether, with two distinct parties. Seeking consensus between those parties inevitably creates significant debate.

[Mr Kevan Jones (North Durham) (Lab)]

The hon. Gentleman is showing by his demeanour that he is not very enthusiastic for his coalition. He says that he has campaigned for many things in the Budget. Can he tell the House when he and the Liberal Democrats campaigned for an increase in VAT?

[Andrew George]

As far as I recall, none of the three main parties ruled out the prospect of VAT increasing. It is only when one is in government that one can see the nature and state of the finances, and therefore fully understand the impact that it is likely to have.

Having said that, as all Members will know, there is an amendment about VAT on the Order Paper in my name and those of some of my hon. Friends. It asks, I think reasonably, that an impact assessment be undertaken, taking into account a number of factors including the impact that the VAT increase would have on businesses, charities and families and households across the income range and age groups. It is vital that, in order to advance a number of the challenging measures in the Budget, the Government should reasonably be expected to bring forward more information than they are able to at this emergency stage of the Budget, so that we can debate the impact of those changes.

[Roger Williams (Brecon and Radnorshire) (LD)]

I thank my hon. Friend for giving way and I agree with the sentiments he is expressing. Does he agree that charities that are unable to reclaim VAT could be about £250 million worse off as an unintended consequence of the VAT measure?

[Andrew George]

I am very grateful to my hon. Friend for that comment. There is not just a new coalition Government, but a new Parliament, and in it we should be able to debate issues both across the Chamber and within the parties of the coalition Government. That is not unreasonable. The Chamber should enable greater transparency and discourse across and between parties. The purpose of our amendment is to probe issues that need and deserve to be probed.

[Lyn Brown (West Ham) (Lab)]

Will the hon. Gentleman give way?

[Andrew George]

I shall not give way any more, I am afraid, because of the limit on time.

The motion refers to the Red Book, which, at page 67, in relation to chart A3, describes the VAT change as potentially “progressive”. I think that the notion is based on the expectation that those who spend the least will be less affected. Of course, those who spend the least are inevitably those on lower incomes, who will, as the Red Book explains, pay less VAT in absolute terms. But not everyone agrees with that: the hon. Member for Gainsborough (Mr Leigh) has described VAT as regressive, as have Labour Front Benchers.

The Institute for Fiscal Studies is rather equivocal on this issue. It says that when contrasted with income, VAT does look more regressive as it hits those with high expenditures the hardest. It also says that those with the lowest incomes tend to have the highest expenditures relative to their incomes, so there is an issue that needs to be investigated a great deal more. I believe that the Government should reasonably bring forward an impact assessment of the type that I have described and that we should have an opportunity to debate it not just in the Finance Bill Committee but in the Chamber.

I represent the poorest region in the country, so I am bound to be particularly sensitive to the impact of the Budget on the poor. However, I am not just concerned about low-income families; I am concerned about the impact of the VAT increase on rural travellers, who have a car out of necessity, not luxury, and on charities, as my hon. Friend described a moment ago. I am also concerned about the contrast between the effect on businesses that are engaged in the renovation of older buildings, for which VAT is applicable, and on those that build new buildings, for which VAT is not applicable.

The key themes underlying the emergency Budget turn on the challenges that any Government would have, such as ensuring that those who dropped us into the mess that we are in—due partly to the management of public finances by the Labour party and partly to those in the City who contributed a great deal—should be doing the most to help us out of it. As is made clear in the Budget, there is also an issue regarding wealthy people who have managed to pay less marginal tax than their cleaners. Those people should start paying their way. I hope that the Chief Secretary will consider very carefully our amendment and the reason behind it when he winds up. In this area of policy and policy making, we should have an impact assessment and an opportunity to debate this issue.