Finance Bill

Angela Eagle Excerpts

Tuesday 6th July 2010 Commons Chamber

[Danny Alexander]

The hon. Gentleman has misunderstood what is being discussed, which is no surprise, given the previous Government’s attitude to the idea, as the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) knows. We are not talking about a VAT derogation; the proposal relates to fuel duty.

[Ms Angela Eagle (Wallasey) (Lab)]

I was involved when the Treasury last looked at that idea. As the hon. Member for Na h-Eileanan an Iar knows, there are real hardships and we were very sympathetic. However, the Chief Secretary must admit that there are difficulties with developing such a policy, not least because of the potential for smuggling and fraud.

[Danny Alexander]

The hon. Lady says she was sympathetic—I attended a meeting where she expressed that sympathy—but no action by the previous Government resulted, despite the matter being pressed for a number of years. I am sure that my hon. Friend the Exchequer Secretary will look at all the issues as the question is investigated.

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[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.

[Mr Jones]

I congratulate the hon. Member who raised the matter earlier. Someone obviously had to scurry away and take the poster down very quickly.

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[Helen Goodman]

The Minister shakes his head. They clearly do not know the answer.

The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than acting on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.

Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy.

The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.

The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.

The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.

[Ms Angela Eagle]

Has my hon. Friend also noticed that, mysteriously, the tables in the Red Book to which she has referred stop in the financial year 2012-13, which as it happens—I am sure that this is purely coincidental—is just before all the cuts in the public sector happen?

[Helen Goodman]

My hon. Friend is absolutely right. The major cuts in benefits—in housing benefits, tax credits and benefits affecting families—come in the two final years.

The other thing that Members on the Government Benches simply do not seem to understand is the impact of the changes on work incentives. The Government say that they want to promote a climate for growth. One would think that if they were trying to promote a climate for growth, they would improve work incentives. The Government are about to test to destruction the theory that simply cutting benefits will improve work incentives. That is illustrated in another table in the Red Book—the Red Book is, I have to say, a rather useful document—which shows the changes in the marginal deduction rates. That table shows that almost 100,000 people will see increases in their marginal deduction rates as a result of the Budget—that is, a worsening of their incentives.

The level of transparency in the document is totally inadequate, and it has been extremely difficult to get information out of the Government. However, in conclusion, I would like to ask: what is the balance of risk that the British economy now faces? Is it spiralling inflation or is it deflation? The choice that the Government have made is far more likely to push us towards deflation.

Before he sat down, the Chancellor or the Exchequer said that the richest should pay the most and that the vulnerable would be protected in the Budget. The Government have failed every test. They have not been fair, they have not promoted growth, they are raising far too much money and this Budget will fail the nation.

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[Barry Gardiner]

My hon. Friend is entirely right. That is a real problem for clubs and small businesses that are not able to reclaim VAT back. It is yet another tax on business.

[Ms Angela Eagle]

Does my hon. Friend share my astonishment that Members on the Government Front Bench seem to be ignorant of the fact that VAT has to be paid by charities?

[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.

--- Later in debate ---

[Ms Angela Eagle (Wallasey) (Lab)]

We have had an interesting debate. We just heard from the hon. Member for Morecambe and Lunesdale (David Morris) the most amazing reason why debate in the House should be curtailed that I think I have ever heard used in a democracy. I hope we are not going to hear more arguments that debate in the House should be curtailed because of the cost, as that seems rather odd.

I begin my response to a long and illuminating debate by adding my congratulations to those who made their maiden speeches. The hon. Member for North East Cambridgeshire (Stephen Barclay) gave an extremely entertaining speech about the history of his constituency. He told us that it was better known as the fens, which sounds a lot more exciting than its current name, which if I may say, is rather boring. He then spoke of the history of drainage in the fens and many of the issues that he is confronting as a newly elected Member. I wish him a long and happy membership of the House. He certainly made a good impression with his maiden speech.

My hon. Friend the Member for Scunthorpe (Nic Dakin) also made an extremely accomplished maiden speech this evening, paying suitable tribute to both his predecessors, Elliot Morley and Ian Cawsey. He displayed a passion for the constituency that it is now his privilege to represent. He lives there and clearly loves it, and I am sure that we will hear many more such contributions from him.

The hon. Member for Ipswich (Ben Gummer)—a chip off the old block—made a characteristically good maiden speech, as did the hon. Member for Weaver Vale (Graham Evans). The latter paid a tribute to his predecessor that Labour Members appreciated. I congratulate all hon. Members who made their maiden speeches tonight. I am not sure how many more maiden speeches there are to get through, but I have always enjoyed listening to Members’ first contributions to the House. After many years of listening to such speeches, I have not lost my enthusiasm for them.

The debate was initially joined enthusiastically and with a great deal of energy, but that energy petered out on the Government side of the House halfway through the evening. Instead of the usual to and fro of debate, there was no sign of anyone on the Government side willing to stand up to defend the Finance Bill. Government Members ran out of steam and stopped participating. As the Bill goes to Committee and Report in the next couple of weeks—unusually, that will take place completely on the Floor of the House—I hope they will show a little bit more stamina than they managed to show today, when the debate was somewhat one-sided.

The right hon. Member for Wokingham (Mr Redwood), whom I no longer see in his place, is one of life’s optimists. He told us that we are all far too pessimistic about the state of the economy. To listen to him, one would not have thought that his right hon. and hon. Friends on the Treasury Bench had spent the past few weeks driving down confidence in the economy with the scaremongering tactics they have been using to justify the measures in the Budget.

We then heard from the hon. Member for Dundee East (Stewart Hosie) on behalf of the Scottish Nationalists, who is a long-standing and experienced contributor to Finance Bill debates. I have served on many Finance Bill Committees with him and, as always, he brought his astute experience and forcefully expressed opinions to the debate. He was especially exercised about the increase in VAT in the Bill which, he said—I have to say I agree with him—contradicts the fairness theme that is purported to run through the Budget. He described it as unforgivable and economically foolish.

We also heard from the hon. Member for North East Somerset (Jacob Rees-Mogg) who gave us something of a history lesson and, like so many of his colleagues, foolishly raised the spectre of Greece. They really will have to stop doing that if they are to be reasonable and responsible.

One of the more interesting speeches from those on the Government Benches came from the hon. Member for St Ives (Andrew George), whose words we listened to with extreme care given his actions so far in tabling amendments to the Bill. Clearly, he is struggling with the VAT increase. It is worrying him. He said that he did not think the Red Book was accurate in its assessment of VAT as progressive and he raised the tantalising—for me, at any rate—possibility that he might consider amending the Budget in Committee or Report on the Floor of the House. We will certainly wait to see whether he does so, and we will look carefully at the issues that he wishes to raise.

We had a series of speeches from my side of the House, beginning with an extremely eloquent contribution from my hon. Friend the Member for Warrington North (Helen Jones), who talked about how regressive the VAT increase will be. She also said that the banks were being treated softly while industry was being treated relatively badly by the proposals in the Finance Bill.

We also heard from my hon. Friend the Member for North Durham (Mr Jones) and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), both of whom had pertinent critiques of the Budget judgment and the strategy implied by the Bill. We heard a tour de force from my hon. Friend the Member for Eltham (Clive Efford), who understandably had a go at the Liberal Democrats for their twisting and turning on VAT. He had some words to say about the Office for Budget Responsibility, which I will come back to.

We heard a superb speech from my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont)—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. There are too many private conversations going on and it is difficult to hear. We are getting near the end and I am sure that hon. Members can wait a little longer.

[Ms Eagle]

Thank you, Mr Deputy Speaker. I was just mentioning the speech by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East—I cannot pronounce the name of his constituency very well, but it is definitely in Scotland. He made a superb speech about the political nature of economics and the attempts that have been made to hide what are basically political choices by describing them as economic imperatives that are somehow objective. He exposed what he called superstitions and myths around that whole area and demolished a lot of the arguments that the Government have been making to justify the Budget judgment in the Finance Bill. In particular, he talked with great wisdom about the paradox of Government thrift, which he pointed out is completely unlike budgeting for households. I look forward to many more such contributions from him as the Bill goes through its stages on the Floor of the House.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) also made a good contribution, which I particularly welcome because I enjoyed canvassing with her during her election campaign. She is already well-loved, liked and respected in her constituency. She asked an important question that the House would do well to bear in mind as we consider the policies and legislation before us: where is the justice in the Budget measures, which will hit the poorest hardest? My hon. Friend the Member for Wansbeck (Ian Lavery) pointed out the perverse glee he perceived among Liberal Democrat and Conservative Members over the pain that will be inflicted through the Budget and this Bill. His speech demonstrated the human face of public sector workers, many of whom have found their reputations decried in the newspapers, and the jobs and the contribution that public sector workers make to our society belittled.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) observed that the Budget judgments are very optimistic on jobs and, in particular, growth prospects, and she highlighted the impact on work incentives of some of the policies and Budget changes in the Red Book.

[Kelvin Hopkins]

My hon. Friend talks about the judgments and forecasts. I remember, some 20 years ago, the Tories’ favourite forecasting organisation was the London Business School, which The Sunday Times gave 0 out of 10 for its forecasts because they were always completely wrong. Does she think they are wrong on this occasion as well?

[Ms Eagle]

Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.

My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.

My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.

My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.

Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.

The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.

[Chris Leslie]

It would certainly be interesting if the Minister could cast some light on that, but would it not also jeopardise the so-called objectivity and independence of the OBR if the Chancellor simply chose Sir Alan Budd’s successor by himself?

[Ms Eagle]

These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.

[Kelvin Hopkins]

I have a suggestion: might it not be a good idea to appoint Professor David Blanchflower as the head of the OBR?

[Ms Eagle]

My hon. Friend has certainly made an intriguing suggestion, but we have to establish that this House has the right to appoint the new head of the OBR before we can start speculating about who that might be.

[Mr MacNeil]

I am listening to the hon. Lady talking about transparency. In the spirit of transparency, will she honestly, openly and transparently tell the House whether she regrets allowing a rural fuel derogation to the islands of Scotland? Will she be transparent and honest on that simple point about her time in office?

[Ms Eagle]

I have—and had—a great deal of sympathy for the issues that the hon. Gentleman had raised, which are particularly relevant in the context of the islands that he represents. When one considers extending any potential fuel duty derogation for particular areas to the mainland—that is what was asked about in this case—there are other issues that arise and there are difficulties, as the Chief Secretary will know. We certainly look forward to seeing what he might come up with in his review.

However, I want to return briefly to the OBR and what on earth has been going on there. A great deal has been made of the independent forecasts that the Office for Budget Responsibility published before and after, and which appear in the Red Book. Today, the Treasury has been saying that Sir Alan was only ever going to stay for three months. However, at the event when he was appointed, the Chancellor said:

“Whether I thank him again in a couple of years’ time is another matter”.

The Chancellor clearly felt that Sir Alan was going to stick around for years, yet he is now running off and has resigned within three months. Why has he chosen to leave so quickly, right in the middle of our consideration of the Finance Bill, when so many of the judgments in the Bill are based on his forecasts? Even today, the Chief Secretary was making much of Sir Alan’s forecasts to justify some of the Government decisions that appear in the Bill.

[Charlie Elphicke]

May I ask the hon. Lady to which clause in the Bill she is referring?

[Ms Eagle]

Mr Deputy Speaker, it looks like someone is applying for your job. Every clause in the Bill hinges on the forecasts made by the Office for Budget Responsibility that appear in the Red Book. In fact, those forecasts run through every part of this Budget debate like the words in a stick of Blackpool rock. So the hon. Gentleman cannot, in all honesty, however late the hour, try to claim that the points I am making have nothing to do with the Bill before us.

Could it be that Sir Alan has decided to sling his hook because he was forced to become a kind of extension of the Conservative party spin machine last week, when he brought forward that highly contentious explanation—coincidentally just an hour ahead of Prime Minister’s Question Time—of the likely effects of the Budget on jobs? We can only speculate about whether that was the case, but I would be interested to hear whether the Exchequer Secretary is able to shed any light on this matter, in the interest of transparency, when he winds up the debate.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

I appreciate my hon. Friend’s point that we can only speculate on this matter, but it is none the less a worrying one. Given the ham-fisted effort that we have just seen to silence our debate, does she think that it might be better if the Treasury Select Committee agreed to conduct a short inquiry into the circumstances surrounding Sir Alan’s departure?

[Ms Eagle]

I am sure that the newly elected Chair of the Treasury Select Committee will make up his own mind about that, but it would be interesting to see whether Sir Alan would actually appear before any such inquiry, whether or not he were still in his job.

We have seen a steady unravelling of the central claims contained in the Budget since it was first unveiled to the House just 15 days ago, on 22 June. It was billed as the unavoidable Budget, and this is the legislation that has come from it. The Budget strategy and judgments were presented by the Chancellor and his spin merchants as infallible. The choice that he made was to cut the deficit further and faster, and that was offered as the only possible option. That is why these measures are before us today in the Bill, particularly the VAT increase. The neo-liberal economic ideologues who have seized control of our economic policy are in the grip of their narrow-minded dogma, and they will contemplate no alternative.

In truth, a highly risky political gamble is encompassed in this Bill—and it is a gamble with our social and economic well-being. The Government have made a political choice to eliminate the entire structural deficit by 2014-15—hence the revenue-raising measures in this Bill. This goes further and faster than even the Tory party promised in its election manifesto, and it is certainly against the explicit judgment on the dangers of cutting spending too soon, which was a prominent part of the Labour and Liberal Democrat manifestos. This worry about the macro-economic risks of targeting the deficit above every other consideration by speeding up its elimination is well represented in the mainstream economic debate, even if it has not featured at all in the Government’s calculations.

The Budget judgment before us tonight is not just pre-Keynesian; it is actually Hooverite. It is not an economic, but a political and ideological, imperative being pursued in this Finance Bill. This is not an unavoidable Budget, but a huge and risky gamble with the recovery. According to the Chancellor, the overriding problem for our economy now is how the bond markets might react to insufficient austerity.

The fact that the deficit hawks have taken over in the European Union and in the G20 does not make their addiction to synchronised fiscal pain any more desirable than it was in the 1930s. It does make it fashionable, but it still may not work. The fact that these huge cuts in demand will be synchronised also increases the dangers of this policy from a macro-economic point of view. There is increasing evidence that the markets are now beginning to worry about the prospects for growth and the likelihood of a return to low or no growth, Japanese-style.

This was also billed as the emergency Budget. It had to take place immediately after the general election, according to our increasingly melodramatic Chancellor, to avoid catastrophic disruption in the bond markets, threatening the very future of our nation. Nothing matters, it seems, except the deficit. Jobs do not matter and unemployment is a price worth paying. The risk to our social fabric does not matter; it can be dismissed as long as the deficit is eliminated.

We all agree that the deficit has to be tackled, and we had set out a path to cut it by 68% by the end of this Parliament. This was prudent and was far less risky to the recovery than the hazardous path that Government parties have now chosen. How odd it is, then, that the result of all the hype about the economic emergency is a very tiny Bill. We have before us an 11-clause Finance Bill; it is just 26 pages long, and nine of them are superfluous because they are reprinted virtually word for word from the VAT section of the Finance Bill 2009.

[Kelvin Hopkins]

My hon. Friend is absolutely right to warn against the dangers of deflation, which are much more worrying than anything to do with inflation. Is it not even more worrying that the EU nations have collectively decided to cut their deficits, which will just make the problem even worse? Should we not follow the advice of President Obama, who suggested that we still need the fiscal stimulus?

[Ms Eagle]

There is certainly a respectable mainstream economic argument that synchronised austerity is worse for growth and could achieve the opposite of its intended effects on the deficit by increasing rather than decreasing it. My hon. Friend is exactly right.

Here we have this tiny Bill of 11 clauses. After all the hysteria surrounding its creation, why is it that size? I think there is only one plausible explanation. The Bill before us contains just those measures that the Chancellor must be worrying that the Liberal Democrats will wobble on over the summer recess. I would be the first to admit that size is not everything, but we might reasonably have expected that a more complete set of measures would have been forthcoming if we really were in the emergency economic crisis about which the Chancellor has spent the last few weeks irresponsibly stoking up hysteria. Instead, we have a first instalment of the Finance Bill that has been especially designed to padlock the Liberal Democrats into the coalition so that they cannot get out and cause a mess over the summer. Looking at those on the Government Benches, I have to say that some of them seem to be more willing hostages than the others. The twitching has definitely begun somewhere over there, and we intend to encourage that as the Bill continues its passage through the House.

Other differences between the Government’s rhetoric and the grim reality have become clearer in recent days. We were promised a fair Budget: the Chancellor insisted that we would all be in this together. The Budget, we were told, would be progressive, not regressive, with tax rises evenly distributed among income groups. There would be progressive cuts. The pain of spending cuts would somehow be fairly spread, with the rich bearing their fair share as we all marched together towards the establishment of a zero deficit. One by one, those loud assertions have proved to be utterly false.

In an interview in the News of the World on 13 March, before the election, the Chancellor said:

“We are all in this together. I am not going to balance the budget on the backs of the poor”.

Then, on Budget day, he made great play of calculations about the effects of his measures which purported to show that he had delivered on that promise. On closer inspection, however, those assurances dissolved into empty Budget spin. [Interruption.]

[Stephen Pound]

On a point of order, Mr Deputy Speaker. I would never presume to teach you your job, but some of us on this side of the Chamber are having great difficulty in hearing the priceless words that the shadow Minister is enunciating because of the well-refreshed ejaculations that are coming from those on the Benches opposite.

[Mr Deputy Speaker]

I do not think I need to deal with that point of order.

[Ms Eagle]

Thank you, Mr Deputy Speaker. I am trying to put the idea of well-refreshed ejaculations firmly out of my mind.

I was about to discuss the analysis by Howard Reed of Landman Economics and Tim Horton of the Fabian Society of the progressive or regressive nature of the Budget. They calculated the effect of the entire package, not just the tax changes. They included the distribution of the billions of pounds of extra spending cuts that had been announced, and then added an assumption of 25% cuts in departmental budgets. Their calculation showed that the combination of all the measures announced in the Budget that this Bill begins to enact will take £1,514 from the bottom 10% of households, which is fully 21.7% of their income. In sharp contrast, the richest 10% will experience an annual loss in income and services of £2,685, which is the equivalent of just 3.6% of their income. If there were 40% cuts in departmental budgets, as was briefed by the Chancellor and Chief Secretary at the weekend, the figures would be grimmer still.

My right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), the Shadow Secretary of State for Work and Pensions, commissioned the House of Commons Library to conduct a gender audit of the plans. It revealed that women would bear a disproportionate amount of the pain in the Budget. Of the nearly £8 billion net revenue to be raised by the financial year 2014-15, £6 billion will come from women and just £2 billion from men, despite the fact that women have considerably lower levels of income and wealth than men. The analysis does not include the impact of the savage cuts in public expenditure that the Deputy Prime Minister believes are necessary, and that are now being planned and announced. As women make up more of the public sector work force and rely more on public services, they will be hit harder by the pay freeze, hit harder by the job losses, and hit harder by the decimation of public provision for the needy, especially in their role as carers.

The Chief Secretary purported to rebut that earlier today by reading out a suggestion that the figures were not accurate because they assumed that all the family support is paid to women. It is not true that that assumption was made by the House of Commons Library. However, there are a couple of measures where the House of Commons Library has assumed 100% female receipt of benefits. That is the health in pregnancy grant and the Sure Start maternity grant.

The Conservative party and the Liberal Democrats will have to learn that merely asserting as loudly as possible that the measures in the Bill are “progressive” does not make it true. Producing a distributional table on page 67 of the Red Book which appears to show that it is progressive does not make their assertion true either, especially when the Institute for Fiscal Studies demolishes it the next day by pointing out that it included all Labour's key progressive measures enacted before the election to safeguard lower-income groups, and that it conveniently stops in financial year 2012-13, just before all the cuts to family support announced in the Budget are due to be implemented. If the Conservatives and Liberal Democrats were so confident that these measures are indeed progressive, they would commit the Government to carry on publishing those tables—[Interruption.]

[Mr Deputy Speaker]

Order. The House must come to order. Members are obviously coming near to the end. If we have a bit more patience, I am sure that we can move on.

[Ms Eagle]

If those two parties were so confident that these measures are progressive, they would commit the Government to carry on publishing those tables when the cuts really start to bite.

The huge hike in VAT is the regressive centrepiece of this regressive Budget and it features in the Bill. That is despite the fact that before the election the Prime Minister said on 23 April to Jeremy Paxman:

“We have absolutely no plans to raise VAT”,

and the Deputy Prime Minister fronted a huge VAT tax bombshell poster campaign warning about the dangers of electing a Tory Government, which still featured on his website until 9 o’clock this evening: when alerted to its continued presence by my right hon. Friend the shadow Chief Secretary, someone in the Deputy Prime Minister’s constituency finally did the decent thing and took it down.

Some Liberal Democrat Cabinet Ministers are even now trying to argue that VAT is not as regressive as they thought it was before the election. It seems that there is no limit to the depths that they are prepared to sink to justify the betrayal of their pre-election promises. VAT is regressive. It hits pensioners and those who are too poor to pay any income tax the hardest. Why then have the Government chosen to raise the bulk of their new tax revenue, nearly £13 billion, by using that tax?

We were assured that the cuts would be fairly distributed in a progressive way, but our early experience of the decisions coming out of the Treasury has confirmed our worst fears. The poorest areas have been hardest hit by cuts to discretionary programmes, which were intentionally aimed at areas in the most need.

One of the first cuts that the Government made was to the future jobs fund. That is at a time when we know, thanks to a leaked Treasury document, that the Budget measures alone will destroy 1.3 million jobs in both the public and private sectors and there are 69 students chasing every job. The prediction by the OBR that 2 million private sector jobs will be created in a mere five years is highly suspect, as an analysis by Adam Lent has pointed out. It took seven years after the 1980s recession and nine and a half years after the 1990s recession to create 2 million jobs, and we are expected to believe that the 2 million mark will be surpassed in record quick time despite the global shock of the credit crunch.

What about the sneaky little move from the retail prices index to the much lower consumer prices index as the definition used for benefit indexation? That cuts £6 billion from the benefits bill at the expense of pensioners and the poorest, the most vulnerable in our society. The delay in implementing the VAT increase will ensure that the price inflation it causes—

[The Parliamentary Secretary to the Treasury (Mr Patrick McLoughlin)]

claimed to move the closure (Standing Order No. 36), but the Deputy Speaker withheld his assent and declined to put that Question

--- Later in debate ---

[Mr Deputy Speaker]

The right hon. Member is quite entitled to move the closure motion. It is the decision of the Chair whether to accept it, so what I would say is, Angela Eagle, I am sure you must be very near the end of your speech now.

[Ms Eagle]

I was talking about the sneaky little move from the retail prices index to the much lower consumer prices index as the definition used for benefit indexes. The delay in implementing the VAT increase will ensure that the price inflation it causes is not reflected in this year’s indexation cost, which is another sneaky saving from the poorest that the Government hope no one will notice.

This Finance Bill is a risky ideological experiment that will inflict real pain and suffering on those who did not cause the credit crunch. The Bill is regressive not progressive, it is deeply unfair and it is taking a huge gamble with an economic recovery that is not yet assured—we intend to oppose it.

Budget Resolutions and Economic Situation

Angela Eagle Excerpts

Thursday 24th June 2010 Commons Chamber

[Ms Angela Eagle (Wallasey) (Lab)]

It is a pleasure to welcome you to the Chair for the first time, Mr Deputy Speaker. I would also like to add my personal welcome to the Economic Secretary to the Treasury; this is the first time that we have debated over the Dispatch Box since the election, although it is not the first time ever. I hope that she will accept my personal good wishes in the job that she is now doing.

I would also like to commend the maiden speeches that we have heard in the debate today. In particular, I thank the hon. Member for Staffordshire Moorlands (Karen Bradley) for her praise of her predecessor, Charlotte Atkins, who is a very long-standing friend of mine. The hon. Lady spoke passionately about her beliefs and her constituency, which I know is a very beautiful one.

In his maiden speech, the hon. Member for Hendon (Mr Offord) talked about another good friend of mine, his predecessor Andrew Dismore. Alas for the hon. Gentleman, today’s 12-minute limit on speeches meant that he could not even begin to compete with Andrew’s record for the longest speech in the House. However, I am sure that he will rev up and have a go at that.

Unfortunately, my hon. Friend the Member for Kingston upon Hull East (Karl Turner) is unavoidably absent from the wind-ups tonight. As the successor to Lord Prescott he has very big shoes to fill, but his maiden speech was witty and astute. He spoke about his constituency and his political credo, and I am sure that we can look forward to many more contributions from him.

The final maiden speech was made by the hon. Member for Camborne and Redruth (George Eustice), who has one of the smallest majorities in the House. He spoke about Trevithick, the railway pioneer; as he did so, I was thinking about the fact that whenever I return to my own constituency, I travel through Rainhill, where the famous and historic trials that were won by the Rocket took place—an event that brings back many happy memories as we travel to Liverpool Lime Street station.

We have heard some important speeches today, from all sides of the House. One of most intriguing was made by the hon. Member for Bermondsey and Old Southwark (Simon Hughes). I shall say more about it later, but he said some intriguing things about how he might wish to amend the Budget—particularly with respect to VAT—as it goes through the House. I certainly look forward to seeing the amendments that he may propose. I think that I shall look on them with a sympathetic eye if they do what we want, which is to make this Budget more progressive than it is at the moment.

Other speakers in the debate included my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke), and my hon. Friends the Members for Telford (David Wright), for Eltham (Clive Efford), for Southampton, Test (Dr Whitehead), for Liverpool, Wavertree (Luciana Berger), for Streatham (Mr Umunna), for Walsall South (Valerie Vaz) and for Chesterfield (Toby Perkins). They all made extremely important contributions.

We heard some passionate speeches from the Government Benches, and I agreed with very little of them. However, I can certainly thank the hon. Member for Stafford (Jeremy Lefroy), who was unique among Government Members in recognising that the Labour Government did some good things while in office. I thank him for his grace in accepting that, although I am not sure that it will do him in any good, or help his career.

The hon. Member for Bromsgrove (Sajid Javid) gave the game away when he revealed himself in the Chamber as a crusading small-state Conservative, and proud of it. He praised the Government’s ideological basis, something whose very existence many Government Members were frantically trying to deny.

There were other important contributions to the debate today, and the short speech by the hon. Member for Spelthorne (Kwasi Kwarteng) was by no means the least among them. He asked us to look at the context in which the Budget was held, and I want to spend a little time doing that now.

We have lived through a difficult time in the last two years. We have seen the deepest and most synchronised global recession in living memory, with world GDP falling for the first time since the second world war as a direct result of the global credit crunch. That credit crunch was precipitated by monumentally reckless and greedy behaviour in the banking sector worldwide, which made a few people spectacularly rich but also impoverished countless millions of its victims around the world. I thought that the hon. Member for Cities of London and Westminster (Mr Field) probably came the closest of all Government Members to being up-front about that in his extremely good speech.

The credit rating agencies, which are now so frequently quoted by Government Members with reverence as economic oracles, were particularly compromised by the triple A rating that they awarded to complex derivatives masquerading as assets when they were in fact debts, and they did so for lucrative fees. The credit crunch was exacerbated by the undoubted failure of politicians, policy makers, economists and regulators to understand and price risk appropriately in the complex and interdependent global market. That led to a degree of complacency and the misreading of international conditions that were shared by almost every economic commentator. Hindsight is a wonderful thing, and with the benefit of it we can learn many lessons to prevent those problems from recurring—I certainly hope that we do.

Meanwhile, fiscal deficits everywhere had to rise dramatically to cope with the crisis. Our tax revenues here in the UK were significantly impacted, while spending had to rise to deal with the costs of recession. The fiscal stimulus, which was necessary to stop the global recession turning into a worldwide depression, also had an effect on the deficit. That is the cause of our deficit problem, and it is certainly not unique to this country. The previous Government were right to take the action that we did to protect people’s bank deposits and to shore up the very foundations of our economic system. I am proud that we were able to rise to that challenge.

I have taken some time to outline the economic context, in agreement with the pleas of the hon. Member for Spelthorne, because in four days’ debate on this theatrically named “emergency Budget”, we have not yet heard any Government Member, from the Chancellor down, have the decency and the honesty to mention it at all. They wish the country to believe that, somehow, the considerable economic challenges that we now face were all caused by the previous Government’s irresponsibility and have nothing to do with the greed of reckless bankers and speculators. That is arrant nonsense, and they know it.

[Mr Mark Field]

Does the hon. Lady not recognise that huge global imbalances built up, and that mistakes by policy makers and politicians of all colours from across the world had their part to play, rather than the problem just being caused by, as she would put it, the greed and recklessness of bankers?

[Ms Eagle]

I agree, and during an earlier part of my speech I listed all those people as being among those who had things to apologise for, as the hon. Gentleman will see if he reads the record.

In the prelude to the Budget, other preposterous myths have been peddled, designed to justify an austerity programme so severe that it is positively, even gleefully, sadistic. I will just mention one of them in passing. The myth says, “It’s all much worse than we thought.” We have heard the Prime Minister, the Deputy Prime Minister and the Chancellor all singing that refrain in recent days. They had prepared the ground, they had the newspapers all going along with it, and they had briefed their Back Benchers, who are even now loyally parroting the line. How irritating for them, then, that the facts have failed to conform to their prearranged narrative, and how positively annoying that the Chancellor’s new forecasting quango—the pejoratively named Office for Budget Responsibility—should so comprehensively give the game away just before the main show. It quickly became clear that, far from all this being much worse than we thought, it was actually better:

“embarrassingly, the economy is just not playing along. Things just keep getting better.”

I was quoting Fraser Nelson—that well known socialist writer—from the Telegraph.

[Dr Julian Huppert (Cambridge) (LD)]

Will the hon. Lady give way?

[Ms Eagle]

The hon. Gentleman has not been here all day, so I will not give way to him.

In the pre-Budget report, Sir Alan Budd was obliged to point out that my right hon. Friend the shadow Chancellor was being too pessimistic—those who know him are not always surprised by that—and that on almost every measure, the public finances are in better, not worse, shape than we expected at the time of the March Budget. Unemployment, Sir Alan revealed, would be 200,000 lower than expected, and tax revenues would be much stronger than forecast. Thus the borrowing forecast was £8.4 billion lower this year than predicted in March, and £22 billion lower by 2014-15.

[Matthew Hancock]

Will the hon. Lady give way?

[Ms Eagle]

No.

No amount—[Interruption.] Conservative Members have had all day to peddle their view of what is happening to the economy. I am now responding to that, and they have to sit and listen whether they like it or not.

No amount of Orwellian double-speak emanating from No. 10 or No. 11 can cover up the basic fact that things are not worse as far as the deficit is concerned, but better. Shorn of the prearranged excuse for ratcheting up the pain levels in his austerity Budget, the Chancellor has been exposed as a small-state ideologue and a true child of the 1980s. He has imposed the most brutal cuts in public spending that the country has ever experienced in peacetime for reasons of dogmatic delusion, not economic necessity. The Tories are doing this not because they have to, but because they want to. They have made a political choice, not an economic choice, and we will see the results of their return to their Thatcherite roots.

There is no electoral mandate for the economically dubious dance with dogma that is at the Budget’s intellectual core. The majority of the electorate voted for parties that did not want to make immediate cuts at a time when the recovery was not locked in and our major EU trading partners were seeing their upturns falter. Those who voted Lib Dem did not expect their chosen party to experience a wholesale conversion to Tory fiscal hawkery after a quick cup of tea with the Governor of the Bank of England. They feel betrayed—and they have been.

Make no mistake: this is a very Tory Budget. It contains the largest spending cuts in our peacetime history, focused on the neediest areas of the country. It brings about a huge rise in the most regressive tax available, which will hit the poorest hardest. The decision to attempt to eliminate an 8% structural deficit in five years, and the choice of a ratio of 77% spending cuts to 23% tax rises, are more brutal than Mrs Thatcher ever dreamed of. The Chancellor has paraded Canada and Sweden as examples to follow, but as Will Hutton recently pointed out, the plans for fiscal consolidation in the Budget are three times tougher than those achieved in Sweden and twice as tough as the Canadian example. Sweden took 15 years to achieve 20% cuts in some departmental spending, but this Tory-led Government want to cut 25% in five years.

The lesson from Japan is that it is positively dangerous to attempt radical fiscal consolidation when the private sector is deleveraging, so why are the Government prepared to risk making the same mistake? Because of its error, Japan experienced a lost decade of growth and achieved the opposite of its intentions: not a shrinking deficit, but an increasing one. The Budget contains no strategy for growth beyond the usual tired old Tory refrain that the private sector will fill the gap. That is not a growth strategy, but a statement of blind economic faith that might or might not be fulfilled.

It has taken a mere two days for the pitifully thin Lib Dem veneer attached to the Budget to flake off completely. The Lib Dem leader promised us “progressive cuts”, but the devastating analysis of the IFS has put paid to that absurd and oxymoronic phrase. When we take out Labour’s remaining Budget changes, this Budget is deeply regressive, and it gets more regressive as the years go on and the huge cuts in welfare support and tax credits bite. It is now clear what the Deputy Prime Minister means by progressive cuts: he will cut this year, cut more next year, and cut even more the year after that. His phrase is true, when it is taken literally.

A Budget that targets £6 billion of cuts on the most vulnerable, including pensioners, by delinking benefit uprating from the retail prices index, yet hits banks with only a £2 billion levy that is being given back through corporation tax, is not sharing the pain. A huge hike in VAT that hits the poorest hardest is not sharing the pain. A deliberate decision to destroy large swathes of social support, and cutting support for the jobless and home owners when they are most under pressure, is not sharing the pain. The choices in the Budget make it abundantly clear that we are not all in this together.

Today’s Financial Times carries an article that states:

“Ministers warn that they may have to tear up some untargeted welfare promises—such as the £4bn spent on subsidising bus travel, winter fuel and television licences for older people…One minister said that such a move was ‘almost certain’”.

The hon. Member for Bermondsey and Old Southwark said today that he would not allow that to happen. Well, if he wants to stop that betrayal, he has to table those amendments and carry his Lib Dem colleagues through the Lobby with us to stop this Conservative-led Budget doing even more damage. We look forward to seeing him in there with us.

Capital Gains Tax (Rates)

Angela Eagle Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Ellwood]

Rather than leave a curt note on the desk of the Chief Secretary to the Treasury, we have given an indication of the real situation in the UK. Again, I underline the fact that there are aspects of the coalition agreement we perhaps were not expecting—that should be understood on both sides of the House. I fear that it will remain a Labour tactic to go on about this, perhaps to try to drive a wedge into the coalition. That is dangerous, out of touch and wrong, because the nation said to us, “We don’t support any one party outright”, but it approves of a coalition and the leadership, and the stability that they and this Budget are providing.

My hon. and good Friend the Member for Harrogate and Knaresborough (Andrew Jones) made an excellent maiden speech. He mentioned Guy Fawkes wandering through his constituency, and I am sure he will make just as big a bang in this place as Guy Fawkes did. I cannot mention Harrogate without also paying tribute to Betty’s tea rooms. Those of us who have gone there for conferences will appreciate the delicacies that Betty’s provides—I only wish that could be emulated here in the House. The hon. Member for Hemsworth (Jon Trickett), who also is no longer in his place, made the most Marxist speech I have heard in this place for many years. I was waiting to see how long it would be before Maggie was blamed for what has happened over the past 13 years—and that is what we got from him. I was astonished.

This emergency Budget is tough but necessary, difficult but unavoidable. It is not the time for timid steps in the hope that we can tiptoe our way out of recession. We needed a bold statement of intent, mapping out a clear route to recovery and invigorating confidence in our businesses and markets. That is exactly what we got. Three main themes run through the Budget and Red Book. The first is one of responsibility in reducing the deficit over the next five years, mostly through spending cuts but also, yes, through some tax rises. That is the price we must pay for Labour’s incompetence and legacy.

Economic growth is the second theme. Measures taken in the Budget are designed to support businesses and stimulate growth, which will help to generate jobs as businesses are able to expand. That will mean cutting red tape, which will free businesses, because removing red tape is the same as introducing a tax cut but without reducing public revenue. It also means preventing Labour’s job tax through a rise in national insurance, reducing corporation taxes and improving our infrastructure.

The third theme is fairness. Of course, we are in a period of austerity, but every part of society must make a contribution to paying off our debts. At the same time, however, we must protect the least well-off. Listening to some of the contributions from Opposition Members, one might think that no such initiatives were part of the Budget. However, we have ensured that those earning less than £21,000 in the public sector will not be subject to the pay freeze. We will see a £1,000 increase in the personal tax allowance for low and middle-income earners; and finally we will see a re-linking of the basic state pension and earnings—well overdue and promised for years by Labour, but never acted upon. We will also see a £2 billion commitment to child tax credits for the poorest families, helping to ensure that there is no increase in measured child poverty over the next few years.

These are the tough decisions we need to take. We have to do this to secure our financial markets and ensure that credit agencies do not lose confidence in Britain. If we do not, interest rates and inflation will rise, and that is what would lead to the dreaded double-dip recession. I am glad that our triple A rating is now secured, thanks to the Budget.

I will give the Labour Government their due: they acted promptly and expeditiously when the Northern Rock issue broke. But then what happened? We have been left with one of the worst economic inheritances imaginable. They racked up one of the biggest budget deficits in Europe. If that is not shocking enough, our borrowing amounts to unheard sums of money. They continued to live beyond their means, borrowing £1 for every £4 they spent, which led to the doubling of the national debt. I well remember Labour’s last Budget, in March 2010. I was sitting in this Chamber waiting for the leadership, initiative and guidance to take us out of this mess. It was the Labour Government’s last opportunity before the election to get us out of the mess they created, but it was more about the political, rather than the economic, cycle. The previous Chancellor went as far as announcing £40 billion of cuts, but he did not say where the axe would fall, so he managed to ring-fence a black hole, which was a first in this House.

Significantly, the Labour party really had nothing to say yesterday. The acting leader of the Labour party was almost like a rabbit in the headlights. Labour Members rolled out the same old line, which we have heard time and again—I am sure we will hear it again in the summation today—about “the same old Tories”, thereby exhibiting an insane refusal to acknowledge the scale of the economic crisis. We have seen Labour Members attempting endlessly to promote and fight a class war with the Conservatives. That is the direction in which they are now trying to take us, avoiding any notion of mea culpa or of taking responsibility for the mistakes made in the lead-up to the current crisis. That illustrates how out of touch the Labour party has become.

Labour continues to argue that we cannot rip the money out of the economy—through the cuts, the increases, and so forth—and also achieve growth, but I believe that we can. We need to give business and the private sector the space to breathe by reducing national insurance and corporation tax. Those are the measures we need to take. That is what will help us to avoid going into a double-dip recession, allowing our businesses to thrive and employment to grow. Labour’s tactic—I am worried about this, because I understand that the unions bankroll Labour to the tune of 60%—is to fight the public sector cuts. That is what we will see as things move forward: these astonishing arguments why, unlike any other part of our society, the public sector should somehow be ring-fenced and not have to share some of the economic pain we are experiencing.

The unions are clearly looking for a fight. I pay tribute to the nurses, doctors, teachers, train drivers—all those who work hard—but let us look at who is now taking over some of the unions: Dave Prentis from Unison, who has pledged to fight the cuts; Christine Blower from the National Union of Teachers, who has enthusiasm for industrial action of some form, as she has made clear; and Paul Kenny from the GMB. Then there is the Unite leader, Len McCluskey—we have all seen what he has done to British Airways—who is seeking re-election. If he gets re-elected, the consequence will be strike after strike, because the public sector unions—not the members, but the unions—do not recognise that we are all in this together.

Labour’s tactic is to blame the global downturn. We hear this all the time: “It’s not our fault; this is because of what happened right across the world.” However, as I pointed out in an intervention, yes, we are exposed—perhaps more than other countries—because of the size of our financial services sector, which is one of the biggest in the world. That is accepted, but we cannot get away from the fact that the previous Government changed the rules, making it unclear who was responsible for the City back in the late 1990s. That is why we got into the position where banks were lending money they did not have to people who did not understand the situation, and in ways that meant that they could not pay it back. That is what led to the current position.

We cannot blame Freddie Mac, Fannie Mae or the sub-prime market for the fact that, even up to about two years ago, Bradford & Bingley was offering mortgages of more than 125% to people who clearly could not pay them back. I remember when I was at university wandering into Midland bank, as it then was, and seeking a mortgage. I was told that I had to cough up one third of the price of the house. What happened to that rule? It went, and that is why we ended up with more money than houses were worth being lent to people who could not pay it back. That is a British problem, not an international one, and that is what led to the crisis we face now.

I repeat my earlier point: I think Labour are going to adopt the tactic of trying to drive a wedge between the coalition by saying, “The Lib Dems said one thing in the election and the Tories said another.” The nation will get bored of it. People want direction—they want leadership and stability—not harping back to what happened prior to the election.

Let us look at the numbers. Our focus is to try to balance the books by 2016. We will cut the structural budget deficit to zero in the next six years. That deficit represents the hole in the public finances that is not expected to be repaired by the economic recovery. That is why we need to take the initiative that we have. Let us look at what the shadow Chancellor has done. I asked him in an intervention whether he supports the Office for Budget Responsibility. I am pleased to say that for the first time, he placed it on the record that he does. However, it is difficult to take anything that he or anybody else on the Labour Front Bench says seriously, given that the OBR reviewed his figures and revised his growth forecast for 2011 from 3.25% to 2.6%.

[Ms Angela Eagle (Wallasey) (Lab)]

As the hon. Gentleman is talking about the Office for Budget Responsibility and its forecasts, will he have the good grace to note that its recent deficit forecasts are considerably lower than those in the March Budget because more money has been collected in taxes? The deficit that the hon. Gentleman is obsessing about is actually 2% of GDP lower than the forecast in the March Budget. Will he have the decency to recognise the other side of the coin, as well as this side of it?

[Mary Macleod (Brentford and Isleworth) (Con)]

The structural deficit is higher.

[Mr Ellwood]

As my hon. Friend the Member for Brentford and Isleworth (Mary Macleod) says from a sedentary position, the structural deficit is actually higher.

Let me deal now with total borrowing as stated by the Office for Budget Responsibility. This is now expected to fall by 2.1% of GDP by 2015, or by £37 billion, which is exactly half of what Labour were predicting, and to reach 1.1% by 2016.

[Ms Eagle]

I wonder whether the hon. Gentleman was listening to the question I asked him. Given that he is quoting one particular forecast from the Office for Budget Responsibility, will he have the good grace to say on the Floor of the House that the size of the current deficit is now 2% of GDP lower than we predicted in the March Budget? The situation in which we find ourselves is not a lot worse than we thought; it is better.

[Mr Ellwood]

The hon. Lady has put her point on the record. My argument is that it is difficult for us to take what the shadow Chancellor says seriously when he has been looking through rose-tinted glasses for the last 10 years. Time after time, either he or his predecessor, the former Prime Minister, came up with growth forecasts that were well out of touch with what was happening. That is what led us down the path of thinking that the economy was doing much better than it really was. [Interruption.] If the hon. Lady would stop talking, she would hear what I am saying. She must understand that if the previous Government had not kept on expressing the view that the economy was on the mend when it was not, they would have recognised the position and put in place corrections to stop the spending. The first point I made was the fact that her Government were living beyond their means, yet the hon. Lady still sits there and argues, without even having the grace or the courtesy to say sorry to the nation for the mess we are in.

Tax Avoidance

Angela Eagle Excerpts

Wednesday 16th June 2010 Westminster Hall

[Dr Pugh]

The hon. Gentleman is right to suggest that the black economy needs a whole toolkit of approaches. I happen to have with me the report from the Public Accounts Committee entitled “Tackling the hidden economy”, which contains a number of rational, sensible and workable proposals, which will enable people to earn a living and at the same time pay taxation legitimately and fairly. Obviously the fairer the system is, the more prone people are to do that.

Tax avoidance properly, though, is the apparent attempt to frustrate the intent of tax law. That is fundamentally what it is. It is normally done by organising economic transactions in a way that ensures that whatever wealth, investment, profits, income or rewards people have or aim for, they escape the charge that the state would ordinarily impose on them. The state does not do that for idle purposes, but for the common good. Tax avoidance is therefore morally reprehensible. MPs flipped their homes and were rightly criticised in the media, but it was not the intention of the expenses scheme—or the capital gains tax regime, for that matter—to ensure that that would happen. People in this place availed themselves of a loophole. That is an almost classic case of tax avoidance, but one could give sundry examples, in various exotic formats.

The previous Government did an appreciable amount of work, endeavouring to ensure that tax avoidance, when spotted, gets dealt with. They fought what I would describe as a long guerrilla war against exactly what we are talking about: loopholes. I pay tribute to the right hon. Member for East Ham (Mr Timms), who was a kind of platoon commander, for prosecuting that guerrilla war with some success. He tried to track down the loopholes and closed them where possible. I think that most hon. Members here, while reading through very dull tracts of successive Finance Acts, will have recognised that those provisions are there simply as part of the ongoing skirmishing between the tax planners—tax avoiders—and the Inland Revenue. By and large, however, what we have seen so far have been post hoc reactions to abuses that have been identified in charity law, with repo arrangements, or with controlled foreign companies—we had an awful lot of debate about controlled foreign companies in the last year of the previous Parliament, as well as stamp duty and other matters.

The Inland Revenue has been involved in constructing complex defences against complex devices and schemes. Quite frankly, even though we pretend to understand them properly as we sail through the Finance Act, many of the schemes are not adequately grasped by many Members. It used to amaze me how the right hon. Gentleman had command—or seemed to, at any rate—of some very complex schemes and some very complex remedies for them. The basic strategy, however, is one of shutting the door after the horse has bolted, which normally leads to those people who wish to persist with mechanisms for avoidance simply adjusting the scheme in some marginal way, modifying it and presenting a new scheme that leads to a new ad hoc adjustment, when it is spotted—it is, of course, not immediately spotted and cannot be dealt with retrospectively. Again, I am reminded of guerrilla war. It is rather like the US forces trying to deal with an ever-elusive Viet Cong that springs up around them in the jungle. My analogy slightly breaks down, however, when one recognises that the resources available to the people fighting that guerrilla war far exceeded those of the Government in this case.

The problem is therefore difficult to deal with, and is made immeasurably more complicated by the global reach of modern international capitalism, with the plethora of tax havens and the associated absence of transparency. Again, I pay tribute to the right hon. Gentleman for having done a great deal of work on that. In the last few months of the previous Parliament, there was a slew of double taxation treaties that attempted to deal with precisely that problem, devised meticulously and with extraordinary detail by very clever people in the Treasury. Generally speaking, what we were hoping for—and sometimes got—was greater transparency and sharing of information, but again we were involved in the post hoc job of trying to close down complex tax arrangements that seemed to evade many jurisdictions when it came to the pursuit of tax liabilities. Interestingly, PricewaterhouseCoopers recently suggested that it would make it a heck of a lot easier if big international companies were to list in full their assets right across the piece on a global basis, and suggested that as a new standard for accountancy. I agree, but I think it fairly unlikely that many such companies will follow suit. Big organisations that keep their property arm in Liechtenstein or wherever will not be the first candidates for laying all their cards on the table.

It is worth making the point, in passing, that the British Exchequer is not the only loser here. A substantial amount of tax leakage is caused by people not paying tax in developing countries, and it is distressing to see organisations such as the Commonwealth Development Corporation, which was set up for laudable ends and with massive national and public support, putting an awful lot of money into development projects in the developing world, but having the money sourced or put through private equity companies, many of which are in offshore tax havens.

[Ms Angela Eagle (Wallasey) (Lab)]

Does the hon. Member, like me, support the moves towards country-by-country reporting, which were pushed by the previous Government but developed by the OECD? International corporations are encouraged to report both their profits and their assets on a country basis so that there is that level of transparency. Christian Aid, ActionAid, Oxfam and other development organisations support that, precisely to prevent the tax loss, about which the hon. Gentleman is talking, for countries that are developing.

[Dr Pugh]

I entirely support that, but I consider it a distant ambition that will take an awful lot of putting together over time, and will involve a large number of international bodies. It is, however, entirely the right direction in which to go, and is the direction in which we will all have to go eventually, if we are going to deal with the problem remotely adequately, even on a national basis. What I hope to do as I conclude is to suggest an improvement to what we are doing nationally. The former Minister in the room might correct me, but we have the anomalous situation in which the Exchequer building itself is owned by a sort of semi-bankrupt offshore company. We can see how the need for getting things right on an international basis is just as important as getting things right nationally.

I hope that I have done enough to demonstrate that there is a sort of futility to what we are doing at the moment, which I think is recognised to some extent within the Treasury. I genuinely do not believe that I am pushing at a closed door—it is at least half open—and in discussions with the right hon. Gentleman prior to this Parliament I sensed that. There is a sense in which continually trying to mop up after the errors have been spotted is perhaps not enough, and there have been two significant moves, which are worth remarking on and praising. The previous Government insisted on pre-disclosure of new tax instruments—a vetting system—which is a commendable step forward.

In recent finance legislation, however—I forget which clause of which Bill—I saw for the first time not just simply, “This scheme is wrong, this is how it runs and this is what we’re going to do about it,” but “Any scheme of this nature needs to fit in with certain principles and basic parameters.” I came across a quote from the right hon. Gentleman. He said that

“we need not just new powers but clearer norms for behaviour too.”

We are moving, therefore, to a system in which instead of a case-by-case examination of each scheme, we are laying down principles by which people can judge whether schemes will be acceptable.

I therefore urge upon the coalition Government a final, third step in addition to pre-disclosure and having principles: the introduction into tax law of a general anti-avoidance rule. Some think that that is a distinct probability; I think that it is a possibility. It would parallel moves made in many other countries. Most Commonwealth common-law systems, from Hong Kong to Australia, have something like this. I have argued for it in the past, and I have not been given a dismissive response by the Treasury. Basically, it says, “We have this under consideration, and we may well take it further.”

The advantage of a general anti-avoidance rule being embodied in law is that it would throw the burden of demonstrating the legality of new tax planning schemes on those promoting it by obliging them to show that the schemes will ensure a worthy economic benefit other than tax avoidance—the avoidance of tax law. It would have the added spin-off and economic benefit of ensuring that financial ingenuity would always be employed to the general economic benefit and not simply to dodge tax.

I am aware that, in principle, there are all sorts of downsides to having such a general rule written into law. I have no view of how it should be framed, but we can consider the dispensations of other Governments for advice on that aspect. The legislation certainly needs to be purposeful and clear. There need to be good pre-clearance and adjudication arrangements within HMRC should there be any doubts or disputes that seem incapable of immediate reconciliation. Also, just as in other Government arrangements, there needs to be a sensible and clear list of exceptions.

Given all that, we could certainly run with such a basic rule; indeed, it is recommended by charities and organisations such as Tax Justice Network. Not only can it be done, it is done. It does not encourage wholesale capital flight, as some suggest it might. For example, it has not done so in Hong Kong, which has somewhat of a reputation for financial dealings, and where British judges are involved in a relatively rare dispute resolution procedure based on such a principle.

The strong upside for the Exchequer is that, even on City estimates, it will raise significant revenue. It could be introduced here, and I hope that it will be. I would like to see it introduced as early as possible. It would simplify existing tax law. We are all in favour of that—it needs a certain amount of clarification and consultation. If we follow the road taken by Australia, Hong Kong and many other nations, our tax system will be less prone to the byzantine schemes dreamed up at Canary Wharf and less time will be consumed at the Treasury devising equally elaborate defences. However, we need to get on with it.

If our public finances are in the critical situation that we all think they are, and if, as we appear to be able to do, we can argue for immediate cuts, we must also be able to argue for an immediate and effective attack on tax avoidance if we think it is possible. We are probably talking not about the next Budget, but of the autumn when there will another opportunity. However, certain requirements need to be put in place before we can run an effective regime built around the principles-base that I suggest.

In the first place, HMRC needs the right skills base. I am not yet convinced that it has an adequate degree of specialism. In the past, I have tried to interrogate the Treasury, asking the previous Government how many people were employed on the rather more specialised forms of tax avoidance that we are talking about today than on ensuring general tax compliance. The general answer will be somewhere on the record. It was, “In a sense, that is what we all do all the time.” However, a definite cadre of specialists deals with the high-business end, where some of the bigger centres of tax avoidance are found. We need them still to be in employment at HMRC rather than being affected by staff cuts and other reductions. Indeed, their number needs to be supplemented, so that we have the right sort of tax officers, and tax offices.

It is suggested that cutting the number of local tax offices is not helping in that respect. The tax office in my town has disappeared; I am told that the net effect is that all sorts of local knowledge has gone, and that as a result there will be more tax avoidance. I do not know for sure whether that is true; high-ranking people at HMRC tell me a different story. They say that they now have clever software that does the job infinitely better than local knowledge. It enables them to pick out trends in accountancy and such matters, and it is far more sophisticated and far less consuming of manpower and far more effective in bringing in the shekels.

HMRC has nailed its colours to the mast, putting its faith in software rather than in manpower. I hope that it is right. However, we need some of the right people, and I am not convinced that we have enough of them. I would like more of them to help solve the enigma of why some extraordinarily profitable companies pay surprisingly little tax.

All in all, we need to aim for simplicity. We need a general provision of the kind that I have tried to outline, however inadequately, so that we can stop fighting what I believe is a losing battle. We can do better. We can fight the battle differently. We need to move rapidly towards a general anti-avoidance rule. Ultimately, as the hon. Member for Wallasey (Ms Eagle) said, we need global agreement built upon such pillars. The purpose of the debate is to ask the Government to take up this suggestion—or give reasons why they should not—and if they wish to do so, to get a move on, because clamping down on tax avoidance must be as important as anything else.

--- Later in debate ---

[Nigel Mills]

I am afraid that I do not have those data in front of me. Having worked with many businesses on where they want to locate head offices or functions, I know that one of the key determinants of their choice is the tax regime—its simplicity, the ease of compliance and the overall rate. The combination of difficulty of compliance, the rate and ease of getting certainty on tax treatment is what makes people choose where to go. The risk of a general anti-avoidance rule in that situation is that it makes certainty hard to get, and it would be bad to combine that with the UK’s very complex tax regime and some tax rates that are currently not over-competitive, although I hope that that will change. The combination of those three factors might make the UK an unattractive location for people to come to or stay. I am sure that many bodies can provide those data.

The key to tackling tax avoidance is to make tax law simple and understandable to taxpayers. The hon. Gentleman talked about tax avoidance being a way of frustrating the intent of tax law, but at times, it is important that the intent of the tax law is clear in the drafting and that the drafting achieves that intent. Often, commercial situations grow up that tax law does not specifically address, so the intent of Parliament is not easy to establish. If we get the drafting right, it might take away some of those problems. The hon. Gentleman alluded to the finance and Treasury rules, which are incredibly complex and have produced various loopholes that have been exploited in various ways. That is a case of very complex legislation that no taxpayers I can think of could understand, and that the vast majority of tax advisers—myself included—did not really understand. I suspect that a lot of staff at HMRC could not possibly understand it either. If we get that right, some avoidance opportunities will not come up in the first place.

The hon. Gentleman said that he was not the person to draft a general anti-avoidance rule. Where the previous legislation floundered was in the attempt to find words that achieved what was wanted without unnecessarily stopping or discouraging many things that we want people to do. The examples cited at the time were the various tax-advantaged savings schemes, such as individual savings accounts, which in theory would fall within a general anti-avoidance rule unless a lot of care was taken over the exemptions included. Getting the drafting right is extremely difficult, and a lot of detailed consultation will be needed if the Government want to proceed.

I have experience of dealing with some of the existing anti-avoidance legislation, which generally looks at a transaction’s main purpose or one of its main purposes, or at the main benefit or one of its main benefits—one has a choice of which way to go. The difficulty comes in defining “transaction”. What is a scheme of transactions? How many are related? Are we tackling individual components? Should the purpose of the individual components or of the scheme as a whole be looked at? Understanding what is being done becomes very complicated. For example, somebody could decide to buy a UK-headquartered multinational business. We would all say that that is a good commercial purpose, but it commonly needs to be done differently in various territories, depending on the tax needs of those territories. As a result, individual elements of the transaction might be created that look as though they are motivated by a tax benefit, whereas, overall, they are part of a main commercial transaction. We could create great uncertainty about those transactions, which might then fail because the businesses or individuals involved could not be confident that they would get the commercial benefits they were trying to achieve without being drawn into some huge, long tax dispute.

[Ms Angela Eagle]

The hon. Gentleman is making a fascinating speech illustrating precisely the problem that everybody has to grapple with, as the Minister will have to in due course. If one goes for a simple, declaratory and principles-based approach, one has to think about what is motivating people, which is difficult. The only other way of approaching it is the extremely complex and byzantine method of looking at what to do in each circumstance, which the hon. Member for Southport (Dr Pugh) was worrying about. The hon. Member for Amber Valley (Nigel Mills) is illustrating the fact that we get into difficulties whichever route is taken.

[Nigel Mills]

The hon. Lady is correct. The previous Government happened on what is probably the right balance, which is to have principles-based rules targeted at commonly exploited rules, so that taxpayers know when they are wandering on to dangerous ground and therefore need to deal with those rules, rather than having a general principle that might apply to every tax in every situation. The hon. Gentleman mentioned that it puts the burden on taxpayers to declare that what they are doing has a mainly economic benefit rather than being an attempt at tax avoidance. That is a huge burden to put on taxpayers. I am not sure that we should put the burden of knowing how to comply with a general rule in complicated and innocent situations on to every payer of every tax in the country. I am not sure if that is what he intends.

--- Later in debate ---

[Ms Angela Eagle (Wallasey) (Lab)]

It is a pleasure to take part in my first debate in Westminster Hall in the new Parliament and to serve under your chairmanship, Dr McCrea.

This has been a fascinating debate. It is entirely in keeping with the work that the hon. Member for Southport (Dr Pugh) has done on this issue and with the fact that he has sat on many a Finance Bill Committee that he has brought this extremely important issue to the attention of the House, and I congratulate him on initiating the debate. He put his case very well and demonstrated that he has spent many years considering these issues. He could see both sides of the argument and he managed to put both of them in much of his contribution. He also identified the free-rider mentality, which is the key thing we all want to crack down on and minimise.

The hon. Gentleman was generous enough to praise the previous Government’s record, and I thank him very much for that; that has not been noticeably present in our debates on the Floor of the House so far in this Parliament, which has diminished our debates in this difficult time for the country. I deplore the rewriting of history and the abuse that the previous Government’s record has received, particularly in the economic context, and it is nice that the hon. Gentleman did not sink to that low level.

I particularly thank the hon. Gentleman for praising the record of my right hon. Friend the Member for East Ham (Mr Timms), who would have been winding up the debate under more normal circumstances. I hope that Members will realise that my right hon. Friend is still recovering from the attack on him at his constituency surgery, and I am sure we all join together in wishing him a speedy recovery. He has been seen back around the House and he is well on the mend, but he is still a bit fragile.

I welcome the new Minister to his position. Those who slog away in opposition do not always end up inheriting the positions that they shadowed when their party is lucky enough to be magically translated into government, but the hon. Gentleman has managed to make that transition. Having experienced the Department he now represents, I know he is a very lucky man, and he certainly deserves luck. I therefore welcome him to the debate.

I want to spend a little time putting the previous Government’s approach on the record. I then want to ask the new Minister a few questions about his Government’s actions and their future intentions on this extremely important issue. I note the self-restraint that the hon. Member for Southport showed in not trespassing on the area of capital gains tax, but I wonder how long the restraint shown by the partners in this Conservative-led Government will last as we get further into this Parliament—I will certainly watch developments with interest. The hon. Gentleman has set a sterling example, although I notice that it was not particularly followed by the right wing of the Conservative party at Prime Minister’s questions earlier today—“interesting noises off” is all I will say about that.

We can all agree that the financial crisis of 2008 led to a radical shift, domestically and internationally, in the approach to tax evasion and tax avoidance. Following the crisis, the previous Labour Government made certain that the UK was at the forefront of the drive for radical change. Internationally, there was a rapid realisation that the lack of transparency in the international financial system presented previously unrecognised but severe systemic threats to the entire global financial architecture, that those threats had to be dealt with and that good progress had to be made quite rapidly. In the forum of the G20 and in the aftermath of the credit crunch in 2008-09, good progress was made, but that momentum needs to be maintained, and one theme of the questions I want to ask the Minister to deal with is how he sees its being maintained.

It is only human nature that when people are in the middle of a crisis, they suddenly put at the top of their political and economic priority list things that have been around for years, although they were never really at the top of the list. Suddenly, transparency, the exchange of information and the ability to supervise global institutions cross-border and globally acquire far more importance. Everybody is very exercised by them, and there are a load of international meetings at the OECD and the G20; indeed, that is what happened, as we can see. The crisis then abates, and people turn back to dealing with more domestic things. If we are not careful, the momentum for change—the momentum behind introducing transparency and opening up cross-border supervision—could wilt. It is important that the new Government continue the momentum that the previous Labour Government created in the aftermath of the crisis. I would certainly be interested to hear how the Minister sees the issue and what plans and actions he has in train to ensure that that momentum is maintained.

The hon. Member for Southport touched on the fact that, domestically, the huge bank bail-outs that were necessary to deal with the immediate threats that the crisis caused to our economic well-being have brought two important truths home to us all. If those truths had not been brought home to us before the election, they certainly would have been once we had spent months on doorsteps in our constituencies listening to our constituents’ experiences and opinions. The first of those truths is that there is growing hostility among the majority of our hard-working constituents who pay all their taxes towards those who avoid paying their fair share. That phenomenon is growing and is more noticeable than it has been, and it will only continue to grow if it is not addressed by policy and Government action. Secondly, where tax revenues have been hard hit by the downturn and the recession caused by the irresponsible greed of a few, there is an even greater responsibility on the tax authorities to collect the tax that is due. That responsibility can only be reinforced when next week’s Budget takes a scythe to the public services that many of our most vulnerable citizens rely on.

The previous Government measured the tax gap and published estimates of it, setting it at £40 billion, as the hon. Gentleman rightly said. He had some other estimates, and the Trades Union Congress has a much larger estimate, as does the Tax Justice Network, which the hon. Gentleman mentioned. For the sake of argument, however, let us say that the tax gap is £40 billion. We know that it is impossible to collect such sums and completely to close the tax gap so that it does not exist at all, but we could certainly do with some of the revenue that is due, but which is not being collected. Even if we closed the tax gap by half, we would avert real pain and suffering among those who are often the most vulnerable in our society and who particularly rely on services provided through public expenditure. In that context, it is even more important than it has been that we do all we can to ensure that we close the tax gap.

As the hon. Gentleman again pointed out, and as the hon. Member for Amber Valley (Nigel Mills) also described in his speech, that is easier to say than to do: it is easier to speak in principle or theory about tax laws that work and are simple for everyone to understand, and that no one tries to game, than it is to bring them about. But just because it is difficult—some might say very difficult—it does not mean we should not keep striving. With the policies established after the credit crunch by my right hon. Friend, we have made considerable progress towards such an approach. I should be interested to learn how the new Government intend to build on the solid foundations left by the previous Government, and to take things further.

It is not morally acceptable for a small minority to think that they can opt out of their obligations if they can buy the right advice or pay for sophisticated tax avoidance products. It is about time for all political parties to adopt and voice that moral approach more. Like benefit fraud, tax evasion undermines the confidence of ordinary taxpayers in the legitimacy of the system. It should be far less acceptable, socially as well as morally—it should not be thought reasonable and polite—to admit in company to earning a living by helping well-off people and companies to avoid their tax liabilities in the jurisdictions where they operate. I do not say that the vast majority of taxpayers or tax accountants do that, but some do, and the practitioners in question probably know who they are. The hon. Member for Amber Valley is nodding, and we can talk to him later—he does not have to say anything on the record. We know the practice when we see it, and it should be far less acceptable morally, and in company, than it has been in the past. We need that switch to happen.

[Dr Pugh]

I accept entirely what the hon. Lady says, and her reference to the free rider principle. We can identify free riders, but it is rather like identifying people who do not pay their bus fare; it does not mean to say that there is an easy way to do it. I refer her to an interesting discussion at the Public Accounts Committee with the landlord of the Treasury, whose office is based, I think, in Bermuda. All the people we interviewed and all the senior staff enjoy the advantages of London society, and the benefits that that bestows on them, but avoid tax by virtue of having a name plate—well, a little more than that, but not much more—in Bermuda.

[Ms Eagle]

The hon. Gentleman will be able to discern from the tenor of my remarks that I agree with him.

I hope we all agree that the world has changed and that there will be no hiding place for tax cheats. The previous Labour Government had a record to be proud of and it is important that the momentum we managed to create should be continued, especially internationally. In 2004 we introduced a requirement to disclose tax avoidance products in advance, to a storm of protest. In 2009 we strengthened the regime, and that has transformed the fight against avoidance. As the hon. Gentleman explained, that protects more than £12 billion of revenue.

The March 2010 Budget made the disclosure regime broader, increased the penalties for non-compliance and gave Her Majesty’s Revenue and Customs access to more information on those who use the schemes. The package was designed to tackle tax avoidance, non-compliance and offshore evasion and to protect £18 billion of revenue. Last year HMRC identified £12 billion in extra tax due—another point to which the hon. Gentleman referred—seized £57 million in assets and £9 million in cash forfeitures and successfully prosecuted 171 cases. Will the Minister set targets or expectations in HMRC to increase the rate of prosecutions, and perhaps achieve better figures this year? We also legislated to give HMRC more effective powers to ensure that the sanctions it could use would be effective and proportionate. There are to be more onerous reporting restrictions in future for those who are caught evading tax of more than £5,000, and as the amounts evaded get higher the consequences under the current law for those who are discovered doing it get worse, and end up with naming and shaming.

Internationally, and as the hon. Member for Southport also recognised, as president of the G20 we led a global clampdown on tax havens and offshore evasion. That is an important aspect of what we must do if we are to close the tax gap. The hon. Gentleman mentioned in passing the 100 tax information exchange agreements signed by OECD countries in the past year, including those the UK has agreed with Jersey, Guernsey, the Isle of Man and, perhaps more interestingly, Belize. In 2007 the offshore disclosure facility gave the customers of five major banks the opportunity to put their tax affairs right, yielding more than £400 million in tax revenue due. Last year, as part of the Budget process, HMRC served notice on more than 300 other financial institutions to hand over details of those who cheat on their tax by hiding income in offshore accounts.

We also concluded the ground-breaking Liechtenstein disclosure facility, which is expected to bring in nearly £1 billion in lost tax revenue. That agreement goes far beyond the tax information exchange agreements we have been discussing, and could be a model for future agreements. I should be interested to hear what the Minister has to say about that. Under the agreement, UK taxpayers with money in Liechtenstein accounts must demonstrate that their tax affairs are in order, and must have letters to that effect from HMRC; otherwise, their Liechtenstein accounts are closed down. They must then settle with the UK tax authorities. Thanks to progress made by the previous Labour Government, there are fewer places for large amounts of money to be sent if Liechtenstein accounts are closed down, and there are fewer places to hide.

We also persuaded the OECD to develop best practice guidelines on country-by-country reporting, as was also mentioned earlier—an excellent initiative that was put on the agenda by the development community, and in particular Christian Aid, ActionAid and Oxfam. Tax evasion costs developing countries billions of pounds each year in lost revenues, and is a barrier to social and economic development and growth.

Ahead of next week’s emergency Budget, I want to ask the Minister a few questions. Will he recognise the excellent work that the previous Government bequeathed him in this important area, and tell us how he intends to build on it? Will he set a target for the tax gap; and what percentage of the fiscal consolidation that we all expect, given the softening-up process of the past few weeks, does he expect closing that gap to represent in the Budget? Will he maintain the hidden economy advisory group to inform that vital work? It was in the middle of extremely important work—particularly on creating routes back to legality for those who might have been in an illegal position, and to allow them to settle their tax.

Does the Minister agree that, in an international setting, maintaining the momentum to clamp down on tax havens and non-compliant jurisdictions is vital, and does he therefore share my disappointment with the perfunctory mention that the entire agenda received in the recent G20 communiqué? Why did it receive such a perfunctory comment at the G20 Finance Ministers’ meeting? I hope the Minister can reassure us that that does not mean this important area is to be less of a priority.

Does the Minister intend to pursue new disclosure facilities, similar to the ground-breaking example we have managed to negotiate in Liechtenstein; and what progress has been made between the UK and the authorities in Belize, given the recent signing of the tax information exchange agreement? How much lost tax revenue does he expect to raise as a consequence of that agreement? I look forward to his response.

--- Later in debate ---

[Mr Gauke]

That tends to be the way of things now, I understand. There is a need for a sensible debate in this area, and today we have heard two excellent contributions, from my hon. Friends the Members for Southport and for Amber Valley, and I for one am very grateful for those contributions.

The hon. Lady raised a number of points and I hope that, in the course of my remarks, I am able to address those points. As far as building on the previous work undertaken by the previous Government and by HMRC, the underlying point that I want to make is that this Government take tax avoidance very seriously. We want to use HMRC’s resources as effectively and as efficiently as possible to ensure that we address this particular matter and so that those who do the right thing and who pay the taxes that are due do not find themselves essentially subsidising those who have not paid their taxes properly. Again, further details will be announced in the Budget.

The hon. Lady raised the specific point about whether one should have a target for the number of prosecutions in this area, and so on. That is perhaps more symptomatic of how the previous Government tended to work, which was on the basis of having targets. However, in the number of meetings that I have had with HMRC officials in the five weeks or so that I have been in my post, I have said that we take tax avoidance seriously. We want to work with HMRC in developing proposals on how we tackle tax avoidance and on how we deploy resources most effectively.

That will continue to be the Government’s position, including on tackling matters such as the hidden economy, which the hon. Lady rightly raised as an important area, and on working on the international stage and engaging with other countries in finding ways to exchange information more effectively. The hon. Lady highlighted the Liechtenstein agreement and that is one agreement that we welcomed in opposition and that we continue to support. I am not in a position to say anything more about particular matters today, for reasons that I am sure she will understand, but we continue to encourage HMRC to engage with other tax authorities to ensure that those people who should be paying tax in this country do pay tax in this country.

The hon. Lady raised the issue of greater disclosure. We support that. She referred to the disclosure of tax avoidance schemes. We think that that was a very successful initiative by HMRC and we wish to continue with that initiative and build on it. We will continue to encourage HMRC to engage with other tax authorities on double taxation treaties and tax information exchange agreements. I have shadowed Ministers in Committees on many statutory instruments on this particular matter and frequently asked how much these agreements will actually raise for the Exchequer, so I know that the answer is that it is not possible to provide the answer. Nevertheless, these agreements apply for Belize as much as for any other jurisdiction and we will continue to encourage HMRC to pursue those agreements and to look to progress as many of them as possible as quickly as possible.

[Ms Eagle]

In general, does the Minister view the Liechtenstein agreement, which is new, as an interesting model, in that it goes further than the tax information exchange agreements? I am not asking him to declare today which country is going to be next. I am just trying to tease out from him what he thinks about that approach, which was quite groundbreaking. We know the history of it, but something extremely effective came out of it. Does he see that general approach as a model that ought to be promoted around the world, to ensure that we begin to clamp down on jurisdictions and tax havens where people can hide money that is illegitimately held and untaxed?

[Mr Gauke]

I would say that there is something there for us to build on, and I think that that probably answers that question as effectively as I can.

The hon. Lady highlighted the issue of country-by-country reporting. Our view is that we certainly want to do everything we can to help developing countries to improve their ability to collect tax. The OECD informal taskforce on tax and development is currently exploring with non-governmental organisations and with industry whether country-by-country reporting would be effective in improving tax transparency. We shall certainly consider this matter very carefully to see what is the most effective way of doing things.

There is also something that the previous Government achieved, which the hon. Lady did not particularly mention but for which I think they deserve some credit, in ensuring that the tax capacity of developing countries can be improved. Again, we are certainly very interested to see what we can do to explore that issue.

Let me turn to one of the key points, which I think was raised by my hon. Friend the Member for Amber Valley, which is the need to do what we can to improve tax law so as to remove uncertainty. That is a very important point. We are committed to reforming the tax system to make it competitive, simpler, greener and fairer, and to ensuring that the quality of tax law is improved. The most effective way to tackle avoidance is, as far as possible, to stop it at source, rather than tackling it once it has happened. Prevention is better than cure.

A simpler tax system that presents fewer boundaries and complexities to be exploited is clearly preferable. As a Government, we are committed to making sure that, when we consider reforms to tax policy, we take into account from the start the impact on avoidance opportunities. We want a tax system that is noted for fairness and simplicity, and addressing tax avoidance risks is a key part of that.

Nevertheless, it is widely acknowledged, including by the Institute for Fiscal Studies, that tax avoidance requires a multifaceted response. There will always be taxpayers who attempt to achieve tax savings that were not intended by Parliament. We intend to be a reforming Government that put in place a better tax framework for business. As we do that, we will take the opportunity to construct a tax framework that reduces the risk of tax avoidance.

Of course, those are the longer-term objectives. In the short term, we will need to introduce specific targeted measures when an avoidance risk is identified. We will take that kind of action when it is justified, but our aim over time is, as far as possible, to move away from the need for short-term measures.

HMRC has published an anti-avoidance strategy that recognises that a range of responses is required. The strategy has three key elements: first, prevention; secondly, detection, and finally counteraction. Prevention focuses on developing robust law. HMRC clearly has a key role in recommending to Ministers changes to strengthen the legislative framework to defeat attempts at tax avoidance.

Another tool in preventing avoidance is deterrence. HMRC publicises details of avoidance schemes that it considers ineffective, to put taxpayers on notice that it will challenge their use of those schemes. For large businesses and the wealthiest individuals, HMRC uses real-time dialogue to obtain early information about transactions under consideration and influence behaviour. To be fair, progress has been made in recent years, and we welcome that. The regime for the disclosure of tax avoidance schemes, in particular, has proved invaluable to obtaining real-time intelligence on avoidance activity, as I acknowledged earlier.

Where HMRC detects avoidance, counteraction involves thorough and expert investigation and, where necessary, litigation. We believe that that range of responses strikes the right balance between providing certainty to taxpayers in their tax affairs and protecting the Exchequer against unacceptable threats to tax revenues. It also maintains flexibility so that the Government can respond quickly and in a targeted way where necessary. We also want to consider longer-term solutions to the problems of tax avoidance, and I hope that I will have all parties’ support as we do so.

Government Spending Cuts

Angela Eagle Excerpts

Wednesday 26th May 2010 Commons Chamber

[Mr Laws]

I am grateful to my hon. Friend for his kind comments about Gladstonian Liberalism. I hope that this is not only Gladstonian Liberalism, but liberalism tinged with the social liberalism about which my party is so passionate.

In the savings that we make, we are seeking to ensure that we cut with care. We have demonstrated this week that we can find efficiency savings and also put money into the areas that many of us in the House are passionate about—protecting education and putting more money than the previous Government did into social housing. We have shown that we can deliver both of those, but I agree with my hon. Friend that we must make sure that even those areas where the overall budgets are protected are driving out efficiency savings. There are considerable efficiency savings that can be made in the Ministry of Defence, in health and in education, and we must make sure that even as we protect the totality of those budgets, we shift money to the front-line services that matter most.

[Ms Angela Eagle (Wallasey) (Lab)]

Will the Chief Secretary confirm that the announcements that he made on Monday, about which he is talking to us today, will mean the end of one-to-one tuition for pupils who are falling behind?

[Mr Laws]

No. That is complete nonsense. What we are doing is protecting the schools budget. Unlike the previous Government, who thought it made sense to dictate to every school and head teacher how to use its budget, we will give freedom to schools so that they can spend the money in the best way. We on these Benches believe—I am sorry that the hon. Lady does not seem to—that people on the front line know better than Government Ministers how to spend public money.