Oral Answers to Questions

Debate between Angela Eagle and David Gauke

Tuesday 21st June 2011 Commons Chamber

[Mr Gauke]

I shall try to focus on inflation, Mr Speaker, but I think that it is important to the economy all round, in terms of inflation and of other factors, for us to maintain credibility. That is something that the Government have and the Opposition, I am afraid, do not.

[Ms Angela Eagle (Wallasey) (Lab)]

How many of the 34 countries in the OECD have comparable inflation rates higher than the present rate in the United Kingdom?

[Mr Gauke]

The fact that global commodity prices are rising and that the UK experienced a significant devaluation under the last Government mean that we face an issue with inflation, but it is the Monetary Policy Committee of the Bank of England that has responsibility for that. It is one of the few policies of the last Government that still has any credibility. Is the Labour party distancing itself from that policy as well?

[Ms Eagle]

Obviously, the Minister did not know that the answer is only two: Estonia and Turkey. He can huff and puff and blame world commodity prices all he wants, but is it not obvious that the Chancellor’s decision to put up VAT in January because he chose to cut too far too fast is causing real hardship to families throughout the country as they struggle to cope with the most vicious squeeze on living standards in generations? When is he going to realise that his economic policy is hurting and it is not working, and that the whole Treasury Front-Bench team is out of its depth?

[Mr Gauke]

For a moment, the hon. Lady got quite close to supporting the policy the shadow Chancellor announced last week, but she did not quite do so. The fact is that the Bank of England says the main causes of inflation are to do with the devaluation and rising global commodity prices. That is the truth; that is the reality—[Interruption.] Well, that is what the Bank of England says, and I suspect it has a bit more expertise than the hon. Lady.

Finance (No. 2) Bill

Debate between Angela Eagle and David Gauke

Monday 11th October 2010 Commons Chamber

[Mr Gauke]

The hon. Gentleman makes the fair point that there is too much cigarette smuggling, and this is a matter that we are keen to address. My right hon. Friend the Chief Secretary to the Treasury has already announced proposals to provide additional funding to Her Majesty’s Revenue and Customs to tackle cigarette smuggling, among other things. I very much welcome the hon. Gentleman’s intervention but, let us be honest, it would be unrealistic to say that we could prevent all cigarette smuggling. We can, however, take steps to reduce it. That would be to the benefit of the Exchequer, and I am pleased that the Government are moving ahead and doing that.

It is our determined actions that have restored confidence in the economy, stabilised the nation’s credit rating and halved interest rates on Government short-term borrowing. We are saving money today so that we can invest in tomorrow. Ours is the right approach for the country, and that has been widely recognised. Only a fortnight ago, the International Monetary Fund said that our deficit plan was essential to restoring confidence in the UK’s public finances and “supports a balanced recovery”. That is the approach that we will take forward, including in the spending review.

[Ms Angela Eagle (Wallasey) (Lab)]

I should like to take this opportunity to thank the Minister for his kind remarks about me and the new shadow team. If he is so convinced that the actions that the Government took in June have stabilised the economy, can he explain why a survey reveals today that confidence among Britain’s financial chiefs has slumped to a fresh low, with 34% of finance directors polled by Deloitte believing that the economy will go back into reverse? Those findings demonstrate that optimism has dropped to its lowest level for 18 months.

[Mr Gauke]

The fact is that the measures that the Government have taken have had the support of the IMF, the OECD, the World Bank and the Governor of the Bank of England. We are getting widespread support for taking these tough measures. We also have the support of the director general of the CBI. There is an increasingly large consensus—it even includes Tony Blair—that if we simply deny the existence of the deficit and avoid taking these tough decisions, we shall face a worse problem later on. It is absolutely right that we should take these measures.

--- Later in debate ---

[Ms Eagle]

I am anxious to get on. I have given way a lot and many other Members wish to speak.

The Irish example demonstrates the risks of focusing on getting the deficit down—too high a cost to the growth potential of the economy. The Irish have had deep and fast cuts as well as tax rises, but growth has been hit, which is making getting the deficit down harder rather than easier.

[Mr Gauke]

I am grateful to the hon. Lady for giving way and I am listening carefully to her somewhat gloom-laden speech. I can see why her military role model is not so much General Kitchener as Private Frazer. May I press her on one particular point? The position of her party at the general election was in favour of spending cuts of 20% over the Parliament and halving the structural deficit over four years. Does she still support that position?

[Ms Eagle]

That is our starting point as we move forward to judge what the Government will announce in a few days’ time. The issue here is the scale and speed of the deficit reduction, and how that impacts on our approach to being able to see some kind of economic recovery sustained, given what is happening in the rest of the world. The worry that we have always had about the Budget judgment implicit in the June announcements and soon to be reinforced in the forthcoming spending review is that the medicine being fed to the patient runs a higher risk of killing it off. We do not want the deficit reductions to be too soon and too deep to sustain a recovery. The Irish example demonstrates the risks of focusing on getting the deficit down at too high a cost to the growth potential of the economy. The Government have a particular view on those judgments, but we disagree with them on the necessity for speed and the ferociousness of the deficit reductions. We are not saying that deficit reductions will not be necessary. The Chancellor used to mention the Irish example all the time as the Irish Government made their extremely deep and fast cuts, but lately he appears to have stopped referring to it at all. I wonder why.

The Government are gambling on their outdated and dogmatic view that if only the state would get out of the way, the private sector would spontaneously move to fill the gap and quickly create the 2.5 million extra jobs that the Office for Budget Responsibility has calculated would have to be created to get the deficit down as forecast. Thus our economy is meant to perform better in job creation terms than it has ever done before, even in much more benign economic circumstances than those we face.

We have just lived through the most dramatic example of the limits of that market fundamentalism that any of us are likely to see in our lifetime. It was not the private sector that rescued the world financial system from meltdown in the credit crunch; it was the co-ordinated action of Governments. Governments have a crucial role to play in fostering economic growth and helping to encourage the emergence of a better, more balanced economy, yet the Bill does nothing to restore the support for industry that the Government have already cut. It does nothing to reverse the £3.6 billion tax hike that will hit our manufacturers in order to pay for the corporation tax cuts announced in the June Budget, £1 billion of which will go straight back to the banks.

Abolishing allowances and reliefs effectively hits businesses with a tax hike when they invest. It benefits investment-light industries such as financial services over investment-heavy industries or new sectors looking to grow. That change penalises companies that need to make sustained investment to establish themselves and grow. It is a strange way for the Government to signal that they wish to see a rebalanced economy and the creation of new industry. Little wonder, then, that the plans have been described as “a disaster” by the senior economist at the Engineering Employers Federation and that the Institute for Fiscal Studies has said:

“Cutting investment allowances to fund a cut in the mainstream corporation tax rate would help companies which make large profits with little investment, at the expense of businesses that are investing heavily in the UK but making only marginal returns.”

There is no sign of a serious growth strategy.

Finance Bill

Debate between Angela Eagle and David Gauke

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

The fact is that the big risk to growth for this country would have been if we had done nothing about the deficit. If we had tried to ignore it, we would have found ourselves having our credit rating downgraded, as has happened to Greece, Portugal, Spain and now the Republic of Ireland, and we would have faced a contagion of sovereign debt. We have taken the necessary actions to ensure that growth is secure and the fact is that the OBR projections have far greater credibility than the previous Government’s—we have learned about how political they were in making their growth forecasts. Our growth forecasts have credibility. Our public finances have a credibility that they did not before. We can be proud of that.

As we have heard, the previous Treasury team believed that an increase in VAT was necessary and that was only blocked by the previous Prime Minister. One can hope that the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has seen the error of his ways. I noticed that he did not feature in the Division Lobby opposing the VAT increase—perhaps we have persuaded him, after all, that his views on VAT were unwise. We have succeeded where the shadow Chancellor failed.

We have heard legitimate concerns about how the most vulnerable in society will be protected, but we have sought to provide such protection in the Budget. For example, we have committed to the uprating of the basic state pension through a triple guarantee of earnings prices or 2.5%, whichever is highest, from April 2011. We have taken steps to increase the child tax credit.

[Ms Angela Eagle (Wallasey) (Lab)]

I thank the hon. Gentleman for his generosity in giving way. On this point about uprating pensions, will he take this opportunity to admit that the shift from the retail prices index to the consumer prices index as the definition for which all benefits and now all pensions will be indexed is scored as plus £6 billion in the Red Book, which means that he is taking that amount of money from some of the most vulnerable and poorest people in the country?

[Mr Gauke]

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

Tax Avoidance

Debate between Angela Eagle and David Gauke

Wednesday 16th June 2010 Westminster Hall

[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.