Anne McGuire
Main Page: Anne McGuire (Labour - Stirling)Department Debates - View all Anne McGuire's debates with the HM Treasury
(12 years, 7 months ago)
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Rachel Reeves
The hon. Gentleman said that investment is coming to Britain, but business investment fell by 2% last year, whereas a year ago the OBR predicted that it would grow by 8%. The reality is that the economic data show that investment is falling and the OBR says that nothing in the Budget will materially affect the economic forecast. The proof of the pudding is in the eating and the numbers show that things are moving in the wrong direction. I find it incredibly out of touch for Government Members to try to speak about the economy as if it is booming and creating jobs and as if businesses are investing when all the economic data show just the opposite. Jobs are being shed and investment is falling, rather than rising.
Mrs Anne McGuire (Stirling) (Lab)
Does my hon. Friend recognise that although the investments mentioned by the hon. Member for Skipton and Ripon (Julian Smith) are welcome, increased growth in jobs will come from the small and medium-sized enterprise sector, where there is a complete depression in confidence and job growth? It is all very well to comment on the large investments, but the stimulation should come from those small and medium-sized enterprises, and they do not feel at all confident.
Rachel Reeves
I thank my right hon. Friend for that intervention. It is good to hear from a Member who is a little more in touch with the realities facing businesses up and down the country. As she points out, many small businesses are being starved of cash because the Project Merlin agreements for bank lending were not worth the paper they were written on, and at the same time the Government have done nothing in this Budget to help small businesses. The Opposition have proposed a national insurance holiday for all small businesses taking on new workers. That would go a long way towards trying to relieve some of the pressure on the small businesses that are struggling so much right now. The Opposition hope to see measures in the Finance Bill and the Budget to get the economy moving again, to give hard-pressed businesses and hard-working families a break and to give young people who are looking for work some hope for the future. We would be cutting national insurance contributions for small businesses taking on new workers, we would be cutting bills for hard-pressed families by reversing the Chancellor’s badly timed VAT increase, and we would be funding new jobs for young people and new investment in affordable house building by taxing excessive bank bonuses.
Hon. Members do not have to take our word for it—the damning judgment of the Government’s own Office for Budget Responsibility should really worry Members on the Government Benches. Box 3.1 on page 46 of its latest economic and fiscal outlook, headed “The economic effects of policy measures”, says that the only policy measure with a measurable economic effect is the cut in corporation tax, which it says will lead to an
“increase in the level of GDP of 0.1 per cent by the end of the forecast period.”
So in the whole Budget there is just one measure that will have any impact on growth whatever, and that is an impact of 0.1% in around five years’ time. Beyond that, the OBR says in its policy costings document:
“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”
When it comes down to it, the measures in the Bill will do nothing to change the gloomy growth forecasts, nothing to ease the squeeze on living standards and family budgets, nothing to get businesses investing at the rate required to regain our place in the global economy, and nothing to create the new job opportunities that are so desperately needed by today’s younger generation. No, instead of taking serious steps that might help to make up the ground our economy is losing, the Chancellor and his Chief Secretary have turned from their failed experiment in expansionary fiscal contraction and resorted to the notorious Laffer curve as their latest excuse for an economic policy which hits hard-working families and rewards those who are already very wealthy. It is the last refuge of a Government who have lost any sense of purpose beyond the protection of privilege.
Those who are unfamiliar with the obscure corner of esoteric economic theory that is the Laffer curve might like to take a lesson from the Business Secretary who recently explained it. He said it was
“an all purpose, but weak, rationale for cutting the taxes of rich people”
which has
“been correctly dubbed ‘voodoo economics’.”
Indeed, he told his party conference—perhaps some hon. Members on the Government Benches remember this—that some people believe
“that if taxes on the wealthy are cut, new revenue will miraculously appear. I think their reasoning is this: all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt hole will rush back to pay more tax but at a lower rate.”
As he said to his conference, “Pull the other one!”
Perhaps we should instead take a lesson from the Secretary of State for Energy and Climate Change, who warned:
“We should remember that in 1981, President Reagan based most of his policies on the drawing of the Laffer curve done on a serviette…President Reagan used that as the basis for his policy of slashing taxes, and the United States Treasury went into huge deficit…The evidence to support the Laffer curve is weak.”—[Official Report, Standing Committee B, 4 May 1999; c. 66.]
I agree, but those lessons are now being forgotten and we have the same old Tories dusting down the same old trickle-down economic theories. It did not work in the 1980s and it will not work today either. People will see it for what it is: out of touch and the same old Tories.
Rachel Reeves
In Budget 2011, there was £1.1 billion-worth of tax avoidance measures, which is less than half the amount spent on such measures in Labour Budgets. We want more wealthy people to pay their fair share, but nothing in the Budget ensures that. The Government need to tackle tax avoidance, but they should not compensate for that by giving a tax cut to the wealthiest in society.
The Chief Secretary to the Treasury said about the 50p rate:
“The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land”,
but it turns out that the Liberal Democrats have joined their Conservative coalition partners in cloud cuckoo land. I hope that the Chief Secretary is enjoying himself there, but I am sure he had hoped to cover his humiliating climbdown by pointing to the benefits to lower and middle-income earners from the increase in the personal allowance. However, as I said in my intervention on him, the Institute for Fiscal Studies has made it clear that the gains from the policy are cancelled out many times over by the losses suffered by ordinary families as a result of the Government’s tax hikes, benefit cuts and tax credit changes. The Government are giving with one hand and taking much, much, more from ordinary families, pensioners and young people with the other.
The cover story that the wealthy will pay more in other ways is unravelling day by day. We have already seen that in the House this afternoon. The cost of the cut to the top rate of income tax is 10 times higher than the amount of money raised by the cap on tax reliefs. I hope we all agree that more must be done to reduce genuine tax avoidance, but that should be a standard feature of every Budget and every Finance Bill. I direct the Chief Secretary to slide 9 of the assessment that the Institute for Fiscal Studies has made of the Budget. It shows that between 2002 and 2009, the Labour Government reduced tax avoidance by over £12 billion, while this Budget reduces tax avoidance by a mere £800 million—less than Labour’s annual average, and less than all but two other Budgets in the past decade. That is before one takes into account the fact that included in the Government’s definition of tax avoidance is tax relief for donations to charities including UNICEF, Macmillan Cancer Support, the Royal National Lifeboat Institution, Oxfam and many others. The fact that the Government cannot tell the difference between that and real tax avoidance shows how incompetent and out of touch they are.
Mrs McGuire
Does my hon. Friend agree that it might have been more appropriate for the Chancellor to discuss with the charity commissioners whether bogus charities were taking part in tax evasion schemes than to have come up with an ill-considered tax proposal?
Mark Field
I am not sure I can, to be honest, but suffice it to say it is a significant amount. I can appreciate, though, that in these difficult times it is hard to make the case for the huge bonuses in the banking sector, other than to say that it is a globally competitive industry. Financial services will be a big industry going forward. Growth in Asia is adding 20 million or 25 million people a year to the ranks of the global middle class in India, China and South Korea. These will be the customers and consumers, not least because of the cultural reasons for saving, of the financial services industry in the future. That is one reason, in the midst of trying to rebalance our economy, as the Chief Secretary mentioned, we should not lose sight of our global competitive advantage. In the financial services industry, in particular, our global advantage is looked upon jealously in France, Germany and other European countries. They often feel that some of the anti-banking rhetoric coming through will be entirely self-defeating.
Mark Field
If the right hon. Lady will forgive me, I would like to make some progress because others want to get in.
The provisions in clause 8 on the high-income child benefit change to income tax will doubtless be the subject of extensive controversy. In spite of the misgivings I have expressed since the scheme was proposed in October 2010—in particular, that it seems to act as a penalty on aspiration and families in which one parent stays at home to rear children—I accept the overriding need to reduce the vast fiscal deficit. However, the tapering of the change to income tax for those earning between £50,000 and £60,000 a year will result in marginal tax rates of 65% for families with three or more children. Conservatives such as me believe in promoting incentives, but it is difficult to reconcile the proposition that those earning more than £150,000 are deemed to require a highest marginal rate of 45%—a proposition that, I hasten to add, I fully support—with the proposal that earners with several children at the level affected by clause 8 must apparently settle for paying marginal rates of up to 20 percentage points higher. I fear that the controversy in middle Britain about these child benefit changes will continue to resonate strongly in the months ahead.
Mrs Anne McGuire (Stirling) (Lab)
It is a pleasure to follow the hon. Member for Dover (Charlie Elphicke). I am always interested to hear people say that they are a poacher turned gamekeeper, because I always want to know what they did when they were a poacher. The hon. Gentleman laudably admitted that he was a tax lawyer, and it would be interesting to know whether, in giving people professional advice, he ever recommended that they set up tax-efficient systems for managing their taxes. I point out to him that, in more than 15 years in this House, I never once heard a Conservative Member ask the Labour Government to do anything about tax avoidance rules. There is too much piety among Government Members as they try to suggest that we wilfully ignored the matter of tax avoidance. I hope the hon. Gentleman will reflect on what his party was doing during those 15 years, while he was being a poacher, not a gamekeeper.
Barry Gardiner
If my right hon. Friend looks at all the Budget measures put through by the Labour Government, she will see that the average figure achieved by each measure to clamp down on tax avoidance was £1.8 billion. The most that this Government have managed is £0.8 billion.
Mrs McGuire
My hon. Friend the Member for Leeds West (Rachel Reeves) dealt ably with that point earlier today, and I am delighted that my hon. Friend the Member for Brent North (Barry Gardiner) has echoed her comments.
Mrs McGuire
I want to make some progress.
The test of a Budget is not the easy headlines on the day of the announcements, but how quickly and radically it unravels in the days and weeks after the initial statement. In the case of the 2012 Budget, we did not have to wait long. It was full of political symbolism but it had little substance. The Chancellor said:
“We will…consult on the introduction of a large annual charge on…£2 million residential properties”.—[Official Report, 21 March 2012; Vol. 542, c. 804.]
That was no doubt a sop to the Business Secretary, but the reality is that only 3,000 houses a year, at most, will be covered by the charge, and it will be easy to avoid. A property valued at £2,000,010 might be made available at a bargain price of £1,999,999.99. A gentleman such as the hon. Member for Dover could drive a coach and horses through such an arrangement. It was a policy that sounded good on the day but it will be no more than warm words when it comes to raising revenue or catching those who seek to avoid paying tax.
Mark Reckless (Rochester and Strood) (Con)
The right hon. Lady accuses Conservative Members of not saying anything about tax avoidance, yet I have been going on about the issue of high-value houses for several years. My right hon. Friend the Chancellor also mentioned it before the election. Yes, perhaps we should go further than the figure of £2 million and, yes, perhaps the measures on capital gains should go further than just covering companies, but the Labour Government did absolutely nothing on those issues.
Mrs McGuire
The problem is that the measure was paraded as a bit of camouflage for the reduction in tax for those earning more than £150,000 a year. On the one hand, the Chancellor was reducing tax for the wealthiest, but he was also going to attempt to clobber them. This policy did not come from the heart; it was part of the camouflage being used in the Budget.
There has also been a general sleight of hand over taxation. The Chancellor recently stated that he was “shocked” by how little the wealthy paid in taxes, yet this Budget gives a tax cut to the 14,000 people who earn £1 million a year or more. That will give them about £40,000 each year, while the average family with children earning just £20,000 will lose £253 a year from this April. That is on top of the VAT rise, which is costing the average family £450 a year. Furthermore, another 678,000 people of all ages who are currently paying the basic rate of income tax might feel pretty aggrieved when they wake up to discover that they have been catapulted into the 40p income tax rate, not because they are earning massively more but because the Chancellor has not raised the threshold in line with inflation—[Interruption.] I do not know whether I am interrupting a kind of confab of the horizontal speaking to the vertical on the other side of the Chamber, but I will continue, having drawn attention to the significant noise coming from the other side.
The Treasury forecasts suggest that there will be 5.7 million higher rate taxpayers by the end of this Parliament. That is nearly double the 3.1 million at the time of the last general election and treble the number when Labour came to power in 1997. Of course the whole increase in personal allowance that has been paraded here today is outweighed by the VAT rises, the changes to tax credits and the higher petrol duties. As my hon. Friend the shadow Chief Secretary demonstrated earlier, the average family with children will be worse off—not on the basis of our figures, but on the basis of those of the Institute for Fiscal Studies. The Chief Secretary’s answer to my hon. Friend was both evasive and complacent.
According to Citizens Advice, poorer families that get housing and council tax benefits will be just £33 a year better off when the tax threshold rises because as their income goes up, their benefits go down. For every person eligible to pay tax who also receives housing or council tax benefit, the Department for Work and Pensions will claw back some £187 of the £220 notional annual gain. The Citizens Advice chief executive, Gillian Guy, said:
“Raising the personal tax allowance is an empty gesture for struggling families on low wages who get housing and council tax benefits. For these families, the weekly gain is less than the price of a loaf of bread”.
In the name of simplification, the Chancellor launched his £3 billion tax raid on pensioners over the next four years. The freeze in the personal allowance for pensioners will see 4.4 million pensioners who pay income tax losing an average of £83 a year from next April. People who turn 65 after next year will, of course, lose most—up to £322 a year. The additional age allowance was introduced in the 1920s in recognition of the fact that those who have retired do not have the same capacity to increase their income. It is to the undying shame of the current Chief Secretary—a man for whom I once had some respect when he was a Liberal spokesperson on welfare issues—that he came forward today to try to justify taking money from those pensioners who have no other means of increasing their income, telling them that he was doing it in the interest of simplification.
Charlie Elphicke
I do hope the right hon. Lady will forgive me for breaking into her ad hominem attacks on just about every Government Member, but I point out to her that no pensioner loses any money whatever under these proposals because of the increase in the basic state pension that the Government have put in place.
Mrs McGuire
Frankly, the increase in the state pension came about because inflation was at 5.2% in September and the Government could not get out of it. I do not know whether the hon. Gentleman worked for Grant Thornton when he was a tax accountant, but Mike Warburton of Grant Thornton said:
“The Chancellor is allowing age allowances to wither on the vine. He is effectively phasing them out but there is always a price to pay for simplicity.”
The burden will fall on pensioners with below average incomes. Those are not our words, but those of an eminent firm of chartered accountants.
Mrs McGuire
No, I have been generous enough with the hon. Gentleman.
Also hidden in the statement was the announcement that there would be a further cut in the DWP’s welfare budget. I do not know how many people heard the Chancellor slide over the fact that there was going to be a £10 billion cut in the DWP budget. He did not say where it was coming from; it was left hanging in the air. He made a passing reference to his colleague, the Secretary of State for Work and Pensions, and to what a wonderful job he would do in cutting £10 billion. Where is that £10 billion going to come from? Will Ministers cut the carer’s allowance? Will they make further reductions in housing benefit for those in work as well as those who are out of work? Will there be a further erosion of support for disabled people, including disabled children? Will the Treasury freeze state pensions? Ten billion pounds will not come out of thin air. It will have to be paid for, but so far we have been given no details, or even a broad-brush indication of where it will come from.
My hon. Friend the Member for Llanelli (Nia Griffith) made some valuable points about the stimulation of growth. It is worth comparing what the present Government have done with some of the steps taken by our Government when we were faced with a recession—a global recession, not a recession manufactured in this country. [Interruption.] Did I hear a voice from somewhere?
Lorely Burt
I was reflecting, perhaps a little more vocally than I should have from a sedentary position, on the suggestion that the recession was not of the right hon. Lady’s making, and was not fuelled by debt or anything else of that kind. She seemed to be entirely confident that her party had played no part in the creation of the circumstances in which we now find ourselves, although the former Chief Secretary left the message “There is no money.”
Mrs McGuire
I almost wish that I had not heard the comment that the hon. Lady made from a sedentary position. What I said was that it was a global recession that we faced in 2007-08, not—as the Government would have us believe—a recession that had been manufactured in this country. It spread across the whole of the western world, and I hope that the hon. Lady will reflect on her comments.
As my hon. Friend the Member for Llanelli pointed out, during that dire time the car industry was helped by the scrappage scheme, there were changes in stamp duty and reductions in VAT, there was a future jobs fund, payment of tax was deferred for small businesses, and there were changes in mortgage support for those who became unemployed. The purpose of all that was to ensure that people stayed in their jobs, or, if they faced unemployment, were given the support that would enable them to obtain other jobs. This, however, was a Budget of ill-considered consequences. We have a granny tax that will make some pensioners poorer. We have a charities tax that is so badly thought out that Conservative Back Benchers are holding up their hands in horror. We now have a panicked consultation. We have tax proposals that may ruin the caravan industry, which involves manufacturers in the north of England. Hairdressers face paying VAT on their chairs that they hire for their salons. We have tax proposals that cannot be implemented.
One of the Treasury Ministers must explain to me what an “ambient temperature” is when it comes to assessing the imposition of VAT on savouries, which is almost impossible to implement. Is a pasty or a steak bake or a pie cooling down after it has been baked liable for VAT, or is one warmed up so that it can be sold also liable for VAT? That is a nonsense of a policy, and I hope that Ministers will reflect on it as well.
The Budget on 21 March was a weak attempt to highlight the coalition’s mantra that “we’re all in this together”, but has shown that nothing could be further from the truth. It was the Budget of a complacent and cynical Chancellor who feels that he has nothing more to do to stimulate growth. A Budget worked out by an out-of-touch Chancellor is now being finessed daily as it unravels in the light of scrutiny and analysis. In other words, this Budget was a lost opportunity.