Finance (No. 4) Bill

Baroness Burt of Solihull Excerpts

Monday 16th April 2012 Commons Chamber

[Mr Howarth]

The hon. Gentleman makes a useful point. I said that the system would be complex to administer, and complex things cost more, so the hon. Gentleman is right to say that. I had not intended to cover the point, but he is also right to express concerns, as did my Front-Bench colleague, my hon. Friend the Member for Leeds West (Rachel Reeves), about the effect of these changes on charities. I happily endorse the sentiment behind the hon. Gentleman’s comments..

I mentioned the maximum pension credit, which is being cut by £1.98 a week for single pensioners and £3.36 a week for couples. The threshold at which people qualify for pension credit has increased by 8.4% to £111.80 for single pensioners and £178.35 for couples. That means that 27,500 pensioners in Knowsley could be affected by these changes. One important characteristic of the previous Government—I do not think it is open to dispute—is that the lot of pensioners steadily increased during the period in which they were in office. What we seem to be confronted with here is the potential for pensioners to get poorer and poorer, as happened under previous Conservative Governments. That is a real concern in my constituency. These changes, taken in conjunction with other changes to the benefit system, will mean real hardship in my constituency, which is one of the poorest in the country.

Let me say a few words about minimum unit pricing for alcoholic beverages. I shall quote a constituent who wrote to me. I shall not name them, as I do not have permission to do so. My constituent wrote:

“The reality is that minimum pricing will affect those less well-off and have little impact on those with a poor relationship with alcohol. It will enrich retailers without creating jobs, reduce investment and damage producers leading to the loss of jobs. The treasury will recover less duty and tax from the sector as a whole.”

I will give my view in a few minutes, but I think that when people write to Members of Parliament expressing such concerns, it is important for us to raise and address the issues.

I have also received some briefing from a company in my constituency, Halewood International. It employs 500 people in the north-west of England, most of whom are in my constituency. It produces some products of which Members may have heard—one is Crabbie’s Ginger Beer, which is a very popular drink; another is Red Square Vodka—and, as well as producing some important brands, it distributes brands for a large number of other companies.

Halewood has made a number of points, to which I hope Ministers will consider responding. First, it says:

“Alcohol consumption has declined since 2004 and more people are drinking responsibly.”

I think that there is evidence to support that assertion. Secondly, it says:

“There is no evidence that minimum pricing will reduce alcohol misuse. It will affect all consumers and punish the majority who drink responsibly.”

That is clearly true: it will affect everyone. The company adds:

“It will hit people on the lowest incomes hardest.”

That, too, is clearly true.

Thirdly, Halewood says:

“Minimum unit pricing is likely to be illegal under European Law. It is inconsistent with the operation of the free market for the state to intervene on price.”

The company is not alone in that view. The Economic Secretary to the Treasury has said:

“the Scottish Government have recently introduced a Bill that seeks to bring in a 45p per unit minimum price… we believe that it could be incompatible with article 34 of the treaty of the functioning of the European Union… That is the position.”—[Official Report, 14 December 2011; Vol. 537, c. 341WH.]

So it is not just companies with an interest in the matter that believe that minimum pricing is likely to be problematic in terms of European law. In December last year, the Government thought the same.

Fourthly, Halewood says:

“The UK alcohol industry already pays some of the highest rates of alcohol tax in Europe. The Budget delivered a 5% increase in duty.”

Finally, it says:

“The drinks industry is committed to helping to tackle alcohol misuse. It is delivering a range of initiatives to encourage responsible drinking, such as through the Public Health Responsibility Deal.”

That is the case being put by the industry, and by some of my constituents. Personally, I have an open mind on the introduction of minimum unit pricing. I recognise that problematic drinking exists throughout the country—not just in urban areas, but in every constituency—and that there is a growing problem of young people drinking too much, too often, and ending up with serious health problems as a result. If I could be convinced that these measures would address that adequately, I could be persuaded to support them, but I do need to be convinced.

[Lorely Burt (Solihull) (LD)]

I cannot agree with the right hon. Gentleman about minimum pricing, because I think there is a lot of evidence to suggest that the most responsible drinking goes on in our public houses. Although the alcohol manufacturers may have some reservations about minimum pricing, does the right hon. Gentleman agree that low charging by supermarkets, whereby our young people buy alcohol in them and get tanked up before going out, is detrimental both to our society in general and to our pub industry, which I am sure all Members cherish and are keen to see survive?

[Mr Howarth]

The hon. Lady makes an effective point. I am tempted to enter into a debate about what has happened to the pub industry over the last decade, but I doubt whether that would be in order. I will say, however, that people’s habits have changed, including in respect of the places they go to for entertainment. That is particularly the case for young people. Many of them no longer go to pubs for entertainment. Some of the new places they go to serve alcohol, but others do not. More is going on here than the hon. Lady suggests, therefore. She is right, however, that some young people buy alcohol from supermarkets and drink it at home, so that they are already half-filled up, as it were, when they later go out to a nightclub. One of the reasons they do so is that the drink prices in nightclubs are so expensive. I hasten to add, however, that I am not an expert on young people’s drinking habits.

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[Charlie Elphicke]

The law requires change. The avoidance might be legal, but HMRC is understood to be investigating a number of those companies. Because of taxpayer confidentiality, we will not know for sure until such time as a case comes before a court.

Let us take the case of eBay. Tax of some £50 million should have been paid on UK profits before avoidance, but eBay actually paid £3.4 million. Facebook should have paid £14 million, but actually paid £400,000. That level of avoidance is unacceptable. This poisoned legacy—the total failure to reform our tax system—left to us by the previous Labour Government is unacceptable. I might, if I am generous, put it down to their obsession with pursuing the prawn cocktail circuit for so many years, in the fear that if they took on business and ensured that it paid its fair share of tax, they would be less friendly with business and have less credibility.

[Lorely Burt]

I totally agree with every word that the hon. Gentleman has said so far. Does he share my concern that companies operating in developing countries should consider how they pay tax through transfer payments? Developing countries pay more—suffer worse—through not getting those payments from companies that extract their wealth than we get from our ability to tax.

[Charlie Elphicke]

I thank my hon. Friend for her point. My point, in this case, is that we should widen the anti-avoidance measures in the Bill for our own UK territory to ensure that taxes are paid on trading profits made here. I am not making a case for an extension by proxy of the UK’s substantial international aid budget, which is 0.7% of gross domestic product. If one wants to make the case that it should be more than 0.7%, as ActionAid does, I am sure that they will make it, but I do not want to focus on that issue. I am much more interested in securing our own tax base so that we can get our deficit down by widening the tax avoidance measures in the Bill and extending them to a wider and greater reform.

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[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.

[Lorely Burt]

Will the right hon. Lady give way?

[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.

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[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.

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[Sheila Gilmore (Edinburgh East) (Lab)]

After that version of what the Budget holds, it is worth quoting another, as today’s editorial in The Times was not nearly as enthusiastic as the hon. Member for North East Somerset (Jacob Rees-Mogg). In its words:

“When the Budget speech is still leading the news three weeks after delivery, something has gone awry.”

It is rather strange, because in the beginning people thought that so much had been spun out to the press in advance that there could not be much controversy left. It all seemed to have been massaged and put out in advance, so people would not be too surprised. Three weeks after the Budget, however, as The Times says, something has gone awry. Clearly, that view is not shared by the hon. Gentleman, but it is widely held throughout this country. Behind all the jokes about pasties, granny tax, stamp duty and caravans, the biggest thing that has gone awry is the fact that there is very little in this Budget to help grow the economy. That is the serious part of all this.

This morning—I think it must have been on the “Today” programme—I heard the commentator say that the Government have handed over the responsibility for economic recovery to business. The problem is that the OBR does not expect business to step up to the plate any time soon, so it appears that nobody will be responsible for the recovery. This is what the OBR had to say in its March report:

“Relative to our November EFO”

report,

“we have made a further downward revision to business investment, as we believe that non-financial companies’ balance sheets may be weaker than official statistics suggest. Set against this, we expect a boost to the level of business investment of 1 per cent from the corporation tax rate cut announced in the Budget.”

The reduction in the forecast for business investment for 2012-13 is 6.9% off the November forecast and the increase that is expected this year in business investment is only 0.7%, so it appears that business will not be stepping up to the plate.

We have heard a lot about corporation tax and Opposition Members have been accused of not being interested in that, but when one looks at the detail, one sees that the corporation tax cut that people have made so much of is expected to lead to an increase of only 1% in business investment over the whole forecast period. If a reduction in corporation tax is so important to the Government, it seems a rather modest step. In striving above all to create what he feels is a fiscally neutral Budget the Chancellor is constraining his Government’s apparent remedies to our economic situation. We have seen the same thing with the national loan guarantee scheme and the credit easing we were promised in November which was finally announced to be alive and kicking the day before the Budget. That is really an acknowledgement that previous measures to encourage business to invest have not worked.

What does the OBR say? It says:

“Under current funding market conditions, the Government guarantee on the first tranche should lead to lower funding costs and some additional net lending. The scale of the initial tranche is not large enough to have a material impact on our aggregate business investment forecast”.

It goes on to say that the

“benefits associated with further tranches are less certain.”

Again, one of the tools that the Government say they have to aid economic recovery appears to be exceptionally modest, so it is not surprising that the OBR does not expect a recovery in growth to the historical average before 2014.

The rise of the tax threshold is something that the Liberal Democrats are very proud of. They waved their Order Papers frantically at the time of the Budget.

[Lorely Burt]

Yes, we did.

[Sheila Gilmore]

And we heard a great deal about it from the hon. Member for Bristol West (Stephen Williams). I would be more interested in listening to their view on this if they acknowledged how many other measures have not helped many of the low-paid. Raising the tax threshold is not in itself a bad thing—[Interruption]—but when people have suffered other losses, the net effect is not what the hon. Member for Solihull (Lorely Burt) appears, from a sedentary position, to think it is. Someone who is now out of tax as a result of this year’s tax threshold increase will find that it is not worth as much to them as they might have thought because while they are gaining with one hand they are losing with the other. If they are entitled to housing benefit or council tax benefit, they will get less because of the changes in tax so the net effect will be that they receive less. Over the period since 2010, families in particular have taken a big hit with more than £500 a year being lost through changes in tax credit and other benefits. The hon. Member for Solihull laughs and perhaps she does not care about that because the tax threshold seems to be such an important mantra for her party but it is not enough if at the same time people are suffering losses. If we want to talk about the real position for families, particularly those with children, we have to look at the whole picture. Those who face the loss of tax credits this year know exactly what that means for their families. As I said earlier, I am very disappointed that the Government were willing to listen to some critics, and make changes for those on the higher rate of tax who are about to lose child benefit, but were not prepared to look at the much bigger working tax credit losses that will be suffered by people on much lower rates. If they were listening, they should have made the change for both, not simply for those on higher rates of tax.

We have heard a lot about tax simplification—indeed, it was the reason for the so-called granny tax—but it appeared to go out of the window when it came to child benefit changes for higher rate taxpayers. The Finance Bill will give us a complicated set of arrangements that will involve making decisions about whether two people are a couple, whether or not they are regarded as living together and when a relationship has sufficient permanency to affect the provisions. All those issues are extremely complicated and, as even some Government Members have said, they will involve employing more people to work them out. As we said, there will be administration costs.

When the changes were announced with a great flourish at the Tory conference, we pointed out the anomalies, difficulties and expense that would arise. I suspect that there will be further changes yet, because there is no point in pretending that the measure is not difficult.

On the higher tax rate issue, it was far too soon to jump to the conclusion that the 50p rate was not bringing in the revenues one might have hoped for. It was hardly given the opportunity to start. In effect, people on high incomes were using a form of blackmail on the rest of us: “If you put up taxes, we’ll find ways of avoiding them.” What did the Government do? They rolled over and said, “Oh all right then, we’ll lower the rate of tax.” If low-paid workers or people who lost their working tax credit when they could not find enough hours decided that sensible tax planning for them would be to stop work, because they would better off, they would be regarded as people who would rather stay at home watching daytime television than work hard. There is one rule for one set of people and one rule for another.

Tax avoidance should be tackled, but it is not a good sign when at the first whimper from higher rate taxpayers—the first effort to avoid the tax—the Government say, “Okay, we’ll change the tax rate for you.” That is what the Government stand for. It has been clear in this and previous Budgets that there is gross inequality in the way people are treated. People at the bottom who have been suffering from the changes in tax and benefits and are struggling to keep their heads above water find that even the new jobs supposedly created over the past two years—most of which were created in 2010—are part time and do not give them a higher standard of living. I urge Government Members to rethink their support for the Budget and to vote with us tonight.

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[Owen Smith]

All that we know is what is written on page 52 of the review by Her Majesty’s Revenue and Customs of the 50p rate, in table A2. It states in black and white that £3 billion a year will be forgone as a result of the changes, not the £100 million figure that is arrived at with smoke and mirrors about the taxable income elasticity calculation that Treasury Ministers signed off. What does the Office for Budget Responsibility say about that? As the hon. Gentleman said, it says that there is huge uncertainty about that calculation. We contend that we should rely on the absolute numbers, as revealed this morning—that £1 billion was raised from the 50p rate last year, not the nonsense £100 million figure.

That situation reveals the priorities of the Government, who are taking £3 billion from pensioners. On average, £83 is being taken from them, and £285 is being taken from those turning 65 this year, to pay for a tax cut of an average of £40,000 for 14,000 millionaires. That is the Government’s priority. We cannot pretend to understand it, but it is unfortunately the priority that working people will pay for.

[Lorely Burt]

The hon. Gentleman talks about the 50p tax rate, which his party’s Government introduced. I cannot remember how many days before the general election at which the coalition Government came into office that that happened—was it 48 days? May I invite him to speculate as to why the former Prime Minister had 13 years in government but brought in the 50p tax rate only such a short time before his Government left office?