Jobs and Growth

Bill Esterson Excerpts

Thursday 17th May 2012 Commons Chamber

[Alison McGovern]

I thank the hon. Gentleman for his intervention. I have thought a lot about youth unemployment over the past years. The former Government oversaw radical improvements, such as our intervention in the labour market with things like the new deal. I find it hard to characterise any of that work, which has been recognised around the globe, as cynical. I find that very difficult to believe.

[Bill Esterson (Sefton Central) (Lab)]

I wanted to agree with my hon. Friend about the important and welcome news about Ellesmere Port, because like her, I have constituents who rely on the work that comes from Ellesmere Port. In her excellent speech, might she comment on the tax cut for millionaires that is paid for by pensioners? Does she agree that if that tax cut were reversed, the money would be better invested in jobs and growth of exactly the kind that she is calling for?

[Alison McGovern]

I thank my hon. Friend and Merseyside neighbour for his question. Like my constituents, I cannot understand this Government’s decision to give tax breaks to millionaires.

Tax Avoidance (Public Servants)

Bill Esterson Excerpts

Thursday 2nd February 2012 Commons Chamber

[Danny Alexander]

No, I am not saying that at all. What I am saying is that the arrangements were put in place by the Department for Business, Innovation and Skills. Terms and conditions of employment are a matter for individual Departments. My role is to sign off the salary level for appointments paying over £142,500. As I have said in answer to several questions, in this case we reduced the salary and the expenses payments. I think that that was an appropriate response to the information that I was provided with.

[Bill Esterson (Sefton Central) (Lab)]

Who signed off the tax avoidance measures in this deal?

[Danny Alexander]

I think the hon. Gentleman should be careful about how he characterises these arrangements, given that they are currently subject to a review.

Working Tax Credits

Bill Esterson Excerpts

Wednesday 30th November 2011 Westminster Hall

[Jonathan Reynolds]

I agree with my hon. Friend. If we had had one of the longer slots for debate, perhaps we could have discussed in more detail the interaction between working tax credit, child tax credit and the child care allowance. The interconnection between them is crucial. I shall ask the Minister near the end of the debate what transitional arrangements could be considered for some of those who are most badly affected by the changes.

Working tax credit has played an important part in recent development of the welfare state. When working tax credit was introduced in 2003, it balanced the goal of eradicating child poverty with promoting work. It currently offers around £4,000 for families on lower incomes and aims to ensure that families will always be better off in work. Until it was introduced, too many families had complained that going out to work might leave them less well off financially. Working tax credit was introduced to ensure that work always paid. It did so much more. Encouraging people back into work concerns more than just the contents of their pay packet. Work is about skills.

[Bill Esterson (Sefton Central) (Lab)]

My hon. Friend has done well to secure this debate. He is talking about the difficulties of getting into work. This is particularly true for part-time staff. The change in the threshold from 16 to 24 hours is of great concern to people in my constituency, particularly those in the retail sector, where shifts will not be available because of the dire economic situation we face. Those people are among the 200,000 families who potentially will lose up to £4,000. This measure could force families back on to benefit and out of work. Surely this is not the right way to proceed.

[Jonathan Reynolds]

I agree with my hon. Friend. It is specifically the impact on people working in, for instance, the retail sector that has prompted me to apply for this debate. I am sure that my hon. Friend and I agree that we do not want to see anything that makes it potentially less attractive for people to go out to work.

Couples and single parents who currently work for at least 16 hours a week are eligible for working tax credit. According to the Government’s proposals, from April couples will have to work an extra eight hours in order to qualify. Failure to secure additional work will exempt claimants from the credit completely. The reality is that about 280,000 families in receipt of working tax credit currently work less than 24 hours a week. Under the proposals, they could lose up to £4,000 a year.

--- Later in debate ---

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

First, may I congratulate the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) on securing this debate, and thank him for his kind words about my role at the beginning of his comments? He has asked me a number of specific questions, which I shall be happy to address. In addition, I would like briefly to set out the various reforms to tax credits. I will talk a little about child poverty and, of course, about work incentives, before addressing fully his main point about the 16 to 24 hours change.

[Bill Esterson]

In her reply, will the Minister deal with the central issue of fairness? Does she think that targeting the poorest families by cutting tax credits is a fair approach as a deficit reduction measure, or does she think that this is wrong, and that the Government should target the bankers?

[Miss Smith]

I will happily tackle that. In fact, the hon. Gentleman brings me straight to the main point with which I must preface my comments, which is that we are in a very difficult position, economically speaking. That cannot have escaped the attention of anybody sitting here, least of all the right hon. Member for East Ham (Stephen Timms), who I know is very alive to all such matters. However, the fact is that when faced with a very difficult economic situation, we have to make very difficult choices. We must be mindful of the fact that to leave the country struggling under an enormous debt burden does not help anybody; normal working households would not thank us for failing to deal with that situation. So that is one view of fairness to which I shall return throughout my speech.

Renovation of Empty Property (VAT)

Bill Esterson Excerpts

Tuesday 18th October 2011 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Chope.

I wanted to secure this debate because of the pressure to build on the green spaces and the green belt in Sefton and elsewhere. Sefton council is consulting on its core strategy and, using the figures in the regional spatial strategy, it says it needs 480 new homes each year. To achieve that target, the council has suggested three options, two of which imply significant incursion into the green belt. The draft national planning policy framework does not continue the brownfield-first policy, and councils are not allowed to include windfall development sites, such as the Maghull prison site in my constituency, which would deliver several hundred homes. In addition, empty homes cannot be counted towards a council’s target, and so the 6,000 such properties across Sefton are not included in the figures. All that means that councils need an alternative strategy for building the homes that we—especially our young people—need. Affordable housing is in such short supply. A sustainable policy is needed, and a cut in VAT on the renovation and refurbishment of empty properties would contribute significantly to delivering the housing targets at the same time as protecting the green belt and important urban green space.

The VAT regime perversely incentivises new build on greenfield land because it attracts 0% VAT. A cut in VAT to 5% on the renovation and reuse of existing buildings would allow greater emphasis to be placed on urban regeneration, on which VAT is levied at 20%. The “Cut the VAT” campaign has a wide coalition of support; it is run by the Federation of Master Builders and supported by many organisations, including the Campaign for the Protection of Rural England and the Federation of Small Businesses. There would be many benefits to reducing VAT on building repairs and conversions, and there are strong environmental, economic and social grounds for doing so. In general, subjecting repairs and conversions to VAT is damaging, because it acts as a deterrent to urban regeneration, the proper maintenance of buildings and our caring for the historic environment.

The differential between VAT rates on new build and on repair creates a perverse incentive to leave properties in a state of disrepair or to demolish sound buildings, rather than encouraging their effective use and maintenance. The differential adds to the cost of bringing buildings back into use through repair, renovation or conversion, and contributes to a cycle of decline, because run-down areas are generally a less attractive proposition for investors and developers, even though they might present significant opportunities. I believe that the Government would agree with that analysis. I am looking for the Economic Secretary to nod—she is not doing so.

The additional cost that VAT adds to repairs and refurbishment distorts the market in favour of new build over reuse and refurbishment, which means that developers are incentivised to bring forward new development on greenfield sites before attempting to bring existing resources back into useful occupation. As well as assisting regeneration, making productive use of existing buildings can play an important role in conserving scarce resources such as the land, energy and building materials bound up in the properties, and such an approach also contributes to reducing waste. Government statistics indicate that there are more than 750,000 empty houses in England, and there are many other empty and underused buildings. That is an enormous waste of resources, and a reduction in VAT on refurbishment to create a level playing field between refurbishment and new build would, therefore, make a lot of sense.

Historically, it has been argued that a VAT reduction is not possible because of EU laws. However, the European Commission’s Economic and Financial Affairs Council agreed in March 2009 to allow member states to reduce VAT on housing repair and maintenance, so that barrier appears to have been lifted. The cut in VAT on renovation is now an option that would promote regeneration, bring empty buildings back into use and minimise the use of greenfield land.

Turning to the impact on the construction industry, a VAT cut from 20% to 5% would reduce rogue traders’ competitive advantage and help rescue many legitimate local firms from the brink of collapse. Dozens of small and medium-sized businesses would benefit considerably from a VAT cut on home repair, maintenance and improvement work, and that is why the campaign I mentioned has the support of the Federation of Master Builders. Given these tough economic times, a cut would make a huge difference to many small firms, certainly in constituencies such as mine. It would also make important home repairs more affordable, and help protect consumers from cowboy builders who currently flourish by evading VAT. It is a logical step to help boost the economy, and I call on the Government to take it as a matter of urgency.

The UK economy is facing a weak recovery from the recent recession. Output in the construction industry shrank faster than the economy as a whole during the recession, and recent forecasts suggest there will be no significant sign of recovery in the industry until 2014. Successful trials in a number of EU countries strongly suggest that a cut in VAT on home repair and improvement work would reap economic benefits for the UK. Independent research by Experian, based on a standard VAT rate of 17.5%, suggests that the total stimulus effect of reducing VAT in the sector would be in the region of £1.4 billion in the first year alone.

According to the Office for National Statistics, 249,000 work force jobs have been lost in the construction sector alone since 2007, and that has had a big effect on the Government’s finances as well as a considerable human impact. We know from independent research that a cut in VAT on home repair and improvement work would create thousands of new jobs in the construction sector and the wider economy. Again, independent Experian research based on a standard VAT rate of 17.5% suggests that 24,200 extra construction jobs could be created in the first year alone if VAT on home improvements was cut to 5%. According to the same research, such growth in the construction industry would also lead to 31,000 new jobs in the wider economy.

Those significant job losses—249,000—risk creating a major skills shortage in future years, unless the industry can recruit and train sufficient numbers of people now. The number of construction apprenticeship starts fell by 4,010 between 2008-09 and 2009-10. Almost 1 million people under the age of 25 are currently unemployed, but when the construction industry returns to more sustainable levels of growth there will not be a sufficient number of people equipped with the right skills to meet demand. It will be difficult for employers to make more apprenticeship places available unless there is an increase in construction activity.

We are building fewer than half the number of new homes needed to match the rate of household growth in the UK, and it is therefore shocking that there are up to 750,000 empty homes. Many of those homes require considerable repair work before they can be lived in, and the high rate of VAT makes that a very costly activity for private owners, landlords and local authorities, who could otherwise renovate more existing properties to help ease the pressure on housing supply. Making home repair and improvement work more affordable would encourage the use of existing structures, rather than continuing the urban sprawl and the possible building on green belt land.

Existing homes contribute about 27% of the UK’s total CO₂ emissions, and there is a vast amount of work to be done if the UK is to meet the legally binding emission-reduction targets. A simple, single cut in VAT on home repair and maintenance work would help millions of households to upgrade their homes and make them more energy efficient. Without help to reduce energy use, the number of households living in fuel poverty will continue to grow, as they struggle to protect themselves against rising fuel prices.

According to trading standards organisations, rogue traders steal a staggering £170 million each year from unsuspecting home owners across Britain, and cause significant damage to law-abiding businesses. Rogue traders flourish by evading VAT in order to offer a cheap deal. However, all too often, the deal comes without a proper written contract or any kind of paperwork, making the enforcement of consumer rights almost impossible if something goes wrong.

Again, a simple, single action to cut VAT to 5% on home repair and improvement work would protect consumers and legitimate businesses by significantly reducing rogue traders’ competitive advantage. By charging 20% VAT on all home repair, maintenance and improvement work, the Government are exacerbating numerous serious social, economic and environmental problems. Introducing a reduced rate of VAT for all home repair and improvement work is a simple plan to relieve the country of many of those problems.

[Mr Christopher Chope (in the Chair)]

May I give our newest Minister a warm welcome from the Chair?

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

Thank you, Mr Chope. I am grateful for your warm welcome. I thank the hon. Member for Sefton Central (Bill Esterson) for securing this debate. I acknowledge some of the good arguments that he made, but I believe that his proposal is not the right tool for achieving economic growth. I shall deal with some of his specific points, including a note on apprenticeships, a little on energy supply and some remarks on green opportunities for householders.

The hon. Gentleman made some sensible arguments regarding the reuse of empty properties. Of course, we would all like existing housing stock to be put to good use; I know that from my constituency, as I am confident he does from his. He also made good points about the need in the current economic situation to support small businesses as best we can, and about evasion. I shall come to those points, but I will begin with a few words about the Government’s policy on empty property in the round before discussing the specifics of how VAT applies to empty property. I reassure you, Mr Chope, before I veer anywhere near being off-subject, that tackling the country’s 700,000 empty homes is a priority for my right hon. Friend the Secretary of State for Communities and Local Government, as promoting growth and apprenticeships are for all my other colleagues.

The hon. Gentleman will know that in this year’s Budget, the Government announced £180 million for up to 50,000 additional apprenticeship places over the next four years. That is real action, and I am sure that hon. Members agree that it will meet some of the concerns raised in this debate.

On 20 September this year, the Department for Communities and Local Government announced more powers for community groups to bring empty homes back into use. Community and voluntary organisations will be able to bid for a share of £100 million in Government funding to pioneer housing schemes to help ensure that empty properties are lived in again. That will also help to provide more affordable housing, which I am sure the hon. Gentleman welcomes.

[Bill Esterson]

I welcome the Minister to her role. I do not know whether this is the first debate that she has responded to, but I congratulate her on her appointment. She mentioned the £100 million available to community groups. How many homes are expected to be brought back into use as a result?

[Miss Smith]

I will ensure that the hon. Gentleman receives a specific figure, as I do not have it with me. However, as I will discuss—this goes straight to the heart of the issue—incentives also exist for councils to bring empty homes back into use by including them in the new homes bonus, which he will know about. I think this figure will reassure him: after just one year of the new homes bonus, 16,000 previously empty properties have been brought back into use.

The Department for Communities and Local Government will also consult in due course on plans to allow local councils further discretion to introduce a council tax premium on homes in their area that have been empty for more than two years. That will provide a stronger incentive to get those homes back into productive use—an aim I am sure the hon. Gentleman and I share, as do other colleagues—and remove that blight on local neighbourhoods.

It might be helpful to the hon. Gentleman if I explain how VAT applies to empty property. He might be unaware of some reliefs that go a significant way towards meeting the demands of the “Cut the VAT” campaign. The VAT system already provides for numerous reliefs from the standard rate of VAT, as he will know, but some reliefs particularly encourage new housing supply and the bringing of empty properties back into use as homes. The first sale of a new domestic property is zero-rated for VAT, as are most supplies of goods and services used in the construction of a new build, as he acknowledged. However, he might not be aware that the renovation or alteration of residential premises that have not been lived in for two years benefits from a 5% reduction in the rate of VAT. He mentioned European constraints. The 5% reduced rate of VAT exists, and is the minimum available, under long-standing EU VAT legislation. The reduced rate also applies when properties are converted from non-residential to residential, and when the occupancy of existing residential property is increased.

Wide relief already exists for the renovation and conversion of empty properties. I am sure the hon. Gentleman will agree that that goes some way towards meeting the valid concerns that he raised about the homes in which his constituents might live. He might not be aware that the “Cut the VAT” campaign’s report makes it clear as early as page 5 that

“the many and varied exceptions that exist within the housing RM&I VAT regime…can easily lead to confusion as to what attracts VAT at the standard rate and what attracts a reduced rate.”

The report goes on to provide a helpful table summarising the available reduced rates, including for

“Renovation or alteration of empty residential premises”.

I know that the hon. Gentleman is a keen supporter of the campaign, as are those on the Opposition Front Bench. For the most part, the VAT reduction for which he asks specifically for the renovation and refurbishment of empty homes is already available.

[Bill Esterson]

I am aware of those points. I have a copy of the campaign document, as does the Minister. Is she also aware of the Prime Minister’s commitment to the Federation of Master Builders? He agreed to write to Treasury Ministers to consider the case for cutting VAT on home repair and improvement work. Does she know whether he has done so, whether he has received the response and what it might be?

[Miss Smith]

The hon. Gentleman will appreciate that I have just spent my first two days at No. 1 Horse Guards. I shall of course ascertain the location of that letter. However, I will suggest a few things that I have absolutely no doubt the Prime Minister will bear in mind as he considers the issue.

Wider VAT reduction risks a serious impact on public finances. I know the hon. Gentleman will be aware of that, despite some of the comments that he made this morning to the Formby Times. For example, if the rate of VAT on residential property renovation and refurbishment were reduced to 5%, it would cost £2.2 billion in the first year alone. If the rate were reduced for five years, it would cost £2.4 billion each year. If it continued for a decade, the cost to the Exchequer—to his constituents and mine—would rise to £2.9 billion for every year of that period. To put those figures in context, that would cost more annually than the entire budget for the Department for Environment, Food and Rural Affairs, and double the budget for the Department for Culture, Media and Sport

I therefore do not accept the claim that cutting the VAT rate for the home improvement sector would lead to a net increase in jobs across the economy as a whole or pay for itself over several years. Although the impact could be positive, we know the real likely impact. If we made such a cut, the revenue shortfall would have to be met from additional taxation elsewhere, which would lead to job losses that would offset any job gains in the building sector. Alternatively, we would need to meet the cost through additional borrowing, which would risk increasing interest rates. As the hon. Gentleman will know, higher interest rates would have an adverse impact on families and small businesses, including businesses in the building sector. I am afraid that there is no such thing as a free pass without effects elsewhere in the economy.

The Government want to provide support across the entire economy for businesses and households.

[Bill Esterson]

I had anticipated the Minister’s comments, because this morning I received a written answer from her colleague, the Exchequer Secretary. I understand the Treasury analysis, but the answer mentions

“in the absence of behavioural change”.

Such behavioural change would include the impact on cowboy builders and the economic benefits of people spending money in the sector and being able to afford home improvements, so there is a balance. I also mentioned earlier the £1.4 billion impact on the economy that Experian anticipated under the old VAT regime. Will the Minister comment, either today or in due course, on the assessment of the impact of behavioural change, and not just of the figures that she has quoted in isolation?

[Miss Smith]

Let me first deal with behavioural change in relation to rogue trading, because it is important to put this on the record. I do not accept that a reduced rate of VAT would suddenly cause the illegitimate trade to become honest. I do not believe that behaviour changes in that sense—5% can be as attractive, in many ways, as 20% to a crook. There are many other factors—this is key—beside cost that cause a customer to use the informal economy, and a trader to operate in it. It is unlikely that a reduction in the rate of VAT, which is only one factor, would have an impact on rogue trading and purchasing.

On the wider point of evasion, the hon. Gentleman may be interested to know that Her Majesty’s Revenue and Customs is investing £900 million to tackle avoidance and evasion and attacks by organised criminals, and that relates to the construction industry. A reduction of the VAT rate alone would not create a level playing field between legitimate businesses and those operating in the informal economy. I fear that his concerns about behavioural change, in that sense, do not go to the heart of the matter.

I will be happy to come back to the hon. Gentleman on the specifics of the Experian report. I am afraid I do not have the figures to hand, so I cannot respond on the spot.

To return to the points that we need to take into account in the wider economy, we need to be aware that households face difficult times. That is exactly why, only yesterday, the Prime Minister and the Secretary of State for Energy and Climate Change met energy suppliers to discuss how to bring down customers’ energy bills. It is also why this Government have increased the personal allowance, cut fuel duty and will reduce corporation tax year on year, which will assist businesses, including those that have signed up to the “Cut the VAT” campaign.

It is important that the Government continue to explore their options for credit easing, with which the hon. Gentleman will no doubt be familiar. We should try to inject money directly into parts of the economy that need it, especially small businesses, which are the driving force for economic growth.

Doing those things will not only boost demand in the short term and, indeed, change behaviour, but help to tackle long-standing UK problems associated with the supply of credit to small and medium-sized businesses. That is vital. The Chancellor will announce further details on 29 November.

To finish on the broader point, Labour, I am afraid to say, may have been content to spend beyond its means, but such costs are unsupportable in the current economic climate and simply cannot be reasonably entertained. We need sound public finances to make sustainable growth possible. Over the past decade there has been an increasing reliance on an imbalanced economy, which drove ever greater problems throughout. That model has proved unsustainable and what we have needed in the meantime, as set out in the Budget 2010, the spending review and other work, is a credible plan to tackle the unprecedented deficit that the Government inherited—and that the hon. Gentleman, no doubt, is about to jump to his feet to defend.

[Bill Esterson]

Until 2008 and the financial crisis, the Conservative party in opposition supported the spending levels of the then Government. It was the financial crisis and the bail-out of the banks that caused the deficit to grow to the level it reached. On the balance between quantitative easing and proposals such as the “Cut the VAT” campaign, which has the support of 49 business organisations, many prominent and highly regarded economists think the latter a far more direct way to get money into the economy to stimulate growth and demand, which I know the Government are in favour of. If we disagree on the means, we certainly agree on the need to do it, whether that be via quantitative easing or cuts to VAT on home improvements. We need to take either one action or the other. I hope the Minister will acknowledge that economists have strong views that such VAT cuts are another way of addressing the issue.

Jobs and Growth

Bill Esterson Excerpts

Wednesday 12th October 2011 Commons Chamber

[Ed Balls]

The Chancellor’s whipping team really must tell people to listen to the answers before they intervene.

The Nobel prize winner himself, Chris Pissarides, says in the New Statesman tomorrow that a temporary VAT cut is the right way—[Interruption.] I say to Government Members that Nobel prize winners who give good advice to the Chancellor should be listened to. Given that 70 more people are unemployed in the constituency of the hon. Member for West Worcestershire (Harriett Baldwin) than a year ago, perhaps she should start to listen too.

[Bill Esterson (Sefton Central) (Lab)]

I know that the shadow Chancellor is aware of the “Cut the VAT” campaign, which wants the Government to reduce the VAT on home repairs, maintenance and improvement work from 20% to 5%. Its analysis shows that when the rate was 17.5%, cutting it to 5% would have injected £1.4 billion into the UK economy in the first year alone. I wonder whether he is aware that the campaign is backed by 49 business organisations.

[Ed Balls]

I know the details of that campaign, although I do not know all 49 members. I know that it argues for a widening of our proposal.

One business organisation, the Federation of Small Businesses, has said:

“the Government’s growth strategy is just not working…We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.”

The business demand for a change of course is growing.

--- Later in debate ---

[Mr Osborne]

That is another thing that Labour refuses to condemn. There we have it. We asked the former Labour Work and Pensions Secretary, Lord Hutton, to do a report for us. In his interim report, he set out a case for increased contributions. In his final report, he set out proposals for the defined benefit. We are negotiating on the basis of that. I want to know whether, if it comes to a strike, the people who are paid for by the trade unions are going to condemn trade union activity that would be the wrong thing for the British economy at the moment. Will the shadow Chancellor condemn it?

[Bill Esterson]

The only people in this country who want a strike are the people sitting on the Government Benches, because they think that they will get a short-term political gain from it. The Chancellor has mentioned interest rates a number of times. Is it not the truth that they, and confidence, are low because the economy has ground to a standstill because of his policies? Will he confirm that?

[Mr Osborne]

I will tell the hon. Gentleman what would damage confidence: a strike by the trade unions this autumn. Opposition Members are the people who are paid for by the trade unions, and I want to know whether they are going to condemn the strike or not.

Finance (No. 3) Bill

Bill Esterson Excerpts

Tuesday 5th July 2011 Commons Chamber

[Chris Leslie]

I am sorry that the Minister repeats the point he made earlier. Of course, if the previous Government could have got international agreement writ large on a bank levy, so much the better, but this Government have introduced their bank levy at a puny level. It is a shame that the Minister refuses to repeat the bonus tax on senior executive bankers who take home obscene amounts of money, when that revenue could be used to help to get young people off benefit and into work. It is a shame that he turns his face against that idea. He thinks that the revenue raised by the levy is adequate, but the Opposition do not. We believe that it is necessary for the banks to do more to pay their fair share.

[Bill Esterson (Sefton Central) (Lab)]

My hon. Friend is right. Does he agree that the Government’s arguments on the levy would be more credible if their corporation tax cuts did not substantially benefit the banks? It would be better if they supported amendment 13.

[Chris Leslie]

Indeed. Sometimes Government Members protest too much. The Opposition simply want a review of what the bank levy combined with the bonus tax could yield. My hon. Friend is right about the corporation tax cuts from which the financial sector will benefit. The sector will have a tax cut of £100 million in 2011-12, £200 million in 2012-13, £300 million in 2013-14, and £400 million in 2014-15. That is a £1 billion corporation tax cut over this Parliament. The Treasury ought to supplement its very modest bank levy plan with the bank bonus tax because it is only fair that those who played such a central role in the global economic downturn make a greater contribution to help to secure the economic recovery by supporting jobs and growth.

--- Later in debate ---

My hon. Friends will be used to getting that kind of answer to written questions. We must therefore take it that there have been no meetings whatever with the Minister’s European counterparts to get agreement on transparency on bonuses—[Interruption.] If he has had such meetings, I would be delighted if he informed the House of the progress that has been made. It does not sound as though he has talked to a single one of his counterparts about this issue, however. Bonuses remain staggeringly high, and the Government must say why they are scared of transparency.

[Bill Esterson]

Does my hon. Friend remember hon. Members talking in Committee about the large-scale donations that bankers had made to the Conservative party? Has he had cause to reflect on whether that might be the reason for the Government being so reluctant to act on this matter?

--- Later in debate ---

[John McDonnell]

Yes, I had forgotten that example. It is a good example of how unilateral action can raise the standard overall across Europe and globally.

Another issue raised in our debate on the Tobin tax a number of years ago concerned whether it would be practical. Things have moved on since then and the system for undertaking financial transactions is highly automated and centralised. New systems have been put in place, and I refer Members to the study by the Institute of Development Studies that identified how the system now operates:

“The Continuous Linked Settlement Bank, launched in 2002, now settles more than half of all foreign exchange transactions, with the remainder processed through national real-time gross settlements systems.”

Now we have the systems in place, through advances in new technology, to monitor the process and thereby ensure that tax is collected easily and that avoidance can be prevented.

[Bill Esterson]

My hon. Friend just mentioned avoidance and the problems that it causes. Does he agree that if avoidance was the reason for not doing what he proposes, the Government would give up on collecting any taxes? Avoidance of tax is a far greater problem than any to do with claiming benefits, yet the Government focus their energy on benefits and not on tax.

[John McDonnell]

The main argument on the Tobin tax involved the inability mechanically to identify the transactions and therefore levy the tax. I think that that has been overcome with the new systems.

The avoidance issues will concern migration to tax havens and elsewhere and the report on this tax would have to address them, but we must also attack them more generally. That is why I was so disappointed that my amendment on that subject was not called for debate. That is another issue, however, that I shall raise at another time.

Financial transaction taxes have been introduced elsewhere in the world. In fact, they have been identified in about 40 countries—including ours, with stamp duty. Another question that was raised concerned whether, if we introduced this tax, it would be passed on to the customers. That is a concern, but the report we receive from the Government can consider how to design the tax so that it is targeted at the casino banking that has resulted in this crisis and so that we can protect ordinary people and businesses.

The key point about this tax is that, as the IMF study said, it is “highly progressive”. It falls on the richest institutions and individuals in a very similar manner to capital gains tax. As for the competition element and whether the cost will be passed on to customers, thereby hitting individuals harder, the finance sector is competitive and institutions that try to pass on the cost of the tax to customers will find themselves attacked through a shortage of business.

Another argument that has been made more recently is that this tax could help to assist in addressing high-frequency trading, where transactions happen every few seconds. There has been a huge increase in the number of transactions to do with derivatives. The volume of such financial transactions is now 70 times the size of the world economy and commentators have argued that that is dangerously large and destabilising. Lord Turner, the chair of the Financial Services Authority, said that many such speculative transactions are socially useless. Many of them are based on extremely small profit margins, so even a low rate financial transaction tax of 0.05% would reduce the size of the market by reducing the profitability of these risky transactions. In that way, it would contribute to stabilising the economy overall.

I do not want to delay the House. Many Members have considered the issue in some depth as a result of the lobbying, but for all the reasons I have given I agree with the 1,000 economists who wrote to the G20 summit. This is an idea whose time has come. Issues still need to be addressed, which were set out by Neil McCulloch in the IDS study, but the principal issue is political will. I hope that we can display political will across the parties and across the House to move on this matter.

I finish by quoting from the letter from the 1,000 economists to the G20:

“The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society.”

The letter says that a Robin Hood tax is not only “technically feasible”, but “morally right.” That is why I invite the House to support my amendment.

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[Stephen Williams]

I want to make some brief remarks on the amendments. The hon. Member for Nottingham East (Chris Leslie), who leads for the Labour party, mentioned that youth unemployment has grown to roughly a fifth of 16 to 24-year-olds. Of course we all deeply regret the wasted talent that that represents, whether of young people who have qualified at school or college or have left university with a degree and cannot find jobs or those who have not acquired any training or education—the so-called NEETs, those not in education, employment or training. Over the years, I have worked with many charities, such as Fairbridge and the Prince’s Trust, which try to help such people in my constituency. I must gently tell the hon. Gentleman that many of his points were made in the previous Parliament when I used to sit where his hon. Friend the Member for Leyton and Wanstead (John Cryer) is sitting now and I spoke for the Liberal Democrats on skills and higher education. The number of NEETs and the rate of youth unemployment increased year on year throughout the previous Parliament; the number just about touched 1 million before the general election.

I am sure the hon. Member for Nottingham East was not trying to give the impression that youth unemployment had reached 1 million purely because of the actions of the Government. It has been a problem in some cohorts of young people for a long time and has seemed intractable for Administrations of many parties, but the Government are trying to do some good things to tackle it, such as investment in apprenticeships and in the Work programme that will come in shortly.

[Bill Esterson]

I am glad the hon. Gentleman has given way, because I cannot believe he has the nerve to say what he has just said. One of the first actions of the incoming Government was to scrap the successful future jobs fund, which was bringing down youth unemployment. If he reads Professor Wolf’s report, he will see that her worry is about what is happening to 16 to 18-year-olds. We are in danger of repeating the mistakes of the ’80s when youth unemployment peaked four years after the middle of the recession.

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[Stephen Williams]

I was not aware of the continuation of that quote. However—[Hon. Members: “Withdraw!”] Rather than withdraw, I shall expand on my point and make it more strongly. The previous Government engendered the culture of get rich quick by slashing the rates of capital gains tax and making a virtue of cutting income tax and holding down higher rate taxation. Ironically, it is under the Conservative-Liberal Democrat coalition that capital gains tax has gone up and the 50p top tax rate has been levied in this Parliament.

[Bill Esterson]

The hon. Gentleman called himself a free market liberal. Another Member of the House who described himself as a free market liberal is the right hon. Member for Haltemprice and Howden (Mr Davis), who describes the current arrangements in this country and the way in which capitalism operates as wealth extraction, rather than wealth creation. Does the hon. Gentleman agree with that assessment when it comes to bankers’ bonuses, and will he support the amendment on the reasonable grounds that my hon. Friend the Member for Nottingham East (Chris Leslie) set out?

[Stephen Williams]

I thank the hon. Gentleman for his intervention, but I have already stated clearly for the record that I share the moral and ethical outrage at the level of bonuses being paid by certain firms in the City and elsewhere. The question is whether reintroducing the bonus tax designed by the Labour Government would make any difference, because the evidence suggests that it made absolutely no difference to the bonus culture. It was a handy device for raising rather more than the expected revenue, but it certainly did not change behaviour.

As a free market liberal, I think that companies should be free to decide their remuneration policies, but they must justify them to their shareholders. One way that behaviour might change would be if shareholders took a more active interest in the bonuses that the remuneration committees award within their companies, whether they are banks or not. As was mentioned in yesterday’s debate, the people on those committees are often executive directors of other companies and so have a vested interest in the magic circle of super bonuses being justified in other companies. If the shareholders of the banks that we own, Lloyds Banking Group and Royal Bank of Scotland, were able to express a view, that would introduce a new dynamic into capitalism.

I hope that the Government will seriously consider giving each citizen a share in RBS and Lloyds Banking Group when the time comes for both banks to be divested from the state—this is another plug for the pamphlet I published in March, “Getting your share of the banks: giving the banks back to the people”. I had an interesting meeting with officials from UK Financial Investments last Wednesday in the Treasury in order to discuss that.

Amendment 31, tabled by the hon. Member for Hayes and Harlington (John McDonnell), proposes a Robin Hood tax. I fully support such a tax, as I have mentioned in many debates in the House. I have spoken with many non-governmental organisations in my constituency and at lobbying events, such as the one that took place last week and has already been mentioned. A Robin Hood tax has three elements. The first is a levy on banks’ balance sheets, and the Government introduced that in the form of a bank levy. We might disagree about the level of the levy, but the important fact is that the coalition Government have legislated for it to exist and said that it will be permanent, in the sense that it will last for the lifetime of this Parliament. The rate has been changed once, as I mentioned in an intervention, and I hope that it might be increased again.

The second element of a Robin Hood tax is a financial activities tax—FAT, as opposed to VAT, which the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) might have phonetic difficulty with when speaking in Welsh, in distinguishing between an F and a V. I hope that the Minister can update us on what discussions are taking place on that between Finance Ministers across the European Union and what progress has been made on the introduction of such a tax, which is a tax on certain profits of the banks.

The third element of a Robin Hood tax is a financial transactions tax, which is the subject of the amendment. As the hon. Member for Hayes and Harlington said, that has traditionally been called a Tobin tax. It would be the most problematic component of a Robin Hood tax to introduce. It might impede liquidity, which is not necessarily a good thing, and the other barriers he mentioned would be difficult to surmount without international agreement between the major trading nations.

Another problem with a Robin Hood tax is the question of how much it would raise, as I have heard a wide variety of figures for that which are in the billions. The hon. Gentleman referred to the great coalition of NGOs that support such a tax, and many of us support them, but I wish that they would agree a figure for what the different components of the tax could reasonably be expected to raise.

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[Alison McGovern]

I thank my hon. Friend for her intervention. Having grown up on Merseyside in the 1980s, I know it was only when I studied economics later in my life that I found out that there was a word for the thing I always knew happened—that people got punished throughout their lives for being unemployed when they were young. The economic word for that is hysteresis. The labour market has memory: if someone fails to get a job early in life, it stays with them, scarring not only the person’s career prospects, but the economic prospects of the locality. We know all about that and the previous Government worked to stop it happening when the economic crisis hit. I would like to see this Government take that problem seriously, introduce measures that will bring real work to young people and deal with some of the problems we face, which are getting worse.

[Bill Esterson]

Let me draw Members’ attention to the proposals of the Opposition Front-Bench team. Amendment 13 states:

“The Chancellor…shall review the possibility of incorporating a bank payroll tax within the bank levy and publish a report”—

not an unreasonable request, but a very sensible and measured one. Yet we have heard from Conservative Members and from the Minister in an intervention that they are reluctant to take that action. I guess that the Minister will take the same attitude towards the amendment proposed by my hon. Friend the Member for Hayes and Harlington (John McDonnell), which similarly calls for a review. Neither of these measures calls for the City of London to be disbanded or for bankers to be put in the stocks and pilloried by the public—much as many members of the public might wish to do just that! However, given that many members of the public may have recently wished to do the same to Members of Parliament, perhaps we should not pursue that line too far.

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[Alison Seabeck (Plymouth, Moor View) (Lab)]

One of the benefits of this tax is that a considerable sum would be put into building 25,000 new homes for affordable social renting. Does my hon. Friend agree that through investing in housing we invest in apprenticeships and jobs and we get a higher tax take because people are working?

[Bill Esterson]

My hon. Friend is right: a virtuous circle is created by investment, and especially investment in construction. It is one of the most efficient ways of putting money into the economy, and there is clear evidence that in periods of recession and downturn the role of the public sector should be to put money into the economy until such time as the private sector is strong enough to take up the slack and create jobs and continue to grow the economy. I fear that stage of the economic cycle has not yet been reached, which is why we need measures such as a bankers’ bonus tax to enable money to come into the economy.

Those 25,000 affordable homes would only be a start, but it would be a very important start. We have a housing crisis in this country, and it will be made worse by the benefits cap the Government are introducing, as revealed by the evidence from the private secretary of the Secretary of State for Communities and Local Government that the cap could result in 40,000 families losing their homes. We certainly need activities such as those mentioned by my hon. Friend to make up for Government problems being caused by activities elsewhere.

I hope the Government will read carefully the two Labour amendments, and acknowledge that, as they merely call for a review and are very reasoned, they are worthy of support. I therefore hope that we will hear later that they accept both amendments.

[Frank Dobson]

I should begin by saying that I support the Robin Hood tax, and it therefore follows that I am opposed to the Sheriff of Nottingham, who in this context is the British banking industry. The sheriff was known for robbing the people and feathering his own nest, which is a characteristic of our banking industry. When the bankers start squealing and the City journalists start repeating their squeals and appearing on radio and television saying how terrible it would be to impose further taxation on the bankers, it is worth remembering the scale of the banking industry, and the scale of the damage the banking crisis did to this country.

It is estimated—I think this estimate is generally accepted—that the effect of the banking crisis on Britain has been to reduce our output of goods and services by more than £300 billion. In other words, had that recession caused by the bankers not taken place the country would be £300 billion better off than we are now, and, with a normal tax take, the Treasury would have been about £120 billion better off than now. In other words, a large slice of the famous deficit would have been wiped out, and a large slice of that deficit has been caused by the incompetence, stupidity and greed of the bankers.

When the bankers say they cannot afford to pay any more, it is worth looking at the sums Britain’s leading banks lost in the crisis while still managing to survive—and most of them survived only by being either taken over or backed up by the taxpayer. HSBC lost $27 billion in the crisis; Morgan Stanley lost $15.7 billion in the crisis; Royal Bank of Scotland lost $14 billion in the crisis; Barclays lost $7.6 billion in the crisis; HBOS lost $6.8 billion in the crisis; and Lloyds TSB lost $4.7 billion in the crisis. Yet all of them have paid bonuses to management who presided over those losses. In the case of Barclays, as I understand it even the shareholders have been doing rather badly and have been treated unfairly, because the Barclays leadership has been paying bonuses while the bank’s share value has been halved in the last 10 years. These are therefore undeserved bonuses not only from the point of view of the rest of us, but even from the point of view of the banks’ shareholders. There is a lot of scope for getting some money out of these banks because they are rolling in money, and we should spend it in ways such as those mentioned in amendment 13, tabled by my party’s Front-Bench team, and amendment 31, tabled by my hon. Friend the Member for Hayes and Harlington (John McDonnell).

To put matters in perspective, this year—a frugal, austere year in the City, we understand—City bonuses amounted to more than £6 billion, yet we are told that the Government may not be able to accept the Dilnot report recommendations because they would cost the taxpayer £2 billion. That means that the Dilnot recommendations, which would help all the people who look with fear to the future and to getting older, could be implemented at an annual cost of one third of the bonuses being paid in the City of London. If that does not demonstrate how ridiculous the remuneration in the City of London is, I cannot imagine what does.

As I said in an intervention on my Front-Bench colleague, my hon. Friend the Member for Nottingham East (Chris Leslie), these people in the City have now started to refer to their pay as “compensation”. They apparently need to be compensated to turn up at work, and apparently their normal compensation is not sufficiently high, so they have to get a bonus on top of that to compensate them for going to work and turning up at their office—and then, as we know from the crisis, losing money. It is about time these bankers started compensating the rest of us and doing what my hon. Friend the Member for Coventry North West (Mr Robinson) discussed: making more of the undeserved wealth splashing around in the banking industry available to those who are providing useful goods and services to people in this country and the rest of the world, and getting us to a fairer and better situation.

Finance Bill

Bill Esterson Excerpts

Tuesday 28th June 2011 Commons Chamber

[Mr Hanson]

The most passionate rejection that I have seen in recent years was in Chesterfield, of my hon. Friend’s predecessor. He stood just next to where I am now before the election, when I was Police Minister, calling for more police and more expenditure. Yet now, the Liberal Democrats are saying that we should have had less expenditure.

I accept that I am going slightly wide of the issue of VAT, Mr Deputy Speaker, so I will return to it. VAT hits not just families or businesses but public services. The national health service in England will be hit by an extra £250 million a year because of the rise in VAT. A CT body scanner that cost £700,000 before the rise in VAT will now cost £17,500 more. A fully equipped ambulance that would have cost £225,000 will cost an extra £5,500. There is about £3 million a year of expenditure by each NHS trust on locum doctors, which will increase by £75,000. A Government who want to cut public spending are levying additional costs on the health service in England.

In my own region, in Wales, the actual cost of the increase in VAT to NHS budgets since 1 January is estimated at £13.2 million. For colleagues in Scotland, I add that Scottish health boards have been saddled with an extra £71 million of costs because of the VAT increase. At a time of decreasing public spending and squeezed budgets, we need to review the matter over the next few months and consider whether the VAT increase is causing even more difficulty.

[Bill Esterson (Sefton Central) (Lab)]

My right hon. Friend is explaining in incredible detail the danger that the VAT increase is causing. I wish to bring to his attention the effect that it is having on pensioners in my constituency, one of whom wrote to me to express his outrage. I cannot repeat what he said, because he swore in his e-mail, but he said that

“if these costs were not so damaging it could be laughable.”

Does my right hon. Friend agree?

[Mr Hanson]

I do agree with my hon. Friend’s concerns.

Time is pressing, so I will move on. I know that we have a lot of time, but I want to ensure that my right hon. and hon. Friends have an opportunity to speak.

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[Nia Griffith]

That is precisely the problem. In spring 2010 we were beginning to come out of the recession, the economy was growing, inflation was low, and unemployment was coming down. Under Labour’s plan, the economy was set to grow strongly. In fact, as more people were getting back into work, borrowing ended up £21 billion lower last year than had been forecast.

[Bill Esterson]

I am sure that my hon. Friend is aware that the Treasury is set to borrow £46 billion more than it planned last autumn as a result of slower growth. I am sure that she agrees that without growth the deficit will continue to rise. Surely that is why we are right in the new clause to call for an investigation of the impact of the measures on growth. Clearly, the Liberal Democrats do not understand the impact of the rise in VAT.

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[Roberta Blackman-Woods]

That is an interesting point, but as my right hon. Friend the Member for Delyn (Mr Hanson) said earlier from the Front Bench, we would like to see a time scale and an end point.

As I was saying, we need a full assessment about whether a reduction in VAT would really help to turn around areas such as the one I represent. I also want to know exactly what the impact is on growth, and I will come to that in a moment or two. I want to take up the point that my hon. Friend the Member for North Durham (Mr Jones) made point about retail, but my argument is that almost every single sector in Durham is being affected by the rise in VAT that was brought in by the parties in government. We are a constituency that has a large public sector not because it is crowding out the private sector, which is the mantra we always hear from the Government parties, but because it is an administrative centre and so has a large number of public sector jobs. However, the public sector is being hit by public expenditure cuts as well as by the rise in VAT.

[Bill Esterson]

The situation that my hon. Friend describes is also typical of my constituency, where we have a very high level of people working in the public sector who are threatened with job losses from the parties in government. We also have a large number of small businesses that depend on those public sector workers for their custom. Those businesss are finding, as other Members have mentioned, that the VAT rise makes it very difficult for them to keep prices at the same level, and that has made it very difficult for them to trade effectively.

[Roberta Blackman-Woods]

My hon. Friend makes an excellent point, which clearly demonstrates a major problem in the economic strategy of the parties in government, which show no understanding of the links between spending in the public sector and private sector businesses. That is a very great shame and is to the detriment of business in many areas.

My hon. Friend the Member for North Durham has talked about the great impact on retail businesses in my constituency, and I am concerned about the ability of some businesses in the city centre to keep going. I have been talking to the head of one of the construction businesses in my constituency, which has been a very vibrant business in the past, and he told me that it is not only flatlining but might be about to go bust. That is extraordinary because it is a major company, but jobs in the construction sector are drying up. Other hon. Members have made this important point, which shows the lack of growth strategy from the parties in government. I would like there to be some consideration about whether a reduction in VAT could help to push down inflation and could lead to a boost in job creation, particularly in areas such as mine.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 21st June 2011 Commons Chamber

[Mr Hoban]

The corporation tax arrangements for banks are similar to those for other businesses. That is one reason why we have imposed the additional bank levy, which will raise more each year over this Parliament than the previous Government’s bank payroll tax did. It is important that the banks make a contribution to reflect the risk that they pose to the wider economy.

[Bill Esterson (Sefton Central) (Lab)]

11. What recent assessment he has made of the effect on the economy of trends in the rate of unemployment.

[Steve Rotheram (Liverpool, Walton) (Lab)]

15. What recent assessment he has made of the effect on the economy of trends in the rate of unemployment.

[The Chief Secretary to the Treasury (Danny Alexander)]

The unemployment rate has fallen recently: in the latest data, it was 7.7%—down from 7.9% on the quarter. The Office for Budget Responsibility assumed at Budget 2011 that the structural rate of unemployment was unchanged from its previous trends at 5.25%. In the medium term, unemployment is expected to fall as the economy recovers, supported by the action taken by the Government, including measures published in the Budget and “The Plan for Growth.”

[Bill Esterson]

Youth unemployment peaked in 1985 four years after the recession of 1981, with disastrous consequences for a generation of young people. When the Chancellor scrapped the future jobs fund he showed that he had not learned from what happened in the 1980s. Is not the truth that the Chancellor is out of touch with the realities of life for young people and is on course to repeat the same mistakes as the Tories made in the 1980s, with the same disastrous consequences?

[Danny Alexander]

If the hon. Gentleman was being fair, he would recognise that youth unemployment was growing substantially under the previous Government as well. The country has faced the problem for many years, which is why in the Budget we announced a £200 million package of support, including work experience placements for young people, skills training, guaranteed interviews and progression to apprenticeships. Including the measures in the Budget and the spending review, we will deliver at least 250,000 more apprenticeships over the next four years, compared with the previous Government’s plans.

Eurozone (Contingency Plans)

Bill Esterson Excerpts

Monday 20th June 2011 Commons Chamber

[Mr Hoban]

Madame Lagarde is a strong candidate for the role of director-general of the IMF. My hon. Friend is absolutely right to point out that she is French; that fact has not escaped us in ECOFIN meetings. Madame Lagarde said on “Newsnight” a couple of weeks ago that she recognised that the bail-out of Greece involved a series of agreements between eurozone countries, and that that should remain the case.

[Bill Esterson (Sefton Central) (Lab)]

The Minister has an extraordinary level of confidence—well, I think it is confidence—in the Greeks’ ability to repay the loans they are currently receiving. I just want to check with him: how much of the £19.7 billion UK contribution to the IMF forms part of the Greek bail-out and how long he is prepared to see us continue to make our contributions through the IMF?

[Mr Hoban]

I do not think the hon. Gentleman is suggesting that we should withdraw our membership of the IMF—[Interruption.] It is not clear from the question he is asking. Part of the condition of any bail-out of an economy by the IMF—whether it is a eurozone economy or another economy—is a debt sustainability plan, which is a rigorous part of the assessment process. As was clear in the Eurogroup statement last night, the IMF and the Eurogroup have signed off on Greece’s debt sustainability plan, so they expect that money to be paid back.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 10th May 2011 Commons Chamber

[Danny Alexander]

As I said in response to my hon. Friend the Member for Southport (John Pugh), one of the things we need to do as part of the listening exercise is hear the concerns about how consortia will work and ensure that the financial regime that is in place is sustainable and puts the maximum amount of resource to the front line.

[Bill Esterson (Sefton Central) (Lab)]

The Chancellor did not answer the question from my hon. Friend the Member for Gedling (Vernon Coaker), so I would like to give the right hon. Gentleman another chance. Will he repeat the bank bonus tax that was so successful last year and use that money to build the extra affordable homes, to rent and to buy, which are desperately needed by people in this country and by the construction industry, and which would be good for the economy?

[Mr Osborne]

As I was explaining to the hon. Member for Gedling (Vernon Coaker), the bank bonus tax was introduced by the previous Chancellor of the Exchequer, and it was his judgment that it would not work for another year because the banks would find a way of avoiding it. That is why we introduced a permanent bank levy not just for one year, but for each and every year. In any one year it raises more than the bank bonus tax net, so that is what we have done. It is pretty striking: Labour Members had 13 years in government to introduce a permanent bank tax; they did not do so, and they cannot carp from the sidelines now.