Finance Bill

Catherine McKinnell Excerpts

Tuesday 28th June 2011 Commons Chamber

[Mr Hanson]

With due respect to the hon. Gentleman, you and I, Mr Deputy Speaker, have been here 19 years and three months. I have been here long enough to understand a few matters of parliamentary procedure. The hon. Gentleman needs to go back to Tamworth and explain to his constituents why, by increasing VAT, he is adding £450 to people’s annual VAT bill; why he is hitting retail sales and retail shops in his constituency; why he is impacting on businesses in his constituency; and why the VAT increase in his constituency will put up the cost of the health service, education, housing and jobs. He needs to reflect on those issues as part of this debate.

In conclusion, we have today an opportunity to vote for new clause 10, which would give us a chance to consider the impact of VAT, to come to conclusions on the points I have made today and to ensure that we can properly assess the best way to implement our VAT reduction so that it helps create jobs, build growth and not stifle our economy. This Conservative-Liberal Democrat Government have not only broken their promises on VAT to the electorate, but put at risk growth, jobs and family living standards. Most abominably of all, however, with this rise they have hit the poorest hardest. We have consistently opposed the rise to 20%, and we want it reviewed. We ask hon. Members to vote for new clause 10 tonight, and I look forward to my right hon. and hon. Friends joining me in the Lobby at the end of the debate.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I want to outline my support for new clause 10, and for reviewing the impact of VAT within three months of passing the Bill. The increase in VAT is having a real impact on the spending power of people in my constituency, many of whom are really feeling the pinch of inflation, pay freezes, and rising energy and food bills, and for thousands of people across the north-east, this all comes at a time when many of them are facing redundancy.

The previous Labour Government’s decision to reduce VAT temporarily to 15% was judged by the independent Institute for Fiscal Studies to be an effective stimulus, putting additional money into people’s pockets, and helping to support an increase in consumer confidence, a return to economic growth and a fall in unemployment, all of which are needed now. Of course we must reduce the deficit, but I do not accept that the right way to do so is on such a scale and at such an intensity that ideological deficit reduction is delivered at the expense of economic growth and job creation. Indeed, there is widespread and well founded concern that this will only make it harder to get the deficit down in the long term. Finding ways to kick-start economic growth must therefore be a priority. It is therefore vital that the impact of VAT be kept under review.

Finding a means of kick-starting growth is vital, particularly for regions such as the north-east, where I fear we risk a lost generation of young people if new economic and employment opportunities are not created, and created quickly. A key concern in my region remains the level of youth unemployment, with around 19% of 16 to 24-year-olds in the north-east not in education, employment or training, compared with the national rate of around 15%. Of particular concern is the fact that over the last 12 months the north-east has seen a 10% increase in the number of 18 to 24-year-olds claiming jobseeker’s allowance. Only Northern Ireland, Scotland and London have also experienced such rises over the same period, and then only to a maximum of 4%. With measures such as the previous Government’s future jobs fund axed by the coalition and nothing lined up to take its place specifically to support the long-term unemployed into work, we need to consider as many steps as possible to kick-start economic growth and increase employment opportunities for young people. Keeping VAT under review is vital to ensuring that.

The coalition’s decision to increase VAT to 20% in January has hit many businesses hard, particularly as that VAT hike helped to push fuel prices up to record levels. Let me take just one example from my constituency. The owner of a small electrical services company in Gosforth has made clear to me the impact of high fuel prices on his firm, which he says have hit the small business sector hardest. From its base in Newcastle upon Tyne North, his company carries out most aspects of domestic electrical work and small commercial work, travelling across the Tyneside, Northumberland and Durham areas.

[Gordon Birtwistle (Burnley) (LD)]

Will the hon. Lady give way?

[Catherine McKinnell]

I will give way in one moment.

The owner of the company has an expanding network of clients from the private and voluntary sectors, and he would therefore like to be able to take on his first employees within the next 12 months. However, he has said that the cost of fuel and running a second van will be a significant influence on whether he decides to take on new staff, which he would like to do, thereby doing his bit to help the economy recover. That is just one example of a local company in my constituency really feeling the impact of high fuel prices, which are hugely affected by the rise in VAT, but there are others. They include the small driving school in Lemington that saw fuel costs rise by £20 a week over the last year, the self-employed businessman from Fawdon whose work requires him to travel around 10,000 miles a year, and the young man from Gosforth who set up a Facebook page on the issue and has 475,000 supporters. All those companies are affected by the rise in VAT. The Government must make a commitment to keep it under review, to ensure that all steps are taken to help businesses survive and thrive through these difficult times, and to support those that wish to expand and create new employment opportunities to be able to do so.

[Gordon Birtwistle]

rose—

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[Mr Deputy Speaker (Mr Nigel Evans)]

Order. We cannot have any shouting. We want to listen to Catherine McKinnell.

[Catherine McKinnell]

Thank you, Mr Deputy Speaker. I will give way to one of my friends from the north-east, who I am sure has something relevant to say.

[Ian Swales]

As a fellow north-east Member, I congratulate the hon. Lady on her speech. I believe that the previous VAT cut cost £12 billion. She makes a persuasive case for the need to stimulate the economy. Does she think that borrowing £12 billion and then cutting VAT is the best option from all the choices available?

[Catherine McKinnell]

The fact is that the current rate of 20% is hurting, and it is not working. Growth has stalled. We need to return to growth, particularly in the north-east, and I would have thought that the hon. Gentleman would support such a move.

A sector that has faced particular difficulties over recent months and years is the construction industry. It is thought that one in five of the firms going into administration are from that sector, and research recently undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is an alarming figure. It is really worrying, when we consider that construction makes up around 10% of the UK economy, and that some 80% of the materials used by the industry are procured from within the UK, creating an economic stimulus and jobs in other sectors.

The construction industry is one clear example of how public spending can support private sector growth and jobs. Indeed, it is estimated that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2. The maths is simple. It is widely accepted that coalition decisions to cancel projects such as Labour’s Building Schools for the Future programme, to cut the housing and regeneration budget by 70%, to end the HomeBuy Direct scheme, and to scrap regional spatial strategies, are having, and will continue to have, a seriously detrimental effect on the construction sector.

The coalition’s VAT rise is also having a considerable adverse impact on many small and medium-sized construction firms, particularly when combined with the draconian cuts that the Government are imposing on public spending. Indeed, at the time of the VAT rise the Federation of Master Builders—an organisation to be taken very seriously—expressed its concern that 11,400 jobs would be lost in the construction sector alone over the next decade as a direct result of the coalition’s decision to hike VAT to 20%. The impact of VAT must be kept under review.

Household income in the north-east is the lowest in England, and a temporary reduction in VAT would have a positive impact on the spending power of people living in my city and region, helping to support local businesses, local economic growth and local jobs. Such a reduction could not come at a more apposite time, given that my region is facing the policies of what Kevin Rowan, the regional secretary of the Northern TUC, has recently described as a “profoundly anti-Northern Government”.

That is a description I would agree with, in the light of the impact of some of the coalition’s policies highlighted by Mr Rowan. They include the abolition of One North East and the planned sale of its assets to finance national Government administration—something that is not happening in London. Furthermore, job creation is simply not keeping up with job losses, with up to 19 jobseekers applying for every vacancy in some areas of the region. The north has the highest unemployment rates in the UK, and it is seeing cuts in disability benefits that will have a disproportionate impact on former industrial heartlands, as well as cuts in tax credits, the abolition of area-based grants and local government cuts significantly higher than those in many councils in the south-east. It is for those reasons that I support the proposal for the Government to undertake an assessment of the impact on UK growth of the rise in the rate of VAT.

[John Hemming]

Well, here we are: the Opposition have said that they really hate the idea of having VAT at 20%, and that that is a dreadful proposal. What are they proposing instead? They are proposing a review.

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[Catherine McKinnell]

Does my hon. Friend share my confusion about the fact that during the election the Liberal Democrats campaigned against the Tory VAT bombshell, yet tonight they seem to be the only Members present who are defending the Tories’ increase in VAT?

[Nia Griffith]

I find that extraordinary, and I also find it extraordinary that the Tories seem to have so little comprehension of the impact of the increase. As I have said, many household items need to be replaced.