Oral Answers to Questions
Catherine McKinnell Excerpts(12 years ago)
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Sajid Javid
My hon. Friend is absolutely right. In the first two years of this Government, the private sector created 1 million new jobs whereas in the last 10 years of the previous Government the sector created about half of that figure.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
One way to tackle youth unemployment in Kettering and Northamptonshire and across the UK would be for the Government to commit now to repeating Labour’s tax on bank bonuses on top of the bank levy to fund much-needed new jobs for young people. Is the Minister aware that in some parts of Northamptonshire, such as Corby, the number of under-24s on the dole for more than 12 months has gone up by a shocking 233% in just the last year?
Tax Avoidance and Evasion
Catherine McKinnell Excerpts(12 years, 2 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I commend my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) for securing this debate on a matter that we all agree has rightly risen to a high place on the political agenda. There is much that we can agree on today, and I think we all agree that Parliament is at its best when we agree on matters and stand together to improve them.
We have heard well considered and valuable contributions from many respected voices in the Chamber, but I want to pay particular tribute to my right hon. Friend the Member for Barking (Margaret Hodge), whose work with the Public Accounts Committee has helped to shed a lot of light on these issues. She made a powerful and sensible speech.
The financial crisis of 2008 led to a radical domestic and international shift in the approach to tax evasion and avoidance. The lack of transparency in the international financial system was rightly identified as a significant threat to global financial stability, and calls for change rightly came from all sides. The crisis has also led to the significant challenge of public expenditure reduction that we now face, which adds to the urgency of ensuring that every individual pays their fair share of tax and contributes to that effort.
As many Members have said, among the majority of hard-working people who pay all their taxes there is understandably growing hostility towards those who manage to avoid paying their fair share. Given that the Government are facing an increase in their borrowing—it is up by a quarter on last year’s forecast, partly as a result of falling tax-takes—I have no doubt that the issue has also risen high on the Government’s agenda.
The Government have measured the tax gap—the difference between tax owed and collected—at about £35 billion. There has been some debate about that figure today, and there are other estimates. The TUC’s estimate is much larger, as is that of the Tax Justice Network, which puts the figure in the region of £120 billion. We all appreciate that it is not an exact science, but whatever the figure, we accept that a significant proportion of the tax revenue that is due is going uncollected. If we closed the tax gap by half or even a quarter, we would avert real pain and suffering among the most vulnerable in our society, who rely on the services provided through public expenditure.
Members have rightly drawn a clear distinction between evasion and avoidance, and we need to remember that a small minority of people are involved. However, it is clearly not acceptable for those people to think that they can get away with avoiding their obligations if they buy the right advice or pay for sophisticated tax avoidance products.
Like benefit fraud, tax evasion—and avoidance in some cases—undermines the confidence of ordinary taxpayers in the legitimacy of the system. I think we all agree that the world has changed and that there should be no hiding place for tax cheats. The previous Labour Government had a record to be proud of in tackling avoidance, both domestically and internationally. Many of the comments today have paid tribute to that. In 2004, we introduced a requirement to disclose tax avoidance products in advance, to, I remind Members, a storm of protest. In 2009, we strengthened the regime and that has transformed the fight against avoidance—I am sure that the Minister and Members on both sides of the House would agree with that. More than 2,000 schemes had been identified up to March this year, protecting more than £12 billion of revenue.
In 2009, we also set up the high net worth unit and have received the good news this week that an extra £500 million in tax has been identified and recovered. When in government, we also introduced a code of conduct on tax for banks, as well as legislating on debt buy-back and credit loopholes that some companies were exploiting. I know that the Minister recognises the value of the steps we took in government to make progress on this issue and over a 10-year period we recovered more than £16.4 billion in particular targeted tax avoidance measures.
Internationally, as president of the G20 we led a global clampdown on tax havens and offshore evasion. As many hon. Members have said, that is an important aspect of what we must do if we are to close the tax gap. Similarly, I would be interested to hear comments from the Minister today about the measures he is considering to enter into international agreements along the lines of the agreement we negotiated with Liechtenstein and between the UK authorities and Belize. How much revenue does he consider has been saved through those agreements and what plans do the Government have in place to continue that work and to try to shut down some of the avoidance measures and tactics that are being exploited?
In government, Labour also persuaded the OECD to develop best practice guidelines on country-by-country reporting, an excellent initiative that was put on the agenda by international development organisations, particularly Christian Aid, ActionAid and Oxfam. Tax evasion costs developing countries billions of pounds every year in lost revenues and is a barrier to social and economic development, but in the Finance Act 2012 we saw changes to the controlled foreign company rules and many charities have expressed concerns that they will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. ActionAid estimates the potential loss to developing countries as up to £4 billion a year, whereas the Government estimate is £1 billion. Either way, that change raises huge concerns; steps must be taken to improve transparency and the Treasury must work with the Department for International Development to ensure its commitment to combining tax and development policy. What plans does the Minister have in place to ensure that the new rules will not damage developing countries’ tax revenues? Has he had discussions with the new Secretary of State for International Development or with her Ministers on a joint strategy on this point? If it becomes clear that the changes are enabling and facilitating tax avoidance, what action will he take? At what stage will he check, as this is a matter of some urgency for those who are concerned?
Unfortunately, on a domestic level, the Government’s general anti-abuse rule is unlikely to take forward the battle against tax avoidance. It is disappointingly narrow, designed by its own admission to tackle only the most egregiously abusive tax avoidance schemes, whatever that means. I would be grateful if the Minister clarified that point. The union representing top officials at HMRC, the Association of Revenue and Customs—ARC—has even suggested that it could encourage tax avoidance by implying that anything outside its scope is legitimate tax planning and immune from scrutiny. Will the Minister clarify what constitutes—I quote from the Government’s consultation document—a “wholly unacceptable” tax avoidance scheme, and tell us how “abusive” will be defined? I have read the consultation document and the definitions proposed within it shed little light.
In its draft legislation, the Treasury defines non-abusive schemes as anything that is “reasonably regarded as reasonable”—I am paraphrasing for brevity. That provides neither clarity on the matter, nor armour for HMRC, which is more concerning. We know that one person’s tax planning is another person’s tax avoidance, and even when it is entirely legal, it is considered by many—including the Prime Minister and the Chancellor—as wrong or “morally repugnant”. Will the Government’s proposed legislation help to draw a clearer line? All the moral indignation in the world will not bring in more tax receipts, and clarity is essential.
Will the Minister confirm what proposals there are to levy penalties on those found in contravention of the new anti-abuse rule? There is widespread concern that the proposed legislation is nothing but a toothless tiger, or worse,
“a Trojan horse, which suggests tough action while actually facilitating avoidance.”
They are not my words but those of Graham Black, president of the Association of Revenue and Customs, which represents senior HMRC officials.
I congratulate my right hon. Friend the Member for Oldham West and Royton on his contribution to the debate and on laying his draft legislation before the House tomorrow. His Bill takes a much broader approach, and seeks to tackle not only abuse but more general avoidance, and it lays down the mantle at the Government’s door for them to clarify what they deem to be legally acceptable. It also seeks to give HMRC much wider powers than under the Government’s plan, and I would be interested to hear the Government’s response to the challenge posed by my right hon. Friend.
Finally, as many hon. Members have said, even with a proper anti-avoidance or anti-abuse scheme in place we will require a top-level agency to collect tax. HMRC has recently had a welcome public success in collecting revenue from top earners, but we know that it is struggling to maintain performance against huge job cuts. In May this year the Public Accounts Committee found that an extra £1.1 billion could have been collected if personnel had been left in place, and it called on the Government to consider the true value for money of further cuts. Have the Government done that? What consideration have they given to value for money in terms of personnel and the proposed cuts? If cutting staff means missing out on billions of pounds of tax revenue it is a false economy, and I would be interested to know what assessment the Government have made in the light of the report by the Public Accounts Committee.
Ministers say that they want to eliminate tax avoidance, but with an incredibly narrow GAAR, weak international agreements, and without giving proper resources to HMRC, the Government are not on track to succeed. The nation’s books will be balanced on the backs of the poorest in society, rather than on the rich who will continue avoiding their taxes.
Oral Answers to Questions
Catherine McKinnell Excerpts(12 years, 2 months ago)
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Sajid Javid
That is a central plank of the Government’s policy, and I am sure that my hon. Friend will agree that some of the changes we have already announced, such as those contained in the personal allowance, which I know he supports, are doing exactly that.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I congratulate the Minister on his appointment, but the Government’s tax and spending cuts have hit women and children the hardest, leaving families struggling and child poverty on the rise. The last time there was no woman in the Treasury was 17 years ago under the last Tory Government. Although I welcome him to his place, does he think that the Government’s record with women will get worse or better with no female voice at the table?
Sajid Javid
The Government have an excellent record on women in government—[Interruption.]
VAT on Air Ambulance Fuel Payments
Catherine McKinnell Excerpts(12 years, 4 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I thank the Backbench Business Committee for bringing this important matter to the House. I congratulate my constituency neighbour, the hon. Member for Hexham (Guy Opperman), and my hon. Friend the Member for York Central (Hugh Bayley), both of whom paid moving tributes to their air ambulance services—the Yorkshire Air Ambulance and the Great North Air Ambulance Service.
The debate has been well considered and well informed. As hon. Members have said, it came about following an e-petition, signed by nearly 150,000 people, that calls on the Government urgently to review the amount of VAT paid on fuel for air ambulances and
“to return in the form of grants to Air Ambulance Service providers all the future VAT which the Treasury collects from them”.
I should like to put on the record my thanks to all those who have taken the time to sign the petition and bring this important matter to the Floor of the House.
We all now know that air ambulances play a key role in communities up and down the UK. They have been in use since the beginning of the 20th century. Early versions included the Red Cross’s “Florence Nightingale”, which began to carry vital medical equipment across the country in 1934. However, it was not until 1987 that the first UK air ambulance charity, the foundation of the modern air ambulance service, was established in Cornwall.
The most recent air ambulance charity was established in Hertfordshire in 2008. There are now 30 helicopters in service for the 18 air ambulance charities in England and Wales, with a further two run by the Scottish Ambulance Service. We have heard moving tributes to the work that the services undertake around the country. To give the overall picture, I should say that they undertake 19,000 missions a year, servicing 177 accident and emergency departments. On average, an air ambulance takes off every 10 minutes in the UK; every hour of every day, seven air ambulances may be attending accidents and medical traumas around the country.
The emergency teams have an enormous impact on our communities and play a vital role in supporting and extending the work of conventional land ambulances.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
I apologise to my hon. Friend the Member for Hexham (Guy Opperman) for being unable to get to the earlier part of the debate because of a meeting.
The hon. Lady will know that in the remote rural parts of Northumberland such as my constituency the air ambulance is vital because, without it, it would be extremely difficult to get cases to hospitals, which are often closer to her constituency in Newcastle, where they need to be treated.
Catherine McKinnell
Indeed. We all know of very moving stories in our respective localities where lives have, without doubt, been saved by air ambulances.
As the hon. Member for Hendon (Dr Offord) said, air ambulances have come an awfully long way since their early days. They are now high-tech, mobile A and E departments carrying senior trauma doctors alongside paramedics and transporting state-of-the-art medical equipment to wherever it is needed.
Andrew Percy (Brigg and Goole) (Con)
I recently met people at Lincolnshire and Nottinghamshire Air Ambulance, to whom I pay tribute. They told me about some of the other problems they face, apart from VAT. Does the hon. Lady agree that there are other issues that we need to address, such as the fact that while some hospitals can accept air ambulances, others will need a land-based ambulance transfer?
Catherine McKinnell
The hon. Gentleman makes an important point, and I am sure that the Minister will take it on board and deal with it in his response.
Only a few months ago, air ambulances proved that they are at the cutting edge of technology. As the hon. Member for Hendon pointed out, we are in an ever-progressing medical world where we need to keep constantly under review all the services that provide vital care to people, but particularly the air ambulance service. A few months ago, for the first time, an air ambulance carried blood supplies allowing a blood transfusion to be carried out at the scene of an accident. London’s air ambulance service believes that this innovation has been made possible due to a new refrigeration unit devised by the British military, and it could no doubt save hundreds of lives in the years to come.
It is no wonder that air ambulances continue to receive such outstanding support from members of the public and that over 150,000 people have been moved to sign the petition. I do not think that anyone would disagree that we have to support such services. However, as has been discussed, there are other issues relating to EU law and the harmonisation of VAT legislation across member states. Members have already mentioned the anomaly whereby fuel for lifeboats is VAT-free. As hon. Members and members of the public who have signed the petition have noted, there is no equivalent provision in these EU-wide rules to allow for fuel bought by charities such as air ambulances to be provided VAT-free, although various provisions such as medical equipment and first aid kit are VAT-free, and air ambulance providers that lease the air ambulance rather than buying it outright receive different treatment for VAT. Air ambulance services are put in a difficult position when there are anomalies within the VAT system and they are subject to change.
The motion calls on the Government to review the tax treatment of air ambulances and their fuel and to carry out the requested study on compensating them for VAT payments. I will be interested to hear the Government’s response to that, but there is more that they could do to try to help these life-saving services. As we all know, we are living in difficult times. Our economy is in a double-dip recession; borrowing forecasts are rising, not falling, and not only families and businesses are feeling the pressure and the squeeze but charities and organisations in the voluntary sector, which have been hard hit by the cuts that have been made. Collectively, air ambulances are one of the busiest voluntary services in the country. As charities, they rely on the support of over 1.25 million donors to keep them going. Air ambulances save hundreds of lives every year. They are expensive, but for those who benefit from the service they provide, they are priceless. The average spend per helicopter is more than £750,000. Put simply, without charitable donations and funding, these life-saving services would not exist. The men and women of these emergency teams work tirelessly. The Government should do all they can to support them.
There are changes that the Government could make immediately to ease the pressure on air ambulance services and other charities. As part of Labour’s five-point plan for jobs and growth, we are calling on the Government to introduce a temporary reduction in VAT to 17.5% to bring down the cost of fuel across the board. Air ambulances and motorists alike would benefit from that. Since the Government increased VAT, people across the country have been feeling the squeeze. Equally concerning is the impact it has had on charities. It has cost them an overwhelming £143 million.
With air ambulances using about 130 litres of fuel on every mission, a decrease in the rate of VAT would bring immediate relief to those services up and down the country—so too would clarity on the Government’s position on fuel duty, because it would allow services to plan for the future. The Labour party called for the 3p rise in fuel duty that was scheduled for August to be delayed to help hard-pressed motorists. Although we welcome the U-turn on that, it would be helpful if the Government explained what they will do in the long term on the price of fuel and how they will put it on a more sustainable footing for motorists and for air ambulance services.
As well as responding to the request in the motion put forward by the Backbench Business Committee, the Government could usefully respond to some additional questions to reassure air ambulance services that they have the support of the Government and that the Government are doing all they can in these difficult times to ease the pressure on them, so that these hard-working teams can continue to save lives and carry out their excellent work. What plans do the Government have to provide support to the thousands of charities that are increasingly performing vital services in our communities and that are struggling as a result of the increases in VAT and the cuts to funding? How do the Government intend to pay for the delay in the 3p fuel duty rise in August? What are the Government doing to put the cost of fuel on a more sustainable footing to help not just households and businesses, but vital charitable services? Finally, what assessment has the Minister made of the possibility of offsetting the cost of VAT on fuel payments by air ambulances through the use of other departmental budgets or anticipated departmental underspends?
Finance Bill
Catherine McKinnell Excerpts(12 years, 4 months ago)
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Mr Gauke
The purpose of that wording relates to packaging that is specifically designed for the retention of heat. For example, hon. Members will all have experience of a paper bag with a foil interior that is used for such purposes. I do not think that a simple paper bag would fall into that category. In most people’s experience, pasties and suchlike are generally left on shelves rather than contained within bags while in the shop. I hope that that provides some clarification.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
We have arrived at this change after 20-odd years in which, through various legal challenges, we have come to our current conclusions on this aspect of VAT. Can the Minister assure us that we are not facing another 20 years of litigation in order to get these finer details clarified?
Mr Gauke
One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.
Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.
Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.
We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.
Catherine McKinnell
My hon. Friend the Member for Kingston upon Hull North (Diana Johnson) asked about the impact that the current proposals will have on the industry. Will the Minister confirm that the Treasury has not yet calculated that impact?
Mr Gauke
We assessed what the impact would be if VAT was at 20%, and obviously 5% is a quarter of that, so one can draw correlations. Most industries supply VAT-inclusive durable goods at a profit, so it is reasonable to apply VAT in this case. The impact that we originally set out in the tax information and impact note at the time of the Budget will be significantly lessened by the change to the 5% rate, particularly bearing in mind that there is already a full 20% rate on a fair proportion of static caravans because of the durable goods contained within them.
Mr Gauke
My hon. Friend is absolutely right. Tax is but one of the various factors that will have an impact on demand, and VAT is but one tax. I shall not dwell on it, Mr Speaker, but I should mention that the Government are putting in place a much more competitive corporation tax regime, which will be to the advantage of caravan manufacturers and many others.
I shall touch briefly on alterations to listed buildings. The reaction to our announced changes to VAT on approved alterations to listed buildings demonstrated the need for the measure on the grounds of simplification alone. The consultation and media coverage have highlighted the huge uncertainty over whether an item of building work is an alteration or a repair. The purpose of the measure is to avoid the need for such discussions by applying the same VAT liability to all alterations, repairs and maintenance. Repairs and maintenance to all buildings, including listed buildings, have always been liable to VAT, and alterations to non-listed buildings have been since 1984. The Budget announcement changes none of that, although a zero rate currently applies to alterations to protected buildings—mostly listed dwellings but also scheduled monuments and listed buildings used for charitable and other residential purposes.
For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.
The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.
Let me turn to the Budget proposal for self-storage.
Catherine McKinnell
I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?
Mr Gauke
The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.
It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question, what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.
Catherine McKinnell
Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?
Mr Gauke
I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.
Catherine McKinnell
I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?
Mr Gauke
The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.
Catherine McKinnell
Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?
Mr Gauke
We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.
Catherine McKinnell
The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?
Mr Gauke
If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.
Catherine McKinnell
I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?
Mr Gauke
VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.
Mr Speaker
I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.
Catherine McKinnell
I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.
The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.
We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.
Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Lady will of course recall that we had this exact same debate during last year’s Finance Bill, and when the House divided on a Plaid Cymru-Scottish National party motion her party abstained. Can she explain her party’s damascene conversion in tabling the same amendment to this year’s Finance Bill?
Catherine McKinnell
Can the hon. Gentleman clarify whether he is talking about the debate that we had on raising VAT from 17.5 to 20%, because that is what we are addressing today?
Jonathan Edwards
An amendment last year sought to do exactly what the measure she is arguing in favour of would do. That was presented to the House by Plaid Cymru and the SNP, and the Labour party abstained.
Catherine McKinnell
I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.
Catherine McKinnell
That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.
Catherine McKinnell
I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.
Gavin Williamson (South Staffordshire) (Con)
Can the hon. Lady quantify, for the benefit of those in the Chamber, how much that 2.5% reduction would cost?
Catherine McKinnell
I repeat what I said before: the Government’s current policy of increasing VAT to 20% is taking money out of people’s pockets and is causing a slump in demand. It is very strange that these questions are coming from a Government who are borrowing more than they intended over the spending period, not less.
Stephen Gilbert
The hon. Lady mentioned a figure of about £400 a year. What I missed, and what I am hoping she will be able to clarify, is whether that is per person or per family. If we knew that, we might all be able to do the maths as to how much this measure would cost the Exchequer.
Catherine McKinnell
The figure that the hon. Gentleman is looking for is £450 for a couple with children. It would put money back into their pockets, boost the economy and drive growth. Let us not forget that the Institute for Fiscal Studies has predicted that the Government’s tax credit changes will mean that families will be £511 worse off this year and £1,250 a year worse off by 2015.
Andrew Percy
Who would benefit more from a VAT cut, a family earning just above the minimum wage or a millionaire?
Catherine McKinnell
Clearly, a family would gain more from a VAT cut because they spend much more on VAT as a proportion of their household income. The hon. Gentleman’s indignation at that response demonstrates just how much the Government are out of touch with the reality of the effect of their spending plans on households and household incomes. That would explain why this economy is going backwards rather than forwards under the Government’s plans.
Julie Hilling
Does my hon. Friend find the interventions of Government Members bizarre? The Government inherited a growing economy and we now have a double-dip recession created totally in Downing street by their efforts to have no other aim than driving down the deficit. They are stifling growth and making ordinary families pay the cost of their economic failure.
Catherine McKinnell
I thank my hon. Friend for that intervention and think that the response from Government Members is deeply worrying, as it shows worrying complacency about the direction in which they are taking this country and about the decisions they are making on the economy, which are making things worse, not better.
Our new clause 12 would reverse the VAT rise immediately and prevent it from rising again—I emphasise this point—until the Government can show that our economy is growing strongly again. That is the right move to get our economy back into growth and out of this double-dip recession. I also want to put on the record that we will oppose the Government’s new schedule 1, which would bring in ill-thought-through and unwelcome VAT changes that, despite the concessions, are still wholly unsatisfactory.
Diana Johnson
Does my hon. Friend share my concern that the proposals in schedule 1, especially those on the caravan tax, seem to have taken no account of job losses or of the effect on demand when we are in a double-dip recession and will cost the Exchequer more than it would gain in revenue?
Catherine McKinnell
I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.
Nigel Mills
New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?
Catherine McKinnell
I could probably answer the hon. Gentleman’s question with just four words: “out of double-dip recession.”
The Government’s economic credibility, not to mention any reputation for competence they might have had, has taken a massive hit over the VAT changes. They put VAT on pasties and took it away. They put VAT on caravans, then they reduced it to 5%. They put VAT on churches and kept it. Then they invited payment of the charge up front. Churches could claim it back by submitting forms to the Treasury for access to a special fund, which essentially is a big pot of all the money that they paid up front in the first place. What a shambles. Do the Government even know what they are doing any more? They say that their U-turns show that they are listening. When they got it so horrendously wrong, it is good that campaigners were able to get through to them.
I know that hon. Members on both sides of the House have worked hard to get the Government to listen on the subject of the VAT changes, but is it not all too serious to be left to second chances? Do not the people of this country deserve a Government who can get it right first time? People saw in the Budget a true reflection of a Chancellor who tried to sneak through thoughtless changes and got found out.
Let us look at some of the Government’s tax changes. The selection speaks volumes about this Government. They gave a tax cut to banks and to millionaires, but showed no mercy to people who eat pasties. The pasty tax will go down in history as one of the most incompetent Government debacles ever. The attempt to raise the price of pasties and sausage rolls by 20% was claimed to be necessary to close an anomaly, but was universally seen as evidence of an out-of-touch Government trying their luck and grabbing tax on a food that Ministers never eat. The Save Our Savouries campaign run by The Sun pointed out that caviar is still VAT-exempt. Perhaps we can learn something from that. Perhaps the Minister will comment on that in his concluding remarks.
The Prime Minister told us:
“I’m a pasty eater myself. . . I love a hot pasty”,
but he gave himself away when he said that his last pasty was from a shop that turned out not to exist. It was just one gaffe after another. The Chancellor ended up giving evidence to the Treasury Committee on how to tell whether a pasty was hot or cold. Members pointed out that because products would be subject to VAT if they were above ambient temperature when bought, pasties could cost different amounts on summer and winter days.
Stephen Gilbert
Notwithstanding some of the flaky accusations the hon. Lady is making against the Government, can she explain why Labour Members will not join in supporting the Government on new schedule 1, which addresses the concerns that were expressed during the consultation process?
Catherine McKinnell
Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.
As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:
“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”
I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it
“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.
The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.
Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.
Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.
The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.
The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.
I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?
Mr Stuart
I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.
Catherine McKinnell
I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.
Catherine McKinnell
I give way to my hon. Friend the Member for Kingston upon Hull North (Diana Johnson), who wanted to intervene earlier.
Diana Johnson
I would not say that the industry is “delighted.” I think that it accepts the measure, on the basis that it was very concerned about the 20% figure. My concern as a constituency MP, with 90% of static caravans being built in Hull and the surrounding area, is that there are 43.6 people chasing every vacancy in my constituency. That is the highest figure in the UK, and any job losses are going to be very difficult for my constituents, so that is why I am pressing the Minister to be very clear about the number of job losses that the 5% imposition will bring about. Will the shadow Minister comment on my concerns?
Catherine McKinnell
I thank my hon. Friend for that rational and considered intervention and appreciate that the industry is willing to accept the change, as it is much easier to bear than the original suggestion of 20%, but that is the point I seek to make. The Minister in his opening remarks confirmed that no assessment has been made of the impact of the 5% increase on the industry, and that is gravely concerning, because, as the hon. Member for Brigg and Goole (Andrew Percy) suggested, the industry needs certainty, security and stability to create the jobs that my hon. Friend is so concerned about.
The fact that the proposal is being put in place without a proper assessment of what is a lesser impact but still one of 5% is deeply concerning, because the last thing the industry needs is for the measure to be reviewed 12 months down the line, be seen to have had a detrimental impact, and for it to have to go through the whole process all over again.
Brandon Lewis
I thank the hon. Lady for her generosity in giving way. In Great Yarmouth, I represent a £500-million-a-year tourism industry, with about 50% of our bed space in static caravans. Our industry was concerned, but its message to me is that it thinks the 5% rate is not only fair, but better than it had hoped for.
The industry understands the arguments that everyone has to do their bit and that there has been an anomaly for a long time, and feels that the measure is manageable, will not have an impact on its business and is fair. We are very pleased, in fact, that we finally have a Government who say that they will consult and listen, do so and come back with exactly what the industry wants.
Catherine McKinnell
The only point I can make is that the industry suffered the serious blow of having a 20% tax announced. That has been reduced to 5%, which it will obviously welcome, but we propose to remove the VAT changes altogether, because at this particular time the last thing that any industry needs, but particularly the holiday, static caravan and manufacturing industries, is a VAT hike. We need to invest in jobs and growth to get the economy moving, to get out of the double-dip recession that we are in and to get back into growth.
Sheila Gilmore (Edinburgh East) (Lab)
Does my hon. Friend share my astonishment at the previous intervention? If the proposal to impose that VAT rate had never been made, there would have been no need for consultation or listening—and it would have been far better to have consulted first. What happened to the notion of a proper pre-Budget report, where suggestions could have been made in general terms and then we could have had a consultation? We all sat here listening to a very strong defence of the original proposals only a few months ago.
Catherine McKinnell
My hon. Friend speaks a lot of sense and makes her point very forcefully. The Government seem to have tax-grabbed first and consulted later. They have sneaked through changes—the ones they have got away with, they have pocketed and the ones they have been seriously challenged on, particularly by their own Back Benchers, they have had to relent on. But that is no way to conduct tax policy or business.
Julie Hilling
Is my hon. Friend as confused as I am by Government Members saying that their local manufacturers were asking for a 5% increase and demanding to be charged VAT? That is what it sounds like.
Catherine McKinnell
I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.
Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?
The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.
The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.
It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.
I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.
We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed
“as products designed to enhance physical performance”
or “accelerate recovery after exercise”.
The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.
We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.
The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?
If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.
Steve Rotheram (Liverpool, Walton) (Lab)
On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.
Catherine McKinnell
My hon. Friend read my mind as I gazed across the Chamber.
Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:
“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”
Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:
“If you look at the effect...as compared with people’s income then, yes, it’s regressive”.
Jake Berry (Rossendale and Darwen) (Con)
Does the hon. Lady concur that those on lower incomes pay a higher proportion of their income on fuel, and will she therefore welcome the postponement of the 3p increase in fuel duty?
Catherine McKinnell
I not only welcome it but point out that we proposed it, and the Chancellor shortly followed us on the same day. Our proposal to bring about an immediate reduction in VAT to 17.5% would deliver that 3p fuel duty reduction for drivers and put money in their pockets not only in respect of fuel but right across the board. It is a measure that is absolutely required to turn our economy round from the double-dip recession we are in.
Stephen Gilbert
Is not the real VAT bombshell the fact that the hon. Lady does not know how much this policy would cost Her Majesty’s Treasury? In the hour or so for which she has been talking, has she had any inspiration from colleagues?
Catherine McKinnell
As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.
Mr Gauke
As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?
Catherine McKinnell
If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.
John Mann (Bassetlaw) (Lab)
I would like clarity on what the Opposition’s policy is. [Interruption.] I can hardly hear myself think. Is it our policy that VAT will be permanently reduced to 17.5% or that the reduction will last for 12 months and then it will go back up to 20%?
Catherine McKinnell
We are suggesting—we hope that the Government will jump on our way of thinking, as they did with the delay in the rise in fuel duty—an immediate reduction to 17.5% until we get the economy back into growth.
Catherine McKinnell
It all depends on how long the Government take to get the economy back into growth. The reaction of Government Members seems strange, when they are driving the economy into recession rather than into growth.
Andrew Percy
The hon. Lady will be aware that the temporary reduction under the last Government had a significant cost impact on a number of businesses. If the economy suddenly went into growth in the quarter following the reduction, would she expect businesses to take the burden of the costs of implementing the reduction and then unimplementing it in two successive quarters?
Catherine McKinnell
The hon. Gentleman is getting ahead of himself, given that we are in a double-dip recession, that growth has stalled, that all the predictions of the Office for Budget Responsibility are being revised down day on day, and that borrowing is going up. Everybody agrees that we need demand in the economy. The way of generating demand in the economy is to put money back into people’s pockets. I remind hon. Members that before the increase in VAT, the economy was on a trajectory of growth. That was before this Government took over and brought in their disastrous austerity policies.
Sheila Gilmore
Does my hon. Friend agree that the Minister’s figures assume that when VAT rises or falls, it has no impact on people’s expenditure? The thrust of what we have been saying, not just in response to the Budget, but for several months, is that the rise in VAT has dampened demand. The tax-take in May, for example, was down by 7%. Far from a static amount of money being drawn in, a VAT reduction would increase demand and, ultimately, increase the tax-take.
Catherine McKinnell
I thank my hon. Friend for her characteristically rational contribution. I would add that the recent Institute for Fiscal Studies report estimated that the Government’s tax and benefit reforms will make a couple with children £511 worse off in this financial year and £1,250 a year worse off by 2015. It does not take an economic genius to work out what that does to demand in the economy.
The Prime Minister admits that a 2.5% increase in VAT hits the poorest hardest, so what happened to, “We’re all in this together”? I would like to hear an answer on that. As well as hitting poor people the hardest, higher VAT is hitting the economy at a time when we can least afford it. As we have discussed, the Chancellor unveiled a fuel duty cut last week, using mystery funding sources. Dropping VAT could have taken 3p a litre off petrol immediately. Across the board, a temporary cut in VAT would stimulate growth and get the economy moving again. Putting money back into people’s pockets is the only way to support businesses and create jobs—the very things that the Chancellor left out of his mangled Budget. That is why a temporary return to 17.5% is part of Labour’s five-point plan for jobs and growth.
John Mann
Is not another way to stimulate the economy to spend the money on employing the police officers who have been sacked and on reversing the ambulance cuts, the fire service cuts, the Army cuts and other cuts? We could use the £50 billion that a VAT cut would equate to over a Parliament to employ public servants, rather than to cut taxes.
Catherine McKinnell
My hon. Friend makes a valid point. Since June 2011 we have lost more than 100,000 public sector jobs, which means that there have been redundancies at a rate of one a minute since the Government took office. Yet the private sector, which the Prime Minister anticipated would flood in to create jobs, has simply not delivered. It has created only half that number of jobs, leaving the other half of those people on the dole and claiming benefits. That is pushing Government borrowing up, not down.
The measures that we suggest would boost the economy and people’s spending power and ensure that we are not saddled with taxes that no one can afford. We want to see the economy moving into growth again.
Sarah Newton (Truro and Falmouth) (Con)
When I came into the Chamber to listen to the opening part of this debate, I did not anticipate speaking. However, I am very pleased to have caught your eye, Mr Deputy Speaker, because I felt utterly compelled to join in, notwithstanding my current incapacity. It has been an illuminating debate.
I listened to the shadow Minister’s speech and the interventions of her colleagues, and I find it staggering that they are not going to listen to the submissions of my constituents on the pasty tax, caravans or fundraising for places of worship, on which many people work so hard. Oh no—their opinions do not count for anything to the Opposition. They are not going to listen to all the representations that have led to the Government’s sensible proposals. The listening exercise to improve and amend the Budget has led to proposals that respond directly to all the concerns expressed by my constituents, and I dare say by the constituents of a great number of colleagues.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
Is the Minister aware that the overall borrowing that the Government are engaged in is £9 billion higher now than was planned in October 2010, so the Government’s own economic strategy is resulting in higher, not lower, borrowing?
Mr Gauke
I am not sure whether the hon. Lady welcomes that. Does she support more borrowing or not? The Institute for Fiscal Studies has made its position clear on what would happen if we pursued the policies that the Opposition advocate or have advocated—that moves around a bit. It stretches the Opposition’s credibility if they think that their approach means that borrowing now would be lower. I think the sincere position of the Opposition is that we should have a bigger fiscal stimulus—we should be borrowing more now in order to pump money into the economy. Is that their position?
Catherine McKinnell
The Opposition’s point is that the Government’s own plans are resulting in more borrowing. The alternative is to give a 2.5% VAT cut to households to stimulate demand in the economy and get the economy out of the double-dip recession that it is in and back into growth, which will ultimately bring borrowing down.
Mr Gauke
So when borrowing is higher than we plan it to be, it is a disaster, but when borrowing is higher because the Opposition would bring that about through a deliberate policy, that would be a fiscal stimulus. I am not entirely clear where they are trying to go with this. We know why the public finances are more difficult than we had anticipated. It is to do with the eurozone, the increase in commodity prices and the fact that the economy took a bigger hit than anyone had previously realised, but a discretionary fiscal loosening of £12 billion or £13 billion, which is what the Opposition are about to vote on, would be taking a huge risk with our credibility.
It is worth making the point that if we do that, we lose our fiscal credibility and we are likely to see long-term interest rates rise. That will result in our paying out more in debt interest. A one-point rise in interest rates would mean £7.5 billion in additional debt interest payments by 2016-17, and an increase for the average mortgage borrower of £1,000 per year. Is that what the Opposition want? Do they think that would help?
Mr Gauke
The OBR was very clear about the reasons why the economy did not grow as quickly as it had predicted. That was not because of the measures that we had taken to clamp down on borrowing. It was because of the factors that it set out. Now, at a time when we see other countries without fiscal credibility facing enormous difficulties, the Opposition want a discretional fiscal loosening of £12 billion or £13 billion a year. That is not responsible opposition. That is not a responsible policy and it is not a policy that this Government will pursue. I urge the Opposition not to press new clause 10.
I note that the Opposition are also opposing the VAT measures in total. That would be an additional cost of £210 million. These are measures that will remove anomalies. We have listened to the concerns raised by hon. Members and others to improve what we initially set out.
Catherine McKinnell
Can the Minister clarify how much the U-turns that the Government are legislating for today will cost and whether the £210 million has been factored into them?
Mr Gauke
After the changes we have announced, the Budget remains fiscally neutral. The reality is that the £70 million we are talking about has to be compared with the policy of cutting VAT, which would cost between £12 billion and £13 billion, and the £210 million for refusing to go ahead with the VAT changes we have announced. I am afraid that that simply underlines the fact that, once again, the Labour party has no fiscal credibility, will not face up to the challenges in the public finances and remains unfit for office.
Catherine McKinnell
I beg to move, That the clause be read a Second time.
In this new clause we call on the Government to consider repeating the bank bonus tax, which raised £3.5 billion in 2010-11, and to use the revenue to create 100,000 jobs for young people. It is an understatement that this has not been a good few weeks for the banks. First, there were the disgraceful mistakes at Royal Bank of Scotland that left thousands of people unable to access their own money for up to a week. I am sure that top bankers there managed to get by for a few days, but for people on low incomes it is no laughing matter to be left without a week’s wages.
Gavin Williamson
Does the hon. Lady think that those who set up the regulatory system that governed the banks, such as the shadow Chancellor, should come to the House to apologise?
Catherine McKinnell
Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Lady not have the courtesy to answer my hon. Friend’s question?
Catherine McKinnell
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
Catherine McKinnell
It would be more appropriate for the hon. Gentleman to make his intervention now, but I will complete my sentence. Those traders then paid each other for the favours with bottles of Bollinger.
Gavin Williamson
The point that I was trying to ask the hon. Lady to explore was that the regulatory system put in place under the last Labour Government has led to market failure and the recent LIBOR problems. Does she not think that the shadow Chancellor should come to the House to explain why he took no action when he was City Minister? Yes or no?
Catherine McKinnell
I was talking about the situation at RBS, which was caused by a total administrative meltdown and computer failure; it had nothing to do with regulation. On the subject of regulation, Conservative Members called for less regulation. Politicians on both sides of the House need to consider where we go from here.
Mark Lazarowicz
Whatever people say about the banks’ responsibility for things that happened in the past, there can be no doubt that what has happened at RBS in the past few days is the responsibility of people running the bank now and of those responsible for the financial sector now, who include the Government.
It is not just those on low incomes who suffer from the damage caused by the difficulties at RBS, which obviously is trying its best to resolve them. Businesses in my constituency have contacted me saying that if the problem is not resolved immediately, they face closure. The Government need to take that issue seriously, but clearly they are not.
Catherine McKinnell
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
Charlie Elphicke
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Madam Deputy Speaker (Dawn Primarolo)
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
Catherine McKinnell
I am sure that my hon. Friend will raise a much more relevant matter in his intervention.
Grahame M. Morris
I am grateful for my hon. Friend’s patience and tolerance in the face of such provocation. Does she agree that part of the problem that we are trying to address through new clause 13 is the culture of excessive bonuses? Opposition Members recognise that that is part of the problem and we are trying to address it with the bank bonus tax.
Catherine McKinnell
I thank my hon. Friend. I have not made much progress yet, but the point that I was trying to make is that a whole series of actions by the banks have let ordinary people and businesses down. It is time that the banks played their part in putting some of that right.
Bill Esterson (Sefton Central) (Lab)
I apologise if I am preventing my hon. Friend from making progress. She need take no lessons from Conservative Members about regulation. They wanted less regulation, not more, and the point that they are trying to make now is disgraceful.
The issue is fairness. People are crying out for a repeat of the bank bonus tax in these tough times. Those with the broadest shoulders should make the biggest contribution in dealing with our problems. Many problems, particularly those faced by young people, could be resolved by the new clause.
Catherine McKinnell
My hon. Friend sums up in a nutshell why I am speaking in favour of the new clause.
The shocking revelations from Barclays this week are nothing short of a scandal. Barclays—along with we do not know how many other banks now under investigation —broke the rules to make a profit and put global economic stability at risk. It played fast and loose with rates that affect people’s mortgages and credit cards and, it would appear, gave little thought to how people could be affected.
In another shocking scandal, we found out that thousands of small businesses had been sold expensive insurance products that they did not need and could not use, spending money, which could have been used to protect jobs, to pay for products that never should have been offered to them in the first place. How many businesses have lost out as a result? All those actions on the part of the banks were totally unacceptable. The banks have been taking without giving back. The Government can take action now to put the situation right.
Gavin Williamson
I thank the hon. Lady for being so generous in giving way. I agree that the Government should take action to address some of the issues that have been raised. She mentioned a number of scandals. Will she name, for the record, the years when they occurred and which Government were in power when they occurred?
Catherine McKinnell
Members of the public will find this distasteful. We all share concern about the situation with the banks and the terrible events that have come to light in the past week or so. Government Members should be taking the lead on putting the situation right, but all they are interested in is scoring party political points. They need to be careful if they are not to lose all the public’s trust in their ability to start putting things right.
The Government can take action today. Stephen Hester, chief executive of RBS, has rightly said that he will decline his bonus this year in recognition of the serious damage that his bank has caused. Bob Diamond, chief executive of Barclays, resigned this morning over the currently developing scandal. It is right that those in charge take responsibility.
However, the banking industry as a whole is still benefiting from a tax cut this year—a tax cut, when their incompetence has cost thousands of people days of frustration, inconvenience and hardship. They have a tax cut when champagne swaps and dodgy dealing have been used to fiddle internal lending rates and when small businesses have been ripped off in yet another mis-selling scandal.
Our bank bonus tax would set that right, making the banks pay their fair share in tax instead of letting them get away with it. We want the money to be used to create 100,000 jobs for young people who are at risk of becoming the next victims of this double-dip recession made in Downing street. Labour’s bank payroll tax raised £3.5 billion in 2010-11 but this Government replaced it in 2011-12 with a levy raising just £1.8 million—barely more than half. Those are the Office for Budget Responsibility’s own figures, set out on page 101 of its economic and fiscal outlook paper in March this year.
The autumn statement in November last year had forecast a higher first take, but that turned out to be over-optimistic. That could be the case with future forecasts. The levy is supposed to raise £2.8 billion in 2014-15, but we cannot be sure of getting that. The OBR has had to keep revising all forecasts down and down, apart from those for Government borrowing, which keep going up and up. It is clearly inadequate to introduce a levy on banks with only half the yield of the previous tax. Along with the richest 1% of the country who have benefited from the scrapping of the 50p tax rate, this is one of the only parts of the Budget where the Government have given handouts. What does that tell us about their priorities? It tells us that they are not on the side of working people hit by the banks’ recent malpractice, but on the side of banks and millionaires. That shows just how out of touch this Government are.
We want to take tough measures to make the banks pay their way, and bringing back the bonus tax on top of the new levy is the fairest way to do that. It is clear where that extra money needs to go. We would use our double bank tax to plug the gaping hole in jobs and growth left by the Chancellor’s omnishambles of a Budget, which contained not one mention of the word “jobs”.
Bob Stewart
The hon. Lady envisages producing 100,000 jobs. What sort of jobs would they be, and how would they contribute to the economy?
Catherine McKinnell
It is nice to receive a considered intervention from a Conservative Member. The 100,000 jobs would be created through support from the future jobs fund. They would be guaranteed jobs paid at the national minimum wage for six months to give young people a real chance of getting on to the employment ladder.
This is about not only providing those jobs but creating economic growth and putting money into people’s pockets to create those opportunities. That aspect was absent from the Chancellor’s Budget speech, which is all the more shocking because of the seriousness of the problem. At Christmas, the number of young unemployed people reached 1 million for the first time since comparable records began, and long-term youth unemployment is rocketing too. Across the UK, the number of people aged 24 and under who are claiming out-of-work benefits for more than six months has increased by 60% since May 2010, while the number claiming for more than 12 months has more than doubled by over 125%. In this double-dip recession, young people cannot find work because between five and 10 people are chasing every vacancy. Depending on which part of the country they are in, it could be, and often is, a lot worse. The jobs are simply not there for young people to go into.
Yet the Government recklessly cancelled the very programme that was designed to create youth jobs. We want to use money raised from banks to put that right. In opposition, the Government supported Labour’s future jobs fund, which got young people into real, paid jobs. The Prime Minister called it “a good scheme”, and the Conservatives said that they had
“no plans to change existing Future Jobs Fund commitments”.
I apologise to the hon. Member for Beckenham (Bob Stewart) for my response to his intervention; in fact, it is through the real jobs guarantee that we would look to invest in new job opportunities for 100,000 young people. The future jobs fund was the successful scheme that the Prime Minister heralded as “a good scheme” but it was scrapped as soon as this Government took power.
I see that no Liberal Democrats are here for this debate. That is a crying shame and a shocking indictment of their commitment to young people and to making sure that bankers pay their way. The Liberal Democrats also pledged their support to the future jobs fund but swiftly supported the Government in scrapping it as soon as they got into power. In April 2010, in a letter to the Association of Chief Executives of Voluntary Organisations, their then work and pensions spokesperson —now the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb)—said:
“We have no plans to change or reduce existing government commitments to the Future Jobs Fund. We believe that more help is needed for young people, not less”.
The future jobs fund was scrapped just one month after that letter was sent.
Let us remind ourselves of what that scheme achieved. It offered every young person up to the age of 25 a job if they had been out of work for six months, with penalties for anyone who refused the opportunity. The jobs were real jobs, paid at the minimum wage, that lasted for six months—and that was guaranteed.
Alison McGovern (Wirral South) (Lab)
Has my hon. Friend read, as I have, the research from the DWP that tells of the impact on young people not only in terms of numbers but in terms of their confidence, dignity and self-worth?
Catherine McKinnell
I absolutely agree. It is not just about giving opportunities to young people where so few exist, but about this desperately concerning period in which we risk creating an entire lost generation, because young people are coming out of school, higher education and college and finding no opportunities at the other end. Once they fail to get on to the ladder of work and opportunities, the consequences can be long term and cause a lifetime of damage. The Government need to factor that in and grasp it now before it is too late to make sure that these opportunities are provided and that too many young people do not miss out. That is why it is so important that we use this opportunity to make sure that the bankers who caused much of the global economic and financial meltdown take responsibility for that and pay their way, giving young people real chances and opportunities.
Bill Esterson
My hon. Friend is making a powerful case for repeating the bank bonus tax. Does she agree that the Government should be considering the evidence from the 1980s about the effect that long spells of youth unemployment had on young people and how hard it was for many of them ever to find decent jobs and catch up? As a result of the Government’s delay and refusal to adopt this policy, they are in grave danger of repeating exactly the same mistakes, with all the misery that that will cause.
Catherine McKinnell
My hon. Friend makes a powerful intervention and reminds me particularly of my own region, the north-east, where too many people lost out on opportunities in the 1980s and never quite recovered from the experience. When I talk to young people today, I find that some of the brightest are coming out of school and choosing not to go to university or college but instead to try desperately to find whatever work opportunities might be available to them because, apart from the fact that they are put off by the tuition fees, they are so worried that if they did step on the ladder and go to university they would come out at the end to find there were still no opportunities. There is a deep sense of anxiety among young people that the Government need to be seriously aware of.
That is what is so concerning about the scrapping of the future jobs fund, which was not only providing real opportunities for young people and breaking the cycles of lack of opportunity, but helping businesses to open up and take on young people in particular. The Government replaced it with the work experience scheme, which they eventually rolled out last year and which offers only eight-week, unpaid placements. There is nothing to say that that is not valuable in itself, but it is simply not doing enough for enough young people. It is also available only for people under 21, so it does not cover unemployed people who have left further or higher education. Again, that compounds some of the anxieties that young people are expressing to me when they say that if they go on to college or university they will be no better offer at the end and they will instead be saddled with a lifetime of debt.
Mark Lazarowicz
It is worth remembering, is it not, that this younger age group, who will no longer be getting jobs under the future jobs fund, but only its successor, will also be one of the main targets of the Government’s cuts in welfare benefits?
Catherine McKinnell
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
Charlie Elphicke
Would the bank bonus tax proposed in the new clause be in addition to or replace the Government’s bank levy?
Catherine McKinnell
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
Catherine McKinnell
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
Charlie Elphicke
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Charlie Elphicke
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
Catherine McKinnell
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
Charlie Elphicke
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
Charlie Elphicke
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
Catherine McKinnell
I appreciate the theory that the hon. Gentleman is putting before the House, but is he aware that the Welfare Reform Act 2012 is projected to cost £25 billion more than was predicted in 2010? So his theory is just not working.
Charlie Elphicke
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
Charlie Elphicke
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
Catherine McKinnell
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Catherine McKinnell
I give way to the only Conservative Member to contribute to today’s debate.
Charlie Elphicke
How do the Opposition justify spending this money 15 times over?
Catherine McKinnell
No, we have clear plans: we would like to spend the bank payroll tax on creating youth jobs. I would have thought that Government Members would grasp that opportunity, given that short-term unemployment is up 112% and long-term unemployment is up 156%. I would have thought that Conservative Members would be shouting out for any solution to bring those figures down.
Or are Government Members happy to see another generation of young people thrown on to the scrap heap with no opportunities and no way out? The future jobs fund gave opportunities to young people. It was heralded by the Prime Minister as a good scheme and promises were made not to scrap it, but as soon as the Government took office it was put in the bin. And we have seen little put in its place: the work experience scheme, for which we waited a whole year, is producing very few results.
For that reason, we are proposing a solution. On a cautious estimate, we believe that this year the bank bonus tax could raise at least £2 billion, which the Government could use to create thousands of affordable homes and introduce a real jobs guarantee for long-term unemployed young people. As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million—a small price to pay for tackling the chronic youth unemployment about which Labour Members have spoken passionately this evening.
Under the real jobs guarantee, the Government would pay full wages directly to businesses—again something I would have thought Government Members would support—and support businesses taking on new members of staff. It would cover 25 hours of work at the minimum wage—£4,000 per job—and in return the employer would cover the training requirements and the young people would be required to take the jobs made available. It would be a genuine contract and a real jobs guarantee.
We cannot stand by and watch another generation of young people left to suffer the effects of this double-dip recession, which is why we propose this bank bonus tax as a real solution and why I urge hon. Members to vote for the new clause.
Question put, That the clause be a read a Second time.
Oral Answers to Questions
Catherine McKinnell Excerpts(12 years, 5 months ago)
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Mr Osborne
My hon. Friend is absolutely right and I know this news will be welcome in Cornwall, as across the country. I repeat: because of the actions we have taken today and in recent Budgets, petrol duty is 10p a litre lower than it would have been under the Budget plans voted for by the Labour party. We are on the side of working families, we are helping motorists, helping businesses—doing everything we can in very difficult circumstances for the world.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I am glad that the Chancellor is beginning to listen to the shadow Chancellor. However, the Government’s own figures show that cuts to tax credits are leaving thousands of parents up to £72 a week worse off, and some are better off if they quit their jobs. With the cost of living rising and the economy in double-dip recession, surely it is time we saw a U-turn on this perverse policy, to make sure that work pays.
Mr Osborne
First, all families, if we take into account the benefit and tax changes, are £5.50 better off a week from April, and we have actually increased tax credits for the poorest families. We have had to make difficult welfare changes. They were completely opposed by the Labour party, which also opposed the cap on welfare benefits. We have to ask the question: what would Labour Members do to get control of the budget deficit that they created? We have had two years and not a single answer from Labour. That is why, as I say, we are the people trusted to lead this country out of the economic mess that they put us in.
Business and the Economy
Catherine McKinnell Excerpts(12 years, 6 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to follow the hon. Member for Newton Abbot (Anne Marie Morris), who made a thoughtful and considered speech. However, I must say that I disagreed with pretty much all of it.
The disappointment following Her Majesty’s Gracious Speech was tangible and widespread—“Is that it?” crossed most people’s minds. We are in a double-dip recession—the deepest since the 1930s—our living standards are declining with every day that passes, and there is little hope of growth and no confidence that things will get better any time soon, and the Government’s solution is to make it easier to sack people. It is quite astonishing, even from this Government. There was also a claim that the Government would
“strive to improve the lives of children and families.”
I consider that to be a worthy but dubious commitment, when we consider how out of touch this Government seem to be with the impact that their economic policies are having on households, and particularly on women and children up and down the country.
Let us put the Government’s proposals in context. There has been zero economic growth over the last year, and the economy is now smaller than it was in 2010. Living standards are being squeezed to breaking point. Families are being forced to choose between petrol and new school shoes, or between a pack of ham for their children’s sandwiches and making do, for another week, with cheese spread—and those are the fortunate ones. Mums—and, I appreciate, some dads, but let us be honest: it is mostly mums—who were just managing to juggle work and child care, with the help of much- needed child tax credits, are now having to give up work, as they are unable to secure an additional eight hours a week, at a time when most employers simply are not recruiting. Consumer spending is inevitably held back, with families deciding to forgo their summer holiday or make their child do with last year’s raincoat—no one will notice the three-quarter-length sleeves. All this is compounding the downward economic spiral. Young people reaching school leaving age are choosing not to go on to university, and that goes even for those with straight As. They see a lifetime of debt and a very uncertain job market. That is what some of the brightest young people in my constituency have been saying to me. We are facing an historic loss of confidence in Britain’s economic future, and young people are not living in a bubble. They fear for the future as much as we do.
Where are the solutions? I do not agree that making it easier to sack people will get our economy growing. Before being elected to this House I practised as an employment lawyer. I advised claimants and employers, individuals and businesses, and I assisted in the running of a small business with my husband. I am therefore in a better position than many to comment on the trials and tribulations of employment legislation. Yes, it can be complicated; and, yes, it is sometimes tricky to navigate. However, it is there to ensure fairness and protect against exploitation. I was horrified by the Government’s recent decision to increase the qualifying period for claiming unfair dismissal from 12 months to two years. Why would a Government support—or worse, encourage—employers to sack people unfairly? The clue is in the title. It is not difficult to terminate a person’s employment where the reason falls into one of the categories for a fair dismissal. Why should employers be encouraged to circumvent the basic principles of fairness? It is simply an excuse for poor management. Before the banking crisis we had one of the lowest rates of unemployment in decades. The 12-month qualifying period proved no obstacle to major economic growth in the last 13 years. How can it be used as an excuse for failing growth figures now?
I accept that managing a work force is one of the biggest challenges that any employer will face. I also know that the majority of businesses want to get it right and do the right thing. The success of any business is only as secure as the people employed in it. Economic growth cannot be built on greater uncertainty in the work force. Making it easier to sack people and harder to seek redress for unfair treatment will only make people feel more insecure. The answer has to be ensuring that businesses get the support they need to manage their work forces fairly and well. Employment legislation is focused on just that: ensuring that businesses and employees use procedures that are fair. Instead of focusing on making it easier to sack people, this Government should focus on enabling businesses to get the help, support and advice they need. Yet all we see are business advice support services disappearing from view.
There is, in any event, no economic justification for the assertion that employment protection rights form any barrier to growth. According to the World Bank’s “Doing business” ratings, the UK ranks seventh in the world for ease of operating out of 183 countries. The OECD’s employment protection index provides a measure of the procedures and costs involved in dismissing and hiring employees. On this index the UK ranks third out of the 21 major economies, behind only Canada and the US. To claim that our inability to sack people on a whim is holding our economy back is a poor excuse for this Government’s economic failure and an even poorer solution. Creating uncertainty and fear among an already financially stretched and insecure work force will only compound our economic problems by exacerbating the lack of consumer confidence.
Businesses are crying out for funding and investment. The Federation of Small Businesses cites the lack of consumer demand as the biggest barrier to growth, with access to finance just behind it. No business is going to say, “No thank you,” to an offer to make it easier to sack people, but it is not the priority that businesses are looking for. “Work hard and stop complaining,” the Government say. I say, “Start listening.”
Danny Alexander
Not only has a scheme from the port of Blyth been put forward, but the inclusion of several areas of land around the port in the enterprise zone was referred to at the time of the autumn statement. I gather that a discussion is going on within the north-east local enterprise partnership about the sites on which it would like to see the enhanced capital allowances deployed. I think the hon. Member for Wansbeck had a view about an additional site that he would like to be included in the enterprise zone. I encourage him to work with the LEP to make that case, as I said. I hope he will take the opportunity to present that argument to the Government in due course.
The hon. Member for Blyth Valley also expressed support for the green investment bank, whose establishment is one of the key measures in the Queen’s Speech that could play a part in boosting the economy. I do not know whether he did so in song, because I was not present for his speech. Given the potential importance of the renewables sector to his part of the world, I hope he agrees that the bank could contribute to the investment that it needs, and that the substantial £3 billion capitalisation that we provided for it in the spending review will enable it to invest in precisely the sectors that he mentioned. Those sectors were also mentioned by many Government Members who recognised that the green investment bank was an important initiative, as, indeed, is the regional growth fund.
Listening to the shadow Business Secretary talk about the regional growth fund, I concluded that he had picked up the wrong end of the stick, although I must add in fairness that his tone was not reflected in speeches on the subject from other Members on both sides of the House. The National Audit Office report made it clear that the fund had created or protected some 328,000 jobs, which is a good use of public funds. What is more, as the hon. Gentleman will see from the evidence that has been provided, for every pound that we are spending on the regional growth fund, some £6 of private investment is being unlocked. In many cases in which public money has not yet started to flow, private investment is already taking place because businesses know that they have access to the fund. I think that that is a great success story about support for investments throughout the country. Certainly we on the Government Benches are very proud of what the fund is achieving, which is why we chose to give it additional resources last year.
Catherine McKinnell
I thank the Chief Secretary for giving way, and also for his generosity in addressing some of the concerns expressed by Members representing constituencies in the north-east. The regional growth fund would also be useful in providing access to European regional development funding. Has the Chief Secretary an update for north-eastern Members on the £120 million that is yet to be drawn down?
Danny Alexander
The hon. Lady has made an important point about the use of European regional development funding, which we have been considering in connection with the regional growth fund. I am afraid that I cannot give her an update on funds for the north-east, but I will ensure that the Minister responsible for such matters writes to her with one.
Oral Answers to Questions
Catherine McKinnell Excerpts(12 years, 7 months ago)
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Mr Osborne
My hon. Friend is right to point to the GSK investment. The chief executive of GSK explicitly credited the falls in corporation tax and the patent box for that decision. We have also had the investment from Jaguar Land Rover in the west midlands, the great news of Nissan’s investment in Sunderland and steel-making has returned to Redcar.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
International connectivity is crucial to business in the north-east, and Newcastle international airport provides a vital link. Will the Government therefore support calls from regional airports for a congestion charge to be applied to air passenger duty to ensure the future viability not only of jobs and tourist income, but of international trade routes?
The Economic Secretary to the Treasury (Miss Chloe Smith)
As briefly discussed during last week’s debate on the Finance Bill, the Government are undertaking various pieces of work on aviation strategy and, more recently, received representations on regional congestion charges and other things during the APD consultation. I can confirm to the hon. Lady that, although I have not spoken to her personally about the matter, I am happy to meet her, her colleagues and representatives of those airports to hear more evidence of what they believe might occur if we set different tax rates.
Budget (North-East)
Catherine McKinnell Excerpts(12 years, 7 months ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Grahame M. Morris (Easington) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger. I congratulate my colleague, my hon. Friend the Member for Gateshead (Ian Mearns), on securing this debate, the importance of which is testified to by the number of Labour Members present.
The Budget will have few positive benefits for the economy of the north-east, and there is no discernible regional support within the measures set out in the Budget statement. There are cuts in corporation tax and cuts in tax for the wealthy, but there is no credible plan for what is really needed in the north-east: a stimulus for jobs and growth.
The often used line that we cannot spend our way out of a recession has been shown to be an ideological mantra that flies in the face of economic reality. What the Budget has given us is rocketing unemployment and plummeting growth in regions such as ours. The north-east has the highest rate of unemployment of any UK region, at 10.8% of the economically active population. That is mirrored in my constituency where, despite the good news we have had from Nissan, large numbers of private sector job losses are in the pipeline. We are haemorrhaging private sector jobs at an alarming rate.
Regional economies such as the north-east will not make any headway without investment in a comprehensive and lasting economic infrastructure. That can only be done by the courageous state and by Government intervention. The north-east continues to suffer from the unfinished business of transition from heavy industry. However, that transformation has stalled as a consequence of the coalition Government’s policies.
The evidence supports the fact that Labour and our regional development agency, One North East, were making progress in transforming the economic landscape. An analysis from PricewaterhouseCoopers shows that, for every £1 spent by our RDA, an average of at least £4.50 of economic output was achieved. That rose to an output of at least £6.40 when future benefits were assessed.
Ministers have sought to propagate the myth that money spent in the north-east under Labour was wasted, but that is not supported by the facts. Based on the gross value added per head indices, the rate of growth in the north-east went from being the lowest of any region during the 1990s to being the second highest during the past decade. The facts and figures were alluded to by my hon. Friend the Member for Gateshead, so I will not repeat them.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I congratulate my hon. Friend on his speech. Does he agree that another key role that One North East played in the region was to ensure that European regional development funding was drawn down and invested in the region? Some £329 million was made available, but £129 million remains un-invested directly because of the loss of One North East. No one is drawing down that funding and no regional funding can match that investment in the region.
Grahame M. Morris
Absolutely. I am grateful to my hon. Friend for putting that on the record. That was another vital element that the RDA contributed towards jobs and growth in the north-east, and it is sadly missed.
Although the Chancellor told us that the Budget is overall fiscally neutral, its impact by region, class or earnings is anything but. For example, VAT—a regressive form of taxation—remains at 20%, which hurts those who have no choice but to spend their wages on life’s basic essentials and depresses demand. The continuation of wage freezes throughout the public sector will make life even more difficult for ordinary people, as will the rise in fuel duty.
In his Budget, the Chancellor has failed the people whom I represent in Easington and in the north-east. There was the increase in VAT, the granny tax, the pasty tax, the philanthropy tax, increases in fuel duty and the loss of tax credits for modest earners. My right hon. Friend the Member for Doncaster North (Edward Miliband), the Leader of the Opposition, was right to call it a Budget for millionaires when what we need is a Budget for jobs and growth in the north-east.
Oral Answers to Questions
Catherine McKinnell Excerpts(12 years, 8 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
7. What assessment he has made of the effect on families of the changes in eligibility rules for working tax credit to be introduced in April 2012.
Mr David Crausby (Bolton North East) (Lab)
13. What assessment he has made of the effect on families of the changes in eligibility rules for working tax credit to be introduced in April 2012.
Miss Smith
Any elected MP will regularly meet constituents in their constituency and discuss a range of matters. I certainly do that, and when I have met those affected in my constituency—whether as a constituency MP or, most recently, as a Minister—I have explained the fairness of this measure, which is that it puts couples on a par with lone parents. Where is the Opposition’s concern for single mums and dads, who have always had to face that challenge?
Catherine McKinnell
The Minister knows fine well that in today’s economy part-time workers will find it extremely difficult, if not impossible, to get the extra eight hours a week to keep their working tax credits. The lowest-income families will lose £3,870 a year, which would be crippling for any family, let alone the poorest. To accord with reality—something that the Minister should get back in touch with—what are this Government going to do about that?
Miss Smith
This Government’s main priority, as the hon. Lady knows very well, is to reduce the deficit left to us by her party, for which her party shows no responsibility whatever. She will also know that the cumulative average loss for households from our measures next year will in fact be £310.