Finance (No.2) Bill

Catherine McKinnell Excerpts

Tuesday 8th April 2014 Commons Chamber

[The Temporary Chair (Mr David Amess)]

I have to report to the Committee that the tellers for the Noes in the Division on amendment 2 have reported to the Chair that they wrongly reported the number as 289 and not 288. I will call for the record to be corrected accordingly, showing 288 Noes.

New Clause 1

Childcare provision

‘(1) The Chancellor of the Exchequer must undertake a review of ways in which changes to the tax and childcare systems could be used to increase the affordability of childcare before April 2015, with particular reference to—

(a) the cost of childcare for parents in work; and

(b) the cost of childcare, including the impact of changes in the tax and benefits system during this Parliament.

The Chancellor must publish the report of the review within six months of the passing of this Act and lay the report before the House.’.—(Catherine McKinnell.)

Brought up, and read the First time.

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

I beg to move, That the clause be now read a Second time.

It is a pleasure to serve under your chairmanship, Mr Amess. New clause 1 draws attention to the rising costs of child care for working parents since 2010, and seeks to commit the Government to addressing their failure in that regard. It also seeks to establish ways in which the tax and benefit systems could be used to make child care more affordable before April 2015, so that hard-working families experiencing a cost of living crisis can have the help that they need now, especially in the light of the challenges that they face as a result of changes made by this coalition Government.

The new clause gives us a welcome opportunity to explore one of the most pressing issues that face millions of parents throughout the country, and to address the fact that millions of families are facing a child care crunch. It is important to set the issue in context by revealing just what has happened to child care costs on this Government’s watch. The average bill for a part-time nursery place providing 25 hours a week has risen to £107, the highest level in history. The cost of nursery places has risen by 30% since 2010, five times faster than pay, and the average weekly cost of a full-time place has risen to £200 or more. That means that parents working part time on average wages would have to work from Monday until Thursday before they had even paid their weekly child care costs.

[Mr David Burrowes (Enfield, Southgate) (Con)]

The hon. Lady has given statistics showing what has happened since 2010. Did child care costs increase before 2010, and if so, what did the last Government do about it?

[Catherine McKinnell]

The point of putting the issue in context is that the rise in child care costs since 2010 is astonishing, and has made child care unaffordable for many parents. I shall say more later about the number of parents, particularly mums, who feel that the cost of child care prohibits them from going to work. I think that rather than questioning the statistics, Government Members should get real and do something about that. Waiting until 2015 to make a promise for tomorrow is just not good enough, which is why we tabled our new clause.

According to alarming new research from the Family and Childcare Trust, families are paying more on average for part-time child care than they are spending on their mortgages. They are handing over a staggering £7,500 a year or more for child care for two children, which is about 4.7% more than the average mortgage bill. Rising prices have been matched by the fall in the number of child care places. The number of places provided by nurseries and childminders has fallen by more than 35,000 since 2010, at a time when the number of four-year-olds has actually increased. Most worrying of all, there are 576 fewer Sure Start children’s centres than there were in 2010, which means that an average of three are being lost each week. At least, that was what we were seeing before the Government took their database down.

[Andrea Leadsom (South Northamptonshire) (Con)]

The point about children’s centres is really important. Many of those centres have simply reorganised the way in which they work, and now have operational entities in different places and a single administrative centre. That is why the headline figure suggests that children’s centres are closing. In fact, very few have closed, and those closures have been due to rationalisation rather than cuts. I find it very upsetting that Labour Members insist on making an assertion that is not correct.

[Catherine McKinnell]

The figure that I gave is correct. It is from the Government’s own database, before they took it down. Goodness knows what the number is now, but we know from our local communities that even the Sure Starts that remain open are offering reduced services, and that a huge number of Sure Starts are under threat as local authorities struggle to meet their current budget requirements.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

Government Members might like to know that Salford city council, owing to the budget cuts amounting to £100 million that have been forced on it, will have to cut eight Sure Start centres this year, leaving us with only four. Government Members must stop being in denial about this issue.

[Catherine McKinnell]

Yes, I agree that it is important that Government Members stop being in denial, because it will be a dreadful indictment of their being out of touch with reality if they fail to address this issue and instead stand by and watch our network of Sure Start centres disappear.

--- Later in debate ---

[Jim Shannon (Strangford) (DUP)]

Does the hon. Lady agree that for many people with children if they did not have their grandparents or their aunties, the cost of child care would be too great for them to return to work? Does she feel that while the Government have made some concessions on child care, they have not given enough of an incentive for those people not to need to depend on their grandparents and aunts in order to be able to continue to work?

[Catherine McKinnell]

The hon. Gentleman raises an important point. There is a heroic army of grandparents out there providing that much-needed support within families to ensure that those really struggling with the cost of living crisis can still be in work, but unfortunately some people do not have that luxury. There are an awful lot of people who cannot rely on that support and who find the current cost of child care too prohibitive to go to work or find that, despite working all hours, they cannot put food on the table.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

While it is right to recognise that families will decide on the best ways of making arrangements and that grandparents and other family carers have an important role, do not children from the most disadvantaged backgrounds benefit the most from having access to formal child care, whether in a nursery or with a childminder? That gives them the best start in life and we need to do more to target families from the most disadvantaged backgrounds so that they can access child care.

[Catherine McKinnell]

My hon. Friend raises an important point. There is a multitude of reasons why we should support parents and enable those who want to work to do so, one of which is the benefits for children of being in that child care setting. That is why Labour has made one of our key pledges—and we call on the Government to take it up in this Budget—to extend the free child care that is available for three to four-year-olds. We call on the Government not to wait until 2015, but to do it now and to pay for it through the increase in the bank levy that we have suggested and which the Government should take up—or at least they should certainly undertake the review we are calling for today to look at the viability of that in this year’s Budget.

[Andrea Leadsom]

Does the hon. Lady genuinely think it is realistic and practical to implement that policy right now bearing in mind that the Government are already rolling out their offer for two-year-olds and nurseries are already under pressure from the implications of the influx of two-year-olds?

[Catherine McKinnell]

The amendment is perfectly reasonable. I know the hon. Lady cares about this issue and I am sure she would want to see her Government doing everything they can to provide support and to help parents up and down the country who we know are struggling with this important issue. That is why the amendment we have tabled today calls on the Government to

“undertake a review of ways in which changes to the tax and childcare systems could be used to increase the affordability of childcare before April 2015”.

It is a perfectly reasonable amendment and I see no reason why Members on both sides of this House would not support it if it could bring about the changes that parents need today, not in 2015.

Returning to the issue of maternal employment rates, for mothers whose youngest child is aged between three and five that rate is currently 64% across the developed world, yet the rate in Britain is six percentage points lower at 58%, which is the equivalent of about 150,000 mothers not being employed. The rate in Sweden is 80%.

As the interventions today have demonstrated, it seems that Government Members prefer to gloss over the uncomfortable facts and figures that do not fit with their messages when they boast about the record numbers of people in employment, much as they do when they ignore the fact that almost 1 million 16 to 24-year-olds are out of work, a quarter of them for 12 months or more.

The child care crunch, like youth unemployment, is bad not only for families but for the country and the economy. Parents who want to work should be able, and supported, to do so. There have been consultations and numerous announcements—and, indeed, re-announcements —about the Government’s new flagship child care scheme, but we see absolutely nothing in the Finance Bill that will address the spiralling costs that families face now, rather than in 18 months’ time.

[Lorely Burt (Solihull) (LD)]

Does the hon. Lady acknowledge that the Government announced in the Budget that the tax-free child care cost cap will be raised to £10,000, which will be worth up to £2,000 per child? I know that 6,000 families in Solihull will be grateful for that.

[Catherine McKinnell]

I appreciate the hon. Lady’s point, but that help for families will not arrive until 2015 and beyond, after the next election. Many families could do with some support over the next 18 months, not just beyond 2015. There are also serious concerns about whether parents will actually be better off when the Government’s policy is introduced. I will say more about that later.

I shall turn now to the second part of new clause 1, which focuses on the impact of the tax and benefit changes introduced in this Parliament. Just last week, the Opposition published an analysis of figures produced by the independent Institute for Fiscal Studies, along with analysis by the House of Commons Library, which showed that working families with children, and one-earner families in particular, had been the hardest hit by the changes introduced since 2010. Those changes, which were voted through by Government Members, mean that on average, households will be a staggering £974 a year worse off by the next general election. It is worth listing what those tax and benefit changes will mean for families with children. The constituents of Government Members will no doubt be paying close attention to their household budgets when it comes to casting their vote in May 2015.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Will the hon. Lady tell us whether that analysis includes fuel duty? Does she agree that if this Government had kept the Labour fuel duty escalator going, petrol would cost 90p a gallon more today, the equivalent of £450 a year for the average family?

[Catherine McKinnell]

On average, by the time of the next general election, a family in which both parents are working will be £2,073 a year worse off. A family in which one parent works will be a staggering £3,720 a year worse off, and a family in which no parents work will be £2,114 a year worse off. A lone parent in work will be £1,335 a year worse off, and a lone parent who is not working will be £1,901 a year worse off. These changes are in addition to the impact of wages falling in real terms, which has left working people an average of £1,600 a year worse off since 2010. Households have faced 24 Tory tax rises over the same period. However, while millions of families have seen their real household incomes go down since 2010, millionaires have been given a huge tax cut by this Government. The top 1% of earners—85% of whom just happen to be men, by the way—have been given a £3 billion tax cut worth an average of £100,000 for those earning more than £1 million a year.

[Andrea Leadsom]

Will the hon. Lady give way?

[Catherine McKinnell]

I will give way to the hon. Lady, who I am sure is as disappointed as I am by that policy.

[Andrea Leadsom]

Will the hon. Lady confirm what the top rate of tax was during the last 10 years of the Labour Government? Will she also confirm that it changed only a couple of days before the last general election?

[Catherine McKinnell]

The hon. Lady is well aware that we have a budget deficit that needs to be addressed. This Government promised to balance the books by 2015, but look set to be way off that target. Of course the increase to the 50p rate was part of a balanced deficit reduction programme that Labour would have put in place. Instead, this Government came in and made cuts that slowed growth and resulted in three years of a flatlining economy. The only people who seem to have benefited are the top-rate earners who have been given a tax cut by this Government.

Going back to the subject under debate, the same tax cut came from a Conservative-led Government who, in their 2010 manifesto, promised to make Britain

“the most family-friendly country in Europe.”

They claimed:

“We will help families with all the pressures they face: the lack of time, money worries, the impact of work, concerns about schools and crime, preventing unhealthy influences, poor housing.”

Of course—[Interruption.] The hon. Member for Solihull (Lorely Burt) groans from the Liberal Democrat Front Bench. The Liberal Democrats claimed in their party’s 2010 manifesto:

“Liberal Democrats believe every family should get the support it needs to thrive, from help with childcare through to better support for carers and elderly parents. Liberal Democrats will improve life for your family.”

Oh, how they disappointed!

[Andrea Leadsom]

The hon. Lady is being very generous in giving way. Will she welcome the fact that one of the major newspapers today reports that wages are growing faster now than they have been in the past seven years, and that there are 1.6 million workers in private sector employment since 2010, which means that many more families are now able to afford their weekly household bill?

[Catherine McKinnell]

Any good news on the economy will always be welcomed, not just by Members of this House but by those out there who are struggling with the cost of living. No matter what good news we see in the coming months, it will not outweigh the fact that we have had three years of a flatlining economy in which wages have been squeezed and prices have risen much faster than wages, particularly in this area of child care costs. People will be worse off in 2015 than they were in 2010. We know that a family in which both parents work will be £2,073 worse off by the next election. Perhaps the electorate will just have to add that to the ever-increasing list of Liberal Democrat broken promises.

The Prime Minister is currently touring the country, boasting about the rise in the personal allowance—I am surprised that Government Members have not raised that yet. Incidentally, the Deputy Prime Minister claims that the Conservatives were dragged kicking and screaming to every meeting on the personal allowance. The simple truth is that working families are thousands of pounds worse off now than they were in 2010 thanks to tax and benefit changes, falling living standards and rising child care costs, all of which this out-of-touch Government have continually failed to get a grip of, and all of which contribute to the fact that child poverty is set to increase rapidly under this Government. After an unprecedented reduction in child poverty under Labour, the IFS now predicts that an extra 400,000 children will be in relative poverty by the end of this Parliament and it is clear why that is. It says:

“Tax and benefit reforms introduced since April 2010 can account for almost all of the increase in child poverty projected over the next few years.”

As we know that families will be significantly worse off by the next general election, let me turn to the Government’s proposals for tax-free child care, which were lauded in the Budget but which are missing from this year’s Finance Bill. Parents would be forgiven for thinking that they are in for a £2,000 subsidy of their child care costs, based on what Ministers have been claiming in interviews and articles in recent weeks. Let us be absolutely clear about this. Although any new money to help families facing soaring child care costs is undoubtedly welcome, this coalition will not fool mums and dads. When we scratch beneath the surface and go beyond the headline figures of £2,000 and 1.9 million families, we find that the facts very quickly come to light.

Only one in five families will receive help through tax-free child care, yet that one family in five would have to incur child care costs of £10,000 per child to get the maximum £2,000 that Government Members have been boasting about. Ten thousands pounds per child per year! How many families in Britain could possibly afford to spend the £8,000 required to receive the maximum support from the Government? Well, the latest annual child care costs survey by the Family and Childcare Trust suggests that over a year a British family spends an average of £5,487 for a nursery place for a child of two and above, which, incidentally, is £1,298 more than it cost in 2010, so in reality most families will receive at best just half the support being parroted by Government Members—[Interruption.] I am pleased that the hon. Member for Nuneaton (Mr Jones) has been enlightened by that, as he was so horrified when I enlightened him about the reality of this Government’s policy.

[Lorely Burt]

On the one hand, the hon. Lady seems to be bemoaning the soaring costs of child care, but on the other she is bemoaning the fact that parents do not have to pay the full £10,000 to get the maximum child care support.

[Catherine McKinnell]

A family’s child care requirements are a family’s child care requirements. If somebody has to go to work and they need child care, they need to invest in child care for however many hours they need it for. The Government’s child care proposal does nothing to address the supply side issues, which is why Labour proposes to increase the number of free hours available for three to four-year-olds to help increase the supply of child care, which we have seen diminish under this Government.

[Dr Thérèse Coffey]

We have had this debate before in Westminster Hall. Does the hon. Lady not recognise that the number of childminders fell under the previous Government? I realise that the point about quality has been made before; nevertheless, there were fewer childminders at the end of that Labour Government than at the start.

[Catherine McKinnell]

There are 3,000 fewer childminder places under this Government so I caution Government Members about trumpeting their success in this area, because it is far from a success for mums and dads who are struggling with soaring costs.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The hon. Member for Suffolk Coastal (Dr Coffey) is right: we have discussed these matters at length before. Quality is important, and although the number of childminders has fallen in the past, if we want children to be properly looked after in a child care setting, we must ensure that setting is of the highest possible quality. Unfortunately, some childminders were not able to provide that high-quality care and did not want to continue. We are talking about the most vulnerable children who need high-quality care. Childminders who felt that they were not able to offer that any more and did not want to go through the Ofsted registration process might have been one reason behind that fall in numbers.

[Catherine McKinnell]

My hon. Friend makes a powerful and heartfelt point and she touches on an important issue. We are talking about the quantity of child care that is available and the cost of that child care, but we must always factor in quality too.

[Andrea Leadsom]

I know that this is not an issue of party politics but a straightforward issue of quality, but I want to point out that over-regulation led many childminders to want to pull out of providing that care. I have spoken to many childminders who pulled out because of the complex box-ticking—the questions about what sort of doors they had, or what sort of facilities. The important thing for our society is that very young children should be cared for by people who genuinely love them and who will take good care of them. We risk the perfect being the enemy of the good if we go down the avenue of over-regulation.

[Catherine McKinnell]

I think we risk going down the road of debating the quality of child care and issues to do with Ofsted registration, but I would question some of the hon. Lady’s assertions about the requirements for regulation and the absolutely fundamental importance of ensuring the quality of all child care places, including those with childminders.

Let me return to the issue of child care costs, which is what our new clause 1 seeks to get the Government to address. Gavin Kelly, chief executive of the Resolution Foundation, has pointed out in relation to the Government’s recent increase in the cap from £6,000 to £10,000 for tax free child care:

“About 80 per cent. of the gains from this will flow upwards to those in the top half of the income distribution. It’s also the case that it’s low- and middle- income parents who find the costs of childcare the biggest obstacle to taking on more work—so targeting support at them would make sense.”

I should be interested to hear the Minister explain how effective the scheme will be in supporting the very parents who need help the most. I should also be grateful if she could clarify the Treasury sums on tax-free child care because, welcome though any extra support is for families struggling with child care costs, it is curious that the Government have managed to tweak their sums so that an almost doubling of Government support per child has not cost even a penny extra.

I am sure that the IFS would also be interested to hear the Minister’s answer to that question, as it has queried the matter. It said:

“Surprisingly, today’s announcements come with no new money. Extending the new Tax Free Childcare scheme to all children under 12 within its first year will cost money compared with a world where it was limited to children under 5, but the Treasury can make this announcement without altering its public spending plans because it has significantly revised down its estimate of how many families are likely to be eligible for the scheme (from 2.5 million to 1.9 million).”

It is not clear what has led to this dramatic change, so we cannot judge whether the new estimates are any more plausible than the initial ones, but the fact that the change is so large suggests that the Treasury would benefit from being more open about the way it costs new policies. Perhaps the Minister will elaborate on these figures and how her Department arrived at them.

Ultimately, the simple truth is that, even if people spend enough to receive the full support, this help will not come until after the general election. That means no help with child care in five years from the Conservatives or the Liberal Democrats. Instead, Ministers have presided over soaring costs and cuts to tax credits for thousands of families, meaning that, even when this help comes, most families will still be worse off than in 2010.

[Dr Thérèse Coffey]

I recognise the hon. Lady’s genuine concern about working parents and her ambition that the Government get on with increasing child care, but she must recognise that the number of hours of child care has increased under this Government. She should be gracious enough to accept that.

[Catherine McKinnell]

It is interesting that the hon. Lady mentions that, because I will quote directly on this issue a little further on in my submission.

We know that the Government are good at con tricks, giving with one hand but taking much, much more with the other. For example, they made a U-turn last month when they decided to support 85% of child care costs for all universal credit claimants. That was a welcome reversal after the coalition decided in 2011 to cut the support for child care through the working tax credit from 80% to 70%—a decision that led to an average loss of £570 a year for low-paid working parents. It is just another example of this Government taking with one hand and giving with the other.

As Alan Milburn, chairman of the Social Mobility and Child Poverty Commission, has said, low-income families will still lose out, despite this increase in support for those most in need. He told The Independent on Sunday:

“The Government has taken half a step forward. The announcement that 85% of childcare costs will be met under universal credit from 2016 will help work pay for low-income families. This is very welcome. The sting in the tail is that this £200 million expansion in childcare support will come from within the universal credit programme…That risks robbing Peter to pay Paul.”

Perhaps the Minister could also give a bit more detail on how she intends to pay for the increase in support. While she is at it, perhaps she could provide some clarity on when low-income families eligible for universal credit can expect to receive this support with their child care costs.

Under the original plans of the Secretary of State for Work and Pensions, most would have expected to receive the increased support when the tax free child care is introduced in 2015, but clearly that is not going to happen. Will the Minister clarify when the Government expect to introduce this support and whether it will be in the near future? Ultimately, as Opposition Members have made absolutely clear, parents facing a cost of living crisis will see through any child care con, because it does not make up for how much the families are now paying for child care under this coalition Government.

I come now to the first part of new clause 1 and the Opposition’s proposals for improving child care support, which we know will make a real difference to working parents. New clause 1 proposes that the Chancellor should undertake a review of the ways in which child care could be made more affordable before April 2015. We have done much of the work for him with our clear suggestions for supporting families on this pressing issue. We want to extend free child care for three to four-year-olds from 15 to 25 hours a week for working parents, which can be fully funded by increasing the bank levy. As with the 15-hour early-years entitlement, the new 25 hours would be for 38 weeks of the year, which would mean more than £1,500 of extra support per child each year. Perhaps most important, Labour’s plans will not demand that working parents spend £10,000 on child care in order to get the maximum promised help.

We also know that for school-age children, child care can become a logistical nightmare, with many parents increasingly struggling to find before and after-school child care, while the Government stick their fingers in their ears and hum. On the Government’s own record, 62% of parents of school-age children say that they need some form of before and after-school or holiday care in order to combine family life with work, but of those nearly three in 10 are unable to find it. To give parents of primary-age children peace of mind, the Opposition would set in law the guarantee that they could access wraparound child care from 8 am to 6 pm through their local school if they wanted it. This primary child care guarantee will benefit parents of primary-age children most, because those parents most need support. Of course, these plans will be in addition to all the support that parents will already receive, and they will not be contingent on spending thousands of pounds on child care in order to qualify.

At Prime Minister’s questions recently, following a Budget empty of any measures to address the problem now, I asked the Prime Minister to explain why his Government had failed to take the action to help parents with child care costs before the next general election. He answered:

“We are helping families with child care, not least by giving 15 hours…That is happening before the election; it has happened under this Government in this Parliament—15 hours of free nursery care for three-year-olds and four-year-olds…Opposition Members say it is not enough; it is more than Labour ever provided.”—[Official Report, 26 March 2014; Vol. 578, c. 344.]

That was not only a very complacent response but, unintentionally I am sure, misleading, and goes to show just how out of touch this Government are on this issue of child care.

The previous Labour Government introduced 12.5 hours of free nursery education for three to four-year-olds a decade ago, back in 2004, with the clear intention that that would be extended to 15 hours by 2010. Far from this being a coalition policy, the plan was inherited by the coalition from the previous Labour Government. As I set out, the future Labour Government will continue to build on this legacy, extend it to 25 hours a week for working parents, funded by an increase in the bank levy, and guarantee wraparound child care.

This was the Chancellor’s final opportunity to introduce policies that will really benefit parents before the general election, to give much needed support to working parents now, not in 18 months’ time. Parents have already seen their child care costs rise five times faster than their pay. They are already spending more on child care than on their mortgage. They have already seen the number of nursery places fall by thousands. They have already seen hundreds of Sure Start centres close, despite the Prime Minister’s promises to the contrary. Of course, most stay-at-home mums, as well as working parents, already see child care costs as one of the biggest barriers to their going back to work or increasing their working hours. A review of the issue is both due and urgent, and I commend new clause 1 to the Committee.

[Mr Burrowes]

It is a pleasure to take part in this debate. It is always interesting to hear the hon. Member for Newcastle upon Tyne North (Catherine McKinnell). Essentially, she seeks to press a reset button in relation to a new Labour history—is it new Labour any more?—of child care. It seems that for Labour life started—or, it might say, ended—in 2010.

We did get to an element of truth at the end of the hon. Lady’s remarks when we heard reference to the previous Labour Government’s policies. When I came into Parliament in 2005, the Labour Government announced a new tax relief for child care benefits, which, as we heard, then went through various stages. In September 2009, the then Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), fronted the extension of free child care for two-year-olds. We inherited those two policies. In the coalition Government’s first Budget, we confirmed that the previous Government’s measures were being taken forward. Therefore, any reference to the costs in 2010 must be a reference to the legacy of the previous Labour Government. By any logic, this coalition Government merely extended the previous Government’s policy on tax relief and free child care for two-year-olds. It is inappropriate, and a partial view of history, not to refer to the legacy inherited from the previous Government.

--- Later in debate ---

[Nicky Morgan]

I believe that some of those policy issues will come out in the debates that we are going to have on tax-free child care. Rather than postponing our activities while we have yet another review, I want to get on and make progress. I want families to know that we are serious about listening and helping them with child care costs and the availability of places.

We have consulted widely on the detail of the scheme. More than 35,000 responses were received to last year’s consultation, and we have listened to that feedback. On 18 March this year, we published our response to the consultation on tax-free child care. This was welcomed by families and child care providers around the country, and as a result of the consultation, we are rolling out tax-free child care more quickly than had previously been announced. It will be launched in autumn 2015 and rolled out to all eligible families with children under 12 within the first year of the scheme’s operation. That is significantly faster than previously announced, as children under 12 would have gradually qualified for the scheme over a seven-year period.

The Government will also now provide 20% support on child care costs up to £10,000 per year for each child via a new simple online system. The cap had previously been set at £6,000. That means that families could receive up to £2,000 child care support per child—two-thirds more than originally planned.

We expect that tax-free child care will be open to at least twice as many families as the current employer-supported child care scheme. At the same time, we announced that all families eligible for universal credit will benefit from additional support at 85%, rather than just taxpayers as previously consulted on. We have also announced £50 million for an early-years pupil premium to help improve outcomes for the most disadvantaged three and four-year-olds in Government-funded early education. Taken together, the Government’s child care offer will provide flexible support for all eligible working families while maintaining free, universal early education support.

The Government are also taking wider steps to support hard-working families. The income tax personal allowance will rise to £10,000 in 2014-15, and in the Budget we announced a further increase to £10,500 in 2015-16. That is a tax cut for 25 million people. Since 2010, this Government will have taken 3.2 million people on low incomes out of paying income tax altogether. It is worth noting that of that 3.2 million, 56% are women, which is something to be recognised and welcomed.

The Government have also helped local authorities freeze council tax in every year of this Parliament, and we have taken action on fuel duty, saving a typical motorist £680 by 2015-16. The shadow Chief Secretary to the Treasury talked about the fuel duty cut being a theoretical cut. Perhaps he would like to chat to the shadow Economic Secretary who quoted from the Asda Index, which showed that families now have slightly more discretionary income to spend per week, and it attributed that to a fall in motoring costs—[Interruption.] I suggest that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) read the press release, as it made encouraging reading.

The changes suggested in new clause 1 are unnecessary and would not help hard-working families with the cost of child care. The Government have already reviewed how best to improve child care through the Childcare Commission, which was launched in June 2012. We do not need another review. We need to take action now to support hard-working families, which is why we are supporting parents through tax-free child care and universal credit. More people than ever before will be eligible for that support. We have consulted widely on these changes, and our proposals have been welcomed by families and providers around the country. I therefore request that new clause 1, which was tabled by Opposition Members, be withdrawn.

[Catherine McKinnell]

This has been a well-considered and well-argued debate, but the essential facts remain. This Government have presided over soaring child care costs and have cut tax credits for thousands of families, meaning that even when their proposed long-grass support is eventually introduced, most families will still be worse off than they were in 2010. Parents and working families need help now, not in 18 months’ time, so I urge hon. Members on both sides of the Committee to back new clause 1, which would secure a review of action that the Government can take to provide the support that hard-pressed families up and down the country so desperately need today.

Question put, That the clause be read a Second time.

amendment of the law

Catherine McKinnell Excerpts

Monday 24th March 2014 Commons Chamber

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

Our passionate and wide-ranging debate was excellently opened for the Opposition by my right hon. Friend the Member for Leeds Central (Hilary Benn), whom I commend for the deeply moving and insightful tribute that he paid to his father in the House last week. Tony Benn had close links with the north-east, not least through his regular appearances at the Durham miners gala. His loss is felt keenly by many people of all ages throughout the region and, of course, by hon. Members on both sides of the House.

The many excellent speeches that we have heard today have served to illustrate once again which side of the House is in touch with the reality of the lives of people up and down the country. Labour Members know that, despite the Chancellor’s continued complacency, for most people in Britain living standards are not rising but falling year on year. Indeed, the Institute for Fiscal Studies makes it clear that working people will be worse off in 2015 than they were in 2010—and little wonder with average real-terms earnings more than £600 a year lower than in May 2010, and with households having faced 24 Tory tax rises since then, including the increase in VAT. Labour Members believe that the Chancellor should have used his Budget to take urgent action to support families through the cost of living crisis now, not after the general election.

I pay tribute to the contributions made by Labour Members: my right hon. Friends the Members for Southampton, Itchen (Mr Denham), for Neath (Mr Hain), for Wolverhampton South East (Mr McFadden) and for Holborn and St Pancras (Frank Dobson); and my hon. Friends the Members for Stoke-on-Trent South (Robert Flello), for Blyth Valley (Mr Campbell), for Glasgow North (Ann McKechin), for Sedgefield (Phil Wilson), for Penistone and Stocksbridge (Angela Smith), for Southampton, Test (Dr Whitehead), for City of Durham (Roberta Blackman-Woods), for Barrow and Furness (John Woodcock), for Hartlepool (Mr Wright), for Sheffield Central (Paul Blomfield), for Washington and Sunderland West (Mrs Hodgson), for Brent North (Barry Gardiner), for Wythenshawe and Sale East (Mike Kane), for Nottingham South (Lilian Greenwood) and for Edinburgh North and Leith (Mark Lazarowicz). They all spoke about concerns on behalf of their constituents—yes, those people who live in the real world out there—and businesses throughout the country.

Despite the pressing nature of the cost of living crisis that my right hon. and hon. Friends carefully articulated in the debate, what mention was there of that critical issue in last week’s statement by the Chancellor or any of the Budget documents? Absolutely none. What urgent measures were announced for parents facing child care costs that have increased by 30% on this Government’s watch while the value of their wages has fallen? Absolutely none at all. What extra support will be available now to parents struggling with those costs and to pensioners struggling with the cost of heating their homes? Not a penny. What help will the Budget provide for the millions of small firms whose business rates will increase by an average of £430 next month? Zero. What about the tens of thousands of young people who have been out of work for 12 months or more? The number has doubled under this Government, but they did not even receive a mention.

Just as we thought that the Chancellor might have completely lost touch with the lives of people up and down the country, however, we learned this weekend that he actually is on the side of the working man and woman. It is now clear that he knows what the ordinary working people of this country—very occasionally, he even gets to speak to them—want out of life: a game of bingo; and, if they buy 300 pints, to get one free.

We were all under the impression that it was the Chancellor’s right hon. Friend, the right hon. Member for Welwyn Hatfield (Grant Shapps), the chair of the Conservative party, who was the one with the common touch, but we were wrong. Who needs lower energy bills, lower child care costs or lower business rates, higher wages or even a job when people can spend their time being patronised by the Chancellor and his hapless colleagues instead? Who cares that women are being hit four times harder than men as a result of the Chancellor’s tax and benefit changes since 2010, when the move on bingo taxation, welcome as it is, has been spun in this Budget as a woman-friendly measure?

I am sure that Britain’s women will be thrilled to know that the Chancellor failed to take up the Opposition’s proposal of scrapping the discredited marriage tax allowance—84% of the benefit of which will go to men—in order to introduce the 10p rate of tax that would benefit 24 million low and middle-income households up and down the country. I am sure that they will be delighted that the Chancellor continues to defend his £3 billion tax cut for the top 1% of earners in this country—85% of whom just happen to be men—rather than adopting our proposal to reverse it in order to ensure that those with the broadest shoulders bear the greatest burden of deficit reduction.

So what did the Budget have to offer? Let us take a moment to remember the Chancellor’s record. His 2012 Budget was going to raise billions of pounds through tackling tax avoidance, yet his flagship Swiss tax deal had more holes than Swiss cheese and has brought in just a fraction of the amount that was originally promised. His 2011 Budget was a Budget for growth, yet he has had to revise his growth figures down. Of course, there was his 2010 Budget—the one in which he first made the decision to slash Labour’s annual investment allowance from £100,000 to just £25,000 from April 2012, on the grounds that 95% of firms would not be affected. He continued down that path, despite being warned widely of the hugely detrimental effect that it would have on businesses and job creation. We then had two autumn statements and two Budgets before, lo and behold, the Chancellor announced in the 2012 autumn statement that he was going to increase the allowance temporarily—the one he had cut to £25,000—to £250,000 from January 2013. On making that announcement, he described it as

“a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

That would imply to anyone that his decision to slash it just two and half years earlier was entirely the opposite.

[Mr Newmark]

Notwithstanding the hon. Lady’s criticisms, it was her shadow Chancellor who predicted that 1 million more people would be unemployed. There are now 1.7 million more people in jobs today than there were in 2010. We have taken 3.2 million people out of tax altogether by raising the personal allowance. Those are the achievements of the Government.

[Catherine McKinnell]

I caution the hon. Gentleman, given that long-term youth unemployment in his constituency has gone up 125% under this Government; he should check the figures.

However, back to the annual investment allowance, the slashing of which has cost jobs. Cutting the allowance from £100,000 to £25,000, then announcing a temporary increase to £250,000 with the expectation that it would then fall again to £25,000, before then increasing it to £500,000 in last week’s Budget, although welcome, does not really inspire confidence in the Government’s long-term strategy for supporting business growth and investment—businesses that desperately need stability and certainty, rather than continual chopping and changing over the years.

[David Rutley]

On that point, does economic growth of 2.7% inspire confidence in the hon. Lady?

--- Later in debate ---

[Catherine McKinnell]

The growth figures are a fraction of what the Chancellor promised back in 2010. I urge caution on the hon. Gentleman, who has seen long-term unemployment in his constituency go up 600% under this Government.

Indeed, that whole sorry saga just about sums up the Government’s haphazard and cavalier approach to backing economic growth and job creation. Clearly, it is welcome news that the economy is growing again—undoubtedly, after three years of flatlining—but as we all know, in 2010 the Chancellor predicted that our economy would have grown by 8.4% by now. Instead, we have seen growth of just 3.8%, lower than the US and lower than Germany. Indeed, GDP growth this year is still expected to be lower than the OBR forecast in 2010. This is now the slowest UK recovery for 100 years, with our economy still 1.4% behind its pre-crisis peak.

How many more businesses could have grown, and how many more jobs could have been created, had the Chancellor not slashed the annual investment allowance at the first opportunity? How many jobs and how much new investment have been lost as a result of his carbon price floor, about which the Opposition have consistently raised concerns and on which he finally used last week’s Budget to take some action?

Had the Chancellor acted before last week’s Budget, how many firms could have been given the support and finance they need to export, thereby helping to ensure that any economic recovery is driven not just by consumer spending? It is little wonder that he is so unlikely to achieve his target of doubling UK exports to £1 trillion by 2020, given that the Government’s export enterprise finance guarantee scheme helped just five firms before folding, and their export refinancing facility is still not operational, despite being announced back in July 2012.

Of course, three years of a flatlining economy have meant that the Chancellor’s much hailed deficit reduction plan has been an abject failure, with the coalition now set to borrow £190 billion more than originally planned. Indeed, the Government have borrowed more in three years than Labour borrowed in 13 years. The Prime Minister and the Chancellor previously promised to eliminate the deficit and balance the books by 2015, but now they will not be able to do that until 2018. As a result of their failed policies, the Government, who like to talk tough on welfare spending, will actually spend £1 billion more on welfare this year and next than Ministers were planning only last December to spend. They will spend £13 billion more than they planned.

[David Rutley]

It is interesting to hear the hon. Lady’s comments on the debt, the deficit and so on. Does she agree with the IFS that the Labour party would be spending £29 billion more under the plans it has in place?

[Catherine McKinnell]

I agree with the IFS that families are, on average, £891 worse off as a result of this Government’s tax and benefit changes. Once again, Government Members want to ignore the cost of living crisis that households are facing up and down the country as a direct result of this Government’s failure to deal with the deficit and help ordinary families.

Last week was the Chancellor’s final opportunity to introduce policies to provide the real help that people need now and to cement the recovery after choking it off when the Government first came to office. The key question that people across the UK will be asking is whether they are better off now and in the coming months than they were when the coalition came to power in 2010. With the exception of a very few of the Chancellor’s friends at the top, for most the answer is a resounding no. Last week’s Budget did absolutely nothing to reverse that.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 11th March 2014 Commons Chamber

[Sajid Javid]

This Government are proud that we have been able to cut taxes for the lowest paid in society. In fact, people working full time on the national minimum wage will have seen their income tax bill more than halved because of this Government, and I welcome my hon. Friend’s support for that policy.

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

Now we know that the Minister thinks there are no women in Britain good enough to be on the Monetary Policy Committee, let me ask him another question. The Chancellor’s Budgets and spending reviews have hit women, particularly those on low incomes, a staggering four times harder than they have hit men. Millions are struggling with the cost of living crisis, and people are on average £26 a week worse off since 2010, so why are the Chancellor’s top-rate tax cut and marriage tax break giving 80% of the benefit to men? Just take a look at the Government Benches. Are this Government completely out of touch with the women in this country?

[Sajid Javid]

Because of this Government’s economic plan to deal with the record budget deficit that the previous Government left behind, more women are employed in our economy than at any other time in history, and 1.4 million women have been taken out of income tax altogether because of our personal income tax allowance increases.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 28th January 2014 Commons Chamber

[Mr Osborne]

That is a huge challenge for any Government and any bureaucracy, but I am pleased to report that under this Government, because we have focused all Departments on trying to increase their procurement from small firms, that has gone up from around 10% to around 20% of Government procurement. That is a big step forward, but I am the first to say that the job is not done. We want more procurement from small firms, not least because they are often the most innovative and entrepreneurial in the country.

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

Business rates are one of the biggest concerns for employers, yet they are still going up and up under this complacent Chancellor. The autumn statement saw some relief for retailers, but will the Government commit to giving genuine support to all small and medium-sized enterprises, which are the lifeblood of our economy, by matching our pledge to cut and freeze business rates for all small firms—not just those in retail, but manufacturers, high-tech firms and other job creators too?

[Mr Osborne]

Business rates rocketed under the last Government. First, we have taken about 400,000 of the smallest businesses out of business rates altogether, a scheme that the Labour Government wanted to bring to an end. Secondly, we have capped the increase at 2%, so we have protected businesses from inflation. Thirdly, we have chosen to provide particular support to our high street stores, and I am very disappointed that the hon. Lady does not support that. It is interesting that another of the Labour spokespeople has got to their feet, but not one of them has yet—20 minutes into Treasury questions—welcomed the good economic news today.

Cost of Living

Catherine McKinnell Excerpts

Wednesday 27th November 2013 Commons Chamber

[Guy Opperman]

I have no doubt that building on contaminated brownfield sites can be difficult, but in my constituency, for example, the police authority has sold the site of a former police station that could be built on perfectly properly. For 20 years, taxpayers—that includes the hon. Gentleman and me—paid more than £1 million to keep the former Stannington hospital site secure, yet nothing was built on it. We now have former government sites being built on and providing homes, but of course that is not green belt. He was keen to make his point about brownfield sites, but he also spoke about greenfield sites. We have huge difficulties in the north-east with investment in and building on greenbelt sites by local authorities.

I have gone on too long and been distracted—

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

indicated assent.

[Guy Opperman]

The Opposition spokesperson chunters from a sedentary position. On jobs figures and the economy, she will doubtless be addressing the fact that in her constituency unemployment has fallen by 12.5% in the last year, that youth unemployment has fallen by 16.5% and that the number of apprenticeship has risen from 620 in 2009-10 to 1,170 according to the most recent statistics. That is real action to help people in the north-east.

--- Later in debate ---

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

The most recent GDP figures suggest that our economy might finally have started to turn a corner, which everybody, especially the Opposition, welcomes. We have had three years of flatlining growth under this Government. How much damage has that economic stagnation done? How long will it take the country, families and businesses to recover from a starting point that is so much lower than was promised back in 2010?

The Opposition motion states that

“growth of 1.5% is needed in every quarter between now and May 2015”

just to catch up on the ground that has been lost. Stagnation and no-to-low growth means that the Chancellor’s much hailed deficit reduction plan has been a failure, with borrowing rising—the coalition is set to borrow £200 billion more than it planned in autumn 2010. Will we get an explanation for that? That failure—the slowest recovery in 100 years—means that the Prime Minister and the Chancellor do not have a chance of meeting their promises to balance the books by 2015.

[Mr Stewart Jackson]

rose—

[Catherine McKinnell]

I would be interested if the hon. Gentleman answered a question. Does erasing those promises from the Conservative party website mean that people will forget they were made?

[Mr Jackson]

The hon. Lady was doing so well. She is airbrushing the previous Labour Government’s record. If Labour is elected in 2015 and the economy is growing, does she recommend running a structural deficit, as the previous Labour Government did?

[Catherine McKinnell]

It is time for Government Members to take responsibility for the economy: three wasted years, lost opportunities and the loss of jobs and growth as a result of this Government’s failing economic policies.

[Mr Newmark]

It is an inconvenient truth for the hon. Lady that in the previous Parliament unemployment in her constituency went up by a whopping 88%. Under this Government, it has gone down 12%.

[Catherine McKinnell]

There are some inconvenient truths for Government Members. Personal debt has increased on their watch by 33% in my constituency and by a significant number in the hon. Gentleman’s constituency.

Hon. Members are keen to refer to the previous Government’s borrowing figures. As of last week, the coalition Government have borrowed more in three years than the Labour Government did in 13 years of government—that is the reality. On every economic test, and on the test the Prime Minister and the Chancellor set for themselves, they have failed palpably. It is clear from the many contributions to the debate that the recovery, which appears to be taking place, has yet to touch the lives of millions of people, contrary to the impression given by Government Members. My concern is that things will get a whole lot worse before people see any signs of them getting better.

Any economic recovery needs to deliver rising standards for all, not just for the Prime Minister, the Chancellor and their friends at the top. We need a recovery that is balanced and built to last. Critically, it needs to benefit every corner and community in the country. Instead, the Government, and the Government Members who support them, continue to bury their heads in the sand. They remain oblivious to the living crisis experienced by millions of families, or, worse, they deny what they hear and see with their own eyes. It is the same old Tory party, aided and abetted by the Liberal Democrats. They are totally out of touch with the reality of life for so many in Britain today who find themselves increasingly out of pocket and increasingly in debt.

[Kwasi Kwarteng]

I will ask the hon. Lady the same question I asked her colleague, the hon. Member for Nottingham East (Chris Leslie). What was the absolute level of the deficit in 2010 when this Government took over?

[Catherine McKinnell]

The hon. Gentleman is obsessed with statistics and keen to detract from the truth, which is that it is this Government who are borrowing £200 billion more than they planned. They have failed to reduce the deficit in the past three years to even a fraction of what they promised back in 2010. It is his Government’s plans that have failed. He should wake up to that fact.

I go back to the people who are paying the price. There is the single dad in my constituency who, to pay for the bedroom tax for the room he keeps for his children to stay in, eats barely anything all week and saves the money to buy food for his children at the weekend. The Chancellor would probably call that thrift. There is the GP and his staff who hand out, from their own pockets, the money for patients to get the bus to the local food bank. The Prime Minister would probably call that the big society in action. There is the branch of a well-known bank on the outskirts of Newcastle, where 80% of customers have only the most basic bank account. It has young mums coming in on a daily basis in tears because they cannot manage to feed their children and heat their homes. Citizens advice bureaux across the country saw a 78% increase in the number of people inquiring about food banks between February and June this year alone—little wonder, when gas and electricity bills have risen by an average of £300 a year on the Prime Minister’s watch. Households are spending 12% more on food bills than they were in 2007, despite purchasing 4.2% less food, as my hon. Friend the Member for Inverclyde (Mr McKenzie) pointed out.

[Several hon. Members]

rose—

[Catherine McKinnell]

I would like to give way, but I really must make progress.

Let us cast our minds back briefly to 2010 and the Conservatives’ general election manifesto. They have attempted to wipe many previous pledges from their website and from the public’s memory, but I am afraid they cannot hide the blatant pledges printed in their manifesto. On page 8 it stated:

“We want to see an economy where not just our standard of living, but everyone’s quality of life, rises steadily and sustainably.”

What about the Liberal Democrats? We know that their manifesto needs to be taken with a very large handful of salt. They stated:

“Liberal Democrats want to make the tax and benefits system fair, so that everyone, be they young or old, can afford to get by.”

They said that Britain was

“one of the most unequal societies in the developed world, where ordinary people struggle to make ends meet while the richest benefit from tax breaks.”

Well, we know who voted through the biggest tax break for top earners as soon as they got into power.

On the back of those election promises, what is the coalition’s record on living standards three and a half years into government? Under this Government, this Prime Minister, this Chancellor, this Deputy Prime Minister and this Chief Secretary, who is not here today, prices have risen faster than wages for 40 of the last 41 months. According to a report published by the TUC over the summer, of all the jobs created since June 2010, four out of five—80%—have been in low-paid industries. The stark reality is that average earnings have fallen in every region and nation of the UK on this Government’s watch. Indeed, the Prime Minister already has the worst record on living standards—none of his predecessors comes close to matching his singular failure on the issue. He is a record-breaking Prime Minister with a record-breaking Chancellor, as my hon. Friend the Member for Nottingham East (Chris Leslie) put it so eloquently.

Let us just remind ourselves, particularly the Liberal Democrat Members previously so concerned about ordinary people struggling

“to make ends meet while the richest benefit from tax breaks”,

when the one blip in the Prime Minister’s dismal 40-month record was. In which one month of the last 41 did we see average wages rise faster than prices? Yes, it was April this year, when financial services firms deferred paying up to £1.7 billion in bonuses so that their staff could benefit from the 50p tax cut. At a time when average earnings for working people have fallen by £1,600 in real terms since May 2010, we have a Government who believed that it was right to prioritise giving a whopping tax cut to the highest earners in the country. At a time when almost 1 million young people are out of work, when long-term unemployment remains dangerously high and when the number of part-time workers wanting full-time hours stands at a record 1.5 million—another record for this Government—we have a Chancellor devoting his time and attention to taking legal action against the EU’s attempts to limit bankers’ bonuses to just one year’s salary. At a time when people are facing a genuine cost of living crisis, in the face of ever-increasing household bills and diminishing earnings, we have a Prime Minister who seems happy to sit on his hands and do nothing.

Only today, figures released by the Money Advice Service show that nearly 9 million people across the UK are living with serious debt problems. Staggeringly, 18% of Britons—8.8 million people—consider themselves to have “serious” financial issues. Many hon. Friends raised those issues on behalf of their constituents, including my hon. Friends the Members for Makerfield (Yvonne Fovargue), for City of Durham (Roberta Blackman-Woods) and for Inverclyde, my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and my hon. Friends the Members for Cardiff South and Penarth (Stephen Doughty), for South Shields (Mrs Lewell-Buck), for West Ham (Lyn Brown) and for Edinburgh East (Sheila Gilmore). We heard none of that concern from those on the Government Benches. We have a Prime Minister who is clearly happy to let ordinary people pay the price for his economic failure and that of his Chancellor. They are the people who, in the words of my right hon. Friend the Leader of the Opposition, the Prime Minister will never meet and whose lives he will never understand.

What could the Government be doing about this crisis? It is all about priorities. With the cold winter months now upon us, it is time to stand up for hard-pressed families by supporting our energy prize freeze. It is time to do something about the staggering rise in the cost of child care—up 30% under this Government—which is preventing people from getting to work. It is time to do something about housing and to ensure that as well as helping people to buy we help people to build. We also need to do something about unemployment and bring forward the compulsory jobs guarantee.

It is clear that the Government’s policies have failed on their own terms. On living standards, economic growth and the deficit, the Government have completely failed to meet the goals they set themselves in 2010. The Opposition believe that there are specific, urgent and costed measures that the Chancellor could take in the autumn statement next week to help hard-pressed families and small businesses. The Opposition call on the Government and the Chancellor to wake up to reality and do just that. I recommend our motion to the House.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 5th November 2013 Commons Chamber

[Mr Osborne]

We have 1.4 million new jobs in this economy. To take on the point about part-time work, there has also been an increase in the number of hours worked in the economy, and a lot of the recent increase in employment has come from full-time employment. Let us compare that with the disastrous situation we inherited from the Labour party, where unemployment was rocketing and youth unemployment was rocketing. Unemployment is now lower than it was at the general election, and many thousands—[Interruption.] That is the fact. Many thousands of young people have come off the claimant count for youth unemployment, too.

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

Can the right hon. Gentleman now confirm that the number of people working part time because they cannot get a full-time job has risen over the past year to 1.45 million and is now at a record high? With prices rising faster than wages for 39 of the past 40 months, is this not just another reason why so many working people are facing a cost-of-living crisis after three wasted years under this Chancellor?

[Mr Osborne]

The best thing we can do for anyone’s cost of living is make sure that they have a job. Jobs are being created under this Government, after they were destroyed by the Labour Government. I am surprised that the hon. Lady did not thank us for creating an economy in which, in her constituency, unemployment is falling, and has fallen over the past year, and the claimant count is falling, when it was rocketing in the last years of the Labour Government.

National Insurance Contributions Bill

Catherine McKinnell Excerpts

Monday 4th November 2013 Commons Chamber

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

I believe this is my first opportunity to congratulate you, Madam Deputy Speaker, on your new role. We have had a good and wide-ranging Second Reading debate on the Bill, and my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), my new colleague in the shadow Treasury team, made an excellent opening contribution from the Opposition Front Bench. I extend my welcome to the Minister. We have already exchanged pleasantries in a Committee, but I reiterate them now in the Chamber.

[Julian Smith]

As well as exchanging pleasantries and niceties, will the hon. Lady commit now to backing the Government’s policies and give actual support?

--- Later in debate ---

[Catherine McKinnell]

It is interesting that the hon. Gentleman raises that point, because the Opposition will set out clearly that we very much support and welcome this measure. It is something we have been proposing for the past three years, so we greatly welcome its introduction through the Bill.

We have had a wide-ranging debate. We have touched on the living wage, the economy, employment, unemployment, self-employment—many forms of employment. We have strayed far from the core subject and, I think, strained the patience of the Deputy Speakers in the Chair today. At times, we have been on a magical history tour in which the history of this country and its economy has not only been airbrushed, but at times rewritten. In my concluding remarks, I hope to bring back a bit of realism to the discussion. I know that the hon. Member for Skipton and Ripon (Julian Smith) finds that somewhat depressing, but I am going to do it anyway.

I am disappointed that the Exchequer Secretary is not in his place for the winding-up speeches, as it is important to take a little step back in time and recall how the Bill was introduced. Until recently he was my opposite number, and it would have been good to have him in his usual place. The hon. Gentleman has the dubious privilege of being one of an ever-diminishing number of junior coalition Ministers who have been in the same job since 2010. He therefore finds himself in an unfortunate position because we can measure the ambitions that he set out for supporting small businesses and job creation against his actual record of delivery in government.

As we have heard, although this was not included in the draft Bill published on 16 July, the main purpose of the National Insurance Contributions Bill is to implement the employment allowance announced by the Chancellor in the Budget 2013. Given the apparent importance of the policy—which accounts for clauses 1 to 8 of this short Bill—perhaps when she concludes the Minister will say why the employment allowance was not mentioned in the draft legislation. It would be useful to clarify that.

As my hon. Friend the Member for Birmingham, Ladywood made clear in her excellent opening speech, the Opposition support the introduction of this measure and this Bill. It might be painful for the Exchequer Secretary—although he is not here to pained—but it could be helpful to cast our minds back to why we support this Bill. Let us think back to 2011 and the similarly entitled National Insurance Contributions Bill of that year.

[Richard Fuller]

Before the hon. Lady casts our minds back to 2011, may I ask her the question I asked her hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood)? In 2010 she stood on a manifesto that planned to increase the jobs tax. People want politicians who are honest, so will the hon. Lady say that that was a mistake?

[Catherine McKinnell]

I will repeat the words of my hon. Friend, who said that she was proud to stand in 2010 on a manifesto for a Labour Government who were committed to reducing the deficit but had an economy that was growing. Since then we have seen three years of stagnating growth, wages rising slower than prices, and borrowing not coming down anywhere near the amount the Government promised. I would caution Government Members against trying to rewrite in this Chamber the history of what they have achieved over the past three years.

On that point, let us return to 2011. The Bill taken through this House by the Exchequer Secretary—I welcome him back to his seat—included the introduction of the three-year national insurance holiday, worth £5,000 for employers. The scheme, which was originally announced at the Chancellor’s first Budget in June 2010, was not aimed at supporting just any employers, however, because it was restricted. It did not apply to businesses in London and the south-east or east of England, as we mentioned earlier, and it extended only to new business start-ups, and then only to the first 10 employees of those firms—but, of course, only to those first 10 employees who had been hired in the first year of that business. I hope hon. Members are still with me. [Interruption.] I am sure the Minister is still with me as he designed the dubious policy.

Indeed, serious concerns about the scheme’s complexity were raised at the time by Robert Chote—then at the Institute for Fiscal Studies; now at the Office for Budget Responsibility—who told the Treasury Committee that the policy

“might be a little too complicated to offer best value for money.”

[Julian Smith]

Was the context at the time that the Labour party had left the nation’s finances in the most appalling mess, and that for any incoming Government not to target a policy carefully would have been crazy? According to the Government auditor, three Government Departments had lost complete control of their finances.

[Catherine McKinnell]

Once again, Government Members want to airbrush the past three years of stagnation, lack of economic growth and the failure of the Government’s implementation of that policy. They failed to address the issue quickly enough, so only today are we finally introducing a policy that will help and that will give that support to small businesses. Unfortunately, it is a little too late in the day for some businesses, which have suffered over the last three years, and for the people who have lost their jobs as a result.

[David Rutley]

In the spirit of not wanting to airbrush, will the hon. Lady tell the House how she thinks the jobs tax would have helped her much-cherished goal of encouraging economic growth?

[Catherine McKinnell]

Coalition Back Benchers want to forget what the Government have done and the past three years of the policy we are debating. They want to debate a policy that never came into play.

None the less, despite the restrictive and complex nature of the previous scheme, the Exchequer Secretary and his Treasury colleagues had bold ambitions for it. He acknowledged from the Dispatch Box that some 400,000 new businesses would benefit from the scheme, with each successful applicant creating an average of two jobs. At that rate, the scheme would have created 800,000 new jobs, with a total cost to the Exchequer of £940 million over its three-year lifespan.

Given that the scheme, which was one of the Chancellor’s flagship policies, drew to a close in September, one might have assumed that the Exchequer Secretary would want to promote the outcome. Sadly, he cannot do so—sadly for the businesses that failed to benefit. Only through a written answer obtained by my hon. Friend the Member for Nottingham East (Chris Leslie), the shadow Chief Secretary to the Treasury, did we learn that a grand total of some 25,400 businesses successfully applied for the scheme over the three-year period. That is undeniably a sizeable number, and the creation of any new jobs in the past three years, during a period of economic stagnation, is welcome; but with only 6% of the target reached, the Exchequer Secretary has had to acknowledge that, as flagship policies for economic growth go, that one has been a bit of a flop.

When the previous scheme was introduced, the Opposition called for there to be no regional restrictions on it, for it to be extended to charities, and for a review of its effectiveness after six months. Those proposals were rejected. The Government ploughed on with a scheme that obviously was not delivering the goods throughout its operation. That was why, as long ago as September 2011, my right hon. Friend the Member for Morley and Outwood (Ed Balls), the shadow Chancellor, called for a one-year national insurance break for every small firm that took on extra workers, using the money left over from that failing Government policy—it was clear that it was failing even in September 2011.

The Government are now introducing the employment allowance. It is not regionally restricted and will apply to charities as well as businesses, and it will apply whether or not they are start-ups. It should be easier for firms to access it because it will be delivered by the standard payroll software and Her Majesty’s Revenue and Customs real-time information system, as the Exchequer Secretary said in his opening comments. The question is this: why did it take so long? Given that the scheme will not be available until April 2014, we have had nearly four wasted years when the Chancellor could have helped the thousands of small businesses about which Government Members have spoken so passionately to expand and create jobs.

[Margot James]

This might be a foreign notion to Labour Members, but one reason why it has taken three years to propose the Bill is that the Government have waited until the country can afford it and put the finances right in the meantime.

[Catherine McKinnell]

The budget for the policy in the Bill was there, but the Government introduced a failing policy that was badly delivered, badly thought through and not revised in the appropriate time frame. Given the Government’s record on delivering the previous national insurance contributions initiative, what reassurances can the Minister provide that they are on top of delivering this one?

[Julian Smith]

Will the hon. Lady confirm that, having supported the Bill, she will call on all Labour MPs to promote the Bill vigorously and dynamically in their constituencies? Will she make that commitment?

[Catherine McKinnell]

The Opposition support the legislation and it will pass unopposed this evening. It is rightly up to the Government to promote their support for small businesses. As Government Members have said, HMRC should take a proactive role in ensuring that businesses are aware of schemes that are available to support them.

Clauses 11 to 20 relate to the certification scheme for oil and gas workers on the continental shelf, limited liability partnerships and several miscellaneous measures, but I want to focus briefly on clauses 9 and 10, which seek to extend the application of the general anti-abuse rule to national insurance contributions. The GAAR, which came into force on Royal Assent of the Finance Act 2013, incorporates income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty, land tax and the new annual tax on enveloped dwellings.

A number of Opposition Members raised the concern that the GAAR is intended to prevent only “highly contrived tax avoidance” that has “abnormal features”. The man who designed the GAAR, Graham Aaronson QC, believes that it is

“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.

What deterrent effect is such a narrowly drafted GAAR expected to have? As the Government’s flagship policy for tackling tax avoidance, what dent will the GAAR make on the tax gap, which HMRC says is £32.2 billion a year?

During the debate on the 2013 Act, I pointed out that the GAAR is expected to yield £60 million in 2014-15, rising to £85 million by 2017-18. I am more than willing to acknowledge that those are sizeable sums, but the point made in the House back in April was that it represented a drop in the ocean compared with the then tax gap of £32.2 billion.

What has changed since? HMRC’s latest tax gap estimate, of the difference between what is collected and what would be collected if everyone complied with the letter and spirit of the law, concluded that it has increased to £35 billion, a staggering 8.7% increase in the space of 12 months. I accept that many dispute the figure and say it is too low—that it does not include much of what could be incorporated in the figure for tax avoided.

The latest HMRC estimate, which covers 2011-12, indicates that some £15.3 billion of the gap can be accounted for by unpaid income tax, capital gains tax and NICs combined. HMRC suggests that approximately £4 billion of the gap arises out of avoidance “behaviour”. Will the Minister therefore clarify exactly how much of the £35 billion tax gap is thought to be made up of NICs that are unpaid through avoidance? Given that the Bill deals with only the most aggressive or egregious avoidance activity, how much will extending the GAAR to NICs yield for the Exchequer in additional revenue?

The Opposition have raised many other concerns about the GAAR—my hon. Friend the Member for Birmingham, Ladywood mentioned the Swiss deal and the number of holes in that arrangement, which leave a hole in the Government’s estimates. However, there is also the highly subjective double reasonableness test, which can be used to determine whether a means of avoiding a tax can

“reasonably be regarded as a reasonable course of action”.

That subjectivity is helpfully explained in the GAAR guidance, which states:

“The words ‘contrived’ and ‘abnormal’ are not defined, and therefore will be applied in their normal sense”.

We have long argued that that is a fig leaf, or could be used as a fig leaf, for tacitly legitimising tax avoidance that does not fall within those definitions. We tabled amendments to ensure that the GAAR would be reviewed, and to assess its effectiveness.

Most critically, we have questioned the independence of the advisory panel established by the Treasury to oversee the GAAR. At the time, I said:

“What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR.”—[Official Report, 17 April 2013; Vol. 561, c. 425-426.]

What has changed since April? A matter of weeks after being hand-picked to deliberate on the Government’s flagship anti-avoidance policy, one panel member was caught on camera at a tax planning conference offering tips to people on how to keep their money

“out of the Chancellor’s grubby mitts”.

HMRC’s website simply tells us:

“David Heaton resigned from the Advisory Panel on 13 September 2013. Arrangements are being put in place to appoint a successor.”

It would be helpful to hear from the Minister exactly what those arrangements are, when she expects the appointment to be made and, most importantly, how she and her ministerial colleagues will ensure that this never happens again. If the GAAR is to retain or, indeed, regain any shred of credibility, what are the Government going to do about that?

As we have said, we back the Bill, especially the main provision—the employment allowance. We repeatedly called for changes to the previous national insurance holiday scheme and we consistently warned that it would be a flop. Many of the changes we called for will be introduced in the employment allowance, but it is disappointing that for hundreds of thousands of small businesses it has taken almost four years to deliver the policy that they need. They deserve better, but the Bill is a small step in the right direction today.

[The Economic Secretary to the Treasury (Nicky Morgan)]

This has been a wide-ranging debate and I am grateful to have heard all the thoughtful contributions that have been made. It is noticeable that we heard seven contributions from this side, but only one from Opposition Back Benchers—[Interruption.] I welcome the Opposition’s support for the Bill, but as the shadow Minister said, the Bill is wide ranging, and Opposition Members could have talked about businesses, employment and the living wage. They have not taken the opportunity to do so and clearly had nothing to say about the Bill.

Before I respond to the points raised by hon. Members, it is worth reiterating the four key points of the Bill. First, from next April, all businesses, charities and community amateur sports clubs will benefit. They will receive a £2,000 employment allowance every year to set against their employer national insurance contributions liability. This is a measure specifically set out to support jobs. If I run a small firm employing four members of staff on the average private sector wage, I would see my national insurance contributions bill cut by more than a fifth. If I start a brand-new business and want to give up to 10 18 to 20-year-olds their first chance of full-time employment, paying the minimum wage, I would pay no national insurance contributions at all.

We have previously had time-limited allowances targeted at some businesses, but this is a universal allowance that will help all businesses. It is easy to understand and administer and, most importantly, it will make it easier for businesses in all our constituencies to create jobs. I am sure that that is something that all hon. Members want to see.

Secondly, as well as making it easier for employers to take on staff, the Bill will make it harder for companies to avoid taxes. It will give effect to the general anti-abuse rule, or GAAR, for NICs. As such, it is indicative of the Government’s intention to take a robust line in tackling all forms of tax avoidance. Thirdly, it will allow the Treasury to make regulations to bring in a certification scheme for the oil and gas industry when someone other than the deemed employer for national insurance is undertaking those duties on their behalf. This is part of the Government’s wider measure to address schemes involving employers setting up outside the UK and providing workers to the UK in order to avoid paying employment taxes.

Finally, the Bill will make changes to tackle disguised employment and to address the tax issue arising from the UK implementation of the alternative investment fund managers directive, which the Exchequer Secretary described in some detail earlier. The importance of those last three measures should not be underestimated. With the associated tax changes they will contribute towards raising £265 million for the Exchequer in the 2014-15 tax year.

As I have said, we heard some excellent contributions to the debate. I am sorry to say that the Labour contributions did not extend to any great insight into the Labour party policy on support for businesses. First, Opposition Members tried to take credit for this Bill, if hon. Members can imagine such a thing. The shadow Chief Secretary said that we should say sorry. If sorry is the hardest word, we have never heard it from the Labour party, which left us—as my hon. Friend the Member for Macclesfield (David Rutley) said—with the legacy of a huge deficit and enormous debt that we are having to pay off. This Government are having to make the tough choices.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) was wrong about the Labour party’s national insurance contributions scheme, because it would have applied only to small businesses. Our scheme will apply to all businesses. She also said that administration of the previous scheme cost £12 million. In fact, the estimated administration costs from the start of the national insurance contributions scheme that finished in September were £770,000—nowhere near millions of pounds. There was tight control on its administration.

We will not take a history lesson from the Opposition about the regional national insurance contributions holiday. My hon. Friend the Exchequer Secretary made it clear at the start of the debate that this was a temporary, targeted measure that helped 26,000 businesses and created 90,000 jobs. That is 90,000 people who have employment as a result of that scheme. That is something that we should be proud of, while recognising that there is scope for a new scheme, and that is what the Bill will introduce.

On the GAAR, the Opposition had 13 years to introduce it, but they failed to do so. They can pick holes in the scheme as much as they want, but the point is that this Government have taken the tough decisions. The rule will act as a deterrent to those tempted to engage in abusive avoidance schemes. It will take time to bed in, and we will keep it under review.

In answer to the specific questions asked by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), the GAAR is expected to raise some £235 million over the next five years and it will also protect revenue that would otherwise be lost. We are confident that the GAAR will change the avoidance landscape as its impact starts to be recognised. The hon. Lady also asked about the Bill not being published in draft, but she then said that we had taken a long time to get round to making the Bill happen. She cannot have it both ways, although that is a position the Labour party always likes to be in.

The employment allowance will be introduced from 6 April next year. If we had had time for formal consultation, it would have delayed the implementation date, which is something that none of us wants to see. However, I can tell the hon. Lady that HMRC has held discussions with various stakeholders over the summer on the detailed implementation of the employment allowance, and those discussions have helped to inform the design of the new system.

[Catherine McKinnell]

I thank the Minister for responding to some of the questions that I raised. She seems to be moving away from the subject of the GAAR, but I wonder if she could address the questions relating to the advisory panel and the member who was dismissed from it in disgrace. What will the Government do to ensure that that does not happen again and that the credibility of the GAAR advisory panel, which was dented by those events, is restored?

[Nicky Morgan]

Perhaps I should repeat my comments. This Government should get enormous credit for introducing a GAAR in the first place. The last Government had 13 years to introduce one and failed to do so. The important point about the panel is that it is independent. It was recommended by Graham Aaronson, and its members are independent from the Government. The gentleman in question has resigned. It is an important safeguard in the operation of the system that the panel’s independence is maintained.

I turn now to the excellent contributions from Back Benchers, especially on this side of the House. My hon. Friend the Member for Stourbridge (Margot James) talked about charities benefiting from the Bill. It is very welcome that they will benefit as they employ 800,000 people. She also talked about the huge step of taking on the responsibility for that first employee. She is absolutely right about that and I am sure that all hon. Members will wish the very best to the lady who is opening the new floristry business in my hon. Friend’s constituency.

My hon. Friend the Member for Redcar (Ian Swales) was right to say the Bill offers real help to small businesses, and that taking on the first employee and worrying about how to pay their national insurance puts firms off growing. This is an important measure to support the next step on the employment journey.

The hon. Member for Edinburgh East (Sheila Gilmore) found it strange that we were looking at the Labour party’s national insurance policy. First, her party wants to be the next Government, so it should not be a surprise that we scrutinise its policies. Secondly, we are still having to deal with the legacy of the previous Government. All the tough decisions we take are framed by having to deal with that legacy. I should, however, congratulate her on being the only Labour Back Bencher to speak in the debate. She asked whether the employment allowance would create jobs. The Federation of Small Businesses expects 29% of small businesses to use it to boost staff wages, 28% to use it to employ additional staff and 24% to use it to invest in resources—it is welcomed by business organisations. It is estimated that 90% of businesses that employ people will take up the employment allowance. I am sure the hon. Lady will welcome businesses in her constituency taking up the employment allowance.

My hon. Friend the Member for Bedford (Richard Fuller) asked whether tax credits had been factored into the system. We do not believe that tax credits have been factored into this calculation, but the Office for Budget Responsibility considers the net impact of all Government policies on the economy. This policy has been subject to that scrutiny and I am sure we can discuss any further questions he has. He made a thoughtful contribution on the price of labour and the affordability of the living wage. I am sure that that is something we want to consider further. He is right to say that the employment allowance is a small but important start along the road of getting more people into employment. He was right about the encouragement of welfare dependency by the previous Government. By 2010, nine out of 10 families with children were reliant on the state. We want to make work pay. For example, our policy of raising the income tax threshold is all about ensuring that work pays and that people keep more of their earnings so they can spend them in a way that is right for them and their families.

--- Later in debate ---

[Nicky Morgan]

My hon. Friend’s intervention says it all. Government Members have run small businesses and know that we need to keep paperwork, in all its forms, as simple as possible. People who run businesses do not want to spend their evenings and weekends filling in forms. They want to spend that time growing their businesses and taking on their next employee.

[Catherine McKinnell]

The Minister is making a powerful argument, but it leads to the question: why did the Government introduce a national insurance holiday scheme in 2011 that was so complicated they could reach only 6% of the businesses it was targeted at?

[Nicky Morgan]

We heard earlier on that that was a time for a temporary target. We were dealing with the deficit and coping with the legacy left to us by the previous Government. We now have the opportunity to introduce a wider employment allowance. The hon. Lady should not try to teach us lessons about schemes, given the complexity of their scheme, which thankfully, they did not have the opportunity to introduce. How can the fact that 26,000 businesses have benefited and 90,000 jobs have been created be a failure?

Air Passenger Duty

Catherine McKinnell Excerpts

Wednesday 23rd October 2013 Commons Chamber

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

Thank you, Mr Speaker. I commend the Democratic Unionist party, and particularly the hon. Member for East Antrim (Sammy Wilson), for bringing this timely issue before the House. He gave a thoughtful and considered introduction to the debate.

It is clear from the hon. Gentleman’s contribution that air passenger duty causes concern to many hon. Members on both sides of the House and their constituents. More than 100,000 people backed the petition of the fair tax on flying campaign, which resulted in a Backbench Business Committee debate in November 2012. Who can blame people for being concerned when they face a worsening cost-of-living crisis, with soaring energy bills, increasing child care costs, countless other demands on household budgets, and prices rising faster than wages in 39 out of the past 40 months since the Government came to power?

The fair tax on flying campaign is driven by a number of the UK’s leading travel organisations, including airports, trade associations and destinations. In my new role as shadow Economic Secretary to the Treasury, I look forward to engaging with those bodies and their concerns with my fresh eyes.

[Lady Hermon]

Given that APD is loathed and detested by our constituents throughout the United Kingdom, will the hon. Lady take this opportunity at the beginning of her contribution to commit any future Labour Government to the complete abolition of APD, and cheer us all up before we go home this evening, please?

[Catherine McKinnell]

It is interesting that the hon. Lady mentions cheering up—an ONS report out today says that Northern Ireland is one of the happiest places in the UK—but I appreciate that APD is a cause of unhappiness, as was clearly articulated by a number of hon. Members, particularly the hon. Member for East Antrim. I will set out the Labour party’s position on the subject later, but I want to focus on the Government’s approach—[Interruption.] Given the Prime Minister’s performance today, one wonders who is running the country.

[Kwasi Kwarteng (Spelthorne) (Con)]

To be specific, what exactly is the position of the Labour party, not the Government, on air passenger duty?

[Catherine McKinnell]

As I said, I will set out the Labour position, but it is interesting that Government Members are keen to deflect responsibility. It is important to reflect on what the Government have said to date on air passenger duty.

I would, however, first like to reflect on the contribution by the hon. Member for East Antrim, who made a well-thought-out speech, particularly on the 2013 PricewaterhouseCoopers report into the impact of APD. The report concluded that APD affects not just the travel and tourism sector, but the economy as a whole. PWC was commissioned by British Airways, Virgin Atlantic, Ryanair and easyJet, and suggested that the abolition of APD could result in a 0.45% increase per year in GDP and the creation of almost 60,000 jobs between now and 2020. The Government dispute those figures, but I will return to them later in my speech.

[Mike Thornton]

I congratulate the hon. Lady and thank her for giving way. Is it not significant that the companies that would benefit most from getting rid of APD want to get rid of it? Is it not pretty obvious that they would back the report’s conclusions?

[Catherine McKinnell]

I thank the hon. Gentleman for his kind wishes. The companies commissioned the report, but it is for the Government to set out their position and their own findings. I would like to focus on the Government’s statistical analysis and assessment of APD. I know the value added to the north-east economy by Newcastle airport. I know how critical certainty and stability on issues such as APD are for the airport and the businesses that rely on it, and for the export-led recovery that the hon. Member for East Antrim referred to on a number of occasions. Newcastle airport alone supports 7,800 jobs across the north-east region, with 3,200 on site, and more than £250 million of UK exports were shipped through the airport in the last year—facts that speak for themselves. It is therefore little wonder that the Government’s dither and lack of direction has caused significant frustration for passengers, the travel and tourism sector, and the industry as a whole.

What have we heard so far from the Government on APD? The Conservative 2010 election manifesto pledged to:

“Reform Air Passenger Duty to encourage a switch to fuller and cleaner planes”.

The Liberal Democrats went further, suggesting that they would ensure that pollution was “properly taxed” by replacing the per-passenger APD with a per-plane duty and that air freight would be taxed for the first time. They also said that they would introduce an additional, higher rate of PPD on domestic flights if realistic, alternative and less-polluting travel was available.

[Mr MacNeil]

The hon. Lady makes a good point about the views of the Liberal Democrats. The Liberal Democrats held a multitude of views in opposition and hold another multitude of views now they find themselves in government, so her words do not surprise me at all.

[Catherine McKinnell]

The hon. Gentleman anticipates my next comment. It is important not to take a Liberal Democrat election manifesto at face value, but one might reasonably have expected to see some action from Ministers given that the coalition agreement promised that the Government would:

“reform the taxation of air travel by switching from a per-passenger to a per-plane duty.”

and

“ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.”

The Chancellor then announced in the 2010 Budget that major changes to APD, including switching to a per-plane duty, would be subjected to public consultation, but nothing happened, and almost one year later, at Budget 2011, he announced that the Government would consult on simplifying the structure of APD. In between, the fair tax on flying campaign was launched not only to raise concerns about this issue, but to elicit a modicum of action or at least certainty or clarity from the Government. Budget 2011, however, saw the Chancellor U-turn on the coalition agreement pledge made less than 12 months earlier to switch to a per-plane duty, informing the House:

“we had hoped that we could replace the per passenger tax with a per plane tax. We have tried every possible option, but have reluctantly had to accept that all are currently illegal under international law. So we will work with others to try to get that law changed.”

Will the Minister update the House on how that work on changing the law is going?

At Budget 2011, the Chancellor went on to state:

“In the meantime, we are consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California. We will also seek to bring private jets, which pay no duty at all, into the scope of taxation.”—[Official Report, 23 March 2011; Vol. 525, c. 963.]

The APD rate rise due in April 2011 was deferred to April 2012.

[Kwasi Kwarteng]

Will the hon. Lady give way?

[Catherine McKinnell]

Not just yet, because I need to make some progress.

At the same time, we saw an 8% increase take effect, with APD rates thereafter rising in line with inflation. As announced at Budget 2010 and then again at Budget 2011, the Government did indeed consult on the structure of APD, in a consultation that covered several areas, including private jets, different tax bands, premium economy flights, flights from regional airports and the possible devolution of APD. The consultation paper raised the concern that the existing four-band structure was damaging UK competitiveness and contained several anomalies, such as the higher rate on Caribbean flights than on flights to destinations in the USA, about which several hon. Members have raised concerns.

The paper set out two options: returning to the pre-2009 structure of two tax bands and a different rate between two classes of travel; and combining the two higher bands for flights over 4,000 miles to create a three-band structure and retaining different rates between different classes of travel—an option, however, that would not have resolved the Caribbean concern. The consultation also raised the prospect of a lower rate of APD for flights from regional airports and the question of whether APD should remain a UK-wide tax or be devolved.

The Government spent the best part of a year apparently listening to interested parties that took considerable time and effort to respond in good faith to the consultation. And then what? For the whole of the UK, apart from announcing that APD would be extended to business flights, they did absolutely nothing. In their response to the consultation, they confirmed in December 2011 that they did not propose to make any changes to the tax’s banding structure, to how different classes of flight were taxed or to the application of APD to the regions. It is little wonder then that industry players described the consultation as

“a sham and a waste of taxpayers’ money”.

Of course, we saw action on Northern Ireland, following the July 2011 Northern Ireland Affairs Committee report, which urged the abolition of APD on flights to and from airports in Northern Ireland owing to the specific problem faced there—direct competition from airports in the Republic and its lower rates of APD. In order to maintain the transatlantic route from Belfast to Newark, the Chancellor announced in September 2011 that the APD rate on long-haul flights using airports in Northern Ireland would be cut, because Continental Airlines had, unsustainably, been paying the APD itself at a cost of some £3.2 million a year. Then, in the Finance Act 2012, APD on direct long-haul flights departing from Northern Ireland was devolved to the Northern Ireland Assembly, which then abolished it on these flights from 1 January 2013.

Clearly, flights from Northern Ireland face specific challenges, as I have noted and as was set out clearly by the hon. Member for East Antrim. It is the only part of the UK that has a land border with another EU member state. George Best Belfast City airport and Belfast International both compete directly with Dublin in attracting airlines, routes and passengers. So the Opposition supported the Government’s move on APD in relation to long-haul flights and Northern Ireland. Given that Northern Ireland also largely relies on air transport for its link to the rest of the UK, we are sympathetic to the argument for reducing APD on all routes from Northern Ireland, but we would need to examine the impact of that in the round, including on the block grant, which the hon. Member for East Antrim acknowledged.

Other options are, of course, available. We could consider protected routes, which already exist in the UK—the air link to the Scottish islands being an example—with Belfast to Heathrow being suggested as the obvious choice. But the Government’s piecemeal approach to dealing with APD, an issue that affects the UK as a whole, is regrettable, particularly given the importance of long-term certainty on this issue for industry and the wider economy. Leaving aside the changes we have seen in Northern Ireland, it appears that the Government have simply given up on this issue altogether.

In May, the Select Committee on Transport published a number of proposals on APD as part of its wider inquiry into aviation strategy. Included in the recommendations were that: the Treasury should conduct and publish a fully costed study of the impact of APD on the UK economy; the Government should carry out an objective analysis of policies such as differential rates of APD; the Government should conduct a 12-month trial on an APD holiday for new services operating out of airports not in the south-east; and the Government should not further devolve APD at this stage, as it may have negative impacts, for example, in the north of England. Some of those recommendations stemmed from the February 2013 PricewaterhouseCoopers report, to which reference is made in the motion.

Ministers appear to have totally dismissed both reports, rejecting all the Select Committee’s recommendations apart from the one on devolution. They have stated:

“The Government disagrees with the findings of the PwC report. The Government believes that abolishing APD would have a smaller impact on GDP than the report implies and would cause a net loss of tax receipts. This reduction in receipts would need to be paid for through tax rises or spending cuts elsewhere, which would themselves have an economic impact.”

The response went on to state:

“The Government has no plans to undertake a review of the economic impact of APD at this point.”

So, the Government do not believe the findings of others about the economic impact of APD, but have no plans to verify them or otherwise undertake their own review.

There is no doubt that APD brings in a significant amount of funding to the Treasury, with a yield of £3 billion anticipated this year and next, as the Minister mentioned a good number of times. The matter does need to be considered in the round, but the Government’s unscientific approach to this issue seemed to be a cavalier one to take to economic growth, given that we have had three years of a flatlining economy.

The motion states:

“that it is the intention of the Prime Minister to review green taxes; and calls on the Government, as part of that review, to give high priority to the abolition of air passenger duty.”

In preparing my comments for today, I wondered whether this review actually existed, but the Prime Minister seems to have confirmed it at questions, because he is apparently waking up to the fact that struggling families need support and believes that this is the way forward. We then read, however, that this review has been kiboshed by the Liberal Democrats before it has even begun. Perhaps the Exchequer Secretary will shed some light on that issue, too, in his concluding comments.

In conclusion, despite various promises of action on this issue, we have seen anything but. The reforms in Northern Ireland addressed the very specific situation in that part of the UK, but this issue affects the whole of our country. After three years of a flatlining economy, and with households up and down the country in the midst of a cost of living crisis, the Government’s complete lack of direction on APD has been extremely unhelpful at a time when family purse strings have been tightened and businesses have been crying out for support. The lack of certainty on this issue from the Government simply risks investment decisions being delayed and future development being jeopardised, which, crucially, puts jobs at risk, too. This just is not good enough, but it is what we have come to expect.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 10th September 2013 Commons Chamber

[Sajid Javid]

My hon. Friend is absolutely right. That is a big boost to family incomes. In fact, someone on a minimum wage who is working full time will find that their tax bill is more than halved as a result of this Government’s policies.

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

The reality is that, because of this Government’s warped priorities, women are paying three times more than men to bring the deficit down. Will this all-male Treasury team explain how that is helping families manage the cost-of-living crisis?

Age-related Tax Allowances

Catherine McKinnell Excerpts

Monday 9th September 2013 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Luton North (Kelvin Hopkins) on securing the debate, which is somewhat belated, given that it was meant to take place many months ago. However, I commend him for his persistence in pursuing the matter and not letting it lie.

The measure was one of a number that I and my colleagues in the shadow Treasury team discussed at great length, and on which we pressed Ministers, during consideration in Committee of this and last year’s Finance Bill. We are therefore not debating a new issue, but I commend my hon. Friend for his passionate speech in which he highlighted the very real cost of living crisis faced by many pensioners and the situation in which the Government’s changes have left a number of pensioners.

The hon. Member for Suffolk Coastal (Dr Coffey) spoke in favour of tax simplification and discussed the perceived merits of the Government’s measure. She put forward an interesting argument of which there was much to commend but, despite that, I shall explain why we do not support the reforms and especially the way in which the Government have gone about bringing them into play.

[Kelvin Hopkins]

Is it not the case that what is called tax simplification is sometimes simply a cover for making the tax system less progressive and therefore less advantageous to those who are less well off?

[Catherine McKinnell]

My hon. Friend makes a powerful point. The Office of Tax Simplification expressed surprise at the way in which the measure was introduced, and I shall go on to quote from the office as I set out the reasons why we do not support the Government’s policy.

It might be helpful to recap what has happened. Until the beginning of this tax year, individuals aged 65 or over were entitled to receive an additional age-related allowance, with a further addition for those aged 75 and over. Since 1977 and what was known as the Rooker-Wise amendment, all income tax allowances had been required to increase in line with the retail prices index, unless Parliament specifically determined otherwise.

As we are all aware, in Budget 2012, it was announced that from 2013-14—from this April—the availability of those age-related personal allowances for income tax would be restricted. The allowance for people aged 65 or over was frozen, as was the allowance of £10,660 for those aged 75 or over. Additionally, people turning 65 on or after 6 April 2013 were not entitled to any age-related allowances at all, meaning that the general personal allowance was all that applied to them.

On the basis of the speed with which the changes were introduced and our opposition to them, we tabled an amendment to this year’s Finance Bill that called on the Government properly to consider the impact of the changes to the personal allowance system on the group of people who are affected. We put that proposal forward at a time of overwhelming opposition to the changes. A whole body of evidence showed that the impact on pensioners would be hugely detrimental. As my hon. Friend pointed out, this came at the same time as a tax cut for those earning more than £1 million, who the Government were handing an average tax cut of £100,000.

The e-petition that has led to the debate is testament to the measure’s impact on pensioners and their level of concern about it. I commend Arthur Streatfield and his valiant efforts in obtaining 114,488 signatures, meaning that the debate could be secured.

My hon. Friend quoted Dot Gibson, the general secretary of the National Pensioners Convention, when she gave her backing to Arthur Streatfield’s e-petition, but it is worth repeating what she said:

“Since the Budget announcement...we have been inundated by pensioners like Arthur who are outraged that the Chancellor is giving a tax cut to those earning over £150,000 whilst pensioners on little more than £11,000 are having their tax allowance frozen. There has been a lot of nonsense about pensioners having been cushioned from the austerity measures, but they’ve already seen cuts to their winter fuel allowance, a reduction of their state pension increase because it’s now linked to the…Consumer Price Index rather than the Retail Price Index, rationing of care services in the community, closure of day care centres, changes to disability benefits and caps on housing support…The Chancellor’s decision to freeze the age related tax allowance is really the last straw for pensioners who feel they are being asked to pay for the mistakes of the bankers and politicians.”

The Opposition agree, which was why we voted against the changes during the passage of last year’s Finance Bill. It is absolutely the wrong priority at the wrong time, and in the current economic climate, the Government should be prioritising ordinary families, ordinary pensioners, the young and the long-term unemployed, not millionaires.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

For the sake of clarity, will the hon. Lady confirm whether the Opposition’s position is that, as a matter of principle, those under the age of 65 should have a lower personal allowance than those over the age of 65?

[Catherine McKinnell]

We are debating today the choices that the Government have made, the way in which this tax allowance change has been implemented, the speed at which it has been implemented, the lack of consultation, the lack of consideration and the lack of will from the Government to consider the impact on pensioners. That is what the focus of today’s debate must be, because it is about the current Government’s policies, the way in which they are being implemented and the impact that they are having on pensioners now. If the Minister would like to confirm that the Government have actually given some consideration to the impact on pensioners of the changes, that would be very helpful.

[Mr Gauke]

I hope to have the opportunity shortly to set out what the current Government have done for pensioners, but given that I did not hear a clear answer as to whether it is a matter of principle, can the hon. Lady confirm that the Labour party has no plans to reverse the abolition of age-related allowances?

[Catherine McKinnell]

Again, it would be helpful if the Minister could confirm for those taking part in the debate and for those following it—the many pensioners who have called for the debate and who want to know—what consideration the Government have given to their position and to the fact that pensioners are suffering a cost of living crisis. The Government seem to be taking no account of that.

[Kelvin Hopkins]

I think the point is that pensioners face extra costs in their lives. They often spend more time at home and need more heating in their homes, for example. Someone as far back as Winston Churchill recognised that, which was why he initiated the idea of a greater tax-free allowance for pensioners to help them with their additional living costs. That is the case that I made in my speech.

[Catherine McKinnell]

I thank my hon. Friend. The point that he and I make is that the concern about the Government’s change is the lack of notice that many pensioners have had of it. It has not been introduced gradually to give pensioners a chance to readjust their savings plans or earnings plans; they have not been given time to adjust to the change. I will go on to say just what a shock it was to many pensioners, and to the Office of Tax Simplification itself, when the change came about, but it is worth reflecting first on the number of pensioners affected.

We are talking about 4.41 million people who are worse off in real terms, with an average loss of £83. Those are the Government’s own impact figures, but in addition The Daily Telegraph has estimated that many people could be £479 worse off as a consequence, or £511 if they are aged over 75. It could cost a couple nearly £1,000. Those are not insignificant numbers for pensioners who are watching their household bills rise month on month. They are now watching their income diminish as a result of these changes.

It is also helpful to consider region by region the number of constituents affected by the changes. Many MPs have been contacted by constituents who are most aggrieved by the changes and, in particular, by the lack of notice that they were given of them. We know from written answers that the Minister was unable to identify exactly how many people would be affected by the change in the age-related allowance—the granny tax, as it has been dubbed, or indeed the granddad tax, as my hon. Friend the Member for Luton North rightly pointed out. However, Her Majesty’s Revenue and Customs has been able to produce figures for the number of people over 65 paying income tax by region. The House of Commons Library sensibly suggested that that could be used as a proxy to estimate the number of people in each region affected by the freeze, so we know that 170,000 of those affected live in the north-east, 480,000 in the north-west, 340,000 in Yorkshire and Humber, 320,000 in the east midlands, 370,000 in the west midlands, 450,000 in the east of England, 410,000 in London, 710,000 in the south-east, 460,000 in the south-west, 240,000 in Wales, 370,000 in Scotland and 90,000 in Northern Ireland. Those figures are something for everyone to consider when we think about the number of constituents in our own areas who are affected and the sheer volume of engaged voters up and down the country who, as my hon. Friend pointed out, will not forget these changes quickly.

However, the critical group of people whom we should be seriously concerned about are those reaching their 65th birthday this year. I would be grateful if the Minister could update us on whether the Treasury has undertaken any research to try to understand the true impact of the changes on that group, because it is a group of approximately 360,000 people who will be roughly £322 a year worse off as a result of being excluded from the age-related allowance. For that group, the incredibly short notice of the change has been completely unacceptable. We are talking about people who are very close to retirement age and have little chance to change their plans.

As I mentioned, at the time of the 2011 autumn statement the Chancellor made this categorical commitment:

“To ensure employers and older people do not lose out, for the duration of this Parliament the annual increases in the employer NICs threshold, and the age related allowance and other thresholds for older people, will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

Let me repeat that:

“To ensure...older people do not lose out, for the duration of this Parliament the annual increases in the...age related allowance....will be over-indexed compared to the CPI, and will increase by the equivalent of the RPI.”

And when was that statement made? It was made just four months before Budget 2012, when the Chancellor decided not to “over-index” the age-related allowance and not even to increase it by the RPI, but to freeze it permanently for those born before 6 April 1948 and scrap it altogether for those born on or after that date.

It was dressed up as a “simplification” measure. It was justified on the back of the Office of Tax Simplification’s interim “Review of pensioners’ taxation”. What the Chancellor did not mention at all in the statement was that that review stated:

“We would stress...that the OTS has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations”.

Indeed, in his evidence on the 2012 Budget to the Select Committee on the Treasury, the director of the Office of Tax Simplification, John Whiting, commented:

“I was surprised that it was taken forward so quickly...The context is that we undertook to do a two-stage review of pensioner taxation. The first would document the problems and codify all the problems...Stage two was to go ahead and look at them and try to work out what might be the best way forward.”

Of course, we know why the Chancellor did not want to wait for the final OTS report, through which he could have properly understood the impact of the changes on current pensioners and particularly on those who are turning 65 this year. He needed a soft target for a tax grab to help to fund his indefensible tax cut for millionaires. This is a measure dressed up as tax simplification that will actually increase revenue to the Government by £360 million in 2013-14. That will rise to £1.25 billion in 2016-17.

[Dr Thérèse Coffey]

rose—

[Kelvin Hopkins]

rose—

[Catherine McKinnell]

I will give way to the hon. Lady and then to my hon. Friend.

[Dr Coffey]

Of course, the hon. Lady will recognise that the Government believe that they will increase the amount of tax that they take from the richest in society by reducing the rate, as opposed to trying to suggest that it is being taken from some of the poorest in our society.

[Catherine McKinnell]

I will give way to my hon. Friend the Member for Luton North and then deal with both points.

[Kelvin Hopkins]

I hope my hon. Friend will agree that the Government would do rather better to look at the £84 billion profit that Vodafone has made on the sale of assets. By careful avoidance measures, it is avoiding billions in taxation. The Government would do better to look at that rather than at pensions.

[Catherine McKinnell]

We run the risk of digressing into a broader debate on tax avoidance and taxation rates, and it would be an injustice to the pensioners who are affected by the change in the age-related allowances to allow that. However, I take on board both points that were made in those interventions. My hon. Friend’s was about the crucial measures the Government need to take to clamp down on tax avoidance and evasion, close the tax gap and ensure that all revenue due to the Exchequer is brought in. The Minister and I regularly debate those issues. I also take on board what the hon. Member for Suffolk Coastal said. I appreciate her point, but I dispute her analysis. She should look at the figures for the shift in income that took place to forestall and then avoid the 50p tax rate, and then at the bumper tax take as soon as the rate dropped to 45p; those who are savvy, and in a position to do so, are able to take advantage of the reduction.

Like so many of the Government’s decisions, the change is completely arbitrary. It is likely that this year somebody celebrated their 65th birthday on 5 April, retaining their age-related allowance, while somebody down the street born the very next day lost their allowance and as a result will find themselves substantially worse off for the remainder of their retirement. That was why the Opposition voted against the measure in last year’s Finance Bill and tabled an amendment calling on the Government to conduct a proper review of the impact of the change on that group of people in particular and on pensioners in general. Some people did not have the common sense or ability to ensure that they were born before 5 April 1948, and as a consequence of that total lack of foresight, they will be much worse off for the remainder of their retirement. That is a deeply unsatisfactory situation for the people who prompted the debate today, on whose behalf we speak.