Finance Bill

Debate between Catherine McKinnell and John Hemming

Tuesday 28th June 2011 Commons Chamber

[Catherine McKinnell]

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

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

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

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

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

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

[John Hemming]

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