Small Charitable Donations Bill

Cathy Jamieson Excerpts

Tuesday 4th September 2012 Commons Chamber

[Miss Smith]

I am aware of that point of view, and if my hon. Friend will allow me, I will deal it and some others. I think he will know that the Bill has been subject to a pilot of a particular type of scrutiny over the summer, so there have been many opportunities to start that kind of discourse, and I look forward to continuing that in this debate.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I thank the Minister for mentioning the public reading stage. How many people engaged with that process? It has been brought to my attention that it was quite difficult to find the information, which was tucked away on the Cabinet Office website.

[Miss Smith]

I will be happy to come to that, but if the hon. Lady will allow me, I will make my points in sequence. I am starting to stack up—in a non-polycarbonate way, of course—the points I need to make, so I will set out a few more of the basics first.

The new scheme does not require individual donors to complete a gift aid declaration or the charity or CASC to collect and provide the donor’s details with every payment claim, as is required under gift aid. The aim of the scheme is to complement gift aid, not replace it, and we are keen that charities continue to make full use of gift aid wherever possible.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I am pleased to have the opportunity to speak on an issue that is particularly important for charities and CASCs. I am sure that Ministers well recall the Finance Bill Committee debates, where we heard about the good work being done by charities, local organisations and CASCs across the UK. I have no doubt that the success of the Olympics and Paralympics is leading to more and more people, particularly the young, seeking to be involved at that local level. That will, of course, be welcomed by the clubs and organisations, but it also places additional pressures on them to recruit, to retain volunteers and to expand on their activities, rather than just sustaining what they are doing. I am sure that we will hear a lot about the good work being done in each constituency.

We also know that many charities are feeling the impact of the recession. A number of individuals have told me that they are no longer able to keep up their monthly gift aid donations as they feel the squeeze on their household budgets. Many have reluctantly had to take the decision to cancel their donations or to lower the amount that they give to charity, and a large number of them have told me that they have felt particularly bad about that when they have received a phone call, an e-mail or other correspondence from a charity asking them to reconsider.

I have also heard that small local charities are finding that while donations are less than they would have received in the past, the calls on their services are increasing during these tough economic times. Only last week, I heard from people in my local area about churches being approached to help people who are struggling financially, and that has not happened for many years. So every additional penny and pound that can be added to the funds that charities have raised for themselves will, of course, be very welcome and will be put to very good use.

I recognise that the Bill’s intention is to provide more help to those organisations, which is why the Opposition support the Bill in principle. However, it is our responsibility to examine it closely, and to assess whether it delivers what it promises and where it may need to be improved. That will be the focus of my remarks. I hope that the Minister will accept that this is being done in a constructive way ahead of the Committee stage.

As the Minister said, the Bill introduces the gift aid small donations scheme, which was announced in the 2011 Budget; the Chancellor proposed a new scheme enabling gift aid to be claimed on small donations, up to a total of £5,000 per charity, without the need for donors to fill in a gift aid declaration. That would mean that each charity could claim up to £1,250 per year. As she said, the scheme is similar to gift aid, in that the amount the charity gets is linked to the income tax rate of the donor; it is a gift aid-style top-up payment. As we have heard, the scheme’s purpose is to enable charities and CASCs to claim a gift aid-style payment on small cash donations of up to £20, where it is often difficult, if not impossible, to obtain the gift aid declaration.

When the Chancellor announced the scheme, he said that it would deliver

“gift aid on the contents of the collecting tin and the street bucket”.

He also promised that the reforms would be bureaucracy-lite, as he described it,

“without the need for donors to fill in any forms at all.”—[Official Report, 23 March 2011; Vol. 525, c. 962.]

More recently, a Treasury spokesperson confirmed that the scheme is

“intended to reduce the administrative burden and boost the income of small groups that rely on”

those very important

“bucket donations.”

As the Minister has said, and other Members have commented, the Bill’s intentions have generally been welcomed. Concerns have been expressed, however, by organisations such as the National Council for Voluntary Organisations, the Charity Finance Group and the Charities Aid Foundation, who described the legislation as highly complex and not accessible enough for smaller charities. They have raised concerns that there is a danger that it will simply act as a reward scheme for the established organisations that are already good at, and involved in, claiming gift aid. They also suggest that some of the provisions proposed in the Bill could significantly disadvantage certain types of charities, which has prompted some concerns about the equality dimensions of the scheme.

Those organisations are asking the Government to simplify the scheme, to make it more accessible to smaller organisations and to make it fairer, allowing equal access for similar charities. We have already heard the comments and concerns from Caron Bradshaw, the chief executive of the Charity Finance Group, and Sir Stuart Etherington, the chief executive of the NCVO. I say gently to the Minister that the Opposition’s approach is not about a battle of quotes. I am sure that she agrees that people such as Caron Bradshaw and Stuart Etherington reflect the sincerely held views of the charities and organisations and their concerns about the Bill. We should listen to those voices. The Minister has the opportunity to lay out how she will take account of some of those concerns as the Bill makes progress. To be fair, she has gone some way towards doing that, but we still need to hear more from her about a number of matters.

[Mr Jenkin]

As I said, the Public Administration Committee is very interested in this issue and my hon. Friend the Economic Secretary was very receptive to the idea of revising the scheme after a period of operation to accommodate those concerns. Does the hon. Lady agree, therefore, that it would be sensible to include a clause that allows the scheme to be amended by secondary legislation without having to come back to the House to get another Act of Parliament? That clause is not in the Bill at the moment, but would she support its inclusion?

[Cathy Jamieson]

The hon. Gentleman makes an interesting point and that is precisely the kind of thing that the Bill Committee will want to consider very closely. Anything that makes reviewing and improving the Bill once it has been enacted better is worth considering and, potentially, supporting. I also hope that we will see where we can improve the primary legislation to make it less likely that we will need to revisit or revise it quickly. I hear what he says and I am sure that we will have further such discussions in Committee.

Let me return to some of the issues raised by the charities and the voluntary sector. The Bill proposes that an eligible charity must have been registered with HMRC for a minimum of three years, have made a gift aid claim in three of the past seven years and not had a penalty imposed as a result of a gift aid claim. One obvious concern raised by many small charities who rely on small cash donations is that they will not necessarily have a three-year history of claiming gift aid. They feel that that has the potential to disadvantage them from the start. I shall say something else about that shortly.

Another area of concern is the matching provision outlined in clause 1, and the Minister has given us some information about her thinking and why she decided to set the ratio at 2:1 rather than at the point she originally intended. In order for a charity to take full advantage of the scheme, claiming the maximum £1,250 on £5,000 of small donations, it will need to have claimed at least £625 in gift aid in the same year. Charities say that that raises a number of potential problems. As we have heard, many small charities may not be registered with HMRC, and unless they register they will not be eligible to join the scheme. There is a worry that the three-year period may not give people an incentive to do so. Many may simply decide that the scheme is too complex, particularly some of the small charities that do not have the resources or an extensive staff network; they may just rule themselves out.

Additionally, many small charities only receive cash donations, so they often do not raise enough to claim the maximum £625 in gift aid in a year that they would need to benefit from the scheme. Ministers may want to give charities some reassurance about that, because charities that claim less under gift aid are at a direct disadvantage as a result of the matching provision, compared with those that are better able to use the scheme. That could further reduce access to the very small charities that the Minister said she would like to see benefit.

The NCVO recommends that the matching 2:1 principle is dropped, and would welcome steps to open up the scheme—for example, so that start-up charities and those currently not registered for gift aid had the opportunity to register and get into the system sooner. I heard what the Minister said about anti-avoidance measures and potential fraud, but we want to ensure that we do everything possible to allow smaller charities that try to respond to local issues, or are set up to respond—not quite on an emergency basis—to a particular issue, to get as much benefit as possible.

On the connected principle, charities have identified additional areas of concern in clauses 4 to 9, which cover the rules intended to stop charities and community groups fragmenting in order to be eligible for greater amounts under the scheme. Clause 5 defines the meaning of “connected” using section 993 of the Income Tax Act 2007, where a person who has control is “a trustee”, or a person who

“has power to appoint or remove a trustee…or…has any power of approval or direction in relation to the carrying out by the trustees of any of their functions.”

However, charities are not connected

“unless the purposes and activities of the charities are the same or substantially similar.”

Once again, charities and the organisations that represent them have pointed out that in reality many trustees will serve on more than one trustee board, which is particularly likely at local level. The concern is that there could be an impact on the charity’s eligibility to join the scheme if a trustee sits on the boards of two organisations that are considered similar. Charities suggest that that could easily occur, because if an individual has expertise or an interest in a particular area of service provision, they might sit on the boards of two comparable organisations. It is important that the rule is not seen as a barrier to attracting people or appointing high quality trustees with experience and expertise. I hope the Minister will look at the issue and offer some reassurance and, if necessary, some changes so that we get the maximum benefit from the Bill.

It is highly unlikely that an organisation would be incentivised to fragment to increase its accessibility to the scheme, which has been given as the main reason behind the provision. The majority of charities simply want to get on with doing the job—I see the Minister nodding. Of course they want to maximise their resources and the last thing on their minds is setting up different structures to fragment to obtain some other advantage—as it has been described. Will the Minister consider providing further clarification so that charities with similar purposes will not be disadvantaged simply because they have a common trustee?

[Barry Gardiner]

Does my hon. Friend agree that because of the matching requirement the conditions to stop fraud in gift aid will already be followed through? There is not the capacity for the extent of fraud that the Treasury fears, because it is already captured by gift aid requirements.

[Cathy Jamieson]

My hon. Friend articulately outlines one of the points that some of the charitable organisations make. They want a balance between ensuring that there is no fraud and maximising the income for charities. Many of them believe that the current provisions give the protection for that.

A number of organisations have raised concerns about community buildings. Clause 6 attempts to recognise that some charities have multiple independent local groups, which should not be excluded from the scheme if they would have been eligible as completely separate organisations. Having run a charity in a previous existence, I know something of the practicalities and difficulties of trying to work in that context. I recognise that it is difficult to get this right and we will have to return to this in Committee.

The proposal is that the use of a community building always should serve as a proxy for assessing eligibility of the independent local groups. Clause 6 stipulates that charities running activities in separate community buildings, which could be considered independent, might be entitled to an additional specified amount under the scheme. The additional community building limit applies only to small donations that are made to the charity in the community building in the tax year while it is running charitable activities. The charities tell us that, once again, that could be problematic.

Beneficiary and donor groups are usually separate, and it is often the exception, not the rule, that funds are raised during charitable activity, so the charities are saying that the provision risks disadvantaging those charities for which it would not be appropriate or possible to raise funds in that way. They give the example of a support group for people who are recovering from addiction problems, which would not be expected to raise funds during counselling or one-to-one sessions, whereas a church or a church organisation might often take up a collection during meetings. It is more relevant, therefore, that the funding is directed towards the activities of the local group, rather than that donations are made in the building during charitable activities.

Clause 7 stipulates that a charity running activities in separate community buildings, which could be considered independent, might be entitled to an additional specified amount with respect to the scheme

“if it carries out charitable activities with a group of 10 or more people in the building on 6 or more occasions in the tax year”.

However, specifying the number of beneficiaries could limit the types of organisation that may access the scheme of their own accord. Again, I hope that the Minister will listen to what the charities are saying about that. They are also concerned that some community groups are based in a community building that is itself a registered charity, with a number of non-registered organisations carrying out activities in an umbrella organisation of some kind underneath that. It is not entirely clear to the people who will have to work the scheme on the ground how the rules apply in such a situation. Perhaps the Minister can clarify that. If not, we shall return to the matter in Committee.

There are a number of other situations in which the criteria might not apply. Local groups of charities that deliver services such as counselling to individuals or small groups might well not meet the 10-people rule, although they might be doing good and valuable work. In local groups of conservation or animal welfare charities, the individuals present might be volunteers. One concern about the Bill is when a person is a volunteer, a staff member or a beneficiary of the charity. The reality of many of those organisations is that people might occupy each role at different times, or indeed occupy some of those roles at the same time. There could also be problems where local groups carry out home visits and service delivery in the buildings of partner organisations.

There are some limitations to such an approach, which sees the links with the community buildings as the most effective way to identify an independent local group. The concern is that, for those groups, the Bill restricts eligible fundraising activities to those conducted in the building. If that is the case, it is unhelpful and will disadvantage those groups compared with other charities using the scheme, where no such restriction is in place.

Clause 8 stipulates that a community building cannot include a building, or any part of a building, used wholly or mainly for commercial or residential purposes. That point has already been referred to. It is said that the provision aims to ensure that groups run from homes and commercial entities such as charity shops cannot access a separate entitlement to the scheme.

The intention behind the provision is clear, but once again a number of challenges are posed. For instance, many charities that may be part of a group structure run activities that are residential in nature. Hospices have already been mentioned. Further examples are care homes and respite care. It will sometimes be difficult to decide what the main purpose is. It would be interesting to hear Ministers’ views on that. It may be difficult for those charities to access the scheme independently, as they may be entitled to only one limit across the whole group structure, unless they are awarded special consideration. Charities or community groups carrying out contracted services may also be considered commercial. That is a genuine issue for some of the charities that are delivering services on which many of our constituents depend.

If the additional limits are awarded only to groups carrying out charitable activities, this should be sufficient to restrict charity shops from accessing the scheme, if that is the purpose. Commercial activity that is carried out as part of the delivery of charitable activities—so-called primary purpose trading—should be exempt from falling under this definition.

A number of charities and voluntary sector organisations have expressed their concerns about the Bill, and the Minister gave us some information about involvement in consultation. The Bill has also raised concerns among some in the legal profession, including the Law Society of Scotland. It supports the policy intent of the Bill and suggests that it is an attempt to strike a reasonable balance between pragmatism and identifying fraud, so the Minister has the support of the Law Society of Scotland in that context. However, the LSS makes the point that it is difficult to identify a way of achieving in practice what the Bill attempts to do in theory. It suggests that flexibility be built into the legislation, as has already been mentioned this afternoon, or that there should be provision for a review of how it is working, as it may prove easier to identify ways to widen the scope of the legislation once it has been in operation for a time.

The Law Society of Scotland echoes the points made by NCVO and others that the legislation is likely to have limited impact and that it will not catch all the charities that could usefully benefit from it. The LSS goes on to highlight some specific issues about the drafting of the Bill. I do not want to spend too much time dealing with those this afternoon, but I shall set out a couple. On clause 3, the LSS has voiced concerns that £20 is too small an amount and that in certain situations it may be difficult for managers to police. It notes that the schedule to the clause provides that

“Where a gift of cash is made to the charity and its managers do not know whether the gift is £20 or less, the condition in sub-paragraph (1)—

With which I am sure the Minister is au fait—

“ is to be treated as met if the managers have taken reasonable steps to find out.”

The Minister and I have had enough exchanges in Committees to know that there are always questions about what “reasonable steps” in such a case would mean. This is another example where something that makes perfect sense to those drafting the wording of a Bill may not easily translate into practice and I, like the LSS, am left wondering what the “reasonable steps” envisaged might be in practice and whether the Minister is proposing guidance on this point.

I seek clarification from the Minister whether the provisions laid out in clause 12 are intended to provide continuity where a charity opts to change its legal form. Does she agree that although it would be sufficient in respect of incorporations, more would be required in the case of mergers? Does the primary legislation need to be wider in that respect?

Although the Bill of course covers the UK and contains provisions for different parts of the United Kingdom, particularly the exception for Northern Ireland, the Minister will be aware that there is different legislation for charities in Scotland. Concern has been expressed by the Law Society of Scotland that the definition of “charitable purpose” in the Bill is the English definition. Will the Minister clarify whether the wording in clause 17(2)(a) is necessary or desirable in view of the terms of sections 7, 8 and 356 of the Charities Act 2011? Scottish charities will need to be aware of the different legal definitions that will apply to them for different purposes.

I know that all probably sounds pretty technical when broken down clause by clause, and there might be Members on both sides of the House whose eyes are now glazing over because of all the detailed points I have made, but it is an example of what we are going to have to deal with in Committee. However, I think that it is worth reflecting on the fact that these issues have been raised because charities have told us that the changes will affect people in our communities.

The CFG has highlighted the example of a local branch of a national charity that works with disabled children. The branch is independently managed and holds its own business contracts. It runs in-home services for children and young people and focuses on developing independent skills. It occasionally holds social groups for its beneficiaries in different venues, depending on the cost of rent and availability. A local commercial hotel and leisure club often provides it with low-cost space to hold such events. The branch regularly claims under gift aid and often fundraises with collection buckets in the local area and through events at local schools.

One of the concerns that have been raised is that that organisation might be unable to claim gift aid fully under the proposed scheme because, as a local branch of a national charity, it might be considered to be connected and so would fall under the community buildings rules. As its services are not linked to one community building, it might be unable to claim for small cash donations. Residential and commercial buildings are not eligible, so it will not be able to register off the back of regular meetings in beneficiaries’ homes or the local hotel that provides low-cost space. One-to-one services do not count, as the legislation stipulates that meetings in community buildings must take place with at least 10 people present, not including staff and volunteers, and at least six times a year. Donations are not always made during the course of its charitable activities or within a community building used for those activities, but rather through separate fundraising events and activities. That picture of what a typical charitable organisation or set-up involves is one that we will have to look at more closely in Committee to ensure that absolutely everything is put in place to assist them.

In conclusion, the scheme is a welcome addition to the gift aid landscape and could be of particular benefit to small charities. We know that millions of pounds in potential gift aid is left unclaimed every year, and the scheme could go some way towards bringing some of that money back to the beneficiaries who need it most. We know that giving small amounts of cash is the most common donation method, and it has been estimated that in 2010-11 the average person would have donated £11 through charity buckets or donation tins.

Therefore, charities are asking the Government to simplify the scheme substantially to make it fairer and allow improved access for smaller organisations and equal access for similar charities. The abiding principle they want to see adopted is that the scheme should be easy to access and not tied up in red tape—something I am sure Ministers will absolutely wish to ensure. It would be helpful if the Minister gave some response to the concerns about the matching ratio requirement, the eligibility criteria and the community buildings rules. We have also heard some concerns about gift aid, such as the burden on charities of its being a paper-based system in an increasingly digital world. Indeed, the comment has been made that it is perhaps time to look again at the whole gift aid system and ways of bringing it up to date. I would be interested to hear her views in that regard.

Finally, I welcome what the Minister said about being committed to the consultation process and the new public reading stage for Bills, but I must reiterate the comments I made in my earlier intervention. It has actually been quite difficult for members of the public to find the information on the Cabinet Office website and take part in the consultation. If this is a pilot for the future, I hope that she will consult colleagues on how the whole experience could be improved. She has updated us on a number of comments that have been made, but perhaps she will also give us a specific time scale for when the information will be given to Members so that we have the opportunity to engage fully with the organisations that took the time to contribute.

The Opposition support the principle of the Bill and want to see it progress to Committee, where it needs to be amended to reflect the views of those who have contributed so far and the needs of the charities and community amateur sports clubs that do so much good work in our local communities.

Banking Competition

Cathy Jamieson Excerpts

Thursday 12th July 2012 Westminster Hall

[Andrea Leadsom]

I am not aware of the specific amendment that the hon. Gentleman is talking about. However, I certainly think that the Government will be wanting to promote diversity, and I am very much aware that they want to promote the diversity of financial service providers. I can tell him that, at a recent hearing with the Treasury Committee, the Governor of the Bank of England assured us that he, too, was very interested in promoting more competition and greater diversity. We unanimously agree on that point.

The best way to shake the banks out of their complacency is to allow new entrants into the market, bringing with them the high standards of service—including IT that works—that customers believe they should be able to take for granted. One significant step in that direction would be to break up and sell off the state-owned banks. That would create overnight potential new challenger banks in Britain, and I urge the Government to look at it again. The market concentration of the big five is appalling. Lloyds, the Royal Bank of Scotland, HSBC, Santander and Barclays have an estimated market share of 85% of the personal current account market and 67% of the mortgage market. That is a classic oligopoly, and they do behave like one. We can see all over the place barriers to entry, not least of which is the fact that those banks own, among them, the Payments Council and VocaLink—two crucial entities that enable the financial services markets to operate.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

In an earlier Westminster Hall debate this week on the Royal Bank of Scotland, I heard from one of the hon. Lady’s colleagues what was essentially a call to mutualise RBS. Does she agree that that would be one option? Is she proposing that?

[Andrea Leadsom]

I am grateful to the hon. Lady for intervening. Not specifically, no. My point is more that we need the market to decide on diversity. I do not think that the Government, in any area of our economic life, should be the ones who pick who should be doing what. What Government need to be doing is facilitating greater competition and greater diversity so I would not be prescriptive in that way.

The key point that I want to focus on is that a real game changer for competition would be for the Government to introduce full bank account portability. We take that for granted with our mobile phones. Why should our bank accounts be any different? I have been pressing for it, along with various colleagues, since becoming an MP. If people were able to switch instantly between banks without having to change their bank account number, bank cards, standing orders, direct debits and all their online shopping, that would remove a massive barrier to entry that is currently constraining new, innovative banks.

Bank account portability has five basic benefits. The first, obviously, is that it creates greater bank competition. That is because a new bank can say to its customers, “Come and give us a try. If you don’t like us, you can move back to your old bank tomorrow.” The enormous inertia on the part of customers, who do not want to move bank because of the hassle and aggravation for them personally, would be removed instantly. They could switch between banks every day of the week if they chose to do so.

Secondly, personal and business customers would be able to force banks to compete for their business. New banks would therefore be putting forward innovative ideas—perhaps paying customers to move to them at one end and giving particular services to business account customers at the other end. That would completely change the choice available to consumers, and the consumer choice argument is a very strong one. At the moment, with the big banks, most people feel that there is no choice.

The third benefit is better regulation. The regulator would be able to shut down a failing bank while avoiding the risk of a run on the banks. With account portability, all personal and business accounts could be switched immediately to a survivor bank.

Fourthly, there would be a reduction in fraud. The highly overestimated costs of account portability need to be set against the significant reduction in bank fraud. I was talking to Intellect, the IT trade body, which reckons that bank fraud could be reduced by up to 40% if we had full account portability, because one of the major reasons for fraud is the poor legacy systems in some of the big banks.

The fifth benefit would be support for SMEs. It is crucial that we have that in our economy; we have to get businesses going again. Funnily enough, if banks had a single system, they would also have a single customer view, so they would be able to evaluate, calculate and assess their small business customers far more accurately, enabling them to meet the needs of small businesses far better.

Making it easier for people to switch bank account provider is not a new concept. Don Cruickshank, who led a review of the banking sector and whose report was published in 2000, has long been committed to the idea. In 2000, Halifax launched the stand-alone telenet bank Intelligent Finance, with the express aim of making it easier for consumers to switch bank accounts. In March 2001, the Competition Commission identified reluctance on the part of small and medium-sized businesses to switch banks as a major problem. Later that year, the Bank of Scotland announced its intention to capture business from what was at the time the big four with a new “Easy to Join” service, which would assign a staff member to oversee the account switching process and to deal with direct debits, standing orders, international transfers and the like.

In June 2002, James Crosby, then chief executive of HBOS, said that he was concerned by delays to greater account portability and that the move was vital for competition. More recently, the Independent Commission on Banking, led by Sir John Vickers, called for a system that would make account switching easier. However, the ICB’s proposals stopped short of full account portability.

This year, Virgin Money has added its support for full bank account portability. It has said that it is happy to support the ICB proposal that a current account redirection service should be established by September 2013, but that it is

“not sure that it will be sufficient to overcome consumers’ inertia, and their concerns that switching may be difficult.”

In its submission to the ICB, it expressed a preference for full account number portability.

The ICB published its final report in September 2011, following an interim report that April. The Treasury Committee took evidence in relation to both reports, and several bankers said that account switching was important. Mr Horta-Osorio, chief executive of Lloyds Banking Group, told the Committee:

“There has been progress made in terms of customers being able to switch effectively and without risk, but more progress can be made. We are proposing a seven-day automated redirection of direct debits whereby customers in seven days can be sure that their account and their direct debits are automatically redirected to the new account without any risk. All banks have now endorsed that solution and the Payments Council as well.”

At the weekend, Jayne-Anne Gadhia, Virgin Money’s chief executive, said that

“banking doesn’t have to be remote, distant and just transactional. There can be a new and different future where customers are at the centre of the banking experience…For too long, banking has been more head than heart. We want to put more heart into it.”

The ICB reported that there was a switching rate of just 3.8% for personal current accounts in 2010, that three quarters of consumers had never considered switching their current account, that 51% of SMEs had never switched their main banking relationship and that 85% of businesses surveyed by the Federation of Small Businesses had not switched their main banking provider in three years. Which?, the consumer focus group, estimates that people are more likely to get divorced than change their bank account. Those switching rates compare very unfavourably with those in other industries. In 2010, 15% of consumers changed their gas supplier, 17% switched electricity supplier, 26% switched telephone provider and 22% changed insurance provider.

Jayne-Anne Gadhia of Virgin Money says that

“retail banking has been underinvested in. When retail banking becomes the focus of senior banking executives again, which the splitting of retail and investment banking would bring about, bank customers will get a better service. If that happens, then I would be delighted.”

I agree with her. Making it easier for consumers to switch provider would be a boost to new entrants in the market and therefore to competition, because consumers would know that if they did not like the bank they had moved to, they could always move again.

--- Later in debate ---

[Teresa Pearce (Erith and Thamesmead) (Lab)]

Some of the points that I was going to make have already been raised by my fellow member of the Treasury Committee, the hon. Member for South Northamptonshire (Andrea Leadsom). I was glad to add my support to the application for the debate, because it is important to my constituents.

I represent Thamesmead and Erith. Thamesmead is an estate built by the Greater London council in the 1960s. There are 45,000 people living there and not a single bank in the whole of Thamesmead. I have met all the major banks to ask whether they would be wiling to open a branch or have a mobile bank—anything, really—but they have all said no because it would not be economic for them. They have no thought for the customers there—mainly basic bank account holders, some of whom cannot even use one of the few ATMs there. People in my constituency have to take two bus rides to draw their own hard-earned money out of an ATM without incurring a charge. The service is simply not good enough.

Markets are supposed to operate on the principle of the virtuous circle. I doubt whether anybody in the country at the moment thinks that that applies to the banking market. Well-informed consumers are supposed to drive a competitive business to deliver what people want, and that is simply not happening in my area or many other areas. Banks are not delivering what my local small businesses want or what my local bank account holders want—they are just not delivering at all.

The market is supposed to respond to customer need and customer power, but at the moment, consumers do not seem to have any real choice or power. When people come to me and say that they have a problem with their bank, and I ask if they have tried another bank, they say, “They all seem to be owned by each other; what difference will it make?” There is no consumer choice. It is a market, but not a proper market, because it does not operate as any other market would.

[Cathy Jamieson]

I know that my hon. Friend cares passionately about people’s exclusion from financial services. Would she agree that part of the problem is that it is not easy for people who are in debt or do not have high incomes to switch? Going to another bank is fine if they have money, but it is not easy at all if they are trying to pay off an overdraft or loan.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I declare my interests, which are in the Register of Members’ Financial Interests. I am a Labour and Co-operative Member of Parliament and have connections with various parts of the co-operative movement and a number of credit unions.

I thank the hon. Member for South Northamptonshire (Andrea Leadsom) who ensured that the debate took place, and other hon. Members who supported the application for a debate. This has been a welcome opportunity to look in more detail at competition in banking and to hear some thoughtful speeches. The fact that nine hon. Members have contributed, in addition to the hon. Lady’s opening speech, and that hon. Members have made many interventions shows the level of interest.

I should like to respond to points made in the debate and set out our policy position. It goes without saying that there was consensus on this matter; I am glad about that. We need real change in the British banking system if we are going to rebuild our economy. That message was set out clearly as a way forward by the Labour leader, my right hon. Friend the Member for Doncaster North (Edward Miliband), and the shadow Chancellor earlier in the week, when they visited the Co-operative bank. That message is important and worth restating today, notwithstanding differences of emphasis across the political parties. I think hon. Members agree that we need to build a banking system that recognises that it is not just an industry that serves itself. That came through in a number of hon. Members’ speeches. Banking must have a fundamental and higher responsibility to serve the economy, but Members gave examples of banks not necessarily having served either constituents or local businesses.

As the hon. Member for South Northamptonshire said, the revelations of the past two weeks have shown precisely what has gone wrong in some aspects of banking—it has had an impact on our economy—and what has gone wrong over decades, with cultural changes taking place slowly and not necessarily being picked up until crisis point. Problems have been highlighted that require further scrutiny.

As in the wider economy, we need a banking system that is based not just on short-termism. It is not about making the fast buck and not about people taking what they can and not worrying about the longer-term consequences. Instead, we should begin to look again at how we can rebuild the economy and our banking system through patient investment, looking to do the right thing in the longer term and sharing responsibility for how the process moves forward.

The short answer is to try to shift the culture so that it is not about predatory behaviour and banks trying to make the hard sell and the quick extra buck by selling a product and pushing it on people, whether they want it or not. It is about productive behaviour and considering how we encourage people to save and how to use those savings productively for local communities and small businesses. Hon. Members have focused on that.

Above all, I want an economy and a system that do not work just for the powerful, privileged few. My hon. Friend the Member for Islwyn (Chris Evans) mentioned how angry people are when they see what has happened in the banking system, particularly when they have worked all their lives and saved and done the right thing, and now find that they and their families and communities have been let down and left out, because many of them have used their savings and now have nowhere else to turn. It will be difficult for many people approaching their retirement years, or in retirement, who thought that they would be okay and that they had done the right thing, but now discover that they are in difficulty.

Again, as the Labour leader set out earlier in the week, the move from what has been described as casino banking to stewardship banking is important. That use of language is interesting, because the idea of stewardship is that we have responsibility for looking after the money and the people who have invested their money in the banks.

The point was made strongly that we need a banking system in which the bankers are not given incentives, overtly or in other ways, to focus only on a short-term return. We should move to a system that is about building up long-term, trusted relationships with customers, whether individuals or small businesses. The hon. Lady also made an important point: we need a banking system in which no bank feels that it is either too big to fail or too powerful to be challenged. Yes, banks need to face real competition and customers must have proper choices, but above all we need a banking system in which all the people in the UK have confidence once again.

I say with feeling as a Scot—we have at times been castigated for our thrifty nature, and sometimes even been described as mean rather than thrifty—that the values and principles I spoke about are the foundations on which the Scottish banking system was built. Many of us have taken it badly that those values and principles were cast aside. Not only did the banks find themselves in difficulties, but there were wider questions about the culture of Scottish banks, which we were once upon a time extremely proud of.

[Steve Baker]

I have always admired the Scottish banking system. My friend Professor Kevin Dowd is a huge advocate of Scottish free banking. At its height, its key distinguishing feature was the almost complete absence of the state. Banking was at its best when the state was at its least intrusive.

[Cathy Jamieson]

That is an interesting point, but I will speak about some collective approaches to banking. The nub of much of this debate is what caused the banking system, which at its height was doing well for the economy and working well for people, suddenly to tip over. It put people on the wrong side of the decision-making process, and forgot that it was supposed to be looking after other people’s money. That is the issue I would like to explore in more detail when we have the opportunity to scrutinise the matter.

In her opening speech, the hon. Member for South Northamptonshire referred to the culture in her day. As a young person, I saved threepence a week in old money and took it to school every week to put in a school bank account. I still remember the day I got to the wonderful point of having £1 and, in addition to having a school bank account in which to save threepenny bits, or whatever it was, became the proud owner of a Trustee Savings bank account book.

I did not live in an affluent area—far from it—and my family was not well off. My father was often unemployed, but the principle of saving a little every week for a rainy day established for me and many of my generation at a young age the importance and responsibility of saving. I remember my horror at secondary school when I had to buy a set of drawing instruments and had to go the bank and take money out. That was the first time I realised the trauma of having to take money out instead of putting it in, and then to work doubly hard to replace it.

At that time, banking was a respectable job, as hon. Members have said. It was a job that people vied for.

--- Later in debate ---

On resuming—

[Cathy Jamieson]

Before the Division, I was talking about banking being seen as a respectable job that people vied for and expected would be a lifetime career, if they were lucky enough to get a start in the industry. That is certainly how things were when I was considering my career—not that I ever actually considered a career in banking. I do feel, however, for the decent, honest, hard-working staff of the banks, and that has been echoed by Members from across the House, and particularly by my hon. Friends the Members for Erith and Thamesmead (Teresa Pearce) and for Islwyn.

I feel for those decent, hard-working people who have seen their industry and work force castigated and vilified. Bankers now appear to be even less popular than politicians and the media—we would once have found that hard to believe—and that is despite the fact that the individuals, the ordinary workers in the banks, have done nothing wrong. Indeed, as we have heard, many of them probably did query, at whatever level they could, the hard-sell sales targets that they had to achieve, but because of decisions taken by others, they now face guilt by association and they are the ones on the front line who have to deal with the public.

I also feel sorry for the front-line staff who lost their jobs in the aftermath of the banking crisis. Those people did not walk away with millions of pounds and, as we heard from my hon. Friend the Member for Islwyn, if they did get a bonus, it was part of what they had to work to achieve in order to make a decent wage by the end of the month. Those people did not walk away with multi-millions, and indeed, as I know from some of my constituents, many have been unable to secure permanent employment since. That makes it all the more galling when those who made the bad decisions—the wrong decisions—are able to leave with massive pay-offs, and that is also why the public are so angry.

What more should the Government be doing? This debate is about banking competition, and we have heard a little about that. We have also heard, in one of the interesting threads running through the debate, about mutuality and different forms of common ownership of the banking system. Over recent weeks and months I have found it absolutely fascinating to hear about the number of converts to the principles of mutuality and that form of common ownership. That is very welcome. I do not want to sound a discordant note, but that level of support for and understanding of the principles of mutuality would have been helpful a number of years ago, when the media and other commentators were urging people to become customers of particular banks in order to get a windfall on demutualisation. Many of us argued against that, saying that it was short-termism of the worst sort. We said that a day of reckoning would come, and we have now seen that happen.

However, mutuality and co-operation must not be just for a time of crisis or to fill a gap when the private sector has failed or stalled. They offer a successful alternative business model, which should at least have a level playing field. Opposition Members remain disappointed that the Government did not accept the strong case made during the campaign run by the Co-operative party, called “The Feeling’s Mutual”, which focused on the need for remutualisation of Northern Rock. That sent the rather unfortunate message that the Government did not have much faith in the mutual sector in reality, despite the warm words in policy documents and the coalition agreement, which stated that the Government would bring forward detailed proposals to ensure a strong and growing mutual sector. Again, I hesitate to sound a discordant note, but I do not think we have seen evidence of such proposals yet. I recognise, though, that the building societies White Paper, which we had been waiting for, was published this week. I will go through that with interest. I see the Minister nodding. I am sure that he knows, from our time together on various Bill Committees, that we will indeed scrutinise it closely.

Many hon. Members have pressed the Government on a range of issues relating to financial services, including the capping of interest on loans, financial inclusion, financial education and access to finance. We have heard about many such issues today.

[Mr Thomas]

Before my hon. Friend moves on to deal with the particular remarks of hon. Members, may I ask her about Northern Rock? The Government have clearly made their decision, but does she think it would be helpful for the Government to publish their assessment of the different proposals? Clearly, some information would have to be redacted for commercial reasons, but would it not be helpful to release the paperwork and enable us to have a proper understanding of the assessment that the Government made? That would perhaps inform the debate about the building societies White Paper and it would certainly help financial mutuals to understand what on earth they have to do to convince the Government of the case for expansion of their part of the sector.

[Cathy Jamieson]

My hon. Friend makes a very interesting and valid point. Opposition Members are reasonable people. We understand that sometimes things have to be held in confidence and that it may not be appropriate to put some information in the public domain. We would not be unreasonable about that, but my hon. Friend makes a valid point about informing the debate and looking to the future, because if we are serious about promoting and supporting the mutual sector, we need to understand exactly why the Government did not think that was the right thing to do in the case of Northern Rock.

As I said, many hon. Members have pressed the Government on a range of issues. We think it rather unfortunate that the Government have not agreed to include those measures in relevant Bills, despite the fact that sometimes there were, in our view, appropriate amendments that would have given them the hook to do so. As the Minister will be aware, my hon. Friend the Member for Nottingham East (Chris Leslie) and I tabled detailed amendments to the Financial Services Bill to allow the Government the opportunity to deliver on the coalition pledge on mutuality, but unfortunately they used their majority to vote them down.

The financial mutual sector has proved to be robust during the economic crisis. It was not the sector that required bailing out. The regulated industry, of course, required a public bail-out of £60 billion. In that context, the criticism aimed at some of those in governance structures in mutuals, whether in the Co-operative bank or elsewhere, is ill-founded. Having a few more lay people with a common-sense approach and a grip on what is right and wrong, who would be prepared to flag it up when greed was overtaking responsibility to customers, would have been no bad thing in some of the banks, which had become so out of touch that they had forgotten that it was other people’s money they were gambling with.

I ask the Minister to say in his response to the debate exactly what the Government intend to do to help the mutual sector. I hope, for example, that they will look carefully at the demutualisation regulations, tax system support for the sector and the capital raising requirements for mutuals. Again, we have debated that in various Bill Committees. There is an opportunity to do so again in relation to the legislation that flows from the Independent Commission on Banking.

I hope that we will see speedier progress on that than perhaps we saw on implementing the legislation passed by the previous Government. It took about 18 months to implement the vital changes for credit unions. It is very welcome that hon. Members on both sides of the Chamber have today expressed support for credit unions. Perhaps the Government will take the opportunity to look again at the elements of the Co-operative and Community Benefit Societies and Credit Unions Act 2010 that remain unimplemented and see whether anything else should be done to assist credit unions.

Of course, as well as the Co-operative bank, we have the Nationwide building society, which points out, with some justification, that it is a challenger brand that provides a mass market, mutual alternative to the banks. Like the Co-op bank, it has seen a sharp increase in the number of people looking to join it. I understand that Nationwide has seen an 85% increase, week on week, in the number of customers opening and transferring their main current account online. It has consistently made the point that it needs a level playing field with the plcs if it is to continue and enhance its role. It is not looking for special treatment. It is not looking for anything other than recognition of particular regulatory impacts on mutuals. I am sure that the Minister will want to examine that.

The Nationwide is one of the organisations that support the creation of a current account redirection system to improve switching, and it is actively involved in work on that at the moment. We have heard during this debate about the difficulties there can be in switching accounts. Partly it is a cultural thing—people may have stuck with the same bank for many years—but there is also an issue about financial exclusion. As I said in an intervention on my hon. Friend the Member for Erith and Thamesmead, I know of many constituents who have found it difficult to get a bank account at all. If anyone has ever tried or knows anyone else who has ever tried to open a basic bank account in the not-too-distant past, they will know the hoops that people have to jump through. In addition, the finances of many people on low incomes work in such a way that when it comes to anything that is out of the ordinary or that would upset their regular system of payments or income coming in and going out, on a weekly or a monthly basis, they simply cannot afford to take the risk. They will not take the risk of upsetting things, even for a month or so, to move accounts. Sometimes it is a case of “Better the devil you know” than the uncertainty of what they do not know. Therefore, anything that could be done to assist people in the process of moving accounts would be helpful.

To conclude, I shall make a few remarks about what Opposition Members have set out as a sensible way forward. I have not had the opportunity to say much about the small business sector. I have focused mainly on individual consumers. I of course echo the comments made by various hon. Members about how we support small businesses. That is extremely important. The German model of Sparkassen is creating quite a lot of interest. That is certainly worth looking at, because all of us know what small businesses in our local areas are finding, notwithstanding all the warm words from the banks. I am sure that the people saying those warm words believe them—from their perspective, everything is fine. However, the reality is that week after week, small business people are coming to see us at our surgeries and telling us that their business is under threat, perhaps because of cash-flow problems and perhaps because of changes in banking arrangements that they have had for years and that no one has ever previously questioned. That the banks have a wider responsibility than simply what they do to make money for themselves comes through at that point.

We set out our proposals earlier in the week. We strongly believe that there is a case for a British investment bank—indeed, we have worked on it and published a report. We also believe that greater competition in the banking industry, with at least two challenger banks, not simply one other entrant, would at least make some difference. Banks on high streets are very important, because people need to access local branches and, if we are to change the culture, to build up individual relationships. We need transparency about which communities and sectors do not get services from the banks, as has been mentioned today. We also need a code of conduct for bankers, with those breaking the rules having to suffer the consequences. It happens in other professions; why not in the banking sector? We heard a powerful contribution from my hon. Friend the Member for Islwyn, who worked in the industry, about the lack of training and the downgrading, as he saw it, of professional standards.

We ought to proceed with a new unit in the Serious Fraud Office to tackle fraud in financial services. We must change the bonus culture, by backing international changes to limit bonuses. We want the Vickers proposals implemented in full, not watered down, particularly not the ring-fence between the casino and the retail banks. We want to ensure that it happens. I know that it was controversial in the debate last week, but we continue to believe that we need a further public inquiry to enable us to address the deeper cultural challenges that the banking industry faces and to examine how we genuinely change the way that our banks work and how we make them focus on stewardship once again.

The hon. Member for Macclesfield (David Rutley) mentioned culture being measured by what happens when no one is looking. Notwithstanding the many people who have done well, are doing the right thing, are socially responsible, are working ethically and are supporting their customers, given what has happened, the banking industry will not be judged by the best—it is being judged by the worst. That is what we have to address. I hope that the Minister will outline how he intends to do that.

Community Banks

Cathy Jamieson Excerpts

Tuesday 10th July 2012 Westminster Hall

[Guy Opperman]

The reality is that Hampshire, for example, has done what I am talking about and set up the Hampshire bank, or Hampshire Trust. It is backed by the local chamber of commerce and by local authorities. It is regulated, so it is possible to have a county bank that is regulated, but on a lighter-touch basis—I use that phrase again—than the larger banks such as Barclays or HSBC. Moreover, if we broke up RBS, which I will come on to discuss, the individual shareholders would have a say in a local county bank.

How do we create local banks? First, one must address the barriers to entry, which are considerable. Metro Bank has recently been established in London and the south-east, but only at huge cost and only after overcoming many hurdles. The example of the Hampshire bank shows that county banks can be created. I see no reason why we cannot do the same in Northumberland, or in the wider north-east region, and set up “The Bank of Northumberland” or “The Bank of the North-East”.

However, the truth is that a banking licence is notoriously difficult and costly to obtain. To try to remedy that situation, along with my hon. Friend the Member for Chichester (Mr Tyrie), who is the Chairman of the Treasury Committee, I met the chairman of the Financial Services Authority, Hector Sants, at the beginning of March. My hon. Friend and I sat down and tried to explain the problems to Mr Sants, and I am pleased to say that under this Government the FSA is considering trying to reduce the barriers to entry for smaller local banks.

On 12 March, the FSA’s chief executive wrote to me:

“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”

He added:

“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.

In those circumstances, and with the background of a banking crisis, we need to look at the elephant in the room that is the Royal Bank of Scotland. The Government are understandably impatient to sell the 83%-nationalised bank, but the health of the public finances ultimately depends on the health of the economy, which itself rests on the stability and usefulness of the banks.

The taxpayer bail-out and the subsequent problems of RBS are well documented, and it now seems clear that the chances of the Government selling RBS as it is, and making a profit, or anything like one, are but a dim flicker at the end of a long tunnel. What the Government did with Northern Rock was undoubtedly the best option and the only real one, but RBS is different. I see RBS as an opportunity—as the Americans often say, “Don’t waste a good crisis.” We have a unique opportunity to seize the moment, and to ensure that RBS is managed for the benefit of the taxpayers, who own 83% of it, thereby transforming the banking sector. I suggest that we do not sell RBS as it is, but break it up, decentralise the branch management and use it to form the basis of devolved local community banks—imagine a local bank for every city or county—linked, where possible, with the local authorities and chambers of commerce.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I had not intended to speak—I just wanted to listen—but for clarity, will the hon. Gentleman say whether he is suggesting a form of mutualisation of RBS?

[Guy Opperman]

In real terms, the current RBS would go back to the people on a local basis, and if the hon. Lady listens I will explain how the shares could be devolved.

We would end up, I suggest, with dozens of little banks like 3i. The 3i Group plc is a large FTSE 100 company that started out as a Government business bank, as a support mechanism to get the country out of the 1930s depression. The new banks would be governed locally, with lending decisions made by managers who understood the local economy better than anyone at a London head office ever could. The managers would be embedded in their local economy, and could base their judgments on knowledge of people and businesses without being overruled by a credit risk computer or centralised targets. Their success would be intertwined with the success of the local economy.

I suggest that breaking up RBS is only half the solution. The next fundamental question is: what do we do with the Government shares? We could sell them, but I disagree with that proposal. We should give all 45 million people on the electoral roll the Government-owned RBS shares, making every voter a shareholder of a local bank created from the devolution of the RBS branches. Each local bank would coincide with a county or city council, and in my patch that would create a bank of Northumberland, with every adult in the county as a shareholder. Each bank’s lending powers would be limited to persons and businesses within its council boundary, and with residents as shareholders, the bank’s administration could be run by the existing council, to save costs and dovetail with existing infrastructure. If the plan went ahead, the 45 million shareholders would dwarf the 10 million that were created in the 1980s through the sell-off of BT and British Gas. It is crucial to remember that the Government did not bail out the banks—the public did. Their hard-earned money kept the banks afloat, and it is now time for them to share some of the rewards.

As well as giving taxpayers an effective rebate in the form of shares, the move would help to restore confidence in the banking industry, and boost the economy. The public is rightly fed up with a system that has become overwhelmed by small vested interests, a London-centric base and personal greed. What better way to repair that than by giving every voting member of the public a stake and a say in our state-owned bank? I accept that people could sell the bank, but the force of having 45 million British taxpayers holding banking shares could help transform the economy even if individual shares were sold. The alternative—there is one—is to give the shares and the branches to local authorities, which would be localism in its purest form, with state banking returned to a position of support for local communities, building on the German, Swiss and US models.

I am grateful to the Speaker for the opportunity to put my case today, and I thank the New Economics Foundation think-tank for its support. The endowment of local community banks, constrained not to lend beyond county borders and able to provide support for local businesses, is an important part of supporting local economies and communities across the country. With a mission to recycle savings locally and expand credit for productive loans that benefit the local area, but on a sound commercial footing, the strength of the case for reinstating a system of community banking is ever increasing. I suggest that we do not need to replace the commercial banking sector, because we can offset it and balance it out with a new system of banking. That would certainly introduce competition into a sector that is crying out for it, and transform banking in this country.

Finance Bill

Cathy Jamieson Excerpts

Tuesday 3rd July 2012 Commons Chamber

[Mr Gauke]

I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.

Finance Bill (Programme) (No. 2)

Cathy Jamieson Excerpts

Monday 2nd July 2012 Commons Chamber

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I will speak very briefly because I am conscious of the time, but it would be remiss of me not to put on record the fact that we have some concerns about the lack of time available to discuss what is a very big Finance Bill. There are a number of serious issues that many Members will want to discuss during the course of this evening. Although we will not vote against the programme motion, I want it to be on the record that we regard this as an exceptional circumstance and we do not wish it to be seen as the way in which things will be automatically dealt with in future.

Finance Bill

Cathy Jamieson Excerpts

Monday 2nd July 2012 Commons Chamber

I am concerned that if the Government do not respond to the industry’s plight, by the end of the year we might lose it—or most of it—and the revenue from it; there might be a net loss to the Exchequer, because the differentials I want extended for one more period would be far less than the loss; green fuel will lose out; a good recycling product will lose out; and we will regret it. I ask the Minister and her colleagues in the Department for Transport not to let this happen. If it cannot be implemented in this Finance Bill, as I would like, something might need to be done quite soon in this financial year. They will accept, I hope, that it would not be good for part of this valuable industry to be lost. We need green jobs, and the Government are promoting them, but they must continue to do so for the road industry.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to speak on this important issue. Notwithstanding the fact that few Opposition Members are present, I hope that Government Members will recognise the quality of the contributions, if not their weight in numbers. Neither should anyone believe that the fact that there are relatively few Labour Members in the Chamber suggests a lack of interest or concern about this issue, which matters to every one of our constituents.

Two weeks ago, on 20 June, an article in The Daily Telegraph reported the Prime Minister as warning motorists that there was

“no bottomless pit of money”

to fund a fuel duty cut. We were led to believe that this was dampening speculation that the Treasury would be able to afford the £1.5 billion needed to cancel the extra duty for one year. On 24 June, the Transport Secretary, also in an interview in The Daily Telegraph interestingly, indicated that she was not prepared to lobby the Treasury to delay or abandon the 3p increase in fuel duty due this August. She was also reported as saying that her focus was instead on “challenging” petrol firms to cut the cost of fuel at the pumps to reflect the falling cost of oil globally.

We have no problem with that. Many people are concerned that prices at the pump do not change as the oil price drops, although we know that it is difficult for small independent petrol retailers who have to buy at a particular price and might not have the same volume going through as some of the large supermarkets. We have to understand that. However, the Transport Secretary’s comments chimed perfectly with the words of the Economic Secretary in a recent Westminster Hall debate:

“Calls for the August increase to be scrapped raise an important question, because we would need to consider how to replace the £1.5 billion it would cost. That money would need to come from higher taxes or lower spending elsewhere.”—[Official Report, 23 May 2012; Vol. 545, c. 143WH.]

Every time the issue was raised, then, Ministers made it absolutely clear that if they were to do it, they would have to come up with a way of paying for it—stating the obvious, perhaps, but I shall return to that point later, if I have the opportunity.

It might be a cliché to talk about a week being a long time in politics, but a week after the 20 June article, the shadow Chancellor, in an article for The Sun—that newspaper, like FairFuelUK, had campaigned on the issue—called for the August duty increase to be dropped, and made it clear that he wanted it to be dropped at least until next January. Government Members seemed to suggest that this was opportunistic and done on the spur of the moment or for purely political reasons. Nothing could be further from the truth. We have consistently made it clear that action needs to be taken, especially given that times are tough, with higher VAT generally and prices rising faster than wages.

Everyone knows from their constituents—I am sure that Government Members receive the same representations as Labour Members—that filling up the car is now a big drag on family budgets. Indeed, a nurse in my constituency who was not on a high salary told me that filling up her car to get to work cost her so much that it was like having another mortgage.

[Charlie Elphicke]

The hon. Lady is making heavy weather over who should take the credit and whose idea it was. Is it not great news, first, that prices at the pump are falling, and have been falling in recent weeks, and secondly that the Chancellor has been able to freeze fuel duty?

[Cathy Jamieson]

I welcome the fact that it will make a difference for constituents, but once again, unfortunately, the way it was done did not suggest a Government who were organised or knew that they were going to make the announcement at that particular time. That is important in the context of how it will be paid for, but I shall come to that.

At the time, we expressed concern that the Chancellor’s Budget plan would mean a 3p hike in fuel duty in just five weeks. Previously, we had called for the Government to cut VAT, which would have knocked 3p a litre off fuel prices, as well as helping hard-pressed household budgets in other ways. We called for the August rise to be dropped because we believed that increasing the fuel duty at this time would have sent the wrong signal to retailers, who would have had to pass every penny on to drivers and put prices up just when they should have been cutting them.

We also made the point that with Britain now in a double-dip recession, the last thing our economy needed was another tax rise adding to the squeeze on household budgets and to the difficulties faced by many small businesses. The Government’s priority should have been to boost the economy, rather than to clobber families, businesses and pensioners just when they were feeling the squeeze the most. That is why we called on the Chancellor to stop the August fuel duty rise, at least until next January. We said that we would put that issue to a vote in Parliament, and that is why we tabled new clause 11.

[Mr Jim Cunningham]

One question that has never been answered is why the fuel duty decision was not taken in the Budget. Does my hon. Friend agree that the Government rushed into this without thinking about the consequences?

[Cathy Jamieson]

Indeed; my hon. Friend makes a good point. The way in which the decision was announced, and the aftermath of that announcement, does perhaps suggest that the Government were rushed into this. Also, many Government Back Benchers agreed that the fuel duty increase should be dropped. A number of them made that clear in a good Westminster Hall debate, and others publicly signed up to support the FairFuelUK campaign.

We tried to be helpful. We suspected that Ministers might say—as, indeed, they did—that they could not afford to stop the increase, even though they had found the money to give a tax cut to millionaires. As has been suggested, if there is money available, it ought to go to those whose household budgets are being squeezed the most. It is still astonishing to me that the Government seem intent on punishing families—especially those with children—while at the same time giving a massive tax cut to millionaires. [Interruption.] Government Back Benchers can shake their heads and look at the ceiling, but real people are being affected by this Government’s Budget, and those who are benefiting are the best off.

We suggested some ways of raising the necessary funds. We said that the Government could perhaps consider closing the tax loopholes that the Prime Minister had been condemning, and stopping hundreds of millions of pounds being lost through offshore tax havens. We also suggested that they might want to reverse the pension tax relief boost that they have given to people who are already well off—namely, those earning more than £150,000—and that they might want to use the £500 million underspent in the Olympics budget.

We were not being opportunistic. We understand that difficult decisions have to be made if we are to get the deficit down, and as a responsible Opposition we looked at the figures. We also recognised that, at difficult times in the past, Labour had put up fuel duty. On many occasions, however, we also delayed or cancelled planned fuel duty rises in the light of the circumstances at the time—including at the height of the global financial crisis —because it was the right thing to do to give assistance to the people who needed it most and to ensure that we balanced and grew the economy.

We know—and more and more commentators are agreeing with us—that raising taxes and cutting spending too far and too fast have backfired. Britain has been pushed into a double-dip recession, more people are out of work, and the result is a bigger benefits bill and £150 billion of extra borrowing. That is why we need a fairer and more balanced plan for our economy that will get people back to work, and why we are calling again for the Government to change course and put their efforts into tackling youth unemployment, as well as using the skills of people who have been made redundant, and who have something to give back, to support young people into the jobs market.

We agree with the Government that stopping August’s 3p rise in fuel duty is the right thing to do for British businesses and families. I do not know whether the Prime Minister and the Chancellor have ever had to worry about the cost of filling up their cars in the way that the nurse in my constituency does. She works night shifts, and she does not know whether she will have enough money left at the end of the month to fill up her car so that she can get to work. In response to the hon. Member for Dover (Charlie Elphicke), we are glad that the Government have at last started listening to those who face those difficulties, and we will therefore be supporting the Government tonight on this issue. As I said earlier, however, the manner in which the announcement was made raises a number of questions. It looked as though the issue had brought about the quickest U-turn in politics. The new benchmark for “a long time” in politics is no longer a week but overnight, with changes being made 24 hours after the initial announcement.

--- Later in debate ---

[Mr Graham Stuart (Beverley and Holderness) (Con)]

I am delighted that the hon. Lady has given way. I wonder whether she could bring her speech to a close, so that we might hear from someone who really does have some authority on this subject and who has so ably led the campaign to bring about this change.

[Cathy Jamieson]

I acknowledge that the hon. Member for Harlow (Robert Halfon), to whom the hon. Gentleman is referring, did a lot of work on the campaign. However, given the earlier suggestions that there was a lack of interest in this subject on the Opposition Benches because of the lack of numbers here tonight, I felt it important to lay out our case fully. I hear what the hon. Gentleman is saying, however, and I will bring my remarks to a conclusion.

I want to ask the Minister some specific questions. Now that the Treasury has had a week or so in which to do the number crunching—if it had not already done so—what areas of departmental underspend have now been identified to ensure that the decision to delay the August 2012 increase in fuel duty will be met in a fiscally neutral way? Will the Minister also tell us which Departments have, through budget exchange, already surrendered an underspend in advance of the end of this financial year, and which Departments are expected to have greater than originally forecast savings in departmental spending in 2012-13?

I do not have time to comment on the points that have been raised about biofuels. Perhaps I shall be able to do so in another debate. In conclusion, however, I should like to refer Members to new clause 9. We shall not be pressing it to a vote this evening, but it calls for a review of the relationship between fuel duty, other taxes charged on road fuels, and the cost of road fuel. It was made clear in the recent Westminster Hall debate that such a review might reflect the views not only of the Opposition but of many Government Members —I see some of them nodding—and I hope that the Government will be good enough to listen to that proposal, and to come forward with a plan to establish such a review.

[Robert Halfon]

I am grateful to have the opportunity to speak, and I support the Government’s new clause. I hugely welcome the support of my colleagues, particularly that of the hon. Member for Dundee East (Stewart Hosie), who did so much work with FairFuelUK and attended the Westminster Hall debate to which the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) referred.

The case for cheaper petrol is economic, social and moral. It is economic because the AA says that keeping 3p off fuel prices will pump £1.8 million into our economy every single day. That supports high street demand at a time when it is collapsing in Europe. It is social, because fuel duty is a tax on everything, and we should be honest about who is paying it. We talk about “motorists”, but they are not a special interest lobby group. As FairFuelUK and many hon. Members have shown, motorists are everyone: mums driving to school, children on the bus, pensioners hit by inflation. That is why this is an issue of social justice. The economy is important, but it is only half the argument.

The case is moral, too, because as I have set out in other debates, fuel duty is regressive. The Office for National Statistics said last year that it hits the poorest twice as hard as the richest. Fuel prices are now, in essence, a poverty trap, adding to our dole queues. The average motorist in my Harlow constituency pays £1,700 a year to fill up the family car—that is a huge amount and clearly unsustainable.

Opposition Members have spoken of a U-turn, but I would say that it is an L-turn, showing that the Government have listened, and I believe that the Government deserve huge credit for doing so. When I spoke to my constituents at the weekend, no one said that this was a U-turn or wondered when it was first mentioned or by what Minister when and why. Rather, they said thank you to the Government for listening to motorists.

The Chancellor, the Economic Secretary and her predecessor, who is now the Transport Secretary, have done more to cut fuel taxes in two years than the Opposition did in a decade. The 2011 Budget saw Labour’s rise cancelled and fuel duty cut by 1p, while in last year’s autumn statement Labour’s January rise was scrapped after the campaign by FairFuelUK and MPs. Then, last week, the Government delayed Labour’s August rise. This is a radical tax-cutting agenda, targeted in a way that helps the poor. It shows that the Government are on the side of the little guy, supporting aspiration and hard work.

I listened to the “Today” programme interview with the shadow Chancellor, and I say to the hon. Member for Kilmarnock and Loudoun that this is not a decision made in a day. I and many others have been to see Treasury Ministers over many weeks and have led delegations to see relevant Ministers. I knew that the Government were considering this issue for a long time.

--- Later in debate ---

[Cathy Jamieson]

I thank the hon. Gentleman for making those points. If those discussions were going on for that length of time, would he not have expected the Government to say how it was going to be paid for?

[Robert Halfon]

In the Westminster Hall debate, which the hon. Lady mentioned, the Economic Secretary did not give a view either way on the issue and said that the Government were looking at it. Ministers then came to the House for Treasury questions. What better way of informing us that they were going to stop the August rise?

Returning to the “Today” interview with the shadow Chancellor, he said that Labour had “acted” on petrol prices, but a House of Commons Library note says:

“From 2000 the Labour Government increased road fuel duties...In its 2009 Budget the Labour Government announced that in future years fuel duties should rise by 1p a litre above inflation.”

In the next Budget, they

“proposed that the escalator should apply at least until 2014/15”,

and that

“the increase set for 2010/11 would be phased in over the coming tax year in 3 stages...fuel prices continued to rise strongly, driven by this increase in duty rates”.

That is the record we inherited, and which we are now having to unwind.

--- Later in debate ---

[Cathy Jamieson]

I beg to move amendment 1, page 2, line 6, leave out paragraph (c).

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss the following:

Amendment 2, page 2, line 7, leave out subsections (3) to (6).

Amendment 23, page 2, line 36, leave out clause 4.

[Cathy Jamieson]

The amendment deals with an unfair situation that I mentioned earlier. People who are already earning considerable amounts, millionaires and others receiving the highest levels of pay, will benefit from the Government’s proposal to reduce their tax rate to 45%. We had a good debate on the subject on Second Reading, but were not able to discuss it in Committee. At that time we wanted the Government to reconsider, and not just because millionaires were set to receive something equivalent to a £40,000 per annum tax cut.

[Sheila Gilmore]

My hon. Friend may be interested to learn something that I myself learnt from a television programme that had no direct connection with economics. It was part of a series about London streets. A banker who was talking about his home in Portland road said that prices there had risen considerably since the taxpayer had bailed out the banks, and that far from suffering from the current financial situation, people seemed to be benefiting.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I must inform the hon. Member for Harlow (Robert Halfon) that only one Member should be standing on the Floor of the House at any one time. Welcome to the Opposition Benches, Mr Halfon.

[Cathy Jamieson]

I was not sure whether the fuel duty debate or the intervention from my hon. Friend the Member for Edinburgh East (Sheila Gilmore) had exercised the power of persuasion that led the hon. Member for Harlow (Robert Halfon) to cross the Floor and spend some time on the Opposition Benches, Madam Deputy Speaker, but I shall now return to the subject of the amendments, which are fairly simple and straightforward.

Amendments 1 and 2 would remove the cut in the top tax rate for people earning more than £150,000 a year, and amendment 23 would prevent the abolition of the age-related allowance that would increase the tax on millions of older people—the so-called granny tax. As we said in the earlier debate, the amendments are based on the straightforward principle that when times are tough and there is less money around, we must ensure that the burden of deficit reduction is fairly shared. That theme of fairness will be a feature of the contributions of Labour Members this evening.

As I said at the outset, however, the Government have chosen to cut taxes for the richest 1% of the population, and that tax cut is worth £40,000 to those who earn more than £1 million a year. At the same time, they are raising the taxes of 4.4 million pensioners by, in some instances, hundreds of pounds a year. Most of those pensioners are living on less than the average taxpayer.

[Mr Reid]

Did not the Budget also raise the personal allowance for income tax by a record amount, thus cutting the tax for many people and taking many out of it altogether?

[Cathy Jamieson]

I hear what the hon. Gentleman says, but many people will be about £511 a year worse off. Many, particularly those on the lowest incomes, will not benefit from the rise in the income tax threshold, and a large proportion will be part-time workers who cannot work for the extra hours that they have been told will enable them to continue to qualify for tax credits.

[Charlie Elphicke]

Does the hon. Lady not welcome the fact that 2 million will be taken out of tax altogether, and that most basic rate taxpayers will be better off to the tune of, I believe, £220?

[Cathy Jamieson]

The problem is that the Government are giving with one hand and taking away with another. According to the Institute for Fiscal Studies, many people will be £511 a year worse off. That may not seem a lot of money to one of the millionaires who will benefit from that £40,000, but it will make a big difference to a low-paid worker who is struggling to make ends meet and is feeling the pinch because of rising prices for food and other commodities.

[Julie Hilling]

Not only have the Government cut the rate of tax at the top—admittedly there is a welcome relief for people near the bottom, although of course those at the very bottom will not benefit at all—but the squeezed middle are being hammered in all directions. Because the threshold at which people will start to pay the higher rate has fallen, more people will be dragged into it, and people are also being affected by the tax credit and child benefit measures.

[Cathy Jamieson]

That is absolutely true. As I said earlier, that is exactly what happens to those who cannot work for the extra hours that would increase their working time to the 24 hours that would entitle them to maintain their working tax credit. These are people who want to work and pay their way—they want to do the right thing—but for some reason the Government have chosen to clobber them the hardest at the same time as giving millionaires a tax break. That makes no sense to me, although Government Members may say that it is a point of principle.

A commentator—I think that it was Fraser Nelson of The Spectator—recently suggested that the best definition of “Osbornism”, if there can be such a definition, had been provided by Groucho Marx:

“These are my principles. And if you don’t like them—well, I have others.”

I hope that the Government have received the message loud and clear from the Opposition and from the British public. We do not like the principles that are at the heart of the Government’s economic policy. We do not like, or accept, the principle of asking millions to pay more so that millionaires can pay less. That is why we are giving the Government the opportunity to put their well-practised U-turning skills to good use once again.

[Mr Jim Cunningham]

Should they not go further than that? Should we not deal with the amendment to existing legislation allowing the use of foreign countries as tax havens to avoid paying the debts of the developing countries, which can cost £4 billion a year?

[Cathy Jamieson]

My hon. Friend has made a good point. We will have an opportunity to discuss that subject in more detail tomorrow.

The Government once made much of their commitment to fiscal responsibility. Deficit reduction was to be their defining mission. Today, however, that task has been made even harder by the failure of their own economic plans, which involve £150 billion of extra borrowing. Their pledge to clear the deficit by the end of this Parliament has been blown to pieces, yet they still find the money for a tax giveaway to the top 1%.

[Nigel Mills (Amber Valley) (Con)]

rose—

[Cathy Jamieson]

Perhaps the hon. Gentleman would like to comment on that in his intervention.

[Nigel Mills]

Am I right in thinking that the impact of amendment 1 would be to take away the 45p rate and leave the highest rate at 40p, thus in effect giving a double tax cut? Can the hon. Lady explain the technicalities of how her amendment works?

[Cathy Jamieson]

I am a relative newcomer to this place, and I sometimes find its procedures and conventions bemusing. I have learned from my time in the parliamentary process, however, to take advice from the Clerks and others who know about drafting legislation, and that is what we did in respect of these amendments.

The Minister will no doubt protest that the higher rate was not raising any money, but the Government’s attempts at justification have not withstood the scrutiny that has been undertaken. The Office for Budget Responsibility, for example, says that Her Majesty’s Revenue and Customs’ estimates of the reduced tax avoidance that would result from the reduced rate are “highly uncertain”. They are based only on the first year’s yield from the new top rate, which was always expected to be artificially depressed by people’s ability to bring forward their income. No real basis is therefore offered for estimating the revenue-raising potential of the 50p rate. It is for that reason that the Institute for Fiscal Studies said that it is

“too soon to form a robust judgement.”

The claims that new funds would flood into the Treasury as a result of people relaxing or reversing their efforts to avoid paying the top rate have been shown to be notoriously speculative. Again, as the IFS explained,

“you’re first giving out £3bn to well off people who are paying 50p tax...you’re banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them less...there is a lot of uncertainty, a lot of risk with this estimate.”

A written answer provided by the Exchequer Secretary to my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary, on 19 June shows that in 2010-11 more than 73% of people earning over £250,000 were paying more than the top rate, as were more than 80% of people earning between £500,000 and £10 million, implying that many tens of thousands of people were paying the 50p tax rate of last year and are now in line for a very large tax cut if this measure comes into effect.

[Charlie Elphicke]

rose—

[Cathy Jamieson]

I will give way to the hon. Gentleman, if he would like to answer that point.

[Charlie Elphicke]

I read the impact statement and the detailed IFS discussion of the so-called ‘uncertainty’. Its premise was that the avoidance would end because people would pay themselves out, regardless of how they had parked and deferred the revenue, and would therefore pay the tax at 50p. The problem is that people who have a personal service company—as so many Labour MPs and Labour supporters, including Ken Livingstone, seem to have—can defer for a very long time. They can pay themselves a beneficial loan and almost avoid tax altogether. That has also been a scandal in recent days. It is therefore not true to say people cannot continue deferring.

[Cathy Jamieson]

I will answer that point in more detail later. I am a little disappointed, however, as I thought the hon. Gentleman was going to make a different point. He seems to be suggesting that only people with a connection to Labour had been avoiding or evading tax, which is, of course, absolutely not the case. I hope Members across the House will ensure that at every stage those who are due to pay their taxes should pay them and should do so willingly and properly.

[Sheila Gilmore]

What does my hon. Friend think about the fact that in Committee a Conservative MP, the hon. Member for North East Somerset (Jacob Rees-Mogg), said that in his opinion the actions of a certain Ken Livingstone were in fact very sensible?

[Cathy Jamieson]

I do not wish to return to the lengthy debate that took place in Committee, but we did at various times have discussions about people doing things that were perfectly legal—and which, if they were so advised, might make perfect sense—but the question then arises as to whether they are morally or ethically the right things to do.

--- Later in debate ---

[Cathy Jamieson]

Again, I do not want to focus on such issues at this time. I am sure that Government Front Benchers will want to take responsibility for their own actions.

I now want to address some points that Ministers may make about the Bill’s measures to reduce tax avoidance. The IFS has again been very busy and has made some extremely helpful and interesting points. It says this Budget compared poorly with Labour Budgets, which cut tax avoidance by more than £12 billion between 2002 and 2009—an average of more than £1.3 billion each year. This Budget, however, is estimated to have cut tax avoidance by just £800 million. Closing loopholes to prevent avoidance should be something that every Budget does, and we should not be required to compensate the very rich for the inconvenience.

The Government’s last line of defence will no doubt be that cutting tax for those who already have the most will unlock investment and kick-start economic growth, but that is pure ideology, with no evidence to back it up. The OBR documents accompanying the Budget show a continued pattern of the promised recovery of business investment being postponed. An 8% increase was promised for 2011, but the amount actually fell by 2%. A further 10% increase had been projected for this year, but the forecast is now less than 1%. The role of such investment in driving growth for future years has been significantly written down.

As for growth, again the OBR is clear. It states in box 3.1 on page 46 of its latest economic and fiscal outlook, which is headed “The economic effects of policy measures”, that the only policy with a measurable effect is the cut in corporation tax. It says that that will lead to an increase in GDP of

“0.1 per cent by the end of the forecast period.”

Beyond that, it says in the policy costings document:

“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”

Therefore, according to the best evidence and the advice of independent experts, this is a tax change that will have no discernible impact on our economic prospects and, at a time of tight public finances and tough decisions on deficit reduction, it could cost billions of pounds, making it harder to deal with the deficit and necessitating harsher sacrifices for others in society.

The granny tax is addressed in another of our amendments, which would reverse the Chancellor’s shameful raid on pensioners’ incomes. We must give the Government a chance to make amends for what is essentially a broken promise, and for their shabby attempts to sneak this past Parliament and the public. We call on the Government to cancel this unfair measure for a number of reasons. First, the Government made a commitment as recently as last year that the age-related allowance would be uprated each year of this Parliament in line with the retail prices index. It is there in black and white on page 35 of the 2011 Red Book. Recently it has been reported that the Prime Minister is resistant to suggestions from the Secretary of State for Work and Pensions that he break pre-election promises on benefits for older people. Yet here is a promise made only last year that the Government have consigned to the dustbin. Instead of acknowledging this most disreputable of U-turns, the Chancellor actually sought to conceal it, dressing a crude tax grab up as a “simplification”.

According to the House of Commons Library, by far the majority of those being asked to pay more live on incomes that put them in the bottom half of taxpayers. The crucial point—again, I am sure that Government Members will have heard this—is that having a small personal or occupational pension of just £67 a week, or little more than £3,000 a year, would be enough to put someone in line to lose under this measure. We are talking about the people who did not earn big salaries in their working lifetimes but managed to save so that they could provide for themselves. These are more people doing the right thing; they avoided the means-tested benefits. So yet again I say: why are the Government so keen on policies that penalise the people who are doing the right thing? Why do they penalise the people who are trying to work—the low-paid, part-time workers who lose their tax credits—and the pensioners who have tried to avoid the means-tested benefits and have saved for their retirement and done the right thing?

There is no doubt that pensioners have been hit hard by this Government’s decisions: winter fuel allowance has been cut; pensions have been indexed to a lower measure of inflation; the increase in the state pension age for women has been brought forward; last year’s VAT rise added £275 to the cost faced by an average pensioner couple; and cuts have been made to services such as the NHS, social care and local transport—all the things that matter on a day-to-day basis for pensioners. So pensioners have been hit hard by this Government’s decisions and policies, yet with this Finance Bill the Government are coming back for more. They are not content with all those things and are coming back for more. In total, this measure will raise more than £3 billion pounds over the next five years.

[Ian Lavery (Wansbeck) (Lab)]

Is it a coincidence that the tax cut to the rich costs £3 billion, which is exactly the same as the tax increase for elderly people in society?

[Cathy Jamieson]

My hon. Friend makes a very valid point. That must be purely coincidental, because surely no Government would want to take that amount of money from pensioners simply to give it to the richest. Perhaps this Government would though; perhaps we have the same old Tories with the same old policies, yet again. The pensioners who have been hit hardest by this Government’s decisions are seeing them coming back for more. That £3 billion raised over the next five years is the biggest revenue raiser in the whole Budget, and it is coming from the pockets of pensioners with modest incomes. And it is all going towards what? Is it going to paying down the deficit? No. Is it going to help young people get back to work? No. Is it going to help the poorer pensioners? No. Instead, this money is being taken from millions of older people living on modest pensions and redistributed to a few thousand individuals with incomes of more than £150,000 a year. What an absolute disgrace: taking from the pensioners to give to those already on those high earnings.

The Government were said to be surprised by the anger this tax change has aroused. If that is the case—if they were surprised—that shows just how out of touch they are with the values, principles and priorities of the British people. At the time, the response of Age UK was very clear. It said that it was disappointing that the Budget

“offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes, who are already being squeezed”.

We could not have put it better ourselves. The chief executive of Saga said:

“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”

The National Pensioners Convention said:

“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax—whilst those earning £150,000 or more will see their tax bills reduced.

This is seen by many as the last straw...Pensioners feel they are being asked to bail out the super rich—and it’s simply not fair.”

Pensioners are absolutely right to feel that way.

These amendments are a chance for the Government to rectify one of the most blatant injustices in this Budget. It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less. It is extremely hard to comprehend how the Government could ever have thought that this was fair, or that it would be acceptable to pensioners and to others who care about pensioners, but now they have an opportunity to put it right, and Members from all parts of the House have a chance to show where they stand. They can support these amendments and do the right thing by the people who did the right thing for themselves.

[Charlie Elphicke]

It is a pleasure to follow the shadow Minister, who has set out such a partial view from the Labour party’s perspective on this Budget. I think there is a better approach: the more people we take out of tax, the better, as the administration cost is less and there is less hassle for people, particularly the least well-off. I want to see the personal allowance increased to £10,000 as soon as possible. Good progress was made in the last Budget, but the sooner we take the number to £10,000, by far and away the better. Nevertheless, I welcome the fact that most basic rate taxpayers will see an annual cash gain of £220, and I welcome the fact that this Budget takes 2 million people out of tax altogether. That is important, particularly given that we all remember the fiasco over the 10p tax rate. The more we can look after the least well-off and take them out of the tax system, by far and away the better.

I was fascinated by the whole discussion about the 50p rate. We can see from Treasury figures that we are talking about £100 million. That figure is rubbished by the Labour party, which thinks the figure is completely wrong and cites an IFS report. Let me quote the relevant passage from the IFS report, which is where I think the Labour party draws its approach from. The IFS states:

“The worry for the Chancellor is that the estimate that cutting the top rate to 45% will only cost £100 million is particularly uncertain. It assumes a ‘no behaviour change’ cost of £3 billion offset by a behavioural change of £2.9 billion. The first number we know reasonably accurately; the second number is estimated with great uncertainty. Even if we knew the effect of introducing the 50p rate—which we don’t with any precision—responses may not be symmetric. Those who have got a taste for avoiding the 50p rate may continue to avoid the 45p rate (even if they wouldn’t have done so had the 50p rate never existed). The experiment with the 50p rate does not appear to have gone well.”

My first conclusion is that the IFS is saying that making the rate 50p in the first place was a complete and utter disaster. The second issue raised is the uncertainty over behavioural change. On that, I say that we have empirical evidence on what happens when the rate is reduced. I do not know whether everyone recalls this, but we used to have an income tax rate of about 80%. When that was reduced, first to 60%, there were great cries from the Labour party that it would cause a collapse in the revenues, but instead the revenues rose. Why was that? It was because fewer people avoided tax. The Government of the day then reduced the rate to 40p. Again there were great cries from the Labour party that that would let the rich off the hook, but what happened? The revenues rose. Why was that? It was because fewer people were as interested in avoiding tax and they paid up a fair share.

--- Later in debate ---

High income child benefit charge

[Cathy Jamieson]

I beg to move amendment 24, page 5, line 4, leave out clause 8.

[Mr Deputy Speaker (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Amendment 25, page 134, line 2, leave out schedule 1.

Amendment 21, in schedule 1, page 138, line 10, leave out

‘in relation to the payments’

and insert

‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.

Amendment 22, page 139, line 10, leave out

‘in relation to the payments’

and insert

‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.

[Cathy Jamieson]

It is a pleasure to open the debate on these important amendments. I intend to pursue a theme that emerged earlier this evening—that of fairness to children, families and people who are feeling the squeeze as a result of the Government’s current policies—and also to discuss feedback from people who are concerned about the practicalities of the Government’s proposals on child benefit for higher-rate taxpayers, along with points that were raised by Members during that part of the Committee stage that took place on the Floor of the House.

When I spoke about this issue in Committee, I reminded Members that child benefit involved a number of important principles, not least the principle of universality, which Labour of course supports. Because I spoke at some length on that occasion, I do not intend to rehearse all the arguments again now, but I think it worth repeating that child benefit is supposed to benefit—literally—children and families. That fact has been lost at various points, but I hope that we shall be able to keep it in our minds tonight as we consider what the Government are proposing.

As I pointed out in the earlier debate, child benefit was designed to ensure that mothers—at that time, specifically mothers—had money paid into their purses regularly, so that they had a stable income that could be used for their families.

[Mr Edward Leigh (Gainsborough) (Con)]

Does the hon. Lady agree that child benefit as we have traditionally understood it has had one great advantage, in that not only does it recognise the role of women in bringing up children, but its universality has ensured that there is virtually no fraud or error, and nor does it in any way add to the unemployment or poverty trap?

[Cathy Jamieson]

I thank the hon. Gentleman for making that point. It is important to understand that the fact that this was a universal benefit ensured that everyone who ought to have had it and who needed it was able to get it. When we debated this topic in the House previously, some Members tried to characterise our concerns about these proposals as Labour trying to protect a universal benefit paid to high earners, rather than looking at the overall principled position, and some may try to do so again this evening. I should repeat what I said both earlier this evening and in that earlier debate: that kind of argument does not wash at all in terms of fairness from a Government who have given a tax cut to millionaires while millions of ordinary families are feeling the pinch.

During the earlier debate, I also reminded Members of article 27 of the United Nations convention on the rights of the child, which the UK has signed up to. It outlines the obligations on states to assist parents to meet the needs of their children, and I pointed out that a number of organisations—as well as a number of Members—had highlighted the importance of those obligations. Sadly, that exhortation to make this debate about fairness to children and families seems to have gone largely unheeded, apart from some honourable exceptions. There have been Westminster Hall debates looking at this issue in more detail, in which a number of Members highlighted both the unfairness of the proposals and their practical difficulties.

[Gordon Birtwistle (Burnley) (LD)]

Does the hon. Lady agree that it is unfair to expect a family in my constituency where the parents might work in manufacturing industry for about £8 an hour to be contributing from their taxes to pay benefits to people who earn over £50,000 a year?

[Cathy Jamieson]

Well, there were some robust exchanges on that issue in previous debates. If the hon. Gentleman feels that is a difficult point, I cannot understand why he does not also feel that it is unfair that people on the very top earnings—those earning millions of pounds each year—are to get a tax cut of £40,000 per year, instead of focusing on the needs of children. I find that extremely odd, and I shall say a little more about the unfairness of the proposals later.

[Mr Frank Field (Birkenhead) (Lab)]

Does my hon. Friend agree that the hon. Member for Burnley (Gordon Birtwistle) is mistaken? We are not talking about redistribution from poorer to richer people. When child benefit was introduced, it took over the function of child tax allowances. Its purpose was to maintain tax equity. That is why there was the element of free income regardless of whether people were on £8,000 a year or £80,000 a year. It made a distinction between those who were responsible for children at any given level of income, and those who were not.

[Cathy Jamieson]

I thank my right hon. Friend for that intervention, which explains the history extremely well. That is why I have focused so much on reminding us that this is supposed to be about children and doing the right thing by people who have the responsibility for caring for them, whether parents, or grandparents or other family members who may be entitled to claim the benefits. I hope to have enough time to be able to say a few words about that towards the end of my contribution.

The Government did revise the original proposal, but that revision has not gone far enough to deal with the inherent unfairness. The revised proposal will affect about 1.2 million families, of whom it is estimated that some 70%—790,000 couples and 30,000 lone parents in 2013-14—will lose the full amount of their child benefit. A further 330,000 couples and 20,000 lone parents affected by the charge in 2013-14 will lose a proportion of their child benefit. The average loss for those who are going to lose out is estimated at about £1,300 a year. In a previous debate, I highlighted the difficulty for families who are going to lose about £500 a year because of other changes that have been made. That £1,300 is a very significant amount for anyone caring for children in today’s economic climate.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Of course my hon. Friend is absolutely right about the unfairness of this proposal. We hear statements from the Government about the complexity of the tax system, so does she not find it surprising that they have come up with a proposal that increases complexity in the taxation system, as well as unfairness?

[Cathy Jamieson]

Again, my hon. Friend makes a valid point, and I shall deal with it in detail in a moment or two. Strangely, given everything else that the Government have supposedly wrapped up to try to make anomalies disappear, we know that sometimes even more anomalies have been created as well as unfairness. In trying to simplify things, they have actually made them more complicated.

In the Committee of the whole House, I raised issues about the principle and about the costs. It is important to have those firmly stated on the record, because the Government have estimated that the additional cost to Her Majesty’s Revenue and Customs over the first five years will between £8 million and £13 million for the computer system—the development and running costs—about £100 million for staff resources and £5 million for customer information. I asked the Minister in that debate for some further information on that. Some further parliamentary questions since then elicited more information, particularly on how much would be spent on marketing the new system. However, having looked at all this again in great detail, I must say that in my opinion and in that of Labour Members, it is not marketing that is needed at this point in time to make a bad policy and an incoherent change to the taxation system palatable to people, but a change of policy to make sure that whatever is done is fair and workable, and will not cause any further problems.

Despite exhortations from Government Members for further changes, those with incomes above £50,000 will have their child benefit withdrawn at 1% for each £100 of income from January 2013. That means that there will be no child benefit entitlement for families where any earner has an income of more than £60,000. As I said in Committee, although the changes that the Government have made are a small step forward, they do not deal with that inherent and fundamental unfairness. That is because they still leave the scenario where a couple with children where one earner is on £60,000 and the other is on £10,000 lose all their benefit, whereas a dual-earner couple on £49,000 each keeps it all. We still do not see how that is fair.

It is not just Labour Members who are saying that there is a problem. Irrespective of someone’s views on whether this is a fair system or whether they support the principle of what the Government are trying to do, which I do not, there remain a number of issues that others have raised. These points will not be new to the Minister, but I am outlining them once again because they have not been adequately addressed during the consideration of the Bill. The most recent information that has come from the Institute of Chartered Accountants in England and Wales makes things clear. It states:

“While this Bill makes some steps in the direction of tax simplification, many of the measures introduce yet more complexity and taken overall the Bill does little to simplify the UK’s complicated tax system. The child benefit reforms…create considerable cost, confusion and complexity.”

It is also concerned about the Bill in general and states that

“the valuable lessons in drafting style produced by the Tax Law Rewrite project have been lost.”

I mentioned that earlier in our consideration of the Bill. As so much of the Bill is made up of complicated schedules and guidance and as it is the longest finance Bill ever, we must question whether we have had the opportunity to carry out all of the scrutiny, even though we did our best in Committee.

People who have to operate the provisions are concerned that they might need to be amended in the light of experience to ensure that they all work properly together and do not end up having further unintended consequences. Essentially, we are using the amendments to ask for clause 8 and schedule 1 to be withdrawn because we believe that the changes are flawed and unfair. That has also been pointed out by the ICAEW, which was straightforward and blunt in its language, stating that there could be a “reputational and operational disaster” for the Government and for HMRC. Those criticisms were largely reported and we have had the opportunity to listen to them in our debates.

We share the ICAEW’s disappointment that the Government have not tabled more workable proposals in time for our final consideration of the Bill. I would hope that even at this stage the Government will at least be able to give us some answers to the criticisms that have been raised or to accept that their plan is not only unfair but risks being unworkable.

The criticisms highlight the fact that

“the phased withdrawal for those earning between £50-60,0000 will be difficult to implement, open to error and potentially costly for HMRC to administer and for taxpayers to comply with.”

As those critics have said:

“The trouble is that an income tax system based on taxation of individuals, does not work properly if it has to cope with benefits that apply to a household”

such as tax credits

“or potentially to another person”

such as child benefit. The real concern is that:

“The phased withdrawal will not work well with the PAYE system.”

A considerable amount of concern has been expressed that the

“‘sliding scale’ approach to tapering down the benefit makes the system much more complicated.”

It has been described as “perverse” that such an approach is being removed for higher personal tax allowances for those aged over 65 on the grounds that this will help to simplify the system at the same time as a form of it is being re-introduced for the withdrawal of child benefit. That does not seem to be a consistent policy approach.

A further criticism is that the implementation timing is odd, with a start date of January 2013 that does not align with the start of the income tax year on 6 April. Concern has been raised that that

“could trigger many unexpected tax bills at the end of the tax year, as many more taxpayers will be brought into self-assessment.”

I do not think that the public have yet caught up with what they will be required to do.

The system is also

“unlikely to cope efficiently if families change or break up”

and we had a considerable amount of discussion on that question during the previous debate. As we all know, family formations change over time. Couples form, the people involved might have children from previous relationships and so on. There is real concern that

“The confusion caused by the new system could hit tax compliance, and undermine confidence in the tax system at a time when the employers are also having to implement the Real Time Information scheme for PAYE.”

On top of the criticisms set out by the ICAEW, the Chartered Institute of Taxation has raised a number of concerns. I hope that the Minister will be able to give an answer to some of these points about the complexity of the scheme. The institute’s concern is that

“ a high degree of complexity—for both HMRC and taxpayers—into what has hitherto been a straightforward benefit with practically universal take-up”

is now being introduced. It also believes:

“If the legislation is to be implemented, there are many issues that need to be resolved”

and that that should happen well before the new charges go live. Given the timing of the implementation of these provisions, there is not a huge amount of time to sort out any of the anomalies. I hope that the Minister can say something on that point. [Interruption.] I heard someone say “six months”. If it is believed that all this can be sorted out in that time, I would like to hear it from the Minister, because many of us have experienced cases where, with the best of intentions, and with support on all sides, fairly complicated systems—new computer programmes and so on—let alone systems of this complexity, have not worked.

--- Later in debate ---

[Helen Goodman (Bishop Auckland) (Lab)]

Is my hon. Friend saying that if a person’s income fluctuates during the year, but they do not know that it is fluctuating, and do not know the full amount of their income until the end of the year, the child benefit will be treated by one set of rules, whereas if they know how their income is fluctuating and whether they are moving in and out of the zone in which the charge applies, they will be treated in another way?

[Cathy Jamieson]

Yes, my hon. Friend has got the situation exactly right; that is the problem as it has been described. As for people who may elect not to receive the benefit, the Government’s proposals make it difficult for people who do not know what their earnings will be over a particular time to make that judgment.

A number of issues have been raised to do with how one would determine the higher-income person in a relationship. The measure raises a number of complex issues to do with independent taxation and taxpayer confidentiality. I know the subject has been raised with the Minister. My understanding is that HMRC will tell the couple which person had the higher income and is therefore subject to the new charge. As I outlined previously, I can see some difficulties associated with this. Not only does an individual need to know about their partner’s income, but they would need to know whether their partner has claimed child benefit and whether the partner has elected not to receive the benefit.

This will be particularly important where a couple are not on speaking terms. That does happen. It may not seem like it when everything is cosy in the coalition, but there are relationships in which people are not on speaking terms or where they have separated. In those circumstances, we need to be clear about what HMRC intends to do to inform a partner whether the other has made an election not to receive child benefit. Will they be advised, should the partner subsequently revoke that election?

There are potentially Catch-22 situations, particularly in relation to self-assessment and submitting the returns. Far from simplifying the system, which was straightforward and understood by everyone and which made it easy for people to claim, we seem to be making it far more complicated.

I want to raise, briefly, the issue of extended families. There are concerns that there may be contentious cases where different people claim entitlement to child benefit—for example, where parents are unable to look after the children and perhaps grandparents take over that role. We know the valuable role that grandparents can play in those circumstances, often at considerable cost to themselves. There could be situations where a parent continues to receive child benefit, although the child lives with the grandparents. If one or both grandparents have adjusted net income over £50,000, under the relevant provisions of the Bill, the higher-earning one would be liable for the higher child benefit payment, even though the grandparents are not necessarily at that point receiving the child benefit and could even be in dispute with the recipients.

These are some of the practical problems that come into play when we look at how people live their lives. I have mentioned the issue of timing. Perhaps the Minister can answer that. The issue of national insurance credits was raised in the Committee of the whole House. Although the Minister went some way towards explaining the situation and giving reassurance, it would be helpful to hear that stated here this evening.

I shall spend a moment on the problem of electing not to receive child benefit and revoking the election. Where one party to a relationship has an income in excess of £60,000, it seems that HMRC would like to encourage the child benefit claimant to claim the child benefit but to elect not to receive it, because that somehow makes everything neater. HMRC would stop paying out the child benefit, which would reduce the need for the higher earner to join self-assessment and to pay their tax. Those who expect their income to be more than £60,000, apply for child benefit and elect not to receive it, yet subsequently realise that their income for the year is likely to be between £50,000 and £60,000, could lose out unless there are some changes to the legislation.

It is important to place on the record that it is not only the Labour Opposition who oppose what the Government are doing. People who understand the tax system and want to see it improved, such as the Chartered Institute of Taxation, say that ideally the clause and the schedule should be withdrawn and a fresh consultation launched, with a view to coming up with a more workable alternative to the current proposals. We have tabled a couple of amendments to test the Minister’s view on whether that is needed. It has been suggested that these are needed to assist in the situation where people elect whether or not to receive child benefit.

The amendments would put all claimants not subject to 100% high income child benefit charge on the same footing as other claimants able to make a revocation, so this might be easier, it is argued, for HMRC staff to understand and implement. There is a clear distinction between people who elect not to have payments and then find that their income is under £50,000, and those who elect not to have payments and find that their income was between £50,000 and £60,000. The Bill copes with the former, but not with the latter.

I can see people’s eyes beginning to glaze over at these technicalities. Hon. Members in all parts of the House no doubt want me to bring my remarks to a close. [Interruption.] It is good that we all agree on something. These points are very important.

To return to what I said at the outset, if we make the situation more complicated, cause more confusion and make it less likely that people will know whether they qualify for the benefit, that will not be helpful for families, it will certainly not be helpful for children and, I would argue, it will not be helpful for Ministers, because it is they who will have to come back to fix the problem later.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Gauke]

My hon. Friend and other hon. Members have made the case for a cap on the number of children receiving child benefit. I hear his point about an alternative policy, but we must ensure that the child benefit regime provides support for those who need it most. The policy for which we are legislating maintains that principle—those on the lowest income will retain support.

The Government strongly discourage anyone from not registering for child benefit on the birth of their child, even if they decide to opt out of receiving payments. The child benefit system does not process only child benefit, and failing to register can affect state pension entitlement and make it less straightforward for the child to receive a national insurance number when they turn 16. It is therefore important that children remain registered.

Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary. As I have said, the legislation provides a claimant whose income, or whose partner’s income, is more than £50,000 with the opportunity to elect not to be paid child benefit, so they are not liable for the high income child benefit tax charge. A claimant who has elected not to be paid child benefit can subsequently revoke that election and ask HMRC to reinstate payment of child benefit.

The payment of child benefit would then normally be made from the first pay day after the revocation has been received by HMRC, and not from the date when child benefit was first stopped. That is because it would make no sense to pay arrears of child benefit to those whose income, or whose partner’s income, is more than £60,000. However, the legislation provides for retrospective revocation when a claimant discovers that, contrary to their original expectations, they do not have an income of £50,000 or above. That retrospection will be limited to two years after the end of the tax year to which the original election applies. That means that child benefit can be paid for up to that two-year period.

When a child benefit claimant or their partner has income of between £50,000 and £60,000, the decision whether to elect to receive child benefit is not so clear cut, because the amount of the tax charge is dependent on their income. HMRC recognises that a couple might be nervous about making an election if a later decision to revoke the election would apply only to future payments, leaving them worse off. The legislation provides HMRC with the power to issue directions as to how the election process will be administered. I hope I have cleared up that point.

Let me try to deal with the few remaining points. Draft guidance is being prepared over the summer, during which time HMRC will consult external representatives, including the Social Security Advisory Committee and the HMRC benefits and credits consultation group. The directions will confirm that an election that has been made by a claimant whose income or whose partner’s income is between £50,000 and £60,000 can be revoked retrospectively, to the point at which the child benefit ceased.

I have dealt with this point on the state pension, but it is possible to be registered even if people are not receiving cash. I have also dealt with the point on the definition of partners used in the Bill. As for the argument that the measure is complicated, we have looked at alternatives, but we think the measure is the best available to us. On the principle of individual taxation, HMRC is committed to protecting confidentiality. For taxpayers who are unable to discuss their incomes with each other, HMRC will develop a process with appropriate security checks so that they can answer yes or no to simple questions about the income of their partner.

As I have said, the Government have had to make difficult decisions. The measure means we can continue to provide child benefit, and so, in a sustainable manner, protect those who need it the most. We accept that this is not an ideal situation, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament. I urge the Opposition to withdraw their amendment.

[Cathy Jamieson]

In the very short time available, I want to say that we will press amendment 24 to a Division, although I accept what the Exchequer Secretary said about amendments 21 and 22 not being necessary. The only other point I would make is that it seems odd for him to say that he did not want a more complicated means-test system and then to introduce an extremely complex taxation system. It does not make any sense, and does not pass the test of competence or the test of fairness.

Question put, That the amendment be made.

Green Economy

Cathy Jamieson Excerpts

Thursday 28th June 2012 Commons Chamber

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I thank the Backbench Business Committee for bringing this important matter to the House, and the hon. Member for South Thanet (Laura Sandys) for her opening speech. Other hon. Members have mentioned the drive she showed to ensure that we had the opportunity to discuss this matter.

We heard 14 subsequent speeches, covering a range of subjects—I shall mention some of them in my remarks. I welcome the Economic Secretary, who is here to listen. A succession of Ministers has been present during the debate, which is important in the context of joined-up government. I hope she finds the debate slightly less of a hot seat than she was subjected to previously. It is good that hon. Members have tried to shed more light than heat.

I am proud that one of the Labour Government’s legacies was the broad acceptance of the need to tackle climate change. They worked tirelessly to attract low-carbon investment and to strengthen the UK’s green economy. The Climate Change Act 2008 was a world first—it binds the UK Government by law to reduce carbon emissions by a third by 2020 and by 80% by 2015. My hon. Friends the Members for Southampton, Test (Dr Whitehead), my hon. Friend the Member for Kingston upon Hull North (Diana Johnson) and others were part of that process. We owe them a debt of gratitude for their work at that time, because it helped us to reduce the UK’s greenhouse gas emissions by more than 20%—to below 1990 levels—and to beat our Kyoto target.

The Labour Government doubled renewable energy generation. We tried to establish Britain as a world leader in offshore wind capacity, and moved towards the UK becoming a world leader in the prototype development of wave and tidal technology, as hon. Members have said. Clean coal and coal-fired power stations can sometimes be controversial, but the previous Government proposed that no new coal-fired power stations would be built without carbon capture and storage to cut emissions drastically.

When I spoke of the debate being generally consensual, I should have mentioned the slightly discordant note struck by the right hon. Member for Hitchin and Harpenden (Mr Lilley). I use the word “discordant” not to be critical. In characteristic style, he made his point and put the other side of the argument. It is important that such views are heard. When Labour left office, investment in alternative energy and clean technology had reached £7 billion, and we were generally thought to be moving things in the right direction compared to other economies in the world. Even amid the worst global economic slow-down since the 1930s, the low-carbon economy in the UK still grew by 4.5% in 2008-09 and by 4.3% in 2009-10.

Several contributions this afternoon have referred to the Chancellor and the Prime Minister’s position when in opposition. Indeed, prior to the 2010 election, both promised to continue the work under way and to prioritise the transition to a low-carbon economy. We have heard several quotes this afternoon, but let me recap the Chancellor’s position in 2009, when he said:

“We need to recognise the fierce urgency of now. We need to see the whole of the government pulling in the same direction to cut emissions and green our economy… Climate change cannot solely be the concern of the climate change Minister.”

That is an important message—and might be one of the few occasions I have agreed with the Chancellor. He also said:

“I want a Conservative Treasury to be in the lead of developing the low-carbon economy and financing a green recovery”.

He then gave the following commitment:

“If I become Chancellor, the Treasury will become a green ally, not a foe.”

Some of today’s questions have focused on how the Government plan to deliver on their promise to be the greenest Government ever and to build on the work already done.

[Neil Carmichael (Stroud) (Con)]

I have just come from the Enterprise and Regulatory Reform Public Bill Committee, where we discussed the green investment bank, which is an important part of the Government’s strategy. Does she agree that it will be a powerful driver for improving our environment as part of the green economy?

[Cathy Jamieson]

I thank the hon. Gentleman for that information, and I am glad that the Committee is discussing the green investment bank. It has generally been welcomed this afternoon, although there is concern about whether it can deliver on its objectives and whether the Government are taking the right action to secure investment. Hon. Members have mentioned borrowing powers and other things that I will develop later, if I have time. However, although the green investment bank is important, it must have the right powers to succeed.

I have another concern that was reflected in contributions this afternoon. Are we really on the path to making this the greenest Government ever, or is the coalition, as has been suggested,

“on a path to becoming the most environmentally destructive government to hold power in this country since the modern environmental movement was born”?

Those are not my words—I mention them because it is important to consider different sides of the argument—but the words of leading environmentalists, including Greenpeace and the Royal Society for the Protection of Birds writing at the end of last year.

It is almost as if the Government, despite their earlier promises, no longer consider the transition to a low-carbon economy as their top priority. In the autumn statement, the Chancellor said that if we burden British businesses

“with endless social and environmental goals, however worthy in their own right, not only will we not achieve those goals, but the businesses will fail, jobs will be lost, and our country will be poorer.”—[Official Report, 29 November 2011; Vol. 536, c. 807.]

As hon. Members have argued powerfully, that is a particularly short-sighted way of looking at the world and completely ignores the opportunities to create an active industrial strategy within which the green economy can grow.

As other Members have argued, we have choice: we can either embrace and lead a new energy industrial revolution, or we can be left behind. We know that we are in difficult economic times, but all the measures we want to take on growing the economy will also help green growth, which is why Labour’s five-point plan sets out the immediate actions that we believe the Government should take to boost growth and create jobs, which would also help to strengthen the green economy. Even businesses have rejected the argument that the transition to a low-carbon economy is a burden; they believe it provides the UK with a huge opportunity for growth. The deputy director general of the CBI was very clear:

“Environmental regulation doesn’t have to be a burden for business. Framed correctly, environmental goals can help our economic goals—help start new companies and generate new jobs and enrich us all.”

We have heard the Foreign Secretary’s views quoted a number of times this afternoon. I suspect that he would be surprised to feature so often in a debate on the green economy. I shall not repeat quotes already referred to, other than to say that there are some powerful messages in them, as there are in the report published last month by the Environmental Audit Committee, which warned that green investment should play a key role in the UK’s economic recovery. We have also heard figures suggesting that the global market for environmental goods and services stands at around £3.2 trillion today, but will potentially be worth as much as £4 trillion by 2015. The figures on investment in clean energy have also been mentioned.

The green economy is growing worldwide, but the real danger is that if this Government do not continue the work started under the previous Government and do not see that climate change is important or that the green economy is a part of growing the wider economy, we risk being left behind.

Let me return briefly to the green investment bank. The Chancellor was very quick in the autumn statement to take credit for it as the Chancellor who funded the first ever green investment bank. It could, of course, leverage private investment and help drive economic growth, but the danger is that it risks falling into limbo. The Government now seem set to borrow £150 billion more than they planned to do a year ago, which poses issues, and the date by which we will have a proper functioning green investment bank with full borrowing powers has slipped back to 2016 at the earliest. Perhaps the Minister will provide some reassurance on that. The Government’s claim that the green investment bank is part of a strategy for growth and is to be centre stage will look pretty thin if it is not able to deliver any real investment in a meaningful time scale.

I have a couple of further points before I allow the Minister to sum up. The green deal has been referred to by several hon. Members this afternoon. That is important, but concerns have been raised about the fact that, despite the original claim that up to 100,000 jobs would be created in the insulation sector by 2015 and that 14 million homes would be reached by 2020 and 26 million by 2030, the consultation on the green deal, which was published in November 2011, came with some downgraded job forecasts, less funding for fuel-poor households, as we have heard, and no detail about the interest rates on which the green deal will rely.

Some Government Members have raised concerns—quite gently, I think—about what I and others described at the time as “shambolic” attacks on the feed-in tariffs for solar power. That risked thousands of jobs and left the public with legal bills running into tens of thousands of pounds.

Let me add my concern to those already raised about the plan by Vestas for the manufacture of wind turbines. It was originally hoped that it would create some 2,000 jobs, but it has been abandoned. The hon. Member for South Thanet, a member of the Energy and Climate Change Committee, was quoted as saying at the time that Vestas’ decision would have been

“a commercial one but it also suggests a lack of confidence within the industry over the government’s commitment to the green economy and crucially to offshore wind.”

As I understand it, she went on to say, as other Members have said this afternoon, that the market needs certainty from the Government. That has been a running theme throughout our debate: in order to develop, create and ensure that new technology is made accessible and affordable as part of the delivery from tackling climate change and growing the economy, the market needs certainty and long-term planning. I strongly argue that it is necessary for the Government—across all Departments, including the Treasury—to stand up and take those responsibilities seriously.

Let me end my speech by telling the House what Labour believes we need to do. Some of it has already been set out by the shadow Secretary of State for Energy and Climate Change, my right hon. Friend the Member for Don Valley (Caroline Flint). She identified five key elements in an active industrial strategy. First, we need to unlock private investment by delivering on electricity market reform and ensuring that the Government act decisively. Secondly, we need to improve public procurement to support the green economy. We have heard about housing-related issues, and I think that we could do more in that regard.

Thirdly, we need a strategy for skills for a low-carbon economy. Over the past weeks, I have been meeting representatives of the automotive industry and the biofuels and combined heat and power sectors. All of them have said that there are possibilities for job creation, but that it will require investment, research and development and the right skills set, and that young people should be encouraged to take up those job opportunities.

Fourthly, we need to rebalance the economy, support growth in the regions and encourage manufacturing, and, as I have said, supporting green technologies will be a vital part of that. Further growth will require policy certainty and stability for investors, producers and users. Although talks are in progress in some of those sectors, I find it worrying—as, I am sure, do other Members—that the Government’s long-term commitment to combined heat and power and biodiesel, for instance, has not yet been made explicit. The industry must be persuaded that investment in those processes is worth its time, effort and money.

The final element in an active industrial strategy is something that we did not have the opportunity to discuss in great detail this afternoon, although a number of Members referred to it. We need to engage with the public and communities. Such engagement cannot be seen as a mere add-on, or something that we should do after everything else has been done. That goes for economic growth, but it also goes for our own behaviour. Household energy consumption is responsible for nearly a third of total carbon emissions. Of course we could do more in that respect, but we must also ensure that our communities are actively involved. Members have given some good examples today of how that can be done—for instance, through co-operative energy ventures or through communities’ buying, establishing and benefiting from their own turbines.

Today’s debate has given us an opportunity to explore ideas, to raise the concerns of industry—which have been mentioned throughout the debate—and to consider creatively how we can bring about the right economic conditions for sustainable growth and how the green economy itself can contribute to jobs and the wider economy. What we now want to hear from the Minister are practical ideas for fulfilling the commitments that the industry wants from the Government.

Oral Answers to Questions

Cathy Jamieson Excerpts

Tuesday 26th June 2012 Commons Chamber

[Miss Smith]

My hon. Friend makes a valuable point that I am sure the independent pay review bodies will consider. If I were to put a number on the average premium for working in the public sector, I could name 18% in Wales.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Last week, it was left to the Minister for the Cabinet Office and Paymaster General to come to the Chamber to explain the Treasury’s position on regional pay. Was that because the Chief Secretary does not support the policy and the part-time Chancellor does not want to make another U-turn?

[Miss Smith]

We had an extensive and rather premature debate on this last week in the Chamber, and I shall say again what I said then: the independent pay review bodies are producing a report, and it would be premature to review that without the evidence, which they are considering.

Hot Takeaway Food (VAT)

Cathy Jamieson Excerpts

Wednesday 23rd May 2012 Westminster Hall

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Scott. I thank the hon. Member for St Austell and Newquay (Stephen Gilbert) for securing the debate. It was intended to take place prior to Prorogation and I am glad that it was rescheduled for this morning.

We have had an extremely interesting debate, with some very intelligent and well thought through contributions and suggestions on which the Government can act. A thing that struck me on this virtual tour of the UK—via train stations, football clubs and various forms of hot snack—is how much unites, rather than divides, the different parts of the United Kingdom. In this instance, most of us, at least, are united in support of the industries based in our communities. In this instance, the bad guys—to quote a term used by the hon. Member for Amber Valley (Nigel Mills)—are the Government, but bad guys always have the opportunity to redeem themselves. I am sure that as we go through the Finance Bill, the Government will look at the suggestions made today and try to do so.

I want to cover a few points made by hon. Members. In his opening speech, the hon. Member for St Austell and Newquay highlighted the real issues about the ambient temperature test and the potential problems in identifying what an ambient temperature is in different parts of the country. As those of us in the northern parts of the country know, we have yet to see any form of spring, never mind summer. Not only do we have geographical variations, but we could have different ambient temperatures on different days of the week.

How will the Government devise the system? Will people come round using thermometers, as the hon. Member for South East Cornwall (Sheryll Murray) said, or probe with a finger, as the hon. Member for Amber Valley (Nigel Mills) suggested, to see whether hot snacks are above the ambient temperature? That seems to be nonsense.

During our deliberations on the Finance Bill Committee yesterday, my hon. Friend the Member for Bassetlaw (John Mann) gave a useful exposition on the difference between a Bakewell pudding and a Bakewell tart, which I confess is something that I had not previously understood. That only goes to show that we learn something new every day. Indeed, I learned today that the hon. Member for South East Cornwall and I have a shared heritage, because I, too, am a baker’s granddaughter, although I am not from Cornwall and could not begin to explain how to crimp a pasty.

The issues raised this morning are similar to those raised when we discussed the matter on the Floor of the House. I sensed a sharp intake of breath when the hon. Lady asked what hot food had to do with football. I am a football supporter and have supported my local team, Kilmarnock, since I was a child. I certainly did not choose to do so on the basis that they were likely to win trophies, given that during my lifetime they have won something on only three occasions: 1965, 1997 and this year, when they won the Scottish communities league cup.

As a vegan, I confess that the delights of some of the pasties that have been mentioned have passed me by, although, as I said during the debate on the Floor of the House, my son is an avid eater of the Greggs steak bake and my husband often chooses, as a vegetarian, to enjoy the Greggs cheese and onion pasty at lunchtime. I do not necessarily partake of such delicacies, but when my local team played at this year’s cup final, a local bakery in my constituency decided that I should not lose out on the experience by not being able to eat a Killie pie—the Kilmarnock football club pie, which is reckoned to be the best in Scotland—and made me a vegan Killie pie.

I have still not received an answer to one of the questions that I asked during the debate in the main Chamber. If I buy two freshly baked Killie pies from my local Brownings the Bakers—should it choose to continue the production of that wonderful vegan pie—and decide to eat one there and then and take the other away so that it will have cooled down later, would one be VATable and the other not? That is an example of one of the dilemmas and anomalies that have been thrown up again by a number of Members during this debate. Members have also identified that any system of taxation and of collecting VAT needs to be understandable, enforceable and workable. As the hon. Member for St Austell and Newquay pointed out during his opening speech, the proposals do not meet any of those tests.

I want to address some other points that have been raised. The second time that I sensed a sharp intake of breath and felt a shiver run down my spine—“shiver” seems to be the word of the week in relation to the economy—was when my hon. Friend the Member for Rochdale (Simon Danczuk) suggested that samosas or pakoras could be taxed. Notwithstanding the popularity of the Scottish bridie, there are parts of Scotland for which samosas or, indeed, pakoras, have become more or less part of the staple diet. Thousands of constituents would be extremely concerned if there was an additional tax.

[Stephen Gilbert]

The hon. Lady is making a powerful case. Does she agree that one of the interesting things about this debate is the fact that the scope of concerns has widened rather than narrowed? I have mentioned mince pies, the hon. Member for Bassetlaw (John Mann) has mentioned Bakewell puddings and the hon. Lady is now talking about samosas. Muffins, doughnuts and other products have also been thrown into the mix.

[Cathy Jamieson]

Indeed. That highlights the powerful case that, initially, the Treasury may have viewed the proposal as something that could be taken off the shelf, dusted down and presented as a way to correct some anomalies. However, as my hon. Friend the Member for Rochdale has argued, it did not consider the detail and the issue has become a problem. It has become a problem in relation not only to pasties—I am aware that we cannot deviate too far from the issue under discussion—but to the proposals for VAT on work on church buildings, on which there has been some movement.

Moreover, last night, multiple petitions were presented in relation to the caravan tax, and yesterday, I, along with a number of other Members, met representatives from the newly formed—it was formed in response to Government proposals—UK Specialist Sports Nutrition Alliance, which has pointed out that some of its members’ products do not appear to fall under the categories for which VAT was originally intended to be charged.

This series of Government proposals do not seem to have been properly thought through. Their impact on our high street has not been considered. That is important. We want to see people shopping on their high streets and spending what cash they have on local businesses in particular, and to ensure that our high streets continue to thrive. When the British Retail Consortium, the Association of Convenience Stores and the whole range of organisations that represent the baking industry, as well as ordinary people, think that the Government have got it wrong, it is time for the Government to think again.

I will not speak for much longer, because I want to allow the Minister as much time as possible to respond to the debate, but I want to return to the widening scope of things affected by the proposals. The hon. Member for St Austell and Newquay suggested during his opening speech that the Government were prepared to listen, but I am disappointed to say that I have not found that to be the case. We have raised the issue on the Floor of the House and have continued to raise it and a number of other issues in the Finance Bill Committee, but on every occasion—no matter what the subject—when we have asked the Government to go away, make another assessment, come back with a report and consider the implications, they have not done so.

[Sheryll Murray]

Does the hon. Lady not accept that there is a consultation, so the Government are listening, and that we cannot expect them to respond until they have the results of that consultation?

[Cathy Jamieson]

I understand the importance of consultation, but consulting on something that will happen after the fact—when the Government say that they are going to do something and then ask people about it—is not necessarily the best way to do it. Those representatives of sports nutrition companies whom I met yesterday told me—the Minister will correct me if I am wrong or have misunderstood—that no one from that industry was consulted when the impact assessment was done.

There are issues to address. I am trying not to make this an attack on the Government, but I am disappointed at the lack of movement. I understand that consultations are important and hope that the Government will listen and consider making some of the changes that have been asked of them today. The torrid headlines that the Government had to endure when their proposals were first announced should make them realise that the country wants them to do something and change their plans. My favourite headline read: “Half-baked Tory tax a mistake-and-bake”. It was indeed a mistake—let us try to fix it.

Child Benefit

Cathy Jamieson Excerpts

Tuesday 22nd May 2012 Westminster Hall

[Mr Christopher Chope (Christchurch) (Con)]

I congratulate the hon. Member for City of Durham (Roberta Blackman-Woods) on securing this debate, which follows up debates during the Budget, during Second Reading of the Finance Bill and on clause 8 of the Finance Bill, and a similar debate before the Budget in this Chamber, which I had the privilege of introducing.

As the hon. Lady said, we have never had a satisfactory answer to why, if it is necessary to find a greater contribution towards reducing the deficit from those on higher earnings, we are targeting people on higher earnings with children, rather than those who do not have children. If my hon. Friend the Minister wishes to intervene at this stage and give the definitive reply, I shall happily give way.

The hon. Lady mentioned loss of support among Conservatives. I am worried and do not wish the Conservatives to lose support, which is why I have put a lot of energy into trying to ensure that this legislation is improved. If the Opposition had just asked to look at clause 8 during the Finance Bill debate on the Floor of the House—we considered clause 8 and schedule 1—we could have discussed the principles and referred to schedule 1, and those privileged to serve on the Finance Bill Committee would then have been able to consider the schedule in more detail. It is now apparent, according to the report by the Institute of Chartered Accountants in England and Wales, that an enormous amount of detail needs line-by-line scrutiny. Sadly, as a consequence of the earlier debate, such scrutiny cannot now be delivered, given the structure of the Committee stage of the Finance Bill, because schedule 1 has already been considered. That is a problem. I shall not ascribe blame or responsibility for that, but it means that the Government do not have the benefit of detailed scrutiny of the workability of their proposals, or, as in this case, the lack of workability.

We have a real problem. I hope that the Opposition spokesman, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), will say what she thinks we can do to bring this issue back on Report in a form that finds favour not just with me and my hon. Friend the Member for Rochester and Strood (Mark Reckless)—two Conservative Back-Benchers. Incidentally, we happen to be men and it is all ladies on the Opposition Benches this morning. Let us see what we can bring about.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I hear what the hon. Gentleman says about clause 8 and schedule 1. We proposed to delete the schedule, as well as the clause, because it was a shambles. However, I hear what the hon. Gentleman says about Report. I am more than happy to consider what we can do together, because, of course, we want the Bill to come out of Committee better than it went in.

[Mr Chope]

I am grateful to the hon. Lady. On such issues, there is a slow fuse as far as members of the general public are concerned. They do not realise what the implications are until quite a long period has elapsed. We must look to people from outside the House—third parties, perhaps—to try to alert our constituents more to the full implications.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to speak under your chairmanship, Mr Streeter. It has also been a pleasure to listen to passionate and well-thought-out and well-delivered speeches from hon. Members who feel very strongly about this issue. I congratulate my hon. Friend the Member for City of Durham (Roberta Blackman-Woods), who brought it to Westminster Hall this morning to give us slightly more time to debate it than we had on the Floor of the House. I remember that the hon. Member for Christchurch (Mr Chope) pointed out then that we had 52 minutes to debate both the clause and the schedule. I heard what he said earlier today and I responded at that time, but I will say again that if we can find ways, across the Chamber, to ensure further scrutiny on Report of both the clause and the very important points in the schedule, that will be very helpful. I would certainly be more than willing to lend our support to see how we can do that.

[Fiona O’Donnell]

As well as welcoming the contributions this morning, would my hon. Friend agree that perhaps the Minister should be concerned that not a single hon. Member has turned up to support his proposals?

[Cathy Jamieson]

I thank my hon. Friend for that intervention. I was not going to point out that the Minister seems to be on his own this morning. I am sure that none the less he is very capable of dealing with the questions that have come up and will receive inspiration from various sources in order to do so. However, I will take the opportunity to repeat gently the advice that I tried to give the Minister during the discussion on the Floor of the House: “When you’re in a hole, it’s better to stop digging and find a ladder to get yourself out of that hole.” At that time, we were suggesting that we would be willing to work with the Government to see what could be done to mitigate the worst outcomes of this flawed policy, and that offer still stands.

[Mr Chope]

If I were the hon. Lady, I would take comfort from the fact that there are no Back Benchers here, because it shows that notwithstanding the very powerful Conservative Whips Office, they have not been able to dragoon anyone into coming here to support the Government’s policy today.

[Cathy Jamieson]

I thank the hon. Gentleman for that intervention. It is not for me to interpret what the Conservative Whips Office is able to do to deliver people to the debate and ensure that they turn up. None the less, we have heard some very powerful speeches, not least from the hon. Gentleman himself.

[Roberta Blackman-Woods]

Perhaps we should also note, especially as the idea for the policy appears to have come from Liberal Democrat members of the coalition, that there are no Liberal Democrats here at all to defend their ridiculous policy.

--- Later in debate ---

[Cathy Jamieson]

I thank my hon. Friend for putting that on the record. I am sure that note will duly be taken.

I want to use this opportunity to explain how we have got to the position we are in and what we need to do to resolve the problems. It is worth remembering that when the plans were announced, a single-income household earning just over £43,000 would have lost all the benefit, but a dual-income household on £84,000 would have kept all of it. The 2012 Budget increased the threshold for the withdrawal of child benefit to those earning £50,000 or more from 2013-14. That might have gone some way towards solving the problem for some families—the estimate was that about 750,000 might be in a better position—but it does not get away from the essential point that the principle of universality is fundamental to child benefit, as my hon. Friend the Member for City of Durham and other hon. Members have said.

We heard powerful speeches from my hon. Friend the Member for Stretford and Urmston (Kate Green) and others about why the principle is important and why we must do everything we possibly can to defend it. Child benefit is supposed to be about providing families, particularly mothers, with a dependable source of income for the benefit of the children and which a mother knows she will get irrespective of what goes on in the family. As we have heard, research from Child Poverty Action Group and others shows that the money is by and large spent on the day-to-day necessities for children.

I do not want to take us off-track, but the hon. Member for Christchurch mentioned the community charge. He was a junior Minister when it was introduced, as he explained, and I was a young mum. I spent many a wet Saturday campaigning against the introduction of the community charge in Scotland. If anything at that time politicised me and many other women, it was the unfairness of what the Government were doing. I do not say that to be critical of the hon. Gentleman—he has been very helpful this morning—but simply to say that when put in front of Ministers, sometimes issues look like a wonderful wheeze on the basis of the paperwork that the Government have produced, but it is when we look at the impact on people’s lives that such policies begin to fall apart. That is what is happening here.

I want to say a few words about the other issues raised in the debate. My hon. Friend the Member for City of Durham spoke not only about the principles of child benefit and the unworkability of the proposals, but about their legality. She made a powerful statement: these changes are wrong and they should not happen. That is absolutely right and it is the position that we are coming from this morning.

My hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) mentioned workability and the fact that the proposals were far too complex. She critically identified the real impact on real families. A family with three kids could find itself with a bill of £600 at the end of the year. That might not seem to be a big deal when someone is writing it in a policy proposal, but for many families that £600 bill will mean the difference between being able to buy necessary items for their kids and not being able to do so. Being asked to pay such a bill suddenly can throw a household budget out for months.

[Fiona O’Donnell]

I thank my hon. Friend for her generosity in giving way again. Does she agree that we need clarification from the Minister? If a parent who is entitled to child benefit throughout the year receives a bonus from an employer at the end of the tax year that takes them over the threshold, what will happen to the family?

[Cathy Jamieson]

My hon. Friend makes another useful point. We raised that issue with the Minister on the Floor of the House. Many people, because they get a bonus at work or because they are self-employed, will find at the end of the year that they have earned either more or less than they anticipated. Many self-employed people are not earning huge sums of money, so such issues are critical to them.

[Roberta Blackman-Woods]

My hon. Friend is being most generous. A back-dated pay increase is another circumstance that must be quite common.

[Cathy Jamieson]

That is an important point.

[Barbara Keeley]

I have a further serious example. I have a constituent who from time to time works with his firm in Afghanistan. His firm pays him a bonus because of the difficulties of working in a theatre like that. There must be hundreds, if not thousands, of people who get that sort of payment.

[Cathy Jamieson]

My hon. Friends have given very practical, real-life examples of the kind of circumstances in which people may feel penalised for doing particular types of work or for taking on additional risks and responsibilities. A thing that we hoped that we could persuade the Government to do, if nothing else, was not to implement the changes straight away, and perhaps the Minister could come back on that point. If they are intent on doing this—the Opposition believe that they would be wrong to do so, and I hope that they will pull back—at the very least would they be prepared to pause, produce a report and look at the circumstances in which people would be adversely affected?

My hon. Friends the Members for Bishop Auckland (Helen Goodman) and for Stretford and Urmston raised the tax implications, and my hon. Friend the Member for East Lothian (Fiona O’Donnell) mentioned national insurance contributions. The main concern around those is that when organisations such as the Institute of Chartered Accountants and others that deal with tax issues day to day say that the principles are wrong, it is of serious concern. The Minister has to say whether taxing an individual in respect of money that was paid to someone else is not a fundamental change in how individual taxation is dealt with. I will give him the opportunity to intervene if he wishes, but perhaps he prefers to answer in his speech. Such organisations have looked at the proposals and raised serious concerns. It is a shift and could open opportunities in other ways for similar proposals to be brought in, which would be extremely concerning for the reasons that other hon. Members have set out.

Until I heard the Minister’s earlier comment, I was not aware that his wife was a lawyer. I am sure that she has some views about how, rather than defending the policy, the Government now seem to be relying on describing it as absolutely legal, as was identified earlier. None the less, there are questions about how they arrived at that position. When the regulations to justify the legality of this were introduced in Parliament, were they discussed in relation to child benefit or any other benefit issues? Was it ever anticipated that those regulations would be used in such a context? Could he deal with that issue in his response? If he cannot answer today, I have tabled a parliamentary question that I hope he will answer in due course.

I want to give the Minister time to respond, so I will speed up. I have made those points because the report from the Institute of Chartered Accountants identified the issue of HMRC using the tax system to claw back a benefit from one individual that was paid to another. The tax system is based on individuals and the benefit system is based on households, so that undermines the principle of taxation. I have not seen anything from the Minister that describes how a household will be interpreted in the tax regulations. Families in similar financial situations could be treated quite differently, which undermines the policy of fairness. Changed family circumstances could, as we have heard, make it difficult or impossible to calculate the clawback, or determine who should pay it; and, indeed, we have heard examples showing that if family circumstances change during the year someone will be presented with a tax bill at the end of it, leading to greater uncertainty about family budgets.

There has also been concern about collecting the charge through PAYE coding. The report by the Institute of Chartered Accountants in England and Wales states that it could lead to delays of up to three years, and undermine the efficiency of the whole system, because any coding adjustment is an estimate, and it would be necessary to re-estimate the code repeatedly. We are no longer just dealing with the principle of child benefit; we are dealing with a fundamental change to the taxation system. That should be scrutinised further. I hope that the Minister will be able to give some responses to the issues that have been raised this morning. Will he also address the point made by my hon. Friend the Member for East Lothian—she raised, it, indeed, on the Floor of the House—and others about women who might forgo the opportunity to claim child benefit, but would not receive credits for their national insurance contributions? That is a serious matter that has not been addressed.

[Roberta Blackman-Woods]

Is it not critical that women should understand at this stage that that is a possible outcome of the changes? People have already started writing to me on the issue, and the Government need to take action.

[Cathy Jamieson]

It is an important point. I want to put another couple of related questions to the Minister. In the budget for dealing with the consequences, a certain amount of money was put aside for marketing. I raised with the Minister on the Floor of the House the issues of what information is available, and how to assess who is likely to be caught by the circumstances. I would like to hear exactly how the Minister intends to communicate to the individuals involved—to get the information out, and get the advice to those likely to be affected. How will he ensure that people do not make damaging decisions at a point in their lives when it may be easier to do that, without looking at the longer-term consequences? We all know that there are situations—we heard examples in the debate—in which an individual in a household may feel under pressure to do something that is not particularly to their advantage.

I hope that the Minister will be able to deal with the points I have made. I will finish by returning to the point about section 18(2)(a) of the Commissioners for Revenue and Customs Act 2005, which the Government have cited, arguing that it makes the use of the tax system legal in the present context. The understanding of the Association of Chartered Certified Accountants is that that use of the provision is a last resort in the giving of one partner’s information to another. ACCA suggests that only where taxpayers who must talk to one another to make the system work correctly do not do so should the section be brought into play. How will the Government assess when to use it and breach confidentiality? There are serious issues about what information about one partner will be given to another. Will it be only “Your partner is in a higher tax band”, or will it be detailed information? I do not think we have had an answer to that.

I hope the Minister can give us the information this morning. It is worth noting that earlier in the week the Institute of Chartered Accountants warned that the new tax would be an “operational disaster”. Surely that should be of concern to the Minister, and should mean that we get answers this morning, and that the Government think again.

--- Later in debate ---

[Mr Gauke]

As my hon. Friend knows, the Office for National Statistics will make an assessment of whether the measure constitutes a tax increase or a spending cut. However, child benefit is spent on households with people who earn more than £60,000.

[Cathy Jamieson]

Will the Minister give way?

[Mr Gauke]

I will, but I am conscious that we have got into the political knockabout before I have tried to address some of the concerns that were raised, which I hope to do.

[Cathy Jamieson]

It is just a brief point. The Minister correctly referred to the ONS. When will that assessment be made, and when will we be told what it decides?

[Mr Gauke]

If memory serves, the ONS will make that assessment after the policy has come into effect, in January 2013.

As I said, we face a large deficit and seek to reduce it in a way that is both fair and reasonable. It is only right and proper to ask those with the broadest shoulders to bear the greatest burden; because of this measure and others announced by my right hon. Friend the Chancellor in the Budget, that will be the case. Considering the universality of child benefit was never our first choice, but that is the position in which we have been left.

I recognise that many are concerned about the change. Some argue that child benefit must be sacrosanct. However, it is not fair that an individual who earns £15,000, £20,000 or £30,000 should be paying for benefits for those earning £80,000, £90,000 or £100,000. When Government need to raise revenue, it makes sense for them to turn to a measure with a broad base because significant numbers of recipients will not be reliant on the additional payment they receive. Child benefit is just that sort of payment.

The steps that we are taking will raise £1.8 billion for the Exchequer by 2014-15. That is why my right hon. Friend the Chancellor announced in 2010 that we would seek to withdraw child benefit from higher-rate taxpayers. We have always said that we would consider the ways in which to implement the measure, but we made it clear that a new complicated means test is not a sensible way forward. Instead, we should look to the existing systems and processes to ensure that we can achieve our goal.

Let me turn to the changes that we are introducing.

--- Later in debate ---

[Mr Gauke]

The alternative method, which would have been to do this on household income, would mean applying the tax credit system to all 8 million child benefit recipients. That would widely expand the tax credit system and impose a burden on a far greater number of people.

We propose to withdraw the financial gain from child benefit from those families where one partner has income of more than £60,000, and reduce the gains where one partner has income of more than £50,000. By applying a tax charge on those on high incomes using existing processes, we are doing it in the most efficient and pragmatic way. The charge will apply to an individual in receipt of child benefit, or their partner, where they are married or in a civil partnership, or living as if they are married or in a civil partnership. I hope that that answers the point about what a household is. It uses the current definitions of partners within social security legislation, and means that other adults living within the household do not affect the liability.

It will remain the case that two earners just below the threshold will not have their child benefit withdrawn. To introduce a new means test for family income would be complicated, costly and confusing—the very things that we wish to avoid. We would need to assess all of the 8 million households receiving child benefit, and we would need to do so each year.

Let me turn to the mechanics behind the changes that we are introducing. First, the changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. That will mean that 85% of families receiving child benefit need not be troubled by the changes—85% means more than 7 million families. Where an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. That means that child benefit is fully withdrawn at an income of £60,000. Furthermore, the thresholds between which the taper operates are not dependent on the number of children.

Those affected—around 1.2 million taxpayers—will declare their liability through the income tax self-assessment process, though just over half are already within the SA system. Although we recognise that the charge will bring some taxpayers into self-assessment for the first time, using self-assessment means that the tax can be calculated on the basis of the amount of child benefit received, and the taxpayer’s actual income. That is preferable to including an estimate in a taxpayer’s PAYE code, only to discover an underpayment or overpayment of tax at the year end as actual income proves to be different from estimated income. Even as small a change as £100 will change the amount of tax due for an individual on the taper. As a third of taxpayers affected will benefit from a reduced liability as they are on the taper, using PAYE rather than self-assessment would generate large numbers of under and overpayments.

The changes will take effect from 7 January 2013, with individuals affected including information relating to the charge for the first time in their self-assessment returns for the tax year 2012-13. The first payments of the charge will be due by 31 January 2014 if a taxpayer chooses to pay in a lump sum. Otherwise, the amount due for 2012-13 will be collected through the tax code in 2014-15.

[Cathy Jamieson]

I have a quick point. The Association of Chartered Certified Accountants is concerned that there will be further confusion over the fact that although the new scheme starts in January, the tax year does not start until April. How does the Minister answer that criticism?

[Mr Gauke]

Initially, we said that the scheme would be introduced from 1 January 2013—actually, it is from 7 January because that is the first day on which child benefit is payable. Such a time scale is perfectly operational, and there is no reason why we cannot run it from that particular point. Obviously, were we to delay the introduction of the scheme until April, there would be a cost to the Exchequer.

The introduction of the taper means that the vast majority of taxpayers with income between £50,000 and £60,000 will still gain from taking on extra work or getting a pay increase, even if it does take them over the £50,000 threshold.

A taxpayer or their partner would need to receive child benefit for at least eight children before the tax due on their additional income equalled the amount of income itself. Equally, an individual’s income may reduce so that they are no longer liable to the charge. That may also mean that tax due in respect of previous years can no longer be collected through the tax code. In such cases, HMRC will use its usual debt management processes.

Let me address the issue of opting out, which has been raised by a number of hon. Members. We are enabling individuals to opt out of receiving child benefit. Understandably, the point has been raised about state pensions and so on. Let me be clear. National insurance credits, which protect a person’s future entitlement to basic state pension and the state second pension, will remain available to all those who take time out of work to bring up children. The protection is given to anyone claiming child benefit for a child under the age of 12, even if they do not receive any payment or if they or their partner has to pay the new tax charge. The introduction of the tax charge will not affect a person’s right to claim child benefit. Child benefit will remain available to be claimed by anyone responsible for the child.

Parents and carers will have two options to safeguard their state pension, and they will be made clear on the child benefit claim form. First, they can claim child benefit and receive the payments. If liable, they or their partner can pay the new charge. Alternatively, they can submit a claim form for child benefit to establish their entitlement for state pension purposes, but choose not to receive the actual payments. That means that neither they nor their partner will be liable to pay the new charge, but the national insurance credits will still be received.

As for compliance, our approach means that we can use the current HMRC systems. That reduces the cost of implementation both for HMRC and the individuals affected. HMRC will use existing penalty regimes for those who choose not to tell it that they are liable to the new charge or who declare the wrong amount on their self-assessment return.

In the interests of time, let me turn to the issue of taxpayer confidentiality that the hon. Member for Bishop Auckland (Helen Goodman) raised. We have some disagreement over the meaning of independent taxation. It is about individual allowances and assessment of own income. In the 1980s, it replaced the system whereby a husband declared his wife’s income on his return, which increased his income. I understand the concern over taxpayer confidentiality. Information that should be shared between partners relates to whether child benefit is being claimed and which of the partners should have the tax charge—in other words, which tax partner is earning the most income.

The mechanisms in place will provide the minimum of information. Partners who may not be talking to each other can discover who is earning the most, but not the full details and whether or not child benefit is being claimed and for how many children. That is the extent of the information that needs to be shared, and HMRC is developing a process that enables it to share limited information with an ex-partner.

As I have already said, the Government have had to make difficult decisions. To continue to provide child benefit, we must do so in a sustainable manner. The current cost to the Exchequer for those recipients less in need is too high. To pay almost £2 billion to higher-rate taxpayers does not represent good value for money in these challenging times. We also recognise that we must withdraw child benefit to higher earners in a fair manner. The increase of the threshold to £50,000 and the introduction of the taper ensure that we are taking this action only in relation to those who can most afford it.