Wales Bill
Christopher Chope Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move amendment 21, page 8, leave out line 23 and insert—
‘(1) Part 4A of GOWA 2006 (as inserted by section 6) is amended as follows.
(2) In section 116A(1) (overview), after “Part” insert “—
(a) Chapter 2 confers on the Assembly power to set a rate of income tax to be paid by Welsh taxpayers, and
(b) ”.
(3) After Chapter 1 insert—’.
This amendment and amendment 19 ensure that the overview provision in new section 116A(1) of GOWA 2006 relating to the Assembly power to set a rate of income tax can only come into force, like the other provisions relating to that power, following a yes vote in a referendum.
The Temporary Chair (Mr Christopher Chope)
With this it will be convenient to discuss the following:
Amendment 2, page 8, line 36, leave out ‘only’ and insert ‘more than’.
Amendment 3, page 8, line 36, leave out ‘only one rate’ and insert ‘up to three rates’.
This amendment is proposed to implement the recommendations of the Silk Commission that the Welsh Government have the power to set different rates of tax for different income bands.
Government amendments 22 to 28.
Amendment 16, page 12, line 34, after ‘Assembly’, insert
‘and each House of Parliament’.
Amendment 6, page 12, line 37, at end add—
‘(2) The Secretary of State shall review the impact on the Exchequer effects of the provisions in this section on residents who live within 50 miles of the Wales/England border and the impact on the prospects for tax competition within the UK, and place a copy of the review in the Library of the House of Commons.’.
Clause stand part.
Amendment 41, in clause 9, page 13, line 8, leave out ‘10’ and insert ‘15’.
Clause 9 stand part.
Amendment 1, in clause 11, page 16, line 20, leave out from ‘Wales’ to end and add
‘where a Welsh rate resolution specifies more than one rate of income tax.’.
Government amendment 19.
Amendment 38, in clause 28, page 29, line 34, after ‘except’, insert
‘sections 8 and 9 and’.
Amendment 39, page 29, line 36, at end insert—
‘(2A) Sections 8 and 9 shall not come into force until a Welsh Government Minister has laid a report before the National Assembly for Wales containing a statement to the effect that the Welsh Government, with regard to the Statement of Funding Policy, is content with the fairness of the arrangements for allocating funding from the UK Government to Wales.
(2B) Sections 8 and 9 shall be suspended following any substantive reform, amendment or other alteration of the arrangements mentioned in subsection (2A), until the process under subsection (2A) has been repeated.’.
Amendment 4, in title, line 3, leave out ‘a rate’ and insert ‘rates’.
Sir Greg Knight (East Yorkshire) (Con)
On a point of order, Mr Chope. If the four people who voted in favour of new clause 4 want to express an opinion on one side of the argument or the other later this evening, is there not a case that you should weigh the voices?
The Temporary Chair
That could be considered. I have always been keen that we should allow the minority to express their opinion in the Chamber without having it suppressed.
Mr Gauke
It is a great pleasure to serve under your chairmanship this evening, Mr Chope, and to set out the Government’s position on clauses 8 and 9 and the Government amendments. I will also take the opportunity to comment on the amendments tabled by others and will have the chance to debate taxation powers with the shadow Secretary of State for Wales, which I am sure will bring back many happy memories for him of serving on Finance Bills.
Subject to the outcome of a referendum, clause 8 amends the Government of Wales Act 2006 to introduce a Welsh rate of income tax to be paid by those defined as Welsh taxpayers. Clause 9 amends the Income Tax Act 2007 to set out how the Welsh rate of income tax determines the Welsh basic, higher and additional rates of income tax. It also defines the income that will be taxed at those rates.
I shall start with Government amendments 19 and 21. The income tax provisions in clause 8 form part of a new part 4A of the 2006 Act, which is introduced by clause 6. Part 4A’s introductory section includes a reference to the income tax provisions in chapter 2. The provisions in clause 6 will come into force two months after this Bill receives Royal Assent. However, the income tax provisions in clause 8 and 9 can of course be brought into force only following a yes vote in a referendum. Amendment 19 therefore removes the reference to chapter 2 from clause 6, and amendment 21 reinserts the reference into clause 8, bringing the commencement of the reference into line with the rest of the income tax provisions. That will ensure that the amended Act accurately reflects the legislative competence of the Assembly at a given point.
The provisions in clause 9 concerning the Welsh rate have been revised since the draft Bill. That necessitated changes to the power to allow for further consequential changes to be made under secondary legislation introduced by clause 8 in new section 116I of the 2006 Act to ensure that it continued to work as intended. Government amendments 22, 27 and 28 make further technical changes to that power in order to clarify that proposed new section 11B does not impose a charge to income tax. Rather, the effect of the new section 11B is to apply the Welsh rates of income tax to a Welsh taxpayer’s non-savings income.
On Government amendments 23 to 26, the power in new section 116I also allows an order to be made to ensure that HMRC can continue to operate the PAYE system effectively in the event that the Assembly passes a Welsh rate resolution at a late stage in the preceding tax year. Such an order would require employers to continue to operate PAYE on the basis of the information issued by HMRC, rather than the correct tax position for a specified period. The tax position of employees would ultimately be correct over the course of the tax year.
The scenario I have set out would also apply if, for whatever reason, the Assembly did not pass a rate-setting resolution at all, assuming that that had not previously been announced by the Welsh Government. Although I accept that that is unlikely to arise in practice, it is important to recognise that the Assembly has the option not to pass a rate if it so chooses. Amendments 23 to 26 therefore extend the order-making power to cover that scenario. I hope that hon. Members will support those amendments and Government amendments 19, 21, 27 and 28.
In amendment 41, I was pleased to see an amendment from the hon. Members for Pontypridd (Owen Smith) and for Llanelli (Nia Griffith) that supports the principle of income tax devolution, although I note that their latest approach would not provide Wales with quite the same outcome that they have now proposed for Scotland. None the less, it is progress. Although I confess to not having previously studied the issue very closely, I was not sure whether the Labour party opposed income tax devolution or thought that there was not enough of it. No doubt we will receive an explanation later.
The Temporary Chair (Mr Christopher Chope)
Order. Only one person can speak at a time.
Mr Gauke
I continue to touch a nerve with the hon. Gentleman. If tax receipts grow in Wales as a consequence of greater economic growth—after all, the Welsh Government have powers over education, skills, housing and planning—it will be to the advantage of Wales and the Welsh Government. I have no doubt that it is the desire of the Welsh Government to do the best for the Welsh economy. This is an opportunity to benefit from growth and increased tax receipts.
The Temporary Chair (Mr Christopher Chope)
Order. The Minister is not giving way to the hon. Member for Swansea West (Geraint Davies). We must have some order. There are not many Members in the Chamber, but they seem to be making a mockery of the rules of order. I think that the Minister is giving way to the hon. Member for Pontypridd (Owen Smith).
Owen Smith
I merely wanted to ask whether, while talking about good and bad policies, the Minister would care to congratulate the Welsh Government on the good policy of Jobs Growth Wales. The policy has been seven times more effective than the Work programme in Wales, and has resulted in Wales having higher growth and, indeed, better unemployment figures than anywhere else in the UK.
Crowdfunding and the FCA
Christopher Chope Excerpts(12 years, 3 months ago)
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Mr Christopher Chope (in the Chair)
Does the hon. Member for Cambridge have the consent of both the hon. Member for Huddersfield (Mr Sheerman) and the Minister?
Mr Christopher Chope (in the Chair)
I shall call the Minister now. If the hon. Lady wishes to intervene, it will be up to the Minister.
Oral Answers to Questions
Christopher Chope Excerpts(12 years, 10 months ago)
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Mr Christopher Chope (Christchurch) (Con)
Does the Minister accept that a tax on transactions reduces the number of transactions? Does he therefore agree that the current level of stamp duty is reducing the number of housing transactions, and as a result is disadvantaging the construction sector?
Danny Alexander
I have to say that I do not really accept that. The evidence of previous attempts to support housing transactions through stamp duty cuts is not all that positive. The Government have sought to make the stamp duty system more progressive, asking those with the largest properties to pay more. Indeed, I hope my hon. Friend welcomes the introduction, from the beginning of April, of a new annual charge for homes owned by offshore companies—a mansion tax for tax dodgers, as it were.
Multiannual Financial Framework
Christopher Chope Excerpts(13 years, 5 months ago)
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Mr Cash
Absolutely. It is impossible to make any public expenditure—including our contributions to the whole of the public sector: health, education, local government, the lot—unless the money comes from reasonably taxed small and medium-sized enterprises. Yet the whole of the Commission’s paper—which is at the heart of the 2020 strategy and at the heart of why the Commission is asking for this increased amount of money, which it calls an investment for growth—contains only one reference to small and medium-sized businesses, in one line. That is the problem we are up against. We cannot give money to the public sector unless we get it from private enterprise on a reasonably taxed basis.
The Prime Minister’s letter continues:
“The action taken in 2011 to curb”—
“curb”: that is the word he uses—
“annual growth in European payment appropriations should therefore be stepped up progressively over the remaining years of this financial perspective and payment appropriations should increase, at most, by no more than inflation over the next financial perspectives.”
The situation was wrong then, and it has got worse since. That was in December 2011. We are now in October 2012, and we know what the picture is, and it is getting progressively worse. That is why we had to call for a reduction rather than merely what the Prime Minister describes as an
“increase, at most, by no more than inflation over the next financial perspectives.”
Mr Christopher Chope (Christchurch) (Con)
Will my hon. Friend take some support from the fact that on 20 June our right hon. Friend the Foreign Secretary told this House he thought reductions in the EU budget of 20% were “highly desirable”?
Mr Cash
Absolutely; that is a very good point indeed.
I would like to dig a little deeper into what this money is supposed to be used for. It is all set out in the papers laid before the House for the purposes of this debate. They talk about turning the EU into a “smart”—whatever that means—“sustainable and inclusive economy” delivering
“high levels of employment productivity and social cohesion.”
How on earth are they going to achieve that given the measures they think will produce growth? Almost every single aspect of what they want to deliver is based on increasing grants and subsidies, but not on asking where the money is coming from.
The money comes from our constituents. It comes from the taxpayer. It does not grow on trees. That is what they do not understand. Therefore, the entire strategy on which this multiannual financial framework is based is nonsense. It is an Alice in Wonderland fantasy, as I have repeatedly said when I have had the opportunity to meet the other 27 Chairmen of the national scrutiny committees. I have noticed that there is increasing awareness, too. The hon. Member for Luton North (Kelvin Hopkins) was with me only a few weeks ago, and he noticed the degree of response I was getting from the other member states’ national chairmen. They understood that they were in deep trouble.
The money does not grow on trees in Spain; that is why there are demands for independence from Catalonia. The money does not grow on trees in France or Germany either. The fact is that it has to be found.
Child Benefit
Christopher Chope Excerpts(13 years, 10 months ago)
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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.
Barbara Keeley
Has the hon. Gentleman seen the Asda Mumdex index—a panel of 4,000 mums—sent to Members of Parliament yesterday? The optimism figure on the future of their family finances dropped from zero to minus eight in February, and the latest research found that it has dropped to minus 16. The issue may be on a slow fuse, but people out there—certainly, women in families—are starting to understand that the future looks rather bleak.
Mr Chope
I have not seen those figures, but they obviously speak for themselves. Despite that, I am not receiving as many angry letters from constituents as when, for example, I was the junior Minister dealing with the community charge. Let us recall that in 1987 the Government were elected with a specific manifesto commitment to introduce the community charge on the back of its success in Scotland. The proposal on child benefit that we are discussing today was not even in our manifesto. Indeed, it was expressly ruled out by comments made by both the Prime Minister and the Chancellor of the Exchequer in their shadow positions before the general election.
Sheila Gilmore
As an aside, I am not so sure that, in 1987, the community charge was such a great success in Scotland. One thing that caused the eventual collapse of the community charge was not just its unfairness, but the sheer impracticality of collection, which had not properly been thought through. The operational issue was as important as anything else. It may be the same in this case.
Mr Chope
The hon. Lady makes a good point. There are two issues running in parallel. One difficulty for those of us proposing the community charge was to explain how it was fair that a duke and a dustman should pay the same amount. That difficulty ran through the public debate. At the same time, we went into great detail about exemptions for particular groups of people and an administratively burdensome system of rebates, which created a lot of fresh cliff edges, with people feeling that they had been treated unfairly. I fear that that is exactly what is happening with this ill-conceived proposal.
Mark Reckless (Rochester and Strood) (Con)
The difference between the community charge and the abolition of the 10p tax rate by the previous Government and the present issue is that, at some point, taxpayers received a bill for a sum, making it clear that they had to pay it. The alternative, if this is not to become a slow-burn issue, is that come January, taxpayers will be unaware that they have to give up their child benefit or unaware of what their partner earns, so they will simply not pay or will be followed up by the Revenue and there will be mass non-compliance involving people who are unaware, or at least say that they are.
Mr Chope
My hon. Friend makes a good point. I am grateful to him for reminding us about the 10p tax rate, because that introduces a bit of political balance into this debate. It is not just the coalition Government, or the previous Conservative Government, who can get on the wrong side of such issues, both in respect of the principle and of the detail. We need an answer to the question of why the single-parent earner on £60,000 loses the equivalent of all her child benefit, while next door the two-earner couple on up to £100,000, with their incomes spread equally between the earners, keep their child benefit. Will there be an answer to that question? Perhaps the Minister would like to intervene. Unless we get answers to those fundamental questions, it will be difficult for us to sell the concept to our constituents.
Fiona O'Donnell (East Lothian) (Lab)
The hon. Gentleman is making an excellent contribution. Does he agree that the unfairness of the measure goes beyond income? It does not take account of the number of children in any household.
Mr Chope
Of course it does not, because the whole thing is arbitrary. It is all based on the false premise that people on £20,000 or £30,000 a year are cross-subsidising those on higher incomes with children. I have had a letter published in The Daily Telegraph and the Minister has replied to my questions, but it is apparent from my hon. Friend’s answers that there is no cross-subsidy from a person on £20,000 a year to someone on £60,000 a year with however many children—that is a fallacy. I suspect that the policy is based on someone going to a focus group and asking, “Is it fair that someone on £20,000 should be subsidising a family on £60,000 with a whole lot of children?” Of course it would not be fair if it was true, but it is not true—it is a false premise and, on the basis of that, we have a policy that I fear will lose the Conservative party a large number of votes.
Let us not forget, however, that the origins of the policy lie not in the Conservative party but with the Liberal Democrats. Before the general election they were campaigning to interfere in that policy area. With the knowledge that the measure was originally proposed and supported by the Liberal Democrats, this is another example of an area in which the Prime Minister can feel free to make significant change if he wishes to respond to agitation on his Back Benches for a bigger Conservative element in Government policy. Officials have previously suggested that something should be done about taking child benefit away from those on higher earnings but my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), who was a Treasury Minister, said that, after looking at it from all angles, we reached the conclusion that it could not be done fairly. So what are the present Government going to do? They are going to do it, and they are going to do it unfairly.
What worries me is that the measure will be administratively burdensome as well, costing more than £100 million in extra administration. We will be taking on tens of thousands of additional civil servants when the Government are saying that we want to simplify tax policy, reduce the size of the state bureaucracy and so on. There is no consistency, and I fear for my party.
Kate Green (Stretford and Urmston) (Lab)
I am pleased to participate in this debate, and I congratulate all hon. Members who have spoken, particularly my hon. Friend the Member for City of Durham (Roberta Blackman-Woods) on securing it, and the hon. Member for Christchurch (Mr Chope), who has been a vocal and powerful advocate for families in the context of the Government’s proposals. I am pleased to see him here today.
I am sad—I suspect that the hon. Gentleman shares that sadness—to see a Conservative Government introducing this proposal. There have been threats to child benefit in past decades, but there has always been an alliance with strong Conservative voices that has stood up to protect against those threats and attacks. Conservative women have been particularly strong in their understanding of why the benefit matters so much to families—[Interruption.] As my hon. Friend the Member for Bishop Auckland (Helen Goodman) pointed out, it is disappointing to see so few of them in the Chamber.
Kate Green
The hon. Gentleman is right. I hope to come on to the situation when John Major was Prime Minister, and some of the arguments then.
For the benefit of many hon. Members who do not seem to appreciate the underlying principles of universal child benefit, I want to put them on the record this morning. I am sorry that they are not in the Chamber to have the benefit of my exposition, but they can read it in the Official Report. As hon. Members have said, this benefit, which is important for families, is a mechanism that is redistributive horizontally and vertically, as my hon. Friend the Member for City of Durham said. As other hon. Members have said, in practice that means that families with children receive extra help to meet the cost of raising their children because, as a society, we all share the benefit of those children making a future contribution to our communal well-being. It is right to provide that support universally, and to recognise that we all share in the social obligation to maintain those families.
Over its life, the benefit is redistributive, and it enables all families to manage the additional costs that they face when raising young children, and to plan their finances across their whole lifetime. Importantly, in practice—this has been alluded to—it is a benefit that has been paid mostly to mothers. The vast majority of child benefit is paid to mothers. Even in the richest families, it is the only source of independent income for many women, and it is essential that they have access to it to provide for and to meet the needs of their children.
As hon. Members have said, we know that that money is spent for the benefit of children, either directly on toys, books, activities, clothes, shoes and so on, or indirectly by paying down family debt, ensuring that basic household bills are covered. Things that are essential for children’s well-being are prioritised in all families, and one reason is the label it bears. There is good research evidence showing that because it is called “child benefit”, it is understood that it must be spent for the benefit of children, and that is what happens.
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.
Finance (No. 4) Bill
Christopher Chope Excerpts(13 years, 11 months ago)
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Mr Christopher Chope (Christchurch) (Con)
I beg to move amendment 9, page 4, line 33, leave out ‘high’ and insert ‘higher’.
The Temporary Chair (Hywel Williams)
With this it will be convenient to discuss the following:
Amendment 10, page 4, line 34, at end add
‘for recipients of child benefit’.
Amendment 75, page 4, line 35, at end add—
‘(2) Schedule 1 will not come into effect until a study has been carried out into ways of mitigating the impact of the Schedule on families with only one earner, compared with families with two earners, and placed in the Library of the House of Commons.’.
Clause stand part.
Amendment 11, in schedule 1, page 131, line 7, leave out ‘high’ and insert ‘higher’.
Amendment 12, page 131, line 8, leave out ‘high’ and insert ‘higher’.
Amendment 25, page 131, line 10, leave out ‘£50,000’ and insert ‘£60,000’.
Amendment 26, page 131, line 11, leave out
‘one or both of conditions A and B are’
and insert ‘condition A is’.
Amendment 13, page 131, line 12, leave out ‘high’ and insert ‘higher’.
Amendment 27, page 131, leave out lines 19 to 24.
Amendment 28, page 131, line 24, at end insert—
‘(5) A person (P) is not liable to a high income child benefit charge if the total adjusted net income for the year of that person and any partner does not exceed £100,000’.
Amendment 77, page 131, line 24, at end insert—
‘(5) A person (P) is not liable to a high income child benefit charge if the total adjusted net income for the year of that person and any partner does not exceed £100,000, subject to any child or children in respect of whom child benefit is claimed being resident in the United Kingdom notwithstanding the European Communities Act 1972.’.
Amendment 14, page 131, line 26, leave out ‘high’ and insert ‘higher’.
Amendment 29, page 131, line 29. leave out from ‘met’ to end of line 30.
Amendment 30, page 131, line 31, leave out ‘and B’.
Amendment 31, page 131, line 32, leave out from ‘is’ to end of line 13 on page 132 and insert ‘100%’.
Amendment 32, page 132, line 14, leave out from beginning to end of line 2 on page 133.
Amendment 33, page 133, leave out lines 16 to 26.
Amendment 34, page 133, line 29, leave out ‘another’ and insert ‘a higher’.
Amendment 35, page 133, line 30, leave out from ‘681B(1)(a)’ to end of line 33.
Amendment 36, page 133, leave out lines 36 to 39.
Amendment 37, page 134, leave out lines 3 and 4.
Amendment 38, page 134, leave out lines 10 to 12.
Amendment 15, page 134, line 28, leave out ‘high’ and insert ‘higher’.
Amendment 39, page 134, leave out lines 34 to 37.
Amendment 16, page 135, line 9, leave out ‘high’ and insert ‘higher’.
Amendment 40, page 135, leave out lines 13 to 23.
Amendment 41, page 135, leave out lines 37 to 40.
Amendment 17, page 135, line 38, leave out ‘high’ and insert ‘higher’.
Amendment 18, page 136, line 9, leave out ‘high’ and insert ‘higher’.
Amendment 42, page 136, leave out lines 13 to 23.
Amendment 19, page 136, line 35, leave out ‘high’ and insert ‘higher’.
Amendment 20, page 136, line 38, leave out ‘high’ and insert ‘higher’.
Amendment 21, page 136, line 45, leave out ‘high’ and insert ‘higher’.
Amendment 22, page 137, line 13, leave out ‘high’ and insert ‘higher’.
Amendment 23, page 137, line 22, leave out ‘high’ and insert ‘higher’.
Amendment 24, page 137, line 26, leave out ‘high’ and insert ‘higher’.
Schedule 1 stand part.
Mr Chope
I rise to speak to amendment 9 and the other amendments in the group, standing in my name and that of my hon. Friend the Member for Gainsborough (Mr Leigh). We face a rather unsatisfactory state of affairs, because the guillotine will fall at 6 o’clock, which means that we have precisely 52 minutes to discuss the whole of clause 8 and schedule 1, which deal with child benefit and will affect 1.2 million families up and down the country, potentially yielding £1.5 billion for the Exchequer. How can one do justice to the complexity of what the Government are proposing in this short space of time?
Mr Chope
I see the hon. Lady on the Opposition Front Bench agrees with me about that.
Perhaps it is appropriate to start by reminding the Committee of what our right hon. Friend the Prime Minister said on 26 May 2009. He said that he had accepted, as Conservative party policy, that
“The House of Commons should have more control over its own timetable, so there’s time for proper scrutiny and debate.”
He said that
“there should be much less whipping during the committee stages of a Bill,”
because
“that’s when you really need proper, impartial, effective scrutiny—not partisan point-scoring and posturing.”
It is against that background that I enter into this debate with confidence.
The Government’s proposals will, by their own admission, result in more complexity and less simplicity, which is completely at odds with their avowed intent on tax policy. The administrative costs alone will exceed £100 million, and 650 extra staff will have to be taken on to administer what is effectively the removal of child benefit from 1.2 million families.
Kelvin Hopkins
I agree with the hon. Gentleman entirely. I recall when child benefit was first introduced in the 1970s, and I have to point out to those on the Government Front Bench that, throughout the Thatcher and Major Governments, no attempt was made to get rid of that universal benefit. We should stick with universality in this case.
Mr Chope
The hon. Gentleman is absolutely right. Even during the International Monetary Fund crisis in the mid-1970s, things never got so tough that the Government of the day felt the need to interfere with child benefit. It was a reflection of the fact that families with children had higher costs than those without.
The proposals will create all sorts of perverse incentives, and the people who want to try to avoid the measures will have a field day. This has been well covered by the Treasury Select Committee’s recent report, as well as by the Chartered Institute of Taxation and other expert bodies. The fundamental issue is the proposals’ lack of fairness, as between one family and another.
Mr Stewart Jackson (Peterborough) (Con)
The Centre for Social Justice says that the Government’s policy
“could threaten a new wave of family instability and breakdown”,
and that it
“flies in the face of their commitment to ‘shared parenting’.”
Does my hon. Friend find it incongruous that that policy is being pursued at the same time as the Government are failing to honour their commitment to introduce marriage or family tax breaks in this or future Budgets?
Mr Chope
My hon. Friend makes a really good point, which was also covered in the recent Adjournment debate on this subject, which received what I can describe only as a rather woolly response from the Exchequer Secretary to the Treasury, my hon. Friend the Member for South West Hertfordshire (Mr Gauke). He said that, basically, something was going to happen in this Parliament but the Government were not quite sure what or when. That was not good enough. We need an opportunity to look at the whole issue of transferrable tax allowances, and allowances in the tax and benefit system that recognise the family and marriage.
Returning to the issue of fairness, two people on £50,000 a year with children will not have to pay the high income child benefit charge, whereas a family with children with one person earning over £60,000 will have to pay it.
Steve Brine (Winchester) (Con)
On the issue of fairness, would my hon. Friend have any truck with the idea of limiting child benefit to, say, the first two or three children, regardless of the parents’ income, which would retain the universal element?
Mr Chope
There is a whole host of ideas going round. There was a time when no child benefit or allowance was payable for the first child, on the basis that parents should take responsibility for that child and bear the costs themselves, but, if they had any more, they could expect the state to help them. My hon. Friend’s point illustrates further the fact that this measure should have been the subject of proper consultation and draft clauses, so that we could have had a debate on it in the wider context of universal benefits. Instead, it was announced at the party conference and implemented in this way.
Andrew Gwynne (Denton and Reddish) (Lab)
Is not one of the benefits of a universal system of child benefit the fact that everyone in society who has children feels part of that society and that welfare state? The proposal will breed resentment not only between the haves and the have-nots but between the haves and those whose family situation fits the new system.
Mr Chope
The hon. Gentleman makes a good point against these provisions. On the issue he raises, it would be worth reminding ourselves that the Christian organisation CARE has produced a useful document, “The Taxation of Families 2010/11”, which considers whether current tax burdens are fair. It looks at the relative position of households up and down the income distribution scale in the United Kingdom. For a family on £51,543 a year, who represent 150% of the reference wage, a single person with no children is better off than 94% of the population, a one-earner couple with no children are better off than 81% and a lone parent with two children are better off than 80%. Yet a one-earner couple with two children are better off than only 63% of the population and a two-earner couple with two children are better off only than 69%. That shows that targeting families with children for this tax exacerbates the unfairness rather than ameliorating it—running directly against the principles of fairness, equity and justice.
Kate Green
I congratulate the hon. Gentleman on his amendment and on his arguments in support of it. Does he agree that because of the failure to consult, we do not know the answer to the question of how this policy will play out between women and men? Currently, child benefit is paid to the mother as the maintainer of children, but she may now come under pressure from her partner to forgo that child benefit so that his tax bill is not affected. That means an injustice between women and men; and, more importantly, it affects the amount of money spent on children.
Mr Chope
The hon. Lady is absolutely right: that is another of the behavioural consequences, the full implications of which are not yet apparent.
One has to ask why we are going down this road. The justification for it—the avowed policy objective—is this:
“In order to address the fiscal deficit, the Government believes that it is right to ask those on higher incomes to contribute more.”
The Government’s proposal, however, asks those on higher incomes with families and children to contribute more, while those on higher incomes without children are not asked to contribute more. I do not see how that can be fair.
In case anyone thinks this is an issue discussed only among academics, let me say that it certainly goes very close to the heart of many of my constituents. I shall quote briefly from a letter that I received since the Budget from a constituent living in Christchurch. He starts off:
“I am writing to express my utter disgust and outrage at your party’s stance on child allowance announced in the budget last week.”
He explains that he and his wife choose to work hard, believing that they have a responsibility
“to look after ourselves and to help to generate wealth for the wider community”
by contributing their utmost to industry. He says that he has an income of £60,000 and that his wife earns £12,000, providing a combined income of £72,000. As he puts it:
“under your disgusting new Tax rules we will lose the child benefit for our two children. However, in a household with two working parents earning £40,000 each, combined income of significantly more…that family gets to keep their benefit.”
Mr Chope
Before I give way to my hon. Friend, let me read the last paragraph:
“I ask for your commitment to continue your fight against this latest most disgusting taxation scheme on child allowance and rally your fellow back benchers against the current disgraceful and unethical budget.”
Steve McCabe (Birmingham, Selly Oak) (Lab)
If the hon. Gentleman is not successful with his amendment, will he take his constituent’s advice and ask his colleagues to vote against the proposal in its entirety?
Mr Chope
If I am given the opportunity, and if I do not succeed in persuading the Government of the merits of amendment 28 in particular, I shall feel obliged to vote against both the clause and the schedule. I think that by then we shall have done everything possible to try to persuade the Government to change their mind., and if they do not want to change their mind, I shall feel duty bound to express my view in the Lobby accordingly.
The Treasury figures show that there are 840,000 households with children in which at least one person earns over £60,000 a year. I have proposed that everyone earning over £60,000 a year should pay a standard tax increment of about £1,000, which would generate about £2 billion. The 840,000 people in households with children would be only £300 better off, or a bit more, depending on how many children they had. There are approximately another 1.1 million people with taxable incomes of over £60,000 who do not have children. If everyone earning over £60,000 paid an extra £1,000, we would not have to bother with this very partial project of penalising families with children.
I am not suggesting that as a definite solution. I should much prefer, for example, to reduce our contribution to the European Union. [Hon. Members: “Hear, hear.”] However, it would at least be fairer and more consistent with the Government’s avowed intent that those on higher incomes should contribute more to deficit reduction.
Amendment 9 proposes that the
“High-income child benefit charge”
in clause 8 should be described as a higher-income charge. I do not think it accurate to describe someone earning over £50,000 a year as having a high income—although such people may have a higher relative income, as is apparent from the CARE figures that I gave earlier. Funnily enough, HMRC’s own Budget document refers to
“Child Benefit: Income Tax Charge for Those on Higher Incomes”.
I hope that my hon. Friend the Minister will accept that the charge in clause 8 should also be described as a “higher” rather than a “high” income charge. Under the heading “Policy objective”, the document states:
“In order to address the fiscal deficit the Government believes that it is right to ask those on higher incomes to contribute more.”
Obviously mine is a small amendment in comparison with the more substantial ones. If the Government are unwilling even to concede that point, it shows that the degree of stubbornness in the Treasury is even greater than many of us thought.
Is the high-income child benefit charge classified as a tax? I tabled a question to that effect that was due to be answered on Monday, and have just received a written answer from my hon. Friend the Minister—it should have been given then, but I understand the reason for the delay—which states:
“Classification is a matter for the independent Office for National Statistics.”
Effectively, we are talking about a new tax on people with particular incomes, rather than about removing child benefit from them. I have every belief that, in due course, the Office for National Statistics will classify this as a tax.
The Government have been keen to emphasise the need to cut expenditure, and not so keen to introduce tax increases. That may be why they have been rather coy about admitting that this will probably be a tax increase for definition purposes rather than a cut in benefit. My amendment 28, on which I hope we shall have an opportunity to vote, would ensure that there was no unfairness in the treatment of families with identical incomes. The single-parent trap and the couple penalty would be avoided, and the objective that taxes must be fair and simple would be met. This tax is neither fair nor simple.
We were discussing the granny tax earlier, and I would describe the measure now under discussion as a tax targeted at mummies and daddies in the squeezed, hard-working middle. People on equivalent incomes without parental responsibilities have nothing extra to pay and some households on joint incomes with children will also pay nothing, whereas single parents earning over £60,000 will pay a minimum of £1,300 a year more than before, and some of them will pay a lot more than that. This cannot be right. I hope the Minister will say the Government have had second thoughts and are minded to withdraw their proposal.
Cathy Jamieson
I will be as brief as possible, as I am aware that there is not much time left.
There are two key issues: the principle of what child benefit is supposed to be for, and the practical implications of the Government’s proposals. I want to emphasise the word “child” because we have lost sight of the fact that we are talking about children. The Child Benefit Bill introduced in May 1975 by the then Labour Government, with all-party support, was intended to offer a universal, non-means-tested, cash-free tax benefit for the good of all children. At its simplest, it was designed to ensure that mothers had money paid regularly into their purses, giving them at least some form of stable income, and that the money would be used for their families.
Mr Gauke
I have only one minute remaining and want to address the concerns raised during the debate, so I will not give way.
The question was raised of classification and whether or not this was a tax. As my hon. Friend the Member for Christchurch said, that will depend on the Office for National Statistics assessment. Let me deal with the question the hon. Member for Kilmarnock and Loudoun asked. Independent taxation will still apply, each partner will still have their own personal allowance and tax rate bands, and the amount of child benefit, even if it is received by the taxpayer’s partner, will not increase the amount of income liable to tax. Where there are two high earners in a household and they do not want to tell each other their incomes, there will be a mechanism whereby they can find out whether they have a higher or lower income but without the full details.
Mr Hoyle, my time is up. As I have said, the Government have had to make difficult decisions. In order to continue to provide child benefit, we must do so in a sustainable manner. At the current cost that is not the case. We have increased the threshold to £50,000 and put in a taper. This all mitigates some of the concerns that hon. Members have raised, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament.
Mr Chope
I thank everybody who has participated in this spirited debate. Having heard the Minister’s explanation in relation to amendment 9, I will seek to withdraw it. Hopefully, we can have a vote on amendment 28, which deals with the injustice whereby a single-earner family earning £60,000 will lose their child benefit while a family with two people earning £50,000 will retain it. This issue will come back to haunt the Government, I fear. That sometimes happens when policies are drawn up on the back of a fag packet. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Finance (No. 4) Bill
Christopher Chope Excerpts(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Chris Bryant
Well, I am really impressed by the hon. Lady. I can understand how my hon. Friend the Member for Wirral South read my notes but not how the hon. Lady managed to read them from over there. I was going to come to exactly the point she makes but not quite in the same way. Yes, there is an ethical clash about whether this is the right time to introduce this measure for political and economic reasons, but my concern is that because the Chancellor had, I think, personally decided that he was going to cut the 50p rate to 45p, so many other elements of the Budget had to follow that change. A prime example is the fact that the Prime Minister and the Chancellor wanted to be able to say that the rich would pay five times more tax after the Budget than before—I think that is, broadly speaking, the point that the hon. Lady is making. I am not opposed to some of the measures that will increase the amount of tax paid by people who have wealth in a variety of circumstances, but I think that some of the measures in the Budget and the Finance Bill ended up there only to try to shore up that argument, and I do not think that due diligence was done around them.
Let me take one example—I note the look in your eye, Mr Hoyle, and I shall bring my remarks to a close very soon. I think that the measure about capping the tax relief available for people giving money to charities is in the Budget solely so that the Government can argue that the rich will pay more. It is not based on fact or research. There might be perfectly good things we could do on whether charities outside this country that are not covered by the Charity Commission should be removed from the system or on whether greater powers should be given to the commission, but I think that the only reason that the measure was in the Budget was so that the Government could say that tax has increased. This has left the Chancellor and the Prime Minister somewhat double-faced—I shall not say two-faced, because obviously I could not. On the one hand they are saying that the top rate of tax should go down and the rich should not pay so much and, on the other, they are saying that the rich should pay more.
I hope that I have persuaded all the hon. Members on the Government side to change their mind. I see that I have persuaded the reckless Member over there, the hon. Member for Rochester and Strood (Mark Reckless), to support the amendment in the name of my hon. Friend the Member for Pontypridd.
Mr Christopher Chope (Christchurch) (Con)
I do not think it is necessary for me to speak to amendment 1 because my hon. Friend the Member for South West Norfolk (Elizabeth Truss) and others have, in their interventions, destroyed the Opposition’s argument. I recall that the TaxPayers Alliance organised a wonderful celebratory dinner not long ago, in the Guildhall I think, at which the guest of honour was none other than Dr Laffer of the Laffer curve. I am delighted that the Treasury is now paying more attention to the principles behind the Laffer curve, which, in my view, are well represented in the argument for reducing the top rate of tax back to 40%, rather than 45%. I hope that in due course my hon. Friend the Minister will explain why someone like me should not be tempted to vote for amendment 1 on the basis that it would reduce the level to 40%.
Owen Smith
When Dr Laffer attended the dinner at the Guildhall, did he bring with him the famous cocktail napkin on which he sketched the curve?
Mr Chope
Dr Laffer did not bring any visual aids with him; he was able to command his audience without them. I remember being surprised by how relatively youthful he was—it seemed that his principles and his curve had been talked about for so long that I had assumed he was going to come in with a walking stick, but he did not. He was very lively in mind, body and spirit so I think he is someone we can continue to listen to in the months and years ahead.
I want to use my short speech to comment on amendment 62, which is in my name and that of my hon. Friend the Member for Rochester and Strood (Mark Reckless). It calls on the Treasury to
“within two months of Royal Assent, make an assessment of the relative administrative costs of…making an additional charge to income tax payable by all individuals with an adjusted net income above a certain amount; and…the measures in section 8 of, and Schedule 1 to this Act.”
Mark Reckless
Will my hon. Friend confirm that the estimates of administrative and staff costs the Government have given us for the higher income child benefit charge are actually somewhat higher than the entire revenue that they estimate, with some uncertainty, we will lose from reducing the top rate of tax from 50p to 45p?
Mark Field
Is my hon. Friend concerned that the estimate is likely to be somewhat conservative? Many people are employed as consultants, so they do not know from one year to another whether they will be earning between £50,000 and £60,000. Huge costs will be involved in trying to collect the money, and I dare say a massive amount will have to be written off year on year if the charge goes through as proposed.
Mr Chope
My hon. Friend makes a series of good points that are recognised in the HMRC document to which I have referred. It says that the definition of a partnership will be the same as the one in the Tax Credits Act 2002, yet we already know that the Act and the technical manual that flowed from it resulted in an enormous administrative burden for those trying to work out who formed a couple, or when partnerships began or ended. There is a great file of documentation on how to interpret the tax credit definitions of partnership when people are cohabiting, whether or not they are in civil partnerships. The complications of the child tax credit system have resulted in a lot of fraud.
If we apply new rules to a fresh group of taxpayers and for the first time introduce in the tax system definitions of couples and partnerships, we shall create an enormous administrative burden. The document notes that the overall impact will be that HMRC will have to spend approximately £100 million on staff resources. If we say that that is £20 million a year—although it is actually more—at an average cost of £30,000 for a member of staff, we should be taking on 650 extra staff just to administer the removal of child benefit from 1 million families who currently enjoy it.
That is not the end of the story. We also have the problem that 500,000 tax-paying families who previously have not had to make a tax return will now have to do so. That is not mentioned in the cost analysis, but it is a cost on the tax-paying public that will not be borne by the Exchequer.
The proposal is highly flawed, as the Treasury Committee has recognised. Paragraph 23 of its report on the Budget notes:
“We recognise that the Government needs to take difficult decisions to tackle the Budget deficit. Nonetheless, the Government’s latest proposals for reform of Child Benefit solve only one of the two main problems identified with its original policy. They add further complexity.”
That conclusion is based on evidence the Committee received from the Chartered Institute of Taxation, the Institute of Chartered Accountants of England and Wales and other experts. They all drew attention to the complexity involved, and some of them pointed out the odd distinction between the child benefit charge and the justification articulated by the Chancellor for removing the age allowance for the over-65s. During the Budget debates, the Chancellor told us that the main justification for removing the age allowance was to bring about simplification, yet that will be the reverse of the added complexity that he is introducing through the child benefit tax charge.
I hope we shall have a bit of give from the Government. If they want everybody on a higher income to make an additional and fair contribution to deficit reduction, will they tell us why their proposals are targeted on those on higher incomes with children, while those on higher incomes who do not have children are excluded? I hope the debate will give us the opportunity to get answers from the Government on those points.
Mark Durkan (Foyle) (SDLP)
Does the hon. Gentleman also hope to have clarification from the Government of why, if the measure is about deficit reduction, they have refused to say that it will be reviewed or revised when the deficit is reduced? It will not necessarily be temporary, whereas the Chancellor was very clear that the 50p rate, while he adhered to it, would only be temporary.
Mr Chope
Absolutely. The hon. Gentleman makes a very good point. He may be of an age to recall what happened in the 1970s when we had the International Monetary Fund dictating to the then Labour Government what they should do to bridge the fiscal deficit that existed then. One of the measures that was introduced as a result was, in effect, an income tax surcharge which was retrospective for a year, but everybody who had been paying tax at a particular level had to pay a surcharge to help deficit reduction.
It would be possible for the Government to do something similar in this Budget to put a time limit on that, but the problem is that because of the enormity of the mess that the previous Administration made of things, we will not begin to reduce the debt until well on into the next five or seven years. In the meantime our debt will go beyond £1.5 trillion, so I am not sure that if we introduced a time limit, it could be an early time limit. It might have to be reviewed by Government in about 20 years. However, I take the hon. Gentleman’s point. Before he intervened, I was about to conclude my remarks as I know that many more colleagues wish to lay into the Opposition on their wholly misconceived amendment 1.
Jonathan Edwards
It is a pleasure to serve under your chairmanship this afternoon, Mr Hoyle, and to contribute to the debate. I shall speak to amendments 7 and 76, in my name and that of the hon. Member for Foyle (Mark Durkan), relating to the cut in the additional rate of income tax, and consequential amendments. I intend to press amendment 76 to a Division at the appropriate time unless, of course, it is accepted by the Treasury.
Despite heavy lobbying over the past year to remove the 50p additional rate of tax, the switch to a lower rate of 45p was one of the more surprising announcements in the Budget last month. It had been assumed by many that the Government mantra of being “in it together” meant that it would be politically necessary to show that all parts of society were paying more tax and facing the same level of public service cuts. Many therefore assumed that the 50p rate would be with us for at least as long as the Government maintained their plan A for cutting the deficit. After all, pressing issues such as Barnett formula reform have been conveniently parked in the name of the war on the deficit.
For my party, the issue is a matter of principle, irrespective of the timing and the state of the wider economy. Those with the broadest shoulders should bear the burden of taxation. A progressive taxation system based on the Scandinavian model is part of our political DNA. Someone who earns at the additional rate of £3,000 of taxable income per week is clearly in that category. Only a handful of people who earn that kind of money reside in my constituency. We therefore support the maintenance of the current 50p additional rate.
As I made clear in my speech on Second Reading on Monday, my opposition to this tax cut is on the record, as I voted against it during the Budget votes last month. The income tax rates for 2013-14 were one of the founding resolutions of the Budget, and offer very little scope for change today. My amendment 6, which would mean that the additional rate would be 50%, appears on the amendment paper but was not selected.
Hon. Members can therefore imagine my surprise that the official Opposition did not join my colleagues from a variety of smaller parties in opposing this measure on 26 March. That was the vote against a cut in the additional rate, but the Labour party unfortunately abstained, apart from two honourable exceptions. The hon. Member for Leeds West (Rachel Reeves) representing the official Opposition kindly allowed me to intervene on her during the debate on Monday. I asked her to confirm whether this was a deliberate or a tactical abstention. Her response was that the Opposition had voted against the whole Finance Bill and that was sufficient.
The hon. Lady’s answer would have been a semi-appropriate response, were it not for the fact that, if my memory serves me well, her party divided the House on resolution No. 8 on higher income benefit. Clearly, some resolutions were more important than others that evening.
Finance (No. 4) Bill
Christopher Chope Excerpts(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mark Field
If the right hon. Lady will forgive me, I would like to make some progress because others want to get in.
The provisions in clause 8 on the high-income child benefit change to income tax will doubtless be the subject of extensive controversy. In spite of the misgivings I have expressed since the scheme was proposed in October 2010—in particular, that it seems to act as a penalty on aspiration and families in which one parent stays at home to rear children—I accept the overriding need to reduce the vast fiscal deficit. However, the tapering of the change to income tax for those earning between £50,000 and £60,000 a year will result in marginal tax rates of 65% for families with three or more children. Conservatives such as me believe in promoting incentives, but it is difficult to reconcile the proposition that those earning more than £150,000 are deemed to require a highest marginal rate of 45%—a proposition that, I hasten to add, I fully support—with the proposal that earners with several children at the level affected by clause 8 must apparently settle for paying marginal rates of up to 20 percentage points higher. I fear that the controversy in middle Britain about these child benefit changes will continue to resonate strongly in the months ahead.
Mr Christopher Chope (Christchurch) (Con)
I think that my hon. Friend and I share similar views on this. Does he accept that if, for example, we were to take all people earning more than £60,000, regardless of whether they have children, and charge them £1,000 a year, the yield would be £2 billion in 2013-14—far more than the yield from this complicated tax targeted at those with children rather than those without them?
Mark Field
I worry that too much of this tinkering will be counter-productive in any event and that the tapering of the child benefit system will be hugely expensive. Many people do not know whether they will earn between £50,000 and £60,000. They might work on a consultancy basis or spend a few months a year unemployed or travelling. Trying to unravel all that will be incredibly difficult.
I wish to make a few provisional passing comments on clauses 211 to 213 and 224 relating to the Chancellor’s decision to impose a 15% stamp duty land tax on acquisitions of £2 million and residential properties by non-natural persons—in other words, companies. Although I support the essence of the proposal, it might have the unintended consequence of stalling development, particularly in central London. I appreciate that high-end property developers might not necessarily be seen as deserving of particular Government acknowledgement, but there is no doubt that the property development industry in and around central London generates significant tax revenues and creates jobs. Not only are the profits taxable here but significant amounts of irrecoverable VAT are often incurred on redevelopment projects. Developers will generate SDLT revenue by buying and reselling redeveloped properties.
In the Budget press release, it was noted that the 15% SDLT charge would not apply to developers because they tended to use companies for limited liability rather than tax avoidance reasons, but when the draft legislation was published, the relief for developers was limited to bona fide developers who had been carrying on a residential property development business for at least two years. The two-year requirement may seem eminently sensible as a means of ensuring that short-life development companies are not established by individuals who ultimately wish simply to use the property in question. Nevertheless, I fear that the qualifying period will discriminate against new property development businesses, which cannot show the requisite track record. Indeed, all new entrants into the market are likely to be priced out because their acquisition costs have suddenly become 8% higher than those of their competitors. We therefore risk creating an uneven market—indeed, a market against newcomers.
The 15% charge is also likely to be an issue for experienced developers. The scarcity of bank finance for development properties at the moment means that much of the finance for high-end residential property development is coming from equity investors, who are bridging the significant funding gap that now exists. The requirements of equity investors will often mean that stand-alone special purpose vehicles are established for individual projects, so once again, the statutory test will not be met. If HMRC wants to consider an alternative policing arrangement and seeks to avoid creating a dual market, it might consider imposing a second charge—either another 7% or the balance of the 15%—if the property is used before being sold on by a developer with SDLT. Alternatively, there could be a time-based charge, so that if the property has not been sold after, say, three years, the second charge comes into play.
It is perhaps understandable that this afternoon I have dwelt on some of my concerns about the Bill. Nevertheless, I appreciate the acutely troubled state of the public finances. The Chief Secretary was absolutely right when he said that it was important that we should not pass on the costs of this generation’s excessive consumption to our children and grandchildren. I therefore reiterate my support for the deficit reduction plan that the coalition set out almost two years ago. I trust that the Bill will progress swiftly and smoothly to the statute book.
Mr Howarth
The hon. Gentleman makes a useful point. I said that the system would be complex to administer, and complex things cost more, so the hon. Gentleman is right to say that. I had not intended to cover the point, but he is also right to express concerns, as did my Front-Bench colleague, my hon. Friend the Member for Leeds West (Rachel Reeves), about the effect of these changes on charities. I happily endorse the sentiment behind the hon. Gentleman’s comments..
I mentioned the maximum pension credit, which is being cut by £1.98 a week for single pensioners and £3.36 a week for couples. The threshold at which people qualify for pension credit has increased by 8.4% to £111.80 for single pensioners and £178.35 for couples. That means that 27,500 pensioners in Knowsley could be affected by these changes. One important characteristic of the previous Government—I do not think it is open to dispute—is that the lot of pensioners steadily increased during the period in which they were in office. What we seem to be confronted with here is the potential for pensioners to get poorer and poorer, as happened under previous Conservative Governments. That is a real concern in my constituency. These changes, taken in conjunction with other changes to the benefit system, will mean real hardship in my constituency, which is one of the poorest in the country.
Let me say a few words about minimum unit pricing for alcoholic beverages. I shall quote a constituent who wrote to me. I shall not name them, as I do not have permission to do so. My constituent wrote:
“The reality is that minimum pricing will affect those less well-off and have little impact on those with a poor relationship with alcohol. It will enrich retailers without creating jobs, reduce investment and damage producers leading to the loss of jobs. The treasury will recover less duty and tax from the sector as a whole.”
I will give my view in a few minutes, but I think that when people write to Members of Parliament expressing such concerns, it is important for us to raise and address the issues.
I have also received some briefing from a company in my constituency, Halewood International. It employs 500 people in the north-west of England, most of whom are in my constituency. It produces some products of which Members may have heard—one is Crabbie’s Ginger Beer, which is a very popular drink; another is Red Square Vodka—and, as well as producing some important brands, it distributes brands for a large number of other companies.
Halewood has made a number of points, to which I hope Ministers will consider responding. First, it says:
“Alcohol consumption has declined since 2004 and more people are drinking responsibly.”
I think that there is evidence to support that assertion. Secondly, it says:
“There is no evidence that minimum pricing will reduce alcohol misuse. It will affect all consumers and punish the majority who drink responsibly.”
That is clearly true: it will affect everyone. The company adds:
“It will hit people on the lowest incomes hardest.”
That, too, is clearly true.
Thirdly, Halewood says:
“Minimum unit pricing is likely to be illegal under European Law. It is inconsistent with the operation of the free market for the state to intervene on price.”
The company is not alone in that view. The Economic Secretary to the Treasury has said:
“the Scottish Government have recently introduced a Bill that seeks to bring in a 45p per unit minimum price… we believe that it could be incompatible with article 34 of the treaty of the functioning of the European Union… That is the position.”—[Official Report, 14 December 2011; Vol. 537, c. 341WH.]
So it is not just companies with an interest in the matter that believe that minimum pricing is likely to be problematic in terms of European law. In December last year, the Government thought the same.
Fourthly, Halewood says:
“The UK alcohol industry already pays some of the highest rates of alcohol tax in Europe. The Budget delivered a 5% increase in duty.”
Finally, it says:
“The drinks industry is committed to helping to tackle alcohol misuse. It is delivering a range of initiatives to encourage responsible drinking, such as through the Public Health Responsibility Deal.”
That is the case being put by the industry, and by some of my constituents. Personally, I have an open mind on the introduction of minimum unit pricing. I recognise that problematic drinking exists throughout the country—not just in urban areas, but in every constituency—and that there is a growing problem of young people drinking too much, too often, and ending up with serious health problems as a result. If I could be convinced that these measures would address that adequately, I could be persuaded to support them, but I do need to be convinced.
Mr Christopher Chope (Christchurch) (Con)
It is a pleasure to follow the right hon. Member for Knowsley (Mr Howarth). So far, this has been a low-key debate, but I suspect that when the people directly affected by the Bill receive their tax demands, they will write to us in large numbers.
I will concentrate my remarks on clause 8 and schedule 1, which relate to the higher rate child benefit charge. I raised this issue in an Adjournment debate. I am grateful to the Exchequer Secretary, whom I am pleased to see in his place, as the Government have given some ground and have responded to some of the concerns expressed in that debate and more widely, but I remain concerned that we will find ourselves with a lot of aggrieved constituents who will not be persuaded that the proposals in the Bill are fair and equitable.
For example, a single parent earning £60,000 a year will lose all their child benefit, whereas next door there may be two people each earning £40,000 and they will retain their child benefit. Constituents say to me—perhaps this happens to you, too, Madam Deputy Speaker—that they resent the fact that the house next door is almost identical to theirs and yet is in a different band for community charge or, as it is now called—[Interruption.] It is not the poll tax; it is the council tax. If they resent a difference of £100 or £200 in their council tax compared with that of their next-door neighbour, how resentful will they be when they find that they are losing child benefit, which could run into thousands of pounds per annum, as a result of being a single-income family earning more than £60,000, whereas the people next door, who are earning a lot more, are retaining their child benefit? Obviously, such people would not have the same costs associated with earning their income as a single parent family, who would normally have to rely on child care to enable them to make their income high enough to pay the full amount—more than £60,000. So I do not see how this new system will ever be fair or be seen to be fair by the people who will be affected by it.
Today the Government are launching their consultation paper on plain packaging for tobacco products. Some wags are saying that that is promoted by the Treasury, because it will give the Treasury more room on the back of the fag packet to write down its latest policy announcements. I do not know whether or not that is correct, but the proposals in clause 8 and schedule 1 smack of policies conceived if not on the back of a fag packet, certainly on the back of an envelope. We know now that the proposal to take child benefit away from higher-rate tax payers was made at the Conservative party conference in 2010, at very short notice. It was then decided by the Chancellor that it would not be possible to take child benefit away from those with children aged between 16 and 18.
Jacob Rees-Mogg
Does my hon. Friend agree that, in principle, it is right that we should not tax people highly then to give them back universal benefits? Does he agree that we want to get away from a system where everyone gets benefits and then has to pay more tax just to get them?
Mr Chope
I agree with my hon. Friend that there is a lot to be said for simplification and stopping the churning effect. The late Lord Joseph was a great campaigner on these issues, and other Conservatives in the past have campaigned to simplify the tax system, which is the avowed intent of this Government. I also think it right to recognise in the tax system that when people have equivalent incomes, those with children have higher costs than those without children. If we are to recognise families in the tax system, one way is to have what used to be a child allowance, which is now incorporated into the child benefit.
If parents have higher costs, why should they start to pay tax at the same level of income as somebody who is not a parent and does not have those higher costs? That is where I disagree with the Government on this policy, which I do not think is fair or consistent. When it has been justified by the Prime Minister, the Chancellor of the Exchequer and the Exchequer Secretary, they have argued that it is wrong that people who earn £20,000 or £30,000 a year pay for the child benefit of people like my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). The answer to that is that neither my hon. Friend nor other people are being subsidised in that way by other taxpayers, because, as the Exchequer Secretary confirmed in a written answer to me just before the recess, somebody would have to have 10 children and be on the threshold of higher-rate tax before they started to receive more child benefit than they were paying out in tax. The Government deploy a specious argument when they say that someone on £20,000 or £30,000 a year is paying for my hon. Friend’s child benefit.
Mark Field
I think my hon. Friend and I agree that one of the most important tasks for any Government is to get the huge deficit down. One of the single biggest costs is the cost of welfare, which this year, for the very first time, will go through an aggregate £200 billion mark. Does he not accept that reconsidering the universality of certain benefits would be a sensible way to get the deficit down? Although I do not disagree with elements of what he has said about the workings of clause 8, consideration of removing universality from relatively well-off people, not just for this benefit but for others, would be a desirable way forward.
Mr Chope
My hon. Friend makes a good point. As I said at a press conference organised by the Child Poverty Action Group, there is a strong intellectual case for saying that we should revisit universal benefits. What is happening here, however, is that one particular universal benefit—child benefit—is under attack whereas others are not. Will we say next that if somebody with wealthy parents presents themselves at a hospital, their parents should have to pay a charge? Are we going to start saying that free dental treatment for children should not be available to the children of better-off families? Are we going to remove a whole load of other universal benefits? If we are thinking of going down that route, we should have a big public discussion and a public debate. We should put all the universal benefits into the melting pot and decide whether we think there would be a big benefit if the number of universal benefits were reduced or eliminated and whether, as a result, the overall levels of tax could be reduced.
Mark Field
I know that my hon. Friend is a very brave man and I recall that Christchurch is the constituency with the largest number of pensioners. Does he think that the universal benefits of the television licence allowance and the winter fuel allowance should not necessarily go to the wealthiest of his pensioner constituents?
Mr Chope
My hon. Friend gives me the opportunity to hide behind the manifesto commitments made by the Conservative party and the Prime Minister. I was going to refer later to some of the background, but, prompted by that intervention, I will perhaps say the following. When the Prime Minister was Leader of the Opposition, he said:
“I want the next Government to be the most family friendly Government we’ve ever had in this country”.
On 5 March 2010, he told a public meeting in Bolton that he would not change child benefit. On 6 October 2009, six months or so earlier, the then shadow Chancellor, now the Chancellor of the Exchequer, told the Conservative party conference:
“We will preserve child benefit”.
I certainly went into the general election thinking that we would preserve child benefit as part of the universal benefit system in the same way as we would preserve the universal benefits that are applicable to so many of my constituents, as my hon. Friend points out.
My belief was reinforced on 22 June 2010, when the Chancellor said in his Budget speech in this House that
“we have decided to freeze child benefit for the next three years. This is a tough decision, but I believe that it strikes the right balance between keeping intact this popular universal benefit, while ensuring that everyone across the income scale makes a contribution to helping our country reduce its debts.”—[Official Report, 22 June 2010; Vol. 512, c. 173.]
At that stage, everybody thought that that was the end of it. We would retain child benefit, but freeze it for three years, The yield to the Exchequer of freezing child benefit in 2013-14 is no less than £1 billion. Looking back, I think that that was also the point at which the Chancellor should have said that he was going to freeze the age-related allowances. If that had been presented in the same context, with those in receipt of child benefit having their benefit frozen at the same time as those in receipt of age-related allowances had theirs frozen, I do not think that there would have been a row about it as there has been this time.
That is the background, so how were we able to end up with the Government effectively launching an attack on hard-working families with children? The Government have got themselves into a mess because they have not complied with their own policy of properly discussing the issues in advance of introducing measures. An interesting document, “Tax policy making: a new approach”, was produced immediately after the election. It was issued by the Treasury in June 2010 and in the preface, my hon. Friend the Exchequer Secretary said:
“I want a new approach to tax policy making; a more considered approach. Consultation on”
tax
“design and scrutiny of draft legislative proposals should be the cornerstones of this approach.”
Mr Ward
Does the hon. Gentleman agree that his call for a wider debate is necessary because universal benefits are often not universally claimed? That adds another complication to the issues that he raises. I know of two schools in areas of equal deprivation. The percentage of free school meals at one is 25% whereas at the other it is 53%, yet the levels of deprivation are equal in both areas. The issue is very complicated.
Mr Chope
It is complicated, particularly as free school meals are obviously not a universal benefit. Child benefit has a 96% or 97% take-up rate, and the Government’s proposals in the Finance Bill are designed to reduce that take-up rate. A number of people might opt out of receiving child benefit, so it will no longer be a universal benefit. As the hon. Gentleman says, if we want a debate about universal benefits, let us have one, but let us do so in the context of a Green Paper, some draft legislative proposals and so on.
In December 2010, in response to the consultation on the issue of a new approach to tax policy making, my hon. Friend the Exchequer Secretary said:
“This new approach is vital to the Government’s aim of restoring the UK tax system’s reputation for predictability, stability and simplicity.”
There it is: simplicity. We are now talking about employing, on my estimate, between 500 and 1,000 extra staff in order to claw back child benefit to the extent of £1.5 billion from 1.2 million households. How complicated and complex is that? One has only to look at the detailed figures produced by the Treasury in connection with the Budget and to read the report of the Institute for Fiscal Studies to realise that it is incredibly complicated. That is why my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) said in the media not long ago that when he was a Treasury Minister, he was asked to consider this issue on a number of occasions by Treasury officials and he always reached the conclusion that one could do something with child benefit but not in a way that was fair and equitable. The Government have come up with a proposal that is not fair and equitable.
We know that the Government are relying on getting £1.5 billion in income from the measure and I realise that it is very difficult at this stage, when the Budget and the sums have been done, to move amendments that are in order to try to show how an equivalent sum could be raised in an alternative way. If the money was not all being raised from the people being targeted at the moment and there was a proposal to increase the contributions of some other people, such an amendment would be calling for an increase in tax and so could not be tabled by a humble Back Bencher under the Standing Orders of the House. Notwithstanding that, however, I hope to refer briefly to another way in which an equivalent amount of money could be raised by the Exchequer, which would be much fairer and simpler and which might find favour with a surprisingly large number of people if put out to consultation.
Let me conclude my comments on the lack of advance consultation on the child benefit measures. I think that some draft clauses should have been published and discussed. The Government had been thinking about the measures since October 2010 and, contrary to what they had said they would do, they did not produce any draft clauses for consultation, so we are effectively left to scrutinise a Bill that was published during the recess. We have had two weekends to look at it and this Thursday we will have to decide on all the amendments on child benefit in what will probably be, at most, a three-hour debate, under the timetable motion that the Government seek to impose on the House.
I urge my right hon. Friend the Chancellor, when he considers next year’s Budget, to revisit his proposals for having a better system with a lot more consultation. With such a consultation, I do not think we would be in our present difficulties with the VAT on static caravans, the removal of the pensioner age-related allowance, the capping of tax relief on charity donations and so on. The Chancellor and his Treasury team must be pretty concerned about the adverse publicity that has followed the Budget, but all those difficulties could have been avoided if the team had been a bit more trusting of their fellow parliamentarians and had shared information on these measures before the final decisions were made.
The consequence of the proposals on child benefit is that 1.2 million of the 7.9 million families receiving child benefit will lose out. Some 70% of those families will lose the full amount whereas others in the band between £50,000 and £60,000 will lose some if not all of their child benefit. Why do the Government want taxpayers with children to make a greater contribution towards deficit reduction than those on equivalent earnings without children? I have asked that question a number of times in the House but I have never had a satisfactory answer.
I want to put forward an alternative proposal in this public forum. There are about 2 million people earning more than £60,000 a year in this country. I have here some figures from a response to a parliamentary question that was asked on 27 February 2012, column 63W, which gave the number of taxpayers in 2010-11 in detailed income bands. The figures suggest that there were about 1.85 million taxpayers with incomes of more than £60,000 in 2011. The Library note that I have says that the information in HMRC table 2.5 and on the rate at which people’s incomes are increasing suggests that there will be around 2 million taxpayers with incomes over £60,000 in 2011-12. Those are the people I thought the Prime Minister and the Chancellor of the Exchequer had in mind when they said that those on higher incomes should make a larger contribution to deficit reduction.
All those people—the best part of 2 million taxpayers—could each be charged £1,000. That would generate £2 billion and at a stroke we would be free of interfering with the universal child benefit and would be free of being accused of picking on people with children rather than people without children. It would remove at a stroke the need to employ all the extra civil servants needed to administer a system that will be very complex, particularly in relation to those earning between £50,000 and £60,000 a year. It would also remove the administrative burden of having to introduce into the tax system definitions of couples living together—that is already a nightmare in the benefit system, so why introduce it into the tax system? I do not think the measures have been thought through, but rather than being negative about them, I am saying to my hon. Friend the Minister that I hope the Government will reconsider this issue between now and Report and perhaps consult on the possibility of asking, “Why don’t all those people earning over £60,000 a year make a contribution of £1,000 and thereby collectively generate £2 billion in income for the Treasury in the next financial year?” Incidentally, that would also remove the need to interfere with age-related allowances because the yield would be slightly larger.
I do not have any personal interest in this issue now because my two children are past the age at which they enabled their parents to qualify for child benefit, but if we were to bring this down to Members of the House, I ask why a colleague of mine with one, two, three or four children on a parliamentary salary should be forced to forfeit child benefit or have a child benefit charge, which may run to several thousand pounds a year, placed upon them while I, who no longer have the responsibility of having children in school, do not make a contribution. It just does not seem fair to me. There is a fairer way to do this.
When I originally raised my idea with the Chancellor of the Exchequer he said, “Who wants to start increasing the higher rate of tax?” but we do not need to do that because, fortunately, the Treasury has come forward with a form of introducing an arbitrary extra charge—a fixed sum, which is effectively a tax—that comes into play as soon as somebody’s income passes a particular threshold, which would be £60,000 in this case. That would enable us to avoid a situation in which 670,000 households with a family income of more than £60,000 will retain some or all of their child benefit while single-parent households on £60,000 will lose everything. I do not have the figures to hand but there are tens of thousands of single-parent households.
Given the additional disincentives that will result from the introduction of the measure, I hope that Treasury Ministers will think again about the wisdom of what they plan to do. There could be perverse consequences as people try to avoid the charges. There could be all sorts of hard luck stories. A person earning £60,000 or £70,000 might take pity on a widow with several children and go to live in her house. They would then find that they had to pay the charge, because they were earning more than £60,000 and living with someone who was in receipt of child benefit. Is that really the sort of message the Government want to send? I do not think it is. We want to keep the tax system simple. We want to promote the importance of families with children and recognise their extra responsibilities, not penalise them in the tax system.
Oral Answers to Questions
Christopher Chope Excerpts(14 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr George Osborne
Unemployment rose sharply at the end of the previous Labour Government, and youth unemployment has been rising since the middle of the previous decade, which is a tragedy for everyone affected by it and for the country. That is why we have the Work programme, why we are introducing the youth contract and why we have our work experience scheme, but a Labour MP is chairing the campaign to sabotage it and deny young people who are currently claiming unemployment benefit the chance of real work experience, so perhaps, first, the hon. Member for Halifax (Mrs Riordan) will have a word with the Labour MP who chairs the so-called right to work scheme.
Mr Christopher Chope (Christchurch) (Con)
The Chancellor referred to the top 15% of earners having to contribute to deficit reduction. Why is he proposing that, in that 15%, those who have children should make a bigger contribution than those without?
Mr Osborne
The reason we have put forward the policy is that those higher-rate taxpayers who do not have children are not in receipt of state benefits, so it is quite difficult to remove state benefits from them.
Consumer Insurance (Disclosure and Representations) Bill [Lords]
Christopher Chope Excerpts(14 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Stephen Phillips
My hon. Friend makes a valid point. The insurance industry has long been regulated and the ombudsman has long been able to make declarations, but there are circumstances in which one cannot go to the ombudsman—for example, if the financial value of the contract is too high. There are circumstances in which the ombudsman will not intervene—for example, if legal proceedings between the consumer and the insurance company or, if Lloyd’s, some other insurer, are already afoot. In addition, experience dictates that the financial ombudsman is not, for example, particularly au fait with some of the more obscure parts of insurance law with which the Bill grapples, such as those parts of common law that deal with basis clauses and the turning of representations into warranties when made the basis of the contract.
I hear, then, what my hon. Friend the Member for Cardiff North (Jonathan Evans) says, but it is fair to say that the Bill is not only welcome but contains proposals that the Law Commission has properly considered and requires no review of the type that the new clause contemplates. For those reasons, the new clause is, in my respectful view, misconceived; and for those reasons, I am sure that the hon. Gentleman will not push it to a vote.
Mr Christopher Chope (Christchurch) (Con)
I was rather attracted to the new clause tabled by the hon. Member for Nottingham East (Chris Leslie). The idea that the House should engage in post-legislative scrutiny is a good one and accords with good legislative practice. That, effectively, is what he is saying. He is not saying that the House would necessarily be involved; he is saying that the Treasury, the Department sponsoring the Bill, would have an obligation to assure everybody about the impact of legislation. This could be an important precedent. Perhaps, in due course, it will be part of official Opposition policy to provide for post-legislative scrutiny.
This area of insurance is extremely complicated and, as the hon. Gentleman said, very expensive for many people. The reason it is so expensive is that there is an enormous amount of fraud, particularly in relation to motor accidents. We heard recently about the high incidence of claims for whiplash. Almost everybody involved in even the most minor bump is encouraged to claim on their insurance for whiplash injuries, and invariably the insurance companies end up paying a lot of money to prevent what they would describe as nuisance claims from going to full litigation. Effectively, they are held to ransom, and not surprisingly it is the customers of those insurance companies who end up paying the bill through higher premiums.
That situation is particularly pernicious with compulsory insurance, which motor insurance is—third party, fire and theft, and so on—for people seeking to drive a motor vehicle on the road. It is particularly tough on young people, and has been made tougher by this ludicrous European legislation declaring that insurance companies cannot take account of whether a young girl belongs to a class group with a lower claims rate than a young man who belongs to a group with a higher claims rate and who therefore will face additional costs.
As a consequence, the premiums for young women have increased significantly faster than premiums for young men. I suppose I have a family interest, because my daughter has recently acquired her first car and taken out her first insurance policy. I can reconfirm what the hon. Member for Nottingham East said. Obviously, she did not have a no-claims record, because she did not have any driving experience, and in the end, the best deal was from a company offering her 10 months’ insurance, which gave her the prospect of getting a no-claims discount after 10 months rather than after a year.
Jonathan Evans
There might have been another reason for the 10 months: the European decision to which my hon. Friend referred comes into operation in 10 months' time.
Mr Chope
My hon. Friend is ahead of the game. I was interested in his earlier intervention declaring his knowledge and experience of one particular insurance company—a company from which we sought a quote but which was extremely reluctant even to consider providing insurance cover at a reasonable price. The reason was that it did not want to engage in this market and had recently changed its policy. It is a pity that this mutual insurance company has decided that the pressures are such that, even for long-standing customers, it is not prepared to take on, at a reasonable price, the sort of risk to which I have referred.
It is easy to go unnecessarily wide on such an issue—perhaps I was led astray by the hon. Member for Nottingham East because of the width with which he introduced his new clause. However, I look forward to hearing the Minister respond to the idea of post-legislative scrutiny. Perhaps, Mr Deputy Speaker, if she could fit that point into the scope of her response to this short debate, she will say whether it might become Government policy to make post-legislative scrutiny the norm rather than the exception. I hope, at least, that she will come forward with some strong and persuasive arguments so that I do not have to join the hon. Gentleman in the Lobby in support of new clause 1.
Mr Deputy Speaker (Mr Nigel Evans)
That probably goes too wide for this particular debate. I call Chloe Smith.
Chris Leslie
Indeed, that is the very nature of the measure, but that does not mean that, in the course of changing the disclosure requirements, we should not try to frame the duties that insurers have to abide by. I do not know whether hon. Members have visited moneysupermarket.com or confused.com recently. They are aggregator websites on which a number of insurance companies share the questions that people have to answer in order to take out an insurance contract. The websites show the range of insurance contracts that are available. Quite honestly, I think that the way the aggregator companies will deal with the Bill is another matter, but I challenge any hon. Member to say that their boredom threshold has not been reached after they have filled in 15 or 20 pages of a form. Having said that, I think that many hon. Members—especially those who are in the Chamber at the moment—must have particularly high boredom thresholds. I know that from many hours of experience in these debates. Notwithstanding that propensity to sit through long, technical discussions, however, I believe that form-filling is quite a different matter.
My point is about the administrative burden in relation to new contracts. I want us to ensure that we protect the section of society that I have been describing. I can envisage us all being visited at our surgeries in the years ahead by constituents telling us that they did not take out insurance not because of the cost but because the form-filling was just too much for them. They will tell us that they regret that, but that there were just too many questions to answer. I hope that the Minister understands why I have framed the amendment in this way. It is an important provision, and I hope that she will address it.
Mr Chope
The hon. Member for Nottingham East (Chris Leslie) has again done the House a service in raising this issue. He has spoken of the need for proportionality. I disagree with the way he has worded his amendment, however, as it is rather hard in law to place a duty on an insurer to “show regard” to a principle. Given all the other qualifications in the amendment, it would, in practice, by unenforceable.
Mr Greg Knight (East Yorkshire) (Con)
Is the hon. Member for Nottingham East (Chris Leslie) not making rather heavy weather of this matter? Will not the market take care of it? If one insurer on its own presented reams and reams of questions, and the others did not, surely the potential customer would simply go elsewhere.
Mr Chope
My right hon. Friend anticipates my next point, which was to say that this should be, and will be, sorted out in the marketplace. Perhaps a new company called Simple Insurance could be formed—if no such company already exists—with my hon. Friend the Member for Cardiff North (Jonathan Evans) as a director. It could promote itself on the basis that it would ask just a few easily answerable questions that would not prove too burdensome. I agree with my right hon. Friend that that would be a better way of dealing with this matter. However, the amendment underlines the fact that many of the forms are far too complicated and intimidating, to the extent that people often tick all the boxes without looking at the small print. That is how many of them get into difficulties. These forms are often not filled in by the persons themselves but by somebody on the end of a telephone. Again, that can lead to difficulties of language or understanding. It is not just my hearing that sometimes makes it difficult for me to understand what people are saying on the other end of a phone when they are seeking information. There are some important issues here, but I do not think that the amendment has proposed the right solution to the problem.
Miss Chloe Smith
I shall answer a few questions. On this amendment, I am indeed with my hon. Friend the Member for Christchurch (Mr Chope) and my right hon. Friend the Member for East Yorkshire (Mr Knight), as I believe that the market will assist us in this area. I shall deal with the amendment principally on that basis.
The amendment, as hon. Members will have seen, would create a duty for insurers to make disclosure requests that are proportionate to the benefits generated. Following discussion in Committee, we return to the issues today; I hope I shall be able to add to what my colleague, the Financial Secretary said there.
There is no disagreement with the principle that the burdens on consumers should be as light as possible. That applies to the group of consumers mentioned by the hon. Member for Nottingham East (Chris Leslie) and, indeed, to all others who wish to purchase insurance. As the amendment rightly recognises, there is a balance to be struck between burden and benefit. The Government believe this balance is best struck by the Bill as it stands, with commercial pressures operating as a factor in that case.
I shall recap those points shortly, but I want to set out some background information on the types of questions currently asked, as I know Members were interested in that topic in Committee. They were particularly interested in the average number of questions asked when consumers enter into different types of insurance policy. I was able to take only a rough look at such things, but for some current policies it can take about 13 to 18 questions to underwrite home insurance and 12 to 18 to underwrite motor insurance. Requirements linked to these straightforward, mass-market products do not on this rough measure appear to be at all excessive. Simply counting questions, however, rather misses the point.
If insurers asked only a single question, this would be far more burdensome for consumers. I think it is much easier to answer a series of short, targeted questions—and this Bill sets out that they must be specific and clear—than it is to answer a single general question like “Has anything changed?” or “Is there anything I need to know?”
The Law Commission undertook a more sophisticated analysis of burdens on consumers, which was contained in its first discussion paper and has informed the development of this Bill. It discovered real problems in 2007 with the questions being asked in life and critical illness insurance. For example, one insurer asked, “Have you had any physical defect or infirmity, or is there any ailment or disease from which you suffer or have suffered or to which you have a tendency?” This seems impossibly difficult to answer and appears to require the consumer to begin at birth and work through every single visit to the doctor. Yet that might qualify as proportionate under this amendment because it is only one question. Reassuringly, there have been significant moves in this sector to improve the questions since 2007. The design of this Bill will further promote this improvement.
It is worth explaining briefly—I think the hon. Member for Nottingham East referred to this earlier—that different consumers face a different set of questions in order to purchase a similar policy by virtue of the channel they choose, whether it be through an aggregator, by telephone or face to face in a broker’s office. There is a need for insurers to tailor the requests they make in these different ways.
The burdens placed on consumers form the nub of the issue, and there is evidence that insurers already pay careful attention to those burdens. It has already been argued tonight that this is partly driven by market pressure, so let me add to those arguments. Clearly, a consumer has the choice to purchase from an alternative provider if disclosure burdens are too high. Indeed, some insurers have advertised products on the basis that they are easy to purchase. Comparison sites consistently study these drop-off rates and try to make the process as easy as possible.
It strikes me that no business wishes to run the risk of losing a customer entirely—the scary scenario that the hon. Member for Nottingham East has set out. No business would wish to do that because it would represent the loss of a customer. We hope that no consumer would wish to be in that position, as they would not then get the security of the product that they are looking for.
There are, of course, some savings to be made for insurers who get the right balance between getting the information they need and making it easy for consumers to purchase their product. The cost of asking another question is not insignificant, and insurers are well aware of that when they design their questionnaires. I refer the House to a PricewaterhouseCoopers report in November 2007, which considered the financial impact of the Law Commission’s insurance project as a whole. It estimated that increasing underwriting by two to three minutes per policy would equate to up to an extra £3,600 per 1 million of gross written premiums—equivalent to around an extra £150 million spent in the UK general insurance market alone. That does not include other costs associated with asking more questions, such as for the gathering and processing of the data. It is clear that there is a strong existing incentive for insurers to ensure proportionality.
I shall deal briefly with the Bill’s other provisions, in case Members do not already find the arguments about market pressures compelling enough to rely upon tonight.
Two further features of the Bill mean that if insurers impose burdens on consumers, they might undermine any right they have to refuse or reduce a claim. Under clause 4(1)(b) an insurer is not entitled to a remedy unless they can show that a consumer’s misrepresentation induced them to enter into the contract—at all or on its current terms. As a result, the Bill creates no benefit for insurers if they ask questions to seek answers on which they would not need to rely. Furthermore, under clause 3, a long and complicated questionnaire might have a bearing on whether a consumer has taken reasonable care not to make a misrepresentation. Insurers are at greater risk of having to pay claims, despite not having been given the correct information, if they make things difficult for the consumer. So in my view, there is no danger that the Bill will place extra burdens on consumers—as a result of those two measures in addition to the market forces mentioned earlier. Our impact assessment does not expect the Bill to result in significant changes to the questions asked by insurers. Rather, the Bill brings the statute into line with existing best practice and regulation. It is fair to say that we are updating the law, not altering the approach of insurers.
I do not believe that it would be beneficial for this Bill to go further than it does by seeking to change practice by prescribing the content and number of insurers’ questions. If we were to prescribe or limit the information insurers were able to seek, it might even increase premiums. Let us take, for example, the recent European Court of Justice ruling—one hon. Member has already referred to it—on the use of gender in insurance pricing, which shows that limiting the risk factors that insurers can use will increase the average cost of insurance.
Creating a duty for insurers in primary legislation would not be the appropriate solution. We continue to work closely with the insurance industry on this issue and with consumer groups on a range of issues. Where there are specific concerns about practice in certain parts of the market, the Government have worked with the industry on guidance. Accepting this amendment and creating a provision is unnecessary. It will throw out the careful balance in the Bill, and it is not the most effective way to make sure that consumers do not face excessive burdens. I therefore ask the hon. Gentleman to withdraw his amendment.
Mr Chope
On a point of order, Mr Deputy Speaker. It has now gone eight o’clock. In an act of indulgence, a number of us allowed the Government to remove the normal constraints on private business so that the three hours allotted to it could begin later than 7 pm. However, it seems to me that, given the prospect of a reasonably lengthy debate on Third Reading of the Bill that we have been discussing, it is open to the Government to adjourn the Third Reading debate until another day, so that the three hours allotted to the private business can proceed immediately.
Mr Deputy Speaker (Mr Nigel Evans)
That is not a matter on which the Chair can intervene. It is a matter for the Government’s business managers to consider.
Third Reading
Miss Chloe Smith
I beg to move, That the Bill be now read the Third time.
I shall do my best to be brief but comprehensive. I think that Members on both sides of the House can agree that the current law relating to pre-contractual disclosure and representation in connection with consumer insurance contracts is unreasonable. I think we can also agree that the alternative practices favoured by regulators and insurers, although not always consistent, give the consumer far better protection from the unreasonable refusal of claims. The Bill updates the law to reflect what has rightly become market practice, and in doing so it clarifies the duties of consumers and how they can expect to be treated by insurers.
On behalf of my hon. Friend the Financial Secretary to the Treasury, who began the process, I thank all Members who have spoken during the Bill’s passage and who have, without exception, recognised that it constitutes a valuable and much-needed updating of statute. We also owe thanks to the Law Commissions, whose joint report on the issue and extensive work has produced a Bill that implements this change with the backing of a wide range of consumer groups, as well as that of the industry and regulators.
The drafters of the Marine Insurance Act 1906, if they are still with us, will not have envisaged the ways in which consumers currently purchase insurance cover for such purposes as their homes, their cars or their health—or their llamas. They will also not have envisaged the existence of the comparison website, and the way in which it requests information from consumers.
In October 2010, a letter with a range of signatures was sent to The Times in support of the Bill. It described the current law as designed to
“govern face-to-face commercial insurance deals in the coffee houses of Georgian London.”
The 1906 Act is not suitable for the modern insurance market, especially as it contains harsh penalties for reasonable failures to disclose or accurately represent information by those purchasing insurance. The Bill replaces the current burdensome duty requiring the consumer to provide all information that might influence the judgment of a prudent insurer with a requirement for consumers to take reasonable care to answer the insurer’s clear and specific questions. It also makes penalties for non-disclosure or misrepresentation proportionate, rather than allowing the insurer to legally void the contract in all cases. Consumers have been protected by the Financial Ombudsman Service—which has been applying those proportionate remedies for some time—as well as by market practice and Financial Services Authority rules, but there are real benefits in aligning the law with that practice.
In some circumstances, the different legal and regulatory positions cause problems for both industry and consumers. At present, the FOS receives about 1,000 complaints a year about non-disclosure and misrepresentation. About half the insurers’ decisions are upheld, a figure we would expect to be much higher if there were sufficient clarity about the rules. That indicates that insurers find it difficult to locate and interpret the relevant rules.
We believe that those two key provisions—the change in the duty of the consumer and the provision of a proportionate rather than a harsh set of remedies for the insurer—shift the balance of the law in favour of the consumer. Some parts of the Marine Insurance Act are heavily biased in favour of insurers, and the Bill attempts to rectify that bias.
Miss Smith
Some estimates have been made, and I believe that my hon. Friend will find some of them in the impact assessment, but I am sure that my hon. Friend the Financial Secretary will be happy to deal with the point in more detail.
The Bill takes a high-level approach, updating the principles set out in law to bring them into line with good practice rather than attempting to set out prescriptive detail. That should help to prevent the law from becoming outdated again as market practice develops.
I hope that Members will accept the advice of consumer representatives who wrote to the Committee—including Age UK, the British Heart Foundation, Consumer Focus, Macmillan Cancer Support, the Trading Standards Institute, Which? and UNLOCK—and will give the Bill its Third Reading.