Capital Gains Tax (Rates)

David Anderson Excerpts

Monday 28th June 2010 Commons Chamber

[Yvette Cooper]

The right hon. Gentleman has gone £40 billion further. He has proposed an additional £40 billion of cuts that we do not think are the right thing to do. He asks what we would have done, but I am sure that he has read chapter 6 of the March Budget, which sets out £20 billion of saving cuts in some detail and a further £19 billion in tax increases. I shall tell him what else we would not do: we would not waste money on measures such as free schools and the married couple’s allowance.

Nothing in the Government’s plans will get a single extra person back to work. In fact, the opposite is true. The Budget cuts the number of jobs in the economy by 100,000 a year. It increases the number of people on the dole by up to 100,000 a year, and that is on the admission of the experts the Government appointed. At the same time, the Government are cutting 200,000 jobs and training places and the youth guarantee and job guarantee schemes. How on earth will they get more people into work if they keep cutting jobs?

[Mr David Anderson (Blaydon) (Lab)]

Does my right hon. Friend share the concerns of the Royal College of Nursing, which, in relation to a Department that allegedly is protected, suggests that at least 5,500 and, possibly, as many as 30,000 front-line nurses’ jobs will go?

[Yvette Cooper]

My hon. Friend is right that the Government’s proposals do not even include the consequences of the spending review and the proposed additional £17 billion of cuts in public services.

We think that it is better for people to be in work than on the dole, and that is why we funded the future jobs fund and additional support and jobs. They were often in the community and run by the voluntary sector, and they helped young people to obtain the skills that they needed and to stay off the dole. Yet, shockingly, the Government have cut 90,000 jobs through the future jobs fund, putting all those people—additionally—back on to the dole and pushing up unemployment bills. As a result, even on the OBR’s calculations, those measures will cost the Government £2 billion more over the next four years. They will have to pay additional benefits for the unemployed, and the financial, economic and social price of higher long-term unemployment will cost us more for years.

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[Mr Edward Leigh (Gainsborough) (Con)]

I welcome this Budget because I believe that it is an honest Budget. I have now sat through nearly 30 Budgets, and it is often a profoundly depressing experience, because there is great excitement during the Budget statement only for us to receive a let-down the next day when we actually start to read the Red Book. There is a lot of difficulty and pain in this Budget, but what you see is what you get. What we heard on Budget day was the essence of this Budget, which is the need to try to resolve the desperate financial crisis in which we find ourselves, with a potential debt of £20,000 on every man, woman and child, and £1 out of every £4 spent being borrowed.

I accept that there are many things in the Budget that many of us do not like. Does anybody in this Chamber like a VAT rate of 20%? We are in the desperate position of having to impose that rate on everything that we buy, apart from essentials—I am not sure why newspapers are zero-rated, considering all the rubbish that they put out, but it applies to some useful things like food—because we are faced with this financial crisis. However, contrary to what the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) said, the pain is shared. I agree that a VAT rise is regressive, and we did not want to do it, but we have increased personal allowances, and in doing so ensured that is not the rich who benefit.

I pay tribute to my right hon. Friend the Secretary of State. Who has done more than him to try to raise people out of the poverty and unemployment trap? Who has done more than he in setting up the Centre for Social Justice? Who has done more than he to visit all these areas and try to create a benefit and tax system that encourages people into self-reliance, self-help and self-belief, and does not trap them in sink estates without a job and without hope for the future? He has been working on this problem for more than a decade. Now, at last, he has a chance to put some of his ideas into action, and we welcome him to the Front Bench.

[Mr Anderson]

I understand the long and proud record that the Secretary of State has in this House. Does the hon. Gentleman understand, however, that some Labour Members have not just been there for 10 years, but have lived this? We lived this same experiment in the 1980s and we saw the devastating impact on the people we represent—the people who had to pay for the failure of the Government at that time, when unemployment was not a price worth paying in the areas where I and many other Labour Members come from.

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[Mr Jackson]

My hon. Friend is absolutely right to draw the House’s attention to that statistic. Likewise, the number of children who go from care into higher education is also a shameful figure. I therefore strongly endorse the ambition of my right hon. Friend the Secretary of State for Work and Pensions to tackle the deep-rooted causes of poverty in this country, and to tackle the twin aims of lessening the scale of social breakdown and improving the quality of life of the poorest in our society. If our Government achieve nothing less, they will have served our country in achieving that.

In my constituency, where we have recently suffered job losses, and where we also have low skill levels, lower-than-average pay and high welfare dependency, the problems are real and they are about people, not statistics. Hundreds of children in Peterborough live in dysfunctional families, their parents on welfare benefits. Those children lack ambition, a focus and, often, a moral framework, going without anything other than peremptory familial love and experiencing, through no fault of their own, an inevitable poverty of imagination, as well as, too often, material poverty. Dedicated teachers, nursery staff, health professionals and members of the extended family, such as grandparents, are often forced to assume a role in loco parentis. I believe that we have a moral duty to those children to do something about the situation, even if not to their often indolent and feckless parents.

[Mr Anderson]

rose—

[Kate Green (Stretford and Urmston) (Lab)]

rose—

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[Lorely Burt (Solihull) (LD)]

I congratulate the hon. Members for Thurrock (Jackie Doyle-Price), for Airdrie and Shotts (Pamela Nash), for Maidstone and The Weald (Mrs Grant) and for East Surrey (Mr Gyimah). I agree with the hon. Member for Hartlepool (Mr Wright) that they bring inspiration and enthusiasm to the House. We are all here to try to make things better, and I am sure that all of them will play their part.

The coalition Budget has been described as tough but fair, and hon. Members on both sides of the House will certainly agree that it is tough. Why does it have to be so tough? It is tough because we are borrowing £1 in every £4 that we spend, because we owe £22,400 for every man, woman and child in this country and because, thanks to Labour, we have one of the largest budget deficits in the whole of Europe, so we must take the action that Labour dodged. Now that the OBR has been formed, we know the true scale of the problem that we face, and we have worked it out so that no one can fix the figures anymore.

[Mr Anderson]

Does the hon. Lady disagree with the OECD, which said that the previous Government’s actions prevented this country from going from a recession into a depression? If those actions had not been taken, we really would have been in a mess.

[Lorely Burt]

The hon. Gentleman makes a fair point. Indeed, the Liberal Democrats supported some of the steps that the Labour Government took, but that does not allow Labour Members to wash their hands completely of this country’s financial state.

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[Katy Clark (North Ayrshire and Arran) (Lab)]

Thank you, Mr Deputy Speaker. I warmly welcome you to your position.

I congratulate the hon. Member for Pudsey (Stuart Andrew) on an eloquent maiden speech, as well as the hon. Members for Maidstone and The Weald (Mrs Grant), for East Surrey (Mr Gyimah) and for Thurrock (Jackie Doyle-Price), who also made excellent maiden speeches today. My hon. Friend the Member for Airdrie and Shotts (Pamela Nash) clearly knows her Labour history. A number of strong Labour women have represented her constituency in the past, and she showed today that she will be a powerful advocate for the community that she represents. She mentioned in her speech that her constituents have not forgiven the Conservatives for what they did in the 1980s. In my constituency, North Ayrshire and Arran, that is what I was told repeatedly during the general election.

As I listened to the debate today and as I have listened to the rhetoric from the Conservative party over the past few weeks, it reminded me of the 1980s. Fortunately I was a little older than my hon. Friend at the time. When I left school I knew nobody between the ages of 16 and 25 who had a job. Education or the youth training scheme, as it was then, were the only opportunities available. It was astonishing to hear again after 20 years the talk about getting “on yer bike”. For most people in areas such as the one that I represent, moving is not an option. For all the reasons that have been set out today, if we see the kind of attacks on our benefit system that are being outlined, that will become even less of an option.

My hon. Friend the Member for Garston and Halewood (Maria Eagle) described in detail how the changes in the benefit system would have a disproportionate effect on some of the poorest in society. The Budget is deeply regressive and will be devastating for some of the poorest communities and some of the poorest people in the country. However, it will also devastate the economy, because it is a depressive Budget. The rise in VAT, the cuts in benefits to some of the poorest in society and, perhaps even more significantly, the huge cuts in public spending will drain huge amounts of money from the economy. In other parts of Europe, more and more Governments are taking an increasingly similar approach, and that is very worrying for not just the British economy but beyond, because it does not seem obvious where we will be able to sell our goods. So this is a very dangerous Budget.

I have already said that the current debate is reminiscent of debates that took place in the 1980s. In 1979, a Government were elected saying that they had no plans to increase VAT, but not long after there was an increase from 8% to 15%; and now, of course, one of the first steps that we see is a significant increase in VAT. Until the past few weeks I had never heard it argued that increasing VAT was anything other than a regressive policy that would disproportionately affect some of the lowest earners in society.

[Mr Anderson]

I remember a similar situation. Does my hon. Friend remember also that in the 1980s people continually said, “There is no alternative”? Now, the code for that is, “This is unavoidable”, and it is sad that the Liberal Democrats have been taken in by the Conservative party. The Lib Dems are the real dupes in this House.

[Katy Clark]

I agree. I listened with care to the hon. Member for Solihull (Lorely Burt), who basically said that we could not afford the benefit system and, therefore, it was necessary to take these steps, but the House must remind itself again and again that we are a hugely wealthy country. We have the fifth wealthiest economy in the world, but the wealth and power in society are unevenly distributed, and that has to be the backdrop whenever we have these discussions.

Given the proposals that we have heard, this Budget simply seems to be a Tory Budget. I appreciate the Liberal Democrats’ points about the policies that they have tried to inject, but overall the Budget will disproportionately affect those on the lowest incomes. A few days ago the TUC commissioned a paper, which states that overall the annual loss in income and services for the poorest 10th of households is estimated to be £1,514, which is equivalent to 21.7% of their household income. The average annual loss for the richest 10th of households is estimated to be £2,685, which is equivalent to 3.6% of their overall income. No doubt a lot of work will be done on those figures, but we must consider them when we discuss not only the Budget, but the Finance Bill, which we will debate over the coming weeks.

I agreed with the hon. Member for St Ives (Andrew George), and I fully appreciate the difficulties and stress that Liberal Democrat MPs in his position must feel if they have always argued that a VAT increase would have a disproportionate impact on the poorest in society. I hope that we see some detailed work on the impact of not just the VAT increase, but all those policies on the poorest in society.

In reality, we are seeing unprecedented cuts in spending on public services, but I find it difficult to believe that any Government of any political colour will be able to make the proposed reductions, because we are talking about departmental cuts of about 20% to 25% over five years. It is difficult to imagine that the Government will be able to deliver on that, because these are such savage cuts in the services that all our constituents rely on.

This is a bad policy not only because it disproportionately affects some of the lowest-paid and lowest-earning in society, but because it risks choking off the recovery that is so vital to us all. My hon. Friend the Member for Coventry North West (Mr Robinson) was absolutely right—we needed a Budget for jobs and growth, but we have something completely to the contrary.

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[Danny Alexander]

I will press on, if hon. Members do not mind.

At the weekend, President Obama praised the action that we have taken, describing it as necessary and courageous. Yesterday’s G20 communiqué made the situation clear when it said:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation”,

and no major country has more serious fiscal challenges than those that the previous Government left Britain. Her Majesty’s Opposition seem to have adopted the strategy of Fabio Capello: they blame everyone else and deploy the same formation of arguments, leaving a gaping hole in their own defence. They refuse to accept responsibility for their mistakes, let alone apologise.

This Budget stands for three things: responsibility—taking action to eliminate our structural deficit; freedom—helping the businesses that we rely on to rebuild our broken economy; and fairness—protecting the most vulnerable while ensuring the contribution of all. Failure to deal with the deficit is the greatest threat to growth. Failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government’s enormous debt, losing jobs and losing growth too. This Budget takes action now to restore confidence in our economy—the confidence that is needed to underpin the recovery that we all want to see. This Budget’s forward-looking fiscal mandate will eliminate the deficit in five years and puts us on track to get debt falling by 2015-16. The Office for Budget responsibility, in fact, forecasts that the measures in our Budget will lead us to meet that challenge a year early.

Before I outline our plan, let me remind the House of the previous Government’s commitments. They were planning £50 billon of cuts, about which they had nothing of substance to say. Some of their leadership contenders—I do not see any of them here—are rowing back even on that plan. Our emergency Budget sets out the path of public spending for the next five years with the following additional measures: an extra £17 billion comes from reductions in departmental spending, £11 billion from reductions in welfare spending, £3 billion from lower debt interest payments and £8 billion from net tax increases.

As has been observed by all sides in this debate, we know that this will be painful, but it is absolutely necessary to secure the growth and prosperity that this country needs in the future. The last Government’s spending plans implied a reduction in departmental budgets of 20%. We are committed to real increases in NHS spending and to protecting international aid, and this Budget implies, as the Chancellor said, that other Departments will face an average real cut of 25%. We will set out the details of those cuts in the spending review, and we will consult widely to inform those plans. In fact, we launched our consultation on Friday, and we have already had more than 20,000 substantive responses from public sector workers, setting out ideas for areas where they know savings can be found. If only we had had a single serious suggestion from the Labour party.

We have taken the tough decision to increase VAT by 2.5%. With a structural deficit some £12 billion larger than the previous Government told us, we had a difficult choice to make: whether to fill that hole by making yet more spending cuts or to increase taxes. Further spending cuts would, I believe, have made it impossible to protect the most essential services in the spending review, so the VAT rise was unavoidable.

[Mr Anderson]

Does the right hon. Gentleman agree with his colleague, the hon. Member for Bermondsey and Old Southwark (Simon Hughes), who said, only on 15 June:

“I hope we don’t get a VAT rise because it is the most regressive form of tax”?

[Danny Alexander]

No party went into the election promising to increase VAT, but the hon. Gentleman should make no mistake: the rise in VAT is a result of the public finances that we inherited from his Front-Bench colleagues. One could say that it is a Labour inheritance tax.