Oral Answers to Questions

David Gauke Excerpts

Tuesday 6th September 2011 Commons Chamber

[Helen Jones (Warrington North) (Lab)]

3. What recent assessment he has made of the effect on inflation of the increase in the basic rate of VAT.

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

The Office for Budget Responsibility is responsible for producing independent economic and fiscal forecasts. The OBR published a full analysis of developments and the prospects for inflation in its forecast at Budget, and that can be found at its website. The Office for National Statistics estimates that the impact of the VAT rise on consumer prices index inflation was 0.76 percentage points.

[Helen Jones]

The Minister has failed signally to answer the question. Will he tell the House why only three European Union countries—Estonia, Lithuania and Romania—have inflation higher than the rate in this country? Is it not true that the failed economic polices pursued by the Treasury and the decision to raise VAT have more than doubled the rate of inflation compared with the Government’s target? When is he going to accept responsibility for that and do something about it?

[Mr Gauke]

I am afraid that the hon. Lady might not have listened to my earlier answer. The fact is that the primary cause of the increase in inflation has been global commodity and energy prices. It is also worth pointing out that our currency depreciated in value quite significantly a couple of years or so ago. The VAT increase was necessary in order to reduce the deficit—a policy that was recognised by the previous Chancellor of the Exchequer.

[Gavin Williamson (South Staffordshire) (Con)]

Did my hon. Friend inherit any work by the previous Government on plans to increase VAT if they had won the general election?

[Mr Gauke]

My hon. Friend will be aware that we are not privy to the advice that was given to previous Governments. However, I look forward to reading tomorrow confirmation that the previous Chancellor believed that it was a wise course of action to increase VAT.

[Mike Freer (Finchley and Golders Green) (Con)]

4. What recent estimate he has made of the public sector borrowing requirement.

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[Mrs Anne McGuire (Stirling) (Lab)]

7. What recent assessment he has made of the potential effects on consumer confidence of the change in the basic rate of VAT.

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

Sustainable public finances will support confidence in the medium term. Decisive action taken by the Government in the spending review and the June Budget, including the increase in VAT, will put the public finances and spending on a sustainable footing.

[Mrs McGuire]

The Stirling constituency has a large number of jobs tied up in tourism and hospitality. On 1 July, the Irish Government introduced a temporary reduction in the rate of VAT on goods and services related to the hospitality sector, realising that such a reduction has the potential to kick-start economic growth; indeed, the rate is now 11% less than the VAT rate in the UK. Given stalling UK economic growth figures, does the Minister not accept that he, too, should consider a temporary change in the rate for the sector, and if not, why not?

[Mr Gauke]

I have had meetings with representatives from the tourism industry at which they have made their case. We will of course keep all taxes under review, but we have to bear in mind the state of the public finances, our limited room for manoeuvre and concerns about adding complexity to our VAT system. None the less, we will look at those arguments.

--- Later in debate ---

[Robert Halfon (Harlow) (Con)]

15. What fiscal measures he is taking to reduce the costs faced by businesses.

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

In addition to taking action to reduce the fiscal deficit, the Government are putting in place a number of measures to create the right conditions for businesses to grow. This includes reducing corporate taxes to encourage businesses to invest, establishing enterprise zones, and increasing the support that research and development tax credits provide to small and medium-sized companies.

[Robert Halfon]

Does my hon. Friend agree that the new enterprise zones will transform the fiscal situation for local businesses? As there is a new enterprise zone in Harlow, will he set out the tax advantages that we will gain and when they will start?

[Mr Gauke]

I am delighted that one of the two enterprise zones in the south-east local enterprise partnership will be in my hon. Friend’s constituency of Harlow; 100% of business rates collected on the Harlow site will be retained for 25 years and are to be spent on local economic priorities. This will be possible from April 2013, once the necessary legislation is passed. Businesses will also benefit from simplified planning and Government support to ensure that superfast broadband is rolled out throughout the zone.

[Sammy Wilson (East Antrim) (DUP)]

One proposal subject to consultation, which has now finished, for reducing costs in Northern Ireland is the devolution of corporation tax so that the rate can be reduced for that part of the United Kingdom. Will the Minister assure us that the devolution of corporation tax will not be set at a price that makes it impossible for the impact on the economy to be positive?

[Mr Gauke]

As the hon. Gentleman said, the consultation process is now completed. I know we will be in contact with the Northern Ireland Executive to discuss the results. No decisions have been taken, but we have clearly made progress in this area. I look forward to having future conversations with the hon. Gentleman, including about the particular issue of cost that he mentions, but it is right for the cost as well as the powers to be properly devolved.

[Margaret Curran (Glasgow East) (Lab)]

16. What assessment he has made of the potential implications for the economy of the most recent figures for economic growth.