Public Sector Jobs (Grimsby)
David Gauke Excerpts(13 years ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship again, Dr McCrea. I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing this debate. I am pleased to have the opportunity to explain and to discuss the Government’s policy on people and estate issues, and its impact on public sector jobs in HMRC and the Valuation Office Agency in Grimsby.
I recognise and appreciate the hon. Gentleman’s passion for his constituency—perhaps we should all call it the promised land—and the fact that he wants to retain as many local services, jobs and employment opportunities for the area as possible. He set out with great knowledge and understanding some of the challenges facing Grimsby, because the private sector is not as strong as he and I would like it to be.
The issue before us is that the main department, HMRC, and its agency, VOA, like others, have been going through a transformation to ensure that they operate in the most efficient and cost-effective way. That process has been taking place for some years, and further efficiencies are required under the spending review settlement. For HMRC, that also provides for reinvestment of more than £900 million to combat tax avoidance, evasion and fraud in return for a reduction in the tax gap of £7 billion a year by 2014-15. That will lead to increased opportunities in enforcement and compliance, but by 2015 HMRC overall will be operating with around 13,000 fewer staff than in 2010.
For both organisations, having the right mix of people and skills in the right-sized teams and locations is important to ensure that they can deliver the services that their customers need. Balancing the need to retain a national network of offices with consistency across operations, while building capability to handle different areas of work, is core to maintaining customer service. Both HMRC and VOA have been carrying out good housekeeping of their estates for a number of years to utilise existing space to the maximum, and that has realised significant savings. For example, VOA has reduced its estate by 25%, saving in excess of £5 million in running costs a year since 2008. HMRC has made cumulative estate savings of £239 million since 2006.
The core efficiency agenda is key to deficit reduction, and managing Government property can contribute to that. The Government’s £370 billion estate costs around £25 billion per annum to run. The highly diverse estate has substantial scope for efficiency improvement, and the Government are the UK’s largest landowner and largest tenant, so it is important to achieve clarity on what is expected from property and how it is to be achieved.
The Government’s property unit leads the property strategy and is responsible for delivering the targeted savings, as well improving the building environment and promoting economic growth where possible. The decisions made by HMRC and VOA working together in a co-ordinated, cross-departmental way on their estates have identified savings to be made, as well as opportunities for work to remain in Grimsby. In December 2008, as part of HMRC’s earlier restructuring programme, the decision on HMRC’s offices in Grimsby was announced. It was decided to vacate Heritage house and retain Imperial house, the larger of the two offices. Heritage house is occupied by HMRC under a memorandum of terms of occupation with the VOA. The VOA now wishes to terminate that memorandum, and HMRC and the VOA will vacate the office by 31 March 2012. HMRC staff in Heritage house were informed of that decision on 24 March 2011.
The office closures will have an immediate impact on people in those locations, and I understand that that is a big concern for the hon. Gentleman. There are around 200 HMRC staff in Grimsby—15 at Heritage house and the remainder at Imperial house. As the hon. Gentleman has said, Imperial house has sufficient space to accommodate all HMRC staff when Heritage house is vacated. The vast majority of staff—167 people—work in the VAT directorate, and about 25 people work in the local compliance department. Local compliance work is being consolidated in Lincoln and Hull where there are established teams.
Austin Mitchell
The Minister has still not said why Heritage house is being disposed of. It is as if the place needs fumigating—there is a mass exodus. Staff from the VOA and HMRC are going, and those from the Crown Prosecution Service have fled to Hull. The building was designed to provide office accommodation for public administration staff. It is beautifully situated; there is parking; and there is a wonderful fish and chip shop nearby. Why the exodus from Heritage house? Why do the Government want to get rid of it?
Mr Gauke
The hon. Gentleman has described a somewhat idyllic scene for Heritage house, and the proximity of an excellent fish and chip shop cannot be entirely ignored. Nevertheless, HMRC has to find savings in its estate and, as the hon. Gentleman has pointed out, Imperial house has the capacity to take in additional staff. HMRC needs to find savings to be more efficient and to ensure that it is as effective as possible at collecting taxes. Together with the VOA, it has taken the view that Heritage house is surplus to requirements.
The long-term strategy for local compliance is to consolidate teams in fewer sites and place non-specific work in larger teams in urban centres. The local compliance department carries out a risk assessment of location specific work, and it assessed that there is no need for a longer-term compliance presence in Grimsby. It has stretching targets for performance improvement and must deliver those with a reduced work force. The aim is to achieve that by setting up co-located teams that will provide greater opportunity to share skills and experience. That has been happening for some years, and as a member of the Public Accounts Committee, the hon. Gentleman will be aware of recent improvements in the compliance yield obtained by HMRC.
There are similar issues for the 20 VOA staff located in Heritage house. The VOA is working towards having fewer locations nationally, each with a critical mass of staff to enable the sharing of knowledge and skills and improve efficiency. Discussions are taking place between VOA staff and their managers before a formal preference exercise in June. The consideration for HMRC is whether or not the 25 local compliance staff are able to travel to Lincoln or Hull, and they have been asked to express their favoured options by the end of May. The focus at present is on supporting HMRC and VOA staff through that change, while ensuring the continuity of service required for customers—the taxpayer or ratepayer—and in the case of VOA, delivery partners such as billing authorities.
HMRC and the VOA are seeking to avoid any job losses, and the staff consultation will enable them to explore all available options. HMRC staff unable to relocate to Lincoln or Hull will continue to undertake compliance-related work for the foreseeable future, based at Imperial house. No one who lives further away than a distance of reasonable daily travel will be forced to move. The 20 VOA staff, many of whom live in and cover properties in the Grimsby area, may be based elsewhere as a result of those decisions. It is not, however, uncommon for VOA property inspectors to start or end their day from home, if that is more effective and efficient. In addition, the VOA has made provision—subject to business need—for home working, which staff may opt for in the preference exercise. The local impacts of the change will be minimal.
The policy for both HMRC and the VOA is to avoid compulsory redundancies. They will do everything possible to help staff find a suitable role, which may be at the closest neighbouring offices or elsewhere. The VOA will continue to carry out property valuations and assessments locally, and many local staff will continue to carry out that work for Grimsby, so that local knowledge of the area and conditions will not be affected. The specific issue of ports will require specialist expertise, but it should not be disrupted by the changes.
Decisions to inspect specific properties or areas are not necessarily determined by the office location; understanding the area and having the right supporting information is key. In all cases, the decision to inspect a property or locality is made after other avenues have been exhausted and when the information required can be gleaned only by a visit.
The hon. Gentleman raised the issue of increased travel costs as a consequence of the changes. Travel costs may increase, but HMRC and the VOA believe that those increases will be significantly outweighed by savings on accommodation. The hon. Gentleman pointed out that costs are greater in Hull and Lincoln, but as far as the VOA is concerned, accommodation in those places is considerably cheaper than it is in Grimsby. The issue affects many areas, and I thank the hon. Gentleman for raising it today and defending the interests of his constituents with such passion. Nevertheless, HMRC and the VOA must make a contribution to clearing the fiscal deficit.
Austin Mitchell
This is the second survey that staff have received—the first must have been inconclusive. This time HMRC staff are not signing the option forms, because they feel that there are no alternative jobs in the tax system in north-east Lincolnshire or in other areas. The Minister has not answered the question about why jobs should not be transferred to Grimsby. It would be a cheaper centre from which to carry out non-locational work. If the work can be done from anywhere, why not Grimsby?
Mr Gauke
As I understand it, the view taken by HMRC and the VOA is that the options presented by Hull and Lincoln were more financially persuasive. Accommodation in Lincoln and Hull for the VOA is considerably cheaper than in Grimsby, and decisions were taken for those reasons and on the basis of good estate management. I know that will disappoint the hon. Gentleman, but it is important that HMRC and the VOA take a businesslike approach to the issue and ensure that assets are distributed in the most effective and efficient manner possible.
Question put and agreed to.
Credit Rating Agencies
David Gauke Excerpts(13 years ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
May I first congratulate the hon. Member for Streatham (Mr Umunna) on securing the debate in this, the anniversary week of his election to Parliament? I am pleased to have the opportunity to explain and discuss the Government’s policy on credit rating agencies—an issue that has generated a fair amount of interest, including outside the United Kingdom. It might be helpful if I start by outlining the Government’s current position and set out the steps that have been taken here and in Europe to address the shortcomings in this area, but before doing so I would like to make two observations.
First, the financial crisis has clearly highlighted the fact that reform of CRAs is essential, as the hon. Gentleman has argued, both in the way they are supervised and regulated and in the way they conduct themselves and explain their decisions to the market. That has already led to significant regulatory changes. CRAs must now register to be recognised in the EU and comply with rigorous procedures and controls in using their ratings. The European Commission has identified further measures to address over-reliance on CRA ratings and to improve competition and CRA accountability.
However, although reform is necessary, CRAs play an essential role in international markets. They provide the market with a neutral assessment of credit worthiness, a service that is valued by investors and crucial to the functioning of the international financial system. Reform should therefore aim to improve ratings quality and the way ratings information is used by investors, but it should not unduly undermine what is an essential service to international capital markets.
Recent market events have highlighted concerns about the role of CRAs, which is why we fully support international efforts to improve their regulation, to introduce greater transparency and competition and to reduce reliance on credit ratings, while acknowledging the complexity of the issues and the important role played by CRAs. The UK authorities have been, and will continue to be, active in both the EU and the G20 processes, including discussions on possible further measures that the Commission is considering in this area.
With regard to what has been achieved to date, the hon. Gentleman is obviously aware that the first European credit rating agency regulation—CRA1—came into force in December 2009. It ensures that CRAs demonstrate that they manage potential conflicts of interest adequately and improve processes relating to the issuing and monitoring of ratings. It requires more robust internal control functions, greater transparency of methodologies and processes, due diligence procedures and the disclosure of performance. It provides a minimum standard of CRAs' systems and controls, ensuring that ratings in the EU are of a high quality.
As the hon. Gentleman will also be aware, that regulation has recently been amended to place rating agencies under European supervision. To be recognised for regulatory purposes, CRAs must go through a registration process, ensuring that they meet the standards of the new CRA regulation. From June, the newly established European Securities and Markets Authority will have the power to ensure that CRAs comply with the regulation. Other jurisdictions, including the US, are adopting similar regimes to ensure a consistent international standard. Those requirements of the European legislation apply to all asset classes and are aimed, in particular, at addressing the problems associated with structured products, an area where, as demonstrated during the crisis, CRAs have evidently failed to provide reliable ratings in some countries. CRAs are also banned from providing advisory services and are required to demonstrate that they have sufficiently analysed the underlying data in producing ratings for structured products. Overall, we consider that those measures will help to improve the quality and reliability of ratings.
Mr Umunna
I have a further point and a question about what the Minister has just said. I should have mentioned that I have met the senior management of the rating agencies, both here and in New York, and it is fair to say that they do not necessarily welcome such massive reliance being placed on them; they did not necessarily ask for responsibility on such a scale. What have the Government been doing at G20 level about these issues?
On a subsidiary point, the Financial Stability Board will obviously take an interest in this issue. Will the Minister tell me, or write to me to let me know, the members of the Financial Stability Board’s council? I understand that Lord Turner is a member, but it is a bit of a shadowy organisation and there have been some questions, not necessarily about its integrity, but about who is involved, because obviously it has a role to play in this area, too.
Mr Gauke
I will certainly write to the hon. Gentleman in response to that query.
The UK Government have been very much engaged at G20 level and at a European level on the issue. In the context of European engagement, the next stage, which the hon. Gentleman mentioned in his speech, is the further work that remains to be done. The European Commission released a consultation document in November 2010 on additional measures that might be adopted on credit ratings. The main proposals related to reducing over-reliance on ratings and the additional measures related to increasing regulation on sovereign ratings; enhancing competition, such as establishing a public CRA, as the hon. Gentleman suggested; potentially increasing CRAs’ exposure to civil liability; and addressing the conflicts embedded in the “issuer pays” business model.
The Government, together with the Bank of England and the FSA, have published a joint response to that consultation, setting out in detail our view of the Commission’s proposals, and I am very happy to provide the hon. Gentleman with a copy. In summary, we support measures to reduce reliance on CRA ratings—a point that he made in his intervention when he said that many of the problems relate to the level of reliance on such ratings. We also support measures to increase transparency and disclosure, and to stimulate competition by lowering barriers to entry. We believe, however, that measures to impose civil liability or to establish a public CRA to issue ratings, particularly sovereign ratings, would be counter-productive and lead to unintended consequences.
The hon. Gentleman raised the issue of a public CRA, but the potential conflicts of interests in any such arrangement—particularly in the context of sovereign debt—would undermine credibility. Alternatively, although I am not sure whether the two arguments are mutually exclusive, there is the danger that a public body would crowd out other credit rating agencies and reduce competition, and neither of us would be keen to welcome that. To answer the hon. Gentleman’s question, however, the Commission will publish its legislative proposals in September.
The recent sovereign debt crises have raised concerns about the role of CRAs in sovereign borrowing. The Government believe that, above all, it is crucial to ensure the impartiality of all ratings, including sovereign ratings, and that means improving transparency by CRAs to facilitate investor understanding, rather than regulating sovereign ratings in a way that compromises their credibility.
Internationally, there has also been a welcome initiative with the Financial Stability Board, considering measures to reduce the over-reliance on CRA ratings. That initiative is investigating what alternatives to CRA ratings can be used in regulatory requirements, in investor mandates and contracts and in central bank operations. Ways to encourage due diligence by market participants themselves are also being explored.
As I said earlier, the Government fully recognise the concern about CRAs. The coalition Government saw from the financial crisis that greater regulation was required to ensure high-quality ratings and a more judgment-based use of ratings by the market. The current sovereign debt crisis further highlights the need for CRAs to communicate consistently and effectively their analysis to the market, and for investors to understand what ratings represent.
That is why the coalition Government are supporting a reform package in Europe which focuses on the root cause of the problems associated with CRAs, while being cognisant of and safeguarding the essential role that CRAs play in the international financial system. We believe that, in addition to the substantial progress already made by CRA1 and CRA2, further reducing mechanistic reliance on CRAs, increasing transparency and reducing barriers to entrant CRAs would be effective ways of achieving that goal.
Question put and agreed to.
Oral Answers to Questions
David Gauke Excerpts(13 years ago)
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Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
4. What assessment he has made of the effects of the increase in the standard rate of VAT on levels of economic growth in the first quarter of 2011.
The Exchequer Secretary to the Treasury (Mr David Gauke)
At this stage, it is not possible to make a full assessment of the effect of the increase in the standard rate of VAT on levels of economic growth in the first quarter of 2011. The Office for Budget Responsibility forecast released on 23 March projected growth of 1.7% over the course of 2011. That forecast takes full account of the Government’s fiscal policy measures.
Ms Stuart
The Bank of England expects inflation rates to accelerate over the next few months. The markets, however, seem to have taken the view that interest rates will not increase as speedily as was anticipated just a few weeks ago. How does the Exchequer Secretary reconcile the Chancellor’s notion that the economy has grown with the judgment of the markets?
Claire Perry (Devizes) (Con)
May I return to the topic of VAT on fuel? I have just come from a business session in my constituency of Devizes, where I know that despite the decrease, high fuel prices continue to be a real drag on growth for small businesses across the economy. I have a letter from the EU commissioner saying that the recent motion we debated—that a derogation should be made specifically for motoring fuel—is almost certainly illegal and definitely unworkable under EU legislation. May I ask Ministers what proposals we can suggest to help motorists in the real world now that the Labour party’s suggestion has been revealed as yet another—
Jeremy Lefroy (Stafford) (Con)
14. What recent discussions he has had with his international counterparts on strategies to reduce budget deficits.
The Exchequer Secretary to the Treasury (Mr David Gauke)
At the G20 summit in Seoul in November, advanced countries committed to formulate and implement credible growth-friendly, medium-term fiscal consolidation plans. The Chancellor has been involved in discussions with our international and European counterparts since the Seoul summit, including in the International Monetary and Financial Committee and the International Monetary Fund spring meetings. As was the case with the previous Administration, it is not the Government’s practice to provide details of all such discussions.
Jeremy Lefroy
I thank the Minister for his reply. The OECD’s recent report says that the UK is striking
“the right balance between addressing fiscal sustainability…on the one hand, and preserving short-term growth on the other.”
In his contact with international colleagues, has my hon. Friend found other support for this view or, indeed, any support for the opposing view?
Mr Gauke
It is quite striking that on one side of the argument, saying that we must be serious about getting the deficit down, there is the OECD, the IMF, the European Commission, the CBI, the Governor of the Bank of England and the US Government, whereas on the other side we have the Labour party. We do not find the Labour party’s case terribly persuasive. On the evidence of last week, nor do the British people.
Ian Austin (Dudley North) (Lab)
Does not what happened in Greece show that measures that hamper growth make tackling the deficit all the harder? Is that not why, six months after the geniuses opposite took stewardship of an economy that was beginning to recover strongly, growth had ground to a halt? Is it now why, far from tackling the deficit, which is what all this is supposed to be about, the small print of the Budget shows that the Government will have to borrow £46 billion more?
Mr Gauke
I know that the hon. Gentleman is close to the former Prime Minister, but it really is disappointing that he is such a deficit denier. He even seems to suggest that the Greeks should not be doing anything about their deficit. If we do not have a credible plan, then the economy is at risk. We do have a credible plan.
Stephen Williams (Bristol West) (LD)
First, Mr Speaker, may I associate myself and my Liberal Democrat colleagues with your remarks about David Cairns at the start of Question Time?
On the deficit, the Government’s plans will reduce the fiscal deficit from last year’s figure of 9.6% to 7.9% this year, but that will still be roughly double the eurozone average and higher than the figures for Germany, France, Italy and Spain. Does the Minister agree that if we did not take this action to reduce the deficit, it would undermine international confidence in this country and our ability to borrow the funds that we still need to fund our programmes?
Chris Kelly (Dudley South) (Con)
T1. If he will make a statement on his departmental responsibilities.
Hospices (VAT)
David Gauke Excerpts(13 years ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I congratulate the hon. Member for Colchester (Bob Russell) on securing this debate and on speaking with such evident passion and knowledge about the hospices in his constituency and the hospice movement more widely. I think I speak for all Members in expressing a sense of admiration for what the hospice movement does. I certainly know of the fantastic work that a number of hospices perform in my constituency.
I am pleased to have a further opportunity to explain and discuss the Government’s policy on an issue that has generated considerable interest and is evidently of concern to a large number of hon. Members. It might be helpful if I could start by reminding Members of the current position with regard to VAT and the constraints that we are acting under. Before I do so, I would like to confirm how much the Government appreciate the energy and input of charities across a wide spectrum of national life and interests. We can all agree on the important role that they play in our society and agree that we are fortunate that they are prepared to come forward with their immense contribution.
As we all know, VAT is a broad-based tax levied on final consumption. It is charged by registered businesses on their supplies and can be recovered by a business when the purchase is destined for use in the making of supplies that carry VAT. In this respect, charities are no different from others when they are in business, as they can recover VAT. A business, however, bears the VAT on purchases when it is making supplies that are exempt from VAT. Since the supplies it makes do not carry VAT, it is unable to claim back the VAT. Exemption is applicable to a limited range of supplies such as the rent of land and buildings, education and health care. The application of an exemption has to be in line with international agreements—in this case, the principal VAT directive. Since health care is included in the list of exemptions, we are obliged to apply an exemption.
The hon. Gentleman’s central concern is how the impact of VAT on hospices can be mitigated. Ideas that have been mooted include the application of a refund system or arrangements similar to those applying to the NHS. With regard to a refund system, it would, in principle, be possible to introduce such a system in respect of the non-business activities of charities. However, such refunds, as a matter of Government expenditure rather than taxation, would place a very significant cost burden on the Exchequer, especially given the current fiscal position. Furthermore, many charities are engaged in activities where they could be in direct competition with private sector organisations: those activities include the provision of care and welfare services. A refund scheme for VAT incurred in relation to these services would represent a distortion of competition. Any scheme that could be devised would be complex and administratively burdensome for charities to operate.
Bob Russell
Will the Minister explain where the competition is in the treatment of cancer patients? That is something new to me; I did not realise that it was in the competitive world.
Mr Gauke
I wanted to apply this initially to the broad issue of costs incurred by charities as a whole. Clearly, there can be an issue in the provision of care and welfare services more generally, and I was looking at it in that context rather than specifically with regard to hospices.
It is true that the NHS can recover the portion of its VAT costs that relate directly to out-sourced services used in the provision of free healthcare—for example, cleaning, laundry, catering and estate management. That amounts to about 20% of the total VAT incurred across the NHS. This ability to reclaim some VAT costs is taken into account as part of the overall funding arrangements for the NHS. Refunds do not extend to VAT paid on goods and services purchased to support business activities that are exempt from VAT, such as private health care and property rental.
In addition to the obligation placed on the Government to ensure that the VAT system is fiscally neutral and does not distort competition, it is not within our gift to change unilaterally a VAT system unanimously agreed in Europe and applying in the single market. We need to apply the mandatory exemption in relation to the business supplies of health care providers, with the associated block on recovery. Similarly, under European agreements the Government cannot extend existing VAT zero rates or introduce new ones. Reduced rates can be applied only to a specific list of goods and services, and there is no such reduced rate that applies to all supplies made by all charities.
Nic Dakin
The Minister is giving a detailed explanation, which is very helpful. May I refer back to situations in which a hospice, for example, takes over services that were previously run by the NHS, for which the NHS could recover VAT on non-business services? Surely such an imaginative Minister can find a way of transferring that across to the hospice movement so that it is cost-neutral for the Exchequer, but beneficial to the community.
Mr Gauke
If the hon. Gentleman will forgive me, I will come back to that point. It is kind of him to say that I am going through this in a detailed way. If I may, I will proceed and then come back to what we can do. It is worth making the point that the last time we tried to change the list of matters that can be zero rated for VAT, it took six years and some negotiation.
It is worth highlighting the help that Government provide for charities. We are limited in the support that we can give through changes to the VAT system, but it is important to understand that the Government can and do support charities more widely through the existing VAT system and in other ways. We are committed to retaining the existing VAT zero rates that apply specifically to charities, which provide a benefit of about £200 million a year. Those include VAT zero ratings for qualifying charities on sales of donated goods, for medical and scientific equipment, and for goods for use by disabled people. Charities are not charged VAT on the costs of advertising and public media. They also qualify for zero rating on the construction of certain buildings to be used for charitable purposes. All those zero rates are derogations from the normal EU VAT rules and are not enjoyed by charities in other member states. Charities also benefit from the more widely available VAT zero rates that are applicable to purchases.
The UK has one of the most generous tax systems in the world for charities. Our existing reliefs for charities are worth more than £3 billion a year. Gift aid is the largest single relief, and it is now worth nearly £1 billion to charities each year. Our position, which is in line with that taken by successive Governments, is that the most appropriate way of supporting charities is to encourage charitable giving, rather than to create a complex and burdensome system of additional reliefs or refunds.
Martin Horwood
As a former director of fundraising for a national charity, I tell the Minister that encouraging giving is easy to say, but more difficult to achieve, whereas a VAT refund would make a substantial and immediate difference. The problem of the burden on the charity would be easily overcome in exchange for the benefit. The important point, which has been made, is that as we commission more health care services, it will not be cost-neutral for the Treasury, but will give a windfall benefit to the Treasury. Surely something can be done so that at least new services that are provided gain a refund for VAT, and do not just deliver a benefit to the Treasury for no benefit to the community.
Mr Gauke
Again, hon. Members are raising fair points. To jump to the conclusion, we are looking closely at this area.
The help that we provide to charitable giving is important. Charities are central to our big society agenda. The 2011 Budget announced the most radical and generous reforms to charitable giving for 20 years, including reducing the inheritance tax rate when 10% or more of the net estate is left to charity. From 2013, a new scheme will allow charities to claim a gift aid-style top-up on small donations that they receive without gift aid declarations for up to £5,000 for each charity every year. Overall, 100,000 charities can benefit from the 2011 Budget changes to the tune of about £600 million.
It is also worth mentioning the transition fund that was announced at the spending review. It makes £100 million available to charities, voluntary organisations and social enterprises that are delivering front-line services and are affected by reductions in public spending. The fund provides grants of between £12,500 and £500,000 to help organisations make the changes necessary to thrive in the long term. Funding was made available in 2010-11 and 2011-12, and the fund is focused on helping organisations transit and adapt to the new funding environment rather than merely keep going. The first 18 awards were made on 15 February, with further awards in March, April and May.
The Government continue to examine ways of ensuring that VAT does not act as a barrier to the reform of public services, which was the point that the hon. Member for Cheltenham (Martin Horwood) raised. We are examining such options where they are open to us and affordable within agreed funding arrangements. For example, the Government announced in the Budget that we would continue to consult charities and organisations in other sectors to explore options for implementing the EU VAT exemption for cost sharing. I can tell the House that one of the options under consideration is to issue a consultation paper on the subject within the next two months, and we are exploring that possibility closely.
More widely, there are often ways of mitigating the impact of VAT within the existing system. For example, where local authorities and other public bodies enter into contractual rather than funding arrangements with charitable providers, it can greatly lessen any irrecoverable VAT incurred by those providers in many cases. It has to be acknowledged, however, that such an approach does not offer much scope for services that fall within the health exemption.
As I said earlier, I recognise that there is genuine concern about VAT among people involved in hospices. That was why, in March, I met the hon. Members for Scunthorpe (Nic Dakin) and for Leeds North West (Greg Mulholland) and people working in the hospice sector, including for Sue Ryder. Following that meeting I asked officials to continue the dialogue, and they have met subsequently with the intention of exploring any viable options. I hope that that provides some reassurance, although I cannot give more detail at the moment. I am certainly keen that we explore options.
Mr Robin Walker (Worcester) (Con)
Will the Exchequer Secretary respond to a suggestion that has been made by Richard Shaw, the treasurer of the excellent St Richard’s hospice in my constituency? He has suggested that under the NHS reforms, if hospices’ income from doctors’ consortia could be deemed to be VAT standard rating, that would allow hospices to recover a lot more VAT on their charges. Will that be one of the options that his officials look into?
Mr Gauke
As the hon. Member for Colchester has just muttered, it will now. My hon. Friend the Member for Worcester (Mr Walker) has put that thought on the record, and my officials will certainly take it up.
As I said, there is clearly strong feeling in the House on the subject, and rightly so. We all recognise and respect the value of the hospice movement, and we all recognise the opportunities and benefits of a greater diversity of supply of services. We agree that it would be most unfortunate if the workings of the VAT system were to get in the way of sensible progress. I hope that my comments will provide reassurance to the hon. Member for Colchester that we understand the issues that have been raised and that the Government are taking them very seriously. I hope that we can continue to work closely with the hospice movement in developing proposals.
Question put and agreed to.
Finance (No. 3) Bill
David Gauke Excerpts(13 years ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to begin today’s proceedings by winding up today’s debate, or at least the first of our debates this afternoon, which was one of our debates this morning. It is on clause 4, which sets out the main corporation tax rate for the financial year beginning on 1 April 2011, reducing it to 26%. The measure introduces a further reduction of 1% for this financial year, in addition to the 1% cut that was legislated for last year. Further 1% reductions to the main rate will be made in each of the next three years, taking the rate to just 23% in 2014-15.
Those changes will lower the tax bill of around 45,000 companies that pay tax at the main rate, and of 40,000 companies that are taxed at the main rate but that benefit from the marginal relief. To explain that further, the changes will affect incorporated businesses that have profits of between £300,000 and £1.5 million that pay corporation tax at the main rate reduced by marginal relief, and those that have profits of more than £1.5 million that pay corporation tax at the main rate in full. As I said, clause 4 sets the rate at 26%—the adjustment to the marginal relief fraction is made in clause 6.
Clearly, a thriving private sector must be at the heart of our plan for growth. As we reduce spending, as we must if the UK is to live within its means, only the private sector can spearhead the recovery. We must therefore show that the UK has an attractive tax system and is open for business. This Government are taking action to show the international business community just that. The UK is the right place to do business, and our tax system is one reason why. Our priority is securing strong, sustainable and balanced growth, and clause 4 will help to see to that by supporting investment and by incentivising activity across the economy.
Mr David Hanson (Delyn) (Lab)
I realise that we debated this much earlier this morning, but much of our discussion was on the outcomes of this process. The Opposition do not object to the purpose of the corporation tax cut, but I would welcome clarity from the Minister. How many jobs does he believe will be saved because companies do not move abroad because of the cut, how many new jobs will the cut attract by bringing new investment into the country, and what growth does he expect to result from the investment that we are taking away? As was said last night, we are forgoing a considerable sum of corporation tax income, and I should like clarity on what the Minister believes will be the solid outcomes of that.
Mr Gauke
First, I warmly welcome what the right hon. Gentleman says about supporting the reduction in the corporation tax rate. In seeking to persuade investors to invest in the UK, it is important that we have a strong, solid, cross-party consensus that the UK should have competitive, low rates of corporation tax. To the extent that the official Opposition take a clear, supportive view of what the Government are trying to do, that is helpful to our ambitions, and I welcome it. I am keen to ensure that they maintain that position.
The right hon. Gentleman asked about the specific impacts and outcomes of the measure. If he will be patient and let me first set out why I think the steps that the Government have taken on corporation tax are helpful, I will say as much as I can about the likely outcomes later. I should also thank him for quoting at considerable length one of my speeches on this subject. I am tempted to refer him to his own speech when he quoted my speech, but that would be a little circular.
Mr Edward Timpson (Crewe and Nantwich) (Con)
On anticipating the outcomes of reducing corporation tax, does my hon. Friend recall that one key aspect of the Federation of Small Businesses general election manifesto was a reduction in corporation tax and the benefits that that would have to small businesses around the country?
Mr Gauke
I am grateful to my hon. Friend, because he brings me to the subject of the small profits rate of corporation tax. That is not specifically addressed by the clause, but the previous Government intended to increase the small companies rate, as it used to be called, from 21% to 22%. In the previous Budget, this Government announced that we would not increase it to 22%, but reduce it to 20%. That policy, along with our policy on employers’ national insurance contributions, was warmly welcomed by the FSB. That demonstrates the Government’s commitment, at a difficult time for the public finances, to ensuring that we have the strong, private sector growth that the economy so badly needs.
Mr Andrew Love (Edmonton) (Lab/Co-op)
When the Office for Budget Responsibility was informed late of the additional 1% reduction in corporation tax, it commented that the impact on growth would be minimal. How does the Minister explain that in the context of the claims he is making for that reduction?
Mr Gauke
Let me turn to the impact of this measure. When the OBR analysed the corporation tax package that was announced in 2010, it made it clear that that would help with the cost of new capital investment in the UK. It expected that the recovery would be supported by business investment, and the reductions in corporation tax underpinned its forecast for strong business investment growth over the next five years. In June, the OBR increased its estimate for expected investment and gross domestic product in response to the corporation tax package. Its analysis was that the resulting 3% reduction in the cost of capital would
“promote a higher level of business investment…than would otherwise have been the case.”
In total, that resulted in a forecast of an additional £13 billion of business investment by 2016.
The right hon. Member for Delyn asked about particular businesses and sectors. However, the best way to run an economy is not the Government dictating from the centre. Running an economy is about providing a competitive environment in which businesses from all sectors can grow. Making sectoral forecasts tends to be difficult, and there are severe accuracy questions.
Mr Hanson
I am trying to be helpful and to seek clarity on what the Exchequer Secretary would regard as success, given the investment he is making through not collecting the previous level of corporation tax. In our discussions on the National Insurance Contributions Act 2011 before Christmas, an amendment was tabled to ensure an opt-out in certain parts of the United Kingdom. An assessment was made of the number of jobs that would be created by the measure. I am asking whether he has made a similar assessment with his officials of the potential of this measure to have an impact on growth and jobs in our economy.
Mr Gauke
As I said, the OBR considered the package in the June 2010 Budget and incorporated the changes along with other announcements. From that it anticipated an increase in business investment, and clearly there was a link between the corporation tax package and that increase in investment. We believe that by reducing the cost of capital, we will increase business investment above the levels that would otherwise have been the case.
I was struck by the right hon. Gentleman’s speech this morning in which he took considerable time to outline more than once the unemployment numbers in various regions of the UK. I was struck by the contrast between the argument he appeared to be making this morning, which was that the corporation tax cut needs to be targeted at regions with higher unemployment, and the argument he made during our considerable debate on the National Insurance Contributions Act, which was that it was wrong for us to target the national insurance contributions holiday at regions where the public sector was strong and unemployment high. I am not sure there was much consistency there, but there was great ingenuity in his speech earlier today.
Jim Shannon (Strangford) (DUP)
Obviously any advantage to industry is to be welcomed. I understand that figures released show that only 4 million people are employed in the manufacturing sector. Has the Exchequer Secretary discussed how the corporation tax changes will benefit that sector? Is the cut acceptable to the sector? Does it feel that it will achieve the recovery in that important sector? The Government have recognised it as an important growth industry, so I would be interested to hear his response.
Mr Gauke
I suspect that we will debate manufacturing at greater length in the next group of amendments. However, manufacturing will benefit from the package as a whole, including the changes to capital allowances. It will benefit considerably. Indeed, it is one of the sectors that pays a great deal in corporation tax. We also believe that the changes will benefit all regions. It is perfectly right for the right hon. Member for Delyn to highlight the different requirements in different regions, and as the hon. Member for Strangford (Jim Shannon) will know, the Government are exploring the case for greater flexibility for corporation tax in Northern Ireland. We continue to explore that matter.
On the subject of jobs, the OBR, in its 2011 Budget publication, forecast that 2010-15 total employment would increase by about 900,000. That will not all flow directly from the corporation tax cut, but that reduction will play a part in it. We also have to recognise that most of the recent academic analysis—certainly a recent report published by the OECD—makes the case that taxes on corporation income are the most growth-inhibiting ways of raising revenue. They are inefficient, so it is right that we seek to have a lower rate of corporation tax to help the economy.
Mr Love
May I press the Exchequer Secretary on the benefits for growth and potential employment arising from these measures? According to the Red Book, the corporation tax decrease in the Budget will cost £1 billion by 2015. That is on top of £4 billion from the previous Budget. However, the changes in allowances and other aspects of the corporation tax bring in only £2.7 billion. That leaves a significant gap. The Opposition would not be doing their duty properly if they did not ask what benefits will be delivered by that significant cut in corporation tax.
Mr Gauke
I am grateful to the hon. Gentleman for acknowledging that it is a significant gap. It is a considerable tax cut for businesses in order to get them to grow. Reducing corporation tax will reduce the revenue we take from an inefficient tax, thereby increasing the rate of return on investment and resulting in greater business investment, greater productivity, higher wages and salaries and more jobs. It is important that we have a dynamic private sector, and that is exactly what we are about.
We have to be internationally competitive. Our tax system is not as competitive as it once was. Over the past decade, our competitors have seized the opportunity to cut their corporation tax rates faster than we have. In 1997, the UK had the 10th-lowest main rate of corporation tax among the 27 EU countries, but by 2010 we were 20th. As a result of the reforms announced in the Budget by my right hon. Friend the Chancellor, the UK will have the fifth-lowest corporation tax rate in the G20, and by the end of this Parliament, it will be the lowest of any major western economy and the lowest rate this country has ever known. By taking our corporate tax rate right down to 23%, we are going further in restoring Britain’s international competitiveness with a corporation tax rate 16 percentage points lower than America’s, 11 percentage points lower than France’s and seven percentage points lower than Germany’s. It will be the lowest corporation tax rate in the G7. We are pleased that we have been able to make progress in this area.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
I am sorry to have missed the many speeches yesterday by the Exchequer Secretary and in particular my right hon. Friend the Member for Delyn (Mr Hanson). I missed them because I was campaigning in west Worcestershire with 50 young people protesting against the decision of Worcestershire country council to withdraw funding from Rubery youth centre, which has played a key role in lowering antisocial behaviour in the area. Have the Exchequer Secretary or his Treasury colleagues considered the impact of the corporation tax cut on the funding of crucial public services, such as youth services?
Mr Gauke
Let me make this point. The hon. Gentleman talked about being in west Worcestershire. I was there two weeks ago for a meeting with local businesses. I met manufacturers who had full order books and were expanding, investing, welcoming the opportunity to expand their businesses and recognising that the Government were putting in place the conditions for strong private sector growth. It is through such growth that we can have sustainable public finances and we can afford to have the public services that we would all like. However, it is no good spending money that we do not have. The move towards a lower rate of corporation tax will enable us to have stronger, sustainable public finances and a dynamic private sector. It supports the Government’s ambition to achieve the most competitive tax system in the G20, and I therefore commend clause 4 to the Committee.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 10
Plant and machinery writing-down allowances
Mr Love
My hon. Friend makes my point. That is exactly why, once the changes have been introduced, we need to review and assess their impact, particularly on small businesses and more generally on the economy. We would like to be reassured that the headline rate cap with the changes to the allowances will make a material and positive difference to the economy.
I commend the amendment to the Committee and in particular to the Minister. I hope he will consider carefully what is asked for and agree that it is a constructive amendment that he can support. I hope that together we can make a real difference to the prospects for the UK economy.
Mr Gauke
Amendment 6 would require the Chancellor to publish by 31 October 2012 an assessment of the impact of the proposed changes to capital allowances on the UK economy, as we have heard. The amendment was tabled to clause 10, which reduces the rates of writing-down allowance on the main rate pool of plant and machinery expenditure to 18% and on the special rate pool to 8%. Before I deal with the amendment, I will explain the purpose of clause 10, which is key to the amendment.
Capital allowances allow businesses to write off their expenditure on capital assets, such as plant and machinery, against their taxable income. They act as a simple, statutory system in place of commercial depreciation. Capital allowances are given at different rates, depending on the year of investment and the type of asset acquired. The principal year-on-year allowance for plant or machinery expenditure is the writing-down allowance. The main rate is currently 20% per annum, and the special rate is 10%.
Both are calculated on the reducing-balance basis. We are making changes also to the annual investment allowance, in clause 11, reducing it to £25,000, as we have heard, and extending the short-life assets regime from four to eight years, in clause 12.
The changes announced last year, which are given effect by clauses 10 and 11, enable a reduction in the main rate of corporation tax, which will reaffirm Britain’s competitive tax system and support enterprise and growth. The right hon. Member for Delyn (Mr Hanson) was right to highlight the fact that this is part of a package. In his earlier remarks, the hon. Member for Edmonton (Mr Love) pointed out that this was a partial contribution. There is none the less a gap, and further funding has been found—from the bank levy, for example—which has enabled us to reduce the corporation tax rate.
We have already debated the benefits of reducing the corporation tax rate and we have returned to that topic to some extent in the present debate. I note that it does not have the support of all hon. Members, although it is supported by the Opposition Front-Bench team. It is helpful to repeat what was said by John Cridland, the director general of the CBI:
“The extra 1p cut in corporation tax will help firms increase investment.”
The objective is not just to reduce the amount of tax that companies pay, but to enable them to invest and grow businesses in the United Kingdom. I am pleased that that is welcomed throughout much of the Chamber.
Our initial assessment of the package as a whole suggested that that would lead to an additional £13 billion of business investment by 2016 by making the cost of capital investment cheaper. The additional reductions in corporation tax rate and the extension of the short-life assets regime will help to increase further the levels of investment by business. We estimate that the overall effect of these measures will be to reduce the tax liabilities of the manufacturing sector by around £700 million by 2015. The changes to the rates of writing-down allowances do not mean that businesses will not continue to receive full tax relief for their investments in plant and machinery. Rather, the relief will be over a slightly extended time frame.
Let me give an example. Where it would have taken 11 years under the current rate to write off more than 90% of the cost of a machine, it will now take 12 years. Meanwhile, the rates will continue to align broadly with average rates of depreciation across the economy. This does not mean that we intend to remove capital allowances in favour of pure accounting depreciation.
On the issue raised by my hon. Friend the Member for Amber Valley (Nigel Mills), the previous Government did consult in some detail on their reform of corporation tax between 2002 and 2004. I am sure you remember it well, Ms Primarolo. The business response to that consultation was strongly in favour of retaining capital allowances. It was argued that capital allowances provide certainty and a level playing field, with the same rates of allowances applying to all. The flexibility of the system allows the pooling of expenditure and the ability to claim less than full allowances, depending on the individual’s business circumstances. My hon. Friend set out the case for a different approach to capital allowances. He brings great expertise on the matter and there is ongoing debate, but we do not intend to reopen discussion of that point.
Nigel Mills
I am grateful to my hon. Friend for reminding me of that study from almost a decade ago. I gently point out to him that the rate of capital allowances was quite a bit higher at the time of the study. If he did the same exercise now, he might get a slightly different answer.
Mr Gauke
Again, my hon. Friend raises an interesting point. We look forward to receiving any representations that he may wish to make on that. He is right to say that the rate of capital allowances has changed since 2004, and he highlighted in an intervention the fact that the previous Government—as I am sure you will recall well, Ms Primarolo—reduced writing-down allowances in 2007, a point that my hon. Friend made to the right hon. Member for Delyn.
In response to those Opposition Members who raised their concern about the approach that the Government have been taking, I point out the approach taken by their Government in the previous Parliament, when they were all Members of this place. Whereas we are reducing the writing-down allowance from 20% to 18%, the previous Government reduced it from 25% to 20%. In our case that is a contribution towards reducing the main rate of corporation tax from 28% to 23%. The previous Government reduced it from 30% to 28%. Ours is a much more generous package for business and as a consequence a much better package for manufacturing than that contained in the 2007 Budget, where essentially the entire reduction in corporation tax from 30% to 28% was paid for by the reduction in the writing-down allowance from 25% to 20%.
On amendment 6, the Government are fully committed to providing greater transparency on the impact of tax measures. I am sure Opposition Members have examined the tax information and impact notes that we published on 9 December relating to clauses 10 and 11, and the additional note that we published at Budget in relation to clause 12. It is clear that there is no need to publish a report into the impact of the capital allowances changes. We have provided a great deal of detail already, but for those hon. Members who have not had the opportunity to read the published notes, let me provide a brief summary.
The note states:
“The OBR assessment of the package was that the cuts in CT”—
that is, corporation tax—
“rates more than offset the reductions in investment allowances”,
and that the businesses affected
“will benefit from related reductions in the rates of CT.”
As I said earlier, we expect the overall effects of the cuts in corporation tax rates and capital allowances changes to lead to an additional £13 billion of investment, and the additional changes to increase that further.
Although this is not strictly in scope, as the amendment is to clause 10, I hope I may be allowed to make a few comments about the other changes to capital allowances in the Bill, to which we shall return in Committee upstairs. The reduction in the annual investment allowance to £25,000 is estimated to affect between 100,000 and 200,000 businesses. As the tax information and impact note clearly states, however:
“The CT reform package will promote higher levels of business investment than would otherwise have been the case.”
Further, more than 95% of businesses in the UK will be unaffected, as the qualifying capital expenditure will continue to be completely covered by the annual investment allowance, so companies, be they small, medium or large, will benefit from the CT cuts, including the cut in the small profits rate in clause 5, while most unincorporated businesses, which by their nature tend to be the smallest businesses in the economy, will still have their expenditure covered by the annual investment allowance.
Mr Hanson
Once again, Mr Evans, I welcome you and look forward to your time in the Chair as we debate clause 35 of the Finance Bill. You will of course be aware that we tabled an amendment to the clause that you have chosen not to select, which is your prerogative; we are relaxed about that. However, it is important that we test and discuss the issues in the clause with Ministers to examine its impact, as well as the impact of other changes that form part of this package of measures.
Our concerns centre on the effects of the various changes that have been made to child care support. Clause 35 introduces changes to the higher rate taxpayer relief for child care—an issue that caused some discussion in the last months of the previous Labour Government and will undoubtedly cause further discussion today. We need to look at the clause not only in its own context but in the light of the wider taxation and benefit policies that the Government are progressing. This is part of a number of measures that will address a range of issues to do with child care and families generally. I also want to consider some of the technical matters that outside groups have raised with me and with other hon. Members regarding the wording of the clause and, if I may slightly stray outside the scope of the debate, the wording of schedule 8, which is related to it and to which we will return in Committee in due course.
The background to clause 35 will be familiar to my right hon. Friend the Member for Edinburgh South West (Mr Darling) because it had its genesis in discussions that took place as part of the previous Labour Government’s proposals. Members will be aware that in 2009 my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Prime Minister, announced to the Labour party conference proposals that he brought before the House later that year regarding child care relief and basic rate relief.
In government, Labour’s plan was to use the savings from limiting child care relief to basic rate relief to fund an expansion of child care places for two-year-olds in England, with potential consequential reliefs and amendments for Wales, Scotland and Northern Ireland. There was some controversy and discussion on those matters. The Exchequer Secretary will be aware that there was extensive discussion in the Labour Government about those matters, and that under the leadership of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, they settled on limiting child care relief to basic rate relief, with the purpose of funding an expansion of child care places for two-year-olds.
I would like clarification from the Exchequer Secretary today on—[Interruption.] Don’t worry, I am still here. The hon. Member for Crewe and Nantwich (Mr Timpson) will know that one picks up the occasional sedentary remark. Unless I reflect back on the last remark, it will not appear in Hansard, and on this occasion, I will not reflect back on it. As can be seen, Government Members have expressed an interest in my speech.
The Government have made changes to the Labour Government’s proposals on basic rate relief and the expansion of child care places for two-year-olds. Indeed, the Government’s proposals are markedly different on the child care element, to which the relief is linked. The Labour Government had planned some 250,000 child care places for two-year-olds from low-income families, although I accept that that was scaled down to about 65,000 child care places. The Government proposals before the Committee will increase from 10 to 15 the hours for the pilot of child care places for 28,000 children. There is a significant expenditure saving in clause 35, compared with the Labour Government proposals. I think that it is worth focusing on those issues today, because if the scope of the discussion that I have given is accepted, this measure cannot be divorced from the reasons why the Labour Government intended to undertake the purpose of clause 35 and what the current Government are now doing with that resource.
From January this year, value added tax will cost families with children an extra £450 a year on average. That is one of a range of measures on the table that will press hard on the ability of individuals to provide child care at affordable levels.
The Government are pressing ahead with the change that my right hon. Friend the Member for Kirkcaldy and Cowdenbeath proposed in government to pay for the trebling of the number of free child care places available to the most deprived two-year-olds. We accept that the relief, which is manifested in clause 35, was badly targeted. That is why we made those changes in government, and our proposal would have paid for more of the poorest in our society to have child care. I want the Exchequer Secretary to explain how the resultant savings from the proposals will be invested to support issues such as child care for people in our community.
At the same time, the Government are hitting family finances in other ways, such as through child tax credits and through child benefit being frozen, and indeed being cut for many people in the years ahead. The families who will be affected by this measure will soon be affected by other measures, particularly that on child benefit. The taxation changes in clause 35 need to be seen in the light of the decision to withdraw child benefit from April 2013 from households containing at least one higher rate taxpayer.
Mr Hanson
As I have said, the Labour Government’s original proposal, which was announced by the then Prime Minister, was to use the resources saved from this badly targeted tax relief to support the extension of child care for two-year-olds in poorer families. Our purpose at the time was to expand the number of places to about 250,000. There were discussions in the Government, and the Exchequer Secretary knows that the figure we settled on was about 65,000 child care places. I understand that he proposes to stick to the pilot of 28,000 places, and I would be grateful for clarification on that, and to extend the number of hours to 15 hours per week. That is significantly less than what was proposed by the previous Government.
Mr Hanson
Actually, Ministers answer the questions and the Opposition ask them. I have been clear with the Exchequer Secretary about the proposal that we outlined in government, and that will be our view. We are potentially four years from government.
I am simply pressing the Exchequer Secretary to explain what the impact is of clause 35, and why there has been a significant change—unless he wishes to clarify that further—to the proposals announced by the previous Government on extending child care for two-year-olds. It is important that we know not just what the clause means, because it will restrict child care support for higher rate families. The purpose of our proposal in government was to expand child care arrangements for poorer and lower-income families. The Government are now squeezing the middle while—unless the Exchequer Secretary clarifies that the contrary is the case—not providing the same level of child care places that were originally proposed by the Labour Government.
This measure is coupled with a range of other measures, which are not before the Committee in clause 35, but which I hope you will give me the scope to touch on, Mr Evans. There are real-terms cuts to child benefit, which is frozen at £75.40 this year for families; the baby element of child tax credits, which is worth £545 a year, has been scrapped; benefits have been set on a permanently lower path of inflation; the basic and 30-hour elements of working tax credit have been frozen; and the second income threshold for the family element of child tax credit has been cut. Those measures all add to the pressures on child care responsibilities and on families.
Mr Gauke
Clause 35 makes changes to ensure that all recipients of employer-supported child care who joined schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. After all the talk about the attack on universality, it is worth pointing out that clause 35 ensures that everyone receives the same amount of income tax relief as basic rate taxpayers.
Reform of this provision was announced in 2009 by the previous Government. One might therefore have expected the Labour party to support the measure. When the right hon. Member for Delyn (Mr Hanson) spoke, it seemed likely that they would do so, but then we heard clearly and unambiguously from the hon. Member for Hackney North and Shoreditch (Ms Abbott) that she would oppose it—of course, she is a Front Bencher and a leading light within the Labour party, and she very nearly became its leader. The hon. Member for Easington (Grahame M. Morris), in a lengthy speech, condemned the measure, although he may in fact have been talking about another measure altogether, and the hon. Member for Denton and Reddish (Andrew Gwynne), in an important speech—his word, not mine—also set out his opposition.
It is striking that the Opposition are now walking away from a proposal of the right hon. and absent Member for Kirkcaldy and Cowdenbeath (Mr Brown) and a policy of the previous Government, just as they walk away from any attempts at economic credibility.
Ms Abbott
For the record, I am the hon. Member for Hackney North and Stoke Newington, not for Shoreditch, and I came this close to being leader of the Labour party. [Laughter.] Yes, this close! Perhaps the alternative vote system would have done it for me—who knows!
Of course we supported the proposal made by the outgoing Labour Government, but as we have said throughout this important and illuminating debate, we did so only in combination with the redistributive measures in relation to child care for two-year-olds.
Mr Hanson
I want to make it clear to the Minister that I have said from the Dispatch Box that this measure had the support of the previous Labour Government, but it had that support on the basis, first, that through the funds saved it would provide child care places to the poorest in our community, and, secondly, that there would be no cuts to, or freezing of, child benefits. That support was also given in the context of the other measures that my hon. Friends have outlined today. There is a difference.
Mr Gauke
That is very clear, and I am grateful for that intervention. Clause 35 will result in a saving to the taxpayer of £100 million per year, because higher and additional rate taxpayers will no longer receive beneficial treatment. That target would not be met if the clause was defeated. The Opposition’s position is therefore very clear: they would spend this money on child care. That is an additional spending commitment that we will add to their considerable total of spending commitments. I understand that all additional spending commitments from the Labour party have to be cleared by the shadow Chancellor and the Leader of the Opposition, so I am sure that they have gone through that process. However, we note that additional spending commitment. We believe that we need to get the deficit down. I am sorry that the Labour party does not accept that, or at least does not have proposals to do it. We note also that even in this time of financial crisis in the public finances, it is making additional spending commitments.
Kate Green
It is not an additional spending commitment; it is a commitment to moving spending from one group of families to elsewhere in the child care market. However, will the Minister tell us what assessment he has made of the long-term economic impact of moving parents out of the workplace because of this cut?
Mr Gauke
Because of the crisis in the public finances that we inherited, we have taken a range of measures to provide credibility and to get our deficit down. That is what the country needs, and I am sorry that the Labour party is not willing or able to engage sensibly in that debate.
Employer-supported child care allows participating employers to offer their employees support with their child care costs. The latest HMRC modelling suggests that about 450,000 parents are members of ESC schemes, and that about 40% of them are higher or additional rate taxpayers. This support is offered through tax relief and the associated national insurance contributions disregard, with employers able to offer their employees up to £55 per week, free of income tax and NICs. Most employers offer this support through child care vouchers delivered either by salary sacrifice or flexible remuneration arrangements. Such arrangements can also benefit employers, because they, too, make NIC savings. At present, basic rate taxpayers can receive up to £900 of support a year through ESC, whereas higher rate taxpayers can receive up to £1,200 of support a year.
Mr Robinson
What is the economic rationale or moral principle underlying the distinction the Government are still making, I think, between families with a single higher rate taxpayer and families in which the mother and father are both higher rate taxpayers? It does not seem to make any sense, moral or economic.
Mr Gauke
In part, the hon. Gentleman is trying to draw me into the debate on child benefit, but I have no intention of straying off the subject, Dr McCrea. I am sure that you would not want me to. I should also point out that the previous Government’s original proposal was to abolish employer-supported child care altogether. I would be interested to know what the moral principles were at that point.
The clause introduces schedule 8, which makes changes to ensure that from April this year, all recipients of employer-supported child care will receive the same amount of income tax relief as basic rate taxpayers. Although we are very much in favour of employers helping their employees share the cost of child care, it is neither progressive nor well targeted for wealthier households to derive more benefit than those on lower incomes, and I am rather surprised that Opposition Members should advocate that. All parents who join ESC schemes on or after 6 April 2011 will now receive the same amount of income tax relief as basic rate taxpayers. That is achieved by limiting the amount that higher rate taxpayers and additional rate taxpayers can receive each week to £28 and £22 respectively, so that all parents receive the same amount of income tax relief support each week—about £11. To avoid the measure having a retroactive effect, all existing members who joined a scheme before April 2011 will be able to retain their current rates of tax relief. I assure the Committee that the change will not affect the tax and NICs relief available for workplace nurseries.
We understand how valuable the support is to working parents. However, it is simply not fair that wealthier parents should be able to receive up to £300 more support for their child care costs than basic rate taxpayers. The changes that we are making to employer-supported child care are needed to make the benefit fairer, better targeted and more progressive, and I commend the clause to the Committee.
Finance (No. 3) Bill
David Gauke Excerpts(13 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a very useful debate this evening with a number of contributions. In particular, I thank my hon. Friends the Members for Newton Abbot (Anne Marie Morris), for Watford (Richard Harrington) and for Waveney (Peter Aldous), who spoke about the measures for small businesses in the Budget and the Finance Bill, my hon. Friend the Member for Bristol West (Stephen Williams), who brought his expertise in tax matters to the debate in a wide-ranging speech, my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Elmet and Rothwell (Alec Shelbrooke), who, in their different—but both eloquent—ways, set out how a Government must live within their means, and my hon. Friend the Member for West Suffolk (Matthew Hancock), who brought his economic expertise to the fore by highlighting the circumstances in which we find ourselves.
I remember our debate on last year’s Finance Bill following the June Budget, and this has been a somewhat shorter debate. I listened with great care to the speech of the hon. Member for Wallasey (Ms Eagle) and I think that only two of her 26 minutes were devoted to the Finance Bill. I wonder whether the Labour party’s interest in these matters is diminishing. If so, I would like to think that that is because much of the content of the Bill is uncontroversial, and because we have relatively few areas of contention. The Bill has been widely welcomed. It promotes growth alongside fairness, encourages investment and responsibility and provides for those who need help by supporting a more balanced economy on the basis of a credible and sustainable position.
We have set out our plans to reduce corporation tax—by 2p this year—moving us towards having one of the most competitive tax systems in the world once again, and meeting our objective of having the most competitive tax regime in the G20. We have set out our reforms of the taxation of foreign branches and our interim changes to the controlled foreign companies rules, which are resulting in companies looking to move back to the UK, not away from it. Britain is open for business again. We have set out our plans to double the amount of entrepreneurs’ relief to £10 million, and we have increased the research and development tax credits for small and medium-sized enterprises to 200%. Clause 42 increases the relief available through the enterprise investment scheme to 30%. Of course, tax rates matter as much to small companies as to large ones. Last year, we announced that instead of increasing the small profits rate we would cut it, and clause 5 reduces it to 20%.
Clause 1 increases the personal allowance by £1,000, which is the largest ever increase. In doing that we are removing 800,000 people from income tax altogether, as a step towards meeting our objective of a personal allowance of £10,000. Indeed, we announced in the Budget further measures toward achieving that objective.
Although supporting business is a necessary part of all this, it is important that the sectors with circumstances on their side contribute sufficiently to helping society. That is why we have increased the supplementary charge on profits from oil and gas extraction in the North sea. That will fund the 1p cut in the fuel duty that my right hon. Friend the Chancellor announced in the Budget and will delay the increase legislated for by Labour. As of 1 April, average pump prices have been approximately 6p a litre lower than they would have been had we continued with the previous Government’s escalator.
On VAT—this point was ignored entirely by the shadow Chief Secretary—it is remarkable that the shadow Chancellor still wants to talk about reducing VAT on fuel, which would take six or seven years to negotiate if it could be achieved at all. There is an easier way of cutting tax on fuel: it is by reducing fuel duty, and this Government have done it.
There are long-term proposals in the Bill dealing with annuitisation, the national employment savings trust and the taxation of pensions. At the other end of the scale, clause 40 introduces individual savings accounts for children, and my right hon. Friend the Chancellor has announced that support will be available for looked-after children through junior ISAs.
We are providing for a better environment. Clause 77 introduces a carbon price floor, which will provide the incentive for billions of pounds-worth of investment in cleaner sources of energy. The fact that we have ensured that the climate change levy maintains its real value adds to that incentive.
The Bill also helps to address other issues. The new duty on high-strength beers will help to tackle problem drinking by adding 25p to the price of a can of super-strength lager. That is coupled with a reduction in the duty on lower-strength beers to help to encourage the more responsible consumption of alcohol. I cannot promise my hon. Friend the Member for Elmet and Rothwell that there is anything in the Bill on draught beer, although we note his comments. I can only suggest that as he is dieting for his wedding, perhaps he should stay off the draught beer for another month or so. On behalf of the whole House, I wish him well. It is clearly the wedding of the year, and everyone will be looking forward to it.
We have set out to have a better tax system in the way that we make tax law, through a more deliberative and consultative approach, with greater emphasis on simplification. First, the corporate tax road map published last year set out changes to the regime. By introducing the changes to foreign branches and controlled foreign companies, the Bill takes the first steps alongside the corporate tax road map. Secondly, we published the majority of clauses in draft in the autumn. The Government have allowed proper time for better developed proposals and consultation. More than 200 responses were received on the draft clauses. Through the tax professionals forum which we set up, I received a large number of positive comments on our decision to consult.
Mr Gauke
The tax system needs to be simpler. Simplicity reduces the burdens on businesses—[Hon. Members: “Give way!”] Let me finish this point, then I will give way to the right hon. Gentleman. Simplicity reduces the burdens on businesses, individuals and HM Revenue and Customs. The Office of Tax Simplification set up last summer has already provided the first in a series of recommendations, and the Bill takes forward the first of those recommendations by removing tax reliefs. We will introduce further abolitions next year, after a period of consultation.
Malcolm Wicks
I am grateful to the Minister for so graciously giving way. He has spent most of his speech listing the contents of the Bill. Will he find time soon to respond to the debate?
Mr Gauke
I am not sure that it is necessarily wrong to describe what is in the Bill when we are debating that matter. I know it is not an approach that the shadow Chief Secretary took.
The Bill sets out our objectives. We need a competitive tax system. We must respond to the needs of the British people, who are facing higher fuel prices. The Government have been able to respond. Most of the debate today has not been about the specific measures; it has been about the broad approach. The Government believe that the structural deficit needs to be eliminated by the end of the Parliament. That position has the support of the International Monetary Fund, the OECD, the CBI, the British Chambers of Commerce, the European Commission, the World Bank, the Governor of the Bank of England, Tony Blair, credit rating agencies, the leading bond traders, the Institute for Fiscal Studies and a host of business leaders.
It is the lonely position of the official Opposition to believe that the biggest problem facing the UK economy is that the Government are not borrowing enough, but what have we seen in recent weeks? We have seen the likes of Portugal, after its Parliament could not reach agreement on a credible deficit reduction package, having to seek a bail-out. We have seen credit rating downgrades for the likes of Portugal and the Republic of Ireland. We have seen long-term interest rates rising, and we have seen, in response to the situation across the world, President Obama setting out a deficit reduction plan that is faster than that proposed by the Government.
It is clear that this is no time to be complacent about the dangers to our economy from failing to reduce the deficit. To abandon our plans for fiscal consolidation, as advocated by the Opposition, would risk a credit rating downgrade. It would put at risk our long-term interest rates and even put us back in the danger zone of a sovereign debt crisis. Those are not risks that the Government are prepared to take. That is why, in the Budget and the Bill, the Government remain determined to stay on course. I commend the Bill to the House.
Question put, That the amendment be made.
Corporate Capital Gains Degrouping Charges (Simplification)
David Gauke Excerpts(13 years, 1 month ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I am announcing today the Government’s intention to present to Parliament a proposed legislative change to schedule 10 to the Finance Bill. This schedule simplifies the calculation of chargeable gains degrouping charges for companies. The change we are proposing, which will have effect from 1 April 2011, will allow companies the option to apply the new degrouping charge provisions to transactions occurring from 1 April 2011 rather than only after the passing of the Finance Act.
A degrouping charge is intended to prevent loss of tax on gains that arise on the disposal of assets, where a company owning the asset is sold. This can be used for tax avoidance. Companies identified it as one of the most burdensome tax rules that affect them when they are making an acquisition or disposal, or restructuring.
The new provisions in schedule 10 provide greater certainty to companies planning acquisitions and disposals. The changes will promote growth in the economy by removing some tax barriers to corporate transactions, reducing the costs of restructuring a business and simplifying the process.
The changes made by schedule 10 have already been welcomed by many businesses. I am announcing this new change in response to recent representations, to ensure that the benefits of the changes we are making are available to those groups that are currently in the process of a reconstruction, or considering making an acquisition or disposal.
HM Revenue and Customs will publish a technical note on its website setting out further detail, including the draft legislative amendments.
Tax Consultation Framework and Updated Consultation Tracker
David Gauke Excerpts(13 years, 1 month ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Since the June Budget 2010 the Government have been developing a new approach to tax policy making, with consultation on policy and scrutiny of legislation as the cornerstones.
On 9 December 2010 the Tax Consultation Framework was published in draft for comment. Today the Government are publishing their response to the comments received including the finalised framework showing amendments made to the draft version.
Respondents have generally welcomed the framework as a positive step towards achieving the Government’s aims of predictability, stability and simplicity for the tax system. Many of the suggestions have been incorporated into the finalised framework, while others will be addressed through the guidance and training provided to policy officials.
Responding to feedback from interested parties the Government are also publishing today their updated tax consultation tracker which is available on the HM Treasury website at: http://www.hm-treasury.gov.uk/tax_updates.htm.
The new version of the tracker includes specific anticipated launch dates wherever possible, to help representative groups and others manage their engagement with the Government on tax policy development.
Rebalancing the Northern Ireland Economy
David Gauke Excerpts(13 years, 1 month ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Treasury has today published a consultation paper on rebalancing the Northern Ireland economy.
The paper, which meets a coalition programme for Government commitment, has been produced in consultation with the Northern Ireland Office and the Northern Ireland Executive (NIE). It reflects the joint commitment towards meeting the economic challenges Northern Ireland faces, in particular; increasing the size of the private sector while reducing dependency on the public sector, improving productivity, raising growth and increasing employment.
The Government have developed a range of UK-wide policies to rebalance the economy which will benefit Northern Ireland. The 2011 Budget announces new measures, including the Government’s enterprise zone policy and its plan for growth. The paper draws on these policies and describes devolved policies for rebalancing the Northern Ireland economy, bearing in mind that many of the key economic policy levers are already devolved.
The paper also discusses the option of devolving the power to vary the rate of corporation tax to the Northern Ireland Executive, given the unique circumstances in Northern Ireland, including its large public sector, the economic legacy of the troubles and the land border with Ireland. This includes discussion of:
The benefits and costs of devolving corporation tax varying powers to the Northern Ireland Executive;
Implementation issues;
Other possible tax options.
The consultation will conclude in June 2011. The Government, in consultation with the Northern Ireland Executive, will make decisions in light of the responses received.
Copies of the paper are being placed in the Libraries of both Houses and are available via the Treasury website.
Oral Answers to Questions
David Gauke Excerpts(13 years, 1 month ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Consistent with the approach taken at the June Budget, the Government will publish analysis on the Budget’s overall impact on households across the income and expenditure distributions in the Red Book. The Budget is an overall statement of economic policy containing a wide range of measures, and it is not possible to make a robust assessment of its overall impact on specific groups.
Helen Goodman
I am surprised by that answer. Since the general election, the Government have made 17 distinct cuts to tax credits and child benefit, which are paid to women. Tomorrow, the Chancellor will announce increases in personal allowances, which will benefit millions more men than women. Does the Minister think it is fair that money should be taken from women to give it to men?
Claire Perry (Devizes) (Con)
Is the Minister aware of my freedom of information request from last September which found that the previous Government never carried out an equalities impact assessment—not in the March Budget, the December pre-Budget report or the March 2010 Budget? They never did it either.
Mary Macleod (Brentford and Isleworth) (Con)
Does my hon. Friend agree that raising the income tax threshold, protecting spending on the NHS and increasing spending on social care will definitely benefit women?
Kerry McCarthy (Bristol East) (Lab)
The Chancellor chose to hit women three times as hard as men in his Budget last year and now, as living costs rise and the public sector is slashed, he wants to hit them yet again by changing the rules around maternity and paternity leave and flexible working in small companies. Is it really women whom the Prime Minister has in mind when he talks about taking on the enemies of enterprise, and can the Minister reassure the House that it will not be women who bear the brunt of tomorrow’s Budget?
Amber Rudd (Hastings and Rye) (Con)
Does the Minister agree that the fact that we are not cutting the NHS will really support women because they are so often carers in their family and it is so important that we support them in that important role?
Anas Sarwar (Glasgow Central) (Lab)
13. What assessment he has made of the effect on road fuel prices of the increase in the standard rate of value added tax.
The Exchequer Secretary to the Treasury (Mr David Gauke)
How much of the rise in the standard rate of VAT is passed on to consumers is a commercial decision for retailers.
Anas Sarwar
I thank the Minister for that answer. Treasury Ministers are very wrong to suggest that the calls to scrap the VAT increase on fuel is illegal and unworkable. There is precedent for it: the French President recently got a derogation from EU laws for French restaurants. Will this Government stand up for UK families who have been hard hit by the rise in fuel costs and look for derogation powers on fuel duty?
Richard Graham (Gloucester) (Con)
In terms of the value for money of decisions taken by the Treasury, whether on road fuel tax or other things, does the Minister agree that one of the best value creations of this Government has been the increase in apprenticeships, which is widely appreciated around the country? Does he agree that apprenticeships are critical both to our growth strategy and to the reduction of youth—
Mr Speaker
I have to say that that was not much better, but the Minister may have a go.
Mark Lancaster (Milton Keynes North) (Con)
14. What recent representations he has received on measures to reduce the budget deficit.
John Pugh (Southport) (LD)
T3. Can the Chancellor tell me when the Treasury’s detailed investigation of the feasibility of incorporating a general anti-avoidance rule in British tax law will conclude?
The Exchequer Secretary to the Treasury (Mr David Gauke)
My hon. Friend is right to highlight the matter. We have asked Graham Aaronson QC to undertake a study on the matter and he will report in the autumn.
Mrs Linda Riordan (Halifax) (Lab/Co-op)
T6. Following the announcement last week by Lloyds of more job cuts, many of them in my constituency, to a work force who have showed total loyalty to the company, and as the Government own a large percentage of the company—a company that made more than £2 billion profit last year—will the Chancellor intervene to protect people’s jobs and livelihoods, and stop the constant drip-feed of job losses by Lloyds?
Andrew Gwynne (Denton and Reddish) (Lab)
Ministers will be aware that there is a sunset clause in the Debt Relief (Developing Countries) Act 2010, which comes into effect in June. Does the Treasury have a view about renewing this important landmark legislation, which tackles the worst abuses of vulture funds?
Jesse Norman (Hereford and South Herefordshire) (Con)
Is my right hon. Friend aware that the Governor of the Bank of England confirmed to me recently in the Treasury Committee that without the current austerity measures, our international borrowing rates would be some 3% higher?
Ian Paisley (North Antrim) (DUP)
The Chancellor might know that my constituent, Jenifer Herald, employs 40 people in Northern Ireland in a number of Subway cafés. The chief executive officer of that company has written to the Chancellor to say that inconsistent VAT policies for toasted sandwiches are damaging the growth of that industry. Does the Minister intend to review how VAT applies to toasted sandwiches and does he, like me, want to get his toasted sandwiches at a reasonable price?
Mr Aidan Burley (Cannock Chase) (Con)
Is the Minister aware that according to the Institute for Fiscal Studies, if we only halve the deficit rather than close it completely over the lifetime of this Parliament, we will spend an extra £10 billion on interest? Does he think that that is money that would be better spent on schools and hospitals in this country rather than foreign investment bankers?
Jim McGovern (Dundee West) (Lab)
I am sure the Chancellor and his Front-Bench colleagues will be aware of the recent Scottish Affairs Committee report on the computer games industry in the UK, which states that there are “compelling reasons” for introducing tax relief. Will he tell me, the House and people in my constituency, where the industry is very important, just what progress has been made?
Mr Gauke
That industry, like other industries, will benefit from the policies that we have introduced to ensure that we grow more strongly and have pro-business policies. On video games tax relief, we looked at it and did not feel that it achieved good value for money for the taxpayer.
Jessica Lee (Erewash) (Con)
May I welcome the recent visit by the entire Cabinet, including of course my right hon. Friend the Chancellor, to the city of Derby, near my constituency? Manufacturers and wealth creators have been waiting for a long time for some support in the east midlands, and I would be grateful if my right hon. Friend could set out what plans are in place to assist that important area.