Cornwall (Government Funding)

Debate between David Gauke and Dan Rogerson

Tuesday 18th December 2012 Westminster Hall

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

I am grateful for the opportunity to speak again under your chairmanship, Mr Gray, and to discuss the issues raised by my hon. Friend the Member for North Cornwall (Dan Rogerson). I congratulate him on securing this debate. He has been a vociferous campaigner for all things Cornish—the Cornish economy, the Cornish language and, more recently, the Cornish pasty. I am pleased to discuss Government funding for Cornwall today.

I will turn specifically to funding in my hon. Friend’s region shortly, but first I should like to talk more generally about the way in which Government funding is allocated throughout the UK, and to describe the changes we are making to encourage growth at national and regional levels. The 2010 spending review set out how the Government would carry out the UK’s deficit reduction plan over four years, and included fixed departmental budgets. We protected spending on the NHS, schools, and overseas aid, and we chose to prioritise fairness and social mobility, to focus on spending that promotes long-term economic growth, to reform public services, to shift power away from central Government to local level, and to improve value for money.

Some of those decisions at national level will have a significant impact in Cornwall. Having enjoyed a splendid holiday in my hon. Friend’s constituency a couple of years ago, I know that tourism is of considerable importance to Cornwall, although he is right to point out that its economy is much more than merely tourism; it is more diverse than that. We invested in the “Great” campaign, which was launched to deliver long-term trade and tourism benefits throughout Great Britain, and I am sure that Cornwall will benefit significantly from that.

The most important decisions for Cornwall have been those on local authority expenditure in the region—a point that my hon. Friend raised. Local authority expenditure is split between grants from central Departments, which are set in the spending review, and localised expenditure, which is largely funded by council tax. I am sure my hon. Friend will be pleased to note that during the current settlement period, Cornwall’s reductions in spending power have been smaller than the average in England. Spending power in the county fell by minus 3.3% in 2011-12 and minus 2.9% in 2012-13, compared with an average of minus 4.5% and then minus 3.3% for councils in England. I want to turn to the point my hon. Friend raised about the damping mechanism.

[Dan Rogerson]

I did not use all the time I might have done, so I hope that we can continue our discussion a little further. The problem for some areas such as Cornwall is that historically the council was run by independents who took a firm view on keeping the old rates down, so historically the area has low council tax, compared with counties such as Surrey. The Government are seeking to limit the impact of council tax rises—they have extended proposals for that through the Department for Communities and Local Government—but our base is already low, so there is an impact from that as well as the central grant.

[Mr Gauke]

My hon. Friend raises a fair point, and has put it on the record. I recognise that councils that have, over many years, shown greater determination to control their costs have less fat that can be cut than other authorities where that has not been the case.

On the damping mechanism, it is right that the Government must balance the interests of places with growing and declining needs, and Cornwall is an area with growing needs. Damping has been used to avoid steep jumps in council tax and demands on areas with declining needs. DCLG has consulted on a new funding system from 2013, and the Government have indicated that we want to move away from damping. My hon. Friend referred to rurality, and asked whether that is taken sufficiently into account. Again, DCLG has consulted on changes to the formula, and he will be aware that it will publish the draft local government finance settlement for 2013-14 for consultation shortly. It will set out funding amounts for each authority, and I am sure that my hon. Friend will be interested to read it. It will shed some new light on damping. I hope that he finds that helpful.

The formula exists for a reason—to strike a balance between the needs of areas with growing and declining populations—and it seeks to make an assessment that strikes that balance. We will say more about that shortly.

[Dan Rogerson]

Another area that the National Audit Office highlighted in its report on academy schools, particularly the early academies that were set up under the previous Government, is the generous settlement they were given, perhaps to encourage people to take a new step. However, as the number of academies has risen, there is an issue with that funding, which is perhaps over-generous compared with that for maintained schools. The report acknowledges that gap and the need for convergence, and the Minister’s ministerial colleague, Lord Hill, talked to us about that. The issue is the direction of travel, because the damping effect will be difficult to achieve.

[Mr Gauke]

All I would say about that is that the Department for Education is also looking at the school funding formula in the light of some of those issues, and I am sure that Education Ministers will respond in due course.

Until now, the main local authority grant from central Departments has been a formula grant distributed by DCLG through local government finance settlements. In line with our priority of encouraging growth, from April 2013, we will replace the current fairly complex formula grant regime with a business rates retention scheme to help provide a stronger local growth incentive. Councils that succeed in growing their local economy will have a direct boost to their coffers. Quite simply, the rationale behind the change is that we want to give individual councils, including those in Cornwall, every opportunity to promote growth. We want them to use their influence in planning, their investment in skills and infrastructure, and their relationship with local businesses to create the right conditions for local economic growth. This year’s local government finance settlement from April 2013 will be the first under the new arrangements.

The new scheme incorporates strong protections as well as incentives. There will be a safety net for places that, in any year, see their income from business rates fall by more than 7.5% below their baseline funding level. Following consultation, we have strengthened the incentive by ensuring that the maximum levy will be capped at 50p in the pound. That will mean that at least 25p in every pound of growth will be retained locally, and shared between billing authorities and any major precepting authorities. Recent economic analysis, carried out by DCLG, suggests that the proposals could deliver a £10 billion boost to gross domestic product by 2020. Obviously, that figure covers the whole UK, but the change will, I am sure, mean real benefit in Cornwall.

Having set out how the system works and the improvements that we are making, I shall quickly discuss the measures announced in this year’s autumn statement. Then I shall deal specifically with Cornwall. The autumn statement from my right hon. Friend the Chancellor of the Exchequer contained measures to do three things: first, to protect the economy; secondly, to promote growth; and thirdly, to ensure fairness. As part of that statement, we have had to ask all areas of Government, including local authorities, to go further. For most areas of Government, that means an additional top-slice of 1% in 2013-14 and 2% in 2014-15. However, recognising that local authorities are already receiving a funding reduction from holding down council tax in 2013-14, and to support them in transforming services to meet future reductions, we took the decision to exempt local government from the top-slice in 2013-14.

However, looking towards long-term economic stability, we needed to be wary. Local government spending accounts for about one quarter of all public expenditure, so we have asked local government to join other Departments in absorbing the 2% cut to departmental expenditure limit grants in 2014-15—that is £447 million—and prepare for further reductions. The savings made thus far on administration, property costs and IT services across Whitehall have proven that significant savings can be found, and those savings will have a significant impact for the whole UK, because it was through them that we were able to announce a number of measures that will have positive impacts across the UK, including in Cornwall.

[Dan Rogerson]

I am grateful to the Minister for setting out the approach that the Treasury is taking in negotiation with other Departments. He is right to point out that local government is doing all that it can to achieve the targets, which are quite challenging. He refers to the potential reduction in future years of 2%. In line with the concept of fairness, which is at the heart of what the coalition is trying to do across income levels, is the geographical issue also being considered, so that those local authorities that have been more disadvantaged, as he acknowledged earlier, might feel slightly less of that pain than those that have been over-funded historically?

[Mr Gauke]

Again, I am inclined to refer my hon. Friend to the DCLG announcement to be made very shortly on the local government formula, and the consultation that will follow. I have no doubt that he will look closely at that. I do not think that he will have too long to wait before he has the opportunity to do so.

It is worth pointing out that the difficult decisions that we have made enable us to take a number of steps that will benefit the country as a whole, including Cornwall and the rest of the south-west. For example, the further increase in the personal allowance will benefit 2.1 million people in the south-west, lifting an additional 20,000 people out of income tax entirely; and 1.2 million pensioners will benefit from an additional £2.70 a week increase in the state pension. The significant temporary increase in the annual investment allowance from £25,000 to £250,000 will help businesses across the south-west.

We announced £300 million of additional investment in empty homes and affordable homes across England. I know that housing is an important issue in Cornwall, and my hon. Friend has raised it. That announcement is in addition to more than £150 million of planned investment to build more than 9,000 new affordable homes in the south-west and return about 500 empty homes to use across the south and south-west.

We will invest further in flood defences—another point raised by my hon. Friend—and, significantly for households and businesses in Cornwall, we are cancelling the fuel duty rise planned for January 2013. That will help the owners of the 3.5 million motor vehicles in the south-west, saving a typical driver £40 a year and a haulier £1,200 a year. However, as my hon. Friend mentioned, that is not the only good news for motorists in and around his constituency. The autumn statement announced a number of key infrastructure projects, one of which involves the £30 million that we will contribute towards a 2.6 mile dualling of the single carriageway section of the A30 between Temple and Higher Carblake, which will include changes to junctions.

[Dan Rogerson]

I am grateful to the Minister for giving way again. He is being extremely generous, as was the Treasury with the project that he describes, although I have to acknowledge that half the costs will be funded locally, through local authorities. That is an excellent example of what he was talking about earlier: £30 million is coming from central Government and £30 million from local government. He also raised the issue of fuel duty. Again, I welcome the Government’s decision on that. I understand that they are also having discussions with the European Union in relation to what it has done for islands, such as the Isles of Scilly in the constituency of my hon. Friend the Member for St Ives (Andrew George), and whether rural parts of mainland Britain could also benefit from a further reduction—

[Dan Rogerson]

A 5p reduction. That would have a huge impact, particularly on small businesses in my constituency. I urge the Minister to redouble his efforts to secure that.

[Mr Gauke]

My hon. Friend is right to say that we are having further discussions with the European Commission about that. Obviously, we will update the House as soon as we are able to do so. However, I do not want to leave the A30 just yet—not a comment that people often make. The scheme to which I referred, and for which I know my hon. Friend has campaigned long and hard, will relieve congestion and improve journey times. It will also attract business growth and inward investment to Cornwall by improving links to the rest of England. The Government welcome the commitment from Cornwall council, to which my hon. Friend alluded, to deliver and part-fund the scheme on behalf of the Secretary of State. Its drive in taking the scheme forward demonstrates how much of a priority it is to the council and to Cornwall generally. Work on the scheme is set to start in 2014-15, subject to the completion of planning processes and funding agreements, and the road is due to be open to traffic in 2016. I am sure that it will bring real benefits to the area.

My hon. Friend may feel that my contribution took a long time to reach Cornwall, and I am sure that is a feeling that many motorists will at times sympathise with. However, it is important for us to look at the national context of spending and the impacts that decisions made at that level will have in each region. I hope that my comments have been useful in laying out the Government’s position.

Hot Takeaway Food (VAT)

Debate between David Gauke and Dan Rogerson

Wednesday 23rd May 2012 Westminster Hall

[Mr Gauke]

On that point, our proposal is that if food is sold at above ambient temperature, it is standard-rated, which is the same as takeaway food from Indian restaurants.

We have heard a number of arguments about why businesses will find it difficult to apply the test on ambient temperature. The test to determine whether takeaway food is hot is not new; it has been in place since 1984. However, I accept that, in many cases, suppliers do not need to ask themselves that question because they accept that their takeaway food is meant to be eaten hot and thus they pay tax even if, on a handful of occasions, the food may not actually be hot. They may make use of one of the other arguments about the purpose of the heating, and thus do not pay tax, even if the food is hot. However, the test is reasonably straightforward and will be policed in a pragmatic way.

Some hot food will have been kept hot or provided straight from the oven and will obviously be standard-rated under our proposals. In most other cases, people know when something is hotter than the air around it. A leading high street bakery chain, which has campaigned against these changes, said on its own website that customers who want a hot sausage roll should test whether the sausage roll is hot enough by feeling the temperature through the bag.

It is important to inject some common sense into this potentially trivial debate about food that at one moment is hot and at another is at ambient air temperature. We are not expecting staff to take detailed temperature readings every time they sell a pasty. HMRC will take a pragmatic approach and provide businesses with guidance, taking into account businesses’ responses on how to implement the change.

[Dan Rogerson]

I am grateful to the Minister for giving way as he sets out the Government’s thinking behind this matter. I hope there is room, following the consultation, for that thinking to develop. On the specific point of temperature, we have heard that many pasties are sold outside or through hatches and so on. Will the Minister tell us what would happen if the outside temperature is freezing or below freezing? That is the sort of issue that our constituents are raising with us.

[Mr Gauke]

I can assure my hon. Friend that we shall not start taxing food as hot if the outside temperature is 40°C and the item is warm only because of the air around it, or hot because the temperature is freezing. Existing simplification schemes are already available that allow businesses to calculate their VAT liability by reference to a fixed percentage of their turnover, without requiring staff to consider the temperature of every product sold. Pragmatic approaches to apportionment are, and have always been, a common feature in VAT.

Let me turn now to the proposal by my hon. Friend the Member for St Austell and Newquay. I am aware of the strength of opinion on this question, and I hear the proposal that he has made. The consultation was genuine. As it is also complicated, it would be premature of me to make a knee-jerk response to it within a few days of it closing. However, we are considering his and other constructive suggestions closely, and we are aware of the difficulties in operating a test based on ambient temperatures. As I said earlier, such a test has been in place since 1984, and it is no more than a legal definition of “hot food”. At present, it is rarely applied because businesses that accept that their food is heated in order to be eaten hot accept that it is taxable hot food, and those that argue that their food is heated for other reasons can escape VAT, even if the food is hot.

There are problems with my hon. Friend’s proposal, which potentially risks bringing hot pizza into the zero rate—I suspect that is an unintended consequence. However, it is one of many suggestions that we are considering, and we hope to be able to respond in the near future.

It has been suggested that this change could lead to business closures in the baking industry, and would disproportionately affect businesses in Cornwall, and that it should be delayed until there is stronger growth. However, it does ensure that businesses of all sizes and in all locations receive the same tax treatment for similar products and that that preferential tax treatment does not go to those with the most ingenious arguments, or the best lawyers, to support zero rating.

I accept that all taxes have an effect on growth and jobs, but VAT as a whole is less damaging than many other taxes. I hope that my comments today have provided more information on why the Government have made this proposal. The changes are designed to introduce new sensible objective tests that are less open to abuse and provide a level playing field for all businesses supplying their customers with hot food. I also hope that I have explained that we have undertaken a genuine consultation and will respond as soon as possible, and that we are listening closely to all the arguments.

Finance (No. 4) Bill

Debate between David Gauke and Dan Rogerson

Wednesday 18th April 2012 Commons Chamber

[Dan Rogerson (North Cornwall) (LD)]

Will the Minister give way?

[Mr Gauke]

No. As I said, I am not going to give way very often.

Those arguments have not always been successful, but they have resulted in some businesses being able to secure VAT-free treatment for a range of hot products, such as hot rotisserie chickens, meat pies, pasties and panini. Other businesses, however, have continued to apply VAT to the similar hot-food products that they sell. They have accepted or the courts have ruled that their intention is to heat their food products so that their customers can eat them hot. Under the current rules, a small independent fish and chip shop will have to charge VAT on its hot chicken, but a major supermarket will argue that its rotisserie chickens are zero-rated. One baker who keeps his sausage rolls in a hot cabinet to provide his customers with a hot snack will charge tax, but the baker next door who keeps them hot and argues that the purpose is to maintain an appealing aroma will claim that they are zero-rated. The current rules mean that many customers simply do not know whether they are being charged VAT on their hot food because the treatment depends on the particular supplier’s purpose in heating the food. The new rules will ensure a level playing field, and we are removing the subjective element.

[Dan Rogerson]

Will the Minister give way?

[Mr Gauke]

Let me make a point about the arguments surrounding ambient temperature. This test has been in place since 1984. We do not expect staff to take detailed temperature readings every time they sell a pasty. HMRC will take a pragmatic approach, and provide businesses with guidance, taking into account the responses of businesses on how to implement the change. I have to point out that existing simplification schemes are already available to allow businesses to calculate their VAT liability by reference to a fixed percentage of their turnover without requiring staff to consider the temperature of every product sold. This is a pragmatic approach, already in existence.