Finance (No. 2) Bill

David Wright Excerpts

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

I notice that the hon. Lady does not answer questions. I am glad we finally got some clarification on that point, but as I say, I do not think the right hon. Member for Doncaster North (Edward Miliband) will ever have the opportunity to answer Prime Minister’s questions.

[David Wright (Telford) (Lab)]

Does the hon. Gentleman agree that VAT is a regressive tax in principle? Can he tell us why the Government chose to use an increase in VAT as a tool for bringing down the deficit?

[Mr Gauke]

I will turn to that question in a moment, but before I do so, I shall say a little about this Government’s record.

High public debt can lead to a loss of market confidence and higher market interest rates, raising the cost of borrowing for families and businesses and discouraging investment and consumer spending. So what has our long-term economic plan delivered? Today public sector net borrowing as a percentage of GDP is forecast to have halved between 2009-10 and 2014-15. Latest data from the IMF show that this Government also reduced the structural deficit by more than half between 2010 and 2013. In fact, the UK’s structural deficit fell by 4.6% of GDP over 2010 to 2013—a larger reduction than any other country in the G7.

Since the autumn statement last year, the UK’s fiscal position has improved right across the forecast period, with higher receipts and lower debt interest. This Government have restored stability, put the public finances on a sustainable path and are about to put public sector net debt on to a declining path as a share of GDP.

--- Later in debate ---

[Shabana Mahmood]

Thank you, Mr Hood. I am grateful for the hon. Gentleman’s intervention, during which he did not rule out a rise in VAT under the Liberal Democrats. Perhaps we will have to wait for others to comment on that.

[David Wright]

Will my hon. Friend give us a bit more detail about new clause 1? I would like the study to look at the impact of VAT on the poorest people in our community, who are hit disproportionately by increases in VAT. The Conservative party has form on VAT, so the poorest people will be very concerned that it will rise again after the election.

[Shabana Mahmood]

My hon. Friend is absolutely right. That is exactly what people across the country will be concerned about. The Conservative party has form, about which I will go into in detail during my speech. History proves that what the Prime Minister said at Question Time today should not be believed, because it has all been said before and VAT has always gone up.

--- Later in debate ---

[Shabana Mahmood]

My hon. Friend is absolutely right. That is the only conclusion we can draw from what the Minister and the Prime Minister have been saying today. If the Minister really wanted to back up the Prime Minister’s claims, and to give us a hint that he might be believed, he should have just accepted our new clause. It is straightforward, and adding it to the Bill would shine some light on the impact of VAT. We are very clear that we will not raise VAT. It may be that the Government do not want the facts out in the public domain because they plan to do so.

[David Wright]

Will my hon. Friend give way?

[Shabana Mahmood]

I am going to finish now, because I want to give time to everybody else who wishes to speak in the debate.

We all know what is coming if the Conservatives are elected at the next general election: VAT will go up. That is what their record tells us and that is what their plans require. If the Minister wants to be even a little bit believable—even 1% believable—he should at the very least accept new clause 1 and set the cat among the pigeons, but I do not think he will take that opportunity today.

[Fiona O’Donnell]

It is pleasure to speak in this debate—I hope it will have been worth the wait—and to serve under your chairmanship, Mr Hood. I hope that we both have the opportunity to repeat the experience after 7 May.

I rise to support this excellent improvement to the Bill proposed by my hon. Friends on the Front Bench, because I would like to better understand the impact of the VAT increase in my constituency. The Tory long-term economic plan is a marketing con and a rebranding of a five-year failed economic plan—five years of broken promises on borrowing, the deficit and VAT. I do not know if Government Members have been watching a new programme—on ITV down here, but on STV in my constituency—in which hypnosis is used to shift people’s perception of reality. I am not sure if that is what they are doing, although there does not seem to be anyone asleep in the Chamber. We all seem to be wide awake—certainly Labour Members are wide awake to the impact of the Government’s failure to deliver on their economic promises. Simply saying, “We’ll now call it a long-term economic plan, because it has not quite worked out in the short term”, is not going to fool anyone.

On the increase in VAT, I remember meeting my local chamber of commerce. In East Lothian, we do not have large-scale manufacturing or large employers, apart from in the public sector, so the private sector is largely made up of small and medium-sized enterprises. When I asked them how they were coping with the changes in the economy they said that the single-biggest factor for them was the VAT increase. It had done the most damage to their businesses. Other Members have spoken about its impact on the poorest in our communities, but in East Lothian it has also had an adverse impact on entrepreneurs and businesses—the people who should be creating the jobs that could eradicate unemployment in my constituency.

[David Wright]

As my hon. Friend will have noted, the new clause states that the Chancellor should produce a report within three months of the passing of the Act. I suspect that the Treasury already have these figures and could probably move more quickly. If her point about businesses is right and businesses are complaining to Members, they must also be feeding this information back to the Treasury, so I suspect that it already has these figures and could publish the report any time it wanted.

[Fiona O’Donnell]

My hon. Friend has been doing this job much longer than me, so I suppose he has earned the right to be more cynical. I am still flush with the newness of this change of role in my life, and I would like to think that that was not the Government’s intention, but I shall bow to his longer service in this place and more expert analysis.

It was interesting to hear the Financial Secretary speak about the role that VAT had played in the Government’s short-term failed economic plan over the last five years. He talked about the mess the previous Labour Government had left, but the economy was growing when we left office, and, as other hon. Members have said, part of the reason it reversed was the increase in VAT, which stifled confidence and the spending power of many in our communities. I would also like to hear from a Government Member whether a great deal of the deficit resulted from the decision by the then Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to bail out the banks. Would Government Members have bailed out the banks, or do they think we should have left them to fail? Is anyone going to jump up? Anyone? No, they are all hypnotised, it would appear, and unable to respond. Bailing out the banks was the responsible thing to do. It might have seemed unfair, but it was important to people in my constituency that when they went to the ATMs the next day they could still draw out their wages.

The Financial Secretary talked about the Government’s sustained economic growth agenda. I do not remember sustained economic growth following the increase in VAT. I seem to remember the worst recession that this country has ever had, following that intervention by the Government. That has hurt people in my communities and, I am sure, in communities right across the country.

--- Later in debate ---

[Ian Lucas]

It is a pleasure to speak under your chairmanship, Mr Hood. I want to say first how much my hon. Friend the Member for Edmonton (Mr Love), who is no longer in his place, has been valued in our economic debates. His contribution will be missed, and we all wish him well for the future.

The new clause is eminently reasonable, and it should not be a matter of dispute between the parties in the House that such a report would make a valuable contribution to any decision the Government take on VAT. We have had an interesting day on VAT because it was raised in Prime Minister’s questions. As hon. Members know—certainly the Minister will know—VAT is a subject in which I have an interest. Throughout this Parliament, I have pressed not just the Government Front-Bench team but the Labour Front-Bench team on the issue of VAT.

The Prime Minister is an honourable man. He has made a commitment from the Dispatch Box today that is different from the position outlined by the Chancellor of the Exchequer to the Treasury Select Committee only yesterday. I am interested to see the Treasury Minister nodding to confirm that there has, in fact, been a change in Government policy since yesterday. When I woke up this morning, I heard on the “Today” programme my hon. Friend the Member for Bassetlaw (John Mann) questioning the Chancellor on the issue of VAT. I heard the Chancellor set out the same mantra that there were no plans to extend VAT or increase its rate. My understanding of what the Prime Minister said today is that he has given a cast-iron guarantee—to use a phrase that the Prime Minister has used before—not to extend or increase the rate of VAT.

So the position has changed today, and it is a change that I welcome. For that reason, I think that the information requested under the new clause would be valuable. It is always better for us all to have more information about the impact of tax changes. We know, of course, that this Government introduced this tax change in June 2010 when they said that they would eliminate the deficit by 2015. The plan—the “long-term economic plan” then—was to eliminate it by 2015, and part of the plan was to increase the rate of VAT. It would be valuable to know what happened as a result of the raising of VAT in January 2011. In my constituency, people are under real financial pressure, and VAT affects all of us.

[David Wright]

When the Chancellor decided to increase VAT, he must have asked Treasury officials to produce projections on its likely impact on the economy at that point. It would be interesting, would it not, to compare the projections given to him by Treasury officials with an official report, which this new clause suggests should be commissioned, to see whether the two tally up?

[Ian Lucas]

Indeed. My hon. Friend has made a very valid point. I think that we should all be interested to know what was the impact of the last Tory-Liberal Democrat increase in VAT, which was introduced in January 2011, because it should inform future policy. It seems extraordinary to me that that should be resisted.

According to the Office for National Statistics, the median salary in my constituency, Wrexham, has fallen by 7.4% in the last year. The town centre is, unfortunately, populated—like many other town centres throughout the country—by too many empty shops, and part of the reason for the emptying of those shops over the past few years has been a decrease in consumer activity. What VAT does—and this is why I am passionate about VAT—is take money out of the pockets of consumers on the high street and send it straight to the Treasury. It has a massive impact on local businesses. Those of us who run local businesses and employ people want to ensure that we have the best and fairest type of tax system to develop local economies.

That is why I want to know the impact of the 2011 VAT increase. I think that the Minister is a reasonable man. I cannot for the life of me understand why he does not want to have that information, or, if he has that information, why he does not want to share it with the House.

We have made a lot of progress today. The Prime Minister has been dragged, kicking and screaming, to a point at which he has ruled out a VAT increase by the Conservatives in the next Parliament—if he is ever in a position to make such a decision. That is major progress. It is certainly a change, not just from the Prime Minister’s position earlier in the current Parliament, but from the position that the Chancellor outlined in his Budget statement last Wednesday, when he set out the spending and taxation plans that he expected to be implemented. Why did he not tell us that the Tories were going to rule out a VAT increase in the next Parliament? That is what amazes me. What has happened between last week and this week? What happened yesterday?

What has happened, in my view, is that because the Labour party, in opposition, made a commitment not to increase VAT in the next Parliament, Lynton has been on the blower. He has said. “We are under pressure, Dave. We are under pressure, Prime Minister. We have to match the commitment that the Labour party has made. You have to rule out a VAT increase in the next Parliament.” So that is why the Prime Minister made his statement at the Dispatch Box today—a statement that I welcomed.

History will judge whether that promise will be kept. We heard from my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) about the history of Conservative commitments on VAT: about what happens before elections, and about what happens after them. When I speak to my constituents over the next six weeks, I shall remind them of that record. I shall remind them of what the Conservative party and the Liberal Democrats said before 2010 and what they did afterwards, and I shall remind them of what this Chancellor tried to do in 2012 with the pasty tax and the caravan tax.

The tax of choice for the Conservative party is VAT. History tells us that. If the Conservatives want to increase taxes, they increase VAT. The country will have to judge whether the commitment that the Prime Minister has given today is one that will stand the test of time.

--- Later in debate ---

[Shabana Mahmood]

My hon. Friend is absolutely right. I was coming on to exactly that point. This is a question about living standards: what is happening to the poorest in our society and where the burden should ultimately rest for sorting out the nation’s finances after the global financial crisis.

At the Budget last week, the Chancellor would have had us believe that people are on average £900 better off as well as more secure as the result of his policies. I have to hand it to him—he has been highly innovative in using a new measure of living standards to try to back up his claim, but it includes income to universities and charities. I do not blame him for trying, but he knows the truth, as do Members and the public, which is that people say time and again that they are worse off. A poll of 5,000 consumers’ responses to the Budget showed that three quarters of people have seen no improvement in their living standards. A Populus poll before Christmas found that only one in seven adults said they were feeling the benefit of recent economic growth.

As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has said, wages after inflation are down by £1,600, and the combined impact of tax and benefit changes has left families on average £1,127 a year worse off. That was the context in which it was decided to reduce the additional rate of tax to 45p, giving millionaires a tax cut worth an average of £100,000, which is a huge sum of money by any standards. As I have just said, wages are down by £1,600 a year, tax and benefit changes have left people £1,127 worse off, and, as we heard in the previous debate, higher VAT has left people £1,800 worse off over four years. For people at the bottom end of the income spectrum, such sums are the difference between being able to put food on the table and to put clothes on their children’s back or not, while the choices for those at the other end of the income spectrum, who are benefiting from a tax cut to the tune of £100,000, are probably about the poshness of the car on the forecourt of their home, not the basic necessities of life and of survival. That is the important point for struggling families across our country.

[David Wright]

Is my hon. Friend interested, as I am, in the line developed by the Liberal Democrats that the 50p rate was in place only at the end of the previous Labour Government for a very short time?

[Ian Swales]

One day.

[David Wright]

Indeed. This is all about the choices made to bring down the deficit. We made a choice—a forward offer or plan—to use a higher top rate of income tax to bring down the deficit, and the Liberal Democrats decided to vote against that strategy.

[Shabana Mahmood]

My hon. Friend is absolutely right. The hon. Member for Redcar (Ian Swales) always takes part in Finance Bill debates, and he always makes one point in exactly the same way. I sometimes wish that he would listen to the answer he gets when he does so. The answer is that the top rate was increased as a specific response to get down the deficit after the global financial crisis. It was the fair and right thing to do then. It was unfair and wrong to decrease the rate from 50p to 45p, which he, as a member of one of the parties of government, supported. It will be right for the next Labour Government to raise it to 50p again.