Finance (No. 2) Bill

Debate between David Wright and Shabana Mahmood

Wednesday 25th March 2015 Commons Chamber

[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.

--- 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?

[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.

Finance Bill

Debate between David Wright and Shabana Mahmood

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

My hon. Friend makes an excellent point. We do indeed have a regular debate about the facts and figures—I will come to the detailed data on the yield from the 50p rate later—but if the Government accepted our new clause, much of that debate could be put to bed, especially as Her Majesty’s Revenue and Customs now has much more data with which to produce an analysis that is less flawed than the one in 2012.

[David Wright (Telford) (Lab)]

Our hon. Friend the Member for Edinburgh South (Ian Murray) makes a good point. When the Government abolished the 50p rate, they made great play of studies they said they had done on the revenue raised. Would it not be perfectly acceptable for them to accept the amendment, so that we could see exactly the impact of their unfair tax changes, because they are clearly showing their colours in terms of supporting the wealthiest in our country?

[Shabana Mahmood]

I am grateful to my hon. Friend for that powerful point. As I said, I will explore the details in relation to data and the argument over the yield from the 50p rate, but he is right: we cannot continue to rely on a report produced when the rate had been in place for only one year. The Government should accept the new clause and produce a much more comprehensive analysis.

It was the Labour Government who introduced the 50p rate, which came into effect in 2010-11, a decision made after the financial crisis, as we sought to get the deficit down. When this Government came to power they did not say anything in the coalition agreement about abolishing the 50p rate, but in 2011 the Chancellor said that he would ask HMRC to look at the yields from the 50p rate, which was the warning signal that he was looking to cut it. In 2012, with HMRC’s report “The Exchequer effect of the 50 per cent additional rate of income tax” to back him up, the Chancellor cut the rate to 45p.

Why go through the process of looking at yield and getting HMRC to produce a report? Everyone knew that there were not enough data to come to an accurate view about yield because the rate had not been in place for long enough—a point about which I shall say more later. Well, the Chancellor knew that he needed cover for that deeply ideological decision so he was desperate to claim that a 50p rate raised very little money. If he could stand before the House and say that it raised hardly any money at all, never mind the uncertainty and the incompleteness of the data, he calculated that he could justify giving a tax cut to the richest in our country, knowing that on his watch ordinary people—those on middle and lower incomes—would pay the price for his economic plan, which has failed on the terms that he set for himself when he came to power in 2010.