Diana Johnson
Main Page: Diana Johnson (Labour - Kingston upon Hull North and Cottingham)Department Debates - View all Diana Johnson's debates with the HM Treasury
(12 years, 7 months ago)
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Rachel Reeves
In the US there is much more generous tax relief for legacies, for example, so it is a very different tax system. In many ways it is more generous than the system in this country. What I would like to see is policy being made in the proper way, which is by consulting the people who will be affected by it—consulting the charities, which stand to lose tens and perhaps hundreds of millions of pounds and which do such good work. Like the Red Cross, they say that their ability to do their work will be hampered by the changes in tax relief. That consultation should have happened before, rather than after, the Government’s policies were announced and the financial changes to Treasury revenues were introduced.
Calling people who give to charities tax dodgers, as this Government imply, and referring to charities as dodgy, when those charities include Macmillan, Red Cross, UNICEF and Oxfam, is unhelpful. If the Government truly want to increase giving, the language should be tempered and people who try to do the right thing and support worthwhile causes should be encouraged, not insulted, for what they do.
Because the Government have been so keen to gloss over the real revenue-raising measures in the Bill, it is right that we take time this week to examine and evaluate them. This week Labour will give Members an opportunity to debate and vote on specific aspects of the Budget. We will give Members an opportunity to explore the effects of extending VAT, as has been mentioned by hon. Members this afternoon, and putting VAT up to 20% on the price of haircuts, hot snacks, and caravan holidays, although not on the price of ski lifts. VAT has been increased on the regular purchases of millions of ordinary families and is a heavy blow to many small businesses, manufacturers, retail employers and churches caught out by these changes.
Diana Johnson (Kingston upon Hull North) (Lab)
My hon. Friend mentioned the lack of consultation with business. Businesses want to plan and are trying to grow, but the sudden imposition of VAT on the caravan manufacturing industry is causing real problems and potentially the loss of thousands of jobs.
Rachel Reeves
My hon. Friend speaks from her knowledge of her constituency in Hull and of the East Riding of Yorkshire, which will be particularly affected by changes to the caravan tax.
I was in Leicester on Thursday last week with my hon. Friend the Member for Leicester South (Jonathan Ashworth), speaking to small businesses which will be affected by the changes to VAT on hot snacks. Many businesses are worried, about both the additional tax they will have to pay and the additional bureaucracy of form-filling. As hon. Members said, it is not at all clear at which point VAT will stop being charged. What temperature does the food have to be, or by how much must it have cooled down before the tax rate goes to 0% from 20%?
We will also have a chance this week to debate and vote on important tax simplification measures. Given the generous decision of the Chancellor to simplify the tax arrangements of 4.4 million pensioners, I am surprised that they are not more grateful. That tax simplification will cost pensioners £83 a year on average and will cost hundreds of thousands of people who are coming up for retirement next year up to £322 a year.
The Chief Secretary referred to the Office of Tax Simplification. Its tax director has registered his concern about the changes to the tax allowance for pensioners and has said that the Government’s claim that they were only following its recommendations
“was not 100 per cent accurate”.
Meanwhile, Age UK was moved to write to the Chancellor about the change to tax allowances for pensioners. It stated:
“Age UK supports the OTS review of pensioner taxation and was very pleased to have been invited to be represented on the consultative committee. However given the OTS was set up with the aim of providing”
the Chancellor
“with independent expert advice on simplification we are very surprised and disappointed that”
he has
“announced a change to simplify the system without waiting for that advice.”
Contrary to coalition spin, this tax simplification will hit not those with big pension pots, but people with personal or occupational pensions that pay around £5,000 a year. It will hit people who worked in ordinary jobs for modest salaries, and who made sacrifices during their working lives to put away just enough to give themselves a small pension, which means that they do not need to depend on means-tested benefits in retirement. It is simply not true that they have been insulated from the effects of the current economic climate and other changes to taxation. Pensioners have been hit hard by VAT, quantitative easing, cuts to services that they rely on—not least the national health service—and massive increases in the heating and electricity bills for their homes. Older people deserve better than this mean-minded, penny-pinching measure. If Government Members agree, they will have a chance to vote down the granny tax later this week.
It tells people all they need to know about this Government’s priorities and the balance of power in the coalition that when the Deputy Prime Minister said that he would agree to cut the 50p rate if it was paid for by a mansion tax and the Opposition said that we would support a mansion tax if it was used to relieve the pressure on ordinary hard-working families, the Chancellor forgot the mansion tax, cut the 50p rate anyway and paid for it with a raid on pensioners’ incomes and a raid on charities.
Finally, we will offer the Chancellor a last chance to make good the great omission of the Bill—its failure to offer a shred of hope to the 1 million young people who are desperate to find work and its failure to do anything about the fact that long-term youth unemployment has more than doubled in the past year. Our amendment will open the way for the funding of a guaranteed job for every young person who is out of work for more than a year—a job that they would have to take up. That is the kind of measure that our country is crying out for. It would change the lives of thousands of young people and transform the prospects for our economy. It could easily be funded by raising new resources from the banking sector, which still squanders billions on bonuses while doing little to support British businesses and families. We will therefore offer Members a chance to vote for the reinstatement of the tax on bank bonuses to fund the creation of 100,000 new jobs for young people and the construction of 25,000 new affordable homes.
Mr Howarth
The hon. Lady makes an effective point. I am tempted to enter into a debate about what has happened to the pub industry over the last decade, but I doubt whether that would be in order. I will say, however, that people’s habits have changed, including in respect of the places they go to for entertainment. That is particularly the case for young people. Many of them no longer go to pubs for entertainment. Some of the new places they go to serve alcohol, but others do not. More is going on here than the hon. Lady suggests, therefore. She is right, however, that some young people buy alcohol from supermarkets and drink it at home, so that they are already half-filled up, as it were, when they later go out to a nightclub. One of the reasons they do so is that the drink prices in nightclubs are so expensive. I hasten to add, however, that I am not an expert on young people’s drinking habits.
Mr Howarth
I fear that I am at risk of straying into a separate debate, but I shall give way.
Diana Johnson
Minimum alcohol pricing alone is not a magic bullet. A range of other policies must be pursued, too, including making personal, social, health and economic education mandatory in schools so that young people learn about what happens to them if they drink too much.
Mr Howarth
I am sure my hon. Friend is right, and, as I have said, I have an open mind on the subject.
I fear, however, that if the alcohol products that young people take home to drink before going to a nightclub—or wherever—are no longer available to buy in supermarkets or other licensed retail establishments, there will be an increase in the sale of illegal products on the streets, and that is also a fear that I have in respect of minimum unit pricing. We have already seen this happening to some extent in respect of tobacco products. Also, such products that are illegally imported and then sold on the streets are not subject to quality controls.
If we do not get the education messages mentioned by my hon. Friend the Member for Kingston upon Hull North (Diana Johnson) right, young people will drink anyway, but they will not be able to afford the products on offer in supermarkets and other licensed retail establishments. Instead, they will buy products off the back of a white van outside the park on a Friday night. That is a big fear of mine, and I have yet to hear a satisfactory response to it.
I fear that the overall impact of this Bill will be far worse on the people of Knowsley than on the people of the Cities of London and Westminster. I hope the Government give more thought to the effect these measures will have on poorer pensioners, people on low incomes and those struggling to bring up children on a relatively low income. They are important members of our society. If we do not offer them the right level of support, I fear for the future.
Diana Johnson (Kingston upon Hull North) (Lab)
It is a pleasure to follow the hon. Member for Gainsborough (Mr Leigh), who made a valiant effort to persuade the House that the proposal for a flat tax was something on which the left and the right could agree. It will be interesting to see how Ministers respond to the challenges with which he presented them.
I intend to concentrate on an issue that greatly concerns my constituents and local businesses. I have already raised it in the House several times, and on the day of the Budget, when I was flicking through the accompanying documents, I saw the announcement that VAT would be levied on static caravans. I have noted what the Treasury has said about the effect, and the more I have looked into it over the past couple of weeks, the worse it has appeared to be for my constituents and local businesses. The VAT on static caravans policy is part of the muddled approach that runs through the Budget. The Government are giving mixed messages: they say they want growth, yet they introduce policies that impede growth. There are also many unintended consequences that Ministers and civil servants have not properly thought through, and that is particularly true of the VAT on static caravans policy.
The caravan tax announcement came completely out of the blue. It is currently subject to a belated consultation that will end very shortly, on 4 May. My understanding is that it is to be implemented in October. The effects of this proposal must be properly scrutinised and debated fully. I am therefore disappointed that the consultation period is so brief.
My Front-Bench colleagues have tabled an amendment to the proposed tax, which I hope will be selected during our deliberations on the Bill. In common with many Members on both sides of the House, I oppose the Government’s proposals on this issue. The caravan tax was not leaked in the announcements before the Budget at the end of March. Like the granny tax, it was news that was kept back, but which has subsequently caused a lot of problems for the Government.
The confusion over the caravan tax is similar to that over the pasty tax. It is also similar to the confusion over the charity tax measures. Before the election, the Government talked a lot about wanting to encourage charitable giving, and there are provisions in the Finance Bill to offset charitable giving against inheritance tax. However, the proposals to limit tax relief on charitable giving that were also announced in the Budget and that are contained in the Finance Bill appear to contradict those earlier statements.
First, I want to outline some of the arguments in respect of imposing VAT on caravans. I listened with great interest to what the Chief Secretary said in his opening remarks about simplifying tax regimes and ironing out anomalies. We all support that, of course, but we must ensure that there is proper and full consultation in advance of any changes being implemented. My main concern is the effect on the ability of businesses to plan accurately for the future and decide what they need to do—what investments they need to make, and how many employees they need in their company. Investors need confidence, but a key point that comes up time and again is that companies do not currently have the required levels of confidence for the economy to grow.
Recently, the Government have made similar mistakes that have dented business confidence, such as the solar power feed-in tariff debacle. As a result of that mistake, we in Hull have already seen Carillion restructure. We will lose jobs, and Hull cannot afford to lose any jobs.
The caravan industry has spent three years working hard to recover from the problems resulting from the 2008-09 global downturn, when Hull lost more than 1,500 jobs in the industry. Now we have this hammer blow set for October, when thousands more in the caravan sector may lose their jobs. If tax changes are to be made, it would be sensible to give greater warning and to give the industry time to adapt. Instead, the Government appear to be kicking people when they are down, just as the caravan industry was getting back on its feet. Most particularly, this is happening in Yorkshire, and it will have an effect on the entire region. Ministers talk a lot about the need to rebalance the economy in respect of the public and the private sectors and the south-east and the rest of the country, yet this measure will have a disproportionately negative impact on the north and Yorkshire.
Secondly, these changes will not do much to simplify the system. Indeed, we could end up with more anomalies being created, as with the pasty tax. The taxing of sales of static caravans was considered at length and rejected when VAT was first introduced in the UK in 1973. There has not been a proper opportunity to review that decision and to investigate whether the situation has changed in the intervening years.
Thirdly, what if the changes damage businesses and cost private sector jobs, which are supposed to be powering recovery, growth and deficit reduction? Over 90% of the UK’s caravan firms are in east Yorkshire, and they still employ some 6,000 people despite the contraction in the 2008 global downturn. The industry supports a further 15,000 to 20,000 jobs through its supply chain. The Treasury forecasts that the caravan tax will cause a 30% cut in demand. According to the industry, that will result in up to 3,000 jobs being lost from caravan firms and their supply chain.
The situation could get even worse. We are currently facing almost 900 jobs going at BAE Systems in Brough, and our area already has high levels of unemployment. We have already seen jobs go at Warmsure, too, and at Comet and P&O in Hull, and many jobs are going in the public services as well.
My constituency of Kingston upon Hull North and the neighbouring constituency of Kingston upon Hull East are already in the UK top 10 for having the most jobseekers chasing each job. The number of NEETs—those not in education, employment or training—is soaring as the quality and quantity of jobs, apprenticeships and training opportunities have declined. In my constituency, unemployment now stands at about 13% for those aged between 16 and 64.
The next few years already looked like being tough for jobs in Hull, but by introducing this measure, the Government are making the situation much worse. The Government’s “rebalancing” rhetoric that we hear so much does not hold water.
Fourthly, what if the economic damage caused by the caravan tax leads to the Treasury losing revenue overall? The Treasury’s own impact assessment shows that the tax will lead to a 30% cut in demand for static caravans. Consequent job losses on the scale predicted by the industry will result in tax revenue being lost and welfare costs increasing. As the right hon. Member for Haltemprice and Howden (Mr Davis) said in this House on 26 March, the Chancellor’s own Red Book states that the total annual revenue raised from this measure will be £40 million, but the cost in unemployment from losing 30% of business, as forecast by the Treasury, will be up to £45 million. The caravan tax would therefore actually lose revenue overall. That is a crazy policy. That point was brushed aside by the Chief Secretary to the Treasury in his winding-up speech on the Budget.
The justification for cutting the 50p rate of tax was that it does not raise much money, but according to the Treasury’s own figures the caravan tax will lose revenue overall. The Government also cut corporation tax on the basis that that is good for jobs and growth. By the same logic, how can the caravan tax be good for jobs and growth in my constituency and the wider region?
I realise that the Chancellor is as likely to have had a caravan holiday recently as he is to have eaten a pasty or played bingo, but there is no excuse for introducing a damaging tax that will cost thousands of private sector jobs in the caravan industry and its suppliers, especially as the private sector is precisely where Ministers claim our growth will come from. This measure will lose the Treasury revenue, harm the aspirations of many people saving up for a holiday home, and damage the wider UK holiday industry.
Fifthly, is the caravan tax fair? Given that the Budget did not put VAT on the second homes of the wealthy and did not contain a mansion tax, how is it fair to tax the second homes of those who are not so wealthy and often save for many years to be able to buy a static caravan to use on their weekends and holidays? The Chancellor’s rhetoric is that he is trying to build a tiger economy, but it seems more like just a fat cat economy.
Along with my hon. Friend the Member for Blackpool South (Mr Marsden), I visited Willerby Holiday Homes Ltd in east Hull on 26 March to hear its serious concerns about this measure. I have also received a letter, dated today, expressing concerns about what will happen to its 820 workers, 100 of whom are young workers under the age of 25. On 5 April, along with the hon. Member for Beverley and Holderness (Mr Stuart), the right hon. Member for Haltemprice and Howden, the hon. Member for Brigg and Goole (Andrew Percy) and my hon. Friend the Member for Kingston upon Hull East (Karl Turner), I met representatives of caravan firms in the Hull and East Riding area, and the information we received about the damage that this tax could do was devastating. Some 44 employees of Normandy Holiday Homes in my constituency have written to me saying:
“We are concerned that the proposed VAT increase on caravan holiday homes that was announced in the Budget last month will have a detrimental effect on the business. We have already had a number of short time working weeks in this tax year and we are concerned that if the level of orders falls, the company may be forced to make people redundant or cease trading.”
In addition, I have received letters from people involved in the supply chain to the caravan industry, one of which came from six workers at 3Core group, which supplies Normandy Holiday Homes. The letter said that the caravan tax would have a “detrimental” impact on them, too. In addition to letters from caravan firms and their direct suppliers, I, like other right hon. and hon. Members, have received an e-mail from May Reader of Heathland Beach holiday park in Norfolk. She says:
“We, as a family, have been running our Holiday Park for 40 years and I personally am Chairman of our local Conservative Association and I am very distressed that it is a Conservative Government that is about to ruin a lifetime’s work.”
That shows the negative impact that the caravan tax would have on the UK holiday and tourism industry, at a time when, as many hon. Members have said, there is a push to get people to holiday in this country and there is a vogue for staycations.
To be fair, some Conservative Members are joining Labour Members in opposing this particular tax; I know that the right hon. Member for Haltemprice and Howden and the hon. Member for Beverley and Holderness are planning to meet the Chancellor on Wednesday. It is being reported on the wires that the Prime Minister is willing to think again on the charity relief tax plan, so I hope that he is also willing to think again about the caravan tax. I am also interested to learn what the response will be from the Liberal Democrat Business Secretary, to whom the National Caravan Council wrote about this issue on 12 April. So far we have seen the Liberal Democrats, yet again, defending the Treasury view to the hilt.
In conclusion, my constituents just want the chance to work, to trade, to earn a living and to spend money locally in east Yorkshire. That is all those workers and business people want. They are not asking for a state subsidy. They are just asking for their industry to be allowed to carry on trading without being seriously harmed by this new tax. That is in the regional interest and in the national interest, and I hope that the Minister will think again. As I said at the start of my speech, Labour has tabled amendments on this issue and I hope that we will have a chance to stop the caravan tax on Wednesday through the amendment to the Finance Bill tabled by my hon. Friend the Member for Pontypridd (Owen Smith), the shadow Exchequer Secretary. If the Chancellor does not change his mind, I ask hon. Members to back this amendment. Let us kill this caravan tax before it kills thousands more jobs in Hull and the East Riding of Yorkshire.