Finance (No. 4) Bill

Debate between Diana Johnson and Rachel Reeves

Monday 16th April 2012 Commons Chamber

[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.