Living Standards

Fiona O'Donnell Excerpts

Wednesday 4th September 2013 Commons Chamber

[Kwasi Kwarteng (Spelthorne) (Con)]

Living standards, of course, form part of a context in which the wider economy must be considered. I notice that the shadow Chief Secretary to the Treasury is leaving the Chamber, but I wanted to address some of her remarks. She was, I felt, very ungracious in the way she took interventions from Government Members. I am pleased to see her back after her long break and I wish her all the best, but she did not do enough to observe the courtesies of the House in listening to other points of view.

The first point to remember is that the economy is recovering, despite the protestations, gloom and doom and talking down of the economy by Opposition Members. The OECD and Office for National Statistics have doubled their forecasts for 2013 growth, and the OECD is even suggesting that Britain will outstrip her competitors in economic growth. That should be welcomed on all sides of the House.

On living standards, the Labour party has engaged in a series of speeches that have shown collective amnesia, and it has been deeply hypocritical, complacent and unapologetic about the appalling record it left us in 2010. You will remember, Madam Deputy Speaker, that the Chief Secretary to the Treasury in the previous Labour Government left a note that suggested there was no money, simply because they had spent it all. They spent and spent and spent, and that is the context in which our debate about living standards in Britain must take place.

[Fiona O'Donnell (East Lothian) (Lab)]

Perhaps now the hon. Gentleman can prove that he does not suffer from short-term memory loss and tell us by how much wages have fallen in real terms since his Government came to power.

[Kwasi Kwarteng]

What I will tell the hon. Lady is that it is particularly nauseating to listen to Labour Members talk about increased living costs when under their Government fuel duty was increased 12 times. It is not right for members of the public and people listening to this debate to look on those remarks, when Labour increased fuel duty 12 times without any respite.

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[Harriett Baldwin]

I agree, so let us turn to the track record of what we have tried to do in government to tackle the very issues raised in today’s debate. We all want to see our constituents prosper and have more money each month to pay their bills. The most important bill that they have to pay each month—on pain of imprisonment if they do not pay it—is their income tax bill. In 2007, people had to start paying income tax once their income rose to just over £5,000. By the end of the next tax year, people will be able to take home £10,000 before they have to pay income tax. That is a halving of the income tax bill for the hard-working person who works full time on the minimum wage. It is also a 20% real-terms reduction in the tax bill of someone on median income. That is the action that a responsible Government can take.

[Fiona O’Donnell]

Will the hon. Lady give way?

[Harriett Baldwin]

I am sorry, but I have now taken my fair share of interventions.

One of the other large bills that people pay is the council tax. Under the previous Government—let us judge them by their deeds—council tax went up by 100%. This Government have managed to hold it broadly steady, which has meant a 9.5% real-terms reduction. Under the previous Government, fuel taxes were increased on 12 separate occasions for my constituents. Indeed, the previous Chancellor legislated for a further 13p in tax increases on fuel, which happily we have been broadly able to avert—an 11% real-terms reduction in that important bill, or a saving of £7 every time people fill up their tanks.

Mortgage rates are also at a record low. That important monthly bill would be £1,000 a year more if interest rates were to increase by 1%. That is a modest estimate of the increase if the Opposition were to borrow the additional £200 billion estimated by the Institute for Fiscal Studies. The cost of child care is extortionate, and I can speak from personal experience on that, but it went up 77% from 2004 under Labour. The Government have taken many steps to try to increase the availability of free child care for our constituents. For those on median incomes who find that it is not economic to return to work, we will make the cost deductible against tax from 2015.

We have tried to take steps on the unmanageable expected costs of social care expenses, and we have also made sure that pensioners will benefit each year from an increase in their pensions that at least matches inflation—something that will reassure them over time, compared with the 75p increase that they once received under the previous Government.

Those are the steps that we have taken to address the cost of living for our constituents. We also want to invest in skills, apprenticeships and the measures that will help people to move up the ladder of responsibility at work and take on higher-paid jobs over time. Our welfare reforms have made the incentive to work much stronger, so that the number of households with no one in work has dropped to a record low.

Growing private sector employment and record growth in the manufacturing index, which came out yesterday, are what will allow businesses to grow, to grow in confidence and to pay their employees more over time. That is how to tackle the cost of living for our constituents—not by taxing more and borrowing more as the Opposition propose. We must have a credible and responsible Government who keep their own costs down. We must never give the power to tax and spend back to the Labour party, with its damaging track record.

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[Fiona O’Donnell (East Lothian) (Lab)]

It is a pleasure to follow my hon. Friend the Member for Swansea West (Geraint Davies), and I will try to irritate Government Members less. Given his track record, it will, I think, be impossible to irritate them any more.

I am particularly pleased today to welcome back my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary. It is great to see her back. Only the hon. Member for Spelthorne (Kwasi Kwarteng) could describe maternity leave as a long enjoyable break. That takes being out of touch to a new level.

I am pleased that so many Opposition colleagues have focused on the impact of falling living standards and access to employment on women in particular. I am sure that all Members will have received from Asda today the Asda Mumdex, and I am sure that my hon. Friend, as a first-time mum herself, will be very disappointed to see that first-time mums reported to that survey that they are twice as worried about financial pressures than about their own health.

Such stories do not talk in statistics, percentages and GDP, but they show the real impact of the economic crisis on people’s lives and on what that is doing to families. People often say that a happy mother is a happy family. A happy father is pretty important in that picture, as is a same-sex partner or, as will soon be the case, a same-sex wife or same-sex husband. We need to examine the human cost of this crisis and what it is doing to a generation of children growing up.

I am sorry that we have not heard much today from Government Members about investing to reduce child poverty. What are they going to do about that? They are happy defending their own record and attacking ours, but I suspect that our constituents want to hear, in the 37th month in which their income has dropped in real terms, what the Government are going to do about it. All sorts of barriers are involved here. We all know that employment is a means to improve the well-being—the income—of a household, but that will not always be so.

The other figure in today’s Asda Mumdex that stands out is that 74% of mothers say that they do not think that it would be financially worth their while going back to work because of the cost of child care. The Government really need to address that if they are serious about helping mothers back to work. I am looking forward to going to my local Asda store in Dunbar on Friday to sit down with a panel of mothers and listen. My hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) has also recommended to the Minister that he does the same. The Government need to sit down with mothers, as do we all, to hear the stories of how this economic situation is having an impact on their lives.

I was pleased that at today’s Prime Minister’s questions my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) raised the issue of school uniforms, which has arisen again. It resonates with many of us because of our memories of knowing that pressure. Last year, I was horrified to hear the story of people from the high-street payday lender, The Cash Store, standing outside a primary school in my constituency giving balloons to children. Fliers had been put up around the area beside the school saying, “Need a school uniform. Come to us.” That is shocking. This week, we have heard about Wonga’s profits for the quarter. We talk about “legal loan sharks”, and that is the right term for them, because they are predators. They sniff poverty in the way that a shark sniffs out blood, and then they home in and profit from that poverty.

I am not saying that I want to make this debate completely about payday lending and regulation—of course there is a need for people who have no assets to have access to credit—but the Government must try to get a grip on this area. The debt charity StepChange has seen a dramatic increase in the number of my constituents seeking help with debt because of problems with payday lenders—the figure went up from 10% to 28%. So I appeal to the Government to do more; they are so concerned about debt—rightly—but why are they not more concerned about unsustainable debts that so many of our constituents are taking on? [Interruption.] I thought someone wanted to intervene, but it was just another Government Member leaving the Chamber.

[Emily Thornberry]

Would my hon. Friend like to join me in noting that only four Government Members are in the Chamber—a Whip, a Front Bencher and two on the second row—whereas a large number of Opposition Members wish to speak?

[Fiona O’Donnell]

I am grateful to my hon. Friend for that remark. I am afraid that I have just been very unkind and tweeted that not only were there only three Government Members—I think it was—in the Chamber, but the Opposition Whip had fallen asleep. [Interruption.] I should have said that the person sitting in the place usually occupied by the Government Whip has fallen asleep—I say that for the benefit of Hansard.

Fuel bills are a huge problem for families, having risen by £300. The Prime Minister promised this country that he would do something about excessive rises in energy prices, and he has not made good on that promise. The Government parties ask what we did about the energy companies, and I am proud to share the fact that in my sock drawer at home I have a pledge card from the 1997 general election. One thing that Labour did was to use its windfall tax on the privatised utilities to invest in creating jobs. That is the difference between Government Members and Labour Members.

[Ben Gummer]

I am very happy to intervene on the hon. Lady, and I hope that she will have another minute in which to continue her thoughtful speech. On energy prices—I know the next debate will address this—the previous Government may have come to office in 1997 wishing to control energy prices, but in the end by building so few power stations, they have left us having to invest more than any other western European nation—£200 million—to renew our infrastructure. In the end, that money will have to come from somewhere. Part of it will come from those who pay for fuel. The hon. Lady, or at least the Labour Government, must bear some of the responsibility for that situation.

[Fiona O’Donnell]

I am willing to take responsibility when that is due, but it seems as though for this Government the past three years have not happened. In my constituency, a coal-fired power station has closed down. That is good for the environment, but Scottish Power and the Spanish firm, Iberdrola, cannot invest the necessary money to convert that into a gas cylinder plant because the Government are not giving clarity on the charges for connecting to the grid. We should all share the responsibility. Unfortunately, in opposition, there is less that we can do about it, whereas the hon. Gentleman has the privilege of being in government. I wish the Government would use the little time that they have left in office to get on and make a difference to the lives of my constituents.

Yesterday’s debate makes me worry about who will stand up for those people in my constituency who are falling foul of payday lenders and who cannot afford to put food on the table. The whole debate about food banks is thoroughly depressing, and although I welcome the fact that they are there in so many communities, including my own—I am a trustee of my local food bank—I worry that we are propping up a system that is dismantling the welfare state in this country. We need to pause and think about that further. I am grateful to have had the opportunity to contribute to the debate and look forward to hearing the Minister’s response.

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[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

This is probably the most relevant debate we could have when it comes to the issues that affect our constituents day in, day out. There is a living standards crisis in the UK today and it has been caused directly by the actions of this Government. I have no doubt that the Prime Minister and his Government are entirely out of touch with families up and down the country who are struggling to make their pay packets last until the end of the month.

Before the last general election, we were promised that a Conservative Government would improve people’s living standards and that people would not only see their incomes rise but their quality of life improve. That has not happened. In fact, the opposite is true. There are only two possible conclusions to be drawn. The first is that the Government—Conservatives and Liberal Democrats—have decided that they are happy to pursue policies that drive down living standards, and the second is that their policies are failing entirely.

The Minister should be in no doubt that the crisis is real. Every week, people in my constituency come to me to talk about rising energy bills, rail fares and fuel bills; cuts to tax credits and benefits; and the problems caused by low pay, underemployment and unemployment. I do not know what is in his postbag or in-tray, but that is what is in mine. He does not have to take my word for it, as the statistics speak for themselves. Since 2010, real wages in Scotland have fallen by an average of 6.4% or £1,420 a year, which is a huge sum. Statistics for the whole of the UK from the Office for National Statistics show that under this Prime Minister real wages have fallen for 35 consecutive months—longer than under any other Prime Minister since records began. What a shameful record that is.

[Fiona O'Donnell]

Will my hon. Friend give way?

[Gemma Doyle]

I will not at the moment.

In my constituency of West Dunbartonshire, between 2010 and 2012 average wages rose by just 0.6%, while inflation hit 8%. With the cost of essentials such as food and energy continuing to go up and up, one does not need a calculator to work out that the figures just do not add up. In recent months, the community of West Dunbartonshire has come together to launch a food share project. People are so appalled by the need for that in our area that they do not want to call it a food bank. They do not want it to be just a food bank, so as well as collecting donations and redistributing supplies, the group has wider aims, such as campaigning on poverty and poverty pay. I am delighted to say that Labour-led West Dunbartonshire council is a living wage employer. I very much hope that other local employers will follow suit. I intend to have discussions with local businesses about how they can work towards that.

Earlier in the summer, figures published by Citizens Advice showed that one in five families feel that they cannot afford to feed their children. Frankly, that should shame us all. Its advisers are seeing people who have nowhere else to turn. The chief executive of Citizens Advice Scotland, Margaret Lynch, has stated that it is no longer unusual for advisers to see people in their offices who do not have enough money to pay for food, never mind other bills such as rent and council tax.

I have had men and women bring their bills to my surgery. Some have lost their jobs and many have had their hours cut. They are desperate for more hours or for a job that will pay them enough to make ends meet. They have trimmed their outgoings to the bare essentials. They put their bills on the table in my office and ask, “What should I do?” It is difficult, but I give them the best advice I can. I tell them about the food bank, although I have to think twice about that, because it embarrasses people so much. It is a dreadful situation for people to be in, because they feel a huge responsibility towards their families, but it is not they who are failing, it is the Government who are failing them.

At the same time as that is going on in all our constituencies, the richest people in this country have had a tax cut. Conservative and Liberal Democrat MPs have decided that they want to give millionaires a tax cut, which beggars belief.

Finance (No. 2) Bill

Fiona O'Donnell Excerpts

Thursday 18th April 2013 Commons Chamber

[Fiona O'Donnell (East Lothian) (Lab)]

It is a pleasure to serve under your chairmanship this morning, Ms Primarolo—[Interruption]. We have just made it into the afternoon. It is also a pleasure to follow my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), who made such a strong case for the Opposition’s amendment to clause 1. It is to clause 1 in the main that I wish to address my remarks.

This week and in the days leading up to the funeral of Baroness Thatcher, Government Members have been proud to proclaim themselves as Thatcherites—no more talk of one nation Conservatives or how “We’re all in it together”. I was pleased that my hon. Friend spoke about the impact of this Government’s choices. That is what we are talking about today: their choices and priorities. Proportionately, they are hitting women so much harder than men, while the benefits they are seeking to give—reducing the 50p tax rate to 45p—will disproportionately benefit men.

That was certainly my experience as a woman at home caring for my children through the Thatcher years. I find it almost incomprehensible when I hear people talk about how much she did for women, because that was not my experience, as I genuinely struggled to put food on the table for my children and keep a roof over their heads. For me, the difference we saw in 1997, with the birth of a new Labour Government—new in every way—was predominantly in the increase in child benefit. That is what changed my ability as a mother to care for my children—to provide for them and give them a better life than I had had. This Government have chosen to freeze child benefit, while at the same time giving a tax break to 13,000 millionaires and 267,000 people earning more than £150,000. I would be interested to hear from the Minister—or from other Government Members, if it is not just the Minister who is going to speak on this issue—how many people earning more than £150,000 have come to his surgery or contacted his office to say that times are so tough that they need a tax break. How many people have contacted the Treasury to say that?

[Sheila Gilmore (Edinburgh East) (Lab)]

During this week, from Second Reading onwards, we have seen a dearth of speakers from the Government Benches, yet we have also seen a rise in unemployment figures and clear signs that on average people are facing real cuts in their earnings. Is it not extraordinary that Government Back Benchers seem not to want to speak?

[Fiona O'Donnell]

As ever, my hon. Friend makes a reasonable and forceful contribution to the debate. This is shocking complacency from Government Members—their constituents and mine will be watching them—as unemployment rises and as families face an average cut of £17 a week as a result of all the changes they have made since 2010.

[Kerry McCarthy (Bristol East) (Lab)]

I might be pre-empting what my hon. Friend is about to say, but with these measures are we not seeing a return to the discredited policy of trickle-down economics, whereby the Government think that if we give more money to the wealthy, they will spend it and boost the economy? However, we know that they are less likely to spend the extra money going into their accounts, whereas people at the bottom, who are really struggling to get by, will spend the money we give them. If we are looking at the economic impact, it is better to give that money to the poorer people.

[Fiona O'Donnell]

Absolutely, and I thank my hon. Friend. I was not about to turn to that point, but I will develop it as it affects the local economy in East Lothian.

East Lothian has a number of small towns, some of them market towns. Often, it is the poorest in those communities who spend their money in local shops in the high street; they are not able to take advantage of out-of-town supermarkets. Those high streets are struggling. The Government are taking money out of local economies—out of small high streets in East Lothian—which is having a negative effect. One group of businesses is, however, growing in our high streets: pawnbrokers and high street lenders, which will not improve the lot of the most vulnerable in my constituency.

[Ian Lucas (Wrexham) (Lab)]

That point about our high streets is incredibly important. It is not simply high streets in Labour constituencies that are suffering. Anyone who attends the meetings of the all-party group for town centres will know that, even in leafy Conservative and, dare I say it, Liberal Democrat seats, high streets are struggling. What evidence is there that the windfall for the richest people in our society will contribute in any way to income in our high streets and in our economy? The money is more likely to be spent in Bermuda than in Birmingham.

[Fiona O'Donnell]

My hon. Friend makes an excellent point. The problem is not restricted to high streets. In small rural constituencies, there may be one village shop, where the local post office is located. The post office network is also being put at risk as such small village shops are unable to make a profit. Therefore, we risk losing post office services. We are facing that now in East Lothian. Post office closures may not be planned, but that may be a consequence of the Government’s economic choices.

It seems almost too simplistic to make this point, but Government Members have boasted about the fact that the Government are hurting the richest 10% the most. However, if the Government choose to take £25 a week from a rich family, it will have a lot less impact than taking £17 a week from a hard-working family. Taking that from the richest will not mean they will present themselves at food banks looking for assistance to put food on the table, but that is what the Government are forcing working families increasingly to do. We look forward—that is perhaps the wrong term—to hearing the Trussell Trust’s latest figures on the number of people it has fed over the past year. All the indications are that the number has increased significantly; it may be over 500,000. That is a matter of real concern.

[Robert Flello (Stoke-on-Trent South) (Lab)]

I am enjoying my hon. Friend’s speech immensely. On that point, just last Thursday, the food bank in Fenton in my constituency had its highest number of visitors yet— 19 people turned up, whereas normally about eight or nine do so. That is a growing trend on top of a growing trend.

[Fiona O'Donnell]

I am sure that Members on both sides of the House are seeing that in their constituencies. I hope that Government Members will visit food banks in their communities to understand the causes of food insecurity. As my hon. Friend the Member for Newcastle upon Tyne North said, it is about the choices the Government are making and their priorities. Earlier we heard the most uncomfortable and distorted logic: when the economy was growing, unemployment was falling, we were investing in health and helping young people into employment, the Labour Government should have taken more money from the rich through a 50p tax rate, just for the sake of it; but when the economy is flat-lining, unemployment has just risen again, poverty and the gap between rich and poor are increasing, it is the right time for this Government to give a tax break to people earning over £150,000. I cannot follow that logic.

The Joseph Rowntree Foundation has estimated that almost 2.5 million families on low incomes will pay £130 more in council tax this year, adding further to the squeeze that working families are suffering. This Government have made their choice, and I think that, as they drive towards the next general election, if they glance in the rear-view mirror, two hazards will make them fail the electoral test. The first is their decision to scrap the 50p rate of tax. The second is their choice to introduce a bedroom tax at the same time. There is a family in Wallyford in my constituency, the Anderson family. Mr Anderson is a full-time carer for his wife, who has a severe form of epilepsy. He is saving this country a small fortune by caring for his wife, but he does it because he wants to, not because he has to. There are times when he needs not to sleep in the same room as his wife—I have his permission to discuss his case in this amount of detail—and he needs to be able to make that choice. He also has a son with spina bifida, who is now enjoying a degree of independence and living away from his family, but he can maintain that independence only by returning home for about three days a week when the weather is bad. Recently, he has been at home for longer—so that bedroom is needed for Mark and his equipment.

I feel ashamed that Mr Anderson should have to come to see me to ask why the Government are choosing to give money to people who are not even asking for it, when he is going to be taxed for having that bedroom. And it is a tax; when the Government take money out of people’s pockets, that is a tax. This Government are choosing to make life much more difficult for a man who has given up work to care for his wife and to support his disabled son and enable him to live as independent a life as possible. That says a lot about the Government’s approach, and it does not surprise me that Government Members are not seeking to contribute to the debate today.

[Jonathan Edwards]

The hon. Lady will be aware that the tax cut for people earning more than £3,000 a week was introduced in the last Finance Bill. Members of the parliamentary Labour party abstained in the vote on that Bill. She has made some pretty strong comments today. Is she now saying that that abstention was a catastrophic political mistake?

[Fiona O’Donnell]

No, I am not. I would say that the catastrophic political mistakes are most often made on the nationalist Benches. We are stating clearly that, if we were in government today, we would not be scrapping the 50p rate. There is no ambivalence or doubt about that. That is the position of Labour Members in the Chamber.

I appeal to Liberal Democrat Members to remember their Lib Dem values, and to all Government Members to think about the people who are contacting them. Are they the people who earn more than £150,000 a year, or are they the families and pensioners who are struggling with the cost of daily living? I urge Government Members to vote according to the representations that they are receiving.

[Jacob Rees-Mogg (North East Somerset) (Con)]

It is a particular pleasure to serve under your chairmanship today, Ms Primarolo. I welcome you back, and I am glad to see you in fine health.

I have been spurred on by the hon. Member for East Lothian (Fiona O’Donnell) to speak in the debate and to defend the Government’s policy, which is wise and right and good—[Interruption.] I do not often cheer up the Whips, but if I do so, that will be an added advantage. The amendment tabled by Her Majesty’s official Opposition is completely unnecessary and wrong-headed.

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[Jacob Rees-Mogg]

Ms Primarolo, your answer to the debate would be so fine that it would hold the rest of us silent.

The hon. Member for Edinburgh East (Sheila Gilmore) is absolutely right. It is difficult to say at exactly what point on the Laffer curve revenue is maximised. As I understand it, however, the latest academic studies suggest that around 37% is the level at which income tax revenues would be maximised. That is why I would favour the Government going further and reducing the rate of income tax to the level at which it was kept by the Labour party when it was in office.

[Fiona O’Donnell]

I did not think that I had spurred the hon. Gentleman to speak; given his posture during my speech, I thought that I had woken him from his slumbers. Do we have another split in the coalition here? Lib Dem Members have been criticising the previous Labour Government for not having the 50p rate for longer.

[Jacob Rees-Mogg]

The coalition is, I am sure, united at the highest level, but that does not mean that Back Benchers do not sometimes disagree. My hon. Friend the Member for Bristol West (Stephen Williams) and I often discuss these matters, and we do not invariably agree on every aspect of them. The Lib Dems have their own particular policies, which they will no doubt put forward in an election campaign, but the coalition at large is committed to a single policy.

I want to come back to the amendment, which is about getting back to the 50p rate. We already have a situation in which the top 1% of taxpayers pay nearly 28% of the total income tax receipts—that is, £50 billion. If the rate of tax is put up to too high a level, people will change their behaviour to alter the amount of tax they pay. That is very straightforward, and they can do a number of things. Some people leave the country, so that their tax is paid overseas. Some work less hard, reducing their earnings to reduce their tax payments. Some use pension funds or legitimate forms of tax avoidance to minimise their income. That is all perfectly well known by those on the Opposition Front Bench, who are a fine and intelligent group of people, yet they try to make political points on the argument about fairness. Fairness seems to me to be about doing what is right.

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[Jacob Rees-Mogg]

I am always doubtful when people are sniffy about jobs that people take. I and others in the Conservative party voluntarily go around knocking on people’s doors trying to sell them party policies. That is known as canvassing, and I wish I got paid for that activity, but I do it out of the goodness of my heart. I do not think one should be sniffy about jobs that people might apply for; they are all welcome and all valuable.

[Fiona O'Donnell]

The hon. Gentleman is completely out of touch on this point. The point is not that people are being sniffy, picky or choosy about jobs. The point is that someone might live in Edinburgh East while the job is in Fife, and we do not all have drivers and chauffeurs to take us to Fife to do the job.

[Jacob Rees-Mogg]

I wish I was in this fortunate position of having a chauffeur or driver to take me to Fife to get a job. When I tried for a job in Fife in 1997, I was distinctly unsuccessful, and came back to a job in London, but that is slightly beside the point.

The overall point is that income at whatever levels has a determinant effect on the employment people seek and the work they are willing to do. That applies to benefits— paying benefits at too high a level can create a benefit trap that makes it not worth while for people to apply for jobs—and it applies very clearly to high tax rates when people decide not to earn.

Finance (No. 2) Bill

Fiona O'Donnell Excerpts

Wednesday 17th April 2013 Commons Chamber

[Fiona O'Donnell (East Lothian) (Lab)]

Does my hon. Friend agree that the measure is a gift for the Chancellor to satisfy the lack of enthusiasm among many of his Back Benchers for 0.7%?

[Catherine McKinnell]

Indeed. That very thought was going through my head. We must be serious about the impact we can make as a country to support developing countries. We should do everything we can, not just giving aid and making sure that it is utilised in the best way, but enabling developing countries to support themselves as best they can. The Enough Food for Everyone IF campaign states that

“dealing with developing countries’ corporation tax alone could raise enough public revenues to save the lives of 230 children under the age of five every day.”

That is a powerful statement and a powerful tool is within our reach.

The Opposition believe that the first step to tackling the issue, and to creating a fair taxation system, is to put an end to tax secrecy. We need concrete proposals from the Government to demonstrate how they intend to put the issue at the top of the G8 agenda, starting with the requirement suggested by our amendment that HMRC should work in conjunction with other G8 countries to bring forward measures to require multinational groups to publish a simple, single figure for the amount of corporation tax they pay. That is the purpose of our amendment 4. Yet, while the issue of tax avoidance and tax transparency can clearly only be properly dealt with at an international level, we believe the UK should be leading the way, demonstrating its determination to take meaningful action on tax transparency here at home. Therefore our amendment 5 would ensure that commitment was there, regardless of progress at an international level.

Tax transparency should not be restricted to the UK and other G8 or OECD countries; it is needed now, more than ever, in the developing world. The Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8. They are on record as being committed to ensuring that developing countries also benefit from any reforms, yet with the exception of a relatively small pot of money for capacity-building work, the measures to combat tax avoidance in the Bill before us do nothing to assist poorer countries. So although the Government are determined that Labour’s disclosure of tax avoidance scheme requirements cannot be extended to include subsidiaries of UK companies operating in developing countries, the Opposition believe that the Government should at least commit to reviewing how a requirement for UK companies to report their use of tax schemes that have an impact on developing countries could be enacted. Surely it is the least that the Government can do.

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[Fiona O'Donnell]

On that point, may I press the right hon. Gentleman to address amendment 7, which expresses the view of not only Opposition Front Benchers, but the International Development Committee, which recommended an impact assessment of the controlled foreign company rules, and that Committee is chaired by a member of his own party?

[Andrew Stunell]

Indeed, it is. There are many propositions made here that are highly desirable, and I would not be at all disappointed if the Front-Bench team agreed to accept amendment 7 and a number of others. The point I am making is that what we need across all political parties in the House, and beyond, is strong consensus in favour of not only continuing our achievement of the aid target, but ensuring that we assist developing nations by getting our tax affairs straight and helping them to do likewise.

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[Mr Iain McKenzie (Inverclyde) (Lab)]

It is abhorrent that large companies up and down the country should be avoiding paying their taxes while our constituents are squeezed by the Government at every opportunity. We call on the Government to take vigorous action on tax avoidance. To date, however, despite the Government’s rhetoric, they have consistently failed to deliver.

Quite simply, the cuts to HMRC go too far. With more than 10,000 additional job losses, they will prove to have been a false economy if the Government hamper HMRC’s ability to collect billions of pounds in avoided tax. It is not right and cannot be fair that, while families and small businesses are paying their fair share and feeling the squeeze, large enterprises are allowed to practise “if we can afford it, we can avoid it” tactics.

We believe that the best means of tackling tax avoidance is through not only principle but proper targeted measures and greater capacity in HMRC. If the Government are relying only on the general anti-avoidance rule to do the job, we fear it will not be sufficient. As my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has said, we are willing to support the Government’s introduction of GAAR, but we remain unconvinced that the current version is up to the job.

Let me give but one example of how my constituents are feeling the axe while big companies avoid the tax. A group of women attended my surgery last Friday asking, “Why have we been hit while some big businesses seem to escape?” My constituent Mrs Christine Houston of Port Glasgow was made redundant as demand fell and her company experienced economic hardship. She managed to find a part-time job but she works unsociable hours. Her benefits, which acted as a safety net to allow her to live, have now also been cut. Now she has been unfairly affected by the Government’s pension reforms; she was born in October ’53, so she will receive less pension than her two best friends, who were born in March that year. Despite having started work when she was 16 and having paid her share of taxes ever since, she cannot plan for her future as a direct result of the Government’s actions. “Why,” she and her friends ask, “are multinationals plying their trade in this country and getting off lightly on tax while we are being hit hard? Where is the fairness in that?”

HMRC’s most recent estimate, for the period 2010-11, of tax difference—that is, between the tax actually collected and what would have been collected if everybody had complied with the letter and spirit of the law—stands at a staggering £32 billion-plus, and some regard that estimate as low. Serious concerns exist that the Government’s proposed GAAR is too narrow and that they have failed to clarify that it will not cover most of the tax-avoidance activity undertaken by multinational corporations about which the general public are so concerned. HMRC must have the capacity and resources it requires to tackle tax avoidance properly. The Government are undermining its ability to do so with the budget cuts of over £2 billion in this Parliament, leading to 10,000 job losses. While we all agree that making genuine efficiencies is important, there has to be a limit to its capacity to do more with less. The current scale of cuts risks being a false economy if the Government reduce HMRC’s tax yield.

In these tough times, when the Government are cutting spending and raising taxes, it is even more important that everyone plays their part and pays their fair share of tax. Good British firms and millions of families are paying their fair share, but it is not right that some firms do not, and I think we all agree that that needs to change. We must put an end to the era of tax secrecy, because the reason some companies behave like this is that they believe there is little chance of their being found out. We need to reform the rules that allow companies that make profits in Britain but avoid paying tax in Britain to ensure that they do pay their tax.

Recent cases of companies that have manipulated the tax rules to reduce the tax they pay in the UK to virtually nothing have rightly outraged all those people and businesses who do pay their fair share of tax. My constituents in Inverclyde, and hard-working families and businesses, rightly ask why some seem to think that the rules do not apply to them. It is clearly unfair and further undermines companies that do pay their tax, expecting a level playing field. Over the Easter recess, I visited many small and medium-sized companies, and time and again they talked about no growth in the economy, low demand, and larger businesses avoiding paying their taxes while they were expected to pay theirs, and on time. Sometimes, yes, there will be good reasons why companies pay little tax. Some companies invest large sums in research and development, assets and infrastructure, and we should, and do, celebrate and welcome that. However, we also need to know when companies are stripping their profits out of the UK through artificial schemes.

The Government are undermining HMRC’s ability to administer and collect tax by cutting resources too far and too fast—a familiar, failing theme of this Government. HMRC now has more staff working on administering the Government’s child benefit cut than it employs, combined, to tackle tax evasion and avoidance. The people of this country are demanding reform of the current rules that allow companies to make profits in Britain but pay no tax. That also requires reform of our corporation tax system. In the 21st century, value is now often in brands and intellectual property, customer loyalty and ideas that can be traded globally between different parts of the company group. The rules need to be clearer, tighter and properly enforced.

The Government are failing to show the leadership we need to tackle tax avoidance, yet are vigorously pursuing others to help to fill the Treasury’s coffers. The Conservatives and their coalition partners are failing to convince constituents such as Mrs Houston of Port Glasgow that we are all in it together, or that, with their many references to fairness in both their manifestos, they are living up to that fairness. I ask the Minister to explain to Mrs Houston why the Government seem reluctant to tackle tax avoidance and to give her back her pension.

[Fiona O'Donnell]

It is a pleasure to speak under your chairmanship, Mr Crausby. I am particularly pleased today to support amendments 3, 6, 7 and 8 in the name of the shadow Chancellor of the Exchequer and others. I see him in the role of Robin Hood, and I will leave my hon. Friends the Members for Newcastle upon Tyne North (Catherine McKinnell) and for Kilmarnock and Loudoun (Cathy Jamieson) to fight it out as to who is Maid Marian. While the Government may be able to find a Robin Hood on the Treasury Bench, they will of course have to resort to the old public schoolboy tradition of one of them dressing up as a woman if they are to have a Maid Marian.

I do not want the Government to be too precious about what they are doing today. I have a feeling that we have been here before—with the Groceries Code Adjudicator Bill perhaps—in that we are all agreed on the general direction of travel but the Government seem resistant to transparent proposals that can be monitored, so that we can see whether they work and achieve what we want them to achieve, or whether they have any adverse impacts. Those on the Treasury Bench have heard concerns raised by Members on both sides of the Committee. They need to give the Bill the teeth to ensure that it is enforceable.

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[Andrew Stunell]

rose—

[Fiona O'Donnell]

I found the right hon. Gentleman’s reticence in that regard particularly difficult, but I hope he will now redeem himself.

[Andrew Stunell]

I am happy to agree with the hon. Lady: it is true that the previous Government took the issue seriously and I was happy to serve on the International Development Committee during that time. I say to her, however, that we have taken the issue further.

[Fiona O'Donnell]

Exactly. We have passed on the torch of 0.7% and I pay credit to the Government. It must be a lot harder for them to take that direction of travel than it was for us, because our Back Benchers were supportive of it. It is not enough, however, for Lib Dems to be warmly supportive of the Government and hope that they will not be disappointed. They have to start voting for what they believe in, what they put in their manifesto and what their conference told them it wants them to do. That is why I intervened earlier on the right hon. Gentleman on the subject of the CFC and its effect. I hope that the Minister will say that he is listening not only to the Opposition but to the Select Committee and its report. The Committee has asked for an impact assessment, and we need to be clear about that. Much as I often disagree with coalition Members, I cannot believe that they intended the CFC to have that effect. An impact assessment would show whether it will damage developing countries.

The right hon. Gentleman also spoke about the IF campaign. It is clear that an essential part of tackling poverty and hunger is having a fair and transparent tax system. It is not surprising that people in this democracy should be outraged by large corporations not paying their fair dues, but we sometimes seem to think that it is all right for developing countries. Do they have to expect their natural resources to be plundered?

[The Parliamentary Under-Secretary of State for International Development (Lynne Featherstone)]

indicated dissent.

[Fiona O’Donnell]

I am glad that the Minister shakes her head and I give her credit for much of the good work that she has done in office. However, it is time for action. I repeatedly asked the Secretary of State, when she appeared before the Select Committee, whether she would act and whether she was pressing the Treasury for more transparency. She said that it really was not a matter for her; it was a matter for the Treasury—but it absolutely is for the Department for International Development and for the Secretary of State and her Ministers to address this issue. The people in those developing countries have as much right as people in this country to be outraged, but unless they have access to the information about whether tax has been paid, they will not be able to feel that sense of outrage. I hope that we will see some movement on that issue.

If we are ever to see a situation in which aid does not have to be stuck at 0.7%, as I am sure developing countries and many of us want, it will be by ensuring that tax is paid. We have had estimates from the OECD, as my hon. Friend the Member for Newcastle upon Tyne North said in her opening remarks, that developing countries lose three times as much money as they receive in aid. We have a chance now to do something not just for developing countries, but for our own country, by easing that burden.

I give credit to the right hon. Member for Gordon (Sir Malcolm Bruce), the Chair of the International Development Committee for the work he has done and I thank recently joined members of the Committee for their support. The Chairman does not put his party or the coalition first: he genuinely works in the interests of developing countries and the UK in ensuring that tax is spent well. I just wish that we could see Committees in the Scottish Parliament following that good example.

I believe that I may have the honour of serving on the Bill Committee, and I hope that we will not have the same experience as I have had all too often in Committee, with the Government continually refusing to accept amendments, followed by a climbdown. The amendments make genuinely helpful suggestions without asking the Government to alter direction. They would strengthen the measures on which we agree about the direction of travel to ensure that we carefully assess the impact of the policies and that they achieve what we want them to achieve. People have marched in support of the Robin Hood tax and want to see a fairer, more progressive form of capitalism in this country, so the Minister needs to step up to the mark—as well as to the Dispatch Box—and accept the amendments.

[Steve McCabe]

The Government repeatedly promise to crack down on tax avoidance. Of course, I welcome any efforts in that direction, but as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the prospect of between £60 million and £85 million projected extra revenue against a tax gap of £32.2 billion is hardly the stuff of ground-breaking flagship policies. I am curious to know just who will be pursued under the Government’s plans. As we heard, GAAR will be targeted at abusive avoidance that has abnormal features, and on those involved in highly contrived tax avoidance. Does that mean that normal, low-key, run-of-the-mill, common or garden tax avoidance is going to carry on as normal, with very little activity directed at it at all? Like others, it is not clear to me that GAAR is focused on the tax avoidance of the multinational corporations we have heard so much about lately.

I am pleased that the Government are planning to put tax avoidance on the agenda at the G8 summit, but it would be better if we had a clear indication tonight on what they intend to achieve. For example, I want to know whether the Prime Minister plans to follow up Chancellor Merkel’s concerns about the lack of monitoring of British sovereign territories, which are increasingly used as tax havens. I would love to know how a place such as Jersey became the world’s largest exporter of bananas. Will the G8 be considering guideline prices to help countries in the developing world? Will there be any discussion on an international tax inspector operation to help the countries that are being sucked dry by international lawyers, accountants and financiers?

At the very least, the Government could announce that they are ending tax secrecy by accepting amendment 3 and insisting that multinational groups publish a simple, single figure for the amount of corporation tax they pay in this country, instead of the current arrangements where they parcel the tax paid in a variety of ways that permits avoidance. The Government might also say that they intend to take some action against law firms in this country who all too readily set up shell companies, no questions asked, in the full knowledge that they are aiding and abetting tax avoidance and other corrupt practices.

The Prime Minster might also follow up on his promise that members of his Government publish details of their own tax affairs. Why not lead by example? This is not France. We have nothing to fear here—I think—unlike in France, where the man charged with fighting tax evasion turns out to be a tax fraud himself. At least the French President is now going to force his Ministers to publish details of their tax affairs. Why does our Prime Minister not do the same? He said that he would.

I welcome measures to tighten the rules on companies that arrange loans for their directors or shareholders, in place of taxable salaries or dividends. That particular activity sounds remarkably close to the tax arrangements that brought down Glasgow Rangers football club, and may be widespread in football. I therefore welcome what the Minister is doing on that.

Finally, why has the Chancellor backtracked on retrospective legislation restricting the right of companies to bid for Government work where they have lost disputes with Her Majesty’s Revenue and Customs over tax avoidance? The Government are not frightened of retrospective legislation, as we saw in the case of the jobseeker’s allowance claimants who won their appeal over dodgy back-to-work schemes. Why is it okay to protect tax avoiders, but punish the unemployed?

--- Later in debate ---

[Kelvin Hopkins]

It is a pleasure to follow my hon. Friend the Member for Bolton West (Julie Hilling), who made a superb speech and hit lots of buttons.

I am speaking briefly at the end of this debate basically to support my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and his comprehensive, substantial proposals for an alternative scheme. I have also signed his new clauses. I am not a tax lawyer—I am not a lawyer—or a tax expert, but I am angry about the fact that for decades we have failed to collect taxes that should go into the Exchequer and help those in our community and our society who need proper support, allowing the corporate world and the millionaires to get away with vast amounts of money that should rightfully be given to the Treasury.

The hon. Member for Amber Valley (Nigel Mills) said that HMRC would in effect be making its own laws. What about getting rid of a lot of the tax allowances, which are nonsense in any case, and making some of the things that are currently regarded as tax avoidance illegal by calling them tax evasion? Some of the things that are done should be regarded not just as neat ways of avoiding tax, but as crimes that should rightfully be prosecuted through HMRC and the courts. I take a much fiercer view. It is pathetic that successive Governments —and I mean successive Governments—have failed to grasp what needs to be done.

I will tell you some anecdotes, Mr Crausby. When I first entered the House, I went along to my local VAT office. The VAT officials there told me that they needed more staff and every extra member of staff collected five times more than their own salary, and that was just for VAT. I therefore wrote to the Chancellor of the Exchequer and said, “We just need more staff in our VAT offices. There would be a net benefit to the Treasury because all the new members of staff would collect more than their salaries.” I got a letter back from an official—not from the Chancellor—that said, “We are trying to cut costs by reducing staffing,” which is utterly illogical. Reducing staffing means a net loss to the Treasury, not a net gain, and we have been going down that route ever since.

The savage staffing cuts in HMRC are quite appalling. Those in the tax offices that deal with the corporates—the big money—collect hundreds and possibly thousands of times more than their own salaries, if they are allowed to do the job and if they are properly supported and paid. I know from my connections with their union that they are constantly under stress and pressure, and in many cases they are not adequately remunerated. We want to give our tax offices enough staff to do the job, pay them properly and ensure that they have morale, so that they do the job on behalf of us all.

[Fiona O'Donnell]

Does my hon. Friend agree that that also goes for working tax credits? When a family notify HMRC of a change in circumstances, their benefits—their working tax credits—are stopped and can be suspended for several weeks while they are reassessed, causing incredible hardship for families that are doing the right thing.

[Kelvin Hopkins]

My hon. Friend is absolutely right. Of course, people are now losing their jobs in all areas of the public services. The public services are suffering great stress and the people working in them are being demoralised, and I think that goes even for the senior civil service—I know that certain people at the end of the Chamber would possibly agree with me in that respect.

I must say that the Treasury’s attitude over some decades has been so lax that one has to suspect that it really believes that allowing all the corporates and millionaires to have their money will somehow trickle down and help the economy. That is the sort of economic nonsense that has got us into the mess we are in at the moment. What we should be doing is collecting the taxes and spending in the areas where it is needed.

amendment of the law

Fiona O'Donnell Excerpts

Monday 25th March 2013 Commons Chamber

[Hilary Benn]

If the hon. Gentleman will bear with me, I wish to make a little more progress.

I will now turn to the Budget. I have some questions to put to the Secretary of State. We know that the Government have a soft spot for people who earn a lot of money, but why is he proposing that his new deposit and mortgage scheme should be made available to anyone earning any amount, including millionaires, so that they can buy a house worth up to £600,000? Why is he changing the rules in that way, given that Firstbuy is currently only for those with family incomes below £60,000, and given that the Treasury document published last Wednesday states that the scheme is meant to help

“households struggling to save for the high mortgage deposits required by lenders”?

How many struggling top rate taxpayers does he expect to take advantage of the new scheme? No doubt they will be very grateful to him for his generosity.

In respect of the mortgage guarantee element of the help-to-buy scheme, can the Secretary of State clarify once and for all whether people who already own a property will be able to use it to buy a second home? He did not quite answer that earlier—[Interruption.] No, he did not. On Thursday, the Secretary of State for Business, Innovation and Skills could not answer the question. When asked, he simply said:

“The scheme has not yet been designed in detail.”—[Official Report, 21 March 2013; Vol. 560, c. 1102.]

At the same time, the Minister for Housing told “World at One” that second-home purchases would not be allowed. The BBC then reported that No. 10 had had to clarify the position. It seemed that the Housing Minister had been referring to another part of the help-to-buy scheme relating to equity loans. So yesterday we all turned on “The Andrew Marr Show” to watch the Chief Secretary to the Treasury, and far from ruling it out categorically, he said, in a formulation that the Secretary of State has repeated today:

“Our intention is not to help people to buy second homes”.

If the Government do not want it to happen, why do Ministers not simply make it clear that it is not going to happen? Otherwise, reminiscent of last year’s Budget, we will have fanfare followed by farce.

In the event that these schemes are over-subscribed, what criteria will be used to determine which applicants are going to get assistance? I listened very carefully to the Secretary of State when he said that foreign nationals would not be eligible for assistance from the scheme, but where in the Government’s scheme description does it say that foreign nationals will not be eligible? I have looked at the mortgage eligibility criteria, and they do not say that. Has he taken any advice on whether EU nationals who are resident in the UK will be barred by law from taking part in the scheme?

What estimate has the Secretary of State made of the impact that “help to buy” will have on the housing market, given that we know that it is the lack of supply that has led to high house prices? The Royal Institution of Chartered Surveyors has warned that the Government must be careful not to create “another housing bubble”. It seems that the scheme is not even a done deal with the lenders, because the Council of Mortgage Lenders has set out certain conditions that it wants to be met, or else, it warns, the scheme could be made “uneconomical”. How many additional homes, in total, does the Secretary of State think will be built as a result of the scheme?

[Fiona O’Donnell (East Lothian) (Lab)]

Will my right hon. Friend also seek clarity on whether, in the event of a family break-up and a parent wishing to buy a home, that parent will be restricted in the number of bedrooms they can have in that home, or is aspiration only for some and not for others?

[Hilary Benn]

That is a very good question that has already been asked. I am very happy to give way to the Secretary of State if he wishes to answer it. Does he wish to answer? No, he does not.

We need a lot of new affordable homes because of the decision taken by the Government nearly three years ago to slash the affordable housing budget, when £4 billion was taken away. We are then asked to be grateful to the Secretary of State when we hear in the Budget announcements that an additional £225 million will be made available, although it seems that only £125 million of it will be spent before 2015. That figure is dwarfed by the original £4 billion cut. We are told that this is a time for tough choices. A quarter of a billion pounds was identified by the Secretary of State to try to persuade councils to collect the bins in the way that he thinks is correct. It was such a failure that only one council took him up on his offer. A quarter of a billion pounds and one council: think how many affordable homes that money could have been used to build! If the Government want to be taken seriously on affordable housing, they have to will the means. That is why we called for the 4G auction proceeds and the bankers’ bonus tax repetition to be used to build 125,000 new affordable homes to get the economy moving.

The Secretary of State referred to councils. We know that he is presiding over cuts to the local authority sector that are bigger than in any other part of the public sector and that the cuts are being unfairly applied. Councils need as much money as they can find to help, in part, to build homes. When the Secretary of State was asked about these cuts earlier this year in front of the departmental Select Committee, he said that in his view the cuts were “modest”. In private, however, it seems that his views are rather different. When it was reported last month that the Chancellor was looking for further cuts from certain Departments, including CLG, The Times said that

“sources close to Mr Pickles”—

[Interruption.] It certainly was not me. The Times said that

“sources close to Mr Pickles made clear that he was not accepting the latest reductions, arguing that council services had already been cut to the bone.”

It seems, therefore, that the Secretary of State’s private views are rather different from his public views. We are used to hearing Liberal Democrats say one thing to one audience and another thing to another, but I am surprised that the Secretary of State is also doing so.

This is a familiar record. The Secretary of State, as the statistics show, is not very good at getting things done. It is not just me who thinks that; the Chancellor does, too. Apparently the Chancellor was in a fiery mood at the Cabinet meeting following the loss of the triple A credit rating and challenged Ministers about the poor rate of growth. The Daily Telegraph reported:

“Eric Pickles, the Communities and Local Government Secretary, was given a ‘dressing down’ for failings in the Government’s flagship enterprise zone programme, according to sources.

With less than a month until he unveils his Budget, the Chancellor criticised Mr Pickles over figures that show that one in three enterprise zones is failing to attract enough businesses. Mr Pickles is then said to have attempted to deflect the blame on to Vince Cable, the Business Secretary, by accusing him of failing to convince foreign businesses to invest in the schemes.”

It is a very familiar story: Cabinet members are so busy fighting and blaming each other that it is no wonder that they cannot sort out the problems facing the country.

The reforms to the national planning policy framework were supposed to streamline the planning system, but it seems that they have left councils less able to decide applications quickly. The national rate of decisions taken on major applications within 13 weeks has fallen from 62% in 2011 to 57% in 2012, and the same is true of minor applications determined within eight weeks, which are down from 72% to 69%, and the transition period is about to finish.

The planning Minister, the Under-Secretary of State for Communities and Local Government, the hon. Member for Grantham and Stamford, said recently that he wants further relaxation of the planning laws. We would be very interested to hear what he has in mind.

--- Later in debate ---

[Fiona O’Donnell (East Lothian) (Lab)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

It is a pleasure to follow the hon. Member for Spelthorne (Kwasi Kwarteng), who is now, we hear, a self-declared fan of a balanced Budget. No doubt his disappointment in his own Government has kept him out of the Chamber for the vast majority of today’s debate.

I do not know if you noticed, Mr Deputy Speaker, but on the day of the Budget this Chamber was colder than I have ever felt it before. It was as though a cold, chilly winter breeze was rolling through the Chamber as an ailing, failing, flailing Chancellor came to the Dispatch Box—but it was all too little, too late. I am so pleased to see the Business Secretary in his seat, because he will agree with me—or I will agree with him, most humbly—that the mistake that this Government made was to choke off the recovery. Just as the snow across this country is choking off the green shoots of spring, so this Government, by cutting too quickly and too deeply, have choked off the recovery.

What really chilled me to the bone was when the Chancellor spoke about an aspirational Britain, because I am old enough to remember aspirational Britain the first time around. It was aspiration for some, but not for others.

This Government are out of touch. I apologise for being late for today’s opening speech, Mr Deputy Speaker, but as a trustee of my local food bank my time was being taken up by people who are aspiring to put food on their table, aspiring to heat their homes and aspiring to stay in their homes.

[Kwasi Kwarteng]

Will the hon. Lady give way?

[Fiona O'Donnell]

No, thank you.

When people look back on this Government, they will see five wasted years. The two greatest evils that they have committed are the bedroom tax and the cut for millionaires. They still have time to make more mistakes, but this country will never forgive them for those measures because they go to the heart of this Government.

I want to make some pleas on behalf of my constituency.

[Martin Horwood (Cheltenham) (LD)]

Will the hon. Lady give way?

[Fiona O'Donnell]

No, thank you.

I want a more joined-up approach to government. Iberdrola is currently investing £10 billion in this country, but it is sitting on £3 billion because of the mess that is this Government’s energy policy. The coal-powered power station at Cockenzie in my constituency has closed and Iberdrola is not willing to invest until it gets some clarity from the Government. Some 1,000 construction jobs are on hold in my constituency, as are apprenticeships in a year when youth unemployment has risen by more than 7%. Will the Treasury team get together with the Department of Energy and Climate Change and get this in order, so that Iberdrola can invest in my constituency and the UK?

I pay tribute to my right hon. Friend the Member for Barking (Margaret Hodge) for the work that her Public Accounts Committee has done to let some sunshine on the disgraceful practice of tax avoidance in this country. I also praise the Government for meeting their commitment to spend 0.7% of our gross national income on development aid. I welcome that, but I want them to go further in the Finance Bill. There was outrage in this House and across the country at the practices of some companies headquartered overseas, and people in developing countries have the same right to be outraged if British companies do not pay their fair share of tax there. Will the Government take the opportunity provided by the Finance Bill to ensure clarity and transparency and that developing countries have the right to money that has been earned at the expense of their natural resources—the labour of their people—to be invested in their countries so that they can make their own choices? I hope that such a commitment will eventually be made.

The judgment on this Government has been set not by hon. Members, but by the Office for Budget Responsibility, the 200,000 children who will be in poverty at the end of this Government’s time in office who were not in poverty before, and the people who will be worse off in 2015 than they were in 2010. I urge the Government’s Front-Bench team to listen to the Opposition and to the people of this country, and to get their act together.

[Several hon. Members]

rose—

Fuel Duty

Fiona O'Donnell Excerpts

Monday 12th November 2012 Commons Chamber

[Sajid Javid]

I thank my hon. Friend for that point. It would not be appropriate for me to talk about any individual company, but he makes a good point. Any company that is engaged in aggressive tax avoidance needs to explain itself.

Tax avoidance ran rife under Labour. We have taken action. We are investing £900 million to tackle tax avoidance and evasion, which will deliver £7 billion a year by 2014. We have already signed a groundbreaking agreement with Switzerland to make it much more difficult to evade tax. In March this year, HMRC closed a business property loss scheme within a week of its disclosure. At the G20, the Chancellor and his German counterpart announced concerted co-operation to close gaps in international standards and to crack down on international tax avoidance. Labour's former City Minister, Lord Myners, was on the radio only this morning welcoming this progress.

Underpinning all this progress, we are introducing a general anti-abuse rule so that no one can follow the letter of the law but abuse the spirit and get away with it—something else on which the Labour party never delivered. This is what real action on tax avoidance looks like.

[Fiona O'Donnell (East Lothian) (Lab)]

If it is all going so well, why cannot the Minister do something to help my constituents who cannot afford to fill up their cars?

[Sajid Javid]

This Government do not shy away from making tough decisions. We are getting on with cleaning up the mess left behind by the previous Government, and we are doing everything we can to help hard-working families with the cost of living and putting money back into their pockets. Our action on fuel duty is a part of this. Fuel duty is currently 20% lower in real terms compared with its peak in March 2000, and 7% lower compared with May 2010. If we had continued the policies of the previous Government, pump prices would, quite simply, be higher—fuel would be 10p more expensive per litre. I know that some hon. Members will call for a further freeze in fuel duty today. I can assure them that the Government understand the financial pressures that hard-working families are facing. Subject to the constraints of the public finances, this Government are determined to keep helping families with the cost of living.

I urge hon. Members to reject the Opposition's motion and to support the Government's amendment.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

The Opposition are right to highlight the issue of the cost of living, and it is timely that we are having a debate about the pressures on it. It is particularly timely that we are having a debate about the pressures that the outgoing Labour Government imposed on the cost of living, which still remain. I am thinking of the hidden increases in petrol duty, and all the other measures that they left in place or that were needed if we were to try to combat the deficit.

There is no doubt that the squeeze on people’s real living standards has been very severe in the last four years. It was most severe under Labour during its slump, but it has continued under the coalition Government. One of the reasons for the intensity of that squeeze on real incomes is the fact that price inflation has remained obstinately high, partly as a result of indirect taxation and partly, as the Minister said, as a result of world pressures on commodity markets.

I find myself unable to support the motion, which may come as no surprise to any Member on either side of the House. I consider it to be defective in two important ways. First, I do not think that a temporary three-month freeze will solve the problem. A double whammy in April, which is what Labour proposes, could be even worse, because people will not have become used to the rising fuel price that was inherent in the Labour plans.

[Fiona O’Donnell]

The right hon. Gentleman suggests that three months do not constitute a long period, but they will be three months of cold weather, during which people will be having to cope with an increase of up to 11% in their energy bills. The three-month freeze would make a difference.

[Mr Redwood]

I am all in favour of lowering energy bills, although that is probably a topic for another day and another debate. I have made many suggestions to the Government, all of which I think Labour would find unpalatable. I have, for instance, suggested possible methods of making gas much cheaper, thus reducing prices for all our constituents and affecting real incomes in a way that would please me, but is not often favoured by my party.

I think that the first part of the motion is flawed because what it proposes would not solve the underlying problem, namely, the tax increases left by the outgoing Government, but I am not very happy with the second part either. The Minister said that he did not think the Opposition had done their sums properly before proposing the measure to deal with tax avoidance, which they say would pay for the temporary lower duty rate. It was interesting to hear from him that the Labour Government had considered a scheme relating to travel costs, but had decided that it would be unwise to pursue it. We do not know whether they made that decision because of the impact that it would have on people or because it would not bring in enough revenue, but it appears from what the Minister said that there was an issue involving the amount of revenue that it would raise. For those two reasons—it would not solve the duty problem, and the numbers do not add up—I think that it would be unwise for the House to support the motion.

As for the coalition Government’s amendment, I find myself particularly in agreement with the final words, in which we are asked to welcome

“the Government’s commitment to do more to help with the cost of living in future”.

I was interested to hear the Minister not only say that he understood the points that many of my right hon. and hon. Friends had been making about the level of fuel duties, but imply that action might be forthcoming in the autumn statement and the subsequent Budget statement to tackle that or related problems. I shall be happy if the Government tackle the over-burden of taxation in a variety of ways. I do not think that we need be too prescriptive tonight. We know that an autumn statement is coming up, and we know that there will be a Budget statement after that. However, I want to address my few remarks in this short debate to the issue of what the commitment to do more to help people in the future might amount to in those two important statements of Government policy.

The first point that I hope the Government will grasp is that this country’s problem is not that it is undertaxed. If we look at the budgets and the state of the national finances, we see that there is every sign that successive Governments have tried to increase the tax burden substantially to keep pace with accelerating current public spending. I think that we have now reached the point of no return—the point of saturation. The high rate of income tax introduced by Labour has led to a big fall in income tax receipts at the top level, which is not very surprising—and which, of course, is of no interest to Labour Members. They had their little jibe about millionaires, but they should be asking themselves what tax rate will cause rich people to make the maximum contribution to filling the massive financial hole in which we find ourselves.

We are well above that rate now, as the figures clearly indicate. I think that the Government will find that their higher rate of capital gains tax also collects rather less revenue than before, or than they would like, and that fuel duties, while probably still contributing some increment to taxation, are not creating as big an increment as they would like either, as people simply cannot afford all the fuel that they used to buy because the duties are so high.

We know that more than 60% of the pump price—and the price of petrol and diesel in this country is currently very high—goes, in one form or another, to the UK Government. Of course, part of the rest of the price goes in taxes to other Governments so that they can produce the fuel in the first place. A massive amount of tax is being taken by the British Government directly, along with the 60%-plus that is taken by them indirectly through the tax on oil companies, and by foreign Governments in their taxation on the oil. The motorist is seen as an easy target for huge amounts of tax in an attempt to meet the bills. I hope that, when considering ways of easing the cost of living, the Government will bear in mind that motorists and business drivers—people who are trying to power the economic recovery—are incurring very large bills through this particular tax.

I think that all Members agree with two propositions about the economy. First, we would like it to grow faster, and secondly we would like to make big cuts in public spending by getting people back to work, so that they can earn more in jobs than they can receive in out-of-work benefits. Those are the aims that the Government must pursue. They have told us that they wish to make work more worth while. It is now clear that the economy has had a good job generation capability in the private sector over the last couple of years or so, and that is very welcome. However, we now need to ensure that we can reduce public spending by getting many more people into jobs, so that they require less benefit support, and we need to do that partly by cutting tax rates, so that we can collect more revenue in a friendlier way.

There is no doubt that we have tax saturation, and the Government need to take that on board for the purposes of the autumn statement and the Budget. We should reject the rather foolish motion, which was never going to ensnare many Conservatives—Labour will have to get better at ensnaring Conservatives, if that is its game—and support, and ensure that the Government deliver on, their proposal to do more about the cost of living, because that is a very real issue which worries many of our constituents.

--- Later in debate ---

[Mr Bain]

Tax credits helped to sustain family incomes in that period, but that is precisely the part of the tax and benefit system that is under such great assault from the Government the right hon. Gentleman supports.

We need a long-term strategy to tackle declining living standards, but there are short-term measures we can take now that will help ordinary families. We can have a cut in VAT and not proceed with the 3p rise in fuel duty next January. Both those measures would help to restore growth to an economy that has been starved of it for a year, and which is smaller now than at the time of the Chancellor’s comprehensive spending review of October 2010.

Despite a decrease in the headline consumer prices index inflation rate from 5.2% to 2.2% since last October, costs of basic goods such as electricity and food are going up. Average electricity bills are up by £200 since the coalition took office, taking the average bill to £1,310 a year. Costs for childminders for the over-2s in Scotland have risen at nearly twice the CPI inflation rate this year. Living costs are, therefore, soaring for millions of people.

[Fiona O’Donnell]

My hon. Friend missed out one boast the Minister made, which was about the creation of private sector jobs. In my constituency, many of those jobs are for care workers on the minimum wage and on a zero-hours contract. Those workers need a car to be able to sustain even that level of employment.

[Mr Bain]

I entirely agree. Most of the jobs that have been created over the last couple of years have been part-time, insecure, low-hours posts. We have soaring under-employment in our country, with as many as 3.3 million people unable to secure sufficient working hours to make work pay. Nothing in the amendment would deal with that trend.

Combined with a VAT rise under this Government, fuel duty rises are particularly regressive. In 2009-10 the poorest quintile paid 3.5% of their disposable income in fuel duty, compared with just 1.8% paid by the top quintile. Overall, in the first year of this Government indirect taxes took 31% of the disposable income of people in the lowest fifth of earners, compared with just 13% among the wealthiest fifth of earners, and that was an increase from the previous fiscal year. According to the latest ONS study of factors affecting the retail prices index and CPI inflation measures, two of the major factors driving upward pressures were the price of clothing and footwear, which rose by 4.7% between August and September this year, and the rising cost of motor fuel, with petrol up by 3.9p per litre and diesel up by 3.5p per litre, compared with falls of 0.3p per litre in the previous year. These changes contributed 0.12% to the shift in the CPI inflation rate. In the year to this September, motor fuel costs alone rose by 2.8%. The case for action is therefore clear.

All these trends must be considered in the context of our low growth. The International Monetary Fund recently downgraded its estimate for UK GDP by 0.6% for this year and by a further 0.3% for next year. That is a crushing verdict, showing that the Government’s policies have sucked even more demand from the economy—as much as an additional £76 billion given the new evidence of the destructive multiplier effects of the Chancellor’s austerity measures. As the National Institute of Economic and Social Research has established, implementing the Government’s preferred rise in fuel duty in January would further weaken growth by 0.1% of GDP next year and keep unemployment higher than it needs to be some 48 months since the downturn began.

That is why I hope Members across the House will tonight take this opportunity to release some of the pressures ordinary households and businesses are facing by voting to postpone any rise in fuel duty until at least April.

Finance Bill

Fiona O'Donnell Excerpts

Tuesday 3rd July 2012 Commons Chamber

[Mr Gauke]

If we do not want people earning £20,000, £25,000 or £30,000 a year to be paying for benefits to go to much wealthier households, the alternative would be an extension of the tax credit system. That would have placed a much greater burden both on households and the Government. Of the available alternatives, we have gone for the simpler option.

We are deferring the 3p per litre duty increase that was planned for August to January next year. Action by this Government to reduce the deficit and rebuild the economy is already benefiting businesses and families and keeping mortgage rates low. As hon. Members know, this Government have also had to make difficult decisions so we can tackle the deficit left to us by the previous Administration. They include withdrawing child benefit from households earning more than £50,000. That is a fair way to make savings, so we can meet our targets to cut the deficit.

We are also taking steps to ensure that the wealthy pay their fair share too. The Budget package ensures that the wealthiest will pay five times more than the cost of reducing the additional rate of income tax. The introduction of a new higher rate of stamp duty land tax of 7% on properties sold for more than £2 million will raise over £1 billion in the next five years. At the same time, this Government are also tackling avoidance, as demonstrated in the Bill. The new SDLT enveloping entry charge rate of 15% will deter those seeking to put their high-value property into corporate structures to avoid tax. Also, debt buy-back measures will raise over £500 million from banks that try to avoid paying the tax due, and the introduction of the UK-Switzerland agreement will ensure we can address the tax loss from those who put their money into Swiss banks to evade tax.

There has been extensive scrutiny of this Bill, including about 44 hours in Public Bill Committee. From looking at some of the new clauses tabled for today, I am happy to see that the Opposition continue to stick to their same theme on this Bill, which is to ask for reports, rather than focusing on policies. We have seen 34 Opposition-requested reports over the last 10 weeks, but no real policy alternatives. Yesterday, we were discussing Groucho Marx, and I wonder if the Opposition ever needed to be reminded of the quote:

“The problem with doing nothing is that you never know when you are finished.”

In order to make progress with Government business in good time, we agreed with the Opposition, through the usual channels, to programme parts of this Bill.

It is a delight to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) once again in his usual place. As he rightly said yesterday, this legislation is the body, soul and guts of this Budget.

I thank all who participated in Committee and on Report.

[Fiona O'Donnell (East Lothian) (Lab)]

rose—

[Mr Gauke]

I will even welcome a contribution from the hon. Lady—for the first time today, I think.

[Fiona O'Donnell]

It is very generous of the Minister to give way. Would he also like to reflect on the comment made by the hon. Member for North East Somerset (Jacob Rees-Mogg) that a good government is one that take tough decisions and stick to them? Does the Minister think that could be said in respect of their handling of this Bill?

[Mr Gauke]

This Government have taken tough decisions to bring the deficit down, and we are sticking to that plan even though some Opposition Members would rather give up on deficit reduction and continue to borrow in the same unsustainable way that we borrowed up until 2010. This Government remain determined to stick to that plan. I thank the hon. Lady for giving me the opportunity to underline that point.

I thank all those who have been involved in every stage of this Bill, including both Front Benchers and Back Benchers engaged in this matter, not to mention various others. I wish briefly to mention a couple of Treasury officials. First, I congratulate Mr Edward Troup, who, as announced earlier this week, has accepted the post of tax assurance commissioner and second permanent secretary at Her Majesty’s Revenue and Customs. His wealth of experience and enthusiasm will be a great asset for HMRC, but a sad loss to the Treasury. I also thank Jamie Miller, who has been the Bill manager for this Bill, and indeed has served on the past six Bills over the past four years. Despite that, he has remained remarkably cheerful, notwithstanding the provocation that all of us have given on that front.

In conclusion, this is a good Bill that builds a stronger and more balanced economy. It will strengthen the UK, making us more competitive and more ready to face the challenges ahead, and I commend it to the House.

--- Later in debate ---

[Stephen Williams (Bristol West) (LD)]

Before I turn to the broad sweep of the Bill, I want to mention again clause 180, to which the Minister referred in his winding-up speech in response to my hon. Friend the Member for Argyll and Bute (Mr Reid). Many of us will have been written to by a coalition of charities such as Christian Aid and ActionAid, with which I have been working closely on the effects of the clause. The reason for that concern is felt internationally. The OECD has estimated that developing countries lose three times the amount of aid that they receive from developed countries through tax avoidance in their own countries.

In 2011, the United Nations, the International Monetary Fund, the World Bank and the OECD came together and said that the G20 countries have an obligation to ensure the smooth running of the international tax system. It was therefore appropriate for G20 countries to undertake spill-over analyses of proposed changes to their own tax systems and the possible impact of those changes on the fiscal circumstances of developing countries.

[Fiona O'Donnell]

Will the hon. Gentleman take this opportunity to explain to the House why, if he is so passionate about the issue, he withdrew his amendment in Committee and failed to vote for ours?

[Stephen Williams]

If the hon. Lady was so interested, she could have studied the Hansard record of the debate. The purpose of my amendment at that stage of the Bill was to probe the intentions of the Government and to get on the record statements from my hon. Friend the Minister that the Treasury and the Department for International Development were going to work more closely together. The hon. Lady’s party made it clear that it would not support my amendment in order not to hold up that controlled foreign companies change going through. I suggest that she has a word with her Front-Bench team.

I move on to new clause 6, which I tabled. Because of the length of time spent once again discussing the bank bonus levy and Labour’s five-point plan, we did not get to it this evening. Perhaps the hon. Lady might like to think about why that was the case. New clause 6 called for joined-up working between the Treasury and the Department for International Development. You, Mr Deputy Speaker, I and many other hon. Members and Members of the House of Lords were in Committee Room 14 this morning to listen to President Carter, Archbishop Desmond Tutu and former Irish President Mary Robinson, three of the Elders, who were talking about human rights and in particular developing nations. They specifically praised the record of this Government as the first major Government in the world to reach the 0.7% target for overseas aid. I urge my colleagues in Government again to build upon that achievement by making sure that our aid is well spent and raises the capacity of overseas Governments to develop their own tax collection capability so that they are not so dependent on us in the future.

As others wish to speak, I turn to the wider measures in the Bill. For those of us who have been on the entire journey, it has been a long trip from the Budget to Second Reading, to Committee of the whole House, to 18 sittings of the Committee, and to the past two days. Some of the things that were there at the start did not make it all the way through to the end. Maybe somewhere in Cornwall there is someone sitting in a caravan, eating a pasty washed down by sports drinks, filling in a gift aid form, perhaps to a church restoration fund. Such a person ought to be happy that this Government listen.

Some things, to be fair, were consistent all the way through that process. We heard them again this evening from the hon. Member for Leeds West (Rachel Reeves)—Labour’s five-point plan. As a boy, I was brought up to go to Sunday school, so I cannot help but be reminded of the parable of the feeding of the 5,000; they start off with such a small amount and expect it to achieve so many things, but without the benefit of miraculous intervention.

When all these measures are long forgotten, having simply been about tens of millions or hundreds of millions of pounds, it is the really significant measures in the Budget, which involve billions of pounds, that will be remembered in the sweep of history. The most significant of those is the progress towards raising the income tax threshold towards £10,000. My party, the Liberal Democrats, can take particular pleasure in the fact that the Budget and the Finance Act, as the Bill is soon to become, set us off towards another milestone on the route to achieving the £10,000 tax-free threshold. It will already lift 800,000 people out of income tax, and it will do so for 1.1 million people over the coming year and 2 million next year, allowing more people to retain the benefits of their work. We also saw in the Budget the introduction of effective wealth taxes, new rates of stamp duty, a new clampdown on stamp duty avoidance, something the previous Government shirked on many occasions, and new restrictions on reliefs against tax.

When the history of this Government and this Budget is written, it is the rise in the threshold to £10,000 that will be long remembered when all the ephemera we have been dealing with, and which Opposition Members have been so keen to raise over the past 12 weeks, are long forgotten. The raising of the threshold, which will lift people out of taxation, is the big issue that will be remembered for many years to come.

Child Benefit

Fiona O'Donnell Excerpts

Tuesday 22nd May 2012 Westminster Hall

[Mr Chope]

My hon. Friend makes a good point. I am grateful to him for reminding us about the 10p tax rate, because that introduces a bit of political balance into this debate. It is not just the coalition Government, or the previous Conservative Government, who can get on the wrong side of such issues, both in respect of the principle and of the detail. We need an answer to the question of why the single-parent earner on £60,000 loses the equivalent of all her child benefit, while next door the two-earner couple on up to £100,000, with their incomes spread equally between the earners, keep their child benefit. Will there be an answer to that question? Perhaps the Minister would like to intervene. Unless we get answers to those fundamental questions, it will be difficult for us to sell the concept to our constituents.

[Fiona O'Donnell (East Lothian) (Lab)]

The hon. Gentleman is making an excellent contribution. Does he agree that the unfairness of the measure goes beyond income? It does not take account of the number of children in any household.

[Mr Chope]

Of course it does not, because the whole thing is arbitrary. It is all based on the false premise that people on £20,000 or £30,000 a year are cross-subsidising those on higher incomes with children. I have had a letter published in The Daily Telegraph and the Minister has replied to my questions, but it is apparent from my hon. Friend’s answers that there is no cross-subsidy from a person on £20,000 a year to someone on £60,000 a year with however many children—that is a fallacy. I suspect that the policy is based on someone going to a focus group and asking, “Is it fair that someone on £20,000 should be subsidising a family on £60,000 with a whole lot of children?” Of course it would not be fair if it was true, but it is not true—it is a false premise and, on the basis of that, we have a policy that I fear will lose the Conservative party a large number of votes.

Let us not forget, however, that the origins of the policy lie not in the Conservative party but with the Liberal Democrats. Before the general election they were campaigning to interfere in that policy area. With the knowledge that the measure was originally proposed and supported by the Liberal Democrats, this is another example of an area in which the Prime Minister can feel free to make significant change if he wishes to respond to agitation on his Back Benches for a bigger Conservative element in Government policy. Officials have previously suggested that something should be done about taking child benefit away from those on higher earnings but my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), who was a Treasury Minister, said that, after looking at it from all angles, we reached the conclusion that it could not be done fairly. So what are the present Government going to do? They are going to do it, and they are going to do it unfairly.

What worries me is that the measure will be administratively burdensome as well, costing more than £100 million in extra administration. We will be taking on tens of thousands of additional civil servants when the Government are saying that we want to simplify tax policy, reduce the size of the state bureaucracy and so on. There is no consistency, and I fear for my party.

--- Later in debate ---

[Kate Green]

The hon. Gentleman is right. I hope to come on to the situation when John Major was Prime Minister, and some of the arguments then.

For the benefit of many hon. Members who do not seem to appreciate the underlying principles of universal child benefit, I want to put them on the record this morning. I am sorry that they are not in the Chamber to have the benefit of my exposition, but they can read it in the Official Report. As hon. Members have said, this benefit, which is important for families, is a mechanism that is redistributive horizontally and vertically, as my hon. Friend the Member for City of Durham said. As other hon. Members have said, in practice that means that families with children receive extra help to meet the cost of raising their children because, as a society, we all share the benefit of those children making a future contribution to our communal well-being. It is right to provide that support universally, and to recognise that we all share in the social obligation to maintain those families.

Over its life, the benefit is redistributive, and it enables all families to manage the additional costs that they face when raising young children, and to plan their finances across their whole lifetime. Importantly, in practice—this has been alluded to—it is a benefit that has been paid mostly to mothers. The vast majority of child benefit is paid to mothers. Even in the richest families, it is the only source of independent income for many women, and it is essential that they have access to it to provide for and to meet the needs of their children.

As hon. Members have said, we know that that money is spent for the benefit of children, either directly on toys, books, activities, clothes, shoes and so on, or indirectly by paying down family debt, ensuring that basic household bills are covered. Things that are essential for children’s well-being are prioritised in all families, and one reason is the label it bears. There is good research evidence showing that because it is called “child benefit”, it is understood that it must be spent for the benefit of children, and that is what happens.

[Fiona O'Donnell]

Does my hon. Friend agree that we are talking not only about the income received, mostly by women, but also about national insurance credits that build up to a pension? People may not be in the same relationship when they retire, but the risk is that women will make a credit-only claim and that they will lose out in the long term.

[Kate Green]

My hon. Friend makes an important point. If women come under pressure to forgo child benefit, rather than their partner seeing an increase in their tax bill—I believe that that will happen in some families—they will lose the benefit of their national insurance credits. That will have a lifetime impact on those women and their pension entitlement. We cannot wish to pursue a policy that risks making women poorer throughout their life.

This benefit is directed towards children and has been designed to follow a child and stay with them even if their family circumstances change. That is particularly important if a relationship breaks down, because a woman may have no other source of income at that point. It may be an acrimonious dispute in which she is struggling to extract money from her former partner, and child benefit is often the only source of income on which she can rely to get through that family breakdown and make the transition to single parenthood. When I was director of the National Council for One Parent Families, even women in relationships that were financially well off described to me how important child benefit had been at that moment of family change. If women start to forgo that benefit under pressure from a partner who later decides to leave the household altogether, I worry that we will disadvantage those women and their children, which is something that we will regret.

I am surprised by the Government’s approach because it introduces a policy that will act as a disincentive to work. Universal child benefit does not disadvantage those who move into paid employment, because the benefit remains. The incentive to increase income through more working hours or going for a promotion will be removed for some families, and I cannot understand why Ministers, who are often concerned to incentivise people to maximise their income from employment, wish to go down such a route. The Government have the right objective, but this policy seems particularly perverse.

As my hon. Friends and the hon. Member for Christchurch have highlighted, the complexity that is being introduced into the system is completely at odds with the Government’s stated intention to simplify the tax system. Simplicity is not just an advantage in itself, but it means that payment is more reliable, and more likely to be accurate and more predictable. There is also much less stigma attached to the receipt of a simple universal flat-rate payment for all families.

One criticism is often levelled against the payment of child benefit to richer people, and it would probably have been made this morning had more hon. Members attended the debate—today there are mostly proponents of child benefit in the Chamber, which is perhaps why the point has not been raised. I want to put on record my response to those who ask why we are giving child benefit to people on higher incomes and asking those on lower incomes to help pay for that. The fact is that we do not—and should not—make the same argument when it comes to the national health service or our children’s education, and we do not make it for the tax system or say that higher earners should not receive the benefit of the recent increase in the tax threshold. As I am sure the hon. Member for Christchurch will remember, the higher rate of child benefit for the first child was intended to replace what had previously been the married couple’s tax allowance. It seems particularly perverse that we are now effectively seeking to tax a tax allowance, instead of understanding that in every other part of the tax system, such allowances stretch across the income spectrum. Now, we have decided to treat child benefit differently.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to speak under your chairmanship, Mr Streeter. It has also been a pleasure to listen to passionate and well-thought-out and well-delivered speeches from hon. Members who feel very strongly about this issue. I congratulate my hon. Friend the Member for City of Durham (Roberta Blackman-Woods), who brought it to Westminster Hall this morning to give us slightly more time to debate it than we had on the Floor of the House. I remember that the hon. Member for Christchurch (Mr Chope) pointed out then that we had 52 minutes to debate both the clause and the schedule. I heard what he said earlier today and I responded at that time, but I will say again that if we can find ways, across the Chamber, to ensure further scrutiny on Report of both the clause and the very important points in the schedule, that will be very helpful. I would certainly be more than willing to lend our support to see how we can do that.

[Fiona O’Donnell]

As well as welcoming the contributions this morning, would my hon. Friend agree that perhaps the Minister should be concerned that not a single hon. Member has turned up to support his proposals?

[Cathy Jamieson]

I thank my hon. Friend for that intervention. I was not going to point out that the Minister seems to be on his own this morning. I am sure that none the less he is very capable of dealing with the questions that have come up and will receive inspiration from various sources in order to do so. However, I will take the opportunity to repeat gently the advice that I tried to give the Minister during the discussion on the Floor of the House: “When you’re in a hole, it’s better to stop digging and find a ladder to get yourself out of that hole.” At that time, we were suggesting that we would be willing to work with the Government to see what could be done to mitigate the worst outcomes of this flawed policy, and that offer still stands.

--- Later in debate ---

[Cathy Jamieson]

I thank my hon. Friend for putting that on the record. I am sure that note will duly be taken.

I want to use this opportunity to explain how we have got to the position we are in and what we need to do to resolve the problems. It is worth remembering that when the plans were announced, a single-income household earning just over £43,000 would have lost all the benefit, but a dual-income household on £84,000 would have kept all of it. The 2012 Budget increased the threshold for the withdrawal of child benefit to those earning £50,000 or more from 2013-14. That might have gone some way towards solving the problem for some families—the estimate was that about 750,000 might be in a better position—but it does not get away from the essential point that the principle of universality is fundamental to child benefit, as my hon. Friend the Member for City of Durham and other hon. Members have said.

We heard powerful speeches from my hon. Friend the Member for Stretford and Urmston (Kate Green) and others about why the principle is important and why we must do everything we possibly can to defend it. Child benefit is supposed to be about providing families, particularly mothers, with a dependable source of income for the benefit of the children and which a mother knows she will get irrespective of what goes on in the family. As we have heard, research from Child Poverty Action Group and others shows that the money is by and large spent on the day-to-day necessities for children.

I do not want to take us off-track, but the hon. Member for Christchurch mentioned the community charge. He was a junior Minister when it was introduced, as he explained, and I was a young mum. I spent many a wet Saturday campaigning against the introduction of the community charge in Scotland. If anything at that time politicised me and many other women, it was the unfairness of what the Government were doing. I do not say that to be critical of the hon. Gentleman—he has been very helpful this morning—but simply to say that when put in front of Ministers, sometimes issues look like a wonderful wheeze on the basis of the paperwork that the Government have produced, but it is when we look at the impact on people’s lives that such policies begin to fall apart. That is what is happening here.

I want to say a few words about the other issues raised in the debate. My hon. Friend the Member for City of Durham spoke not only about the principles of child benefit and the unworkability of the proposals, but about their legality. She made a powerful statement: these changes are wrong and they should not happen. That is absolutely right and it is the position that we are coming from this morning.

My hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) mentioned workability and the fact that the proposals were far too complex. She critically identified the real impact on real families. A family with three kids could find itself with a bill of £600 at the end of the year. That might not seem to be a big deal when someone is writing it in a policy proposal, but for many families that £600 bill will mean the difference between being able to buy necessary items for their kids and not being able to do so. Being asked to pay such a bill suddenly can throw a household budget out for months.

[Fiona O’Donnell]

I thank my hon. Friend for her generosity in giving way again. Does she agree that we need clarification from the Minister? If a parent who is entitled to child benefit throughout the year receives a bonus from an employer at the end of the tax year that takes them over the threshold, what will happen to the family?

[Cathy Jamieson]

My hon. Friend makes another useful point. We raised that issue with the Minister on the Floor of the House. Many people, because they get a bonus at work or because they are self-employed, will find at the end of the year that they have earned either more or less than they anticipated. Many self-employed people are not earning huge sums of money, so such issues are critical to them.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate the hon. Member for City of Durham (Roberta Blackman-Woods) on securing the debate, and thank all the hon. Members who have contributed. A number of factual questions have been asked about the operation of the policy on child benefit, and I shall deal with as many as possible.

The changes that we announced at Budget 2012 ensure a balance between reducing the cost to the Exchequer of child benefit and ensuring that those on low incomes will not be affected. I must put the measure in context; it is the consequence of the state of the public finances that the Government inherited. We have to make decisions because of the Budget deficit that we inherited—the largest in our modern history. It is, unfortunately, the British people who will have to pay for the debt left to us by the previous Administration.

[Fiona O'Donnell]

I follow the Minister’s argument about the need to reduce the deficit, but will he acknowledge that that is no excuse for a bad policy that even Members on his own side acknowledge is intrinsically unfair?

[Mr Gauke]

It is because of the state of the public finances that we must take difficult decisions. I will strongly defend the policy, but I must make the point to hon. Members who oppose it that it is helping us to reduce the deficit by £1.8 billion. If we do not find that sum in the way in question, we will need to find it somewhere else, or borrow more. That is the decision that we all face.

Jobs and Growth

Fiona O'Donnell Excerpts

Thursday 17th May 2012 Commons Chamber

[Ed Balls]

The economy is in recession and they hate it, and so do business organisations up and down the country. Is it any wonder that businesses have been so disappointed and upset by the Queen’s Speech of just two weeks ago? Let me quote the director general of the British Chambers of Commerce:

“There is a big black hole when it comes to aiding business to create enterprise, generate wealth and grow.”

Quite right, Mr Deputy Speaker.

There will be some parts of the Queen’s Speech dealing with Treasury matters which we will support. On banking reform, we will look forward to supporting legislation to strengthen capital ratios and promote competition, although it is now nine months since the final report of the Vickers commission, and we are still waiting for a response from the Chancellor of the Exchequer. However, after 18 months of flatlining, with our economy now in recession and business investment depressed, the question I ask—it is the question British business is asking too—is this. Where is the plan in the Queen’s Speech to restore confidence and promote business investment and jobs in Britain?

With net lending falling month on month—according to the Bank of England it has been down every month for over two years now—where is the action in the Queen’s Speech to promote small business lending? With youth unemployment now at a record high, and with yesterday’s figures confirming that long-term unemployment among young people is still rising, where is the legislation in the Queen’s Speech to get our young people back to work? Where is the legislation to repeat the bank bonus tax to fund a jobs guarantee for young people—or, for that matter, to cut taxes for small businesses hiring new workers, or to help the construction sector with a temporary cut in VAT? Our economy has ground to a halt and our construction sector is in great distress. Where is the plan to support jobs and growth by bringing forward new infrastructure projects? Where is the legislation to make our economy stronger and fairer for the future? Stronger corporate governance; a business investment bank; progress on high-speed rail; reforms in our universities to promote innovation—all are completely absent from this Queen’s Speech.

[Fiona O'Donnell (East Lothian) (Lab)]

Does my right hon. Friend agree that young people in Scotland are facing the double whammy of a coalition Government who are complacent and a Scottish National party Government who are cutting further education funding?

[Ed Balls]

I understand my hon. Friend’s concerns at the lack of a youth jobs plan in Scotland. We can understand that from the Conservatives, because they abolished the future jobs fund, but people will find it hard to understand why the Scottish National party Administration in Scotland have failed so woefully to do anything to tackle the challenge of youth unemployment.

--- Later in debate ---

[Mr Osborne]

As I was explaining, four fifths of those who work part-time are getting the part-time work they want. The right hon. Gentleman should celebrate the fact that 400,000 more people are employed than was the case two years ago. Why not get up and welcome that?

If the Opposition’s argument is that we need to do even more, I agree. In the past six weeks alone, we have opened 24 enterprise zones around the country, cut businesses tax to one of the lowest rates in the world, increased support for small business research and development, reformed employment law in the teeth of Labour opposition to double the period before unfair dismissal claims can be made, reinvigorated the right to buy, launched NewBuy mortgage schemes, awarded ultra-fast broadband grants to 10 of our largest cities, frozen council tax across England, launched a £20 billion national loan guarantee scheme that is already delivering cheaper loans to hundreds and thousands of businesses, and increased the personal allowance to cut tax for 20 million working people and lift 1 million of the lowest paid out of tax altogether, with another 1 million to come. That is just in the past six weeks.

Yes, the Government must work harder and do more. The world does not owe this country a living. We will do that, but we have done a great deal already.

[Fiona O’Donnell]

What does the Chancellor say—apart from “Work harder”—to SMEs in my constituency that tell me that the single greatest contribution his Government could make to economic growth and the creation of jobs is to cut VAT?

[Mr Osborne]

This is what we have done for small businesses: we have cut the small companies tax rate, which was going to go up under the plans that we inherited and which the Labour party voted for in the previous Parliament; we have got rid of Labour’s jobs tax; and we have frozen the business rates. We will check the record carefully, of course, but I think that in his speech the shadow Chancellor was advocating an increase in national insurance.

--- Later in debate ---

[Fiona O'Donnell (East Lothian) (Lab)]

This is less a speech, more a postcard from East Lothian, but I am grateful for the opportunity to contribute to the debate, because I want to send Government Members a message from East Lothian about how we create jobs and growth. We rely heavily on the small and medium-sized enterprise sector, and the message from such businesses is clear: they are lukewarm about a lot of last month’s Budget, but they say that what would make a difference is a cut in VAT. I hope, therefore, that Ministers will listen.

I also want to talk about jobs. Many aspects of job creation in Scotland, including in my constituency, are devolved to the Scottish Parliament, and this House and the Government here need to work more closely with the Scottish Government. I have written to the Secretary of State for Work and Pensions—[Interruption] —whose attention I do not appear to have right now—about a constituent of mine. He is a 19-year-old man who finally had the chance of a job in a community bakery in Dunbar, but he was not allowed to apply for it because he was on the Government’s Work programme and the job was funded by the Scottish communities job fund. When a young man has the opportunity of the perfect job in his own community, it is simply inadequate to give him the response, “You cannot have it because of the double funding.” It surely cannot be beyond the wit of this Government and the Government in Holyrood to work together to address the issue. I understand that that is not a problem in England or Wales.

I went to see the providers of the Work programme in East Lothian, and they told me that they would be perfectly happy to consider transferring funding from their stream into the Scottish communities job fund in order to prevent a similar situation happening again, so I hope that Ministers will open discussions with the Scottish Government to address the problem. There is already enough pressure on young people trying to find work in my constituency. Figures last month showed an increase of 467% in youth unemployment, and that simply is not good enough.

Tourism is very important to the East Lothian economy, but unfortunately it is suffering and will suffer further, as I will find tomorrow when I visit the owner of a caravan park in North Berwick. So if the Government want to promote tourism and growth in my constituency, I ask them to look again at the introduction of VAT on static caravans.

I was also disappointed that in the Queen’s Speech we did not see any proposals on offshore gambling. Musselburgh race course recently won its third award this year, as the finest race course in the UK, and it is a driver of growth and innovation in a community that is struggling in so many ways. I am sorry that we did not see the issue addressed, but once I have heard the result of the private Members’ Bill ballot, I might find that I am able to do something about it myself, for my own constituents.

None of the barriers to business, growth and job creation was addressed in the Queen’s Speech and, as many others have said, it has been a missed opportunity. Telling people to work harder is not good enough, when inflation for the poorest 10% is at 41%, and for the richest 10% is at only 3.3%. This is a Government who choose to help that richest 10%, and that says it all.

IMF

Fiona O'Donnell Excerpts

Monday 23rd April 2012 Commons Chamber

[Mr Osborne]

IMF loans are made with conditions, and one condition is interest, although there is a specific programme to help very low-income countries to cope with the interest costs. It is very important, as part of any IMF analysis, that we undertake proper debt analysis, and the IMF has been pretty instrumental in driving through the private sector creditor write-offs that have happened in Greece in order to improve debt sustainability, something which—I do not think it is any secret—many eurozone countries were not particularly in favour of. The IMF can therefore take action to improve debt sustainability.

[Fiona O’Donnell (East Lothian) (Lab)]

The Chancellor has told the House that this is not about a eurozone bail-out, but back in September he also told us that we would not contribute again to the IMF bailing out the eurozone. If that is the case, why are eurozone countries contributing proportionately more?

[Mr Osborne]

I said very clearly in my statement that the principal reason the world economy is unstable is the problems in the eurozone, and, as all the questions have demonstrated, there is of course a connection between those problems and the need to have a well resourced IMF, but, as I said last autumn, we are not prepared to see IMF resource going into eurozone bail-out funds. It needs to be for individual countries and for individual country programmes, and that is a view which not just I or Britain happens to have, but which Japan, South Korea, Australia and European countries that are not in the European Union, such as Norway and Switzerland, share. Ask yourself the question, Mr Speaker, and the House can ask itself, too: why have all those other countries thought it is in their interests to help to deal with a problem that is actually on Britain’s doorstep as well?

Finance (No. 4) Bill

Fiona O'Donnell Excerpts

Thursday 19th April 2012 Commons Chamber

[Richard Harrington]

rose—

[Fiona O'Donnell (East Lothian) (Lab)]

rose—

[Rachel Reeves]

I believe my hon. Friend wants to intervene.

[Fiona O'Donnell]

In constituencies such as mine, many pensioners live in rural communities without access to public transport, so we need to add into the mix the cost of running a car, which is essential to their quality of life.

--- Later in debate ---

[Dr Whiteford]

I absolutely agree. In fact, that was one of the points that I wanted to make, because that subject has been eclipsed in the debate about the changes.

The Government have made great play of the recent increases to the state pension, and seem to suggest that they will somehow offset the changes to the tax allowances. As the hon. Member for Leeds West (Rachel Reeves) pointed out, however, we must remember that that is simply an inflationary rise. It will only keep pace with prices; it is not an increase. It is only a small step in the right direction towards restoring pensioners’ incomes to a level that most of us would recognise as providing a decent standard of living.

I have mentioned in the House before that the way in which pensioners experience inflation can differ markedly from the way in which the general population as a whole experiences it. One of the most obvious and significant examples of that relates to heating and domestic fuel costs. Retired people are more likely to have to heat their homes during the day, while the rest of us enjoy the benefit of our workplace heating systems. Many pensioners also find it harder to keep warm because of their age and the fact that they are not moving about so much. So any inflation in the cost of energy is felt disproportionately by pensioners, and nowhere more so than in those parts of these islands that experience consistently colder weather.

Last year, we saw sharp and dramatic increases in home energy costs, which played a big part in driving inflation up to over 5%. Energy prices have come down since that peak, but I heard on the news this morning that some economic commentators believe that inflation this year is going to be well above the Bank of England forecasts that the Government are using, and that we could experience inflation of over 3% this year as well. The welcome increases in the state pension have only kept it in line with inflation and might not keep it in line with inflation as it is experienced by people of pensionable age. That is why the Government’s argument that the changes to age-related tax allowances are compensated for by the increases in the state pension is somewhat spurious. In real terms, this tax grab squeezes the incomes of pensioners on modest incomes.

It is also all too easy to forget that pensioners have already paid a heavy price for the financial crisis. Those pensioners affected by these new changes to age-related allowances are in many cases the same people who saw the value of their savings and investments plummet in the wake of the financial crisis. Since then, they have had to contend with record low interest rates, coupled with high inflation. As the Treasury Committee reminded us earlier this week, quantitative easing, whatever its intended consequences, has had some very nasty side effects for those reaching retirement age and looking to buy an annuity in the last few years.

[Fiona O'Donnell]

The hon. Lady, like me, has many pensioners in her constituency who are on modest incomes and thought they could afford to live out their retirement and be able to cope with running a car, higher food prices and all the other added costs of rural living. Does she agree that this change is going to wreck the plans of many of those pensioners?

[Dr Whiteford]

I agree entirely. It is about not only rural and transport costs, but increases in VAT, cuts in fuel allowances and so forth. All these things have put a real squeeze on people living on fixed incomes, who have little opportunity to find money from any other source. These have not been easy financial times for those on fixed incomes, who have been the forgotten victims of the financial crisis. It is not fair to say that pensioners have got off lightly so far from the public spending squeeze—quite the reverse. In considering changes to age-related allowances, we need to understand that the granny tax will tighten the screw on people who have already had significantly to tighten their belts in recent times.

Those affected by this measure are all living on below-average incomes. Most will have paid tax throughout their working lives, and most thought they were doing the responsible thing by saving for their retirement. Crucially, they do not have the opportunity to find alternative sources of income. They are on fixed incomes and are living off savings.

--- Later in debate ---

[Margot James]

I want to make some progress on the main subject of the debate, which is the freezing of tax allowances, but first let me make a couple of other points. Labour Members did not mention that the other thing that the Budget has rightly done is take many people out of tax altogether by increasing tax allowances. I believe that that has benefited up to 24 million.

All this must be seen in the context of deficit reduction. There have been exchanges across the Chamber about parties’ manifestos. I stood on a manifesto that was all about getting some sense back into the public finances and reducing the outrageous deficit that was bequeathed to the current Government. The Chancellor’s central strategy to deal with that deficit involves 80% of spending cuts and 20% of revenue raising. Given that the Opposition oppose virtually all the spending cuts, would reduce VAT, and are proposing not to freeze older people’s allowances, we can only conclude that they are not serious about reducing the deficit, and in that regard they are grossly out of step with public opinion.

[Fiona O'Donnell]

Perhaps the hon. Lady will make the progress to which she referred and will begin to deal with the issue that represents the substance of today’s debate. May I ask her whether she made representations to the Chancellor before the Budget, asking him to freeze the age-related allowance?

[Margot James]

I did not make representations to the Chancellor on a matter as technical as the one that we are discussing. Having dealt with that point, I will now proceed to discuss the freezing of older people’s allowances.

I consider the term “granny tax”, coined by the media and exploited by the Labour party, to be very pejorative. As was pointed out by my hon. Friend the Member for West Worcestershire (Harriett Baldwin), it is also very inaccurate, as 60% of those who will be subject to the freeze are men. Moreover, this is not a new tax, although some sections of the media presented it as such. I do not see how the freezing of an allowance can possibly constitute a new tax.

It is unrealistic to suppose that older people should be immune from the need to contribute to reducing the deficit. My hon. Friend the Member for Ipswich (Ben Gummer) made that point very eloquently. Let me add a statistic of my own: the number of people aged 65 and over is expected to rise by 65% in the next 25 years to 16.4 million. Some of the measures that were introduced so many decades ago to the benefit of older people simply cannot be sustained in the current period of rapid demographic change.

--- Later in debate ---

[Brandon Lewis]

I thank the hon. Gentleman for that intervention, which gives me a chance to highlight the good news we had this week regarding the number of people in employment. In Great Yarmouth we saw not only an increase in employment this month, which is very welcome, but an increase in the number of young people in employment. That is a testament to the work the Government are doing, and also, I hope, a sign of the improvements that are coming. It is also a testament to the opportunities put in place through the previous Budget and the work of the Department for Work and Pensions, particularly on work experience and the Work programme, which is also having an impact.

In Great Yarmouth, we also have a particularly high number of part-time and seasonal workers due to the nature of the constituency and its tourism industry. The change in personal allowance is a huge help to that sector of the local work force. It puts extra money into the pockets of hard-working families across my constituency.

[Fiona O'Donnell]

I am sure that the hon. Gentleman is going to talk about the age allowance at any moment. Has he considered its impact on his local economy? That money was not being spent on skiing trips or foreign holidays; it is money that would, in the main, be spent in the local economy.

[Brandon Lewis]

The hon. Lady has just made a very good argument for cutting taxes and increasing the personal allowance, which is exactly what this Government are doing. The reason why I have chosen to talk about particular issues is that I agree with something my hon. Friend the Member for Stourbridge (Margot James) said a moment ago. Pensioners in my constituency are often concerned about the future for their family—their children and their grandchildren. The work this Government have done has put in place changes, enterprise zones and opportunities for people to increase jobs, as we have seen this month, so there is a real opportunity for people in future.

We must also take into account something else. In Great Yarmouth, a prediction listed by our local health teams in the past few years is that our pensioner group will increase by 35% in the next 15 years. That is a huge increase. I fully agree with my hon. Friend the Member for Ipswich (Ben Gummer) that we have to ensure that this country can provide for people in their pensionable years in future. As we face such an increase in the number of such people, the Government must take the decisions that mean we can provide a good and fair opportunity for the future of all pensioners. That is why I also appreciate the Government’s work to move towards a fair and straight flat-rate pension for pensioners in future, on which I congratulate them. The work done in the last two Budgets will make that possible. It will mean that our economy can move forward and that we can make fair and proper provision for people in various age groups.

As the personal allowance for all people, including under-65s who work hard, increases, there will be an impact on pensioners in future. The changes announced in the Budget that simplify the tax system make it clear that there will eventually be a flat, fair and generous rate of allowance for all people. As Opposition Members have admitted, that means that nobody has a cash loss at all. In fact, pensioners under this Government had the biggest increase in their basic state pension ever seen. More than 5 million of the poorest pensioners are unaffected thanks to the triple lock. All pensioners are therefore better off and will receive the biggest ever increase of £5.30 a week. In 2013, they will receive £130 more than they would have received under the previous Government’s plans. Pensioners will respect this Government for that and appreciate the Government’s credibility for putting together a solid economic base to allow it to happen.

That is why the measure should be looked at as a whole, particularly for an area such as Great Yarmouth, where we have a high proportion of pensioners. We must make sure that we can provide for them properly and fairly in the future, and also that the economy can create jobs for their families and increase our economic growth. Being in government is about making tough decisions. Those must be the right decisions, and that is what being in government is about. As we heard today from those on the Opposition Front Bench, opposition is often about opportunism, not about making right or proper decisions.

--- Later in debate ---

[Alison McGovern]

The great Bill Shankly once said that he was always surprised that people were surprised at surprises. In one sense it is surprising that Government Members seem to question the BBC and yet cannot intervene to tell me that it is wrong. As the BBC states, those affected will be

“a ‘middle-income’ range of…pensioners who will not get what they might have expected from the tax system.”

That is a very important point. Of course we are all concerned about the impact of the recession on the poorest, but there is another factor to consider. People on middle incomes, who might have had certain expectations about how they could live their life, are now being disappointed and do not know what is coming in the future.

People feel that one of the big problems with the Budget is that certain matters that were brushed over and not explained fully have subsequently come out as being pretty serious. The insecurity facing people at the moment, especially those in the middle of the income distribution, is really quite serious, not least because it is not very good for people’s quality of life if they are constantly worrying about what next year might bring financially. How they interact in the economy and their actions as consumers are also deeply affected by that insecurity.

One of the biggest challenges for Treasury Ministers to address is how communities such as I have mentioned in the Wirral and other parts of the country, where time after time Government announcements have chipped away at the money in the local economy, can deal with the insecurity facing people. The Budget will have a significant impact on people’s quality of life.

[Fiona O'Donnell]

My hon. Friend is making an excellent contribution. Does she agree that when we meet older people in our constituencies, it is inspiring to hear how concerned they are about young people’s future? However, what they see in the Government’s taking money from 40% of pensioners is not an effort to invest in creating jobs for young people. What really hurts is the fact that that money is being used to give a tax break to millionaires.

[Alison McGovern]

My hon. Friend is right. Of course, older people are worried about the next generation’s future, and they do not believe that the Government are making the right move, not least for the reasons that she gave.

I hope that Treasury Ministers will reconsider the proposal and their approach to local economic development. Economies are geographically centred, and businesses currently face, as I have said time and again, a chipping away of resources in their area. That makes growth extremely hard and I hope that Ministers will consider that.

--- Later in debate ---

[Nigel Mills]

I entirely agree about a simplified tax system, and if we could have found a way of merging income tax and national insurance, taking away one complexity, that would have been a great step forward. The tax regime for pensioners—people in retirement—is far too complicated and we need to find a way of simplifying it.

[Fiona O'Donnell]

rose—

[Nigel Mills]

Not at the moment. I am sure that all hon. Members have seen pensioners in their surgeries who have suddenly been landed with a huge tax bill that they were not expecting because PAYE had not been deducted from a private pension or because they had different income levels from those they were expecting. All of a sudden these people are facing a bill of a £1,000 or more that they literally cannot afford, and through no fault of their own. So the whole spirit of trying to simplify the tax position for pensioners is exactly the right way forward. This measure is not the end of that; it will be the start of trying to get to a place where everyone can understand what their correct tax position will be and will not have to fill in myriad tax returns. People have to claim this age-related allowance, and that is slightly unusual. Normally, people expect their personal allowance to be an automatic thing, but people have to write to claim this, and that has always struck me as a strange anomaly.

The direction we are trying to take is clearly the right one. This measure is not something that any of us would have wanted to do, and I feel sympathy for all those pensioners, including my parents, who will lose money as a result of it. This is one of the many issues about which we do not just get grief from our constituents; we get grief about it from our own families every time we see them. I have to try to explain to my family why they have to put up with this pain. When we have got the personal allowance up to £10,000, the actual value of these increased allowances over that level will have been greatly reduced compared with the £3,000 difference that I believe the figure was at the start of this Parliament.

I do not think that anyone in this House is saying that as the basic personal allowance is rightly hiked up to £10,000, there is any way we can afford to hike the pension one up by the same amount—all anyone was ever expecting was for it to go up by some measure of inflation. As that benefit was to be so reduced by the end of this Parliament, we have to wonder whether or not the actual benefit to people would have been worth all the complexity, and all the hassle of maintaining these things and the delivery cost.

So I say to the Government that simplifying tax is right. This measure is one of those in the box marked, “Necessary, but unpleasant and not what we wanted to do”. We would all much rather find ways of giving our pensioners more income, but I am convinced that this is one of those things that we just have to do to take our tax system in the right direction and try to fix the deficit. However, I encourage the Government to examine all the other things in the Office of Tax Simplification’s report on tax and pensions and try to introduce some of them too, so that we get a fully developed and balanced reform, rather than just this start.

--- Later in debate ---

[Mr Gauke]

I have to say that I have not. What I have heard from the Labour party is their resistance to any of our attempts to make our tax rates more competitive or to simplify our tax system.

[Fiona O'Donnell]

Perhaps I can make a helpful point to the Minister. Does he think it simplifies the tax system for 30,000 Scottish families to have to fill in a tax return to be entitled to child benefit?

[Mr Gauke]

I will deal with that in my remarks on child benefit, which we will debate shortly. The idea of people having the same personal allowance whether they are 64, 65 or 75 seems to me perfectly sensible.

The changes made by the clause will help ensure that people get the allowances to which they are entitled, pay the right amount of tax and make it more straightforward for Government to administer, thereby minimising costs to the taxpayer. A 2009 report from the Public Accounts Committee commented that the age-related allowances were

“complex and hard for older people to understand and place too much emphasis on older people having to prove their eligibility, resulting in errors in claims and potential overpayments of tax”.

In March this year, the Office of Tax Simplification published its interim report, “Review of Pensioner Taxation”, which highlighted no less than nine complexities in relation to the age-related personal allowance. One of the main sources of complication is the taper, which we have heard about in the debate this afternoon. The taper removes an individual’s personal allowance where their income exceeds £24,000 at a rate of £1 for every £2 over this limit, up to the point at which their personal allowance is the same as that for an individual born after 6 April 1948. This creates a 30% effective marginal rate of tax for individuals on relatively modest incomes and brings people into the self-assessment system when, in most cases, they would otherwise have no need to complete a tax return.

For some, in particular people whose tax affairs have previously been entirely dealt with under the PAYE system through their working lives, and who have therefore had nothing to do with HMRC, this can be a challenge. They now find themselves having to complete forms and tax returns for HMRC because they may be affected by the taper when they reach the age of 65. The changes made by the clause, alongside the increases that we have made to the personal allowance, mean that we can now simplify the system of personal allowances. This will remove complexity and confusion for some taxpayers. But nobody will lose out in cash terms as a result of these changes.

Let me emphasise that point. As a result of these changes, nobody will lose out in cash terms. In fact, half the people over 65 in 2013-14 will pay no income tax at all and are unaffected by these changes. Those who are affected by the withdrawal of age- related allowances will benefit from a £1,100 increase in the personal allowance.

--- Later in debate ---

[Cathy Jamieson]

My hon. Friend makes a very good point. As I have outlined, the problems could be similar if both partners had an income in excess of £50,000. The charge would then apply to the partner with the higher income, and to avoid it being applied twice the partners would presumably have to share information with each other on their incomes and co-ordinate responses in their respective self-assessment forms or HMRC would have to implement some mechanism to link together individuals’ tax records to decide which partner was liable for the charge.

As was mentioned earlier, there would potentially be further difficulties if somebody who did not expect to come within the income bracket for the child benefit charge discovered at the end of the tax year that their income exceeded the limit. It can be quite common for self-employed people to find on preparing their accounts that their income was greater than expected. HMRC would then apply the charge retrospectively, but in order to do so it would need full details of the person’s cohabitation history for the year end. I gently tell the Minister that the potential for disputes is fairly obvious. The living together as husband and wife test is an established feature of the social security system, but we all know from the people who come to our constituency surgeries the problems that emerge. Its extension to the tax system raises a huge range of other issues. Whether a partnership exists will have to be determined on an ongoing basis throughout the year, rather than just at a single point of time, and individuals might not be aware of the need to report changes in their personal circumstances to the tax authorities.

We have already heard that there is a danger that the plan will encourage people to deny the status of their relationship to avoid the child benefit change, which will effectively introduce a couple penalty. That could be a disincentive for a lone parent considering moving in with a higher income person and could create an incentive for couples to split up when one partner has a high income. For people with several children, partnering decisions could have significant financial implications.

[Fiona O'Donnell]

Has my hon. Friend, unlike the Government, considered the fact that in families where one parent chooses to stay at home and raise their family, that parent will now be forced into seeking employment? In this market, that will not be feasible.

[Cathy Jamieson]

My hon. Friend makes a significant point and that is part of the fairness test, which I do not think has been met. The Centre for Social Justice has been very critical of this aspect of the Government’s plans, which it argues could

“threaten a new wave of family instability and breakdown…which flies in the face of their commitment to ‘shared parenting’.”

--- Later in debate ---

[Mr Gauke]

For those who are in the tax credit system, we currently make an assessment of household income. If a person is not in the tax credit system, we do not make an assessment of household income and so have information only on individual income. Were we to try to do this on the basis of household income—I understand the argument made by hon. Members that that is the right thing to do—we would have to accept that that would involve putting everybody claiming child benefit, all 8 million, into the tax credit system which would be a substantial administrative burden on the state and on those individuals.

A number of points have been made in the course of the debate. Let me see whether I can pick up on those, rather than addressing every amendment. My hon. Friend the Member for Christchurch (Mr Chope) argued that the provision should apply only to a household income of £100,000 or more. Not only would that result in the administrative challenge I have set out, but it would cost an additional £900 million, which would be unaffordable as well as impractical.

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) asked about providing information at constituency level. We can release the information by region, but the survey data are simply not good enough at constituency level. I can say that 63,000 people in Scotland will gain as a result of the changes we announced in the Budget, compared with the previously announced policy. She asked what the £5 million for customer information will pay for. It includes provision for an online calculator and guidance for customers, and a letter that will go out in the autumn to all individuals above the higher rate threshold. We will also be updating existing guidance and testing it with customers, and there will be marketing spend to highlight the policy.

My hon. Friend the Member for Christchurch asked why the legislation refers to “high” rather than “higher”. He is right that “higher” is mentioned in some of the other documentation, but the point, which parliamentary counsel considered, is that “higher” begs the question, “higher than what?”, so we used “high”.

[Fiona O'Donnell]

Will the Exchequer Secretary give way?

[Mr Gauke]

I have only one minute remaining and want to address the concerns raised during the debate, so I will not give way.

The question was raised of classification and whether or not this was a tax. As my hon. Friend the Member for Christchurch said, that will depend on the Office for National Statistics assessment. Let me deal with the question the hon. Member for Kilmarnock and Loudoun asked. Independent taxation will still apply, each partner will still have their own personal allowance and tax rate bands, and the amount of child benefit, even if it is received by the taxpayer’s partner, will not increase the amount of income liable to tax. Where there are two high earners in a household and they do not want to tell each other their incomes, there will be a mechanism whereby they can find out whether they have a higher or lower income but without the full details.

Mr Hoyle, my time is up. As I have said, the Government have had to make difficult decisions. In order to continue to provide child benefit, we must do so in a sustainable manner. At the current cost that is not the case. We have increased the threshold to £50,000 and put in a taper. This all mitigates some of the concerns that hon. Members have raised, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament.