Finance Bill (First sitting)

George Kerevan Excerpts

Thursday 17th September 2015 Public Bill Committees

[Mr Gauke]

My hon. Friend makes an important point. A striking point made by a number of my hon. Friends on Second Reading of the National Insurance Contributions (Rate Ceilings) Bill earlier this week was that the introduction of the tax lock in the context of employers’ national insurance contributions gives employers much greater confidence. Providing economic stability and security is an important part of the Government’s long-term economic plan. A credible party needs to present to the British people how it will provide economic security and stability. That is what this Government are doing. I look forward to the day when there is cross-party consensus that economic security and stability are important to this country.

[George Kerevan (East Lothian) (SNP)]

Sir Roger, not having served under your chairmanship before, I look forward to doing so. I accept the Minister’s point that he is trying to produce certainty through the clause, but it is surely the case that he is merely displacing the uncertainty. If projected tax receipts fail and the Bill is on the statute book, the Government will have to either cut public expenditure, which will impact on the economy and affect the confidence of suppliers, or raise borrowing, which again will have an impact on confidence in the economy because interest rates will have to go up. In no way can we ever introduce certainty; all we can do is put the uncertainty somewhere else, so the Minister’s argument fails.

[Mr Gauke]

I was making the point that it is important we provide certainty on taxes. At the last general election, the Labour party—I am not sure this was the case for the SNP—certainly said that it would not increase income tax, VAT and national insurance contribution rates. In that sense, there was a cross-party consensus—at least there was at the last general election; I appreciate things may have moved on since then—on not increasing those rates. We are underlining our pledge by legislating for it, which further strengthens our commitment. In the context of a Government who have a record of ensuring that income taxes do not increase, even when we face the most difficult circumstances, that pledge and this legislation have credibility.

The changes made by clause 1 will set out that the basic, higher and additional rates of income tax will not rise above their current levels of 20%, 40% and 45% respectively for the duration of this Parliament. The tax lock will apply to the main rates of income tax for earnings and savings. That accounts for more than 90% of income tax revenue collected, and that is what we want to lock, enabling working people to keep more of what they earn.

The tax lock does not prejudice the Government’s commitments on tax devolution. From April 2016, Scotland will have the power to vary the rate of income tax for earnings, and we are devolving further unprecedented flexibilities over income tax to Scotland through the Scotland Bill, which will give the Scottish Parliament the power to set the rates and thresholds applying to earnings income. The Government are committed to delivering that in full, giving Scotland full flexibility over income tax rates and thresholds on earnings income. The tax lock will therefore not restrict Scotland from setting higher rates of income tax, nor Wales when it has the Welsh rate of income tax.

Clause 1 delivers the Government’s commitment to rule out increases in the main rates of income tax for the duration of this Parliament, ensuring that working people can keep more of the money they earn.

--- Later in debate ---

[Holly Lynch]

Thank you, Sir Roger. It is a pleasure to serve under your chairmanship. Thank you for your kind and thoughtful guidance, which is particularly useful to me and, no doubt, other new Members.

I rise to speak in support of new clause 3, and I encourage other Members to join me in doing so. I am mindful that there are European implications regarding VAT that we must consider, but I am certain that the European restriction on abolishing VAT on sanitary products is more oversight than intent. I have every faith that there will be support for addressing this injustice at a European level, and I urge the Government to investigate those possibilities. The new clause would give the Government 12 months, which would be ample time to conduct investigations.

There is huge public support for abolishing VAT on sanitary products. A recent change.org petition asking the Chancellor to look into the issue has reached nearly 250,000 supporters. The Prime Minister was asked what he would do about the issue by a student at the University of East Anglia in the run-up to the general election and he agreed to look into it again. We know that the new clause has cross-party support and would be well received by the electorate.

I am pleased that the new clause makes particular reference to women under 25. On average, girls need to start purchasing sanitary products at the age of 12. It should have as small a financial impact as possible. Girls at that age are inevitably in full-time education, so we need to ensure that what can be a big personal transition has a limited financial burden.

I found examples of bizarre VAT-exempt products, including alcoholic jellies, edible sugar flowers and exotic meats, such as crocodile and kangaroo. Perhaps most ironically of all, no VAT is paid on millionaire shortbread. [Laughter.] We can all have a giggle about some of those bizarre contradictions, but what an insult to women and girls they are. It is a travesty that tampons and sanitary towels have ever been deemed luxury purchases. They are necessities for millions of women. I hope the Government will do the right thing in considering the new clause.

[George Kerevan]

I am mindful of the fact that we have got another 48 clauses, so I will try to be brief—which is difficult for me. There are particular issues about the VAT lock that have to be put to the Minister.

VAT income to the Treasury is notoriously variable because VAT is a tax on consumption. It varies with the business cycle because it is a consumption tax. Unfortunately, in clauses 1 and 2 the Government are introducing the new doctrine that major taxes, including VAT, will be set once every five years at the start of each Parliament. I presume that in the Government’s mind the tax lock will exist in perpetuity and will be set at a different level every time we elect a Government. They are decoupling the raising of revenue—the revenue function of the Government and the Treasury—from the business cycle. As the business cycle goes up and down, income to the Treasury will go up and down independently of when we set tax rates—particularly VAT.

[Mark Garnier]

I am acutely aware of the fact that we have got a lot to get on with, but I find the hon. Gentleman’s argument utterly preposterous. He is arguing that, should the business cycle slow down, he would increase VAT—were he in a position to do so—which would have the effect of stifling consumption and thereby amplifying the problem, rather than negating it. This measure is quite clearly a cap, not a floor, so we can reduce VAT should we want to stimulate the business cycle.

[George Kerevan]

My good friend from the Treasury Committee anticipates what I was not going to say. All I am arguing is that we require flexibility in setting taxes to respond to events in the real economy. The doctrine that the Government are introducing of a tax lock in perpetuity removes such flexibly. That in itself creates uncertainty in the minds of business and the financial community, which the Government will have to address.

I accept the principle that we should try to set taxes in a way that is not destabilising. That should lead us to consult with the business community and community interest groups before we change taxes. That is perfectly possible and it is done in other countries. In Germany, for instance, there is mandatory consultation between the federal and regional Parliaments before income tax levels are changed. There are other ways to do that. The Chancellor accepted that principle in relation to North sea oil taxes when he gave an undertaking that any major changes would come only after consultation with the industry. Unfortunately, he did not extend that doctrine to the renewables industry, which would have been sensible.

To put a tax lock on VAT in perpetuity decouples revenue setting from the business cycle and, in the end, that is not tenable, because the taxes would be varied in an emergency. It is not tenable to decouple them, so the Government will live to rue the day that they put the lock in. That explains the reason for the lock. It is not for economic reasons; they are playing a political game. It is a gimmick.