Finance (No. 2) Bill

Geraint Davies Excerpts

Thursday 18th April 2013 Commons Chamber

[Andy McDonald]

My hon. Friend makes a telling point and I would not want to diminish the importance of what I am saying by qualifying what he said about despair. As in his constituency, this Friday we will have a wonderful demonstration of generosity in my constituency with the same sort of event—a trolley push. My point, however, which I wish to reinforce, is that there is such a spirit of determination and people are so resilient that they will not be beaten by this situation. However, they will come through it not because of this Government but despite them.

While tax cuts are being handed out to millionaires, 40% of children in my constituency are living in poverty. I cannot see how fairness and the apparent principles of a big society are influencing or informing this Government’s policies one iota. I do not wish to dwell too much on the negativity, but it is unavoidable given that my constituency is the second worst in the country for long-term unemployment. We are asking for fair treatment. North-east England is the only net exporting region in the country; our contribution to the national economy is massive but the people see little of the benefits. It is about fairness.

The Prime Minister and Chancellor have repeatedly said that those with the broadest shoulders should bear the largest load. They claim that the 45p tax rate raises more revenue, but one data point is totally unreliable, as has been exposed in the Chamber today. It is also clear that the richest will arrange their affairs, especially when such a reduction was so well telegraphed. The richest have benefited most from our society, and the amount of tax they pay is proportionately more than their numbers, but proportionately less than their wealth. Relative to their income, the Chancellor’s biggest tax rise—that on VAT—hurts those at the bottom most. The rich still do very well, with company directors getting inflation-busting pay increases, and bank executives getting huge bonuses, which the Prime Minister went to Brussels to defend.

[Geraint Davies (Swansea West) (Lab/Co-op)]

The Committee may already know, and people will be interested to hear that, in the past two years, pay increases for the top 10% were on average 5.5% in both years. The top 10% have increased their pay by 11%. The Government claim that the rich are making a greater contribution, but they have very thick wallets to start with and, frankly, are sitting comfortably.

[Andy McDonald]

That is exactly right. I was going to make that point another way and say that company directors of the FTSE 100 received on average a 50% pay rise in 2011—Income Data Service provided that information. The well-off enjoy the benefits of many interesting incentive schemes that are not available to ordinary working people such as Mrs O’Reilly or Mr Hussain in my constituency, where the average income for a full-time employee is less than £500.

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Not only does the Bill remove significant sums of money from the economy, it delivers a windfall to insurance companies. They will be rubbing their hands while innocent victims are left without redress. To add insult to injury, the compensation recovery unit will be deprived of millions of pounds through this system. We are kissing goodbye to the recovery of benefits, the disability living allowance, jobseeker’s allowance and so on. That money will stop flowing into the nation’s coffers. I wonder whether the Treasury realises that it is cutting off its nose to spite its face.

[Geraint Davies]

I am grateful to my hon. Friend for his enormous generosity in giving way. I have a schedule from a constituent that details his personal means. Until the beginning of this month he had £21.25 a week left for food and clothing after paying his utility bills and allowing £6 for bus fares. After the introduction of the empty bedroom tax, which will cost £10.31, he will end up with under £11 a week for food. Some problem could happen along the lines mentioned by my hon. Friend, but assuming that nothing else is needed, he will have just £11 a week. We would not want that desperate situation to happen in a developing country, let alone in Britain. How can we justify giving money to the richest when people are in despair and poverty?

[Andy McDonald]

I absolutely agree. People are getting down to the pennies, not the pounds, yet this month multimillionaires will get an extra £2,000 a week. We should be thoroughly ashamed of delivering that to our people. I sometimes wonder what on earth we mean by patriotism in our land. We can wave our flags and hold the necessary ceremonial events, but where do the people come in? For my money, patriotism must be about our people. We sometimes lose sight of that and get confused by the panoply and array of colourful images of patriotism that do not go to the heart of the living and working conditions of our people.

[Geraint Davies]

My hon. Friend mentions patriotism, which reminds me of yesterday’s great spectacle of Baroness Thatcher’s funeral, which many people would have enjoyed watching on television. However, let us not forget that that £10 million would have kept my constituent going on his previous income for 10,000 years, and on his new income for 20,000 years. Is that not a disgrace?

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[Nia Griffith]

My hon. Friend makes a good point. That is the iniquity of the cut from 50% to 45%. Effectively, a cut in one place unfortunately means that people suffer in other places. Those on the highest incomes can afford to cushion themselves and do not need to spend money straight away. Even someone who earns just £10,000 above the £150,000 mark will benefit significantly. Instead of paying £5,000 in tax, they will pay £4,500. They will have a gain after tax of £500. Most people do not see anything like that increase in their income—incomes are frozen. If someone earning £50,000 has even a 1% increase, they will not get that £500 because it would be taxed. With all the different changes that are being imposed on them, families are losing far more—they are losing, on average, £895 per year.

[Geraint Davies]

My hon. Friend will know that the Government’s alleged strategy is that the private sector will move in and generate growth as the public sector is pulled back. In Wales, there is a higher proportion of public sector employment and, as she has said, £790 million will be taken out of demand, and savings rates among people in work are increasing because of insecurity. The whole concoction is pushing Wales and similar regions into negative growth. Does she agree that we should stimulate growth by giving more money to people who are poor, because they spend it?

[Nia Griffith]

I absolutely agree with my hon. Friend. We should get more stimulus into the economy and get more people into work doing useful things, such as through infrastructure projects, which he has championed in our local area. It certainly does not help to have more people thrown out of work. It will obviously lower their incomes immediately, but it will also have a direct effect on the local economy.

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[Debbie Abrahams]

It is a pleasure to serve under your chairmanship, Mr Hood.

I came to this House just over two years ago, and the main reason I got into politics was my belief in making Britain a fairer society—a more equal society in which the gap between the haves and the have-nots is narrow and in which we protect and look after our most vulnerable people. I believe that to be intuitively right and just, and there is also significant evidence to show that a fairer society benefits everybody in respect not only of life expectancy improvements and mental health benefits, but of educational attainments, improvements in social mobility and in rates of offending. All of us benefit from having a fairer society. Unfortunately, the measures in this Bill contribute not one jot to such a society.

As I said in my speech on the Budget a week or so ago, this Government absolutely fail the anti-poverty test. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) mentioned the analysis by the Institute for Fiscal Studies, but there are also those of the Joseph Rowntree Foundation, the Child Poverty Action Group, the Resolution Foundation, the New Economics Foundation—and the list goes on. They all reached the same conclusion: the poorer people are, the worse off they are.

Raising the personal allowance does little for the lowest-paid workers, many of whom do not pay tax anyway. Over 682,000 working families receiving child tax credit earn less than £6,420, so I am afraid that they will not benefit at all from the increase in the tax threshold. Taken in conjunction with the welfare cuts they are now facing, the lowest earning taxpayers will receive an income boost of 32p a week or £16.80 a year as compared with those not claiming housing benefit or council tax benefit of up to £112 a year. That does not take into account the impact of the 20% VAT hike back in 2011, the additional 26% rise in food prices since 2009 or the 20% increase in energy costs that households face on their household bills. Nearly 8,000 households in my Oldham East and Saddleworth constituency—nearly one in four—already live in fuel poverty. How are they meant to cope? As other Members have said, our constituency surgeries are crammed with families that are desperate about how they are going to cope in the coming weeks and months. My constituency now has a food bank—the first ever in modern Oldham—and the number of recipients of food bank support has trebled over the last quarter. I am deeply concerned about that.

[Geraint Davies]

I visited the food bank in my own constituency only last Monday, and the key issue put to me was that food banks were designed as places of crisis able to give two or three parcels to people in the moment of crisis—for instance, when benefits had been delayed or something had gone wrong. They were not designed to sustain life over time. I mentioned earlier a constituent whose money available for food had gone down from £21 to £11; he just cannot cope on an ongoing basis. If the food banks do not save him, he is on the way out.

[Debbie Abrahams]

My hon. Friend makes an excellent point. We are not talking only about people on out-of-work benefits either, as many of the families affected are working families that are struggling to survive.

As I have mentioned, the Chancellor’s own distributional analysis shows that the cumulative impact of tax, tax credit and benefit measures means net reductions in income for the poorest 40% of households in the country. Although there is strong evidence to show, as other countries have shown, that increasing the spending power of the poorest families helps to boost economies, the Chancellor has done nothing to help them or the economy.

In the short term, the Child Poverty Action Group has estimated that between 2010 and 2015 absolute child poverty will have increased by 600,000 as a result of the Government’s spending plans. Two wards in my constituency have child poverty levels affecting nearly one in two households. That is absolutely unacceptable in a society such as ours. It leads one to question what the Government mean when they say they are committed to child poverty, let alone how they are fulfilling their obligations under the Child Poverty Act 2010.

I also have deep concerns about the impact, particularly of the new benefit changes, on people with disabilities. One in four disabled people already live in poverty, and with the recent welfare changes that is set to increase. I fear that this could be enough to drive people over the edge.

Many of us have already said that these measures are ideologically driven. In tandem with the downgrading of equality and human rights in the Enterprise and Regulatory Reform Bill, which we debated on Tuesday, it is clear that this coalition Government have no commitment to a fairer society. As we have heard before, this is all about choices, and it is quite clear where this Government’s priorities lie. Their response to their failing economic policies is to give tax breaks to the wealthiest in society—£3 billion to more than 300,000 people earning over £150,000 a year, with an average gain of £10,000. What is there for people on low pay? Absolutely nothing. When we take the tax and tax credit benefits into account, we realise that it is not just the poor who are being hit. We know that the average loss to households for this coming financial year is £891.

The Chancellor said in last year’s autumn statement that we needed a welfare system that we could afford. Tax credits and benefits form part of the “automatic stabilisers” that help dampen economies in booms and boost them in recession. That is what we have seen. In spite of the disappointing employment figures yesterday, the effect on unemployment has been less during this recession and in the past because of these stabilisers.

The choices the Government make are underpinned by their ideology—to create an “us and them” culture with power and wealth retained by the wealthy and powerful. By attacking universal benefits such as child benefit, they hope people will start to see our welfare system as irrelevant—and then quietly dismantle it. I am proud of our model of social welfare, born out of the second world war when we literally were “all in it together”. I want to retain this model with its principles of inclusion, support and security for all, protecting any one of us, should we fall on hard times, assuring our dignity and the basics of life, and helping us all back on our feet.

It is often said that the mark of a civilised society is how we care for our most vulnerable. It is a mark of this Government, their ideological priorities and their economic incompetence that they are singularly failing to do that. Fortunately, as recent opinion polls have shown, the British public are seeing through this Government. They are exposing and seeing through the myths peddled by this Government. I shall leave it there to allow more hon. Members to participate in the debate.

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[Geraint Davies]

Every week during Prime Minister’s Question Time the Leader of the Opposition asks why, at a time when there is so much poverty and a need for austerity, the richest in society are benefiting from a cut in the 50p income tax rate, and the Prime Minister replies, “We will raise more money from the 45p rate than from the 50p rate.” We all know why that is, and the Minister knows why it is. It is because rich people are able to manage their affairs and can move their income between tax years, and in this instance they will simply move it into the 45p year. The Minister knows that, and he also knows that if we retained the 50p rate on a sustained basis, we would gather more money.

The Minister shakes his head with a smug expression, but he knows that, and he also knows that many people already pay 52p in the pound. Those with incomes of £32,000 or £42,000 are paying 40% in tax plus 12% in national insurance. The Minister’s claim that we could not possibly have a 50p rate because all those rich people would get on their yachts and leave Britain is absolute rubbish.

[Mr Gauke]

Let me make two points. First, I do not know whether the hon. Gentleman has read the HMRC report on the 50p rate, but if he has, he will have seen that a large element of the loss is due to a reduction in economic activity, and has nothing to do with tax avoidance. Secondly, I am afraid that he has got his facts wrong: people stop paying 12% in national insurance contributions as soon as they reach the higher-rate threshold.

[Geraint Davies]

That is not my understanding. According to the Minister’s own analysis of economic activity, which he mentioned, the yield from a 50p rate would be greater over a period. The analysis factors in the behavioural change to which I have referred, namely rich people moving their incomes around. It is also the case that people are paying the rates to which I referred. I have commissioned research from the House of Commons Library. It is all very well for the Minister to sit there nodding away, but that is the fact of the matter. It is completely unjustifiable that, at a time when the incomes of some of my constituents are being reduced to about £11 a week and they are on a starvation diet, his rich friends should be enabled to have this extra money.

The Minister continues to resist calls for a bankers’ bonus tax. At one moment he claims that bankers should be taxed in that way, and at the next moment he gives them 5p back. It is absolutely preposterous. The Minister hopes that the food banks that are now emerging in their thousands will help to cope with the Dickensian circumstances that he is causing, in which people are starving in their own homes, but, as I have already pointed out, unless a supplement to the social security system is introduced such people will not be able to survive.

The Minister is pushing us into a situation in which the state is withdrawing in the hope that the charitable sector will help to sustain certain very poor communities. It is absolutely appalling. We have a dementor Government who are sucking the lifeblood out of our poorest communities. Those people want to spend their money, and would otherwise be reviving our local economies. All that they want is a chance to work, and to do a job.

We should be investing in infrastructure, skills and connectivity. We should be marketing local areas and helping businesses to succeed and create jobs, rather than taking away the demand in those local areas. We should also be promoting spending. At present everyone is saving instead of spending because they are scared of the future, but we do not want a future of fear; we want a future of hope. We do not want a future of division; we want a future that cares and a future that works. We want a “one nation” Britain, rather than a divided and weak society moving forward under the Tories.

I hope that the Minister will think again about the need for those with the broadest shoulders to make the highest contribution, rather than just smirking with his colleagues. I would guess that they—in their richer communities in the divided Britain whose divisions they are accentuating—will not have to deal with the number of people who approach our surgeries in despair, asking what they can do with the very limited amount of money that they have.

Some of the changes in the Budget are completely unnecessary. The bedroom tax was originally expected to raise £490 million. The figure has just been revised to £400 million, but in fact the tax will raise no money at all. It was supposedly intended to confront the problem of rising housing benefit costs, which have doubled over the last 10 years, but we know that 70% of that rise was due to the fact that not enough houses were being built and private-sector rents were going up. The displacement into the private sector of people who are being punished because their children have grown up will simply increase housing benefit costs further.

The Minister knows in his heart, and from the analysis, that such changes are unnecessary. They will not raise money, so why make them? Why not let the rich pay a little bit more towards the public good? Even if the bedroom tax does raise £400 million, the Minister is spending £12 billion on ever-increasing tax thresholds. While that in itself is welcome, the fact remains that these changes are about choices. If the Minister’s choice is to give the richest more and hand a bit from the very poorest to the squeezed middle, he is taking the wrong direction in terms of the prosperous and united Britain that I believe we all want to see.

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[Mr Gauke]

We know what the big issues are with growth. We are having to deal with the aftermath of the financial crisis, the eurozone crisis, high commodity prices and the terrible fiscal situation we inherited from Labour. Having an uncompetitive top rate of income tax does not help, a point that previous Labour Governments recognised until we got to the fag end of the previous Government when, as a political ploy, the then Prime Minister put the rate up to 50p. It is striking how the Opposition will not confirm that they will return to a 50p rate.

[Geraint Davies]

I am grateful to the Minister for his generosity in giving way. Does he agree with the trickle-down theory, which is that if we give the rich more money the poor will eventually get a bit more? Or does he believe that it is more of a trickle-up and that if one crushes the poor, like the dementors I mentioned, one can take their money and give it to the rich, so that we have the bloated group of people whom he represents side by side with people in massive poverty?