Finance Bill

Ian C. Lucas Excerpts

Tuesday 28th June 2011 Commons Chamber

[Mr Gauke]

As always, my hon. Friend is very forceful in the points that he makes. Let me make a little progress; whether he considers it to be sufficient progress we shall wait and see.

[Ian Lucas (Wrexham) (Lab)]

rose—

[Mr Gauke]

I am going to make some progress.

Clearly, £4 billion is a significant amount of money. Any decision to introduce a mechanism to recognise marriage in the tax system will need to be taken in the context of the wider public finances, so whatever proposals the Government make will balance the benefit to society with the cost to the Exchequer. We will consider a range of options.

There are also some issues with the drafting of new clause 5. Some seemingly minor elements, such as the lack of a commencement date, make the new clause administratively difficult for two reasons. First, lead-in times for an effectively implemented mechanism will be lengthy because HMRC will need to design and put in place new processes—a point that a number of hon. Members have recognised. We will factor that into our thinking. The Government and HMRC understand the need for a workable way of delivering this, and we are actively engaged in that process. Secondly, the lack of a commencement date means that those who qualify could, technically, claim for at least the last four years, which could substantially increase the cost.

As we have heard, the new clause also makes no mention of civil partnerships, which we believe must be included. There is much that HMRC will need to prepare before the Government are able to meet their commitment, but hon. Members can rest assured that the Government are considering all those points. Let me say to my hon. Friend the Member for Gainsborough (Mr Leigh) that the Government remain committed to exactly what we said in the coalition agreement. I support the principle behind the new clause.

Labour introduced a mechanism in the tax system to recognise the advantages of cycling to work, and although I have nothing against cycling to work, it seems to me that marriage is more important to society, so the idea that the proposal before us would somehow represent a strange or unusual element in the tax system is, I am afraid, wrong. However, it is not practical to implement it at this time, and such changes need to be made within the boundaries of improved fiscal stability. Therefore, although I will reluctantly ask my hon. Friend to withdraw new clause 5, I can assure my hon. Friends that this is not an issue that we have forgotten about; rather, it is a commitment that we will keep.

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[Ian Swales]

I rise to speak against new clause 6 and I note that we have had no costings from its proposer, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I would be interested to find out what he thinks the policy would cost. I can report that there was no dancing in the streets of Redcar when the VAT was reduced from 17.5% to 15%, and neither have we had riots in the streets about the rises from 15% to 17.5% and then to 20%.

[Ian Lucas]

There may not have been dancing in the streets, but after that reduction in VAT there was economic growth—something that has not happened as a result of the hon. Gentleman’s new-found friends’ policy, which he is now following, but which he refuted and rejected in order to get elected.

[Ian Swales]

I thank the hon. Gentleman for that intervention. I believe that the policy that his Government followed cost £12 billion; it would be difficult to spend £12 billion and not give some stimulus to the economy. I shall come to my view on that in a moment.

There was hysteria about the VAT rate among Labour Members, but if people in the street were not shouting about it, it is worth asking why. Our predecessors in this place knew that putting VAT on everything would be a very regressive measure, so they did not do that. They recognised that the basic costs of living should be VAT-free. In fact, when it was first introduced in 1979, some reporters described it as a luxury tax. Let us just think about all the things that are VAT-free: rent, mortgages, council tax, water costs, fares on buses, trains and planes, prescriptions, dental and optical care, newspapers, magazines, books, betting, bingo, the lottery, postage, TV licences, children’s clothes and shoes and, above all, food. Although gas and electricity were originally VAT-free, they now have a fixed VAT rate of 5%.

[Ian Lucas]

Because of the Labour Government.

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[Mr Hanson]

In a moment. Let me try to return to some of the key points of the debate.

[Ian Lucas]

Government Members seem to view the British construction industry with some levity. In a debate this morning on the crisis in the construction industry, no Liberal Democrats turned up and one Tory Back Bencher turned up 20 minutes late. The increase in VAT has had a massive impact on the construction industry, as one will hear from any representative group and anyone involved in the sector. Government Members are in complete denial about the madness of the policy that they are pursuing and the firms that they are driving into bankruptcy.

[Mr Hanson]

I am grateful to my hon. Friend for those comments. He will know that the Conservative party’s VAT increase alone will cost the average family with children £450 this year—far more than they will gain through any increases in tax thresholds.

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[Mr Hanson]

I do agree with my hon. Friend’s concerns.

Time is pressing, so I will move on. I know that we have a lot of time, but I want to ensure that my right hon. and hon. Friends have an opportunity to speak.

[Ian Lucas]

There is another sector that is being hit extremely hard by the VAT increase—the third sector, the charitable sector. Government Members regularly profess to support hospices, but hospices in my constituency are having to raise more money to pay the extra costs that that lot have imposed upon them.

[Mr Hanson]

My hon. Friend is absolutely right. It is not just charities and the voluntary sector that are affected, but Welsh and other universities. In Wales alone, there will be £3.5 million extra VAT for universities to pay this year. Housing associations are affected, and the chief executives of the National Housing Federation and of the Homes and Communities Agency have said that the rise will cost an additional half a million a year in VAT.

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The real problem that economies face, as we see with the situation in Greece, is that as the deficit goes up, the people lending the country money to keep it going become increasingly concerned and the interest rate goes up, so it is not just the amount of interest on the amount of deficit in each year that goes up, as the rate of interest goes up, too. That is why people end up in the state that Greece has ended up in.

[Ian Lucas]

The hon. Gentleman ought to have listened to the debate earlier, particularly to the very good speech by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), who explained that for every pound that is spent in the construction sector, £3 is injected into the economy. That would lead to three times as much being put into the economy for every pound spent in the construction sector. That means we should encourage that sector, not decimate it as the Conservatives are doing as we speak.

[John Hemming]

We should remember that VAT does not apply. I declare an interest, as a VAT-registered person. People who understand how VAT works will know that people who charge VAT can reclaim it on their inputs. We have to look at the details. On the hon. Gentleman’s further point, yes, there is an economic multiplier that has an effect. As demand is increased, there is a multiplier effect. At the same time, we have to look at the long-term effect on the deficit, the debt and the interest paid. As interest rates go up, wider damage is done to the whole of society.

It is true that in an ideal world we would not have higher rates of VAT. In an ideal world everything would be nice, and there would no problems and no difficult decisions to take. We have to get a balance. It is very pleasing to see that the official Opposition now accept that VAT should be 20% in the long term.