Energy-intensive Industries

Ian Swales Excerpts

Thursday 11th September 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I congratulate the hon. Member for Stockton North (Alex Cunningham) on securing the debate. On this issue, I regard him as an hon. Friend, and I was delighted to support his motion. Our constituencies are divided only by the River Tees, but they are joined by many pipelines.

I have taken a keen interest in these issues since I entered the House. I worked in the electricity industry for five years, and in an energy-intensive part of the chemical industry for more than 20 years, so I am very familiar with many of the issues.

As the hon. Gentleman said, the Tees valley is a “hotbed”—an interesting word to use—of such businesses. In fact, it has 18 of the 30 largest carbon emitters—energy-intensive industries—outside the energy sector in the UK. My constituency has the Sahaviriya Steel Industries steelworks, Tata Steel activities, Sabic petrochemicals and Lotte petrochemicals, which are some of the biggest businesses, as well as many others.

As the hon. Gentleman said, there is a proud history of such businesses in the north-east. On the wall of my office in Portcullis House is a picture of Lambeth bridge lying in pieces before it came down from Middlesbrough to be installed close to this place. When I took the Secretary of State for Business, Innovation and Skills around the Tata beam mill in my constituency, the work force were making beams for the new World Trade Centre. They told us proudly that their beams are in nine of the 10 tallest buildings in the world. That emphasises the point made by the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), which is that steel cannot be melted without using a great deal of energy. Steel beams cannot be made without using a great deal of energy. There are physical and chemical limits to what companies can do.

When I first became an MP, one of the key requirements for me was to get the steel works in my constituency going again. It will be of no surprise to Members that I therefore had to meet Ministers at the Department of Energy and Climate Change. The new owners wanted reassurance about the UK’s energy policy and an assurance that they would get the emissions allowances that were required to restart the plant. The owners were probably slightly naive and did not ask enough questions about how many issues they would face on the energy front. They have been surprised by the depth and breadth of the various environmental obligations on them.

As Members have said, Governments in other parts of the world are nowhere near as aggressive towards energy-intensive industries as ours seem to be. The former Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), who was recently moved out of office, was told by his civil servants that energy costs in the UK were not out of line with those in other countries. That is the line that Ministers were being sold. He visited Germany because of the representations that he kept hearing from industry and was shocked by what he found. He had not realised that industry gets such a lot of support in Germany and that industrial energy costs can be as low as half the cost of domestic energy. The comparisons that the hon. Member for Stockton North has given became clear to him.

I was keen, along with other Members and particularly the hon. Member for Penistone and Stocksbridge (Angela Smith) in the early days, to form the Energy Intensive Users Group. The group was originally envisaged as an offshoot of the all-party parliamentary group for the steel and metal related industry, but we realised that it was a far bigger issue.

[David Mowat]

The hon. Gentleman made the important point that Germany’s electricity costs for energy-intensive industries are substantially lower than ours, even though its domestic energy costs are substantially higher, because it has a cross-subsidy. Does he know, or does anybody know, why that is not an issue in respect of state aid?

[Ian Swales]

The hon. Gentleman makes an extremely good point, which I will return to later. When I see the UK’s attitude to these sorts of policies, I often feel like we are playing cricket, while other countries are playing rugby, boules or other sports that we do not recognise.

At the first meeting of the Energy Intensive Users Group, I was stunned not just by the number of outside attendees from industry, but by their seniority. We quickly realised that it was a huge issue that faced many industries, some of which have been mentioned. I do not think that paper has been mentioned. That is yet another industry that sent a representative from its trade body. As a result, there has been a great deal of representation to the Government. I am pleased to see at least some bending in response.

UK businesses that are involved in the generation and consumption of energy are saddled with up to seven different carbon taxes from the UK and Europe. Interestingly, even the senior executives of those businesses cannot always describe clearly what all the taxes are and what they do. Despite the action that the Government are taking, the trends are not great. It is estimated that political costs will increase the electricity bills of industry by a third by 2019-20. Policy makers do not seem to understand that if a company spends millions of pounds a year on energy, it already has quite an incentive to use less. It does not need to be beaten with a stick by the Government to persuade it to use less energy, let alone seven sticks. These companies know that they are spending a lot of money on energy, and are already doing a lot about it. They know that energy costs are a competitive issue, whether there are taxes or not. The irony of a heavy tax burden is that it removes cash from those companies that they could otherwise devote to energy-saving initiatives. Many companies work on thin margins or in commodity businesses that do not have high margins. The more taxes they pay, the less likely they are to be able to invest in reducing carbon consumption and generation.

A Minister from the Treasury rather than from the Department of Energy and Climate Change is responding to this debate, and I wish to ask about the attitude of the Treasury towards these taxes. Does it take the broad view about business competitiveness, look at the overall picture, and compare the taxes being rendered with those rendered from Europe, or is it just a way of raising money? These businesses are almost all competitive and traded internationally, so in this regard the UK is no more an island than the EU is. Our policy decisions affect these businesses on an international basis.

The hon. Member for Warrington South (David Mowat) mentioned the EU. The minute we want anything done, the standard response from civil servants is “State aid”. That is a perfect method of obfuscation and delay, which, in many areas, we as politicians are buying when we should instead be fighting a lot harder. I know there are specific issues with the steel industry and the EU, but many other industries are not as limited. Politicians should not allow state aid to be used as an excuse for delay or for no action, particularly given that some of the things we are talking about are, ironically, UK-only initiatives. I cannot see how the European Union can interfere with initiatives such as the carbon price floor, which are taken only in this country. I would like Ministers to be a lot more aggressive with civil servants, not just about whether state aid issues apply, but if they do, about how quickly they can be removed. Some of the issues I am thinking of have been washing around for most of the four years that I have been in this place.

Europe has the emissions trading scheme, which has not totally met its objectives, as the allowances originally given to companies were fairly generous but the tight market that was expected to lead to carbon trading has not occurred. Ironically, however, Sahaviriya Steel Industries in my constituency has a specific problem because it was virtually out of business during the reference period when the allowances were decided. It now pays $1 million a month in carbon cost to the EU, because it does not have enough allowances to operate. It is also expanding, so carbon costs are yet another handicap.

Businesses can do many things to reduce energy use, but as the hon. Member for Newcastle upon Tyne Central said, there are physical and chemical limits. I do not disagree with some of the EU moves on best available technology, or with new moves to look at what is technically feasible and ensure that companies in the EU move towards that best available technology. I hope that we do not get regulatory regimes that drive everybody else out of business if they are not the best, as that will not help anybody. However—I hope the Government will take notice of this—when the best available technology frameworks are established for different businesses, that will at least show what is possible with regard to reducing energy consumption and contribution to climate change. If a company is doing something in another country, we can do it here; if it is not being done anywhere, we must ask whether it is sensible to try to drive a company to use 50% less energy, for example. I would like to see constructive work with the EU on that, ensuring that we are as bold as we should be when dealing with its requirements.

Investment has been mentioned, and the manufacturing industry has been declining. During the previous Government, it went from being 19% of the economy to 10%, although some growth is occurring. I worry about these businesses because there is capital investment inertia. It is not about whether company A is operating today, tomorrow or next year; it is about what investment decisions are being taken. Are the plants being kept up to date and maintained? Above all, would the company concerned re-invest in such a business?

I remember my experience as a financial director in the chemical industry. We decided to get out of a business, but 24 years later that business is still running. It has never been renewed, but it has been patched up and sold three times since then. Those are the types of decisions taken. If we have an unattractive climate for investment in this country, things will close down not overnight but steadily, and we are seeing some of that.

The Engineering Employers Federation, which covers all the businesses we are talking about, says that energy costs are its No. 1 issue for growth and investment. Many of these companies are foreign owned. The biggest employers in my constituency are Singaporean, Thai, Indian, Saudi Arabian and Korean. Decisions are being taken not in the north of England or London, but in Seoul, Riyadh, Bangkok and so on. If our energy infrastructure costs do not look competitive and sensible, companies do not need to come here or re-invest.

Despite sounding somewhat critical, I welcome the Government initiatives. The mitigation moves that they have mentioned are helpful for big energy users in my constituency. I hope the initiatives will take place with due speed—that has been an issue—that there will be certainty and that they are not a one-off. We are talking about long-term businesses taking long-term decisions. If the Government believe that throwing a carrot towards a business for 12 months makes a difference—well, obviously it makes a difference to its cash flow in those months, but it will make no difference to its strategy. Uncertainty does make a difference in the wrong direction.

I welcome the fact that the UK Green Investment Bank is majoring in investing in industrial energy reduction, as well as renewable technology, and I welcome the renewable heat incentive, which should help. The regional growth fund has put money into such businesses—most recently, £9 million went into a huge project at Sabic in my constituency, which will result in the petrochemical cracker being able to crack gas. I am pleased about the Tees valley city deal, which I helped to push for and even construct. It will get carbon capture and storage around Teesside, which I still regard as the No. 1 location for investment in carbon capture and storage for industries outside the energy sector, although we have the energy sector as well.

[Alex Cunningham]

I am grateful to my new hon. Friend for giving way, and I believe that that is the central issue on Teesside. Will he join me in congratulating the industrialists on Teesside who, despite being competitors, have come together because they know that the future is about investment in carbon technology?

[Ian Swales]

I agree with the hon. Gentleman. Such a technology will create an infrastructure that will benefit all those sectors, and they do not compete that much with one another. The Tees valley can be a hotbed of competitive steelmakers, chemical producers and so on. Strategically, the country should get on with that.

All hon. Members have mentioned the importance of energy-intensive industries. They are important to the economy, to the development of green industries—let us think of the amount of steel involved in tidal power—and to the security of the country. We should not kid ourselves when we count carbon. In a debate a while ago, the hon. Member for Warrington South asked, “Is the carbon for my Volkswagen car mine or the Germans’?” We are kidding ourselves if we think we are doing the right thing by de-industrialising this country, exporting jobs and importing carbon. That is one point on which I depart from the hon. Member for Newcastle upon Tyne Central.

[David Mowat]

I agree with the sentiment the hon. Gentleman expresses, but I do not recall saying that. I have a Volvo, not a Volkswagen, so I might have talked about Swedish carbon.

[Ian Swales]

I think he mentioned Volkswagen in the context of chiding the Germans for their carbon emissions. I made the point that a big manufacturing exporter such as Germany is probably bound to have higher carbon emissions on a production basis.

It looks as if I will be fighting the hon. Member for Newcastle upon Tyne Central for the first copy of Hansard tomorrow, because I, too, must leave the Chamber, to join the Government’s rail electrification taskforce. I apologise in advance to the Minister. I will look closely at her remarks tomorrow.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

It is a pleasure to follow the hon. Member for Redcar (Ian Swales). I pay tribute to my hon. Friend the Member for Stockton North (Alex Cunningham) and congratulate him on securing this important debate. I echo his comments on the relative emptiness of the Chamber. To emphasise the point, the relative emptiness is not because Parliament does not recognise the importance of carbon taxes and energy-intensive industries, but because all hon. Members are aware of the huge constitutional issues we face. Many of our colleagues are in Scotland trying to save the Union, and I pay tribute to them for doing so.

The debate has included one contribution from an east midlands Member and three contributions from north-east Members. I shall try to balance that by giving the perspective of the manufacturing sector in Yorkshire and the Humber, which is one of the most important manufacturing bases in the country, alongside the north-east, the north-west and, importantly, Scotland. A conservative estimate is that at least 800,000 people work in energy-intensive industries in the UK. I will call them “foundation industries”—I do not like the term, “energy-intensive industries” and “foundation industries” is a much better description. Foundation industries are critical to the whole of our manufacturing base. Included in those 800,000 are the supply chains built around the key industries.

We are entering an era of shortening our supply chains—the production and supply of components for other industries are being re-shored in the UK, which is welcome. If we look at the supply chains of BAE Systems, one of our most important manufacturing companies, it is immediately obvious how well balanced the company and its supply chain are in the country. Its impact is felt not only in the north-west in Barrow-in-Furness and Warton, but throughout the country, particularly in Scotland, Yorkshire and the Humber and the broader north-west.

That illustrates an important point about Scotland. Manufacturing in Scotland is important not only to the Scottish economy but to the whole UK economy. The shortening of the supply chains and the building of stronger supply chains in our country is making the integration of our manufacturing base more important than it has ever been in our industrial history. From that point of view, UK manufacturing is stronger together, just as the UK is better together with Scotland. That point in the debate is often overlooked. All the talk is of the pound and everything else, but it is important not to forget that if we are to rebalance the UK economy, manufacturing is the best point at which to start because it is already well balanced. Manufacturing in Scotland is an integral part of that.

[Ian Swales]

The hon. Lady is right. One of the most important foundation chemicals is ethylene. There is a pipeline between the north-west of England to Teesside and then Scotland. That pipeline helped in the recent Grangemouth dispute.

[Angela Smith]

My hon. Friend the Member for Stockton North made the point about shale gas, which gives us the potential to supply a good, domestic feedstock for the chemical industry. It would be more efficient and better for us all round for that feedstock to be delivered throughout the UK, rather than having borders between Scotland and England. That is an obvious point, but it is important to put it on the record.

The definition of “foundation industry” varies, but broadly we mean steel, cement and lime manufacturing, chemicals, ceramics, glass and paper. The contribution those industries make to key economic activities such as transport and construction is fairly obvious, but their importance in other ways is often overlooked. For instance, the chemicals industry has contributed to the growth of food manufacturing in this country, and chemicals will continue to be important for agricultural use and in ensuring that we maintain a healthy food production capacity in this country. We thus realise how apt the term “foundation industry” is, as they are key industrial sectors.

At a conservative estimate, those industries make a contribution of roughly £15 billion to UK GDP per annum. Depending on the definition of “foundation industries”, their combined turnover varies between £70 billion and £95 billion per annum. They provide 11% of the UK’s gross value added. Their contribution to UK export capacity is very significant: they contribute at least 30% of our export capacity, but I have read somewhere that it could be as high as 54%. Again, that depends on the definition of “foundation industry”.

The foundation industries have a strong research and development profile, which is often underestimated and overlooked in terms of their importance to the UK. The future of the sectors is dependent on high-quality research and development profiles, on significant investment, and on ensuring that we stay ahead of the game in manufacturing capacity and at the high-value-added end of the manufacturing spectrum.

I pay tribute to the first of the catapult centres developed in the UK—in south Yorkshire, at the advanced manufacturing park at Catcliffe—more than 10 years ago by Yorkshire Forward and others in Sheffield and Rotherham. The park is focused on engineering, particularly steel engineering, and is going from strength to strength. A partnership in Sheffield between Boeing, Rolls-Royce, the university of Sheffield and Sheffield Hallam university is building a brand new factory, Factory 2050, alongside the original buildings, and is now investing heavily in research into nuclear capacity. It is a highly successful venture that provided the blueprint for the Government’s catapult centre strategy.

As a Sheffield and Barnsley MP, I am incredibly proud of the innovative work done in south Yorkshire in using the concept of catapult centres to promote the collaboration between academic institutions and our manufacturing centre to make us world class in innovation and the development of new technologies. Our foundation industries are also at the forefront of work force investment. They have a good record on paying their work force well—these are good jobs—and investing heavily in apprenticeships and ongoing professional development training. The country needs more of that. In many cases, our foundation industries provide a good example of best practice.

My constituency has many foundation industries within its borders. Fox Wire produces world-class cabling for the oil industry and many other applications. Tata Speciality Steels provides steel for the aerospace industry and is at the top end of steel manufacturing in this country. In fact, one reason it is headquartered in my area is that it cannot find elsewhere the skill sets it needs to maintain its position as the best in steel manufacturing. We are very proud of that. In addition to those industries, British Glass is headquartered in my constituency, and I also have cement, paper and ceramic interests, so I represent a range of manufacturing interests.

One of the ceramics companies in my constituency, Naylor, is a family company, not foreign-owned, and has been in existence for more than 100 years. Only this week, it secured six-figure funding towards a £2.5 million project to increase capacity, while reducing energy consumption, at its Cawthorne factory in my constituency, through a combination of smart metering and an in-house plastics reprocessing plant to make use of its own waste on site. There are limits to what can be done to reduce energy consumption, but these are practical, innovative ways of continuing to reduce energy use. In addition to energy efficient lighting, a new energy efficient kiln and dryer has created extra capacity, while reducing energy costs, and led to 30 new jobs. I am proud of Naylor. This superb company is increasing its exports profile and winning awards all over the place, while being dedicated to reducing its carbon footprint—because it makes financial sense. I think the hon. Member for Redcar made this point. The industry is already incentivised to reduce its carbon footprint because it will make business more efficient and cost-effective.

Briefly, Sheffield city region provided some of the funding for that project, which is a tribute to an important element in the ongoing constitutional debate—local decision making. We need some devolutionary thinking on getting investment in manufacturing in the rest of England, never mind the other constituent parts of the UK.

Industry is committed to reducing energy use. For example, Celsa, a recycled steel plant in Cardiff, is one of the most energy and labour efficient plants in Europe, and we have seen significant reductions in electricity consumption by the steel industry in the past 30 years. The figures are startling. I do not have them to hand, but the electricity consumption of steel making in my city has gone down significantly in the past 30 years. On that point, will the Minister respond to the request by steel makers across the UK that the Government reconsider the advanced capital allowances for energy efficiency? The scheme is based on generic lists of technologies and excludes the more specific but often large energy efficiency opportunities that our foundation industries want to engage with. I would be interested to hear whether the Treasury is prepared to reconsider that scheme and take the common-sense approach of applying it to these large-scale energy efficiency projects.

The role of foundation industries in developing a green economy should not be overlooked, as I said in an earlier intervention. I was not saying that we should move faster than the rest of Europe; in some ways, I was making the reverse point. We must be careful not to damage the competitiveness of the foundation industries in this country, precisely because they are critical to delivering the green economy we need, not just in the UK but across European and globally. We know that the foundation industries have an important role to play in developing renewable energies, such as carbon capture and storage, and we know that they play a valuable role in the production of energy-efficient construction materials, particularly in respect of chemicals. The chemicals sector is doing a good job of developing wonderful new materials for use in construction projects, not just for commercial but for domestic building, as I saw when I visited a research project at Nottingham university involving several chemical companies, including BASF. That project is doing impressive work to cut the carbon footprint of domestic building projects and to cut energy costs across the board, especially for home owners.

British Glass is developing new trading standards and is keen to see glass play its part in developing a green economy, and new glass technologies are being developed all the time. Let us not forget either that wind turbines require a lot of steel in order to help reduce our carbon footprint and produce green energy. The steel industry also points out that the development of the lightweight vehicles we increasingly see on our roads is largely down to work by the steel industry to reduce the weight of construction materials. The foundation sectors are doing a great deal of work to develop the green economy, but the costs being incurred by our industries as a result of our carbon-intensive industrial past must not be forgotten.

We are now paying the clean-up costs of an industrial legacy that has left many of our environments badly degraded. As an example, the water industry in Yorkshire has to pay out millions of pounds a year to clean up the water collected from a catchment that is badly degraded—by peat degradation. The water must go through multiple processes to remove the peat before it can be put into our catchment and our networks. A great deal of work is involved, and we have to recognise that the industry is paying the costs of carbon pollution in the past. That should not be overlooked when we reflect on the arguments in favour of transitioning to a green economy. It is very short-sighted to argue that the green economy is not important to our future; it quite clearly is.

Let me move on directly to the impact of carbon taxes and levies on our foundation industries. My hon. Friend the Member for Stockton North made the point, which should be reiterated, that Tata Steel, for instance, has estimated that year-ahead wholesale electricity prices are 70% and 45% higher than in Germany and France respectively. That is driven in large part by policy-driven taxes and levies for the most intensive users; those were 2.5 and 6.5 times higher than in Germany and France respectively in 2011.

The British Ceramic Confederation has pointed out that DECC’s own analysis shows that climate-related charges are already 19% of the industry’s base load price, which will rise to 47% in 2020. The manufacturers’ association EEF has stated that the Government’s own estimates indicate that industrial electricity prices will increase by 50% by 2020 and 70% by 2030. Moreover, Tata Steel is clear that the levies with the greatest impact today are the renewables obligation and the carbon price floor. The company also points out that many of its steel competitors in Europe will either be completely exempt from many of the levies or have their charges capped.

As far as I am concerned, the Government’s recognition of the damage inflicted on our manufacturing sector by the carbon price floor is most welcome, but why on earth they introduced the floor price in the first place remains a mystery. As I say, we welcome their acknowledgment in this year’s Budget of the mistake made. The proposals laid on the table represent something of a step forward in resolving the issues, but they do not resolve all the issues related to the imposition of the carbon price floor in particular on our sectors.

The 2014 Budget announced that the carbon price floor would be frozen at £18.08 from 2016-17 to 2019-20, saving all UK business an estimated £4 billion over three years. The Government will review the carbon price floor beyond 2020, once the impact of the reform of the EU emissions trading scheme is clear. They are extending existing compensation for CPF and ETS for 2019-20 and we of course have the compensation package in place.

It is my understanding, however, that the compensation package is underspending, so the Minister, who until a moment ago was busy on her mobile phone, might like to concentrate on providing an explanation of why the Government are underspending on their compensation package to industries that desperately need to see it delivered. She needs to explain, too, why it continues to be the case that the UK does not appear to be punching at its weight when it comes to making the case to Europe that more of our foundation industry sectors should be included in state aid guidelines. [Interruption.] I am sorry, but the Minister should realise that this is not a laughing matter.

We need to know why the Government are not working harder to make the case to Europe that more of the sectors affected by the carbon floor price should be included in European state aid schemes. That is at the heart of this debate. Sectors such as ceramics make intensive use of electricity—use of the electric arc furnace is not confined to the steel industry; it is used in ceramics, too—yet the ceramics sector has been almost entirely excluded from the compensation on the table at the moment. The Government should explain that, or at least make a commitment to ensure that that unfairness in the compensation schemes on the table is removed as soon as possible.

We need to see a commitment to introduce the announced mitigation measures for the renewables obligation as soon as state aid approval has been granted by Brussels. As I said, we also need to see a commitment to ensuring that the sectors included in state aid are extended as soon as possible. We need an approach that gives specific consideration to premier league energy-efficiency projects, or incentive schemes such as the enhanced capital allowances that I mentioned. We need to see UK support at the October European Council meeting for including the principle of the continuance of robustly protecting the competitiveness of the sectors most at risk at the level of best performance. We need to see, too, a commitment from the Government to support the industrial strategies developed by the foundation industries, such as the chemistry growth partnership and the developing UK metals strategy.

Finally, I want to hear the Minister’s response to the argument that a consolidation of the taxes and levies on the table at the moment would be a sensible way forward. A significant number of taxes and levies are being placed as a burden on our foundation industries. Indeed, one company in my constituency has to employ a highly skilled individual full time just to deal with compliance with the range of levies and taxes that need to be delivered year on year. The Government need to think again about the impact on industry of having to work through so many different schemes and so many different levies year on year. Nobody is arguing against the principle of carbon taxation—

National Insurance Contributions Bill

Ian Swales Excerpts

Monday 8th September 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I rise to say a few words in favour of the Bill, which the Liberal Democrats wholeheartedly support. We are very pleased that it incorporates measures to deal with tax avoidance.

The whole problem of disguised employment is rife across the country, and the Bill will go some way to combat it. The shadow Minister, the hon. Member for Birmingham, Ladywood (Shabana Mahmood), spoke about it as though people were unwilling to be disguised employees, but in many cases people are willing disguised employees who duly make savings themselves. I believe that the Bill will help to combat the problem.

The measures in relation to offshore workers are particularly welcome in my constituency, which has a large number of them. Some only realised what their real national insurance status was when they claimed their pension and found that their contribution record was nothing like they expected, because the payments that they thought they had paid were not properly rendered as national insurance contributions. I therefore very much welcome the removal of another anomaly in the system.

I look forward to the Bill passing smoothly through the House, as it so far seems to be doing.

--- Later in debate ---

[Ian Swales]

I am following the hon. Lady’s argument with interest and she is making an excellent point. Does she believe that the annual assessment and payment of class 2 NICs will cause a big problem for people on universal credit? How does she think that could be dealt with? Clearly, it is part of their costs and deductions from income, which will not be known when they are claiming and receiving universal credit.

[Catherine McKinnell]

I think the hon. Gentleman very much agrees with the concerns raised by Labour Members, and I hope that the Minister will have some suggestions on how those potential pitfalls can be addressed. If not now, thought should certainly be given to that before the Committee stage to ensure that the most vulnerable self-employed workers, and those on lowest incomes, are not penalised by the change in processing national insurance contributions. We accept that there are clear benefits to reducing red tape and the administrative burden on self-employed people who would benefit from such a measure, but there are those in a more vulnerable position who could be forced into “misery”, as the Chartered Institute of Taxation puts it well.

There is also an increased administrative burden for those who are self-employed as a result of the introduction of universal credit. They will have to draw up two separate accounts—one for HMRC that they report yearly, and one for the DWP that they report monthly. Perhaps Ministers will provide some much-needed clarity about the provisions that they intend to put in place to support low-paid self-employed people, so that they are not disadvantaged by the Bill.

My hon. Friend the Member for Birmingham, Ladywood mentioned the 25,000 self-employed women who claim maternity allowance each year. Currently, class 2 contributions are the means by which a self-employed earner accesses entitlement to contributory benefits, including the standard rate of maternity allowance. In order to receive that, a self-employed woman must have paid 13 weeks’ of class 2 NICs within the previous 66 weeks. That shifting liability for class 2 NICs to an annual payment to cover the previous 12 months’ liability could mean that they fail to satisfy those criteria and are not able to access the standard rate of maternity allowance. HMRC’s consultation document from July 2013 flags those concerns. It states:

“The Government recognises that the proposals have implications for the way eligibility for”

maternity allowance

“is determined for pregnant self-employed women and will be considering how best to ensure the changes have no adverse impact for the small group who might otherwise be affected.”

Despite the promise of that wider review of maternity allowance eligibility for self-employed women, the Government have settled on what has been described as a “wholly impractical” solution, whereby women must pay their class 2 NICs throughout the year of their own accord before they file their self-assessment returns at the end of the year.

The Bill’s aim is to simplify NICs for the self-employed, but the proposed approach is anything but simple. In fact, it places a much greater burden on some 25,000 pregnant women each year who want to access their entitlement to the standard rate of maternity allowance. The Chartered Institute of Taxation has labelled that approach as “impractical”, and has suggested that a review should be carried out after two years to see what impact it has had on the claims of self-employed women for standard rate maternity allowance. Perhaps the Minister could respond to those concerns. Have the Government considered alternative approaches, and why have they settled on what has been described as an impractical approach for those women who could be affected?

My hon. Friend the Member for Birmingham, Ladywood spoke in depth about the anti-avoidance measures in the Bill, which were debated at some length in the Finance Bill Committee. However, I want to make the general point that the Opposition are committed to anti-tax avoidance measures. We believe strongly that everybody should pay their fair share. That is why we support the measures in the Bill, but what reassurances can the Minister provide for hon. Members that HMRC will be sufficiently resourced in order to implement the measures and the safeguards? My hon. Friend mentioned the demographic challenges that HMRC is likely to face in the coming years, and the challenge of the numbers of those available to ensure that the promised safeguards are put in place. Will the Minister provide reassurances on that? I am sure the matter will be debated at some length in Committee.

To conclude, we have only to look at the Government’s past record on tax avoidance to understand why the Opposition seek those reassurances. The Government have got it wrong in some respects, such as on the UK-Swiss tax deal, and have over-egged their tackling of tax avoidance and the tax gap, which the National Audit Office recently said is almost £2 billion lower than it should have been, and that the Government have mis-stated the situation. Ministers must provide reassurance for hon. Members and for those who are interested in the debate that they have learned those lessons, and that we will not experience tax avoidance in relation to measures in this Bill that the Government are similarly unable to deal with.

Oral Answers to Questions

Ian Swales Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Danny Alexander]

The Government have made available funding to pay for the implementation of free school meals for infants and to enable additional capital investment in kitchens and the like in schools. The reports from around the country are that implementation is going successfully and that this policy will benefit thousands of children and their families.

[Ian Swales (Redcar) (LD)]

Does the Chief Secretary share my surprise that the yes campaign in Scotland says that its economy would be stronger alone, yet it does not want the freedom to have its own currency and set its own interest rates?

[Danny Alexander]

I do share my hon. Friend’s concerns. As he knows, a currency union is not going to happen because it would expose the rest of the UK to economic risks that it could not control and leave Scotland unable to control its economy in the face of huge risks and uncertainty. An effective currency union needs a fiscal union and a political union, yet that is what the nationalist campaign wants to dissolve. The only way for Scotland to keep the pound as it is now is to remain part of the UK, and that is what I believe my fellow countrymen will vote for on 18 September.

Finance Bill

Ian Swales Excerpts

Wednesday 2nd July 2014 Commons Chamber

[Mr Gauke]

We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.

[Ian Swales (Redcar) (LD)]

The Minister rightly says that on such policy matters, assessments are a normal part of Government practice. Will he confirm that the reviews will take account of any potential future cost to the public purse? For example, what if people have inadequate funds to cover their future care costs, as they have already spent their accumulated pensions, or if they have other recourse to the state because they have inadequate resources later in life?

[Mr Gauke]

During the assessment of the policy announced in the Budget, we considered all the various issues, including the consequences for the Exchequer in both the short and long term. We will say more about the specific interaction with social care and so on in the near future. I would make the point that the very people restricted by the old regime were the people who, over the course of their working lives, saved responsibly and ended up with a pension sum that demonstrated their prudent approach to saving. It is not unreasonable to believe that the vast majority of those people will continue to act prudently when given greater flexibility. As a matter of philosophy, both parties in the coalition Government share the view that when we can give more power and responsibility to people, we should do so.

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[Mr Gauke]

The purpose of the reforms is to ensure that there is a savings and pensions environment that is good for those saving for their pension and those claiming on their pension. We believe that the reforms that we have set out will result in greater innovation in this area. We do not think that the purpose of the rules is to protect particular businesses. Nevertheless, the industry has responded well to our proposals. Many see this as an opportunity to improve the culture of saving and have engaged very constructively with the Government. I hope that that addresses the hon. Gentleman’s concerns.

[Ian Swales]

I recently met representatives of a major financial institution who rightly see the potential for new products following these changes. I am sure that innovative companies will come up with products that meet people’s needs. On advice, will the Minister assure us that the system will be transparent as regards how advisers are rewarded and that we will not get into a situation where overt or covert kick-backs from product providers are the main source of income for those providing the advice?

[Mr Gauke]

My hon. Friend is trying to draw me into the details of what we will say about how the guidance will operate. It is important that we have a system that is transparent and maintains the confidence of the general public, and that is at the heart of what we are trying to do.

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[Mr Robinson]

I am very pleased to be able to contribute to a debate whose purpose we seem to lose sight of from time to time. The purpose of the new clause is to review the reforms of the annual investment allowance that have taken place since the Government came to power, and to see what lessons—in very simple terms—can be learnt from them. I do not see why the hon. Member for Redcar (Ian Swales) should not see fit to join us in the Lobby when we vote on the new clause, as I understand we shall do in due course.

No doubt the Exchequer Secretary will recall our Committee discussions in 2010, which were mentioned by the hon. Member for Dover (Charlie Elphicke). In 2010 we were discussing measures to be introduced in 2012, and while we considered that to be an appropriate period in which the Government could introduce the changes that they wanted to make, we strongly opposed those changes. I think that we were sensible to do so, and I think that we have been proved right.

It has proved to be a long road to Damascus for the Government. Many arguments can be made for a broadly neutral approach to taxation matters, and I believe that that is a long-standing aim of the Treasury. Indeed, we were very much on that tack ourselves when we came to office. However, the realities of government, and the realities of the Government’s own Budget of 2010, should have informed them that they could not be so purist in their theory as to ignore the fact that, during the five or so years to which the Budget looked ahead, they would require a massive increase in investment in order to sustain the increased levels of growth that they wanted and the whole country needed, and that to secure that increased investment it would be necessary, in turn, to generate a massive, unprecedented level of exports. We made that case ourselves, but it did not carry the day.

I believe that it was the then Exchequer Secretary who said, “We do not really see what is wrong with companies just investing their depreciation levels.” I pointed out to him that that would barely replace the assets in real terms, and that it was not the way in which to generate an increase in growth, far less the increase in productivity on which the exports could be based. Heaven knows, we need the productivity now more than ever, given that sterling is relatively high. In certain markets we are up against considerable competitive pressures, which we can only fight with real productivity, which is dependent on investment.

We made the case for some element of discrimination in relation to investment, and that remains the Labour party’s preference. While, as the hon. Member for Dover said, there may have been—and may still be, for all we know—massive cash hoards among the bigger companies in the economy, much of the investment that we need must come from the small and medium-sized enterprises, which I do not think are so rich in cash, especially the small-company element. Although the relatively small sum of £100,000 was not to be sneezed at, we welcome the Government’s conversion to £500,000. Why that is to last only until the election I cannot imagine, unless it is due to some very short-term electoral consideration on the Government’s part, which I do not think is realistic even in my wildest dreams. I am slightly reminded—although I must not digress—of our recent debate on the Office for Budget Responsibility, when, for purely party-political reasons, the Government refused to extend the OBR’s remit to an audit.

Be that as it may, we are discussing something else now, namely the fact that the Government will not tell us whether they will maintain the same level of AIA beyond the election—which ought to be possible—and for how long it could be maintained beyond the election. After all, the Government have plans. They have a forward look, and in that forward look must feature the proposed level of AIA. They might have to disentangle it from the accounts in due course, but a simple statement from the Exchequer Secretary would set a lot of minds at rest, and provide the element of forward certainty that is so important to small and medium-sized companies, whose investment programmes often run over several years. Smaller companies in particular may not be able to afford a massive investment all at once. As I am sure we shall hear later from the hon. Member for Dundee East (Stewart Hosie), one advantage of the annual investment allowance relates to the setting off of past losses against future profits, and there are other instances in which they can be most helpful. I will not go into them, however, because I know that the hon. Gentleman wants to do so.

Let me return to the question of why the Government’s approach is still so short-term. I must tell my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) that my only reservation about the review is that the Government have chopped and changed so much, so quickly and, in fact, so excessively over the past four years that I wonder whether anyone would get any meaningful information out of it. I fear not. However, we should be happy about the Government’s apparent damascene conversion. At least they have come round to the idea of annual investment allowances in principle, particularly for smaller companies.

[Ian Swales]

Will the hon. Gentleman give way?

[Mr Robinson]

I will in a moment.

We may well see some element of discrimination in favour of smaller companies in the pattern. We do not want too much discrimination, because it could lead to complication, but I nevertheless feel that the Government should be thinking along those lines, which they probably are. No doubt the Exchequer Secretary will tell us when he winds up the debate. However, at present we have a short-term view of what is essentially a long-term problem. It is not that the level of investment has fallen under this Government or the last Government, or that manufacturing has declined under this Government as a proportion of GDP—which it probably has not, because GDP has still not reached the level at which it stood back in 2007. Generally speaking, however, manufacturing has been on a long-term slide, arguably since 1870 and certainly from the 1960s onwards, irrespective of which party has been in power.

[Ian Swales]

Will the hon. Gentleman give way?

[Mr Robinson]

I will come to the hon. Gentleman, if he will just be patient.

Inherent in the problem is the disinclination of the British economy as a whole to invest. Germany can be taken as a paragon of virtue in this respect. The Germans save more than us, and they generally invest more. They have better plant and equipment and higher productivity. They invest more in plant and equipment, but also in industrial relations. Their industrial work force is better equipped technically, from the top to the bottom, and better equipped physically with modern plant and machinery and computers.

Why is that? No one knows. There is a deep-lying cultural factor. However, it seems to me that if we are to offset it, the more we can afford to encourage investment the better, as long as that is intelligently done. I think that the dangers of misapplication can be much exaggerated, and that the loss of potential output through increased productivity can be underestimated.

If the hon. Member for Redcar still wants me to give way to him, I will do so.

[Ian Swales]

I have enormous respect for the hon. Gentleman’s experience in this regard. He has spoken of the importance of long-term certainty. I struggled in vain to find in the major speech made by his leader yesterday any mention of this issue, or indeed any mention of manufacturing. I wonder what he is saying to businesses that may be concerned about the potential for a future Labour Government.

[Mr Robinson]

I wish I had not given way, because when I do we always get into this tiresome point. The Government seek to find refuge by going back nearly five years. The Minister has been at the Treasury for four and a half years now, and his party has been in government for that long. They own the situation now, although I know they do not want to, as all they want to do is airbrush the last four and a half years out of existence—they did that again today—and concentrate on where they are now as if they took power just six months ago. When we are having a narrow debate on the question of our having a review of a particular failed policy of the Government that is relevant to this issue, the hon. Gentleman wants to bring in the whole of Labour party policy. That is tiresome and irrelevant and a waste of this House’s time. I am sure that when the Minister replies to the debate, he will not get into that.

We are discussing a very important point. If there is genuine change introducing some element of discrimination in favour of investment for the reasons I have given, we will welcome that. Indeed, we welcome the commitment on £250,000 and £500,000. We will welcome it doubly if the Minister will extend that commitment beyond the election, to put it bluntly to him. I do not know what our policy on that will be—or whether we will go into such detail in the manifesto—but I will certainly support such a proposal, both in principle now and as party policy if it finds such favour. The Government, however, can do something about this now. Will the Minister tell us whether there is a change of policy and a change of principle on their part? If so, why will they not maintain the amount of the allowance and achieve the levels of investment, productivity and exports on which our future depends?

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[Gordon Birtwistle]

Absolutely: stability, confidence, cash, training programmes, and an economic strategy for the future are vital for companies to decide to invest.

I agree with, and certainly do not have any real objections to, the Opposition proposal, but it is not linked to anything. If the Labour party wants to put forward a new economic or industrial strategy that links to this, I would be the first to support it, but this is just one element of a major programme that needs to be put in place.

[Ian Swales]

I pay tribute to my hon. Friend’s experience on this issue, and his campaigning, which lay at the heart of the increase to £250,000. Does he agree that tax allowances alone do not prevent investment, and in fact capital allowances are a time-shift—in other words, one still gets the tax allowance, but one just gets it later?

[Gordon Birtwistle]

My hon. Friend is right. We must remember that claiming a capital allowance on a profit is time-lagged, because companies will have worked for a full year and will have produced products at, it is to be hoped, a profit, and it then takes a full year for the accountants to go through the profits, so that is two years from the start, and at the end of the second year the company knows from its audited accounts how much profit it has made and how much it can invest. This does not all happen on day one or even at the end of the trading year, because they do not know just how much can be offset against tax in respect of purchases using capital allowances.

My constituency has a high proportion of manufacturing, and unemployment has gone down from more than 10% to 4.7%. That is because we are manufacturers. We make things. We create the wealth for the country. One company in my constituency, Lupton and Place, was contemplating buying a new injection moulding machine—it makes aluminium castings for the automotive industry—and it thought about that for quite a long time. I had meetings with it to discuss various schemes that might assist it to do that, but no such scheme was available. However, as soon as we announced the new capital allowances, it immediately ordered the machine. It cost €400,000. It did not get the capital allowance against the whole lot, but it did get the capital allowance against £250,000, as the sum was at the time. Although there was some money that it did not get a capital allowance against, under our strategy it was able to write the rest of it off against depreciation of the machine over the next few years.

I accept the need for capital allowances, therefore, and I hope the Minister takes that back to the Chancellor, as I have done on many occasions, to ensure that companies keep investing in this country. However, the main factor before people invest in anything is confidence—confidence that the country is going forward, and that there is growth and companies can see profits coming. People are not going to invest anything in anything unless they get a return. Returns are important for shareholders, business owners and partners in business, and if there is not going to be a return on the investment, they are not going to invest. If the confidence to invest is there and the cash is there to support the purchase, either from their own resources or from banks to ensure that the investment is made, capital allowances will be a major player in the investments that take place. On their own, they are not enough; they need to go with an overall industrial strategy. I am pleased to say that I believe that is happening.

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[Catherine McKinnell]

It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.

The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.

[Ian Swales]

rose—

[Catherine McKinnell]

I give way to another fence-sitting Liberal Democrat.

[Ian Swales]

I thank the hon. Lady for giving way, and she will be pleased to know that I will not sit on the fence on this issue. Investment decisions about plant and machinery are one-off decisions, and the annual investment allowance is only needed once for each investment decision. What we need is certainty around a specific decision, not long-term certainty.

[Catherine McKinnell]

That flies in the face of the advice given by the EEF, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, which all feel that the Government’s chopping and changing on this policy has been damaging to investment. Someone might want to make a decision to invest this year, next year, or the year after, but obviously if they do not know what the Government’s policy will be in 12 or 24 months’ time, they might well not have that confidence and not take that decision. The hon. Member for Burnley acknowledged that, but the hon. Member for Redcar (Ian Swales) seems to be completely at odds with what industry has been saying.

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[Madam Deputy Speaker]

Order. The hon. Gentleman knows that that is not a point of order, nor could it be further to a point of order, as there was no point of order.

[Ian Swales]

On a point of order, Madam Deputy Speaker. I made a point of order earlier today regarding a figure used yesterday by the hon. Member for Birmingham, Ladywood (Shabana Mahmood). The 2010 figure that I gave was correct, but I am now aware that the hon. Lady was using a figure derived on a new basis, so the comparison that I drew was incorrect. I felt that that should be put on the record.

[Madam Deputy Speaker]

I am grateful to the hon. Gentleman—[Interruption.] Order. I am grateful to the hon. Gentleman. That is a point of order. He has put the record straight, and the House is grateful to him.

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[Catherine McKinnell]

That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.

Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.

This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.

I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.

The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:

“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”

Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.

As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.

After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.

New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.

The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.

Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?

[Ian Swales]

Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.

[Catherine McKinnell]

I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.

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[Chris Leslie]

Now that we have reached the final stages of consideration of the Finance Bill, may I join the Minister in commending all hon. Members in all parts of the House who took part in the scrutiny, and in considering all the details? As he said, there were 31 hours of consideration of the Bill. I particularly pay tribute to my hon. Friends the Members for Kilmarnock and Loudoun (Cathy Jamieson), for Newcastle upon Tyne North (Catherine McKinnell), and for Birmingham, Ladywood (Shabana Mahmood). Let us be honest: they did the heavy lifting in Committee and on Report, as did—in an equal but perhaps less audible way—my hon. Friend the Member for Scunthorpe (Nic Dakin), the Opposition Whip, who made sure we kept to time and that everything was pursued diligently. Many hon. Members, certainly from the Opposition side of the Chamber, pushed Ministers and probed on specific matters of policy, and I grant that Ministers tried to address many of those points, though they were ably assisted, I suspect, by the officials from the Treasury, who also put a lot of work into these Finance Bills.

The Bill is long on clauses but short on ambition, I am afraid. I said on Second Reading that our goal was to try to improve the specifics. We have tried our best in a number of areas, but I fear we have not always succeeded in persuading Ministers to see the error of their ways. Let us consider some of these specifics, such as the crass and ill-timed tax cut for investment fund managers through the abolition of stamp duty reserve tax. At a time when so many people in this country are struggling with cuts to tax credits, such as the bedroom tax, and finding it difficult to make ends meet, the Government’s priority was to give that support and help first and foremost to those poor, hard-up investment fund managers. It is a badge of shame that that was their priority.

[Ian Swales]

Will the hon. Gentleman give way?

[Chris Leslie]

I do not know whether the hon. Gentleman is an investment fund manager who has done well out of this, but I will give way and find out.

[Ian Swales]

The hon. Gentleman is repeating something we have discussed over and over again. Does he not understand that the money from the change in stamp duty goes to the investment funds, not the manager, and that, in fact, millions of ordinary people up and down the country benefit from this change?

[Chris Leslie]

I am sure those investment fund managers have absolutely no interest in the abolition of SDRT in any way! I thought the hon. Gentleman was once a Liberal Democrat. Before the general election, the Liberal Democrats used to pretend they were in favour of standing up for the vast majority of people, against the vested interests in society who tend to look after their best interests, yet here he is again, voting for tax cuts for investment fund managers. This is a specific element of the Bill that we opposed. We tried to persuade the Government to drop that measure, but we were unsuccessful.

Finance Bill

Ian Swales Excerpts

Tuesday 1st July 2014 Commons Chamber

[Rushanara Ali]

I will not give way again as I am conscious that others wish to speak. I will conclude.

The Government’s so-called long-term plan should not be pursued at the expense of those in lower and middle-income families. That is why the new clause would rightly force the Chancellor to publish how much extra tax would be paid by high earners under the 50p rate. That would establish how much those earning more than £1 million per year would contribute. That would go a long way towards giving us the clarity we need.

Our vision is to work towards cutting taxes for the 24 million people on middle and lower incomes through the introduction of a 10p starting rate of tax. That is not only the way to a fairer system of taxation but the only way to nurture sustainable growth for all. After three years of flatlining, the growth that we are beginning to see is welcome, although it is still coming much slower than it is to countries such as the US and Germany.

Opposition Members have a vision for a broad-based recovery forged through the efforts of all people from all backgrounds. We must remember that average wages will have fallen by 5.6% by the end of this Parliament. How does that make our society one in which we are all in it together? I do not hear members of the Government or Government Back Benchers use that phrase any more. I challenge them to use it today if they still believe that it is not a joke as far as most people in this country are concerned. Only Labour’s plans for a fairer and more progressive taxation system will support the return of wages to a level seen before 2010.

In conclusion, I return to the basic premise of Labour’s argument. It is simply not acceptable or fair for millions of people to pay more in tax while millionaires pay less. Since 2010, tax rises and cuts to benefit have left average households worse off. Real-terms decreases in wages across this Parliament have made the financial plight of ordinary people across the UK tougher. People have become dependent on food banks as they have never been and there is rising homelessness in cities such as London. There is rising poverty—child poverty in particular—not only in my constituency, but up and down the country, but this Government still find the energy and will to reward the top 1% of earners while everyone else suffers.

The Government have pandered to the worst suggestions of their critics, namely that they are out of touch, have failed to spread any meaningful recovery to those who desperately need it and are out for the few and not for the many. For those reasons I support Labour’s proposals on the tax cut and support the new clause.

[Ian Swales (Redcar) (LD)]

It is a pleasure to follow the hon. Member for Bethnal Green and Bow (Rushanara Ali). I agree that we should be aiming for a tax system that is as fair as possible and accept that the timing of the top rate cut was not good for public relations or for feelings throughout the country. But let us examine the genesis of this situation.

In 2010, 6 April was an important day. It was the day that the top rate of tax was raised from 40p to 50p. It was also the day that Parliament was dissolved—the very last day that Labour Members sat on the Government Benches. They were sat on these Benches for one day with the top rate of tax at 50p. Clearly, as the right hon. Member for Wokingham (Mr Redwood) said, the rate was raised in the full knowledge that Labour was likely to lose the general election. It was the then Chancellor’s leaving present, which he knew would keep leading to headlines and would be the gift that kept on giving. Listening to the speeches made by Opposition Members today one would imagine that there had been a 50p tax rate throughout their time in government, and not simply on the last day on which they sat on the Government Benches.

[Frank Dobson]

Does the hon. Gentleman, as a Lib Dem, not recall that that date was significant in another way, as it was the day that the leader of the Liberal Democrats signed a pledge to get rid of tuition fees?

[Ian Swales]

Mr Deputy Speaker, I am sure you would call me out of order if I responded to that point.

Labour’s Chancellors were not slow to raise taxes—in fact, there is a long list of almost 100 taxes that they raised in 13 years—but strangely enough, they did not raise this one. Again, as the right hon. Member for Wokingham eloquently said, they knew that it was dubious that raising the top rate of income tax would lead to actual benefits. He mentioned the experiments of the 1980s in this country; François Hollande is conducting a live experiment right now across the channel and is getting very much the same results, with one prominent French citizen, Gérard Depardieu, moving all the way to Russia to avoid penal tax rates.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood)talked about the need for analysis. I make two suggestions. First, I presume that during the 13 years of the previous Labour Government a great deal of analysis was carried out on whether raising the top rate was the right thing to do—as I said, they were not slow to look at new ways of raising money and clearly kept on rejecting it as an option. The Institute for Fiscal Studies has now studied Labour’s proposal to raise the top rate back to 50p and has said that it is of dubious benefit. In fact, I think the hon. Lady herself said that it could cost money and would not be drawn on whether that would make her change the policy.

We ought to take what the Labour party says with a pinch of salt. It cut taxes every single year for millionaires.

[David Wright]

The hon. Gentleman is making an interesting speech. Is he making the commitment today that the Liberal Democrats will not have this proposal in their manifesto for the next election?

[Ian Swales]

I am not sure which proposal the hon. Gentleman is referring to.

[David Wright]

The 50p tax rate.

[Ian Swales]

I am not committing anything for our next manifesto, just as the hon. Gentleman’s party is not as yet. Our manifesto is being discussed now.

[Ian Murray]

I will check Hansard to make sure that this is accurate, but I think the hon. Gentleman said that some of the figures were dubious. If he genuinely believes that, why does he not vote for the new clause so that we get figures that are not dubious? Perhaps we can then assess whether a 50p tax rate is correct. Indeed, while he is going on about tax rises, will he confirm to the House whether he thinks a VAT increase is a Tory tax bombshell?

[Ian Swales]

I do not see VAT mentioned in the new clause. I was pointing out that, as the hon. Gentleman’s own Front Benchers say, the analysis of the benefits of the policy comes out as plus or minus zero: it could have a large cost or be a significant benefit. If we are in that sort of ballpark, we are clearly not talking about huge measures that will cut the deficit.

Under this Government, the wealthy have been paying a lot more every year in income tax than they ever did in any year under Labour. They are paying more in many other ways as well. The Labour Government thought it was okay for the wealthy to pay £250,000 in pension contributions and get full tax relief; the coalition Government have reduced that to £40,000, making £95,000 a year of tax benefits that the Labour Government were happy to give but this Government are not. Capital gains tax was at the derisory level of 18%, and is now 28%. The level the Labour Government charged on capital gains was lower than the rate of income tax, so hedge fund managers could be paying a lower rate of tax than the people who cleaned their offices, a truly shameful record.

If anyone is lucky enough to be spending £1 million a year, they will be paying £25,000 more in VAT. To answer a point made by the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) earlier, people on low pay spend very little on standard rate VAT items. Once again, the right hon. Member for Wokingham mentioned this: most of the day-to-day living costs of most people—housing, energy, food and many other costs—do not carry standard rate VAT, so the wealthy are paying more there.

The thresholds for inheritance tax were going up under Labour but have been frozen under this Government through the efforts of the Liberal Democrats. We know that the party with which we are in coalition would like to return the level to £1 million, as it campaigned on that during the last election and I believe it will do so again next time. We are pleased that the threshold for inheritance tax has been frozen throughout our time in Government, because we feel it is the right thing to do at this time. We also saw industrial-scale tax avoidance under the previous Government, and many cases now arriving in court go back to the days when they were in power. The idea that this Government are not taxing the wealthy does not stand up to examination.

[Mark Field]

Will the hon. Gentleman give way?

--- Later in debate ---

[Mark Field]

I am sure that the right hon. Member for Birkenhead (Mr Field) would agree.

The hon. Member for Redcar (Ian Swales) is making an important and courageous speech from the Liberal Democrat Benches. It is one that many of us on the Conservative Benches could have made, and I thank him for putting some of the issues that have been raised today into perspective. There has been a lot of outrage on the Opposition Benches but it is important that the history of precisely what went on during the previous Labour Government is put on the record.

[Ian Swales]

I thank the hon. Gentleman for that. I agree that it is important: the narrative that Labour taxes the rich until the pips squeak and that we do not does not stand up to examination.

[Sir Andrew Stunell (Hazel Grove) (LD)]

May I add some grist to my hon. Friend’s mill by asking whether he agrees that it is astonishing that during 13 years in government the Labour party never found the time to impose VAT on the purchase of private jets? The coalition Government have introduced that.

[Ian Swales]

My right hon. Friend’s remarks stand on the record. Perhaps what he has said can tell us something about the travel movements of a previous Business Secretary, whom I will come back to in a moment.

The new clause also refers to levels of bank bonuses. As I understand it, the Opposition want in future to tax bank bonuses at 100%, with 50% on the individual and 50% through the bank. What assessment have they done of what that policy will do to the level of bank bonuses? It seems like another example in which the headline comes first and the policy follows behind.

The Opposition had 13 years to deliver their vision for the country. If we look at all the various levels of tax that they presided over, they carried out the wish of the former Secretary of State for Business to whom I have just referred, the former right hon. Member for Hartlepool, who said that he was

“intensely relaxed about people getting filthy rich”.

--- Later in debate ---

[Ian Swales]

The right hon. Gentleman makes a fair point. Throughout the last Parliament, that fair share was deemed to be 40% on the top rate until the very last day. We should judge the Labour party on what it did, not on what it now says.

On the new clause, I am not sure that we state in Bills that there should be reports. It betrays a desperation that we should all reject.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Gauke]

It is striking that time and again senior figures in the Labour party went around describing this as a tax cut for hedge funds. It is to the credit of the hon. Member for Kilmarnock and Loudoun that she refused to repeat that accusation. Although she did not quite go as far as she might have done towards putting the record straight, at least she did not repeat the accusation despite being given multiple opportunities to do so. I do worry about the understanding of some issues within the Labour party. Just today, we have seen the example of the confusion about how many jobs have been created inside and outside London. I understand that the Leader of the Opposition is standing by his position this morning, although he did not quote that in his speech—but there we go. I am afraid that this is an example of somewhat shoddy thinking from the Opposition.

[Ian Swales]

On the same theme, did the Minister share my concern about the number of speeches made in Committee by Opposition Members that appeared to suggest that the benefits of the policy would accrue to the managers of the funds rather than the funds themselves?

[Mr Gauke]

Yes, I did. There was a complete absence of any understanding of tax incidence and of who ultimately bears a tax, but that, I am afraid, is all too typical.

The removal of schedule 19 is a welcome measure that will ensure that we have a competitive investment funds management set-up in the UK. It will help savers and those investing in their pensions and remove a distortive and uncompetitive tax. It is a great pity, although not a great surprise, that this further measure to improve our competitiveness and to help savers is opposed by the Opposition, and I certainly urge my colleagues to vote against amendment 67, assuming that it is pressed to a vote.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

Clause 107

Abolition of SDRT on certain dealings in collective investment schemes

Amendment proposed: 67, page 90, line 33, at end insert—

‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.

(5B) The report referred to in subsection (5A) must in particular consider—

(a) the impact on tax revenues;

(b) the expected beneficiaries; and

(c) a distributional analysis of the beneficiaries.”—(Cathy Jamieson.)

Question put, That the amendment be made.

--- Later in debate ---

[Ian Swales]

I certainly accept the Minister’s point about the timing for reporting back on the scheme. However, we are starting to see examples of the very few companies that are taking it up, and they seem to be focused on high earners in industries such as private equity, who arguably are not very worried about their employee rights anyway. For example, eight managers at European Capital each received the maximum £50,000 recently when they sold one of their businesses. Can the Minister say what kinds of companies are registering and how the scheme is working so far?

[Mr Gauke]

We have been consistent throughout. No one argues that the arrangement is right for everybody; it will be suitable only in particular circumstances. It is more likely to be relevant for fast-growing areas involving a relatively small number of highly valued individuals who benefit from arrangements that incentivise performance but who are not necessarily looking for extensive employment rights.

It has been said before in the context of this debate that there are employees who benefit in full from employment rights; there are the self-employed, who have essentially no rights in this area; and there is a gap in the middle. Part of the thinking behind the arrangement is about ensuring that something appropriate falls in between—something useful for fast-growing small and medium-sized companies that want to create a flexible work force.

--- Later in debate ---

[Catherine McKinnell]

I, too, took great interest in what the Minister said, because he seemed to disown the figures that were published by the Office for Budget Responsibility on this policy, as though they were in some unknown ether in the future. He appeared to be saying, “It’s nothing to do with me, guv.” The figures that the OBR predicts are very clear. It will cost £1 billion and a quarter of that can be attributed to tax planning and, if the concerns of the hon. Member for Redcar (Ian Swales) are borne out, tax avoidance.

[Ian Swales]

I am sorry to have missed some of the erudite contributions to this debate, especially that of the hon. Member for Islwyn (Chris Evans), whom I always enjoy hearing. I do not know whether these points have been mentioned. Is the hon. Lady concerned about the effect on competition between businesses if one business uses this process and another does not? Secondly, is she aware that the Office for Budget Responsibility thinks that existing share schemes may be shoehorned into the new process, meaning that people who are already in share schemes and who have employee rights might suddenly find themselves forced into the new arrangements?

[Catherine McKinnell]

I share all those concerns and many more. Ultimately, it is for the Government to take on board what is being said to them so clearly, but they seem to be ignoring it. The hon. Gentleman will know that he has the opportunity to vote with the Opposition on new clause 11 and to get the Government to sit up and listen to the concerns that are being expressed. Perhaps the data will show that the scheme has had a fantastic take-up, that it is entirely fair and that it has created many new jobs. Perhaps it is the boost for growth and job creation that the Chancellor proclaimed it would be. Alternatively, they might show that it is just a tax avoidance opportunity that is unfair to the employees who are forced into it against their will.

The Conservative, Baroness Wheatcroft, said:

“Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 618.]

That is the sort of perverse effect that we want the Government to take action on by producing the data that will enable Members of this House to know the true impact of this employee shares for rights scheme.

I urge all hon. Members to vote for new clause 11.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Shabana Mahmood]

My hon. Friend makes an excellent point. He is of course right that this is a huge sum of money and that people are rightly concerned that £35 billion-worth of tax is potentially going uncollected in our country.

[Ian Swales]

I am certainly no defender of the tax gap, and I am on record as having challenged the whole system of tax avoidance many times. However, does the hon. Lady know what the tax gap was in 2010 when the previous Government left office?

[Shabana Mahmood]

The truth is that any tax gap, however big or small, is unacceptable to the public, and strong action should always be taken to tackle it. I was about to say that I am grateful to the hon. Gentleman and that it was £32 billion. As I say, that is too high, and it has gone up to £35 billion under this Government. These large sums of money shake the public’s confidence when it comes to believing that the Government are doing everything they can to tackle tax avoidance.

--- Later in debate ---

[Shabana Mahmood]

No, I am going to make some more progress.

Tax avoidance and how to tackle it effectively and thereby close the tax gap remains a real problem for this Government, hence our new clause. We need more action from this Government, and where they fail the next Labour Government will step in. We are pushing the Government for greater action in three specific areas. Let me take each in turn.

[Ian Swales]

The hon. Lady talks about the next Labour Government. Does she wish to apologise for the slashing of the number of compliance and investigation staff by the previous Labour Government, to the point where this Government have had to add large numbers of people to carry out the work she so much wants?

[Shabana Mahmood]

Given the cuts at HMRC, this Government’s record on HMRC resources, which is a topic I regularly debate with the Minister, is not one for Members on the Government Benches to show off about.

First, let me take the issue of the quoted eurobonds exemption. That was originally implemented to make it easier for companies to obtain finance from the international bond markets by excluding corporate debt listed on recognised stock exchanges from UK withholding tax. Making it easier for companies to obtain finance on the international bond markets is a legitimate objective that we support. However, as covered in a spate of high-profile media stories last year, the exemption can also be used for tax avoidance purposes, allowing companies to shift profits out of the UK in the form of interest payments, without making any tax payment. As HMRC has noted:

“In recent years a number of groups have issued Eurobonds between companies in the same group, and listed them on stock exchanges in territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.”

The Government consulted on the issue in 2012, with HMRC proposing to amend the eurobond exemption so it would not apply where the eurobond is issued to a fellow group company and listed on a stock exchange on which there is no substantial or regular trading in the eurobond. HMRC stated:

“The effect of the amended rule would be to leave untouched the quoted Eurobond exemption for the overwhelming majority of Eurobond issues. It would deny the exemption only in the case of intra-group Eurobond issues that appear to be undertaken for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.”

Despite HMRC estimating that the proposed restriction could have an extra impact of £200 million a year, in their response, the Government stated that they did not intend to proceed with it. Why not? Well, the Government said they made that decision in the “light of the responses” they received around a number of technical issues and after respondents questioned the positive Exchequer effect set out in the impact assessment.

That is simply not good enough. We say that abuse of the exemption can be shut down and must be shut down. Our proposals will explore removing the exemption where bonds are issued to connected persons, such as where a subsidiary issues a bond to a corporate parent or its private equity fund owners. To minimise disruption to private equity funds using the mechanism to simplify investor rebate claims under double taxation treaties, we would explore either offering an exemption for private equity partnerships where all, or the vast majority of, the ultimate beneficiaries would qualify for double taxation relief, or streamlining the withholding tax rebate process in consultation with the industry. So there is a mechanism to shut down the abuse of the exemption. It could and should have been taken up by the Government.

The estimates of the Exchequer impact of closing the loophole range from £1 billion to the Government’s estimate of about £200 million, with many more commentators saying that they would place it at about £500 million. In a letter to me dated 4 March 2014, the Minister said:

“Some newspapers quoted a figure of £500m for the tax at risk. This appears to be based on the unrealistic assumption that the interest paid out of the UK had not been restricted for tax purposes and that the beneficial recipient would not be entitled to gross payment. You will appreciate that I cannot discuss individual cases, but HMRC has confirmed to me that computational adjustments are frequently made. Consequently, the £500m sum is very wide of the mark. Any change here will not raise any significant yield.”

I was interested in that response, for which I was grateful and which I received after I had tabled a number of questions about the quoted eurobond exemption, because it displayed a concerning lack of clarity. The Minister says that the numbers quoted are “wide of the mark” but he does not say where the mark actually is. That is surprising, given that HRMC and the Minister have examined this in detail and have consulted on it, and given that they tell us that “computational adjustments” are regularly made for it. Despite that, still no figure has been given.

--- Later in debate ---

[Shabana Mahmood]

I would be happy to have a long conversation with the hon. Gentleman about all the different experts, but let me just say that our experts were drawn from across the business and legal worlds. They gave advice and assisted us in thinking through many of the issues related to the abuse of the quoted eurobonds exemption. I will not take this opportunity to put that advice on the record, because I have not sought the permission of those experts to make public some of the assistance and advice that they have given to us. However, our paper is thorough on the issue of how we would seek to close down abuse of the exemption. That tells the House that we have considered these issues deeply, and have thought through all of the problems that might arise from the different attempts to close down the exemption.

I was talking about yield, and how far a potential yield should dictate the Government’s policy in deciding whether to close down an abuse of the system. I referred to the business premises renovation allowance in clause 61. The Government have taken action to close down some of the abuse associated with that allowance, but the impact on the Exchequer was, we were told, negligible. So we see the Government proactively closing down a loophole in which the Exchequer impact is expected to be minimal, but where a loophole exists that is estimated to cost the Exchequer upwards of £200 million a year, they do nothing. How can they justify their decision not to take action to prevent the abusive use of the eurobonds exemption when there are hundreds of millions of pounds at stake?

The potential complexity of the change that would be required is no justification for the failure to act. It has not stopped this Government on other measures, including on the business premises renovation allowance. There seems to be no reason—not money, complexity or anything else—that could stop the Government from acting other than intense lobbying from the affected parties seeking to protect their own interests.

The Government have failed to act, but our new clause gives them the opportunity to do so. If they do not act, the next Labour Government will.

[Ian Swales]

rose—

[Shabana Mahmood]

I want to make some more progress.

Secondly, we want to push the Government to take action on disguised employment in the construction industry. Employers falsely declaring their workers to be self-employed is a long-standing and well-documented issue in the sector. Although there is of course some necessary and genuine self-employment in the sector, employers are currently able to declare someone to be self-employed when they exhibit all of the characteristics of an employee.

That results in three problems. The first is a cost to the Exchequer. The Treasury has estimated that that entailed a static cost of £350 million in 2009 and the House of Commons Library recently produced an estimate of about £500 million. The second problem is that those falsely classified as self-employed are denied their employment rights. That means that workers might work for the same company for several years, effectively as an employee, while not receiving any of the resulting employment rights, such as sick pay, holiday pay and maternity and paternity leave.

--- Later in debate ---

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

On the question of tax avoidance, if the Government do not design the tax system properly and people who should pay tax can avoid it if they do so legally, that might be correct legally, but it is not necessarily correct morally. Having said that, if the Government design the tax system in that way and someone takes advantage of it, particularly an entrepreneur, who might take the money they save in tax and reinvest it in further jobs and enterprises, that person can defend that on the basis that if the Government were really skilful they would not be able to avoid it. On the question of tax evasion, people should go to prison if they evade tax. It is very simple in my view.

I have written to the Minister on behalf of a constituent who is an entrepreneur. He is about to retire and will probably dispose of his company in the process, because he is not talking about another income stream coming from continuing contact with the company. He accuses the Government of bringing in retrospective legislation in this Finance Bill, because from clause 192—I have read this part of the Bill right the way through to chapter 3, which is on accelerated payments—it is quite clear that the Government intend these retrospective investigations to go back to 2004. It gives HMRC power to declare in the arrangements for follower notices the ability to claim the tax based on other cases that might be similar to the case it is investigating or discussing. If it does so, it can claim the payment from the individual based on that follower notice.

[Ian Swales]

On a quick point of clarification, the retrospective application that most people are concerned about is that which was applied in the Finance Act 2008, which was enacted by the previous Government.

[Michael Connarty]

I understand that the advice given to my constituent, who is a business person, came from one of the best financial advisers in Scotland. In fact, it was the financial adviser who wrote to Equitable Life long before anyone realised that it was defrauding people by enhancing assets falsely, and who was the first person called to give evidence to the Treasury Committee. They have advised my constituent that the problem is, in fact, in this Bill and the performance under its terms. It might be based on a previous ability to do so, but the concept of follower notices and accelerated payment notices are, in fact, in this Bill and did not exist before.

The question is whether the provision is retrospective, because I believe that the Minister is on record—I think that it might be in writing—as saying that he does not agree with retrospective tax powers. I also understand that the Treasury Committee confirmed in a recent report that this is indeed retrospective and the Government are yet to explain what is wholly exceptional about the performance they have put in this Bill—the follower notices and the accelerated payment notices—that will justify the use of retrospective claims for taxation.

It seems to me that when someone is doing their tax planning, particularly when coming to that later period in life—quite a few Members of this House are in that age group—they look at the law at the time, take tax advice from advisers, make arrangements and do their tax planning accordingly, and that is what they think will be their future income. Those people tend not to be receiving a pension paid by someone else; they are earning their pension by their own efforts and enterprises. If that advice is taken and their tax planning goes ahead, I want the Government to assure me that they will not then be told after this Bill is passed, “You made that arrangement in 2000, but we have decided that from 2004 that that tax planning, although legal then, is not legal, so we want you to pay a substantial amount of tax back that was not in the tax arrangements then.” I think that it is only just that the Government give people an assurance that they will not come seeking to turn what was a legal tax arrangement into an illegal one and cost them a substantial amount of money.

Office for Budget Responsibility (Manifesto Audits)

Ian Swales Excerpts

Wednesday 25th June 2014 Commons Chamber

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

We have had what could best be described as a very interesting debate. Let me begin by picking up a point made by the hon. Member for Wyre Forest (Mark Garnier), who said that the sums done by the Scottish National party and the Scottish Government did not add up. The Scottish Government’s child care proposals provide a good example of that. The Scottish Parliament Information Centre has studied the figures, and has demonstrated that the SNP’s sums do not add up and its policies do not make sense. However, that is not the subject of today’s debate.

I think that the debate has been useful, although, like others, I was a bit disappointed that the Chancellor had not seen fit to come to the House and defend the Government’s position. As for the Financial Secretary, I know from previous debates that she generally seeks to build consensus. Perhaps she was simply given a script and told to make the best of a bad job, but I was nevertheless surprised that she did not adopt her usual tone. It seemed to me that her heart was not in the argument that she was presenting, and that, given the opportunity and a slightly different setting, she might have adopted another approach.

We heard a number of thoughtful and considered contributions, not least from my hon. Friends the Members for Coventry North West (Mr Robinson), for Eltham (Clive Efford), for Edinburgh East (Sheila Gilmore), for Leeds East (Mr Mudie), for Oldham East and Saddleworth (Debbie Abrahams) and for Derby North (Chris Williamson). I have already mentioned the hon. Member for Wyre Forest. He too made a thoughtful speech, although I did not agree with everything that he said. We made one interesting discovery, namely that the hon. Member for North East Somerset (Jacob Rees-Mogg) has not ruled out standing for the leadership of any political party. I look forward to observing his progress in the coming weeks and months.

My right hon. Friend the Member for Morley and Outwood (Ed Balls) explained our proposal very well, in his usual careful, considered and consensual style. I found it difficult to understand why Government Members took such exception to the way in which he set out what I thought was a very good case. The OBR already scrutinises the Government’s spending and tax policies and assesses whether they are reasonable, and we are merely asking for what is, essentially, a logical extension of that. We are suggesting that the OBR should perform the role that we propose not just for the current Government, but for prospective Governments.

As a number of my hon. Friends have pointed out, it would be sensible to require the OBR to audit only the manifestos of parties with 5% of the seats in the House. We need not involve it in every party manifesto. Ultimately, what the public want to know is that someone has looked at the sums of the parties that are likely to be in government to ensure that they add up.

Some Members on the Government Benches spoke as if the OBR would suddenly have to have a raft of civil servants and new people to do costings all over the place, every day of the week, for months and months. Let me again put on the record what my right hon. Friend the shadow Chancellor said in his letter in September to the head of the OBR:

“The reform I am proposing would mean the Opposition would submit costings for proposed manifesto commitments on spending and tax—obtained from, for example, the House of Commons Library, Parliamentary Questions or the Institute for Fiscal Studies”—

it was interesting to note the number of times that Government Members referred to that; I hope that they will take account of the findings of that august body as the debate continues—

“and the OBR would ‘provide independent scrutiny and certification’ of those costings.”

Therefore, it is not the case, as seemed to be suggested, that the OBR is being expected to do all the costings. It is being expected to certify those.

[Ian Swales (Redcar) (LD)]

The hon. Lady mentioned the Institute for Fiscal Studies. A look at its remit shows that this kind of work falls squarely under its banner. It also receives more than half its funding from the public purse, directly or indirectly. Does she not think that it could fulfil the role that the motion describes?

[Cathy Jamieson]

The IFS’s role is slightly different from the one that has been proposed. This is about scrutinising and certifying the policies and plans for government. One hon. Member mentioned the difference between costings and audit. We are saying that the costings should be looked at. That role is slightly different from the one that the IFS fulfils.

We are confident that our policies will stand up to that scrutiny. We are confident enough to say that we want the OBR to run the rule over all the spending commitments in our manifesto. As Members have rightly said, we recognise the need to restore trust in politics. The public want assurances that our policies add up. They want the OBR, having done the work, to be in a position to give them the quality assurance that they seek. We strongly believe that the other major parties should be prepared to do the same thing. That will enable the electorate to make an informed decision based on facts. That is important.

The Economy and Living Standards

Ian Swales Excerpts

Thursday 12th June 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

In 1997 the Labour Government were elected to the theme tune “Things can only get better”, but in my area they were about to get a lot worse. The Teesside Development Corporation was immediately scrapped and after 13 years of neglect, Redcar and Cleveland was judged independently to have the weakest economy in the country, and Middlesbrough had the second weakest.

Now with a successful local enterprise partnership, Government money pouring in, unemployment in my constituency down by 916 in the last year and manufacturing up, we can see the fruits of some investment coming through. Tonight when I get off the train I will be going past the new £39-million biologics manufacturing centre near Darlington station and on Monday we will be signing the Tees valley city deal, which I hope will act as a brake to those Labour people who think the Tees valley should always be run from Newcastle.

The Government are making the wealthy pay more. Against any year under the last Government, the wealthy are paying much higher taxes on their income, capital gains, pension contributions and spending. This week we passed clause 110 of the Finance Bill, which holds the inheritance tax threshold at £325,000.

I will just make a few comments about the Opposition amendment. We cannot take any lessons about house building from a party that reduced house building to the level of the 1920s by the time it left office and took 421,000 social houses out of circulation while the waiting lists were going up by 740,000—it is a shameful record. Labour also thinks we can make the energy industry more competitive by freezing prices, but unfortunately that will freeze investment and freeze out new entrants. I have tried in vain to find an organisation outside the Labour party that thinks the energy price freeze is in the interests of consumers. I will gladly take an intervention from anyone who can name such an organisation.

I support the living wage and helped to launch a campaign in Parliament. The Living Wage Foundation has praised the Liberal Democrat tax cut of £700 because it makes the living wage more achievable. The living wage is worked out from a net figure, so tax reductions do help. Interestingly, the Opposition amendment mentions the 10p tax rate. I would have thought they would want to bury that, as it reminds people that they doubled taxes for some of the lowest-paid people in this country. They mention vocational arrangements, and it is truly a scandal that our young people are so poorly educated that the NHS, engineers and many others have to go outside the country to get their employees. I am pleased that this Government are doing something about putting that right.

Section 5 of the European Communities (Amendment) Act 1993

Ian Swales Excerpts

Wednesday 30th April 2014 Commons Chamber

[Nicky Morgan]

I am certainly not aware of any changes. In fact, I think it would be fair to say that we have led the way in Europe and the eurozone in showing exactly how important it is to return to growth and the actions that need to be taken. It is interesting to see other European countries watching what this country has done and following some of the policies that we have put in place so assiduously. It is, as I have said, very important that they return to growth for the sake of our businesses and exporters, too.

The long-term economic plan has protected the economy through a period of global uncertainty and provided the foundations for the UK’s economic recovery, which is now well established. Since last year, economic growth has exceeded forecasts and has been balanced across the main sectors of the economy. Inflation is below target and the deficit has been reduced year on year. More than 1.5 million private sector jobs have been created. Employment is at record levels and interest rates are near record lows, helping to keep costs down for families and businesses. The Government are also making significant progress in reversing the unprecedented rise in borrowing between 2007-08 and 2009-10. The deficit has been cut by a third, as a percentage of GDP, over three years, and is projected to have fallen by a half, as a percentage of GDP, by 2014-15. The OBR also forecasts public sector net borrowing to reach a small surplus in 2018-19. The independent OBR has judged that the Government remain on track to meet the fiscal mandate one year early.

The Government’s consolidation plans have been central to the reduction in the deficit, with £64 billion of the £80 billion spending reductions in spending review 2010 already implemented. The Government are continuing to take action to improve financial management and spending control. Departments remain ahead of their consolidation targets and are again forecast to underspend by £7 billion in 2013-14. The OBR judges that fiscal consolidation has not had a larger drag on the economy than it expected in June 2010, and the UK’s fiscal vulnerabilities argue strongly in favour of maintaining our commitment to deficit reduction. The OBR forecasts that the underlying structural deficit is falling, but it is falling no faster than previously forecast, despite higher growth.

The persistence of the structural challenge supports the Government’s argument that economic growth alone cannot be relied on to eliminate a structural deficit. As my right hon. Friend the Chancellor has said, the job is not yet done. More work will need to be done to tackle historic weaknesses, including low productivity, poor skills and inadequate infrastructure. The deficit is still one of the highest in the developed world and the UK needs to continue to deal with its debts. We are on the right track. The deficit has already been cut by one third. Budget 2014 is fiscally neutral, despite lower borrowing across the forecast period, with an overall reduction in tax funded by a reduction in spending. We have set out our fiscal consolidation plan and it is vital to stick to it in future years.

Budget 2014 announced that the Government are cutting income taxes and freezing fuel duty to help hard-working people to be more financially secure; creating more jobs by backing small business and enterprise with better infrastructure and lower job taxes; capping welfare and controlling immigration, so that the UK economy delivers for people who want to work hard and play by the rules; and delivering the best schools, skills and apprenticeships for our young people. The OBR has revised the UK’s growth forecast upwards and it is now among the highest in the EU.

As the Chancellor said, the job is not yet done and the same is true for the rest of the EU, which is the UK’s most important trading partner. Some 45% of our exports are destined for the EU, and seven of the UK’s top 10 trading partners are EU member states. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. Much of the answers to these problems lie with national-level reforms, such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments. The UK has an interest in making sure those reforms happen. An ambitious EU-level reform agenda is also a key part of this equation and an essential counterpart to national-level reforms. While I can understand that some may be cautious about encouraging the UK to do more, an EU growth agenda would make a major contribution to growth across the EU as a whole and benefit the UK. Recent European Councils have underscored the strong commitment of Heads of State or Government to supporting growth and competitiveness. I know that the Prime Minister has been driving forward this agenda, along with leaders from a substantial group of like-minded member states.

Some would claim that we cannot have EU economic growth without EU spending growth. I disagree. While some areas of the EU budget, such as spending on innovation and research and development, have the potential to support growth, this in fact represents only 13% of the total EU budget. However, deploying EU-level policies in support of economic growth, such as the single market, regulatory reform and EU-level free trade agreements, can achieve maximum growth impact at the least cost.

[Ian Swales (Redcar) (LD)]

The Minister makes a point about EU spending. Does she join me in welcoming the fact that certain parts of the country have EU transitional status, which causes EU money to flow to areas such as the Tees valley?

[Nicky Morgan]

My hon. Friend is absolutely right. As we are a part of the EU and contribute, as a country, to the EU budget, it is absolutely right that some of that money comes back to this country—or to particular parts of this country—and we see the benefit of that financial contribution. He mentions his area of the country, and I know that EU funding in the midlands has been particularly valuable in supporting vital work on things such skills and apprenticeships.

--- Later in debate ---

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am grateful to the new Financial Secretary to the Treasury for her introduction to the debate, and I congratulate her on her promotion to her new post. I look forward to continuing the debate with her in the Finance Bill Committee, which got off to such a strong start yesterday.

When I first looked at the motion, I was mystified about the nature of the debate, which is why I have thanked the Financial Secretary for her introduction to it. The motion, as framed, does not exactly leap off the Order Paper. When Members go to the Vote Office, as I did to find the convergence documents, they will find that the motion still does not quite leap out at us in respect of what is going on in the House this afternoon. That situation is not a state of affairs that is alien to Members, given that we often have to debate issues that can sometimes seem impenetrable to those on the outside, and often to those on the inside too.

Let us turn to what could be described as “minus page 2” of the Red Book. I thought it quite telling that underneath a note about the Crown copyright and the ISBN number, are the words:

“Printed on paper containing 75% recycled fibre”,

and

“The Budget report, combined with the Office for Budget Responsibility’s Economic and fiscal outlook, constitutes the Government’s assessment under section 5 of the European Communities (Amendment) Act 1993”.

That is relevant to today’s debate, as the Minister helpfully outlined in her introduction. This is in a very small font and is easy to miss, and it is not immediately clear what it really means.

Looking at the 1993 Act, Members will have spotted that it refers to the Maastricht treaty, article 2 of which states:

“The Community shall have as its task...a harmonious and balanced development of economic activities, sustainable and non-inflationary growth”.

Article 103 is relevant, too, as it talks about economic policies being a “matter of common concern” that should be co-ordinated within the Council. For some Members of all parties, these are the sort of words that are difficult to stomach. That article continues:

“For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy”.

Once we break through the rather impenetrable language and the odd nature of this old treaty obligation, the emphasis of which has changed from when the obligation was made to the state of play within the EU today, what we get to is the fact that the House is essentially being asked to approve the Budget Red Book as a true and accurate reflection of what is happening in the UK economy. When we are finally able to frame the question in that way—asking whether the Red Book is in and of itself a true and accurate reflection of that—I would have to say, “Where shall I start?” It will probably not surprise Government Members to know that the Opposition do not consider it a true and accurate reflection of what is happening in the UK economy

Let me start with the top line of page 4 of the Red Book:

“The government’s long-term economic plan is underpinned by its commitment to fairness.”

I seem to remember that during the run-up to the last general election, before the Government began their life in the current Parliament, the right hon. Member for Tatton (Mr Osborne), who was to become Chancellor of the Exchequer, uttered his famous line about how they were not going to balance the books on the backs of the poor. There was also that other famous line about how we were all in it together. On the face of it, who could say that those sentiments were wrong? Certainly, if they had proved to be genuine, we should be in a very different place.

At the heart of those lines of rhetoric, however, is the implication of a deep commitment to fairness. My charge against the Government is that that commitment—and the “commitment to fairness” to which the Red Book refers—can only be seen as genuine if we accept that “fairness” can describe an economic plan that gives a huge tax cut to the wealthiest in our country. In the 2012 Budget, the Government announced a tax cut for millionaires that would be worth an average of £100,000 to each of them—a sum that is far out of the reach of millions of people in our country today. Meanwhile, the Government are presiding over what might be termed one of our more successful growth industries, which, unfortunately, happens to be the food bank industry. The number of people receiving three days of emergency food has grown from 67,000 four years ago to 913,000. How can it possibly be true that, as the Red Book states, the Government have a deep “commitment to fairness”, when the richest members of our society receive a huge tax cut while the poorest, in ever growing numbers, are being forced to use food banks?

[Ian Swales]

Perhaps the shadow Minister will quote another statement in the Red Book, namely the statement that net income inequality is at its lowest since 1986. The period following that year has included 13 years of her party in government.

[Shabana Mahmood]

Later in my speech, I shall deal directly with issues relating to household income and what is happening to the ability of families on low and middle incomes to make ends meet.

--- Later in debate ---

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention, but he will not be surprised to learn that I wholly reject the point he makes. Government Members often try to lay the whole cause of the global financial crisis at the door of the previous Labour Government, but it was a global financial crisis that affected countries all over the world; the Labour Government were not responsible for the fall of Lehman Brothers in the United States. That is the first point I would make in response to him. The second point is that this Government have now been in power for four years and they cannot keep trying to get off the hook about their own record. The important point is that they set a target for themselves. Previous Red Books show what was supposed to happen with this programme of fiscal consolidation, but it has not proceeded at the pace the Government set for themselves. That is not spelt out clearly in the Red Book in open language that anybody could understand.

Anyone looking at the Red Book would be forgiven for thinking that these are halcyon days and everything is exactly as it was always planned to be, but that is not a true and accurate reflection of what is happening in the economy. On page 1 of the Red Book, in a section from which the Minister quoted, we see that

“GDP growth has exceeded forecasts”.

It also states that

“the deficit as a share of GDP is forecast to have fallen by a half by 2014-15 compared to 2009-10”.

Again, that implies, “Everything is okay. Move along. There is nothing to see here.”

Yesterday’s growth figures and the 0.8% growth we have seen in the first quarter are welcome, but they do not make up for the previous three years of flatlining in the economy. We have to remember that in quarter 2 of 2010, growth was at 1.2%, and in 2010 after coming into power the Chancellor said that the economy would have grown by 8.4% by now, whereas in fact it has grown by just 3.8%, which is less than half of what he forecast. Again, what has happened is not quite as rosy when compared with what was supposed to happen in terms of the challenge the Chancellor set himself. It is also not as rosy a picture as is painted in the Red Book.

Let me deal with the point about personal allowances raised by the right hon. Member for Chelmsford (Mr Burns). We see a similar flannelling about what is really going on in the economy when we look at the impact of tax and benefit changes on people on lower and middle incomes and, in particular, on the interplay with their living standards. The Red Book tells us that

“a typical basic rate taxpayer will pay £705 less income tax…in cash terms than they would have paid in 2010-11.”

Page 10 of the Red Book tells us that pressures on household budgets “have eased”, but that is simply not the experience of millions of people on lower and middle incomes in our country. I fail to see how that statement can be true at the same time as the OBR tells us that wages will be 5.6% down in 2015 compared with 2010.

Treasury Ministers have failed to admit that latter point; they have been asked a number of times to accept that the OBR has said that wages will be 5.6% down, but no Treasury Minister has ever answered yes or no to that question. I will happily give way to the Financial Secretary if she wants to confirm that that is the case, but she is looking at her papers and I think she is going to do what every other Treasury Minister and colleague of hers has done, which is duck the opportunity to confirm on the Floor of the House and for the benefit of the record that the OBR is right in saying that wages will be 5.6% down in 2015 on the 2010 level.

[Ian Swales]

I am listening to the hon. Lady’s arguments. Would she like to add that because the income tax cut is a flat-rate amount it has the biggest impact on the low-paid and that the low-paid, particularly those on the minimum wage, have had a real-terms increase in their net pay?

[Shabana Mahmood]

And yet people in our country are on average £1,600 a year worse off. Let us look at the combined impact of tax and benefit changes. The Institute for Fiscal Studies figures, analysed for us by the House of Commons Library, show that on average people will by next year be about £1,000 a year worse off. This comes back to the central point: the Government say in the Red Book that pressures on household budgets are easing, but people are worse off, and not by trifling amounts, such as a tenner or £20 quid—they are worse off by nearly £1,000. That is a huge sum and it has a huge impact on a family’s ability to make ends meet.

The Government talk a lot about the personal allowance, and when the charge is made that ordinary people are suffering a deep-seated cost of living crisis, they often say, “But of course we have taken a large number of people out of tax altogether because of the increase in the personal allowance.” Although the personal allowance increases have been welcomed and supported by everybody across the House, they do not in and of themselves give a family the ability to make ends meet. We still have people who are desperately struggling, and who have their head in their hands every time a bill comes through the door. The truth remains that people on lower and middle incomes are worse off, and they will be worse off at the end of this Parliament than they were at the beginning of it. The balm offered, by the increases in the personal allowance in particular, is not enough to heal the deep wound that has been inflicted by all the other changes this Government have implemented since they have been in power. As I say, the combined impact of tax and benefit changes means that by next year people on lower and middle incomes will be about £1,000 a year worse off.

The Red Book also talks a lot about the Government’s economic policy in relation to savers. The Chancellor famously said:

“If you are a maker, a doer or a saver, this Budget is for you.”—[Official Report, 19 March 2014; Vol. 577, c. 781.]

There was not much in the Budget and the Red Book to help those who are making do—the people struggling with the cost of living crisis. But for the savers, there is much in the Red Book: about retirement choices, individual savings accounts and other savings devices. The Red Book has twice as much about savers as about supporting households. Again, however, it is not a true and accurate reflection of what is going on in the economy, because the Red Book fails to recognise that for many people saving, particularly at the moment, is a luxury that is desperately out of reach. I can imagine the welfare Minister I described earlier as being baffled about why people go to food banks being equally baffled about why people cannot save. People go to food banks because they have no money and they are going hungry. People do not save because they do not have any money left once they have met their other costs of living.

Hidden away in the documents that accompanied the Budget we found that the OBR says that the savings ratio has fallen in recent months and is projected to fall every year until 2018. I put that point to the Chancellor yesterday when I asked him to confirm that, despite his Budget for savers, the savings ratio is forecast to go down. He ducked the question and refused to accept that that is what the OBR is saying is happening to the savings ratio.

In recent weeks, we have had a number of surveys, particularly an important one carried out by the Money Advice Service, which have shown that 16 million British people are living life on the edge with no savings at all. Just 27% of people say that they can save on a monthly basis, and 37% say they have fewer savings now than they had last year. The truth, which we do not see in the Red Book, is that savers withdrew money from their accounts last year at the fastest rate for nearly four decades, according to Bank of England figures. Britons ended up taking out £23 billion from long-term savings in 2015. The ability of ordinary people on lower and middle incomes to save and to have enough money left over after the working week to put aside even £1 a day is fairly limited. Again, that is something that has not been spelt out in the Red Book.

--- Later in debate ---

[Jacob Rees-Mogg]

I think that it is an unfortunate concurrence of atoms. If we had not had a statement earlier, it would have been possible to fit in both, and that is how things go at the end of a Session. I am not so cynical as to think that this could possibly have been planned.

I want to answer immediately the point about savings made by the hon. Member for Birmingham, Ladywood (Shabana Mahmood). In all that she said on savings, she missed the reclassification of savings that the Office for National Statistics has just introduced. It has roughly doubled our savings rate, because it has reclassified the amounts that private companies put into pension funds as saving rather than as expenditure. That has transformed our savings rate, and therefore the UK economy has had a much higher savings rate than the figures have captured for many years. We should be rather pleased with the savings rate that we have and that we continue to have. Her point on savings, therefore, is, regrettably, fundamentally misfounded.

I want to come on to what underlies this whole debate. People with long memories will be aware that the Government—the British nation—had an opt-out of only stage 3 of monetary union. They did not have an opt-out from the earlier stages, and that included the convergence criteria to be ready to join the euro should that be the wish of the British people at any stage. These documents are part of the convergence criteria to show that we are making headway towards the requirements set out by the European Union under a number of agreements, the latest of which was in 2011, which basically ask for a deficit to be no more than 3% and for the national debt to be no more than 60%. It is about meeting those convergence criteria so that we could if we wished join the euro. It is important to bear that in mind. I am glad about the way the Government have approached this. Had they decided to prepare a whole new set of papers, devoting a great deal of energy and resources on the matter, as the previous Government did with their eurozone entry team, which cost millions of pounds and went on running for years, they would be buying into stages 1 and 2 of convergence for entering the euro. By simply sending the rather splendidly recycled—not just 75% but 100% of the fibre in this document has been recycled—to the European Union, it shows our deep suspicion of the whole process. In the reading of the documents, I could find only two references to performance against EU targets and convergence: on page 22, which runs to a mere three lines, and in the chapter headed “Excessive deficit procedure” on page 53.

I am pleased that the Government are taking an approach of saying, “This is what we understand is happening with the British economy. You, the European Commission, can have it, look at it and chew it over, but we are not running our economic policy in accordance with the convergence criteria.” I was reassured by the Minister’s comments that our policy is not determined by the requirements of convergence, and thank heavens for that. The convergence criteria have been at the heart of the ruination of European economies. There has been one crucial thing that the Government have been able to do since 2010, which the previous Government started, and that is to run a loose monetary policy with a tight fiscal policy. That has ensured that we have been able to get the deficit down without crunching the economy to pieces and without running the risk of a deflationary and elongated depression. That is possible only because we have not been aiming to meet the convergence criteria in the midst of a credit crunch/ depression. We have been able to set our own policy because we have had our own currency and therefore have not been trying to maintain the exchange rate at any particular level. It is notable that, throughout this process, the exchange rate has acted as one of the crucial automatic stabilisers for the economy. In 2009, the sterling-dollar rate bottomed at $1.35 and is now above $1.65, and that has acted as an automatic stabiliser on monetary policy during the process of this downturn—all of which has been dependent on our having our own currency, and has allowed both this Government and the previous one to be tighter on the fiscal side than would otherwise have been possible. It has avoided the absolute disaster affecting the eurozone countries, of having a tight monetary policy and a tight fiscal policy at the same point, which has led, in some countries, to riots.

I am broadly reassured, but there are inevitably some concerns. As I have mentioned, this is about meeting the convergence criteria that allow us to enter the euro. The European Union has no specific enforcement powers, but there are certain commitments that we have made. We are obliged, as are other EU member states not in the euro, to submit a convergence programme focused on the national fiscal policy. From 2011, EU legislation on economic governance introduced a new obligation on member states, including the United Kingdom, to take due account of EU guidance issued to them in the development of their economic, employment and budgetary policies before taking key decisions on their national budgets for the succeeding years, and progress will be monitored by the Commission.

[Ian Swales]

I thank the hon. Gentleman for giving way, and he is making a characteristically interesting speech. Presumably one of the enforcement options open to the EU if we do not meet the criteria is not to allow us to join the euro. Will he enlighten us on whether, through his studies, he has come across any other enforcement procedures that might be brought into play if we do not meet the convergence criteria?

[Jacob Rees-Mogg]

It is always difficult to know what action can be taken until action has been taken and until the European Court of Justice has adjudicated on whether that action is legitimate. Obviously, the hon. Gentleman’s point that we could be prevented from joining the euro is brilliant and I am impressed that the Liberal Democrats are so keen to prevent us from joining the euro that they would like legal action to be brought by the European Union to prevent that.

My warning is not so much that I can see a specific threat coming down the track, as the hon. Member for Birmingham, Ladywood said. There were a lot of tracks in the hon. Lady’s speech, and I wondered whether she was confused with Monday’s debate about the Government’s production of a lot of extra track in one direction or another. There is always a problem if Governments commit themselves to things that they have no intention of doing. At some later date a body comes back and says, “Actually, you agreed in 2011 that the European Commission would have the right to challenge you on how you were developing your fiscal and employment policies. That is not being done, so we want you to put your house in order.” Then we reach the question of what action can be taken to enforce that.

It is worth concluding on the glorious issue of convergence simply by saying that we are so lucky that we are not converging and that the Government have managed to make policy in this country so much more successfully than our continental friends. For example, the EUROSTAT figures—I shall cite a European body, not because I want to but for the sake of consistency, as similar figures are used across the areas covered—show that in 2013 the UK economy grew by 1.7% against 0.1% growth in the EU as a whole and 0.4% contraction in the eurozone. According to our own figures from the Office for National Statistics, we are now, according to the quarterly figures, growing almost as fast as China at an annualised rate, which is very encouraging. I never thought, even with my confidence in the Chancellor and his team in the Treasury, that we would manage to achieve near-Chinese rates of growth under this Government—emerging-market levels. We also have much lower unemployment than our continental cousins, and that applies not just to adult unemployment but, most importantly, to youth unemployment.

Let us hope that we do not converge but continue to diverge from the failures that the eurozone has inflicted on itself, to maintain our independent economic policy, to have an economic policy that thrives and succeeds because Her Majesty’s Government know what they are doing, unlike their predecessor, and can therefore boldly and with confidence send these statements to the European Commission and say to Señor Barroso and all the rest of them, “If only you had the sense to do what my right hon. Friend the Chancellor of the Exchequer is doing, you, too, might grow as well.”

[Graham Stringer (Blackley and Broughton) (Lab)]

It is always a pleasure to follow the hon. Member for North East Somerset (Jacob Rees-Mogg) in a debate on Europe. I tend to agree with his analysis of and almost everything he says on Europe, but, fortunately, I do not agree with his analysis of the British economy. It gives me an almost unique pleasure to be able to vote with my own party on a European resolution, which I have not done for some time, and I was surprised and pleased when the Opposition tabled the amendment.

First, it is also not unique for a Minister to come to this Chamber with almost nothing new to say, but it is unusual, to say the least, for the Minister to explain to the House that she has nothing new to say. There is a reason for that. The House is expected to report on the Budget and what we are doing financially to the European Union. In one sense one might take the rise out of that and have a little joke about it, as we are just sending the documents that we have already produced to the European Union and to Brussels, but we must remember that the European Union is a thin-end-of- the-wedge organisation. If it cannot get what it wants immediately, it will concede a little. It will say that as it cannot control our budgets, which it would like to do as it wants to create a much more centralised European Union, we should send it the details of them. Initially, that happened under the guise of looking for convergence since the euro was created just over 10 years ago. For a House that believes and should believe in its sovereignty, there is danger in that process even if nothing is being added to what is being given to the European Union.

My second point is the obverse of the point made by the hon. Member for North East Somerset. We certainly do not want to converge with the European Union, because the euro has been the biggest machine for destroying jobs in Europe since the 1930s. It has been a complete and total disaster. It is not just a matter of our not wanting to converge with the euro and the rest of the European Union. There is still an insistence within the eurozone on convergence and trying to converge is a disaster for the countries inside the zone and for the United Kingdom, because we want to trade with a thriving economy. While the euro is there, that economy cannot thrive. It is as simple as this. In Germany, the euro is simply an undervalued Deutschmark that is helping the German economy to trade around the world. That is hugely successful and Germany is building up huge trade surpluses. The rest of the eurozone, particularly the Mediterranean regions, is dealing with an overvalued euro that is depressing its economies.

Without the ability to change exchange rates, those countries are effectively in a competitive deflationary situation and it is very unlikely that they will ever be able to pay off their deficits and get into a better economic situation. The only way they could do that is if the German surplus was taken and spent in Portugal, Spain, Italy and Greece, where they have huge unemployment rates and where there is unemployment in what industry is left. It is very difficult—almost impossible—for the eurozone to converge, and that is bad for those countries and, because we want to trade with them, for this economy.

If the eurozone had done better since the banking crisis five or six years ago, this country would not have suffered as much as we have.

[Ian Swales]

I am carefully following the hon. Gentleman’s argument, with which I absolutely agree. I must admit that since I first became a candidate for the Liberal Democrats, the policy on the euro was the one policy on which I disagreed with my party for exactly the reasons that he is outlining. However, to be positive, does he agree that sending these documents to the EU might, in the spirit of learning, make it reconsider the errors of its ways?

[Graham Stringer]

The EU is not only a thin-end-of-the-wedge organisation but absolutely not a learning organisation. It is ideologically committed to ever-greater and closer union. It will not listen to arguments, however sensible they are, and however well this economy has or has not done over the past five or 10 years, and it will not take empirical lessons because its ideology is different from that. I will not repeat my previous points about starting the process of this sovereign Parliament’s reporting to the EU.

Finance (No. 2) Bill

Ian Swales Excerpts

Wednesday 9th April 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I am following the hon. Lady’s speech with great interest. For completeness, so that we have the full picture, can she say what proportion of tax is paid by men and what proportion of benefits are paid to women?

[Catherine McKinnell]

I am pleased that the hon. Gentleman has entered the debate, because the Liberal Democrats are key to today’s measure, and I shall go on to explain why. I think we know that there is long-term inequality. The mere fact that 85% of those who benefit from the tax cut from 50p are men speaks volumes about how this country is weighted. The majority of wealth is held by men. I understand the hon. Gentleman’s point, but I urge caution as the Liberal Democrats are in an interesting position today when it comes to how they will vote not only on this measure in the Bill but on our proposed review.

--- Later in debate ---

[Mr Jackson]

Indeed—47 minutes, as my hon. Friend says. However, it has definitely been worth waiting for.

In presenting a 10% partly transferable allowance, clause 11 may not yet be worth a huge amount, but it is of seminal importance in supporting marriage in the tax system. For the past 15 years, our tax system has been unusual in not recognising marriage, or indeed any other aspect of family responsibility. Our fiscal policy has been extraordinarily individualistic. Clause 11 changes that by inserting into our system of independent taxation the transferable allowance that former Chancellor Nigel Lawson, the architect of independent taxation, has argued it always should have had. I genuinely believe that qualifying the individualism of our current fiscal policy should be something we can all agree on, and that should appeal to Labour Members. The Opposition spokesperson failed on two occasions to answer the specific question of why, in 13 years in office, her party failed to support the institution of marriage in the tax system in any meaningful way. That is regrettable on her part, because it is disingenuous to say, “We disagree with the policy but, incidentally, this is how you can improve it.” It is churlish and mean-spirited from a party that claims to support the family in the tax system, and children as well.

[Ian Swales]

I can understand the hon. Gentleman’s passion on this issue, but what would he say to a couple in his constituency who are both earning the minimum wage and will not benefit from this policy?

[Mr Jackson]

I will come to the specifics later. However, my hon. Friend—I am pleased to call him that because we serve on the Public Accounts Committee together—will know that many of his constituents in Redcar on low wages have benefited from our personal allowance changes. Indeed, many of them have been taken out of tax altogether, as have people across the north-east of England. He will know, too, as will the Opposition spokesperson, that unemployment has significantly fallen in the north-east and there are now more jobs available than in 2010. [Interruption.] We will not take any lectures from Labour, which doubled youth unemployment between 1997 and 2010.

I would have hoped that Labour Members supported these proposals, particularly this clause, because they are progressive. The Institute for Fiscal Studies has produced a very helpful chart demonstrating how the provision will disproportionately benefit those in the lower half of the income distribution—a point astutely made by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton). This is not a provision for the middle classes, as Labour critics sometimes suggest. The truth is that the failure of our income tax system to have regard for marriage in recent years has been very odd, as the Prime Minister said in response to a question from the right hon. and learned Member for Camberwell and Peckham (Ms Harman) in June 2010:

“I simply do not understand why, when so many other European countries—I remember often being lectured when I was on the other side of the House about how we should follow European examples—recognise marriage in the tax system, we do not. I believe that we should bring forward proposals to recognise marriage in the tax system…We support so many other things in the tax system, including Christmas parties and parking bicycles at work, so why do we not recognise marriage?”—[Official Report, 2 June 2010; Vol. 510, c. 428.]

--- Later in debate ---

[Tim Loughton]

Very simply, because the number of marriages went down. The change in the divorce rate is a simple statistical manifestation of the number of marriages.

The Liberal Democrats, who are heroically represented here today by the lone star hon. Member for Redcar (Ian Swales), have perhaps been more honest about the married couple’s tax allowance, which they have never supported. Their leader has some bizarre reasons for not supporting it, but they have been absolutely honest. If they had not been involved in some sort of deal, of which we are completely oblivious, they might have been here to vote against the measure, and of course we are very disappointed that they are not here.

The measure will benefit 4 million couples, including 15,000 in civil partnerships and hopefully a good many who adopt the new status that the hon. Member for East Lothian (Fiona O'Donnell) mentioned earlier. My hon. Friends and I welcome the last-minute inclusion of the transferable married couple’s tax allowance in this Finance Bill. The allowance was promised in our manifesto, and it will initially be worth up to £210, but I contrast that with the up to £10,000-worth of subsidies rightly being made available for child care assistance—albeit that that will be available also for higher rate taxpayers whose household earnings may be as high as £300,000—which is still very far from a level playing field. That is why some of us, when the economy has recovered to the extent that it needs to recover after the car crash of 13 years under Labour, ultimately want to see a fully transferable married couple’s tax allowance—the full £10,500-worth, not just 10%. The married couple’s tax allowance is linked to the personal allowance in the Bill.

[Ian Swales]

As with other Government Members, the hon. Gentleman is making a passionate case, but we are considering the detail of the policy. Is he not concerned that the policy will effectively introduce a new 20% tax rate below the personal allowance as the married couple’s tax allowance is progressively withdrawn on the second earner between £9,500 and £10,500?

[Tim Loughton]

My hon. Friend the Member for Peterborough (Mr Jackson) addressed some of those problems, which I hope my hon. Friends on the Treasury Bench will consider as the Bill progresses. Perhaps they can come back with an amendment either in Committee or on Report.

--- Later in debate ---

[Jim Shannon]

As ever, the hon. Lady has made a very sensible intervention.

It is not the financial aspect of the clause that will be the convincing factor for those who wish to proceed with it. Personally, I see it as a recognition of those who are in a marital relationship, which is why I support it. Marriage is unquestionably a source of great benefit to adults, to children and to our communities in general: as others have said, there are extensive research findings to demonstrate that. Given the shortage of time, I shall highlight just some of the benefits of marriage to adult health, on the basis of evidence and statistics.

As has already been said today, the health gain from marriage may be equal to the benefit of giving up smoking. Of special interest to me, given the challenges presented by our ageing population, is the fact that marriage significantly limits hospital use. Those living with a spouse are less likely than others to enter an institution after the age of 60, because that person will be able to look after them and help them. For children, growing up with married parents is associated with better physical health in adulthood and increased longevity. There is a direct link between family breakdown—particularly separation from a biological parent—and future offending. I have not made those things up: they are facts, based on information that we have received.

Some Members have argued that marriage in itself is irrelevant, and that all the positive associations with it are driven by other factors, principally income. I must say that I find that argument particularly unconvincing. When one set of couples have thoughtfully embraced the cost of making an exclusive, lifelong commitment before the world, “forsaking all others, so help me God”—a commitment that is sealed in law—and another have just decided to move in together and see how it goes, is it any wonder that the first set of couples are likely to be, on average, more stable? That is not a reflection on those who cohabit, but it is a reflection of the statistics showing the commitment that we all make in a marital relationship.

Moreover, as others have noted, the Millennium Cohort Study has blown out of the water the idea that it all boils down to money. According to the study, the poorest 20% of married couples are more stable than all but the richest 20% of cohabiting couples. Finance is clearly not the motivator. However, recognition of the marital relationship by the Government through the transferrable tax allowance strikes me as a constructive way forward.

On 25 July this year, the hon. Members for Darlington (Jenny Chapman)—who has now left the Chamber—and for Blaenau Gwent (Nick Smith) will enter the happy union of marriage here in the House of Commons. Let me take this opportunity to wish them well, as others have already. It is good to know that marriage is alive and well in the House.

My concern is not with trying to persuade people to marry, but the evidence suggests that people who want to marry are not doing so because it is not an accessible option. As the Secretary of State for Work and Pensions said in his marriage week speech in 2011,

“When asked about their aspirations, young people are very clear: three quarters of those under 35 who are currently in cohabiting relationships want to get married, and some 90% of young people aspire to marriage”.

Those are very clear statistics. The Secretary of State continued:

“So perhaps the question we should be asking ourselves is this: if people from the youngest age aspire to make such a commitment in their lives, what stops them doing so?

Government cannot and should not try to lecture people or push them on this matter, but it is quite legitimate to ensure people have the opportunity to achieve their aspirations.”

[Ian Swales]

The hon. Gentleman is making a powerful speech, and I think that we have a unanimous view about the importance of marriage. Does he feel that the Government are communicating the details of the policy clearly enough for the young people about whom he is talking to understand whether it affects them or not? Many of them—for example, couples earning the minimum wage—will not be affected by it.

[Jim Shannon]

I cannot comment on the technical figures—no doubt the Minister will say something about them when he sums up the debate—but I understand the point that the hon. Gentleman has made. The Government clearly have much to do. Indeed, we all have much to do in putting forward our views, but let us hope that those who have an opportunity to enter into a marital relationship will be able to benefit financially as well.

Although 90% of young people aspire to marry, marriage rates are at an all-time low, while cohabitation rates are rising. The reason why that matters can be expressed in many ways, but I shall do so by employing language that the Treasury understands. The cost of family breakdown has risen to some £44 billion per annum, and crucially, according to the Centre for Social Justice, of every £7 spent on family breakdown amongst young families, £1 is spent on divorce, £4 is spent on unmarried dual-registered parents who separate, and £2 is spent on sole registered parents.

In this context it is absolutely imperative that the state does not place any unnecessary obstacles in the way of those who wish to marry, yet that is exactly what we do on many occasions. Since 2000 we have had a tax system that is very much in the minority internationally, as the hon. Member for Peterborough said. Just over a fifth of people in the OECD area live in countries that do not recognise marriage or have some kind of couple allowance. The vast majority of those people live in just two countries: the UK and Mexico. Research by Pearson and Binder published by the public policy charity CARE demonstrates that in this context the tax burden on a one-earner married couple with two children on average wage has been consistently much higher in this country than across the OECD on average. In 2012, the latest year for which there are comparable data, the tax burden on a UK one-earner married couple on average wage was 45% greater than the OECD average, up from 42% in 2011. Moreover this burden was a staggering 80.4% of that placed on a single person on the same wage while the comparable OECD figure was just 55%. Figures sometimes blind us to the issues, but these figures illustrate the issue of fairness and balance and show what the Government are trying to achieve through the legislative change before us.

In this context is it any wonder that rather than opting for marriage, couples are opting for other arrangements? Clause 11 will begin to put this right, but this is only a very limited, partially transferable allowance that, far from creating a level playing field, let alone a little nudge to opt for marriage, will instead only erode the incentive not to marry. Clause 11 is thus a hugely important first step; it is a foundation upon which we must build.

On 10 April 2010, when announcing the detail of the Conservative transferable allowance policy, which was then worth 11.6% of the personal allowance, the Prime Minister was clearly bothered that the package was not more generous. He indicated his wish to see more and, speaking on “Sky News”, he blamed the current fiscal constraints and said:

“Of course I want to go further and I am sure that over a Parliament we would be able to go further but this is a good first step.”

I believe this is a good first step. I am on record in my constituency as asking for this. I have done articles for my provincial press, supporting this option of the married transferable allowance. I believe today we have a chance to move towards that, and I hope this House will decide very positively and clearly on this.

It is clear that all we are going to get in this Parliament is a 10% transferable allowance. Many people will be watching to see the Prime Minister make good his commitment to go further in the next Parliament. Perhaps the Minister can confirm in his response in what ways the Government are committed to doing more in the next parliamentary term to introduce a fully transferable allowance. That must be the No. 1 income tax priority for the next Parliament.

Finance (No.2) Bill

Ian Swales Excerpts

Tuesday 8th April 2014 Commons Chamber

[Shabana Mahmood]

I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.

[Ian Swales (Redcar) (LD)]

Will the hon. Lady acknowledge that the Government inherited plans to increase corporation tax for small businesses by 1%, but have cut it by 1%, so it is not true to say that the Government have done nothing for small businesses?

[Shabana Mahmood]

I will come to the Government’s record in helping small and medium-sized enterprises.

As I said, we have supported the reduction in the rate of corporation tax in this Parliament, except to raise concerns, which I am sure the Exchequer Secretary will remember, well before I was in my current post, about the financing of that change at the start of the Parliament by getting rid of investment allowances on which the Government have recently U-turned. But as the figures show, the change to the main rate of corporation tax, the central policy for business taxation, does not help 98% of business in this country. How are they faring under this Government?

Everyone agrees that SMEs are the engine of growth, a phrase that we hear regularly in the Chamber and the House, and it is also fair to say that they are part of our national life. High streets and corner shops are part of the very British way of life that we enjoy in this country. I have a personal affinity with these enterprises, as when I was younger, my parents had a corner shop. My first job was helping my parents by serving customers in our shop after school and at weekends, doing the stock-take and going with my dad to the cash-and-carry. Even if one did not grow up in such a business, they are easy to call to mind because there are so many of them. As I said, there are almost 5 million, and they are the heart and soul of our villages, towns and cities. They also provide about 47% of private sector jobs.

As for everyone—SMEs are no different—times have been tough, and SMEs have been struggling with a number of issues during this Parliament and I will come to the points raised by the hon. Gentleman. The first of those issues has been access to finance. Every time we discuss SMEs, access to finance is one of the key issues raised. It is fair to say that the Government have failed to get lending going to businesses. They are in their fourth year of office and their many schemes keep failing to have a significant and game-changing impact on the access to finance landscape. For example, business lending fell towards the end of last year as banks continued to squeeze funding for SMEs, despite attempts by the Bank of England to boost finance to the sector. Bank lending figures also show that businesses paid back £4.3 billion more than they had borrowed in the three months to the end of November. SMEs were the worst affected by that particular brake on lending, and that is despite the tweaks to the funding for lending scheme announced by the Bank that were designed to try to ensure that loans to smaller businesses would be favoured.

Although larger businesses can access the growing market for debt financing in the bond market, there is a problem for small businesses that are reliant on high street banks and specialist finance and lending businesses, which have become much more conservative in their lending practices since the global financial crash of 2008. SMEs have consistently reported that credit is either refused or offered at very high prices by the major lenders, as Members on both sides of the House must regularly hear from businesses in their constituencies. There has been much talk in this Parliament about the problems of access to finance for SMEs, but despite several different schemes being announced, the change in practices that is required if SMEs are to have the finance they need has not been seen.

That issue has also been considered by the Public Accounts Committee, which made a number of worrying findings in relation to the landscape for SMEs. It said:

“The departments’ schemes are managed as a series of ad hoc initiatives that are launched to address particular weaknesses in the market, rather than to act as a coherent programme.”

That is a real problem. The lack of a coherent programme from the Government, despite what I am sure are the best efforts of the Business Secretary and the Chancellor, has led to piecemeal action—a little bit here and a little bit there, but no overall drive to action, only some good rhetoric for set-piece debates in the Chamber, leading to not very much at all.

--- Later in debate ---

SMEs have real problems in accessing finance and exporting. They are also struggling with energy prices. This is a topic on which there has been a great deal of debate in the Chamber over recent weeks. We know that energy prices are a problem for businesses as much as for families. Our proposals for an energy price freeze would save the average business more than £5,000. In the meantime, energy prices continue to impose a burden on SMEs.

[Ian Swales]

Will the shadow Minister enlighten us on how the calculation of a £5,000 saving is made, and on what she predicts about prices before and after such a freeze?

[Shabana Mahmood]

The hon. Gentleman is welcome to see our detailed calculations, which I can provide to him and are a matter of public record. If he really wants auditing of manifesto commitments, he should support our call for the Office for Budget Responsibility to be allowed to audit parties’ manifestos. We have nothing to hide on the policies that we have announced and the numbers behind them. We are very happy for the OBR to look at all that and to prepare a report for the benefit of the public so that they can see that what we are saying is based on good numbers and is deliverable. If the Government—both parts of the Government—have nothing to hide, they should fully support our proposal on the OBR audit, which is a good one. I am glad that the hon. Gentleman has given me a chance to remind the House that it is not Labour Members who are scared to have their numbers looked at.

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[Ian Swales]

rose—

[Shabana Mahmood]

I will not give way; I am going to make a little more progress.

As hon. Members will know, the level of business rates is set by the Treasury, although the revenues are collected locally. Business rates increase with inflation, and the rate of increase each April is set according to the rate of retail prices index inflation in the previous September. In September 2013, RPI was 3.2%, so business rates were due to rise by 3.2% this year. Of course, that was before the Government made their autumn statement announcement, which capped that increase at 2%. Business rates have risen rapidly during this Parliament because of high inflation. More than one in 10 small businesses now say that they spend the same or more on business rates as on rent. This April, businesses have been hit by a rise of £270, on average, at a total cost to business of £45 million.

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[Kelvin Hopkins]

My hon. Friend is absolutely right. I have called many times in this Chamber, including in the past week or two, for more tax officers to be employed. Every tax officer collects many times their own salary. A VAT officer told me that, even for VAT on small businesses, tax officers collect some five times their own salary. When it comes to the big corporates, if we had a good chief tax officer, Vodafone might have paid a few more billions, as it should have done. We could then start to solve our problems. We have to focus on the big corporates, which are getting away with murder.

[Ian Swales]

I have a lot of sympathy with the hon. Gentleman’s comments on HMRC staff, which I raise frequently on the Public Accounts Committee, but surely he must regret the cut in 10,000 compliance staff when his party was in government and welcome the addition of 2,500 compliance staff under this Government.

[Kelvin Hopkins]

I made exactly the same speeches when my party was in government. I demanded that the previous Government employ many more tax officers. There has been a conspiracy between Front-Bench Members for some decades to get away from being too unpleasant to the corporates and to let them have their way. Well, I do not want to let them have their way; I want them to pay their taxes so that we can pay for the things that ordinary people need, particularly those who are less well off and those who are more vulnerable.

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[Mike Kane]

I agree with my hon. Friend. Government Members have said that amendment 2 would create uncertainty, but if the Committee agreed to it and to a review, businesses would welcome it, because a review would be part of the ongoing debate.

The amendment would require the Government to publish a report on the impact of the planned cut in corporation tax in the 2015-16 financial year from 21p to 20p. The amendment calls for the assessment of the impact specifically on SMEs.

[Ian Swales]

I welcome the hon. Gentleman to the Chamber—this is the first time I have heard him speak. The amendment mentions “fewer than 50 employees”. Can he help me to make sense of that? Mainstream corporation tax would apply only to firms making more than £1.5 million profit. Is he suggesting that the amendment includes small companies that make more than £1.5 million profit? That is how it reads to me.

[Mike Kane]

I thank the hon. Gentleman for his welcome. Most SMEs have fewer than 50 people working for them, and a medium-sized enterprise is usually defined as one with fewer than 250 employees.

I welcome the fact that Labour Members want to cut business rates on properties with an annual rental value of less than £50,000 back to the level of the previous year. We would then freeze business rates for those properties in 2016. That can be paid for by reversing the additional cut in the main rate of corporation tax from 21% to 20% in 2015.

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[Nigel Mills]

I might be tempted to agree that there is some merit in looking at the level of business rate cost, but I am not sure there is much merit in the proposal we are debating here this afternoon for yet another review. I welcome the measures the Government have taken to reduce business rates, or least reducing the increase through the 2% cap and discount for high street businesses. I think we are all very keen to see how we can help our high streets grow. That reduction has to be the right way forward.

Returning to the earliest of the series of interventions, on a 20% capital gains tax rate, companies that realise a capital gain will be paying at 20%. It is only individuals who will end up paying the higher rate. There is sense in having symmetry restored to that situation. I wholeheartedly support getting the corporation tax rate down to 20%. We could trumpet it around the world that we have one of the lowest rates in the G8. That long-term direction of travel has to be one of the most powerful ways to encourage investment in this country by the large corporations we want to see operating here. It would perhaps stop them setting up their headquarters in Switzerland, Ireland or elsewhere. This is now a trend we can see: large corporations choosing to bring more jobs to, and paying tax in, the UK.

[Ian Swales]

My hon. Friend is making a very good speech, as he always does on these matters. Will he join me in welcoming the fact that Hitachi has decided to relocate its rail headquarters to the UK, in the north-east?

[Nigel Mills]

I am always a little nervous talking about Hitachi and rail, as I am from Derbyshire. I support Bombardier and want it to get rail contracts. I am sure that it is great news for the country and the north-east that Hitachi has chosen to do that. However, I clearly say that Bombardier is a far better make of trains and that it fully deserves the Crossrail contract it got in recent weeks. I look forward to healthy competition between the two. It would be great to have two well-regarded, highly skilled train makers in this country. Just to be clear: Bombardier clearly has the trump card on that.

It would be a terrible message to send out to the rest of the world, having seen us go so far in the right direction by reducing the rate of corporation tax from 28% down to the planned 20%, to suddenly start reversing that journey and saying, “Perhaps we’re not quite so sure that that was the right thing to do. Let’s have that extra revenue back and not support those businesses.” That would be the wrong thing to do.

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[Mr Gauke]

The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.

It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.

More and more businesses are moving operations here, a point made by my hon. Friend the Member for Amber Valley (Nigel Mills). Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend the Member for Redcar (Ian Swales)—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.

[Ian Swales]

As a champion of manufacturing, I would like to see more capital investment, but does the Minister accept that investment in people has clearly been going on during this period?

[Mr Gauke]

Indeed it has. I will say more about some of the other measures we are taking to make our tax system more competitive, but overall it is clear that our tax system—in terms of being open for business—has moved in the right direction over the last four years. It is important that we maintain that momentum and do not put it at risk by trying to reverse some of the progress we have made.

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[Jonathan Edwards]

That is certainly one argument, and I shall talk about how, with such an attitude, the super-wealthy are cutting off their own noses, and how a progressive taxation system would benefit them as well as people like the hon. Gentleman and me, who earn far less than those who get hit by the top rate.

As the 2012 HMRC paper that examined the effect of the 50% additional rate of income tax noted,

“there was a considerable behavioural response to the rate change, including a substantial amount of forestalling: around £16 billion to £18 billion of income is estimated to have been brought forward to 2009-10 to avoid the introduction of the additional rate of tax.”

This is a massive sum which would arguably have been included in taxation had the measure been announced with immediate effect.

The most recent figures from HMRC revised liabilities up by £2.8 billion in 2010-11, £3.3 billion in 2011-12 and £3.5 billion in 2012-13. This means that HMRC says it earned a total of £9.6 billion more than previously thought from the 50p tax rate. These are of course projections of taxable income, but that makes the case for the new clause which I am pushing.

[Ian Swales]

The hon. Gentleman makes the point about the £9.6 billion. Is he aware that HMRC says that the main part of that is due to higher income levels, not to changes in tax levels?

[Jonathan Edwards]

That is a fair point. We are making the case for a review. Let us have the figures divulged further. As I say, they are projections.

--- Later in debate ---

[Jonathan Edwards]

That is the key point. If we have effective anti-evasion and avoidance measures, an increased rate of tax will inevitably lead to a higher yield.

We are living in very worrying times where wealth inequalities at geographical and individual levels are unprecedented. Parts of London have gross value added 12 times higher than parts of Wales. While London has the highest GVA per head of any area in the European Union, west Wales and the valleys has one of the lowest. The contemporary history of geographical and individual disparities has been truly depressing in this regard. Successive Governments do not have a good story to tell, with rebalancing promised but never delivered.

At the heart of the argument for a reduced top rate of tax is the trickle-down theory that underpins much of the now-discredited neo-liberal economics that the Thatcher and Reagan era ushered in. It was always sold to us that the newly re-empowered financial elites would spend their money and it would trickle down, and the people at the bottom would become wealthier as a result of this benevolent spending. But what has happened over the past 30 years? Inequality has, in fact, grown massively. Instead of the wealth of the super-rich flowing down, the rich, especially the super-rich, have got steadily even richer and hoarded their money. That money is not simply made out of the sweat and toil of their own good fortune, skill and brilliance, but often on the backs of those who work hard on the bottom rung but gain little financial reward for the true value of their efforts.

We often hear the super-rich whine that they have made their money, so why should they pay a lot of awful tax on it? Well, that tax goes towards paying for important services such as schools, to educate the work force of the next generation, and hospitals, to maintain the work force in good health. It also pays for a police force that keeps our communities safe, and a legal system that ensures that the law operates smoothly and in a trusted way to allow for a broadly prosperous economy and a society free from corruption. We erode these provisions at our peril. Taxes do not exist in a vacuum; they provide the services that create the whole that enables individuals to go on to enjoy the freedom of being able to make money and enjoy relative prosperity. That is what the proponents of the trickle-down effect have forgotten and wilfully ignored over the past 30 years, as the hon. Member for Ogmore (Huw Irranca-Davies) said.

My new clause would pave the way for the additional rate to be raised to 50%—a small rise of 5%—primarily because that would be symbolic of a move towards a more equal and just society. Only last month, the International Monetary Fund released a report that concluded that the more equal societies stand a better chance of long-term sustainable economic growth. Of course, the IMF is the high priest of austerity which, throughout the 1980s and ’90s, forced developing-world Governments to privatise their publicly owned industries wholesale and enact wildly free-market policies in exchange for international loans. The result was the plundering of those countries’ natural resources by global multinationals, with little benefit being felt by the poor local populations and the elites doing handsomely. It is therefore quite a turnaround for the IMF to conclude that income inequality impedes growth and that efforts to redistribute are positive.

This is the real political challenge that will face us over the next generation. That is why we should be ensuring that those with the broadest shoulders bear the burden in what will continue to be very hard times for those at the bottom of the income scale, given the massive cuts that this Government are still intent on inflicting. Let us remember that a vast tract of the austerity programme has yet to feed into the system. An additional rate of 50% would help to ensure that the super-wealthy bear the burden and pay their fair share. I urge the House to support the new clause.

[Ian Swales]

It is a privilege to serve under your chairmanship, Ms Clark.

I represent areas that, I am sure, are not dissimilar to those of Members who have already spoken and intervened and where there is a great deal of deprivation. Anybody who wants to learn about my constituency can look at the long article about it in the business section of last weekend’s edition of The Sunday Times.

The amendments tabled by Opposition Members forget some important things. The Labour party kept the top rate at 40% throughout its time in office, until its very last day in power. The only day the rate was 50% was 6 April 2010—the day Parliament was dissolved for the general election.

The right hon. Member for Wokingham (Mr Redwood) and the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) have both questioned how principled the former Prime Minister and the former Chancellor, the right hon. Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling), were in their commitment to raising the rate to 50%. One thing is for sure: a general election was approaching and they probably knew that the increase would be the gift that kept on giving in terms of headlines. They had levied taxes in any way they could and they knew that going up from 40% was a dubious move in terms of raising revenue; otherwise, they would have done it earlier. What it did do was lead to more headlines.

Millionaires are paying £381,000 more in income tax in this Parliament than they did in the previous Parliament. Having said that, cutting the rate was not the top priority for me or my party. Our priority was to cut taxes for ordinary working people and we are very proud of the large moves we have made in that direction.

We should also remember that taxing the rich is not only about the headline rate of income tax. Let us consider some of the other measures this Government have already taken. Withdrawal of the personal allowance on incomes of more than £100,000 means that there is already a 60% tax rate on incomes between £100,000 and £120,000. On capital gains tax, anybody lucky enough to make a capital gain of £1 million will pay £100,000 more tax under this Government than they did under the previous Government. The 18% rate of capital gains tax under Labour meant that City operators who made capital gains paid less tax on them than their office cleaners paid on their income, which was truly outrageous. People with a pension contribution of £250,000 are now paying £94,000 more tax on it. If anyone is lucky enough to have £1 million to spend after all those taxes, they will pay £25,000 more in VAT, if they spend it on standard rate items. Tax avoidance has also gone down; Her Majesty’s Revenue and Customs, with its extra resources, is clamping down on it. The idea that this Government are sitting around allowing the rich to do whatever they want is absolute nonsense.

Labour’s proposal to put the rate back up to 50% has already been thrown into doubt by the Institute for Fiscal Studies. I am the first to admit that £100 million is a lot of money, but that is all that would come out of it and the IFS has said that it is not a good way to narrow the deficit. HMRC has already said that what the rise to 50% would actually achieve is doubtful. If hon. Members want to review it, we already have real experience of rates of 40%, 50% and now 45%. The Treasury and HMRC conduct regular reviews and a similar review could be conducted on real, existing data. There was a 50% rate for a period, so a real review could be conducted. It is also worth remembering that national insurance is currently 2%, so the marginal rates that people are paying to the Government are not 45%, but 47%.

We have to be careful. The experience in France is fascinating. There has been a wholesale exodus, with the actor Gérard Depardieu taking the extreme step of moving to Russia to avoid what he regards as extreme tax rates. There is no doubt that people with such incomes and that kind of money can, largely, live wherever they like these days. We need to bear it in mind that the population is more fluid than it used to be.

The Red Book makes it very clear that the top decile pays far more tax than it did. That is right because, as the hon. Member for Carmarthen East and Dinefwr said, people with the broadest shoulders should bear the biggest burden; and they are doing so, because of all the changes that have been made. Despite the fact that the amendment suggests otherwise,

“income inequality is at its lowest level since 1986”,

as the Red Book states. I find the idea that income inequality widened under a Labour Government abhorrent, because such Governments should have narrowing it in their DNA. My four grandparents, who all helped to launch the Labour party, must have been spinning in their graves during the 13 years of the previous Government. I am deeply cynical about Labour’s commitment: they cut taxes for millionaires every year that they were in government.

I look forward to discussing this further in Committee. I do not have a particular argument with reviews, but they do not need to be specified in Bills.

[Sheila Gilmore]

We touched on this issue in the earlier debate. The right hon. Member for Wokingham (Mr Redwood), who is no longer in his place, told me that I probably did not mix with many very rich people, which I suspect is probably true. My whole life and the constituency I represent have not been chock-full of people living in millionaires’ row and having lots of money in their pockets. However, his points, which other hon. Members have mentioned, about whether the recent rate changes—from 40% to 50% and back to 45%—are a good test do not bear much weight. It is quite clear, in such a short space of time that people, could rearrange their affairs in various ways first to forestall the income and then to ensure that the tax due in previous years was paid last year.

The Office for Budget Responsibility has said the same—that there has been an increase in payments, but that it was largely due to the fact that people could arrange their income in such a way as also to arrange their tax. When my hon. Friend the Member for Edmonton (Mr Love) intervened on the right hon. Member for Wokingham to suggest that people had rearranged their finances to suit the current tax regime, he was told that that was not the case. However, the right hon. Gentleman then talked about how those with high incomes—the rich, in his words—have plenty of ability to rearrange their affairs, so he in fact made precisely our case.

The argument that because something was not done during a certain period, it is not a good idea does not bear scrutiny either. Such a line does not relate to the financial situation in which we found ourselves. We hear a lot about the need for deficit reduction, as we have throughout this Parliament, and we know that the rate of deficit reduction has been far lower than was originally promised and planned for. Many of the changes—to tax credits, to benefits, to local government funding—were justified as absolutely essential for reducing the deficit. Under the previous Government, the reason for introducing the 50p rate was largely about that as well. It was and it remains our belief that we need a better balance when we are trying to reduce the deficit.

We all accept that there is no great virtue in running a long-term deficit. The debate has been about not whether to do something about it but the pace and efficacy with which we do something about it. Within that, there are choices to be made. There is a balance to be struck between taxes and spending cuts, and the Government have chosen to place a lot of emphasis on spending cuts and far less on tax. The 50p tax rate could have been sustained throughout this Parliament as part of the process.

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The 50p tax rate was not the be-all and end-all of reducing the deficit or of tax policy, but many of my constituents cannot understand why reducing the rate was made such a priority. They are finding the cost of living difficult, and they are suffering losses, including to local services. Many people end up having to pay more, because councils are making up for a loss of funding by charging for many services. That affects people, and they are puzzled about why a Government who said “We are all in this together” have made such a tax cut their top priority. It is not at all unreasonable to examine the impact of that and to be willing to listen to what people are saying about their cost of living.

[Ian Swales]

I am following the hon. Lady’s argument about the tax changes, and I have two questions. First, does she object to the raising of the threshold to £10,000? Secondly, will she oppose her party’s policy of adding a 10p rate? She seems to feel that such things do not help the people she wants to help.

[Sheila Gilmore]

We have to be honest about the tax threshold. The primary driver behind the change is constantly presented as being concern for the low paid, but the major part of the benefit has accrued to those who are better off. The change also has a substantial cost, at a time when we are told that money is tight. It is worth considering what would help the less well-off in a more concrete way. When the threshold was raised, tax credit rules were changed, tax credit rates were lowered and child care help for people on tax credits was slashed. At some undefined point in the future, the threshold will again be increased, but that is not a lot of help for those who, for the past four years and for however long it takes to establish universal credit, have had their help with child care cut.

The threshold is not what it seems, and we have to be clear about that. If we genuinely want to help the low-paid, we have to consider the model that we use. Many commentators have suggested that, for example, we should consider child care costs and work allowances within universal credit. One change that the Government have made to universal credit since it was first proposed—not that many people are on universal credit yet—is to reduce the work allowances, which means that people lose universal credit faster as their earnings rise, so the low-paid will again suffer. It now turns out that the introduction of assistance covering 85% of child care costs for those on universal credit will have to be paid for from another part of universal credit, so people who, by definition, are not very well off will be paying for that child care assistance. That is rather strange because I do not believe that the tax relief for child care will necessarily be funded in quite the same way. If we really want to help the low-paid, it is worth considering other proposals and no longer simply arguing that raising the tax threshold is helping the lowest paid and will always be the best way to do so.

On the 50p tax rate, I contend that there has been a series of decisions that have heavily affected those who earn the least and are struggling the most, and no number of graphs showing that people at the high end are now paying more tax, or that the proportion of tax changes that affect their income is at least as high as the proportion affecting the low-paid, can show otherwise. The reality is that five percentage points off the tax rate for those on very high incomes is very different from five percentage points off the tax rate for those on very low incomes; it is the difference between parents being able to pay for their children to go on a school trip or being able to think about taking the bus into town because those things cost. A five percentage point difference for someone on a very high income might be the same numerically, but it does not have the same consequences for people’s lives.

[Ian Swales]

I am following the hon. Lady’s argument carefully, and she is straying from tax into welfare, which I understand is a real concern for her. She makes a good point on the effect of proportionate tax rates. The cut in tax through raising the threshold has actually reduced the tax and national insurance bills of people on the minimum wage by some 70%. If we are talking percentages, does she welcome that figure? Does she also accept that anyone working 30 hours a week or more on the minimum wage is earning £10,000? Finally, will she answer the question about the 10p tax rate? Will she oppose that policy?

[Sheila Gilmore]

The hon. Gentleman suggests that it is irrelevant to link welfare and tax, but I do not agree. Welfare and tax are intimately linked in a very practical way for someone who may have seen their tax bill go down but who has also seen their benefits go down substantially and so are either no better off or are actually worse off. That is a very real link, because raising the tax threshold has a substantial cost; it is not a pain-free, non-costed policy. At £10 billion, the policy costs a considerable amount of money that could have been spent in some other way. I am not convinced that the net effect for the lowest paid is such that they benefit. Given that so much of the benefit goes to people who are better off, I would have thought he would want to question that policy.

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[Huw Irranca-Davies]

I apologise to the Committee for being absent earlier; I was with a group of young people from my constituency who are interested in politics and in what is being debated in the Chamber today. I am glad to have a few minutes now to say a few words.

The new clause and the amendment are innocuous and harmless proposals. They simply ask the Government to be transparent and to produce a review within a few months to show the effect of a 50p tax rate on those whose taxable income is between £150,000 and £1 million a year. I have struggled to find many such people in my constituency. I have tweeted about this on social media, asking people whether they think our amendment would be a bad idea, but, unsurprisingly, no one has come forward to say that they earn that much.

It is in the Government’s interest, as well as ours, to have this transparency. It is also in all our interests to tell people that we get the message about proportionality and contributing to public services. There is an emerging trend among the Conservatives to describe themselves as being the party of the working class and of working families. If that is the case they should support our proposals, because they would create full transparency and allow a debate to take place on whether we should set a tax rate of 50%, 49% or whatever. The proposals would also allow them to explain to working people—not the ones who earn between £150,000 and £1 million a year, but those who earn about £20,998, the median wage in Ogmore Vale—and to Conservative supporters why they think it is not a good idea to say to people, “Pay your share. We are genuinely all in this together.”

The hon. Members for Carmarthen East and Dinefwr (Jonathan Edwards) and for East Antrim (Sammy Wilson) have made good contributions to the debate, and I made a couple of mischievous interventions on them earlier. I have faith in the wealthy and the super-wealthy in this country. We will not have many Gérard Depardieus fleeing the country and heading off to Russia, or wherever the British, Welsh or Scottish equivalent might be. They will say, “We have respect for the communities that we work and employ people in, and it will not bankrupt us to stay here. We are not going to flee overnight to another country like some carpetbagger. We are not going to up sticks and relocate our premises.” That is not going to happen; it did not happen before, even when taxes were at much higher levels. It is a discredit to those people to suggest that it would happen.

In preparation for the debate, I looked into a few examples of people who had said that a return to the 50p tax rate would be a disaster. I was about to say that it would be wrong to name them, but one of them, the chief executive of Kingfisher, has been very outspoken in saying what a terrible detrimental effect such a measure would have. He has said that it would be a disaster for the country, and that entrepreneurs and businesses would flee. Well, okay, it might be just a coincidence that Ian Cheshire is an adviser to the Prime Minister as well as being the chief executive of Kingfisher. It might also be just a coincidence that he was knighted in the new year’s honours list. I am sure that that is pure coincidence. However, he clearly has a direct influence on the Government. When he says, “This is not good”, things happen. It is not only him, however.

It was fascinating to note the reaction of one other person, when this debate was raging about 18 months ago. I will not name this individual, but people can look him up in the Daily Mail. It is pretty obvious who I am talking about. He had said that he objected to a 50p tax rate on the basis that people like him would no longer be inspired to go out and earn money. He was reported in the Daily Mail as being about to sell his £3 million mock-Tudor home. He was explaining that he was now in a great place but when he had previously had trouble expanding the property, he had solved the problem by snapping up the property of his next-door neighbour. This was in an area inhabited by rock stars, football players and other highly paid celebrities. He had snapped up the house next door so that he could put in a swimming pool, a games room and a garage block for his Bentleys. We do not have many garage blocks in Ogmore. The properties were in a patrolled, gated community with private security.

My constituents who are on less than £21,000 a year think that that is another world. They think, “Why doesn’t that guy think he should be paying a couple of pennies more to keep the national health service going, because I can’t afford to have private health care or to send my children off to private school? I need what the state provides.” I know that this is like an old comedy sketch—“I look up to him because he is better than me.” But, that is not the case. The person I am talking about was one of those hardworking Tory supporters who some Government Members would like to appeal to now as the working Tory voter. Let us have a reality check. To those who say, “We feel really unhappy about this change, and it will drive us off”, I say, “Go.” They should subscribe to the values and ethos of this country—from each according to his ability to each according to his need. If they do not, they are not living in the country in which I was brought up. They should think twice about saying that they will go. Most people will sensibly recognise the skills and the quality of the work force, the good environment here for building up companies and our position in the European Union, and they will stay in the country and continue to work. All this amendment asks is that at a certain point in time, not too long in the future, we should be told what the impact is on those who are earning £150,000 or £1 million. Be transparent and tell us.

[Ian Swales]

I represent a constituency with similar income levels to that of the hon. Gentleman. However, does he regret the fact that a senior member of the Government he was in described himself as being “intensely relaxed” about the situation that he has just described?

[Huw Irranca-Davies]

I would never use that same phrase. I do not find myself intensely relaxed about this. Sorry, what I mean is that someone playing for the Ospreys rugby team might not earn as much as a premiership footballer, but good luck to them. Let them make a lot of money. Let them do well for their families. Let someone travel to France and play for Perpignan and earn four times the money. Good luck to them, but I want them paying their taxes. When they are back here, I want them to contribute the right amount. I want to encourage the people in my constituency, and say, “If you have the abilities and the skills, and if you are willing to put in the effort, don’t accept that job that you are doing now. Work your way up and do what you can do. The sky is your limit.” But I want them also to contribute. I do not want this ludicrous situation in which people can say, “I tell you what, at a certain point I will leave the country.” I do not believe that they will leave the country. It will not happen. I have much more faith in them than that.

One of the major hedge fund operators, again a Conservative donor, told the Financial Times:

“There probably aren’t many votes in cutting the 50p top rate of tax, but among those that give significant amounts to the party, it’s a big issue, and that’s probably why it’s a big issue for the party too.”

Four months after he said that to the Financial Times, the Budget happened and we had the cut in the tax rate. It is probably just a coincidence again.

Let us look at the impact of this policy and the Government’s current policies on the wider population—beyond the wealthy and the super-wealthy. The Institute for Fiscal Studies’ figures on net income changes by 2014-15 show that overall, households are £974 worse off; a working lone parent is £1,335 worse off; a working couple with no children is £438 worse off; a working couple with children is £2,073 worse off. What about the millionaires? They get this enormous tax cut so that they can go out and buy a couple more Porsches. The Minister might say, “No, it is so that they can reinvest it in this, that and the other.” What about reinvesting in public services? Why does the Minister think that they want to escape from that obligation that we all have to each other to contribute? It may be 47p, 48p or 49p, but there is a message—there is clarity—about us all being in it together that comes with saying that it is 50p. If that 2p seriously makes a wealthy individual say, “We are leaving this country because it is a disgrace that any Government should come after me”, I would say that it is a disgrace that they are even thinking in that way. I have more faith in those people who have made wealth in this country. I believe that they will want to stay here and genuinely help us climb out of this economic morass. They will want to build jobs, grow the economy, skill the economy and lift up the wages of some of my constituents.

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[Shabana Mahmood]

I will come on to the point about tax avoidance. One option open to the Government to protect revenue from the 50p rate was to do more on tax avoidance. This is a Government who like to trumpet their record on tax avoidance, but they certainly ducked the opportunity when it came to dealing with potential avoidance in relation to the 50p rate.

[Ian Swales]

Will the hon. Lady give way?

[Shabana Mahmood]

I will not, because of a lack of time.

The HMRC report says that all the analysis and estimation is highly uncertain, as does the Institute for Fiscal Studies. The scale of behavioural change is ultimately decided by Ministers, and it is primarily based on an assessment of taxable income elasticity—TIE. The IFS says that there is a huge margin for error. Staying within that margin, one could easily say that, depending on the TIE, cutting the rate could cost £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain the projections are.

It might have fitted the Government narrative for them to imply that they knew for certain that the 50p rate would raise only £100 million, but even on their figures and HMRC’s report, there is a huge margin for error and this is all very uncertain. That is not the only thing that was wrong with the analysis. The HMRC report was based on only one year’s worth of data—the data related to 2010-11—which is a weakness in itself. It came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year one is a further weakness in the Government’s argument, because we know that incomes were taken earlier to avoid the 50p rate and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield. Hence our request for a review.

The original HMRC analysis does not give a true picture, was done too soon after the rate had been introduced and was based on only one year’s worth of data. Income figures for that year were lower than otherwise might have been the case because people brought their income forward to 2009-10 before the rate came into effect. No one has redone the analysis so we are still going on the figures from the 2012 Budget. The Government should, at the very least, update the analysis based on the more recent data and prepare the report that our amendment and new clause 4 call for. A comparison of 45p and 50p rates for those on incomes over £150,000 and £1 million would be instructive to the public debate about the top rate, especially as some Members on the Government Back Benches want to reduce the rate to 40p.

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[Mr Gauke]

I am always grateful to the hon. Gentleman for his political advice. I cannot but notice that he talked about wanting to uphold the values of the British people and then quoted Karl Marx—but there we go. My point is that the wealthiest are making a bigger contribution in income tax, capital gains tax and stamp duty, and that this Government are taking further action to deal with avoidance and evasion more effectively than any previous Government have done.

[Ian Swales]

It is not for me to disagree with the mathematics of the hon. Member for Ogmore (Huw Irranca-Davies), but assuming that he is right, does his point not prove that 13,000 people were paying £100,000 less tax in the year up to April 2010?

[Mr Gauke]

I suspect that my hon. Friend may well be right, so I am grateful to him on that point.

Clause 1 will help the Government to achieve our aim of a tax system that is fair for everyone, while rewarding those who want to work hard and progress. We will achieve those goals by cutting income tax for the vast majority of income tax payers, including those in greatest need of support, while making sure that the tax system remains easy to understand. I again stress that the reports proposed in amendment 4 and new clause 4 are entirely unnecessary. The impact of reducing the additional rate of income tax has been examined in great detail. The 50p rate was ineffective and meant risking the recovery for which everyone in this country is working hard. I therefore commend clause 1 and urge the House to reject the amendment and the new clause.