UK Economy

Debate between John McDonnell and John Redwood

Wednesday 29th June 2016 Commons Chamber

[John McDonnell]

To be frank, we need to move on now. I expressed my concerns about some of the over-exaggerated claims at the beginning of the campaign that turned people off. We now know, however, that many of the claims made on both sides are unfortunately coming true.

The leave vote in last week’s referendum has left us all with an immense series of tasks, and the economic situation is a major challenge for us all. Let me run through some of the headline items that we know about over these last few days: the UK’s triple A credit rating has been lost; the pound fell to a 31-year low; sterling markets have been in turmoil, as have stock markets here and abroad; the FTSE 100 index registered the biggest single-day fall since the bankruptcy of Lehman Brothers in 2008; employers, most notably in the financial services, are already looking to relocate jobs, with a quarter of all those employers saying that they have introduced a hiring freeze; and shares in UK banks have fallen dramatically. These are not comments, but realities, and this is just an outline of the situation that now obtains.

[John Redwood (Wokingham) (Con)]

Will the hon. Gentleman welcome the fact that the bond markets did the opposite of what the ratings agencies suggested? They said that the price of bonds should go down and the cost of state borrowing should go up, but I am very pleased to tell him that the opposite happened: bonds are at a new all-time high and, according to the market, we have record lows of borrowing costs. Does this not prove that the markets actually had a huge vote of confidence in respect of state debt and state creditworthiness?

[John McDonnell]

It proves the chaotic nature of the market at the moment.

Let me look ahead. Most major forecasters have revised their expectations of future growth sharply downwards. There is a major loss of capacity and the potential for permanent damage to the UK’s growth prospects cannot be ruled out. We await an official assessment from the Office for Budget Responsibility, as the Chancellor announced in his statement on Monday morning. I think that an initial assessment should be given sooner rather than later, but ongoing close monitoring would be welcome, with regular reports to Parliament to ensure that that is happening. There is a prospect that the OBR will report at least a serious worsening in the public finances.

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[John McDonnell]

We are short of time and a lot of Members wish to speak.

Whenever aviation expansion takes place, it will be judged on the criteria that the Labour party has set, which include the environmental impact and the impact on the wider economy. We await the proposals from the Government and we will then take our decision.

The referendum vote has forced a debate on the best course for our economy and for economic policy. It is unlikely that a simple return to business as usual will be possible or even desirable, but there are immediate steps that can be taken to calm market volatility and to limit the shock to demand. It is incumbent on the Government to take those necessary measures and Labour, in the national interest, will support measures intended to stabilise the economy when they protect households and businesses.

On monetary policy, of course authority rests with the Bank of England to intervene to preserve the stability of banks and the wider economy. Governor Mark Carney’s Friday morning statement was important in helping to stabilise the immediate situation. However, some interventions by the Bank will require authorisation from the Government. To ensure the success of those interventions, it will be helpful if the House is kept as fully informed as practicable of those authorisations, with regular updates.

On fiscal policy, with the expected slump in demand, the Government’s present fiscal charter is, to say the least, increasingly anachronistic. With the Chancellor having missed two of his three targets—on debt and on the welfare cap—he will now have to suspend the deficit target. The charter’s restriction on investment spending in particular is impossible to defend. For the regions, a squeeze on Government investment could be especially damaging.

Last year—this was raised earlier at Question Time— over £10 billion was provided in regional development funding by the EU. That was concentrated on our most deprived regions and places that needed it the most. What steps are the Government taking to ensure that that essential funding will now be made good? What structures are being put in place to liaise with elected mayors, local government leaders and regional bodies to address the loss of EU funds?

The UK currently holds a 16% stake in the European Investment Bank, which last year disbursed a record £6 billion in investment for the UK. That includes £l billion for social housing. What steps are the Government taking to maintain current programme funding? What plans do the Government have for the UK’s stake in the European Investment Bank?

[John Redwood]

Will the hon. Gentleman give way?

[John McDonnell]

May I press on? I have taken a significant number of interventions and I am worried about time.

Significant uncertainties have been created for those trading with Europe, including manufacturers that are reliant on extended supply chains across the EU. What measures are the Government putting in place to support supply chains that are threatened by the severance of those ties and the falling value of the pound?

Exit from the EU threatens the UK’s continued status as a global financial centre. A number of major banks have already put in place plans to move jobs from the UK. They are fearful of the loss of their European Union passport that allows them to win business across the EU. We need to know soon from the Government how they will ensure that those passport rights are retained. I hear that one French negotiating position is to offer EEA status with some controls on freedom of movement, but the loss of bank passporting rights. Clearly that is a move to encourage bank migration from London and it is unacceptable. The resignation of Lord Hill as Finance Commissioner means that the UK currently has no voice at Commission level to argue the case for UK finance. What steps will the Government take to ensure that the voice of UK finance continues to be heard in Europe? May we propose to Government that, as a matter of urgency, they establish a working group to monitor the ongoing threat to the UK’s financial stability, working with representatives from across the financial services industry?

It would be wrong not to mention the threats that have been made to community cohesion following the vote to leave. I was very concerned to hear about the attacks on the Polish community. Any such attacks must be condemned outright by the whole House. I have a Polish community in my constituency. The Polish War Memorial nearby at Northolt stands testimony to the sacrifices of Polish pilots during the second world war. I have attended many meetings at the Polish centre in Hammersmith, which was disgracefully attacked. I send my message of solidarity to that community and to anyone else suffering from the rise in racism. What mechanisms will the Government put in place with local government leaders and city mayors to protect these communities, to help to overcome these divisive actions and to resource the programmes that will be brought forward?

We will get through this period of uncertainty, as Britain has done many times in the past. There are real strengths in our economy, not least our talented and dedicated workforce. None the less, volatility continues and grave uncertainties remain about the UK’s future relationship with our European partners and the wider world. The future direction of Government strategy is not yet determined, but Labour is prepared, in the national interest, to work with the Government and our parliamentary colleagues on both sides of the House to ensure that the best interests of the British people are secured. I commend the motion to the House.

EU Membership: Economic Benefits

Debate between John McDonnell and John Redwood

Wednesday 15th June 2016 Commons Chamber

[John McDonnell]

I always find the hon. Gentleman’s interventions entertaining to say the least, but may I return to the subject of today’s debate?

Many people have seen this debate going on within the Westminster bubble among the Establishment. They do not feel involved, and many suspect that what they are witnessing is an unseemly battle for the succession in the Conservative party rather than a considered debate about the future interests of our country.

Much of the media coverage of the internal Tory strife has drowned out other parties. Polling suggests that many of our own Labour supporters are unclear about Labour’s position. So let people be absolutely clear: as the motion before us today unambiguously states, Labour is for remain. Today’s motion spells it out. It is about jobs, investment, trade with our largest market and the protection of the employment rights of workers so they can secure the benefits of participation in that market, but for many of us it is also about creating another Europe—a Europe that is more democratic, that promotes social justice as well as prosperity, that is more equal and sustainable economically and environmentally. We must do nothing now that jeopardises our European future.

[John Redwood (Wokingham) (Con)]

Does the shadow Chancellor share my concern about all those many cases where a UK manufacturing plant shut down and job losses have been very great, only to see new investment made in another EU country benefiting from specific and general grants and soft loans from the EU?

[John McDonnell]

My fear is that if we vote for Brexit we will cut ourselves off from the opportunity of that financial support as well, and that many other companies will move out. It is only courteous to also congratulate the right hon. Gentleman on his 65th birthday today.

Finance Bill

Debate between John McDonnell and John Redwood

Tuesday 1st July 2014 Commons Chamber

[Mr Redwood]

That is simply not true. I am delighted to hear that the hon. Lady likes rich people—there are quite a few in her party, so let us hope she gets on well with them—but it is absolutely false to suggest that Conservatives have no interest in people who are out of tax altogether or who are on low incomes; we are desperately concerned that they should get better educational standards and have more opportunities so that they can get a job and then go on to get a better job. We wish them well, and we are very keen to work with all those in our constituencies so that they can take advantage of opportunities. We would like them to be on higher incomes. In the meantime, unlike the Government she supported, we have taken many more of those people out of tax altogether, because we think that those on an income of less than £10,000 a year should not have to pay tax. They will probably be receiving some benefit assistance.

Another point that the hon. Member for Birmingham, Ladywood did not respond to was the fact that the latest figures show that inequality rose under the Labour Government but has actually fallen a bit under the coalition, mainly because we have taken an awful lot of people at the lower end of the income scale out of tax. We have a very progressive system: the income tax system now exempts anybody on less than £10,000 and has a 47% rate, if we take national insurance as well on the highest incomes; and the benefit system rightly gives a lot of money to people at the low end of the scale and should not give any money to people at the top end.

[John McDonnell (Hayes and Harlington) (Lab)]

The right hon. Gentleman has made a number of assertions in his last few sentences. I wonder whether he has seen the report published this week by the Joseph Rowntree Foundation, which states that the cuts in child benefit and tax credits

“have typically created losses double the amount of tax allowance gain for working couples, and nearly four times the amount for working lone parents.”

I wonder whether he has seen the latest HMRC report, which states that the Gini coefficient started to rise significantly in 2012-13.

[Mr Redwood]

The figures I have been using refer to the whole coalition period and show a reduction in inequality, which I hope the hon. Gentleman will welcome. I do not recognise his figures on the child tax changes. The overall effect of taking a lot of people out of tax has been a very positive impact on their net incomes, as we would hope.

Infrastructure (Financial Assistance) Bill

Debate between John McDonnell and John Redwood

Monday 15th October 2012 Commons Chamber

[Mr Redwood]

I normally agree with my hon. Friend, but I am afraid that I do not on this occasion. There is not now an excuse to go in for projects that do not make any economic sense just because we all want some more growth and jobs. Indeed, that would be a very good way of setting us all back further as it would damage the public finances without giving us the benefit of a good project that people wanted to use and that produced plenty of user revenue. When one is in a financial hole, as our country is, one needs to be very careful. We look to the Treasury, in particular, to evaluate such matters carefully and I want a little more guidance because £50 billion is a huge sum. I am not surprised that so few MPs want to discuss it—if we were debating £500 million, the place would probably be packed, but because we are discussing £50 billion everyone has gone off for a tea or a coffee—but to me it is a serious sum of money and I want some reassurance that we will get something worth having for it.

[John McDonnell (Hayes and Harlington) (Lab)]

The right hon. Member for Wokingham (Mr Redwood) roamed over many of the issues covered on Second Reading and over the scepticism on both sides of the Committee. I say to the hon. Member for Cities of London and Westminster (Mark Field) that I think evaluation is critical, as we have seen with the west coast main line, and undertaking projects on a wing and prayer at this stage is dangerous, to say the least.

The Bill, as we said on Second Reading, seems to be the reverse of the private finance initiative. PFI was meant to shift the risk on to the private sector, yet the Bill seems to shifting it back on to the public sector. I share the concerns. Clause 1(4) defines financial assistance in the broadest terms possible, so it could involve revenue assistance, and clause 1(3) refers to the operation of a project. In addition to a capital project, we could be subsidising in revenue terms the operation undertaken by a capital project. That leaves open the issue of hospitals being built by the private sector and then revenue supported under the Bill.

Finance Bill

Debate between John McDonnell and John Redwood

Monday 12th July 2010 Commons Chamber

[John McDonnell]

Let me say as objectively as I can that I have not yet seen a Budget that simplified the taxation system, and I have been here for 13 years. I live in hope, which is why my amendment requests a further report that might indicate the path that the Government intend to take. I am merely a humble seeker for truth in this matter, as always.

I investigated various sources in my search for estimates of the tax gap. The latest HMRC estimate that I could find was £40 billion, but there is an element of uncertainty reflected in a reported memorandum circulated to staff in HMRC and the wider Treasury, asking people to come up with ideas for identifying and calculating the gap.

The HMRC estimate has been challenged by others. I chair a group called the Left Economics Advisory Panel, which brings together a number of Left economists including some who have been working with the Tax Justice Campaign. Over the years many Members will have worked with Richard Murphy and John Christensen, who are held in respect across parties because of the work they have undertaken in this sphere, and the advice that they have given to the Treasury and other organisations for a number of years. According to their estimate over the past year, the tax gap could be anything between £70 billion and £120 billion.

[Mr John Redwood (Wokingham) (Con)]

If the gap is so enormous, can the hon. Gentleman explain why 13 years of Labour government did not close it?

[John McDonnell]

I can only say that that is one of the reasons why I have raised the issue so consistently. I hope that some Government will address it, and will do so effectively. It is also why I have sought to amend the Bill in a consensual way. All I am asking is for the Treasury to produce a report setting out our best current estimate of the extent of avoidance and evasion, and to propose measures that the Government could take. That would be a way for the Government to demonstrate that they are taking the issue seriously and tackling it.

There have been other estimates of the tax gap that go beyond that of Richard Murphy, some of which are as high as £150 billion a year. Interestingly in respect of the Treasury’s £40 billion figure, it estimated in a table it published earlier this year that corporation tax accounted for 16% of its tax gap and that capital gains tax along with national insurance contributions and so forth accounted for 6%, so the taxes this particular amendment addresses are significant contributors to the tax gap.

I fear that unless this issue is addressed we will continue to have a sterile debate in the House about cuts in public services, whereas if we tackled the tax gap we would avoid a significant amount of the public service cuts that will impact upon all our communities. I therefore urge that we have a serious debate and that the Treasury produces a report quantifying more exactly the levels of tax avoidance and tax evasion, and that we then look at possible measures—including, I agree, on simplification. Issues to do with what resources we apply to tackling tax evasion and avoidance are also of relevance, however, and that comes down to staffing.

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[John McDonnell]

I fully agree.

I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.

The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House—to the Chancellor of the Exchequer—on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.

This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.

[Mr Redwood]

If a constituent of the hon. Gentleman’s had a deposit in a savings product that was paying interest, on which they were paying tax, and they switched that into a tax-free national savings product, would that be tax avoidance or sensible investment?

[John McDonnell]

That is an interesting point. Tax compliance should be a duty in law, so there should be a requirement on us all to pay our appropriate level of tax. Tax planning is perfectly consistent within the law and is appropriate for individuals and organisations in order to ensure that they pay the appropriate tax. However, such devices should not be used to avoid paying the rightful level of tax and certainly should not be used for the purposes of tax evasion, which is the illegal avoidance of tax.

As I was saying, my concern is that, just when we need staff to tackle tax evasion and avoidance, we are faced with the previous Government’s plan for a further 12,000 job cuts within HMRC. I urge the new Government to review the matter and to look again at the staffing level that will be required if we are seriously to address tax evasion and avoidance. That is another reason why my amendment calls on the Chancellor of the Exchequer to lay before us a report that sets out the measures he proposes to take

“to ensure the payment of tax which is due”.

In devising those measures, appropriate discussions will need to take place about the level of staffing and the qualifications and abilities required of such staff. Such factors will militate against the scale of job cuts that have taken place.

On another issue, but one that has certainly been close to the hearts of several Members over the past two years, such measures will need to take into account not just staffing levels but staff location. The closure in recent times of local tax offices has reduced HMRC’s ability to respond to tax evasion and tax avoidance on the basis of local knowledge, and to assist local companies and individuals in proper tax planning so that they can comply with the law. I request that any report that the Chancellor introduces deal with the implications of the closure of local tax offices and, therefore, the appropriate location of the staff themselves.

I have tabled two amendments, the first of which, amendment 11, deals with corporation tax.

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[Mr Redwood]

It would clearly be a false economy to cut back on the number of staff needed to tackle serious cases of tax evasion; I do not think anybody wants to do that, and I certainly would not recommend it to Front Benchers. It would also be wrong, however, to exempt Revenue and Customs from pressure to improve efficiency and to do more with less at a time of enormous strictures on public spending. I hope that there will be ways to accommodate the hon. Gentleman’s wish for us still to have Revenue and Customs pursuing tax evasion and our coming back to legislate on tax avoidance that it thinks is going too far, as we have under past Conservative and Labour Governments, and that that will be done efficiently and effectively in the way that we wish to see.

[John McDonnell]

To follow up on the question of my right hon. Friend the Member for East Ham (Stephen Timms), are there any measures that the right hon. Gentleman would consider tax avoidance that should be brought within the purview of Her Majesty’s Revenue and Customs, such as the large-scale offshoring mechanisms that corporations use to avoid tax? All that the amendment asks is for a report to be made about the measures that the Government will take on such issues.

[Mr Redwood]

I do not necessarily disagree about the need for us to consider another report on tax avoidance and evasion, but I am trying to set some of the parameters for that report and the framework of the debate. This is an opportunity to discuss why the matter is difficult, and why past Governments have not lived up to the hon. Gentleman’s expectations. I have no problem with having a report, although I do not want to link it to the particular corporation tax rate in clause 1, as his amendment would.

[John McDonnell]

I am grateful for that response. Successive Governments have pragmatically examined the latest tax avoidance mechanisms and then sought to work through them systematically to address them. The amendment is intended simply to bring forward a report on those mechanisms so that the House can have more oversight of that process.

[Mr Redwood]

As the hon. Gentleman knows, I am all in favour of more oversight by this House, and the more informed a debate we can have about this and other issues the better. Public debate in Britain has been stifled in recent years for all sorts of political reasons that we need not go into. It is better if we can bring such debates out into the open, but we need collectively to think through what avoidance is and what evasion is. If we do not know that, we cannot hope to guess its scale or optimise our measures for dealing with the features of it that we do not like. I am trying to deal with avoidance, on which I believe there is more scope for disagreement than on evasion, which we are all against.

I return to the point that some people’s avoidance is a bad practice and other people’s is common sense. Let us take another example of a matter on which the Government encourage avoidance. I gave one from personal tax, but we ought to be concentrating on corporation tax. The previous Labour Government were keen to encourage avoidance of corporation tax because they wanted companies to invest—a perfectly worthy aim. They said to companies, “If you invest more than you otherwise would do, that is an allowance against your corporation tax so that you will be able to avoid some tax in order to invest more.” One debate that the Committee will have is whether this Government are cracking down too much on investment avoidance by removing some of that allowance and giving everybody the benefit of a lower rate. I hope that Opposition Members will see that they are not as pure as they think they are on avoidance, and that there are certain types of avoidance that they see as a very good thing. It is a well-known feature of many tax structures to encourage avoidance in order to encourage good works or change conduct.