Finance Bill

Debate between Jonathan Edwards and Andrew George

Tuesday 20th July 2010 Commons Chamber

[Andrew George (St Ives) (LD)]

I shall bear your advice in mind, Mr Deputy Speaker, because I know that many right hon. and hon. Members wish to take part in that debate, which is fundamentally important to the vast majority of Members of Parliament. I hope that I have demonstrated such self-restraint in my contributions to the debates on the Finance Bill and will do so again this evening.

It is a pleasure, of course, to follow the hon. Member for Wakefield (Mary Creagh). Her concluding remarks, in which she used fictional characters to make her point, were a piece of fiction that was very entertaining, but that is probably as far as it will go.

The Finance Bill—after all, we are debating the Finance Bill and, perhaps sadly, not the Budget as a whole—has, as the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) made clear, nine clauses. It is rather limited. There will be a further Finance Bill in the autumn and, of course, there were other measures in the Budget—the hon. Lady referred to some of them—including the public spending restrictions of which we will learn more from 20 October onwards. Those issues will no doubt be debated in the future in the House. The debate this evening is narrowly focused and has been defined by Treasury Ministers as they have brought forward a limited number of measures from the Budget.

I wish simply to make a couple of points. Primarily, I want to focus on the issues that I have raised through probing amendments to the Bill—in particular, those to do with VAT, its impact and what alternatives there might have been to the 2.5% rise proposed in clause 3. Before I do so, it is worth while to make it clear for the benefit of the hon. Lady and other Opposition Members that I shall support the Finance Bill on Third Reading, primarily because the Budget as a whole contained a number of measures for which the Liberal Democrats have been campaigning for many years, including the increase in personal allowances, the triple lock on pensions and the introduction of a banking levy. That levy is not at the level at which I should have liked it to have been, as I have made clear in earlier debates, but none the less it is a move in the right direction. I shall be encouraging Ministers to lever it up still further. Other such measures include improvements in child tax credit, protections for lower paid public sector workers and closing tax loopholes such as that on capital gains tax, which was brought in by a Labour Government. Although I want to see that increase still further, with protections—particularly for certain groups that will still use capital gains tax as a means of avoiding paying their rightful tax—it is still a move in the right direction. In view of all those measures, and in spite of my misgivings about other aspects of the Bill, I shall support the Government on Third Reading.

As I have made clear, I had a number of misgivings. The Government are well aware that I refused to support them on the increase in VAT, as the voting record clearly shows. In the conclusion to the Budget, the Chancellor made it clear that the intention was to ensure that

“the burden is fairly shared”

and that the aim was to have

“The richest paying the most and the vulnerable protected”.—[Official Report, 22 June 2010; Vol. 512, c. 180.]

I shall not rehearse all the arguments contained in the Red Book and the Institute for Fiscal Studies’ analysis of the impact of the VAT rise, but, having considered the impact on public services, on charities, on rural dwellers dependent on an old banger to get around because of the inadequacy of public transport and on poor families, I believe that the increase in VAT is regressive. That is clearly not a view held by Ministers, but it is still relevant.

Let me refer to three elements of the impact of the VAT increase on charities. First, a briefing has been supplied to me by Save the Children that states that

“we will pay more in VAT but will not be able to charge VAT on our income as other companies do. This is a real concern.”

Save the Children’s analysis of the figures presented in the Red Book points out that the deciles that are identified in the graphs include the most wealthy decile, which commences at £49,700 per annum. A lot of the very wealthy receive an income of significantly more than that. Save the Children states that

“the graph measures the impact at 2012/13 which doesn’t include the impact of the tax & benefits changes in the Emergency Budget over the whole parliament and probably fails to pick up the changes in the measurement of the uprating (RPI to CPI). The essential point is that although the highest earning households pay more, they still pay proportionately less of their household income on the tax increases than poorer households.”

In previous debates, I have said that the impact on those households with children is clearly regressive according to Save the Children.

Mencap has also provided me with a briefing on the impact that the measure is likely to have on its services for the learning disabled. Mencap provides important services and accommodation for the learning disabled and it estimates that for the 15 months from January 2011 to April 2012—that is, until the end of the next financial year—the cost to it will be £450,000, nearly half a million pounds. That figure includes non-recoverable VAT incurred by its housing subsidiary, Golden Lane Housing, which plays a significant role in Cornwall, where it provides an important service. I received the advice from one of Mencap’s trustees who lives in my constituency, Colin Rogers. His concern as a trustee is that

“as much of Mencap’s income is earned and not donated and since these earnings come from service provision which is also likely to be cut, we are potentially facing a dire financial position which can only be managed by reducing the many services which we subsidise or provide free-of-charge to people with learning disability and their carers. As a rough guide, the 12 month figure of £370,000 would each year pay for around 20 full-time community support workers”.

I hope that the Government will take the impact on charities on board.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Is not the tragedy of the increase in VAT and its effect on charities the fact that we know that it will cost £150 million across the sector, but the human cost of the recession is now feeding into the system and we have not yet reached its peak? The pressure on services is increasing all the time at a time when costs are also increasing.

[Andrew George]

In the context of the extremely difficult circumstances in the economy, the VAT rise will certainly make things doubly difficult for charities, because where they depend on donation income to make up the shortfall that has been created as a result of the VAT rise, that will be significantly more difficult. A number of charities are already reporting that charitable donations have decreased in recent times and this will make the environment significantly more difficult for them to survive in.

Let me give as a local example Penwith Housing Association. Its chief executive, Andy Moore, has provided me with a briefing regarding the impact that the rise would have on that association and its management of its stock

“due to VAT being chargeable to PHA for all our repair and maintenance expenditure and many other service costs.”

He said that as it does not charge VAT on its rented homes, it has little opportunity to recover the tax. Penwith Housing Association anticipates that the cost to it will be about £182,000 a year. That money will probably have to be found through increasing tenants’ rents, but its tenants are already on low earnings. Given that tenants’ housing benefit might be cut as well, the VAT rise will create significant pressure.

In an intervention on the Exchequer Secretary in his opening remarks, I emphasised a point that I and the hon. Member for Nottingham East (Chris Leslie), who is not in his place, had brought forward in amendments that we had proposed—the possibility of introducing a sunset clause in relation to the VAT increase. That would have chimed with the Government’s claimed tax policy as set out in chapter 3 of the tax policy document that was published alongside the Budget. There was a strong sense that the Government had an opportunity to demonstrate that, as the Budget was an emergency Budget and the VAT rise was therefore an emergency measure, the VAT rise could be time-limited and that there might at least be an opportunity for a sunset clause. Ministers could have accepted the measure then or it could have been introduced on a more acceptable date. There could at least have been a promise of a formal evaluation of the impact of the VAT rise and an opportunity for Parliament properly to scrutinise both the impact of the rise and whether, in the context of the emergency Budget, the fiscal situation had improved by the time the review and evaluation took place. Parliament could then come to a conclusion as to whether it was satisfied with the measure.

I am very disappointed that the Exchequer Secretary has not accepted the proposals either for a sunset clause or for an evaluation of the impact of the VAT rise. I hope that Treasury Ministers will review this issue in due course.