Finance (No. 3) Bill

Jonathan Reynolds Excerpts

2nd reading: House of Commons & Programme motion: House of Commons
Monday 12th November 2018 Commons Chamber

[John Redwood]

That is right. Many people who have been relatively successful and got to more senior positions are now being caught by quite penal taxes. I would like to see, in either this or a future Budget, more progressive work done to cut the tax rates to raise more revenue. That has come out very well so far on the Government Benches. We all strongly support what the Government have done on corporation tax rates, which have come down a long way and are coming down further. That boldness has been rewarded with a 50% increase in revenue—an increase that the Opposition do not want. They want to put the rate back up to avoid that increase in revenue. [Interruption.] They nod and say it would not happen, but it does happen. It happens every time they get into office: they put the rates up, tax revenue falls, and we have to come in and lower rates again, but we also have the problem of dealing with the extra borrowing.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I cannot wait until half-past nine when I get to wind up the debate. I say again: causation and correlation are not the same thing. Every independent assessment of what has happened to corporation tax over the last few years, such as that by the Institute for Fiscal Studies, very clearly shows that the reductions in corporation tax have been very expensive and cost this country a great deal of revenue.

[John Redwood]

We disagree.

Let us take another tax where very clearly a lower rate has produced a lot more revenue: the higher rate of income tax. Labour wisely kept the highest rate of income tax at 40% throughout most of its time in government, knowing it was the way to attract people with money into the country, to attract investors and entrepreneurs, and to encourage people to take more risks. It set a more penal rate just as it left office, as a kind of tax trap for the Conservatives. When the Conservative Chancellor eventually summoned up the courage to lower the rate from 50% to 45%, there was a big surge in revenue.

As one of my colleagues has already pointed out, there was an even bigger surge in revenue when a previous Conservative Government cut the rate from 80% in two stages to 40%. The amount of tax went up in cash terms and in real terms, and the amount of tax paid as a proportion of the total by those on the top rate went up. It was a win, win, win. I would urge the Chancellor to reconsider reducing it back down to 40% because he would collect more revenue and provide that stimulus to enterprise.

I hope that the Government will think again about a couple of tax rises that have been deeply damaging to our economy. The first is the rise in car tax, or vehicle excise duty. The graph showing car sales and output in the UK was increasing progressively between the Brexit vote and the spring Budget of 2017, but it then fell very sharply, and we now have a serious problem. The tax attack on diesel cars, allied to the threat of more controls on diesels, has been particularly damaging. Governments of both persuasions have gone out of their way to attract a lot of inward investment, and new investment, in diesel output and diesel vehicles. They encouraged that, only then to kick the props away and make such investment very difficult.

--- Later in debate ---

[Kevin Hollinrake]

My hon. Friend is right. Capitalism depends on a fair and level playing field, and that is not where we are at the moment. As well as the expansion of the Financial Ombudsman Service, which we fully support, our all-party group proposes the introduction of a financial services tribunal that works in pretty much the same way as an employment tribunal. A company could take a bank to court without standing the costs of that bank, with full powers of disclosure, and justice could be seen to be done, which is critical.

[Jonathan Reynolds]

The hon. Gentleman knows that I share his view on this issue, and I commend his work as chair of the all-party group. There is considerable agreement on both sides of the House that this needs to be resolved, and it is not a satisfactory position. As we have the Chancellor in the Chamber—or we did; he has disappeared—may I ask the hon. Gentleman whether he agrees that the will of the House on this issue should not be underestimated?

--- Later in debate ---

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Mr Speaker, thank you for letting me close today’s debate on the Finance Bill. The Bill represents a significant moment for this country. We have been told that austerity is over. It should be a time to rejoice. As Labour Members who have warned for eight years that austerity was the wrong choice, we should surely welcome the Bill. But the problem is, on examining the Government’s plans, you can claim that austerity is over only if you are willing to ignore the Prison Service, local government, schools, social care for vulnerable young people, social care for vulnerable older people, the police, the armed forces, those on low incomes, young people and women. I could go on, but I will not. It is enough to say that any economic policy that continues cuts to Government Departments and the squeezing of those on low incomes is not offering something new; it is simply offering more of the same.

The tragedy—the real, genuine tragedy—for those of us who were here in 2010 to listen to the emergency Budget that began austerity is that it simply has not worked. The British public have had all the pain, only to find out that there is no gain. I urge anyone who has participated in this debate to reread George Osborne’s speech in that 2010 Budget, because we know that the deficit was not eradicated by 2015 and that the retention of the triple A rating, said in that debate to be sacrosanct, does not even get a mention in a ministerial speech these days. Instead, economic growth is now the lowest in the post-war era and UK business investment the lowest in the G7. We have had eight years not even of stagnant wages, but of falling wages.

With respect, are these not the fundamentals? When we discuss a Finance Bill, should these factors—the ones that impact directly on our constituents—not be the ones we focus on? Eight years of austerity have left too many people in this country poorer, unsafe and too uncertain of their futures. It was a reckless policy that in my view directly contributed to the result of the Brexit referendum and the further chaos the Government now find themselves in. I want a Finance Bill that properly addresses these things and puts them right, but instead we have a Finance Bill that does none of these things, a Bill that offers the country nothing new—and in some areas nothing at all.

I second the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) about the way the Government have gone about the whole process of presenting the Bill. It might sound like parliamentary chicanery, but it is important. In an unprecedented move the Government did not allow us to table real amendments to the Finance Bill. By failing to move an amendment to the law resolution, they have limited the scope of amendments and new clauses only to the subject matter of the resolutions already tabled by the Government. The hon. Member for Aberdeen North (Kirsty Blackman) referenced this in her speech. In doing so, they have restricted the rights of every Member, Conservative Back-Bench Members included.

This procedure has only been used by Chancellors six times in the last century and only when a Finance Bill was tabled close to an election: Churchill in 1929, Healey in 1974, Brown in 1997, Osborne in 2010 and the current Chancellor last year in 2017—probably the only time the Chancellor has been mentioned in the same breath as Churchill. We know why these restrictions have been applied. The Government are running scared of the House of Commons and, most of all, their own Back Benchers and perhaps their allies in the Democratic Unionist party.

Time and again, the Government have used the Brexit process as a pretext for a power grab, transferring powers to the Executive without any thought for constitutional checks and balances. I ask hon. Members to have a look at clause 89, rather innocently named, “Minor amendments in consequence of EU withdrawal”. In that clause, Ministers are giving themselves the power to amend tax law outside any normal due process. That will go on the statute book with no sunset clause or limitation of any kind. It is reckless, unprecedented and unnecessary, but it is indicative of the Government’s whole approach to Brexit: grab powers first, make decisions later.

That said, I have, as ever, enjoyed listening to today’s debate. We have had some good speeches and the usual mix of slightly spurious claims and downright incorrect statements from the Government Benches. It seems we will never get Government Members to listen to the IFS on the cost of their corporation tax cuts, but it also seems that the Financial Secretary, whom we are all tremendously fond of, has chosen today to repeat his claim that unemployment rose under every Labour Government. I am afraid that, unfortunately for him, that is just not true.

While listening to the debate, I have taken the liberty of doing some research for the Financial Secretary. I can tell him that he need look no further than the very first Labour Government, who took office in January 1924. There was a general election in December of that year, something we are not in favour of. The very first Labour Government reduced unemployment from 11.9% to 10.9%: those figures are widely available. It is true that the Labour Government of 1945 had to deal with demobilisation following the end of the second world war, but they did found the national health service, build a million homes and still satisfy the legal definition of full employment, so I think we can say that they were the greatest Government in British history.

I must also place on record that the claim made by the hon. Member for Aldershot (Leo Docherty)—I am not sure whether he is still in the Chamber—about the book edited by the shadow Chancellor, my right hon. Friend the Member for Hayes and Harlington (John McDonnell), is simply not correct. I think that the hon. Gentleman was trying to quote the economist Simon Wren-Lewis, who accused the Prime Minister of lying when she gave a similar quote in the House of Commons. I ask for that to be recognised and I ask Members to reflect on its incorrect use.

Several Conservative Members referred to the increase in NHS spending. I felt that there was a slight lack of recognition of the fact that it is predicated purely on an improved forecast for the tax revenues. It is not money in the bank and, remarkably, the Chancellor chose to blow most of it in one go. That may not have been prudent.

I listened intently to the right hon. Member for Wokingham (John Redwood). He said many things that I thought were fundamentally wrong about Brexit and tax policy, but he did make some interesting comments about monetary policy. There has, I feel, been insufficient recognition that austerity has been accompanied by an unprecedented period of ultra-loose monetary policy. The Bank of England cut interest rates to record lows, and then introduced quantitative easing as a form of “life support” when they could not go any lower. We have not discussed that enough, and we have certainly not discussed enough the distributional impact that it implies.

The Bank has essentially compensated for Government austerity by pumping money into the economy to increase consumption and investment, while the Government have done the opposite. We would say that the lack of sustained growth under the Government’s stewardship has meant that we have not yet been able to unwind that policy, so that, at present, if we need it again it is not available to us. That is why, today, we are even more badly placed to deal with the next recession, when it comes.

As ever, I was slightly frustrated by the speeches of the hon. Member for Croydon South (Chris Philp) and others who made no distinction between Government borrowing for investment and Government borrowing to pay for day-to-day spending. As the International Monetary Fund itself has pointed out, if debt is accrued to finance investment, and if that investment will generate stronger tax revenues than the cost of borrowing, it is entirely sustainable. Debt as a percentage of GDP does not tell us much without reference to when that debt needs to be serviced, and at what cost, relative to the growth of taxes that have to pay for it. The public finances are not like a household’s finances, and every Member needs to remember that. The worst legacy for the next generation is a failure to grow the economy as we could. It is nonsense to talk about burdening future generations with debt when they are exactly the ones who would benefit from that long-term investment.

Some excellent speeches were made by Labour Members. My hon. Friend the Member for Kensington (Emma Dent Coad) made an important speech about housing and homelessness. She emphasised that, apart from increasing first-time buyers relief, the Bill does little to encourage house building or to tackle the UK’s housing crisis. As she said, many of the Government’s initiatives, such as Help to Buy, cause substantial problems in themselves. She also updated the House on the Grenfell situation, and I pay tribute to her for all her work on behalf of her constituents and the nation in that regard.

My hon. Friend the Member for Lincoln (Karen Lee) spoke with passion about what austerity has done to living standards in this country. There is no better example of that than the impact of universal credit. Let us not forget that the £1.7 billion promised for universal credit is only a third of the £7 billion cuts in the social security system that were already scheduled. The hon. Member for Glasgow South West (Chris Stephens) made that point well. Let me tell Conservative Members, with complete sincerity, that I am kept awake at night by the casework that I receive on universal credit, and I do not believe that I am the only one.

[Chris Philp]

Does the shadow Minister accept the Resolution Foundation’s analysis, published after the Budget, that said that the total fiscal cost of the amended universal credit will exceed that of the preceding benefits? That is, more money is going into universal credit now than even was the case before.

[Jonathan Reynolds]

I have seen that analysis. The Resolution Foundation said that the cost is greater, so the question for the hon. Gentleman is this: if more money is going in and so many people are still losing out, what terrible choices have the Government made to produce a situation as bad as that?

My hon. Friends the Members for Swansea East (Carolyn Harris) and for Mitcham and Morden (Siobhain McDonagh) mentioned the Government’s shameful delay in limiting the maximum stake for fixed odds betting terminals. Many Members, including me, see the damage done in our constituencies by these machines every week. They both gave forceful and persuasive speeches, but I am hopeful that the will of the House on this matter is clear and that the Government will be forced to do the right thing, especially given several speeches by Conservative Members. My hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) gave a powerful testimony about what austerity has meant in his borough. I only hope that his school governors’ meeting was quorate without him.

There was a lively exchange on the environment. I do not think it is unreasonable to say that, given the potential catastrophe we face—as outlined in the Intergovernmental Panel on Climate Change report published in October—this Finance Bill is unsatisfactory. I sat in Mansion House in June, listening to the Chancellor promise that the UK would be leading the way on green finance, but we have yet to see any tangible evidence of the Government’s intentions on the statute book. We are lagging behind our European counterparts, which already have mandatory climate disclosure laws, and those that have issued their own sovereign green bonds. This just does not seem to be a priority for the Government.

The good news for all my colleagues is that they can join me tonight in voting for Labour’s reasoned amendment, which declines to give this Bill its Second Reading on the basis that it continues the austerity policies that have caused so much damage, and instead proposes a progressive taxation system, real funding for public services, greater public investment and a halt to the roll-out of universal credit.

I say to colleagues across the whole House, is it really unreasonable in Britain today for people to want to take their children into a city centre without having to explain to them why so many people are now sleeping on the streets? Is it really unreasonable to believe that, if we really had a strong economy, thousands of our fellow citizens would not be dependent on food banks to get by? And is it really unreasonable to believe that, when a Government present a Finance Bill, their priorities should be those most in need, not those who are already better off? We do not think that any of those things are unreasonable, so we will vote against the Finance Bill tonight. We know that this country does not just need new ideas; it needs new hope for the future. The Bill sadly offers neither and it does not deserve the endorsement of the House tonight.