Oral Answers to Questions
Kelvin Hopkins Excerpts(9 years, 10 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
During his time in Parliament, my hon. Friend has been a champion of the beer industry, small pubs and small brewers across the country—and a very effective champion he has been, too. Of course I cannot make any commitments about the Budget at this stage, but I welcome his recognition of the progress made on this subject during the course of this Parliament, and I will certainly take his recommendations for the Budget very seriously.
Kelvin Hopkins (Luton North) (Lab)
Britain has an enormous and persistent trade deficit with the European Union—clear evidence of a misaligned exchange rate. The significant weakening of the euro in recent days will make the position even worse and cause damage to British industry. When are the Government and the Bank of England going to take seriously the need to achieve and sustain an appropriate sterling-euro exchange rate?
Mr George Osborne
This Government do not target a particular exchange rate. Successive previous Governments found to their cost that doing so was difficult and damaging. What we do is ensure that Britain is competitive. I think the best thing to do to support exports is to make sure that our British businesses are taxed in a competitive way; they have great skilled work forces working for them—[Interruption.] They are chuntering away on the Opposition Front Bench. I seem to remember that when the Labour leader was asked recently when Britain would join the euro, he said it depended on how long he was the Labour leader. It is still official policy to join the euro and tie the currency up to the eurozone—with all the ensuing chaos that would follow.
Charter for Budget Responsibility
Kelvin Hopkins Excerpts(9 years, 11 months ago)
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Mr Kenneth Clarke (Rushcliffe) (Con)
That last speech clarified the fact that the shadow Chancellor admits that fiscal consolidation of the kind we are describing will be necessary for whoever comes into office after May and that getting back to a balanced economy depends on continuing efforts to improve the underlying growth rate of the economy. He was not able to produce any specific ideas at all. The only things on to which I could latch were that he was going to put up the minimum wage and restore the completely pointless 50% tax rate on the very highest earners. If he thinks that that is an economic growth plan to stimulate our underlying trend in growth to the levels of Chile and Mexico, he is showing the same levels of competence that he displayed when he was the main economic adviser to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in the previous Government.
What we are talking about and what I hope we will get agreement on—I hope that the reality of this will dawn on the Labour party as a whole eventually—is that the essential pre-condition of any economic policy that will get this country back to healthy balanced growth is fiscal consolidation by eliminating the deficit, controlling the overall level of debt and, at the top of the cycle, running a surplus on the budget to get the stock of debt back to a manageable level. That is a message that the present Chancellor has been trying to get across in the four years that it has taken to get us to the position that we are in at the moment, which is much more successful than that of almost every other western democracy in similar troubles. If the Labour party has really taken that on board, at least it is beginning to be fit for office. But as far as I can see, it has no other policy.
Kelvin Hopkins (Luton North) (Lab)
The former Chancellor may remember that, in the 1920s, similar policies were followed and that, at the end of the 1920s, the debt was larger and we had a decade of unemployment and poverty. After the second world war precisely the opposite policy was adopted, and we had rapid growth, full employment and the debt came down.
Oral Answers to Questions
Kelvin Hopkins Excerpts(10 years ago)
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Danny Alexander
I wholeheartedly agree with my hon. Friend on that. He has done more than most Members of this House to promote apprenticeships, the creation of skills and the manufacturing industry, and I pay tribute to him for his work. I ask him to look at what we have said about this in the autumn statement, which contains particular measures to promote the provision of better careers advice in schools.
Kelvin Hopkins (Luton North) (Lab)
T8. This week, growth forecasts for the eurozone economies have again been downgraded, but the European Central Bank is refusing to adopt counteracting measures of quantitative easing. What plans do the Government have for protecting Britain’s economy in the event of a full-blown euro crisis?
Danny Alexander
The best protection for the UK is to stick to the economic plan that is creating jobs and growth up and down this country. That is what the coalition has done and will continue to do. The OBR’s forecast, published last week, showed that it expects the UK, despite the difficulties to which the hon. Gentleman refers, to continue to have economic momentum over the next few years.
Oral Answers to Questions
Kelvin Hopkins Excerpts(10 years, 3 months ago)
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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.
Kelvin Hopkins (Luton North) (Lab)
Britain has an enormous trade deficit, especially with the EU, which is clear evidence of a misaligned exchange rate, and UK manufacturing is again suffering as the euro has depreciated relative to sterling. When is the Chancellor going to take the exchange rate seriously?
Mr Osborne
I follow the practice that previous holders of this job have followed over the past 20 years, which is not to comment on the exchange rate, but as I said in my response to the first question in this session, the weakness in the eurozone is an emerging risk to the UK economy and something to which we need to be alert.
Finance Bill
Kelvin Hopkins Excerpts(10 years, 5 months ago)
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Shabana Mahmood
Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend is making an excellent speech and she is right that this is a large sum of money. It is equivalent to 9p on the standard rate of income tax.
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.
Shabana Mahmood
I am grateful to the hon. Gentleman for his intervention, but as I just said, the tax gap has widened: despite those efforts, it has gone up by £1 billion or more.
The Public Accounts Committee also raised concerns about the monitoring of tax relief at HMRC and the Treasury. In 2013, there were 1,128 tax reliefs in the UK taxation system—a number that continues to grow. Tax reliefs can range from fundamental components of the tax system, such as the level of the personal allowance, to tax expenditures with more specific objectives to change behaviour, such as film tax relief. They play an important role in the tax system, but can be abused. Indeed, even in this Finance Bill the Government have had to take steps to close down the abuse of tax reliefs. It is therefore very worrying that the Public Accounts Committee has concluded:
“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. HMRC and HM Treasury share responsibility for tax reliefs, but there is no accounting officer with responsibility for the stewardship of tax reliefs, as there would be for”
other elements of
“public spending. In 2010, HM Treasury committed to developing a framework for the introduction of new reliefs”.
However, no measures have been implemented so far.
In December 2013—this is relevant to what the hon. Member for Dover (Charlie Elphicke) said a moment ago—there were just four full-time officers in the fugitive unit, trying to catch 124 HMRC fugitives. The Government launched a “most wanted” campaign in August 2012, but earlier this year it was found that just four fugitives had been caught since the publication of the list. Moreover, it was admitted that of the 32 “most wanted”, 11 could not be located. If the Government are to support their claim that they are succeeding in the fight against tax avoidance and evasion, they must be able to demonstrate that they will catch those who break and abuse the rules, and will prosecute them to the full extent of the law.
Kelvin Hopkins
Does not what my hon. Friend is saying suggest that there is a cosy relationship between the Conservative party and the very rich? The Conservatives do not want to chase those people, because they do not want to upset their friends.
Shabana Mahmood
My hon. Friend has made his point powerfully, and in his characteristic way.
As we can see, despite the Government’s claims, their record of tackling tax avoidance is simply not good enough in a number of areas. They will say that the avoidance measures in this Bill are radical and bold, and are evidence of a commitment to tackling avoidance. We have supported the measures relating to follower notices, accelerated payment notices and the need to tackle promoters of tax avoidance schemes, although we have questioned the Minister about some of the deeply felt concerns of those who will be affected by the follower notices regime and by accelerated payment notices, which have caused a great deal of debate outside the House. However, although those measures have received the Opposition’s support, the fact is that they are not revenue raisers. They will simply bring in money that the Government were expecting to collect, but which had been clogging up the various back channels and alleyways of the legal system.
Shabana Mahmood
My hon. Friend is absolutely right about the findings of that report and we know that this is a real problem, particularly for people in the construction industry.
Kelvin Hopkins
My hon. Friend is making a very fine speech and I agree with what she is saying. In 1970, I serviced on the TUC construction committee, and a major item on the agenda at the time was bogus self-employment and the loss to the taxpayer. Another point is important, too. They do not pay their national insurance, so they will suffer when their pensions come to be paid.
Shabana Mahmood
I am grateful to my hon. Friend, who is right that this is a long-standing problem for Governments of all colours and persuasions who have for too long been unable to deal with these very serious issues which result in people not being entitled to sick pay, holiday pay, maternity and paternity leave and other employee rights.
The third problem associated with disguised self-employment is that the unhealthy level of self-employment in the construction industry—40% compared with an average of 14% across all other industries—does not offer a sustainable skill supply for emerging growth opportunities or a change in the economic weather. Employers who want to invest in their staff and employ directly are losing out to companies that use payroll companies which, because they are paying less tax, can sometimes offer slightly higher pay to poach skilled staff.
In July 2009, we published proposals to tackle the problems of false self-employment in the construction industry, but it was not until last year’s Budget that the Government took an interest in the problem when they announced that they would consult on proposals to tackle tax avoidance by intermediaries based offshore who provided labour services to UK companies. We are still waiting for the Government’s response to their consultation on onshore intermediaries, which closed, I think, in March.
Last year, the shadow Secretary of State for Work and Pensions, my hon. Friend the Member for Leeds West (Rachel Reeves), reviewed the issue and, based on an investigation of the available evidence and widespread consultation with the industry, we have proposed that workers should automatically be deemed to be treated as employees for tax purposes if they meet criteria that most people would regard as obvious signs that they were employees rather than self-employed subcontractors. It is important to note that the measure would not only close a costly tax loophole but remove a perverse financial incentive for those workers whom most would regard as being in an employment relationship to be classified as self-employed. Such a shift would be good for the construction sector and its work force, too. We want the Government to take further action today to consider the issue and prepare the report envisaged in our new clause.
The third area in which we seek greater action is that of dormant companies. It has been estimated that 30% of all UK companies are not asked to submit tax returns. One explanation that has been given is that those companies are either dormant or are not liable to pay tax in the UK as they trade exclusively overseas. Once companies have declared themselves dormant, they are exempted from filing a corporation tax return for five years. For some companies, that window could be used as an opportunity to trade with tax impunity and yesterday we set out our proposals whereby we will require annual confirmation of dormancy and will further explore the possibility of banks’ automatically informing HMRC when there is activity in supposedly dormant accounts. That would deal with an issue of tax evasion, rather than tax avoidance, but it is important that the tax lost as a result of weaknesses in the rules of dormancy is firmly on the Government’s radar and it has not been to date.
As I have set out, tackling tax avoidance and closing the tax gap effectively remains a top priority for the public. This Government’s record is not good enough. Our new clause pushes for greater action on three important issues and practical measures that can help to close the tax gap. We hope that it will have the support of the House this evening.
Sir Gerald Howarth
I am pleased to take part in this debate—it is the first time I have participated in a Finance Bill debate for quite a long time. I rise to take issue with the hon. Member for Birmingham, Ladywood (Shabana Mahmood), who made a long and interesting speech, about her definition of tax abuse. Indeed, there was no definition of what is considered to be abusive tax arrangements. I think that we have all become lax in our use of language in a matter which is of huge concern to our fellow citizens, for the powers of the Inland Revenue—HMRC—to take money earned by our fellow citizens is an important power and one that should be used very carefully indeed. This House has a responsibility to ensure that these matters are properly debated.
I have to tell my hon. Friends that I am increasingly alarmed by the Government’s rhetoric on what they refer to as “aggressive tax avoidance”. I was brought up to understand that tax avoidance is not only legitimate but, indeed, the duty of the head of every household. It is not their duty to maximise their tax; it is their duty to minimise it. It is our money, which is taken from us by the Government.
Sir Gerald Howarth
Quite a lot of people want to speak, but the hon. Gentleman is a good man, so I will give way to him briefly.
Kelvin Hopkins
It is a simple point: the great majority of wage earners and salary earners can never escape, avoid or evade tax because they pay through PAYE. They have to pay every penny of their tax every week, every month, every year.
Sir Gerald Howarth
The hon. Gentleman is entirely right, but overwhelmingly it is the entrepreneurs of this country who drive our economy. Ensuring not only that our entrepreneurs are encouraged to invest in providing jobs for people but that this country is a good place in which people from overseas wish to invest their enterprise must be a major consideration.
As I say, I was brought up to understand that tax avoidance is entirely legitimate, and if a scheme is found to be outwith that which the Government intend, it is for Parliament to close any loopholes; tax evasion, on the other hand, is illegal. However, we have become consumed by the idea that because some high-profile companies do not pay tax in this country, tax avoidance as a whole is somehow immoral. I think that some of the companies that do not pay tax here ought to and I strongly support endeavours by the Government to ensure that they pay their fair share, but when, 10 days ago, I was approached by a constituent who told me about the accelerated payment scheme, I became very concerned indeed.
My constituent, a pharmacist, together with a local GP practice and a dentist, wishes to set up an enterprising, innovative scheme in Aldershot to provide a new, modern facility, but if he is told to pay the thick end of £100,000 when he understood the scheme to be perfectly lawful, where is that money to come from and what happens then to his investment in his proposed business? I think this measure will lead to great uncertainty. I pay tribute to my hon. Friend the Member for Cities of London and Westminster (Mark Field) for the clear way he has drawn attention to the potential repercussions of the Government’s proposal.
The Government are proposing to confer massive powers on state officials. Clause 213(3) provides that
“The payment required to be made under section 216 is an amount equal to the amount which a designated HMRC officer determines, to the best of that officer’s information and belief, as the understated tax.”
There we have it—huge power residing in the hands of unelected officials. We, as right hon. and hon. Members, all know from our constituency experience the number of cases where HMRC gets it wrong. We are invoked to try to recover the money that constituents in many cases have been unable, by direct contact with HMRC, to secure for themselves. Very often, it is only after our intervention that the matter is put right. A dangerous precedent is being set here for a rapacious future Government, perhaps a Labour Government. Perhaps that is what the hon. Lady was threatening; I am not sure that I would yet be in a position to accuse her of being rapacious, but perhaps she will let us know her intention.
We should be careful about giving these extensive powers to HMRC. Interestingly, my noble Friend, Lord Howard of Rising, asked Her Majesty’s Government
“how much money was repaid to taxpayers as a result of overcharging by HM Revenue and Customs in each of 2009-10, 2010-11, 2011-12 and 2012-13.”
The noble Lord Deighton responded:
“The information is not available as HM Revenue and Customs does not collect information on amounts underpaid or overpaid.”—[Official Report, House of Lords, 23 June 2014; Vol. 754, c. WA135.]
Therein lies a severe problem. If HMRC is incapable of giving us that information, what confidence can we have that it will exercise these powers carefully?
I quite understand the challenge faced by my hon. Friend the Exchequer Secretary, who is a very splendid Minister indeed, in trying to restore the public finances to order after they were destroyed by the former Prime Minister and Chancellor of the Exchequer. It is a massive challenge that we face. But we could make a start by looking at some of the money owed to Departments. I understand that the Ministry of Justice, for example, has quite a lot of money outstanding. In November 2011, the National Audit Office reported that the Ministry of Justice was owed £2 billion in outstanding fines and uncollected criminal assets. Last year, it wrote off £76 million in uncollected court fines, which was a 50% increase on 2010-11.
I also understand when my hon. Friend says that the Government want to address the issue of taxpayers dragging out contested cases in the courts. It is a fair point. But if the measure goes through, what incentive will there be on state officials, never knowingly understanding the importance of time, to expedite contested claims themselves? The president of the Chartered Institute of Taxation made a good observation. He said:
“We have sympathy with the Government’s need to accelerate dealing with some tens of thousands of outstanding mass marketed avoidance cases which are jamming up the courts…However, handing HMRC almost unprecedented executive powers to decide who falls within the mischief they intend to deal with, without the usual safeguards and appeal rights, is not something which should be done lightly”.
I strongly endorse that.
I remind my hon. Friends that when we came into office 35 years ago, and the noble Lord Howe, then Sir Geoffrey Howe, as Chancellor of the Exchequer, delivered his first Budget on 12 June 1979, he and his successor, my noble Friend Lord Lawson, set about reducing tax, because they believed that by reducing the burden of taxation, they would reduce the incentive for taxpayers to incur costs in seeking tax avoidance schemes. I urge the Government to look more carefully at how we might increase our drive to reduce taxation itself as a more efficient way, a more Conservative way, to reduce the incentive for taxpayers to seek avoidance schemes.
I will not support new clause 12 and do not think that the House should do so, but I do think that it needs to look much more carefully at the powers that the Bill proposes to confer on HMRC officials.
Charlie Elphicke
I will endeavour to be as brief as possible, Madam Deputy Speaker.
I have often made the case against tax avoidance—international and national—in the House. I have often mentioned the behaviour of the water companies, which used the quoted eurobond exemption to further their strategies. Yet I cannot support the new clause, which is, in the words of the Labour party’s head of policy, the hon. Member for Dagenham and Rainham (Jon Cruddas), nothing less than an “instrumentalised, cynical” nugget
“of policy to chime with…focus groups and…press strategies”.
The shadow Chancellor showed that at the weekend.
The new clause would not raise £500 million. I will be interested to hear the Minister say exactly how much it would raise, as in many cases double taxation treaties could be used. When I raised the loophole in question, my case was about the debt-equity gearing ratio—a far more effective way of looking at the issue. I would be surprised if the Labour party had consulted experts beyond its own advisers. Indeed, there was a consultation on this issue in 2012. I stand to be corrected, but I do not believe the Labour party gave a response to that consultation. It simply thought, “What wheeze can we table as a new clause to plonk out there for our press strategy as our instrumentalised policy nugget?”
The new clause is highly cynical. It has been devised purely to make a case and to say, “Yes, we are on the pitch in the tax avoidance debate.” In fact, when the Labour party was in power receipts from income tax doubled but receipts from corporation tax went up by 6%. Again, we heard cynicism in the debate today with remarks about the tax gap going up by £1 billion to £35 billion. That is because the economy is growing. In reality, the percentage has fallen from 7.1% to 7%, so the tax gap has been heading in the right direction.
The Government have done a lot to make the case on this issue and to take the battle to the tax avoiders. I support the accelerated payments regime—I differ from my hon. Friend the Member for Aldershot (Sir Gerald Howarth) on this—because people who are subject to it know that they are engaging in a tax avoidance arrangement that is going to be under attack, and so should be prudent and keep the money to one side. If they are not doing so, they should be thinking about things rather more carefully, because they know they have entered into an arrangement that is likely to be under attack from the Revenue.
Kelvin Hopkins
It is a disgrace that while millions of ordinary people suffer the privations of wage cuts, unemployment and poverty, a rich minority is avoiding and evading taxes. I am talking about corporates and billionaires. There is indeed one law for the rich and one for the poor, the poor being the great majority of wage and salary earners. They are not necessarily poor in the specific sense, but they pay their taxes—I pay PAYE myself.
The Government’s concerns about the deficit seem hypocritical given that they have failed to collect the taxes that are owed. The estimate of the amount of uncollected tax made by HMRC and the Government is of the order of £40 billion. But estimates by others—including the Public and Commercial Services Union, the trade union that represents the workers in the tax collecting industry, the TUC and Richard Murphy, a noted tax expert I have seen speak on many occasions—put the amount at £120 billion or even more.
Even if we take the £40 billion figure, if the Government collected half of it, that would be an extra £20 billion a year, equivalent to 5p on the standard rate of income tax. I suggest that that would not just bring down the deficit but would give us plenty more to spend on the health service and on decent pay rises for public servants, who have suffered so much for so long.
As for staffing in HMRC, I have spoken out about that under previous Governments as well, not just this one, because that has been a weakness for Government efforts to challenge tax avoidance and evasion for a long period. I will tell a little anecdote. In 1997, when I first came into Parliament, I went to visit my local VAT office. The people there said that if they had more staff, they could collect more taxes. In VAT from local businesses alone, every individual tax inspector collected five times their own salary. Naturally I wrote to the then Chancellor of the Exchequer. I got an answer back from a civil servant, not from the Chancellor, which said that the Treasury wanted to make savings by cutting staff. That is utterly irrational when staff collect many times their own salary.
As I said, with VAT from local firms the amount collected is five times a staff member’s salary. When it comes to the big corporates, extra staff collect many, many times their own salary, and we should have many more tax staff. Perhaps if HMRC did not have such difficulties with staffing, it would be able to work more accurately and would not make the mistakes that have been mentioned.
We have recently seen Vodafone, which apparently owed something like £7 billion in tax, do a cosy little deal with Dave Hartnett, the then boss of HMRC, and pay £1 billion. The rest was siphoned through Luxembourg, I think—wherever it was, large amounts of money were lost from the corporates. Interestingly, Dave Hartnett, who was a public servant and should have been committed to the public interest, retired and finished up as an adviser to corporates on tax avoidance. That is unacceptable. Civil servants should be motivated by the public service ethos and be determined to collect taxes. They should not be cosying up to the corporate world.
Finally, as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) has pointed out, the 1,000 richest people in this country have seen their wealth double in the past five years from a quarter of a trillion pounds to half a trillion pounds. That is a staggering amount of money. Much of that must be to do with tax avoidance and tax evasion. If we were to collect just some of that, we would have no deficit and plenty more to spend on the health service.
Section 5 of the European Communities (Amendment) Act 1993
Kelvin Hopkins Excerpts(10 years, 7 months ago)
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Nicky Morgan
I know that my hon. Friend is an assiduous follower of these matters, and he is right. The other place had a short debate on the convergence programme on 9 April. He will know, and I am learning, about the vagaries of timetabling debates, which have meant that this was the earliest day that we could debate the convergence programme in the House. I am told that in previous years the convergence programme has been sent in draft to the Commission, but we were keen that we should debate and send the final document. The convergence programme document was put before both Houses in a written ministerial statement dated 3 April, and placed in the Libraries on the same date. Members have therefore had an opportunity to consider the draft document since that date, although I appreciate that the recess has intervened.
Kelvin Hopkins (Luton North) (Lab)
I have raised this matter before on similar occasions. First, there is constant talk about convergence, but the European Union’s economies have always exhibited divergence, not convergence. Secondly, do we want to converge with an economy that is failing and growing more slowly than we are?
Nicky Morgan
I have read previous debates and know that the hon. Gentleman is assiduous in attending such debates and in following these matters. The language used in titles of various EU programmes is not a matter of choice for this Government. Perhaps a better word could be used, but it has not been selected by the Government. I take his remarks on board. I think all of us know that the eurozone has not been as strong as even those of us outside the eurozone would like it to be—it is important for our businesses and our exporters—but I will come on to show that things are looking better. The recovery taking place in the rest of the European Union is slower and it is important that we are fully aware of, and the European Commission fully monitors, the economies of other eurozone countries, even though—let me make it clear again—the Government have no intention of joining the euro.
The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2013 autumn statement and in Budget 2014, and also includes Office for Budget Responsibility forecasts. As such, it is drawn entirely from previously published documents that have been presented to Parliament. With the Budget on 19 March and Easter recess timings as they were, I appreciate, as I have already mentioned, that the timetable for this debate has been particularly tight. Against this backdrop, the Treasury has made every effort to provide early copies of the convergence programme document in advance of today’s debate. The document makes clear that this year’s Budget reinforces the Government’s determination to return the UK to growth, and reiterates the Government’s No. 1 priority: tackling the deficit. As we have already heard in interventions, there are differing views on the value of submitting stability or convergence programmes, especially for the UK, given that the Government have ruled out joining, or preparing to join, the single currency.
The document forms part of the European semester process, which provides a broad framework for the co-ordination of the monitoring and surveillance of member states’ fiscal and economic policies, including necessary structural reforms across the EU. The positive value of the European semester is that it is a useful means to encourage other member states to grip the urgent growth challenge across the EU.
Budget 2014 set out the Government’s assessment of the UK’s medium-term and budgetary position. The UK economy is still recovering from the most damaging financial crisis in generations. We had the biggest bank bail-out in the world, the biggest deficit since the second world war and suffered the deepest recession in modern times. In the face of such a daunting economic challenge, it is essential to have a clear and comprehensive plan.
In 2010, the Government set out clear, credible and specific medium-term consolidation plans to return the public finances to a sustainable path. Our plan makes clear that we will fix the economy and deal with the deficit, cut tax to encourage investment, back businesses, control welfare and invest in skills. We are putting that plan in place. We have adhered to it and we are delivering results with it. The Government’s fiscal strategy has restored fiscal credibility, allowing activist monetary policy and the automatic stabilisers to support the economy and ensure that the burden is shared fairly across society.
Finance (No.2) Bill
Kelvin Hopkins Excerpts(10 years, 8 months ago)
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Mr Redwood
Indeed, there are timing issues with VAT, as the hon. Gentleman says, but I do not really see how that affects the argument about whether putting the rate up brings in more money. That is in the figures.
I fear that we are drifting a bit far even from the wide subject of the amendment, but I suppose the alternative options to help business could include cutting VAT. However, it is clear that if we cut the rate of VAT again, there would be a substantial loss of revenue, whereas we have just cut the income tax rate and there has been a colossal revenue gain. We should learn from those points.
I think the shadow Minister suggested that there would be no loss of revenue to local government from cutting and then freezing business rates. I do not know whether she wants to intervene, but that was my understanding of what she said. I think the Labour party has been converted to the Laffer effect. It now asserts—I do not know on what evidence—that if we cut and then froze business rates, we would collect the same amount of revenue. I would need persuading about that, because I am not sure that business rates are at that point yet, but if they were, it would be a sensible proposal for the coalition Government to take up. It would make it an even bigger pity that Labour has not bothered to table a proposal along those lines for us to vote on today, which might even have drawn me into the Lobby against my own party’s Front Benchers if the case had been well made and I felt that the Laffer effect of lower business rates was well established. I have profoundly shocked my Front-Bench colleagues now, having earned myself a brownie point through my earlier remarks. As they are well aware, they are quite safe, because there is no proposal on the amendment paper to cut business rates. [Interruption.] The Whip has just found that out—she needs to do a little more homework before coming to these debates. [Interruption.] Now she is complaining that she did not say that. As she will be in the record as having said nothing, who am I to disagree?
Before I get into any more trouble, I will conclude my remarks by saying that I will not support the amendment. I do not believe that a review would help, and I do not understand how it would be judged. Nor does it seem that it would have any impact on Labour policy. I am perplexed by the fact that when Labour has a clear policy for once, it has not tabled a proposal so that we can debate it fully and vote on it. I strongly support lower corporation tax rates, which will be very helpful.
Kelvin Hopkins (Luton North) (Lab)
It is a great pleasure to speak briefly in this debate. There is everything to be said for reviewing the effects of changes in tax rates, but to do that one must eliminate all other factors. A great surge in demand over a certain period, with unemployment going down and output going up, and all sorts of other factors can affect tax revenues. It is not just tax rates. As my hon. Friend the Member for Edmonton (Mr Love) said, if there was a direct relationship between lower tax rates and increased revenues, a zero tax rate would mean big revenues and a higher tax rate would mean lower revenues. It is just not like that.
I also suggest that marginal changes to tax rates will not make much difference. Everybody in business likes lower taxes, and no doubt most citizens do. It is in the nature of things, because they have more money in their pocket. At the same time, in a civilised society—I like to think that we still have some remnants of a civilised society—taxation is vital to pay for the things that make it civilised. I would personally like higher revenues, so that we could spend more on the things that make our society worth living in. Over the past few decades, there have been some regrettable cuts in tax revenues. Perhaps we should not go back to the 98% top rate of the 1970s, but when Nigel Lawson got rid of the 60% rate and brought in the 40% rate, it led to substantial income for better-off people.
Mr Redwood
Would the hon. Gentleman not accept that cutting the top rate from 83% to 40%, or from 98% to 40% for so-called investment income, meant a huge surge in revenue? Rich people not only paid more in cash terms and real terms but paid a bigger proportion of total income tax. What’s not to like?
Kelvin Hopkins
We can argue about particular cases, but when we measure the impact of tax changes, we have to ensure that we are not measuring other factors. I met some people in the City just after Nigel Lawson cut the tax rate, and a lot of them were aghast at the Budget, saying, “Why has he cut the taxes? We don’t need the money.” They were clearly not of the same mind as the right hon. Gentleman, but they were civilised, decent people who thought that good tax revenues and higher taxes were a good thing.
Mr Redwood
As they were civilised people who did not need the money, all they had to do was give it away. They could have given the money to the state or to charity.
Kelvin Hopkins
The problem with charity is that only nice people give to it. The great thing about tax is that it applies to everyone equally, which is the way things should be.
Simon Kirby
The hon. Gentleman’s argument, interesting though at first it may appear, is totally busted when we look at France. Hordes of rich French people are coming to pay tax in this country rather than in France. The net effect is worse than if the taxes had been lower in the first place.
Kelvin Hopkins
I am one of those who would like to see a little more insulation between countries on financial matters, rather than a free flow of finances across borders, but I am a traditional leftist and Keynesian. I am not of the same mind as those who believe in breaking barriers and people having complete freedom to do exactly what they like with their money anywhere in the world. I hope that one day we will return to a more sensible approach.
The problem with tax is not the tax rates but the collection. For a long time we have seen vast amounts of tax not just avoided but evaded. The thick end of avoidance is the thin end of evasion. The precise line between avoidance and evasion is ill-defined, and I would like stricter rules so that a lot of what is now called tax avoidance is defined as tax evasion. If we sent one or two of the big tax avoiders and tax evaders to prison, it might concentrate a few minds and bring in more tax. The research on behalf of the TUC by Richard Murphy shows that, in his view, the tax gap is in the order of £120 billion a year. If we collected a fraction of that sum, we could solve all our problems, including the famous deficit. I am very much in favour of reviewing the effect of tax changes.
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.
Kelvin Hopkins
That is very welcome, but I do not believe in the immutability of a certain level of tax revenue and that, whatever we do, we cannot change that level because somehow the world will not produce more than 38% of GDP in tax. It is just a question of collecting that tax and enforcing the tax rates to ensure that the big international corporates, in particular, pay their taxes. When we do that, we will see a substantial increase in revenue. Of course there are countries where overall tax revenues are substantially higher than ours, and they are not necessarily countries that are doing badly economically; they are countries that are doing well, but a higher proportion of their economy is in the public sector. Those countries have higher taxes and higher public spending, and they are civilised societies, too. The countries with the lowest levels of tax and public spending are often some of the poorest, where the gulf between rich and poor is much greater and, generally speaking, life is less pleasant, particularly for the poor and the less well off.
I look forward to more enforcement and a higher tax take by enforcing the existing tax rates and ensuring that people, particularly the corporates, pay their taxes. When it comes to taxation, the behaviour of the economy is crucial.
Mr Jim Cunningham (Coventry South) (Lab)
My hon. Friend has said that we should look at tax avoidance. There are negotiations between the Inland Revenue and multinational companies in which the Inland Revenue estimates what it thinks the tax should be, rather than collecting the real tax.
Kelvin Hopkins
My hon. Friend is absolutely right. The recent head of HMRC is now a tax adviser to corporate companies, but when he worked for HMRC he seemed to have had a cosy relationship with some of the biggest corporate companies and was doing deals over lunch on what those companies should pay. That was wholly inappropriate. He should have said, “You have to pay your taxes, and we are going to chase you until you do.” That is what I want to see—HMRC staff at the highest level who view their job first as being a public servant who collects taxes for the state, the public and the ordinary citizen, rather than letting the international corporates, and indeed the domestic corporates, get away with what is effectively appalling tax fiddling. I applaud my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) for saying that we should have a review of the effect of tax rates from time to time.
Steve Baker
This is not the first time that I have agreed with the hon. Gentleman. It is important that taxes are collected according to the law, not an individual’s opinion of what the figure ought to be, but does he concede that the situation is as it is because the tax code is far too complex?
Kelvin Hopkins
I am not an expert on tax codes, but taxation is too complex and could be made much simpler, although I think tax should remain progressive. The idea of a flat tax, which the UK Independence party is talking about, is complete nonsense. I fundamentally oppose UKIP not because of its views on the European Union, on which I might have some sympathy, but because of its views on everything else. UKIP is extremely right wing. It wants to get rid of rights at work, privatise the health service and introduce a flat tax. Frankly, UKIP is barking and I will oppose it at every turn.
My hon. Friend the Member for Birmingham, Ladywood talked about a review of the impact of tax changes, which is absolutely right and I support her.
Priti Patel (Witham) (Con)
I have thoroughly enjoyed the debate so far. I am astonished by the ground that we have covered, because we are solely here to address corporation tax, which has not been explored anywhere near enough in the light of the Labour party’s amendment.
As my hon. Friend the Member for Enfield North (Nick de Bois) said, the amendment would create uncertainty and put jobs and future investment at risk—there is no doubt about that. The Labour party wants to reverse the Government’s low business tax approach by putting up corporation tax, which would send out all the wrong messages to the business community. It is farcical that Labour Members are dressing up their so-called policy as a way to help small businesses with business rates. They are cynically trying to pitch big business against small business. The Government have clearly shown that we can help all businesses, both large and small, by cutting corporation tax and, importantly, easing the burden of business rates, which the Minister and the Chancellor of the Exchequer have done.
Jonathan Edwards
That is a very valid intervention. My political position would be to support a 50p rate, but let us have the evidence to make the decision. As I am outlining, the evidence suggests to me that 50p would be a better top rate than 45p, and certainly better than 40p.
Kelvin Hopkins
I agree with everything that the hon. Gentleman has said. If it were shown that an increased tax rate at that level brought in lower revenues, would not that simply be evidence of more tax evasion and insufficient enforcement?
Shabana Mahmood
I rise to support amendment 4, which stands in my name and those of my right hon. and hon. Friends. Our amendment seeks to require the Chancellor to publish a report on the impact of setting the additional rate—the top rate—of income tax at 50%, but unlike new clause 4, our amendment requires that the report must also estimate the impact of the top rate in 2014-15 if it is set at 45% and at 50% on the amount of income tax currently paid by someone with a taxable income of £150,000 a year and of £1 million a year. Our amendment therefore seeks to prescribe somewhat more than new clause 4 what the report that must be prepared by the Chancellor of the Exchequer should include. We intend to press our amendment to a vote at the end of the debate.
The Labour Government introduced the 50p rate, which came into effect in 2010-11. We have had a number of debates on the top rate of tax ever since, particularly since this Chancellor’s decision to reduce the top rate from 50p to 45p. That decision is an important indicator of both the Chancellor’s and his Government’s priorities. While ordinary people have been struggling with the cost of living crisis—based just on a measure of wages, they are £1,600 a year worse off, or, taking into account tax and benefits changes, they are £974 a year worse off—the Chancellor has seen fit to give a tax cut worth an average £100,000 to millionaires in our country.
When the Government came to power, they did not say anything in the coalition agreement about abolishing the 50p rate. In 2011, the Chancellor said that he was going to ask HMRC to look at the yields from the 50p rate. In 2012, with HMRC’s report, “The Exchequer effect of the 50% additional rate of income tax”, to back him up, he abolished the rate. The Chancellor knew that he needed cover for that deeply ideological decision and so was desperate, in my view, to claim that the 50p rate raised as little money as possible. Of course, if he could say that, he could justify with more of a straight face giving a tax cut to the richest in our country at the same time as knowing that on his watch ordinary people, those on middle and low incomes, have paid the price for his economic plan, which is failing on the terms he set himself when he came to power in 2010. This was a highly political decision driven by a desire to give a tax cut to the richest people in our country.
Reports at the time suggested that the Chancellor wanted to go further and cut the top rate back down to 40p, but was blocked from doing so by his coalition colleagues. As a compromise, 45p was settled on. Of course, we know that the Conservative party is chomping at the bit to see the rate lowered from 45p to 40p and it is a shame that the right hon. Member for Wokingham (Mr Redwood) has not been in the Chamber for this part of the debate, although we did cover some of his views in this regard in the earlier debate on corporation tax and business rates. As a result of his comments and use of figures, we have in the past week seen efforts to try to bolster the case for reducing the rate back to 40p. I note that the Government have not explicitly ruled out such a change.
We know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. Given that the sum is so large, how does one justify the tax cut? The Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance. Once they have assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer is only £100 million. That implies that this is a neat and exact science, but nothing could be further from the truth.
Kelvin Hopkins
I think that my hon. Friend is suggesting that the Government have been soft on tax avoidance and tax evasion simply to make their figures work.
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.
Kelvin Hopkins
Ministers have talked a lot about low incomes, and that is all very well, but is not the reality that the better off people are and the higher the rate of tax they are on, the more they benefit, so in fact higher-rate taxpayers benefit more than lower-rate taxpayers?
Mr Gauke
That is not correct, because of the way we have done this. I will not spend a lot of time on the matter, but I can tell the hon. Gentleman that in preparation for this speech I have seen various responses from those raising concerns about higher-rate taxpayers not benefiting from the increases in the personal allowance in the way that basic-rate taxpayers have. Indeed, those earning more than £100,000 a year do not benefit from increases in the personal allowance because it starts to be taken away.
The reality is that basic-rate taxpayers have benefited most from the measures that we have taken in increasing the personal allowance. More than 26 million taxpayers will be up to £570 better off in real terms in 2015-16 as a result of this Government’s changes. In 2014-15, basic-rate taxpayers already pay up to £700 less income tax than they would have done four years ago. By 2015-16, the Government will have cut their income tax bills by over £800 per year. Together, all the personal allowance increases since 2010 mean that this Government have cut the number of income tax payers more in five years than any Government in a similar period since records began.
Mr Gauke
I suppose we are talking about the people who for almost the entire time the Labour party was in power were paying a lower rate of income tax, a lower rate of capital gains tax and a lower rate of stamp duty. I hear the Labour party’s position. [Interruption.] If we are trying to build consensus, let us look at what some Labour politicians have said. The noble Lord Myners, a former Treasury Minister, has said:
“The economic logic behind Ed Balls’s thinking would not get him a pass at GCSE economics,”
and that
“Ed Balls takes us back to old Labour and the politics of envy.”
Lord Jones, the former trade Minister in a Labour Government, described the policy as “lousy economics”.
Finance (No. 2) Bill
Kelvin Hopkins Excerpts(10 years, 8 months ago)
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Jacob Rees-Mogg
That does not follow. It is like looking at the weather forecast on the BBC and saying that it is the fault of the newsreader if the weather then turns out to be different. The two are not the same. The forecasts were made in good faith, based on what was known of the global economy at the time. But of course, things change and responses are different. The global economy continued to be relatively sluggish, but the figures that have been achieved by the Government are enormously respectable. There has been economic growth pretty much since 2010 and, most importantly, in the past couple of years. Everyone knows that economic policies have a long-term impact. If a Government come to office in May 2010, we cannot expect the figures in June 2010 to be the result of that Government’s policies—there is inevitably a lag. The effects, as we have seen, have been positive; the economy is now growing, and growing increasingly strongly.
The problem that the Government faced when they came to office was severe. The deficit in 2009-10 was 11.2% of GDP, falling to 10% of GDP in 2010-11. That is not the structural deficit but the actual real money deficit. I happen to think that is a much better figure than the structural deficit, which is to some extent speculative, as economists try to work out what is structural and what is not. If we deal with actual fact, the figure was minus 11.2% in the last year of the socialists, falling very slightly to minus 10% in the first year of the coalition.
The reason the deficit was so high was of course in part the global financial crisis, but it was also because Government spending was simply too high. It had reached 47.4% of GDP in 2009-10, when revenue was only 36.2% of GDP. That latter figure for tax revenue ought not to be any surprise. One of the most remarkable things about this series of figures, going right the way back to Harold Wilson’s prime ministership, is that Governments find it incredibly difficult to get much more than 37% of GDP in taxation. It is interesting that, since 2010, although the Government have increased taxation and the tax take has gone up from 36.2% to 37.4%, the amount has not risen as much as was anticipated. The reason is that it is actually very hard to tax much more than 37% from an economy.
Kelvin Hopkins (Luton North) (Lab)
In Scandinavia, tax receipts in previous years have been much higher than 37%.
Jacob Rees-Mogg
Indeed they are in France as well, but in our economy there seems to be a resistance at about that level. It is almost unprecedented to get much over 38%. That has been managed in two years out of the past 40. That may tell us something about our society, about the willingness to pay tax and the incentives when tax rates are set. A realistic Government therefore need to think of public spending levels of around 37%, which is the level that can actually be afforded through ordinary taxation.
Kelvin Hopkins
Does the hon. Gentleman know how much of that situation is due to the abolition of exchange controls when Mrs Thatcher first came to office, and the fact that we now have an enormous tax gap because of tax avoidance and tax evasion, much of it overseas?
Jacob Rees-Mogg
The calculation from the removal of exchange controls is not one that I know or would be able to make. The effect of their removal has been to create a much larger economy for the United Kingdom, so we are talking about 37% of a larger pie rather than getting a higher rate in a closed economy. However, it is worth bearing in mind that in the years before exchange controls were lifted in 1979 we still were not getting a tax take of more than 38% of the economy. The series goes back longer than the abolition of exchange controls.
I part company from the Government to some degree on the question of tax avoidance and tax evasion. It is measurably important not to elide the two. Tax avoidance is perfectly legal—indeed, the Government come up with schemes in every Budget to encourage it. One example is saving for pensions—that is tax avoidance on people’s income. ISAs are a form of tax avoidance, as is duty free. In the Budget and the Finance Bill there are schemes for investing in films and television programmes that actively encourage tax avoidance. Such schemes become part of Government policy for growing the economy.
Governments then get very upset when people use the tax avoidance schemes, which the Government themselves have put into legislation, for purposes that the Government had not thought of. That strikes me as a fault of the legislative process and an incompetence of the legislators—I am sorry to say, Mr Deputy Speaker, that it is our fault—for allowing such loopholes. It is not the fault of the taxpayer for using them. Any sensible, intelligent taxpayer will pay the minimum amount of tax that is legally required. To elide avoidance and evasion is, I think, against the rule of law: it undermines the rule of law by pretending that something that is innocent is nefarious.
It is important to crack down on tax evasion, which is rank criminality, but the Government should not take excessive measures against that which is legal. Instead, they should write simple tax law because, to go back to the point I was making, Governments manage regularly to raise 37% of GDP in taxation almost regardless of the taxes they levy—they change a tax here and a tax there, but still get roughly 37% of GDP. Simple tax laws can probably get us to that level without the need for complex anti-avoidance legislation that undermines the rule of law. That is the one part of the Bill about which I have my doubts.
Jacob Rees-Mogg
Without being too hard on that specific case, I am clear that some of the cases reported as tax avoidance were tax evasion, and HMRC has taken on some of them successfully. I absolutely agree that it is right for HMRC to challenge schemes to see whether they are, in fact, evasion. Most of the schemes that gave extraordinary results seemed to be evasion rather than avoidance, but we must remember that, day by day, honest people avoid tax that they are not required by law to pay.
Kelvin Hopkins
I thank the hon. Gentleman for giving way yet again. The big losses from tax avoidance and evasion are to do with the corporates. The cosy relationship in recent years between HMRC and some of the corporates, particularly Vodafone, is appalling. I am sure the hon. Gentleman would like to talk about that.
Jacob Rees-Mogg
I am grateful to the hon. Gentleman for that intervention. The thing about corporation tax is that a lot of corporations can be taxed almost anywhere in the world. That is why I think the Government are absolutely right to bring down the rate of corporation tax. It will help businesses to be headquartered in the United Kingdom, which is good for the UK in terms of employment and, indeed, tax revenues, by which I mean not just corporation tax revenues, but the other tax revenues paid by companies, namely business rates and employer national insurance contributions, as well as the taxes paid by their employees. We get a larger, more successful economy if we are relatively generous to corporates.
Northern Ireland Members have spoken of the particular circumstances there and the competition Northern Ireland faces from the Republic of Ireland. That is a very good case of tax competition between neighbours and it can be seen very bluntly in Northern Ireland because of the land border. We see less of it on the mainland of the United Kingdom because we do not cross borders quite so easily and we do not necessarily focus on it as much as we should. I think that the Government are absolutely right on corporation tax and that they should continue down that line.
The Government have also been right on the raising of thresholds and I hope they will continue with it. It makes sense, as my hon. Friend the Member for Redcar (Ian Swales) has said, because it is not logical for people on the minimum wage to be paying taxes. There is no point in taxing people who are low earners merely to pay them benefits with their own money. Although it was a Lib Dem policy in the last election and they deserve credit for that, it was suggested earlier by Lord Saatchi and Peter Warburton in a booklet they produced for the Centre for Policy Studies. The Conservative antecedents of the policy are pretty good and solid. It is a Tory policy in origin and it ought to continue.
The aim of the Government in the long run should be that people on the minimum wage should pay neither tax nor national insurance. In that way, the amount of benefits that needs to be paid to them will be very significantly reduced, as will the administrative burden. Roughly speaking, tax collection costs 1% of the amount collected, and benefit payments cost about 2% of the benefits paid out, so if we tax people to pay them benefits, the overall cost will probably be about 1.5% of the total amount paid and received. The policy is very good and welcome.
Another policy that must be welcomed is the change to pensions. Questions about pension funds came up when my right hon. Friend Chief Secretary to the Treasury spoke. What the Government are doing is very simple: they are allowing people to keep their own money. That is not very popular among Labour Members, who seem to have the view that it is the Government’s money and should be distributed as they, rather than individuals, wish. Conservative Members and, indeed, Liberal Democrats who still have some residual liberal attachment believe that the money belongs to the individual taxpayer.
The policy has a very clear advantage for the tax authorities, because it clarifies the idea that pension saving is nothing but a tax avoidance boondoggle. It is about taxing people once, rather than twice. People are taxed when they withdraw the money from their pension fund, with a 25% exemption, rather than taxed when they put it in. It is worth bearing in mind that if that was at any point reversed, the withdrawal would be taxed as a capital gain rather than as income, and the rates that applied might be very different from those that currently apply to withdrawals from pension funds. Any Government who intend at any point—whether at the higher or the lower rate—to withdraw the benefits of saving through a pension fund should consider the ultimate pay-out, and how the policy is a fair means of taxing people and ensuring that they are not taxed more than once.
As my hon. Friend the Member for Dover (Charlie Elphicke) said, this was a “steady as she goes” Budget. It is very impressive. The Government have not gone for cheap gimmicks, as parties sometimes do before elections; they have gone for continuing the work, which they started in 2010, of getting the country back on track. They are doing so in a way that benefits the least well-off in society the most. It is absolutely striking that the real incomes of every decile other than the highest-paid decile will rise by more than prices this year, as they did last year.
That Government achievement is helping where help is most needed: it is helping business to allow it to invest; doing more to help exporters; helping to rebalance the economy for the long term; and—gloriously, splendidly and rejoicingly—it is doing something to ensure that people have their own money. What a fine Conservative principle that is. We believe that the individuals and their families who build up society have the greatest wisdom about how they spend their money, not the tax authorities that dish it out. What is being done with pensions is the clearest statement of that. Yes, if people buy Lamborghinis, Bentleys or Porsches, they will spend it unwisely—
Oral Answers to Questions
Kelvin Hopkins Excerpts(10 years, 9 months ago)
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Danny Alexander
I totally agree with my hon. Friend and I congratulate him on the work he has done in his constituency to promote the take-up of apprenticeships. The fact that there have already been 1.6 million apprenticeship starts during this Parliament compared with about 1 million during the previous Parliament shows the additional emphasis, even in these tough financial times, that this Government are putting on making sure that young people have the right skills for today’s economy.
Kelvin Hopkins (Luton North) (Lab)
Britain has a growing and enormous trade deficit with the rest of the European Union, which is overwhelming evidence, if it were needed, that we have an inappropriate exchange rate, which means that we are in effect exporting more than 1 million jobs. When will the Government develop a sensible exchange rate policy?
Danny Alexander
Monetary policy is, rightly, the preserve of the independent Bank of England. I would also point the hon. Gentleman to the fact that 3.5 million jobs in this country are linked to British membership of the European Union. That is why I believe so strongly that Britain should stay a full member of the European Union.
Sixth-Form Colleges (VAT)
Kelvin Hopkins Excerpts(11 years ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
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Lisa Nandy
The hon. Lady is absolutely right. I am grateful to her for raising that issue. The culture in sixth-form colleges is enormously beneficial to such young people, and the staff are obviously passionate and determined to ensure that those young people reach their potential.
In conclusion, Ministers have accepted that this situation is unfair, so will the Minister who is here in Westminster Hall today take steps to create a level playing field for sixth-form colleges?
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend may be interested to know that my very first debate in Parliament, 16 years ago, was about sixth-form colleges and took place in this room, but that is beside the point. At that time, I described sixth-form colleges as the geese that lay golden eggs; I think she has made that point today. Of course, one other thing that sixth-form colleges do is to bring together young people from different schools and different communities. They are often situated in areas of diversity and they are a tremendous force for social cohesion. Does she accept that point?
Lisa Nandy
My hon. Friend is absolutely right, and his expertise on sixth-form colleges is well known; not only does he sit on the governing body of a local sixth-form college but he is chair of the all-party group on sixth-form colleges, which has done so much good work on this issue. I have to say to him that when he was first raising issues about sixth-form colleges in this place, I was actually at a sixth-form college in the constituency of the hon. Member for Bury North (Mr Nuttall). That shows that nothing changes.
As I was saying, Ministers have accepted that this situation is unfair, so will the Minister take steps to create a level playing field for sixth-form colleges? Will he make this important sector a promise that there are no more of these cuts to come? And will he join me in paying tribute to the extraordinary contribution that sixth-form colleges, such as my local one, make to young people and communities across the country?
Mr Stuart
I am grateful to my hon. Friend for saying so.
There is another aspect that it is worth pointing out briefly. At the moment, because of the freedoms for schools that I think are broadly supported across the House—there is certainly support for them on the Government Benches—there is a danger that we are sleepwalking into the creation of more small sixth forms, which we know, from sustained evidence gathered over time, perform poorly. At the same time, we are undermining institutions that have a long track record of success in raising standards for all, and in closing the gap between rich and poor. We cannot allow that to happen, so we need the Government to wake up and recognise the jewels that they have in the form of sixth-form colleges.
Far from seeing sixth-form colleges cut back, sliced and reduced in capacity and capability, I would have thought that, having found a delivery system that works better than others, we should desperately look at expanding and supporting it in a way that is fair to other providers. I do not want in any way to be prejudiced against sixth forms, but I would like a level playing field, because we have the exact opposite: we are seemingly strengthening those with the weakest record, and weakening those with the strongest record.
Mr Graham Stuart
I had better give way to the hon. Member for Luton North (Kelvin Hopkins) first, and then I will sit down.
Kelvin Hopkins
I congratulate the hon. Gentleman on his speech; I agree with every word of it. However, does he agree that the Government ought to be looking to create many more sixth-form colleges across the country?
Mr Stuart
I agree. If a system is most successful and cost-effective, establishes high standards, particularly for the poorest, and closes the wealth gap, I would think people would be delighted to see it expand. I will give way to my hon. Friend the Member for Eastleigh (Mike Thornton), and then I will draw to a close.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Thank you, Mr Bayley, for calling me to speak. It is a great pleasure to serve under your chairmanship. I congratulate the hon. Member for Wigan (Lisa Nandy) on securing this debate, and on making her case so strongly. Indeed, it is noteworthy that this is a well-attended debate, as she has mentioned.
In the light of the remarks made by my hon. Friend the Member for Beverley and Holderness (Mr Stuart), I should mention that I am here as a Treasury Minister, as the debate relates to the VAT system. In respect of House of Commons workings, this is a Treasury matter, and this week the Treasury, rather than the Department for Education, was up for debates, although the hon. Member for Wigan has been most ingenious in getting a debate on sixth forms in a week in which Department for Education Westminster Hall debates were not occurring.
The hon. Lady has highlighted how sixth-form colleges interact with the VAT system. Let me say a little bit about that. VAT can be a rather complex matter. It might help if I provided some background, before turning to the specific issue of sixth-form colleges. One basic feature of VAT is that businesses are able to reclaim the VAT that they pay on their inputs. However, this does not apply to purchases, acquisitions or imports made in relation to non-business activities, such as the provision of free education. This means that bodies such as schools can end up with VAT costs on the goods and services that they buy in.
Clearly, it is always an option to meet these costs by increasing the funding made available to schools, for example. However, there is a risk of the burden of that funding falling on local taxation, as the state education system in England and Wales has historically been delivered by local authorities. To deal with that, in 1973 the Government introduced a scheme, now under section 33 of the Value Added Tax Act 1994, allowing local authorities to recover the VAT incurred on goods and services purchased relating to non-business activities. Local authority maintained schools are able to recover VAT under the umbrella of the local authority.
Since then, there have been extensions to that scheme, in particular to cover the position of academy schools. The Finance Act 2011 introduced a new VAT refund scheme, under section 33B of the 1994 Act, to ensure that funding for academy schools’ non-business VAT costs was consistent with that for local authority maintained schools. The specific purpose of the scheme is to ensure continuity in the funding of institutions that are leaving local authority control to become academies, so that they are not put at a financial disadvantage.
I hope that this slight historical excursion has made it clear that there is clear logic to the VAT treatment of local authority schools and academy schools making the move out of local authority control. That logic is rooted in the nature of the service being provided and the relationship to public sector local authorities.
Let me turn to the campaign by sixth-form colleges, of which hon. Members in the Chamber are well aware. The campaign has gained the support of 74 Members representing constituencies that contain, or are serviced by, sixth-form colleges, and the likes of my hon. Friend the Member for Beverley and Holderness. They wrote to the Secretary of State for Education, expressing their concerns.
Hon. Members have welcomed the introduction of the new 16 to 19 funding formula, which will mean that all 16 to 19 education providers are funded in the same way, and which is reducing the historical disparity between school sixth forms and colleges. However, the 74 hon. Members feel that the way that sixth-form colleges interact with the VAT system leaves them at a disadvantage, compared with local authority or academy schools. In particular, as we heard today, they have asked for their differential VAT treatment to be recognised in the way that they are funded.
Kelvin Hopkins
My memory goes back to when sixth-form colleges were grouped—by mistake, I think—with further education colleges and put into the FE sector. That is why the VAT mistake was made. Had sixth-form colleges been kept in the schools sector, this would not have occurred. Does the Minister agree?
Mr Gauke
I think that is probably a fair description, historically. Schools have been treated one way, in part, because of the relationship with local authorities and funding at local authority level, whereas other elements of the public sector do not get funding for VAT in the way that local authorities do. Sixth-form colleges and further education colleges are examples of that.
Mr Gauke
I am grateful for the opportunity to complete my remarks. The academies VAT refund scheme is very specific. The Treasury has no plans to extend that scheme to colleges, and many other providers of public services are expected to cover their VAT costs from their funding allocations. That funding model is applied to many bodies delivering public services, and to some spending by Departments and non-departmental public bodies.
The Department for Education, however, has considered whether adjustments could be made to funding for 16 to 19 education to recognise the differential VAT treatment of different types of providers. In particular, the Department for Education has considered whether it could additionally fund sixth-form colleges by an amount equivalent to their typical VAT costs. The Department for Education has concluded that that is not affordable in the current fiscal climate. The £20 million estimate applies only to sixth-form colleges; extending extra funding to further education colleges, which have a similar case to sixth-form colleges, would cost some £150 million.
Kelvin Hopkins
I echo the Chair of the Select Committee on Education, the hon. Member for Beverley and Holderness (Mr Stuart), by saying that the amounts are small in the scheme of things. They are piffling amounts compared with the volume of the Government’s public spending. One penny on the standard rate produces £4 billion, and we are talking about £30 million for sixth-form colleges. It is a tiny amount of money.
Mr Gauke
I am not entirely surprised by the hon. Gentleman’s comments. I have no doubt that he would not hesitate to put up income tax by 1p. In the context of the current fiscal situation, we have to be very careful with public expenditure. The Department for Education will, of course, keep the sector’s funding under review.
Although I recognise that colleges have concerns, the reform of 16 to 19 education is one of the Government’s priorities. The Government remain committed to moving towards fairer funding of 16 to 19 education by levelling the rate of funding for schools and colleges by 2015.