Tax Credits
Kwasi Kwarteng Excerpts(8 years, 6 months ago)
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Seema Malhotra
Perhaps the hon. Gentleman should ask what will happen to the 4,500 working families in his constituency who are set to see an average cut in their household income of more than £1,300. What impact will that have on whether they can keep their home, put food on the table or afford clothes for their children? I suspect that he will have a lot to answer for in his constituency.
A million single parents who are in work are set to be £1,000 a year worse off and 1.5 million married women will be £600 poorer.
Seema Malhotra
I will in a moment.
These cuts will also hit the self-employed who are on tax credits. Since 2010, self-employment has grown at twice the rate of overall employment. We know that, on average, self-employed people earn 40% to 50% less than those who are in regular employment.
Seema Malhotra
I will in a moment.
This weekend, The Observer included the case of somebody in Manchester who is self-employed. He expects his tax credits to be reduced to virtually nothing from next April. I hope that in his response, the Exchequer Secretary will be straight about what these changes mean for the self-employed.
Kwasi Kwarteng
I thank my constituency neighbour for giving way. We have heard an impressive array of statistics, but does the hon. Lady have one proposal for reducing the deficit?
Seema Malhotra
That is absolutely incredible. We have answered that point in the media and in articles, and I do not need to keep going over that ground. The hon. Gentleman might want to respond to the 3,000 families in his constituency who will be hit by these changes, and say how he will reply to institutions that have done hard research into these matters. The Government have chosen to carry out no impact assessment for what has been described as an “array of statistics”. This debate is about people’s lives, and the hon. Gentleman should stand up for his constituents, just as Labour Members will do when voting in the Lobby tonight—[Interruption.]
Damian Hinds
I am grateful, Madam Deputy Speaker.
Our increases to the tax-free personal allowance mean that a typical basic rate taxpayer has seen their income tax bill cut by £825 since 2010. We are adding a further £80 next year and a further £40 the year after.
Kwasi Kwarteng
Will the Minister explain to the House how increasing the personal allowance has helped the very people the Labour party is claiming will be affected by this cut?
Kwasi Kwarteng (Spelthorne) (Con)
I am very much obliged to you, Mr Speaker, for being able to speak in this debate. We have heard lots of passionate speeches and many well-argued speeches, but I wish to start by referring to the one made by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke). He said that when we look at the election, we see that there was a clear choice between the Conservative party and other parties on economic credibility. It is on that rock of economic credibility that this Government are doing something that is difficult but essentially the right thing. Opposition Members have to outline where they are going to find the £4.4 billion of savings, and they have not done so in any way.
Kwasi Kwarteng
I am not going to give way. [Interruption.] I am not frightened of the hon. Lady, but I realise that I have limited time. I am not frightened—
Kwasi Kwarteng
I am not frightened with respect to this debate, but perhaps in other ways I should be.
The Opposition parties have a number of questions to answer. Where are they going to find the savings? More broadly, most of us agree that this system of tax credits subsidises employers, so is that subsidy to them to be paid year in, year out until kingdom come? Do we want to keep doing this for the foreseeable future, perhaps in perpetuity, or should we try to reform it and impose some conditions on employers to increase wages and share general increases in prosperity? The Government are doing the right thing. Clearly, this is a difficult decision. We cannot kid ourselves that some of these choices are easy, because they are not, but that is why we have been given the mandate—to do difficult things. If it were easy, we would have done it already and we would not have a problem. This is the right thing to do.
As other Conservative Members have observed, the conditions could not be more propitious to institute a reform of this kind. We have rising incomes and rising wages, and unemployment has fallen. I recall that in the last Parliament the doomsayers were saying that we would hit 5 million unemployed, but that never happened. We have good labour conditions and this is exactly the right time to bring about a reform of this nature. The last thing I would say is that although we engage in pantomime, Punch and Judy politics, this idea that the Government have done nothing for working people is ridiculous. We have to stress the fact that the national living wage has been introduced and the personal allowance has been trebled, and we also have to consider the doubling of free childcare for working parents with three and four-year-olds. This is a good comprehensive measure that helps people.
Neil Gray
I agree with my hon. Friend that the Government do not have a mandate to implement these tax credit cuts. That is not what the people who voted Conservative voted for.
The changes are fundamentally regressive. They disproportionately target those in low-income households and punish them for this Government’s ideological obsession with austerity, which is failing socially and economically.
Neil Gray
No, I will not.
An International Monetary Fund report in June highlighted the fact that reducing income inequality not only leads to reduced poverty, but boosts growth. By extension, the policy of cutting tax credits, which will increase income inequality and drive more of our citizens into poverty, will, in fact, harm growth and therefore harm the Government’s apparent aim of reducing the deficit.
I absolutely agree that we need to make work pay. I believe in a fair day’s pay for a fair day’s work. I also believe that work should be a means to escape poverty, but 60% of children now living in poverty in Scotland live in working households. It was puzzling to me to see how cutting tax credits could possibly achieve the goals of making work pay and eradicating poverty.
The Government have absolutely no mandate for these tax credit cuts, as I have said, but I welcome the minimum wage rise that was announced in the Budget. Why, however, are the Government attempting to sabotage and undermine the real living wage campaign by giving their minimum wage the same label, especially when the Chancellor is giving once with one hand and taking twice back with the other?
The House of Commons Library has calculated the cumulative impact of the summer Budget on a single-earner couple with two children where the singer earner works 35 hours per week and earns the minimum wage. The Library’s independent analysis shows that a family in that situation will be £1,500 per annum worse off in 2016-17—the year all these changes will start to take effect—and more than £2,000 per annum worse off by 2020-21. How on earth can that be described as making work pay? The Government cannot reduce the deficit by waging a war on the backs of those who are least able to pay, and as the IMF has demonstrated, it makes little economic sense to do so.
I find it morally and socially reprehensible that these tax credit changes are being forced through by the Government without a mandate to do so. I hope that Ministers will look at this matter very carefully, and that compassionate Conservative Back Benchers will keep that in mind when the Division bell goes this evening, as they consider the full consequences of these shameful tax credit cuts.
National Insurance Contributions (Rate Ceilings) Bill
Kwasi Kwarteng Excerpts(8 years, 7 months ago)
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Huw Merriman
Not at all. Perhaps I can come on to deal with that by considering the macro levers the Government will have over this term, which will give a real boost to the economy, and other matters where it might be right to leave things open.
I was talking about the need to create jobs, which is what is essential here. Jobs change lives, creating hope, aspiration and well-being for all of our constituents. Any move to create more jobs should be welcomed by all parties, not just the Conservative party, and should not be branded as a “stunt” or a “gimmick”.
Kwasi Kwarteng (Spelthorne) (Con)
Does my hon. Friend feel that this Bill chimes in well with what we saw from the last Government, who created about 1 million new jobs in the private sector? Does he agree that this is exactly the kind of direction the country needs to pursue?
Huw Merriman
I absolutely agree with that. I recall that five years ago there were howls of derision when the Government announced that they would seek to create one new job in the private sector for every one public sector job lost. At the end of the five-year period I believe that the actual figure was five for every one. We had great success, and it shows that we are the Government who can manage the economy and turn it around, despite what we were faced with in 2010.
The content of this Bill was at the heart of this Government’s manifesto commitment. Today is all about honouring promises—it is not about gimmicks or stunts. What has this House become if, when we stand proudly and enact our manifesto in legislation, it is branded as a gimmick? What does that say about the manifestos of other parties, given that it is only four months since the previous election? I was reassured to hear from the Cabinet Office that a unit is in place to ensure that every Department is making good on this Government’s manifesto pledges, as opposed to the Labour party which, as mentioned, is tearing up its pledges after only four months and a leadership change.
With the commitment not to increase national insurance, which is, after all, a tax on job creation, Conservative Members are making good on our commitment to support business and create a platform for jobs.
Kelvin Hopkins (Luton North) (Lab)
I apologise, Madam Deputy Speaker, for having to leave the debate for a short while, but I managed to catch the major part of the speech by my hon. Friend the Member for Bishop Auckland (Helen Goodman). It was an excellent speech and I agree with every word of it, but I did not know that she was half Danish. I want to say something about Denmark, a very sensible country with a more appropriate taxation system than we have. As the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) said, would Members prefer to live in Denmark or Mexico? I know which I would choose; Denmark is clearly a more sensible country.
I have been to Denmark on a couple of occasions and it does two very sensible things. First, the Danes have retained their own currency, which is sensible, but they also seek to manage its value, which we do not, and that is also sensible. One result of the Danes’ sensible taxation system is that they can sustain students without fees but with grants until the age of 25. A few years ago, I understand, the average class size in schools in Denmark was 15. No wonder they have advantages that we do not; they are prepared to pay for them—[Interruption.] I shall talk about national insurance, but I wanted to mention the sensible country of Denmark, which I so admire, before I started.
The lock on the taxation system is a gimmick, as my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) has said from the Front Bench. Surely a promise from the Chancellor of the Exchequer would be appreciated, understood and believed by the business sector. A Conservative Chancellor making a promise is enough. This Bill is like saying, “I promise not to rob the bank any more, but do put the handcuffs on me.” He is clearly not a bank robber, but does he need to have those handcuffs on him just to do what he believes to be the right thing? He has given away flexibility in any case, and I certainly would not do that, because we cannot foresee what will happen.
There is a real possibility, for example, of another financial crisis coming down the road. I mentioned in my speech on the Budget forecasts that there will be another serious economic crisis in the not-too-distant future. Precisely when that will happen, we do not know, but we ought to retain flexibility with all the economic levers at our disposal to ensure that Britain is protected if that happens.
In the previous crisis, the British Government, led by Gordon Brown, persuaded the world to recapitalise the banks. If we had not done that, the whole financial system might have collapsed and we would have been in a much worse situation. I am not saying that I agree with everything that my former right hon. Friend did, as I was often a critic of our policies. Nevertheless, that had to be done, even though in a sense it rewarded the gamblers who had gambled away our future and made our lives so much more difficult. Those difficulties continue today, but it was the bankers gambling on the free financial markets who caused the problem. It was nothing to do with the Labour Government, and, indeed, all sorts of economists say that Labour did the right thing when the crisis happened.
Kwasi Kwarteng
We are wandering rather further from the topic of the debate than I would like, but how would the hon. Gentleman explain the consistent deficits we ran from 2001, as the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) suggested? We were in deficit every single year for the last nine years of the Labour Government.
Kelvin Hopkins
I can only refer the hon. Gentleman to the excellent article by the economist Ben Chu, which goes into detail showing why Labour was not to blame and was not responsible. The crisis caused the deficits, but if we had not recapitalised the banks, where would we be now?
Let me go back to the instability mentioned by the hon. Member for North West Hampshire (Kit Malthouse), who is no longer in his place. He talked about businesses wanting stability. Instability arises because of the globalisation of financial markets. Before 1979, we managed financial markets with exchange controls. The breakdown of the Bretton Woods agreement is what caused the problems.
Kwasi Kwarteng (Spelthorne) (Con)
I am pleased to follow the hon. Member for Luton North (Kelvin Hopkins), although I felt as though I was entering a time warp when listening to his speech; it is a long time since I have heard anyone defend exchange controls. I believe that the limit on the amount of money that someone could take out of the country was £50, and they had to declare everything else. Given the current political climate, it is very interesting to hear a Labour Member advocate such a policy.
Kelvin Hopkins
It was a temporary limit imposed on holidaymakers by Harold Wilson, but most had no problem spending money abroad. What we did was ensure that the bankers and international speculators did not have free rein.
Kwasi Kwarteng
I am glad to hear that everything was all right because it was Harold Wilson who imposed the limit, which I think was £40.
Of course this is a sensible Bill. Of course it makes sense to limit national insurances contributions, because they are, after all, as has been pointed out, a tax on jobs. My hon. Friend the Member for North West Hampshire (Kit Malthouse), who is no longer in his place, made an excellent point about the things we do here being a signal to people outside, such as investors, potential entrepreneurs and people who want to set up businesses. If the Government get the Bill through, I am confident that it will send a very good signal to people who want to invest in the British economy and in our constituencies and who want to set up small businesses.
My constituency of Spelthorne is very near Heathrow airport and lies on the Thames, and it is a case in point. It is an area where small business and private enterprise is at the core of people’s way of life. It is the basis on which people go to work, save and plan for their retirement. Essentially, they are people who are driven and motivated by small business. Therefore, a Bill that caps national insurance tax is an excellent development that will be warmly appreciated across my constituency.
We have heard a number of arguments this afternoon that simply do not make sense. On the one hand, we have heard from Labour Members that the Bill is a gimmick and that it is wrong. On the other hand, they have said that they will support it. Indeed, we have also heard that they were apparently the first people to come up with that gimmick. It seems very odd. I am still utterly confused about their position.
The hon. Member for Dundee East (Stewart Hosie) made a very good point, but I recall that before the general election his party was the biggest deficit denier—it was even worse than the Labour party in denying the deficit and ranting against austerity. It is a very confused picture. I would be very interested to see what the SNP will do if the House divides on the Bill.
Budget Resolutions and Economic Situation
Kwasi Kwarteng Excerpts(8 years, 10 months ago)
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James Cleverly
As is often the case, I am in considerable agreement with my hon. Friend, who I know shares my passion for, and understanding of, small business.
I feel guilty that I have not yet congratulated my hon. Friends on the Conservative Benches who have just made their maiden speeches. I will now set that right. Both of them have strong business backgrounds and credentials—my hon. Friends the Members for Kensington (Victoria Borwick) and for Brecon and Radnorshire (Chris Davies). I almost said “Brecon and Renfrewshire”.
James Cleverly
That would be a big constituency.
I also wish to put on record my huge admiration for the hon. Member for Paisley and Renfrewshire South (Mhairi Black) for her excellent and punchy delivery of what was an impassioned and very well thought-through maiden speech—I have already written a personal note to her. Her maiden speech was more political than I would perhaps have delivered, but it was none the weaker for that.
An understanding of small business is essential if the British economy is to succeed and I am proud that my Government have recognised the significant part small businesses play not just in the economic prosperity of this country, but in its social prosperity. Employment does not just give people the opportunity to pay the bills; it gives them a sense of worth and place, and it is a foundation stone in their lives that enables them to blossom and flourish in so many other areas.
James Cleverly
I will take it that the hon. Lady misheard the opening of my speech. I did not say that the shadow Business Secretary failed to mention business; I said I was horrified by how seldom he used the words “business” and “firm” in his speech.
Kwasi Kwarteng
The broader point my hon. Friend makes is absolutely right: in the run-up to the election the Labour party gave absolutely no indication whatever that it had the faintest interest in the wealth-creating business part of this country. There was—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. The hon. Gentleman has made his speech; I do not need to hear a repeat of it.
Mr Anderson
It is absolutely clear that that is the case and that this was nothing other than a political ruse to try to mislead the country and to wrong-foot the Labour party to pave the way for the Chancellor to move from No. 11 to No. 10 Downing Street. It is nothing other than that.
The Government now call this the new living wage, but we have been here before. We were there in the 1980s and 1990s, when the Conservatives tried to pretend that the community charge was not really the poll tax. We have been with them over the past five years as they have tried to pretend that the spare room subsidy was not a bedroom tax. Just as those two ideas have never stuck, the new living wage will not stick. People know that it is nothing more than half of a new minimum wage that blocks out young people in this country.
I want to move on to something else the Chancellor said last week:
“The left will never understand this, but we on the Conservative Benches know that the wish to pass something on to your children is about the most basic, human and natural aspiration there is.”—[Official Report, 8 July 2015; Vol. 598, c. 330.]
Well, he is half right. The left never will believe that providing for the grown-up children of dead millionaires with a bung from taxpayers while poor families and children go hungry is a basic, human or natural aspiration. What is basic is that far too many families face the reality of sending kids to school hungry, and worrying about where the next meal will come from and whether they can afford to clothe and feed their children. Too many families are worrying about whether to keep the house warm or not, and now they are being hit even harder in the struggle to pay their rent. The hit is £60 a week in this city and £120 a week for the rest of us across the nation. When the landlord says, “I want your rent off you,” the tenant has to say, “I’m sorry, I can’t pay the rent this week and, by the way, next week I will pay you £120 a week less than I am now.” I really do not know where those people will end up. That is basic, that is life at the sharp end and that is what is happening in the real world. That is what happens when the children of dead millionaires are prioritised over the children of poor working people. It is an utter disgrace.
Mr Anderson
I certainly will, even though the hon. Gentleman has only been here for five minutes.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I think that I am the judge of how long people have been here. We have already had one intervention from Kwasi Kwarteng and I can assure the hon. Gentleman that he has been here for a lot longer than five minutes, although it might only feel like that.
Kwasi Kwarteng
I promise that my intervention will not last five minutes. Who are the dead millionaires that the hon. Gentleman is talking about?
Mr Anderson
The people who die leaving property worth £1 million. In the past, some of that would have been taxed and now it will not be. Instead, the Government will tax poor working people, people who are on the dole and people who have more than two kids—they can have two kids, but no more.
Let us also consider the deliberate misuse of language by this Government over the past five years. They have replaced the notion of social security with the idea of welfare, yet they pretend to be the workers party. The concept of social security is crucial to the notion of how civilised we are in this country. Social security underpins the lives of working people and is based on the real concept of people being in this together, with a national insurance scheme that we all pay into if and when we can work and a security net that will support us when we cannot work for whatever reason. I know that the Conservative party has spent the past 10 years trying to paint everybody who uses public services or needs social security as a skiver and not a striver, or a shirker and not a worker, to further its own political narrative. That despicable tactic has to be challenged as the poor, the vulnerable, the ill, the young, the women and the disabled people of this country struggle to make ends meet in desperate times. They are the people the Tories are making pay for the economic mess that their friends in the City, the banks and the hedge funds got us into.
At the same time, the Tories are attacking the millions of public sector workers in this country who take care of the nation by freezing their pay for what will become a decade. We have to stop making nurses, careworkers, firefighters, police and other public sector workers pay the price for the failure of the Tories’ friends. Let us acknowledge in the debate about productivity the productivity gains that have been made in the public sector, where far fewer people are doing a lot more.
Paul Scully
Absolutely. I could not have said it better. The number of jobs that we have created and the amount of wages that we are putting in people’s pockets are real measures. With this increase in the national living wage, the Chancellor has put cash in people’s pockets.
Kwasi Kwarteng
This is a pertinent question. For the edification of the House, does my hon. Friend have any idea what happened to the Ed stone?
Paul Scully
No. I believe it was in a London warehouse, but your guess is as good as mine. I think it may be auctioned off as a fundraiser at some point in the future.
The lowest paid people in this country will be more interested in the cash in their pockets than in the semantics being played by Labour. The big leap in the national living wage chimes with me as an employer. A good employer does not scrape around the bottom and pay people the bare minimum. The Chancellor has allowed the lowest paid to get more than that. As an employer, I tend to try and look after my employees, pay them more than the market rate and give them other benefits as well, to make them feel valued. In that way an employer gains loyalty and has people who want to work with him as a career, rather than as a job.
We have increased the employment allowance by 50%, which will help ease the burden on employers. A couple of months ago I was at an independent shop in Cheam, Dragonfly. I was speaking to the proprietors with an Evening Standard journalist. When we talked about what the Government have done over the past five years, they explained that they had benefited from the small business rates relief, which enabled them to pay very little, if any, business rates. They also explained that they had benefited from the employment allowance. The fact that they knew that term floored the Evening Standard reporter. The employment allowance, they explained, had allowed them to take the gamble of taking on a part-time worker when times were tough financially—a gamble, they went on to explain, that had worked out for them and helped them grow their business.
Paul Blomfield
I will tell the hon. Gentleman that too many people are employed on zero-hours contracts, and I could cite countless examples of people in my constituency whose lives have been destroyed by them and who have raised the issue with me.
It was interesting last week to hear Ministers, almost in the same breath, expressing their concern about low pay and then condemning tube staff for their industrial action.
Paul Blomfield
I will not at this stage, simply because other Members want to speak and I am conscious of time.
Over a generation, we have seen a shift of between 5% and 7% of GDP from wages to profits, and from profits to shareholders’ dividends. That has widened inequality and reversed a century of progress towards a more equal society, and it started with deliberate decisions in the 1980s to weaken the bargaining power of working people and the trade unions that represent them. A sensible policy response to low pay would be to strengthen the negotiating hand of working people, but instead the Government made it clear in the Queen’s Speech that they want to weaken their position further with more attacks on the trade union movement.
Paul Blomfield
It is absolutely true that when people go on strike, everybody gets hit, including those on strike. Trade unionists go on strike only with enormous reluctance, because of the impact on services and their wages. The uncomfortable truth for Conservative Members is that improvements in living conditions, health and safety and other workplace situations have been won through the struggle by trade unions.
The campaign for a living wage was a great response to the challenge of low pay. Members on both sides of the House have rightly praised the work of the Living Wage Foundation, but that work has been made more difficult by the Chancellor’s attempt to steal its clothes. We need to be clear. The increase that he proposes to take the wage floor up to £9 for many workers is welcome, but let us not pretend that it is a living wage. Let us call it the over-25s rate or the national minimum wage supplement, or we could just call it the national minimum wage, but he should not damage the brand of the living wage by associating his proposal with it.
We should continue to work to encourage employers to adopt the living wage and to incentivise them to do so. We need to recognise, as the Living Wage Foundation has pointed out, that the rate will need to rise to take account of the cut in tax credits. Here is the rub: although the new rate of the national minimum wage might benefit up to 5 million workers, more than half of them will be worse off—an estimated 3 million families, according to the Institute for Fiscal Studies—by an average of £1,000 a year because of the changes in tax credits. It could not be any other way: an estimated wage uplift of £4 billion is being offset by welfare cuts of £12 billion.
The Chancellor will argue that raising the tax threshold will benefit low-paid workers by taking them out of tax, but he knows that that is not true. He knows that lifting the tax threshold is a regressive tax measure, because it benefits everybody equally except the lowest paid. Six million workers who are already paid too little to pay tax in the first place will not benefit at all from raising the threshold, whereas Members of Parliament will get a tax break. Frankly, in comparison with low-paid workers, we do not deserve one.
Paul Blomfield
Perhaps the hon. Gentleman can explain how people can choose not to take a tax break.
The hon. Member for Braintree (James Cleverly) rightly spoke forcefully about small businesses. I do a lot of work with small businesses in my constituency. They are a driver of growth. When there is any increase in pay, they face a challenge, as does the voluntary sector. They need support, but the Government and the Budget have got it wrong. Support should not have been provided through a greater cut to corporation tax; it should have been provided to small businesses by further cuts to business rates.
The Prime Minister is right that company profits should not be subsidised by the public purse. If he is serious, why not tax listed companies that fail to pay the real living wage to recoup the cost? If he is serious about tackling poverty pay, what about strengthening labour market enforcement? We know, for example, that thousands of workers do not even get the national minimum wage in the care sector because employers refuse to pay for travelling time. We debated that in the last Parliament. Ministers admitted that the practice was widespread and said it was illegal, but nothing is happening to chase down those rogue employers and bring them to book.
Budget Resolutions and Economic Situation
Kwasi Kwarteng Excerpts(8 years, 10 months ago)
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Robert Neill (Bromley and Chislehurst) (Con)
I normally regard my right hon. Friend the Secretary of State as one of the most generous-hearted men in politics. When I listened to the opening of his speech, I thought he was being a bit harsh on the Opposition, but having heard their reaction, I think he was, if anything, over-generous. When one of the more thoughtful Members of the shadow Cabinet is reduced to tripping out every stereotypical canard in the socialist book and attempts to take refuge in the same view that was adopted by the last Bourbon King of France, Charles X, who was wholly and genuinely convinced that the French revolution was a terrible aberration, and that people would wake up one day and realise that they had got it wrong and that the divine right of kings was the only answer, I realised the difficulty that any Blairite on the Labour Front Bench faces. If it is any help for the historians here, Charles X lasted three and a half years before he was got rid of. I shall be interested to see how long the next leader of the Labour party lasts.
I also felt genuinely sorry for the current leader of the Labour party. After trying to inject a modicum of realism in relation to benefits and welfare reform, she was entirely disavowed by her own party. It is rather sad when the official Opposition of this country take as their role model the ostrich. They expose their thinking parts to us and bury the realities in the sand, and the country deserves better.
Kwasi Kwarteng (Spelthorne) (Con)
Has my hon. Friend heard anything today about the Opposition’s current view on the welfare cap? Has he learned anything interesting about what their actual position is?
Robert Neill
Not at all. As there are probably something in the order of 230-plus different views, we could not cover them all in time. It is also rather remarkable that the Opposition have adopted an entirely different stance to elected mayors from that which I remember when I was the leader of the Conservative group on the London Assembly and facing the first ever elected mayor in this country—the first Mayor of London. I am glad to say that things have improved since then. As some may remember, the office of Mayor of London came into being as a result of legislation introduced by the Labour party. It comes back to the same trope. Why does the Labour party now regard any elected mayor as anathema? Because it was an idea of Tony Blair’s, and must therefore be cast into utter darkness.
I find it truly bizarre that a normally thoughtful party that wants to talk about devolution objects to the opportunity to take up city deal models with an elected mayor. The idea has not been forced upon Labour; it is Labour’s choice whether to have it or not. It was Labour that imposed more central control over local government, not just in planning, not just in terms of whether there could be a committee structure or not, not just in terms of whether a very strict and rigid standards regime was imposed, not just in terms of the comprehensive area assessment, not just in terms of planning policy, and not just in terms of financial policy and the cap. After all that, Labour had the gall to complain about an offer—take it or leave it—put forward by my right hon. Friend.
Kwasi Kwarteng (Spelthorne) (Con)
It is an honour and privilege to speak in this important debate after a number of Members on both sides of the House have given good maiden speeches and accounts of the challenges that their constituencies face. I am sure that all today’s maiden speech-givers will become distinguished parliamentarians and will give good service to their constituents.
This was an excellent Budget and I am pleased to support it. When the coalition Government took office in 2010, the deficit was £153 billion. In the Red Book, published last week, we discover that the deficit is £69 billion. There is still a long way to go, but people will recognise that that is a remarkable achievement given the international context and the fact that growth has been much more sluggish across many western economies than we had ever anticipated. The Red Book also makes it very clear that the growth rates we are enjoying as a country and have enjoyed in 2014 and 2015 are particularly enviable. They are the highest across the western world, and we should celebrate that on both sides of the House. That does not happen by accident. It is not an accident that the deficit has been more than halved; nor is it an accident that we are growing faster than nearly all our competitor countries in the G7—I think that we have the highest growth rate in that body.
We appreciate that if the election had gone differently, we would not be in such a good position and there would not be such optimism about the future. It was clear during the election that there was a binary choice confronting the country between a Conservative Government, when the Conservatives had largely delivered very effectively as the leading party in the coalition, and a potential Labour Government—let us be honest, it would have been a coalition—without any economic credibility, when the Labour party was largely responsible for the mess in which we found ourselves in 2010.
I want now to address the specific issues in the Budget that I am particularly happy to endorse and welcome. As a south-east MP, I naturally look to the interests of business—I do not think that business is a dirty word—because lots of my constituents work in small businesses. In fact, 82% of people who are in work in Spelthorne work in the private sector. They work in small businesses, including businesses related to Heathrow airport, and they will welcome the further reduction in the corporation tax rate that my right hon. Friend the Chancellor announced. They will also welcome the fact that the Government are being very serious about addressing the deficit.
The Government’s ongoing commitment to building more housing will also be welcomed. We have talked about the need for more housing, and the Government are happy to take on that challenge.
I am particularly gratified that various measures have been introduced to increase the living wage. The Government are doing absolutely the right thing in reducing the amount paid in tax credits. That is a bold and challenging move, but I am happy to say that it is the right thing to do. However, if the Government are going to do that, they must ensure that companies do not get away with simply exploiting low-paid workers. It is a legitimate corollary of reducing tax credits to try to boost the living wage and the minimum wage. I understand the logic of that move and it is to be commended, even though Thatcherite purists may argue against increasing the minimum wage and particularly the living wage.
Finally, we cannot pretend that the deficit has been resolved or that we are out of the woods in terms of our approach to fiscal discipline. I support and commend my right hon. Friend the Chancellor’s commitment to running surpluses, because my earnest hope is that we will run a surplus at the end of this Parliament. However, when we finally get a budget surplus, the last thing we need is a return to the Labour spend, borrow and tax regime. We need to set in stone a regime whereby this country, like Germany and Switzerland, will have a much more mature and disciplined approach to public finances, and I hope that in the course of our debate we will be mindful of the need to balance the books every single year.
Mr Douglas Carswell (Clacton) (UKIP)
I, too, will vote for this Budget. Tomorrow’s vote is a binary choice and although I have reservations about some of the Chancellor’s proposals, on balance I support the measures. We must never return to Ed Balls economics.
I support a number of measures. I unequivocally back the idea of having a fiscal charter, to echo the point made by the hon. Member for Spelthorne (Kwasi Kwarteng). It is a commitment to run a budget surplus by 2019-20 and to retain that approach in subsequent years unless growth is less than 1%. The principle behind that idea is exceptionally good; as a country, we cannot go on living beyond our means. I believe I am right in saying that we have only had budget surpluses in six of the past 40 years. That is unsustainable and also deeply unfair on the next generation. If we keep on running up these debts, someone will have to pay them, and it is deeply unfair and irresponsible of us to pass them on to the next generation. I only hope that the Chancellor manages to meet his own fiscal charter objectives. He has introduced, I think, five Budgets and in each one he has pushed back the date by which he hopes to balance the books.
I also support the proposal to remove the climate change levy exemptions for providers of renewably sourced electricity.
Kwasi Kwarteng
I am particularly gratified to hear the hon. Gentleman espousing the cause of sound finance. I just wonder how he feels being surrounded by people who deny that there is any need to reduce the deficit.
Mr Carswell
I will come on to say a little about my views on the unreformed Opposition. In fact, I will make them a proposal at the end of my short speech.
My party loves new energy technology. However, there is something we find objectionable: if the technology is so wonderful, why does it need to be subsidised? Removing some of those subsidies is a good thing, particularly when they push up the cost of energy, but the Government lack a fully coherent free market energy policy that allows real choice and competition.
I also cheer Government changes to vehicle excise duty. The new tariff will reflect changes in technology. Given that most new cars’ carbon dioxide output is below the old CO2 low threshold variable, vehicle excise duty is fast becoming a subsidy from poor people, who cannot afford new cars, to rich people, who can. VED will also be used for the creation of a road fund in 2020-21. That is a very sensible move, as it means that taxpayers will see directly where their VED goes and the tangible benefits that come from it.
I also support raising the personal allowance to £11,000 by 2015-16 and to £12,500 by 2019-20. That should be welcomed as a tax break for everyone who works. Indeed, I hope that at some point we will be able to raise the threshold even higher, to £13,000.
I also support welfare reform. When the tax credit system was put in place, I do not think that we ever expected that it would allow big corporate interests to rely on the taxpayer to subsidise their payrolls, and yet in effect that is what has happened. I fear that tax credits may have contributed to wage compression. Welfare reform is possible and necessary, but it is also very important that, as the Chancellor has said, we are prepared to raise the minimum wage to try to offset some of the impact of that reform.
Having outlined where I support the Government, I am afraid to say that there are one or two measures about which I have some concerns. I am particularly concerned about limiting public sector pay increases to 1%. I fear that that may not be politically sustainable over the next four years. There was a pay freeze in the public sector between 2010 and 2013. Since 2013, pay rises have been limited to 1% and, given that inflation is often above 1%, that has, in effect, amounted to a pay cut. If the economy grows in the way that the Chancellor expects it to, I am not sure that four more years of 1% is sustainable.
I also have some doubts about the Chancellor’s fiscal projections; I fear that there is a degree of fiscal complacency. In its manifesto, my old party told us that it would run a budget surplus from 2019, which is only four years later than promised five years ago. In fact, that target has now been pushed back to 2020.
This year, we will still manage to accumulate a deficit of £70 billion and we still have a bigger primary budget deficit than Greece. The budget deficit last year was 5.7% of GDP, which was higher than that of any country in the eurozone apart from, I think, Spain and Cyprus. UK national debt stands at £1,600 billion, which is £950 billion higher than when the Chancellor first took office. That is not an impressive record. Servicing that debt costs £40 billion a year. Think of what we could do with £40 billion—that is more than the entire defence budget. Think of the tax breaks we could give people and, more to the point, think of how much greater that sum will be when interest rates go up.
I will support this Budget, and I look forward to the Finance Bill that follows. If Her Majesty’s Opposition will repudiate Ed Balls economics and table sensible amendments, I will be delighted to support them, bearing in mind that the Government have a rather slender majority. However, there must never be a return to the recklessness of the Parliaments between 2001 and 2015.
As the UK Independence party’s sole Member of Parliament, I will support classical free market liberal economics. From that point of view, this Budget is not perfect, but it is infinitely preferable to the alternatives.
Tax Credits (Working Families)
Kwasi Kwarteng Excerpts(8 years, 10 months ago)
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Kwasi Kwarteng (Spelthorne) (Con)
Does my hon. Friend agree with those of us who were in the previous Parliament that it is strange that the Labour party has learned nothing about welfare reform, deficit reduction and the need to have sound public finances?
Mr Gauke
My hon. Friend makes a very, very good point. We are in a similar position to that of five years ago: we have one side of the House recognising the need to address our deficit and to put in place the conditions for growth and the other side opposing any measures to try to address the problem.
Ian Blackford
Absolutely. I concur 100% with the hon. Gentleman. When we come to vote on the emergency Budget, I appeal to Conservative Members to examine their own consciences, look at the pain that will be caused if they go ahead with cutting tax credits, and recognise that we need to invest.
Kwasi Kwarteng
Why in such debates do Opposition Members never mention the deficit or the country’s financial and fiscal situation? I am curious as to why they make no attempt to address that matter.
amendment of the law
Kwasi Kwarteng Excerpts(10 years, 1 month ago)
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Mr Ronnie Campbell (Blyth Valley) (Lab)
Sometimes I get a bit sick of hearing about the mess that the last Labour Government supposedly left. [Interruption.] Wait a minute. Perhaps it is America that should apologise to my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), because when Lehman Brothers crashed, it brought down the American economy. Northern Rock and all the other banks were investing in the sub-prime market to get a fast buck, and that brought down the banks here. I looked the other day at how much that cost the British taxpayer. It cost our economy £70 billion. When Members talk about the last Labour Government—
Mr Campbell
No, we did not. When Members talk about the last Labour Government bringing down the economy, they are wrong. Let us have some truth and honesty about what happened to the economy at that time.
Mr Brooks Newmark (Braintree) (Con)
This was a Budget for savers, for pensioners, for businesses, and for hard-working people, and most importantly of all it ably demonstrates that our long-term economic plan is working. Only last year, we were talking about a triple-dip recession, but in fact there was no triple-dip recession, or even double-dip recession. The Office for Budget Responsibility is now forecasting growth for this year to be 2.7%—the biggest upward revision in 30 years—and the Bank of England is forecasting growth to exceed 3%.
Kwasi Kwarteng
Will my hon. Friend tell the House who exactly was predicting the triple-dip recession, and pleading with the Government to go to plan B?
Mr Newmark
My hon. Friend makes a good point, and I think it was the shadow Chancellor who predicted 1 million people unemployed—I will get to that point in a moment.
More growth means more jobs, and over 1.5 million more jobs are forecast over the next five years, on top of the 1.7 million new jobs created in the past four years. Indeed, today we have more men and women in work than ever before. In Braintree, unemployment has dropped by a third since the general election, with general unemployment down from 3.4% to 2.3%, and youth unemployment from 6.3% to 4.1%. Last Friday we had a successful jobs fair in Braintree with more than 30 businesses and 450 local people attending. I thank Braintree Freeport and Amtek for sponsoring the event, and Braintree district council and Ignite—especially Liz Storey and her team—for their support.
Getting young people back into work is vital, as Councillor Stephen Canning, the youngest councillor in Braintree, keeps reminding me. As a founder of the Million Jobs campaign, I am delighted that the Chancellor has abolished national insurance contributions for employers hiring a young person under 21.
Apprenticeships, too, have been a great success, giving over 1 million people a first step on to the jobs ladder. In particular, I congratulate Braintree district council, especially Councillor Chris Siddall, cabinet member for prosperity and growth, on its apprenticeship programme, and Essex county council on supporting over 2,700 apprentices in the past five years.
The deficit is now down by one third and is due to fall to 5.5% next year. That is 50% of what we inherited in 2010. Yes, the Government’s long-term economic plan is indeed working.
This is a Budget for savers, with the raising of the annual limit on ISAs to £15,000, the abolition of the dreaded 10p rate on savings income helping over 1.5 million lower-income savers, and the new pensioner bonds offering up to 4% return on a three-year bond. This is a Budget for pensions and pensioners, with no one being forced to buy an annuity and no punitive 55% tax rate if people try to take more of their tax-free lump sum. This Budget puts pensions back in the control of pensioners, taking them away from the diktat of Government.
This is a Budget for business. At this point, I draw the House’s attention to my entry in the Register of Members’ Financial Interests. The annual investment allowance, which increased tenfold from £25,000 to £250,000, is now doubled again to £500,000. With the business confidence index at an all-time high, I hope that this will encourage businesses, including farmers in my area, to invest more in plant and machinery and to hire more people.
Kwasi Kwarteng (Spelthorne) (Con)
I am much obliged to you, Madam Deputy Speaker, for calling me at this late hour to speak about what I consider to be an extremely effective Budget. I think that it is a Budget about business, about aspiration, and about savings. I also think that it recognises what everyone else has recognised in the last six months: that the country is back on its feet after a very poor period of stagnating growth, and that we have stuck to the plan and put Britain back on track.
It is particularly paradoxical to hear Opposition Members say that the recovery is unbalanced. A year ago, they complained that there was no recovery. A year ago, they were talking about triple dip. A year ago, they were talking about trying to go back to plan B and ditching the original plan. Today, when we have the strongest growth in the OECD and the strongest growth among our European partners, they complain about the nature of the growth. It is true that the growth could be more balanced, but I certainly prefer some growth to no growth whatsoever.
I want to talk about the general fiscal position of this country. We have heard a lot of arguments today, especially from the right hon. Member for Neath (Mr Hain), suggesting that Labour had nothing to do with the debt crisis and the deficit this Government inherited in 2010. Nothing could be more absurd. If we look at the fiscal position in 2001, we will see that the Budget was balanced. In fact I think the first Labour Administration were pretty good in terms of the fiscal position—I have said that publicly before, although I was not endorsed by the Whips for doing so. For those four years the Budget was either in balance or in surplus and it was a very good fiscal record.
Alec Shelbrooke
During the first four years of that Labour Government, which were fiscally very good, they were following the plans adopted by the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke).
Kwasi Kwarteng
Absolutely, but I think we should, in this very partisan place, give credit where credit is due. That Labour Government ran a very good, tight ship for four years, but then of course the demons of their worst nature took over and they reverted to type, and from 2002 right through to the crisis we ran deficit after deficit after deficit. That was the inexcusable part of that Government. It was bad Gordon as opposed to good Gordon—prudent Gordon—that took over after 2001, and the previous Prime Minister himself, the then Member for Sedgefield, has suggested that they spent too much money. He has admitted that while he was Prime Minister the Government spent too much money, and that is clearly the case. In the Budgets from 2002 right up to 2007, before the banking crisis was even an issue and before Lehman Brothers went broke, the Government were continually running deficits.
Mr Newmark
Was not the flaw of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) the fact that he had never run anything? The fact is one can never beat the economic cycle, but he never put any money aside just in case things did not work out.
Kwasi Kwarteng
That is absolutely right. The right hon. Gentleman’s principal fault was that he thought he had abolished the business cycle—no more boom and bust. He essentially believed—and it is incredible to think he did believe this—that he had discovered perpetual motion and that the laws of economics and of economic gravity had been suspended or abolished. That was the problem we were in: we were borrowing money even when the economy was growing. In 2004 I recall the economy grew at 3%, yet we ran a deficit of 3%. There is no Keynesian in the world who would suggest it was a good policy to borrow 3% of GDP when the economy was growing, yet the previous Government persisted in doing that.
Kwasi Kwarteng
It is quite true that the economic and financial crisis that hit in 2007-08 was a global phenomenon, but our country was in the worst position of any in the OECD to deal with that problem because of the poor management of our public finances in the six years before the crisis hit.
Germany is not a bastion of hard right-wing fiscal conservatism, yet it managed to reduce its spending right through the first decade of this century. It started to reduce public spending in 2004 and 2005. Today the Federal Government have a balanced Budget because of the prudent housekeeping and fiscal management of the previous German Government, first under Schröder and the Social Democratic party and then continued under Merkel. By contrast, in this country at that time we saw a total dereliction of duty by the Government.
Kwasi Kwarteng
We saw an expanding public sector, big public expenditure and tax revenues which frankly could never meet the expenditure that the Government were embarked upon. So talking about what happened in 2010 can never be repeated enough times and must never be forgotten: in 2010 this coalition Government inherited the biggest deficit in our peacetime history.
Kwasi Kwarteng
I can see that Members opposite are eager to intervene and rightly so, because that was a shocking record of public financial management, and they are absolutely right to be indignant about what I am saying because it is the simple truth. They fell asleep at the wheel and left this country with an enormous deficit.
Phil Wilson
If what the hon. Gentleman is saying is true and he has the answer to everything we did wrong, why did the current Chancellor—the then shadow Chancellor—agree with our expenditure plans in 2008?
Kwasi Kwarteng
I have publicly said that I think that was a mistake. It was a mistake to stick to Labour’s spending plans when we were running six or seven years of straight deficits. I do not understand how that makes any sense in financial management terms.
Kwasi Kwarteng
No. The hon. Gentleman has had his say and I want to finish my speech, given that I have little time left.
It is very important that we remember exactly what the last Government did. In 2010, as everyone remembers, we had a deficit of £160 billion, which was the largest peacetime deficit. It is a remarkable testament to this Government that they have managed to reduce it by a third and at the same preside over economic growth. That is an extraordinary record, and I am very happy to meet my constituents and seek re-election on that basis.
I know that we should not be too obsessed with polls, but the one consistent thing emerging from the polling evidence over this whole period is that the British people consistently blame the last Government for the deficit and for the economic crisis we are in. There is an intuitive understanding that the Labour Government spent too much money, and that this coalition Government have been elected with a mandate to sort out the mess that Labour made. Intuitively, people across our constituencies get this, and that is why the Labour party, even through all these difficult times, continues to perform very poorly in the opinion polls and has yet to win the confidence of our countrymen and women.
Mike Kane (Wythenshawe and Sale East) (Lab)
It is a pleasure to follow the apolitical speech of the hon. Member for Spelthorne (Kwasi Kwarteng).
The Chancellor got it completely wrong. Ebbsfleet is not the first new garden city in 100 years: he is welcome to visit Wythenshawe, which was built in the 1930s and ’40s, any time. He should cross his border and see it in all its glory. I also say to the hon. Member for Dartford (Gareth Johnson) that there are possible twinning opportunities for us; he knows where my office is.
I give a cautious welcome to the reform in the Budget of air passenger duty. The current rules are crazy and unjust, as the Chancellor rightly said. He said that there would be support for new routes from regional airports, but we need more detail. His statement did not go far enough. The Government could go further and grant exemptions for new long-haul services from regional airports. That would make a huge difference at Manchester airport, in my constituency, attracting flights from cities such as Beijing. Eventually, that would link up with High Speed 2 and with the £800 million Chinese investment in the new airport city we are building in my constituency. It is an important measure, and I will challenge the Chancellor further on it in the weeks and months to come.
We are facing a cost of living crisis, and Labour Members will keep pointing that out. No one could have fought the by-election that I have just fought without speaking to the many people who had stories to tell in that regard. As was pointed out earlier, real wages are down by £1,600 a year compared with 2010, and the OBR has confirmed that all our constituents will be worse off in 2015 than they were in 2010. To compound the problem, people’s energy bills have risen by almost £300, on average, since the election. It is no wonder that many of my constituents are increasingly reliant on food banks such as that run by the Dandelion Community, which I visited on Friday.
I want to focus on three key things that would benefit my constituents, the first of which is freezing energy bills. I am reminded of the story of a former Member of this place, Richard Cobden, a Liberal campaigner from Manchester who was part of the Anti-Corn Law League. He stood up against the Peel Government of the time and brought working people and intellectuals together because the landed aristocracy who were running this place controlled the price of wheat bushels by not allowing external competition and free trade. He eventually won that argument, because millions of poor working people across the country were going hungry. Our energy providers are doing exactly the same thing today. The big conglomerates are controlling the markets. It is not a free market; it is not fair. The prices go up, and the energy providers never lose. The hon. Member for Spelthorne goes on about business, and he is right to do so, but those businesses take no risks. Whenever their costs go up, the prices go up. We would freeze those bills—
Kwasi Kwarteng
I will bear that in mind. I was just wondering what the hon. Gentleman thinks Richard Cobden would have thought about the proposed energy price freeze.
Banking
Kwasi Kwarteng Excerpts(10 years, 3 months ago)
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Chris Leslie
Of course, we want to see rewards, bonuses and pay that reflect performance. That is my hon. Friend’s basic point. It is not asking for too much.
In too many areas, reform has been left unfinished. Four times the Government have rejected our proposals for bankers to face an independent licensing regime with an annual validation process for competence; they have delayed a decision on leveraging that could prevent excessive risk taking; and they have continued to resist a sector-wide back-stop power for the full separation of retail and investment banking, should the ring-fencing not work. Moreover, there is insufficient scope for proper scrutiny before the further sale of Treasury assets, and we know that the Government sold both Northern Rock and the first tranche of Lloyds shares at a loss. Despite month after month of persistently falling lending to small and medium-sized enterprises—a fall of £12 billion in the past year alone—the Government have had to throw out Project Merlin, ditch credit easing and reboot their funding for lending programme, but still to little effect. It is obvious that we need a serious British investment bank, supported by a network of regional banks and capitalised with revenues from the market value of 3G spectrum licences, yet here we are, in the fourth year of this Government, and their half-hearted attempt at a business bank is still not fully up and running.
Kwasi Kwarteng (Spelthorne) (Con)
Members are listening to the hon. Gentleman with astonishment. What exactly did the previous Labour Administration do in 13 years to regulate the sector that he is talking about?
Chris Leslie
The previous Government introduced a bankers bonus tax, which raised billions of pounds that helped improve our public services. Government Members need to wake up and realise that they need to repeat that strategy.
While we are on the subject of bank taxation and the levy, let us look at what the Government have done, because it has been such a colossal disappointment so far. The Prime Minister promised that his bank levy would raise £2.5 billion each year, but they have never been bothered about making the banks pay their fair share, because their hearts are not in it, so the bank levy has fallen short of that target year after year. It raised only £1.6 billion in 2011, and despite their subsequent promises, it then again raised only £1.6 billion in 2012, and they are expecting a further shortfall this and next financial year—the Minister could confirm this. In the past three years, the bank levy has raised £2.1 billion less than they promised. With £2 billion, we could kick-start the construction of 80,000 houses or employ more than 20,000 nurses—the same number the NHS is short of. It represents a serious and scandalous shortfall in tax collection.
Sajid Javid
My right hon. Friend has made an important point. I have already quoted what the shadow Chancellor said in 2006, when he was the City Minister, but those were not just his views; they were also the views of his boss, the then Prime Minister, the man who did more damage to our financial sector than any other. This is what the last Labour Prime Minister said in his 2007 Mansion House speech:
“I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”
Shortly afterwards, he carried out the world’s largest banking bail-out.
Kwasi Kwarteng
Will the Minister share with the House his thoughts about which member of the last Government recommended that Fred Goodwin should receive a knighthood as an honour from the Government?
Sajid Javid
I have to tell my hon. Friend that I am not sure who it was, but I know that the knighthood was widely supported by members of the then Government, which shows what their priorities were.
Sajid Javid
First, I am not sure even whether the Opposition have a view on what the right level of bonuses is. Also, I am not sure about Chase Manhattan bank because it does not exist any more as far as I know.
Kwasi Kwarteng
Will my hon. Friend explain to the House what the last Government said about bonus levels, if they said anything about them, and the gratitude with which they spent bankers’ tax receipts?
Sajid Javid
My hon. Friend again rightly points out that the previous Government did nothing when bonuses were reaching a record high. Even after they had carried out the world’s largest bank bail-out, pumping in over £40 billion of taxpayers’ money, they still allowed bonuses the next year to reach an all-time peak of almost £12 billion. That is their legacy.
Kwasi Kwarteng (Spelthorne) (Con)
I am pleased to follow the hon. Member for Sefton Central (Bill Esterson), who gave a very measured account of some of the challenges facing the banking sector.
It is absolutely right that we in this House should be talking about small businesses and the challenges they face in trying to get credit and loans. I represent a borough that is almost exclusively dependent on small businesses from an economic point of view. Obviously we have Heathrow airport, but small businesses are the predominant employers. Banks today are perhaps more reluctant to lend to small businesses than they were 10 years ago. Small businesses that need to have loans approved are much more likely to feel confident in a less centralised structure. They are happier dealing with loan officers they have known for a long time and if they have good local relationships. That gives them a lot more confidence than some of the computerised and centralised forms of banking that we have seen. In Spelthorne, lots of small businesses use export finance. Because of the proximity of the airport, they are reliant on foreign trade to do their business. Credit lines are very important for those sorts of businesses.
I suggest—perhaps this will find less agreement around the House—that the bankers’ job is very difficult, because policy makers are saying, “We want your bank to lend more money”, at a time when capital requirements are higher. It does not take a very sophisticated appreciation of finance—I was about to say that it does not take the brains of an archbishop, which is very relevant in a debate on finance—to realise that it is very difficult for a bank to extend its balance sheet while increasing its capital. If we look at it as a pantomime horse, the two ends of the horse are pulling in different directions in being asked to raise capital and to lend money at the same time. That is a difficult balancing act.
I want to talk about the general condition of the sector as it has developed over the past 10 or 15 years. As my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) said, banks’ leverage ratios were remarkably stable from the end of the second world war and going into the 1950s, right up until 2000. It was only after the turn of the century that we saw the almost frenzied credit expansion that made us so vulnerable in the final denouement when Lehman Brothers collapsed and the crash happened. Labour Members have suggested that many causes of the financial crisis extend back to the 1980s, with big bang and all the rest of it. In terms of leverage ratios, though, the serious risk in the system developed relatively recently, for lots of different reasons. Labour Members would suggest that a culture of deregulation brought in by Margaret Thatcher was responsible for some of the recklessness in the system, whereas Government Members would suggest that it was due to some of the reforms in 1997, particularly with regard to the Bank of England’s supervisory role.
At that time there was a great deal of complacency, on both sides of the House, about the sustainability of this model. As has been repeated many times, we were in an era when Cabinet Ministers were
“intensely relaxed about people getting filthy rich”.
That sentiment was not exclusive to Labour Front Benchers. The political establishment were quite content to see vast bonuses and big salaries extended across the City of London, for the simple reason that the tax revenues coming into the Government from the City were extremely useful at that time. Even though we were running deficits when the country was growing, we were using a lot of those tax revenues for Government spending. There was a symbiosis in which we were all somehow complicit. I find it interesting that Labour Members suggest we cap bonuses, because they will remember that, during the times of plenty, it was taxes on bonuses that gave such vast sums to the Exchequer, which it used—more than used, because it had to borrow—to spend on public administration.
It does not make any sense for people in the House of Commons to engage in banker-bashing when a lot of the prosperity in the constituencies we represent has been fuelled by this country’s success in financial services. If we look across the range of financial services in banking, insurance, actuaries and accounting, we will see that all those professional bodies were largely encouraged and developed on these islands. Britain has always been—certainly for 300 or 400 years—at the centre of innovation in the financial industry. We cannot simply turn our back on that or suggest that we should penalise and punish. That is not how we have developed or how we will get future prosperity.
Although I absolutely share some of the concerns expressed by Opposition Members during this very reasonable debate—it has been much less political than one might have anticipated—I must say, once again, that finance is something in which we are world beaters and we should not be ashamed of it. We should not be embarrassed about it; we should encourage it. Yes, we should have more regulation and a stable regulatory environment—which, I hasten to add, was not implemented over the past 15 years—but at the same time we must not forget that a lot of the prosperity and tax revenues that accrue to the Government derive from the continuing success of the City of London, as has been the case for many centuries.
Cost of Living
Kwasi Kwarteng Excerpts(10 years, 5 months ago)
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Sheila Gilmore (Edinburgh East) (Lab)
The Social Mobility and Child Poverty Commission has stated that the fiscal consolidation has been regressive. Does my hon. Friend think that that should be taken into account?
Chris Leslie
My hon. Friend is correct. The fiscal consolidation is not only regressive but entirely the opposite of what the hon. Member for Spelthorne (Kwasi Kwarteng) shouted from a sedentary position, because it has not worked. I will be talking about him in a moment as I have given him a special place in my speech; several hon. Members will know why. The notion that fiscal consolidation has been successful is disproved by the fact that we now have an inordinate level of borrowing thanks to the lack of economic growth.
Kwasi Kwarteng
I am very grateful to the hon. Gentleman and touched that he specially mentions me in his opening remarks. If the fiscal consolidation has not worked, why is the UK currently growing faster than any other country in the G7 and in the OECD?
Chris Leslie
The hon. Gentleman should be shamefaced even to mention economic growth when for the vast majority of his esteemed time as a Member of Parliament growth has flatlined and he has failed to deliver. He needs to recognise that unless we get some serious and sustained economic growth, we will never deal with the deficit issues we have in this country.
Chris Leslie
I will come to the Liberal Democrats in a moment. I am talking about the Conservative party.
The Conservatives and the Prime Minister like to pretend that they understand the concerns of hard-working people. When they finally realise the strength of public opinion, they will grudgingly come up with a half-baked effort on energy bills, just as they finally caved in with a long overdue cap on payday loans. The trouble is that they just don’t get it, because their hearts aren’t in it. As with the action on payday loans and banking reform in this week alone, why does the Chancellor always have to be pushed into doing the right thing?
The forces of moderation in the Conservative party—I am looking around desperately to see them; perhaps there are a couple of them here—complain that they are seen as the party of the rich and that voters do not trust their motives. Twenty-five of the dwindling number of those anxious Conservative Members of Parliament had a meeting with the Prime Minister to express their concerns, although that was before some of them announced that they were standing down from Parliament.
The moderates—there is one opposite me—are right to worry, because the Prime Minister’s pretence that he represents the middle of British politics has finally stretched beyond belief, as time and again his true instincts shine through. In the lord mayor’s banquet speech a fortnight ago, the mask slipped as the Prime Minister proclaimed the need for permanent austerity and the shrinking of public investment in perpetuity. The true ideological intentions of the Conservatives are there for all to see. Perhaps that is why the party’s Free Enterprise Group published its plans—
Chris Leslie
I will give way to the hon. Gentleman because he is in the Conservative Free Market Group. He wrote the pamphlet. Will he tell us what it was about his pamphlet that hit the headlines?
Kwasi Kwarteng
I have no idea what the hon. Gentleman is talking about. I am very pleased and somewhat flattered that he should be referring to the Free Enterprise Group on the Floor of the House. What was the size of the deficit when his party left government in 2010? What was the absolute size of the deficit and what was the proportion of the deficit—
Kwasi Kwarteng
With regard to the deficit, why, for nine years, and for seven years of economic growth, did the Labour Government run persistent deficits?
Sajid Javid
My hon. Friend makes a good point. He reminds the House that the previous Government began running a deficit from 2001, way before any financial crisis. They ran a structural deficit from 2006 onwards. Hon. Members will remember that the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls), tried to deny that until he was corrected by the International Monetary Fund.
Without a credible economic plan, we cannot have a plan for helping families with living standards challenges. Anyone, including the Labour party, can come up with a list of interventions, but they are completely meaningless and unsustainable if there is no long-term economic plan to back them up. Labour’s only plan is for more spending, more borrowing and more debt, which is exactly what got us into this mess in the first place.
Sajid Javid
My hon. Friend makes a good point. [Hon. Members: “Answer the question!”] The Prime Minister answered it. The Government have absolutely no plans to increase VAT.
Kwasi Kwarteng
This proposal has been ripped out of context and completely distorted by the Daily Mirror and some of Labour’s other friends in the media. Let me be clear: this proposal was designed as a tax simplification measure that would cut the VAT rate and allow the savings to be targeted at people who really needed the money. It was a complex proposal whose details, I am afraid, got lost in the Labour spin machine.
Sajid Javid
My hon. Friend has made his point well, and I will not dwell on it further, in the interests of time.
We have also frozen fuel duty. Petrol is now 13p per litre lower than under Labour’s plans. Each time the average motorist fills up their car, they are saving £7 because we have refused to implement Labour’s fuel duty escalator. We are also helping local authorities to freeze council tax, and our tax-free child care plan will mean savings for parents of up to £1,200 per child.
Stewart Hosie (Dundee East) (SNP)
I wish to say a little about the motion before I start my speech proper. The motion is in two parts, the first of which describes the failure of the Conservative Government—I intend to say most about that—and the second calls for action to mitigate the cost of living crisis. Although the Scottish National party does not agree with the Labour party on the precise mechanism of its fuel price freeze—we would prefer to see a cut—the principle of taking action on fuel is important in tackling the cost of living, so we will certainly be able to support this tonight.
I wish to start by discussing tax, because that clearly has as much of a bearing on people’s ability to cope with rising prices as do earnings or the prices themselves. The Government are right to try to take as many people on low and modest wages out of tax as possible. The saving of £595 a year for basic rate taxpayers through the change in the basic allowance from £6,500 in 2010 to £9,440 this year makes sense. However, a saving of £595 for basic rate taxpayers makes rather less sense when the same Government are embarked on a £40,000 tax give-away for millionaires.
The people I really want to talk about are those in the middle, who are paying some of the heaviest price for the mistakes this Government have made. These people have seen the tax relief before they pay the 40% band fall from £37,500 in 2010 to £34,700 last year and to £32,000 this year. So for every £595 saved as a result of changes to the basic rate, they have had to shell out an extra £2,000 at 40p in the pound. That does not make people better off; it exacerbates the crisis faced by people, particularly hard-working people on middle incomes. I am not talking about the very poorest and I am certainly not talking about the very wealthy; I am discussing those on genuinely middle incomes. It means that this Government have taken the number of people paying 40% tax to a whopping 4.3 million; whereas barely 5% of taxpayers did so 25 years ago, the figure has rocketed and 16% of all taxpayers now pay a 40% tax rate—even a quarter of a century ago this was a band only for the rich. They are not paying that because they are wealthier or even because the economy has come out of the austerity period. Indeed, people feel poorer because they are poorer.
Last year, the Office for Budget Responsibility changed its forecast—I think this contradicts what the Minister said—by reducing household disposable income every year from 2013 onwards in the forecast period. In the March economic and fiscal outlook, it marked down real disposable income again to be negative or zero every year until 2017. People will not simply be not wealthier but will feel the burden of higher costs and stagnating real disposable income year after year after year of this Government.
It is no surprise that households should feel poorer given that since the Government came to power inflation has constantly exceeded targets, pay has been frozen and benefits have been cut. Even the calculation of pensions, notwithstanding the much-vaunted triple lock, has changed from the retail prices index to the consumer prices index. People need to understand that the actions of this Chancellor have caused untold damage to, and put pressure on, families throughout the UK, and much of that is because, as the motion says, he has failed to meet any of the economic targets that he set himself.
When the Government came to power in 2010, they told us that the current account deficit for this year would be a mere £40 billion. This year, in the Budget, the Chancellor told that it would be £84 billion, which is more than double the original figure. In 2010, the Chancellor told us that public sector net borrowing for this year would be barely £60 billion. This year, he told us that it was £108 billion, but when we add on the fiddled stuff with the pension funds, we find that it was actually £120 billion—again, more than double the figure.
Kwasi Kwarteng
Is the hon. Gentleman suggesting that it would have been a better plan to borrow more money to reduce those deficits?
Stewart Hosie
I am suggesting that to try to remove the structural deficit and fail over a fixed time scale, taking no cognisance of external shocks, was a stupid thing to do and a daft economic and political decision, which the Government were warned about in advance. The warnings failed precisely because this Chancellor promised that national debt would peak at 85% of GDP on the treaty calculation, or at £1.162 trillion on the normal calculation. However, we were then told this year that it would not peak until 2015-16 at over 100% of GDP on the treaty calculation, or at more than £1.5 trillion on the normal calculation.
Stewart Hosie
I always welcome growth in the economy, but the error that the hon. Gentleman and his Government have made is that by increasing tax and cutting to the extent that they have—the ratio of cuts to tax increases is four to one—they will have sucked out of the economy by 2016-17 roughly £155 billion a year. That is the equivalent of sucking 7.5% of GDP in terms of consumption out of the economy.
Stewart Hosie
I will not give way, because we only get two minutes’ stoppage time, and I have had my two minutes.
This Government are also borrowing more and we are all paying the cost of failure. The Government’s main failure is on the fiscal rules they set themselves: that the structural current account deficit should be in balance in the final year of a future five-year programme—it will not be; and that debt should be falling as a share of GDP by the end of that period—it is not. Both objectives, were, and remain, highly dependent on GDP growth, which, as we have noted in previous Budgets, is massively dependent, at least according to the OBR, on extraordinary unmet and unmeetable levels of business investment. Let us remember that in 2010 the Government suggested, with a straight face, that business investment would have to grow between 8% and 11% a year between 2011 and 2015. By the time of the OBR fiscal outlook in November 2011, growth in business investment had turned negative again and the forecast had to be changed to show future projections of growth of up to 12%.
The Chancellor was at it again this year. Having failed to get the growth in business investment we needed, he is now suggesting growth in business investment of 8.6% in three out of the next four years. I hope that that happens, but based on the evidence we have seen so far and the inability of the banks to take their share in providing credit and liquidity to businesses, I fear that is a forlorn hope.
We have also been told—this point was mentioned earlier—that we will see the benefits to GDP growth of exports from the UK. In 2011, however, we had a deficit in trade in goods of £100 billion, which rose to £110 billion the following year. The deficit in trade in goods has been sitting at about £20 billion for every quarter of this year. The balance of goods and services was £23 billion in the red in 2011, and that figure worsened to £35 billion last year after four and a half years of depreciation in sterling. I would hope that at the very least the Government recognised that that part of the plan simply has not worked.
I hope that the Government will be less stubborn about recognising where they have failed and that their optimistic Budgets have simply collapsed into dust when faced with the stark reality of austerity economics, which strips consumption out of the economy in the way I have described.
Kwasi Kwarteng (Spelthorne) (Con)
I am grateful to you, Madam Deputy Speaker, for calling me to speak in this important debate. We have had such debates on a number of occasions, but it is important that we have this one now, when the economy is growing. All the indicators from the IMF, the OECD and other estimable bodies suggest that the worst is over in the British economy and that we are encountering some sort of recovery.
More important than recovery in itself is understanding how we got into this position in the first place. The economy will be a very important issue in the next election. I was interested to hear the hon. Member for Dundee East (Stewart Hosie) criticise the Chancellor and the Government for not reducing the deficit fast enough. When I asked what his solution was to this conundrum—whether he wanted to borrow more—he failed to answer. I still do not know what his answer is; perhaps he will care to enlighten us in the course of my speech.
It is true that the UK economy has faced a difficult few years given our reliance on financial services and, more importantly, the appalling fiscal legacy of the previous Labour Government. It was insane for them to borrow money in every fiscal year from 2001, even when the economy was growing. I have never heard of an economy growing at 3% while running a deficit of 3% of GDP. Not even Lord Keynes would have advocated such a policy. Yet we lived through a period in which we had year after year of deficit even when the economy was growing.
Alec Shelbrooke
Does my hon. Friend share my deep concern that the most shocking thing that has emerged during this debate is that the shadow Chief Secretary does not appear to know the difference between deficit and debt?
Kwasi Kwarteng
That is absolutely right. I was as shocked and appalled as my hon. Friend that, when I asked the shadow Chief Secretary what the absolute level of the British deficit is—it was a very simple, general knowledge-type question—he did not seem to know. I then asked him whether he knew what the deficit-to-GDP ratio is, but he flannelled away that supplementary question and did not even pay me the courtesy of answering it.
We have to look very carefully at the legacy of the previous Labour Government, because it has a direct impact on living costs and this cost of living debate. People in Britain—people in my constituency and, I am sure, in other constituencies across the country—intuitively understand that after a period of excessive spending in which, to borrow a metaphor, the national credit card went way beyond its limit, it is necessary to have a period in which spending is reduced. Nearly everyone understands that and, as a consequence, any poll that Members may care to look at shows that the Government and coalition parties have a considerably better rating on the issue than that of the Labour party.
Stephen Doughty
What do the polls say about the attitude of the hon. Gentleman’s constituents to his proposals to put VAT at 15% on children’s clothes and food?
Kwasi Kwarteng
I have mentioned my specific proposal and not the Mickey Mouse, cartoon version offered by the Daily Mirror. [Interruption.] I am not sure which rag it was, but I will not return to that point.
The cost of living debate cannot be conducted without reference to the actual economic conditions or the economic legacy of the previous Government. It is a sleight of hand—I admire Labour’s political skill in that regard—and dishonest not to recognise that the cost of living debate cannot be conducted without reference to the economy. It is also not very open handed or reasonable to suggest that the previous Government’s legacy and appalling record have nothing to do with the difficulties that families up and down this country face.
Ian Paisley
On the cost of living, does the hon. Gentleman accept that the further north we travel in this great nation of ours, the bigger the burden of debt and cost on individuals in society? Over the past four years in Northern Ireland, everything—from utility bills to transport costs—is up 30% and more for the average household. That is a dire burden on the community.
Kwasi Kwarteng
People in this country understand that any Government who came in after the 2010 election, amid the appalling wreckage of the economy bequeathed to us by the previous Government, would face a difficult proposition and have a difficult time. In fact, the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), outlined a plan—the newspapers dubbed it the Darling plan—that advocated spending cuts and a 22% rate of VAT. As Members will know, I advocated a much lower rate. The Darling plan was an adult, mature recognition of the appalling legacies that his Government had given us. It recognised that we needed to reduce spending and that what was then dubbed austerity was absolutely necessary for this country’s financial future.
Despite Labour’s worst predictions, the Government’s plan is now beginning to work. We have not heard anything about plan B for several months. We have not heard anyone say, “Too far, too fast.” One esteemed Labour economist said that unemployment would hit 5 million, but none of those dire predictions actually happened. Labour persists, however, in peddling the socialist, never-never land idea that borrowing more money will somehow reduce the deficit. That is absolutely insane. I understand why the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is banging her head as a symbol of her frustration, because some of her colleagues’ ideas are remarkably foolish.
Kwasi Kwarteng
No, I will not. I tried to intervene on the hon. Gentleman, but he quite rightly wanted to use his full allocation of time.
What do the Opposition actually propose? They have no plans on the economy. Their economic credibility is severely questioned by the British public. All their prophecies and predictions have proved to be completely false. They are now left with the notion that the Government have somehow failed and that the very difficult time through which we have passed is a direct consequence of Government policies, when it has in fact been the direct consequence of the Government trying to get us out of the mess bequeathed by the Opposition.
Let us look at the Darling plan. When the Labour Chancellor was in government, he said that spending would have to be reduced, which is exactly what this Government have done and achieved. As I have mentioned, under the Darling plan the VAT rate would have been 22%. It is lower than that, so we have managed to achieve a degree of fiscal consolidation without some of the punitive tax rates suggested by the right hon. Member for Edinburgh South West.
All of this debate has a direct bearing on living standards and the difficulties that people are facing. Once again, under difficult fiscal constraints, this Government have managed to lift hundreds of thousands of people out of tax altogether. They have raised the personal allowance, which is a significant achievement in a time of relative austerity when we have not had the largesse that the previous Government enjoyed and abused. It is absolutely to the Government’s credit that we have managed to raise the personal allowance—taking people out of tax—which has alleviated living conditions and made them slightly easier for many of the poorest in this country.
Before I finish, I want to mention some of the gimmicks and wheezes that the Labour party has offered as serious policies. Government give-aways will still have to be paid for by the taxpayer. It is madness to try to freeze energy prices. Anyone who has looked at the economic history of this country knows that the price and wage controls of the 1960s and 1970s completely failed. We have abandoned such policies. Opposition Members will remember that beer duty was frozen in the 1960s for two years, and in the third year the price of beer went up by 41%. That is no way to conduct an economic policy.
Catherine McKinnell
There are some inconvenient truths for Government Members. Personal debt has increased on their watch by 33% in my constituency and by a significant number in the hon. Gentleman’s constituency.
Hon. Members are keen to refer to the previous Government’s borrowing figures. As of last week, the coalition Government have borrowed more in three years than the Labour Government did in 13 years of government—that is the reality. On every economic test, and on the test the Prime Minister and the Chancellor set for themselves, they have failed palpably. It is clear from the many contributions to the debate that the recovery, which appears to be taking place, has yet to touch the lives of millions of people, contrary to the impression given by Government Members. My concern is that things will get a whole lot worse before people see any signs of them getting better.
Any economic recovery needs to deliver rising standards for all, not just for the Prime Minister, the Chancellor and their friends at the top. We need a recovery that is balanced and built to last. Critically, it needs to benefit every corner and community in the country. Instead, the Government, and the Government Members who support them, continue to bury their heads in the sand. They remain oblivious to the living crisis experienced by millions of families, or, worse, they deny what they hear and see with their own eyes. It is the same old Tory party, aided and abetted by the Liberal Democrats. They are totally out of touch with the reality of life for so many in Britain today who find themselves increasingly out of pocket and increasingly in debt.
Kwasi Kwarteng
I will ask the hon. Lady the same question I asked her colleague, the hon. Member for Nottingham East (Chris Leslie). What was the absolute level of the deficit in 2010 when this Government took over?
Catherine McKinnell
The hon. Gentleman is obsessed with statistics and keen to detract from the truth, which is that it is this Government who are borrowing £200 billion more than they planned. They have failed to reduce the deficit in the past three years to even a fraction of what they promised back in 2010. It is his Government’s plans that have failed. He should wake up to that fact.
I go back to the people who are paying the price. There is the single dad in my constituency who, to pay for the bedroom tax for the room he keeps for his children to stay in, eats barely anything all week and saves the money to buy food for his children at the weekend. The Chancellor would probably call that thrift. There is the GP and his staff who hand out, from their own pockets, the money for patients to get the bus to the local food bank. The Prime Minister would probably call that the big society in action. There is the branch of a well-known bank on the outskirts of Newcastle, where 80% of customers have only the most basic bank account. It has young mums coming in on a daily basis in tears because they cannot manage to feed their children and heat their homes. Citizens advice bureaux across the country saw a 78% increase in the number of people inquiring about food banks between February and June this year alone—little wonder, when gas and electricity bills have risen by an average of £300 a year on the Prime Minister’s watch. Households are spending 12% more on food bills than they were in 2007, despite purchasing 4.2% less food, as my hon. Friend the Member for Inverclyde (Mr McKenzie) pointed out.
Oral Answers to Questions
Kwasi Kwarteng Excerpts(10 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Kwasi Kwarteng (Spelthorne) (Con)
T4. Is it not true that the only way to improve considerably our standard of living is to focus on the economic situation of the country to boost growth and pay down debt?
Mr Osborne
I completely agree with my hon. Friend that unless we have a credibly economic plan to grow the economy, deal with public finances and support business rather than tax it, we will get the reaction the shadow Chancellor got from the CBI, whose members said that the hairs on the backs of their necks stood up as they listened to all the terrible things that a Labour Government would do to them. The truth is that we are fixing the economic mess the shadow Chancellor left behind, and that is the best way to improve people’s living standards.
Air Passenger Duty
Kwasi Kwarteng Excerpts(10 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Catherine McKinnell
It is interesting that the hon. Lady mentions cheering up—an ONS report out today says that Northern Ireland is one of the happiest places in the UK—but I appreciate that APD is a cause of unhappiness, as was clearly articulated by a number of hon. Members, particularly the hon. Member for East Antrim. I will set out the Labour party’s position on the subject later, but I want to focus on the Government’s approach—[Interruption.] Given the Prime Minister’s performance today, one wonders who is running the country.
Kwasi Kwarteng (Spelthorne) (Con)
To be specific, what exactly is the position of the Labour party, not the Government, on air passenger duty?
Catherine McKinnell
As I said, I will set out the Labour position, but it is interesting that Government Members are keen to deflect responsibility. It is important to reflect on what the Government have said to date on air passenger duty.
I would, however, first like to reflect on the contribution by the hon. Member for East Antrim, who made a well-thought-out speech, particularly on the 2013 PricewaterhouseCoopers report into the impact of APD. The report concluded that APD affects not just the travel and tourism sector, but the economy as a whole. PWC was commissioned by British Airways, Virgin Atlantic, Ryanair and easyJet, and suggested that the abolition of APD could result in a 0.45% increase per year in GDP and the creation of almost 60,000 jobs between now and 2020. The Government dispute those figures, but I will return to them later in my speech.
Catherine McKinnell
The hon. Gentleman anticipates my next comment. It is important not to take a Liberal Democrat election manifesto at face value, but one might reasonably have expected to see some action from Ministers given that the coalition agreement promised that the Government would:
“reform the taxation of air travel by switching from a per-passenger to a per-plane duty.”
and
“ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.”
The Chancellor then announced in the 2010 Budget that major changes to APD, including switching to a per-plane duty, would be subjected to public consultation, but nothing happened, and almost one year later, at Budget 2011, he announced that the Government would consult on simplifying the structure of APD. In between, the fair tax on flying campaign was launched not only to raise concerns about this issue, but to elicit a modicum of action or at least certainty or clarity from the Government. Budget 2011, however, saw the Chancellor U-turn on the coalition agreement pledge made less than 12 months earlier to switch to a per-plane duty, informing the House:
“we had hoped that we could replace the per passenger tax with a per plane tax. We have tried every possible option, but have reluctantly had to accept that all are currently illegal under international law. So we will work with others to try to get that law changed.”
Will the Minister update the House on how that work on changing the law is going?
At Budget 2011, the Chancellor went on to state:
“In the meantime, we are consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California. We will also seek to bring private jets, which pay no duty at all, into the scope of taxation.”—[Official Report, 23 March 2011; Vol. 525, c. 963.]
The APD rate rise due in April 2011 was deferred to April 2012.
Catherine McKinnell
Not just yet, because I need to make some progress.
At the same time, we saw an 8% increase take effect, with APD rates thereafter rising in line with inflation. As announced at Budget 2010 and then again at Budget 2011, the Government did indeed consult on the structure of APD, in a consultation that covered several areas, including private jets, different tax bands, premium economy flights, flights from regional airports and the possible devolution of APD. The consultation paper raised the concern that the existing four-band structure was damaging UK competitiveness and contained several anomalies, such as the higher rate on Caribbean flights than on flights to destinations in the USA, about which several hon. Members have raised concerns.
The paper set out two options: returning to the pre-2009 structure of two tax bands and a different rate between two classes of travel; and combining the two higher bands for flights over 4,000 miles to create a three-band structure and retaining different rates between different classes of travel—an option, however, that would not have resolved the Caribbean concern. The consultation also raised the prospect of a lower rate of APD for flights from regional airports and the question of whether APD should remain a UK-wide tax or be devolved.
The Government spent the best part of a year apparently listening to interested parties that took considerable time and effort to respond in good faith to the consultation. And then what? For the whole of the UK, apart from announcing that APD would be extended to business flights, they did absolutely nothing. In their response to the consultation, they confirmed in December 2011 that they did not propose to make any changes to the tax’s banding structure, to how different classes of flight were taxed or to the application of APD to the regions. It is little wonder then that industry players described the consultation as
“a sham and a waste of taxpayers’ money”.
Of course, we saw action on Northern Ireland, following the July 2011 Northern Ireland Affairs Committee report, which urged the abolition of APD on flights to and from airports in Northern Ireland owing to the specific problem faced there—direct competition from airports in the Republic and its lower rates of APD. In order to maintain the transatlantic route from Belfast to Newark, the Chancellor announced in September 2011 that the APD rate on long-haul flights using airports in Northern Ireland would be cut, because Continental Airlines had, unsustainably, been paying the APD itself at a cost of some £3.2 million a year. Then, in the Finance Act 2012, APD on direct long-haul flights departing from Northern Ireland was devolved to the Northern Ireland Assembly, which then abolished it on these flights from 1 January 2013.
Clearly, flights from Northern Ireland face specific challenges, as I have noted and as was set out clearly by the hon. Member for East Antrim. It is the only part of the UK that has a land border with another EU member state. George Best Belfast City airport and Belfast International both compete directly with Dublin in attracting airlines, routes and passengers. So the Opposition supported the Government’s move on APD in relation to long-haul flights and Northern Ireland. Given that Northern Ireland also largely relies on air transport for its link to the rest of the UK, we are sympathetic to the argument for reducing APD on all routes from Northern Ireland, but we would need to examine the impact of that in the round, including on the block grant, which the hon. Member for East Antrim acknowledged.
Other options are, of course, available. We could consider protected routes, which already exist in the UK—the air link to the Scottish islands being an example—with Belfast to Heathrow being suggested as the obvious choice. But the Government’s piecemeal approach to dealing with APD, an issue that affects the UK as a whole, is regrettable, particularly given the importance of long-term certainty on this issue for industry and the wider economy. Leaving aside the changes we have seen in Northern Ireland, it appears that the Government have simply given up on this issue altogether.
In May, the Select Committee on Transport published a number of proposals on APD as part of its wider inquiry into aviation strategy. Included in the recommendations were that: the Treasury should conduct and publish a fully costed study of the impact of APD on the UK economy; the Government should carry out an objective analysis of policies such as differential rates of APD; the Government should conduct a 12-month trial on an APD holiday for new services operating out of airports not in the south-east; and the Government should not further devolve APD at this stage, as it may have negative impacts, for example, in the north of England. Some of those recommendations stemmed from the February 2013 PricewaterhouseCoopers report, to which reference is made in the motion.
Ministers appear to have totally dismissed both reports, rejecting all the Select Committee’s recommendations apart from the one on devolution. They have stated:
“The Government disagrees with the findings of the PwC report. The Government believes that abolishing APD would have a smaller impact on GDP than the report implies and would cause a net loss of tax receipts. This reduction in receipts would need to be paid for through tax rises or spending cuts elsewhere, which would themselves have an economic impact.”
The response went on to state:
“The Government has no plans to undertake a review of the economic impact of APD at this point.”
So, the Government do not believe the findings of others about the economic impact of APD, but have no plans to verify them or otherwise undertake their own review.
There is no doubt that APD brings in a significant amount of funding to the Treasury, with a yield of £3 billion anticipated this year and next, as the Minister mentioned a good number of times. The matter does need to be considered in the round, but the Government’s unscientific approach to this issue seemed to be a cavalier one to take to economic growth, given that we have had three years of a flatlining economy.
The motion states:
“that it is the intention of the Prime Minister to review green taxes; and calls on the Government, as part of that review, to give high priority to the abolition of air passenger duty.”
In preparing my comments for today, I wondered whether this review actually existed, but the Prime Minister seems to have confirmed it at questions, because he is apparently waking up to the fact that struggling families need support and believes that this is the way forward. We then read, however, that this review has been kiboshed by the Liberal Democrats before it has even begun. Perhaps the Exchequer Secretary will shed some light on that issue, too, in his concluding comments.
In conclusion, despite various promises of action on this issue, we have seen anything but. The reforms in Northern Ireland addressed the very specific situation in that part of the UK, but this issue affects the whole of our country. After three years of a flatlining economy, and with households up and down the country in the midst of a cost of living crisis, the Government’s complete lack of direction on APD has been extremely unhelpful at a time when family purse strings have been tightened and businesses have been crying out for support. The lack of certainty on this issue from the Government simply risks investment decisions being delayed and future development being jeopardised, which, crucially, puts jobs at risk, too. This just is not good enough, but it is what we have come to expect.
Kwasi Kwarteng (Spelthorne) (Con)
I intervened during the speech made by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) to ask what the Labour party’s policy on this issue actually was. The hon. Lady made a good speech, but she did not answer my question. She spoke for 17 minutes without providing any clarity on the Labour party’s position, and I remain unsure about the nature of her objections—if they are objections—to this tax.
It is important to review the tax’s history. It was introduced in 1994 by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), and at that time it was not a green tax. Like most taxes, it was brought in as a revenue-raising exercise and there was no mention whatever of its environmental impact. It was only under the previous Labour Government that the tax mutated into a green tax. It was doubled in 2007, and the banding was introduced in 2008. The right hon. Member for Tottenham (Mr Lammy) and the hon. Member for Hackney North and Stoke Newington (Ms Abbott) have spoken of how their constituents who travel to the Caribbean are particularly affected by the banding, but we did not hear any mention that that banding was introduced by the Labour Government. It seems peculiar that the hon. Member for Newcastle upon Tyne North has not mentioned that Government’s contribution to the development of the tax and nor has she set out the Labour party’s current position on it—that remains perfectly obscure.
We need to consider the deficit. As a free-market Conservative, I do not like taxation, and I yield to no one in my desire and enthusiasm to cut taxes and to stimulate the economy through reducing the burden of taxation to promote growth and enterprise, and to encourage risk-taking and other forms of business enterprise. However, I recognise that we have a deficit, and that deficit completely shapes the nature of our debates on taxation—[Interruption.] I sense an intervention coming on.
Mr MacNeil
I was trying to resist the urge to intervene, but the deficit in the UK has been in existence since 2001. The UK has been in a fiscal black hole since then, which was seven years before the economic crisis; it has not been able to pay its way since that time.
Kwasi Kwarteng
The hon. Gentleman shows an admirable grasp of our recent economic history; he is absolutely right. From 2001 to today, we have consistently run a deficit. Conservative Members have always been struck by the fact that, although the economy was actually growing during the first six of those years, between 2001 and 2007, the Government of the time saw fit to run a deficit in every one of those years. The present Government inherited a deficit of £160 billion—12% of our gross domestic product—and the fact that it has now been reduced by a third represents a remarkable success. It now stands at somewhere between £110 billion and £115 billion, depending on how the figure is calculated. In the context of deficit reduction, any Government would be reluctant to abolish air passenger duty in a peremptory way, as it brings in more than £3 billion a year. We all recognise that the deficit is a real thing—it is an ongoing annual sum that we have to close—and the £3 billion a year raised by APD makes a real contribution to its reduction.
I fully understand all the supply-side arguments. I understand that, if we were to abolish the tax, we could perhaps reap economic rewards at some future date. However, those who promote reducing or abolishing it must tell us how they would replace that revenue from day one. Where would they find the £3 billion that APD currently brings in? Conservative Members are familiar with general tax-cutting arguments. One could argue for the abolition of most taxes on the basis that that would stimulate growth, and that the money would be recouped in the long run through increased tax revenues. However, we have to face the fact of a real deficit, which is something that Opposition Members never seem to acknowledge in their speeches.
I was entertained by the speech made by the hon. Member for East Antrim (Sammy Wilson), who put forward in a typically trenchant way his views on green taxes, the environment and all the rest of it. I have often heard such arguments in the pub in Staines among my constituents and others, so I am familiar with them, but I shall not touch on green taxes, because what I am concerned about is the deficit.
If we were balancing our books and if we had succeeded a fiscally responsible Government, I would be among the first to say that this APD tax should be abolished. I would absolutely recognise the compelling argument that lowering taxes increases business enterprise. However, because we run a deficit, I feel that the £3 billion coming into the Exchequer is too high an amount simply to discard and forget about.
We need to look at the effects of such taxation on the aviation industry. I think it was my right hon. Friend the Member for Saffron Walden (Sir Alan Haselhurst) who made the point that although APD is quite high, the industry is expanding and more people are flying. From the Government’s point of view, as a revenue collector, the tax is not impeding the growth of the industry, so it would be irresponsible for them to forgo such tax revenue, especially given our record deficit.
Going forward to a time when we are balancing the books under the next Conservative Government, I will be at the forefront of those arguing to abolish APD. Earlier in this Parliament, I wrote and often said that while, in principle, the tax might not be the best thing, there are specific budgetary requirements and conditions of the moment that make APD essential.
We have to consider corporation tax and taxation generally in the round. I congratulate my hon. Friend the Member for Loughborough (Nicky Morgan) on her appointment as Economic Secretary. She cited the fact that our corporation tax rates are extremely competitive. The rate of 20% is among the lowest, if not the lowest, in the OECD. In that context, general taxation on companies and business has been reduced, and we are seeing flickerings of growth—we expect encouraging growth figures at the end of this week. In the round, we can therefore say that the Government’s policy is working. The deficit reduction is happening and growth is beginning to return to Britain. Now is not the time to slacken the deficit reduction plan, so I fully understand why APD is necessary: to further our principal aim of deficit reduction.
Dr William McCrea (South Antrim) (DUP)
I congratulate all Members who have taken part in the debate, and in winding-up on behalf of my colleagues I want to say that it has been an interesting discussion. I congratulate my hon. Friend the Member for East Antrim (Sammy Wilson) on the usual skilful and robust way in which he introduced the debate, and I thank him for sparing us his full views about green issues. His thought-provoking speech was certainly worthy of careful consideration, and I trust that those on the Treasury Bench listened to it carefully.
I welcome the Economic Secretary to the Treasury to her post, and as she said, we welcome the good economic news from Northern Ireland. I found it strange, however, that despite representing a party of low tax, she defended the highest APD anywhere in the world. I trust that when the Minister winds up the debate we will hear some different views.
I welcome the shadow Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), to her post, and thank her for her keen interest. I accept her point that APD is an issue that affects the whole country, not simply Northern Ireland. Our motion acknowledges that because we have spread it out, taking in the whole United Kingdom, rather than only Northern Ireland.
The hon. Member for Spelthorne (Kwasi Kwarteng) proclaimed his low-tax conservatism. Having done that, however, he went on to defend why we should have the highest taxation in Europe—it was amazing to have the hon. Gentleman draw that to our attention, because in reality United Kingdom taxpayers are being taxed silly. He mentioned bringing down corporation tax. I acknowledge what the Government have done on that, but perhaps he should also bear in mind that Northern Ireland has a land border with a country that has a corporation tax of 12.5%, which is far below anything that the Government have done. We in Northern Ireland have a double whammy of taxation.
Kwasi Kwarteng
The hon. Gentleman will know that in this House I am absolutely in favour of low taxes, and I have said to the Chancellor that I think we should have corporation tax of 15%. I will always be in favour of lower corporation tax.
Dr McCrea
I thank the hon. Gentleman for that helpful intervention.
I thank the hon. Member for Brigg and Goole (Andrew Percy) for acknowledging the problems faced by regional airports—many hon. Members acknowledged that point in the debate. The hon. Member for Paisley and Renfrewshire North (Jim Sheridan) is right that statistics are worth repetition because they might get through to the Government, who must then answer to them.
The hon. Member for South Down (Ms Ritchie) drew attention to the impact of the Irish Government on Northern Ireland. She was exactly right. It has been said that the UK Government cannot do what the Irish Government have done because of the deficit. However, I draw the House’s attention to the fact that the Irish Government have a greater deficit problem than the UK Government. The Irish Government nevertheless believe that removing APD was of greater value economically. The Minister should bear that in mind when he expounds why we should not abolish APD—he should not say that it is because we are dealing with the deficit. As I have told him, the Irish Government have a greater problem, yet they have announced the measure in their budget.
I am happy that the hon. Member for Mid Norfolk (George Freeman) spared us the details of his trip to Amsterdam. Nevertheless, I hope he has learned something from the debate and will change his mind on any decision he makes later.
I share the experience of my hon. Friend the Member for Strangford (Jim Shannon): a lot of ordinary people come to my constituency office because they have no Sinn Fein representation in the House and we must represent them. That is a disgraceful situation, but it is a fact, and we must accept the reality. The hon. Member for North Antrim (Ian Paisley) gave the House an interesting report of the statement by Mr Hastings. That, too, is worthy of our consideration.
It is clear from the debate that the civil aviation sector is one of the main pillars of economic growth in the UK, driving job creation and growth both at home and overseas, as well as providing air transport for goods and passengers. More than a third of world trade is delivered by air, and about half of international tourism is facilitated by air links. However, as hon. Members commented, UK passengers are taxed more for air travel than passengers anywhere in the world, with APD rates expected to rise again in line with inflation from 1 April 2014.
In March 2013, the UK was ranked by the World Economic Forum as the world’s least-competitive country in terms of taxes and charges levied on air passengers. The TaxPayers Alliance has described APD as
“an unwelcome burden on family holidays, a cost to business and redundant with the EU Emissions Trading System now being applied to aviation”,
and has called for APD to be phased out entirely.
Our vision for a strong and prosperous Britain can be achieved only with healthy and vibrant transport and economic development sectors. Air connectivity is the key to efficient trading and, as the UK economy continues to transform in the face of domestic and global change, it is essential that the aviation industry is given the certainty and incentive necessary to allow it to plan and invest for the long term. Time and again we are presented with the argument that APD has deterred airlines from opening new routes, especially in Northern Ireland, where robust air links are fundamental to underpinning our regional economy, and has compromised the ability of local businesses to attract new foreign direct investment.
The situation is similar in Scotland. Amanda McMillan, managing director of Glasgow airport, has stated:
“Due to the size of the market in Scotland, we will always find it difficult to attain and sustain new routes and this situation is compounded even further by APD which simply serves to artificially depress demand and dissuade airlines from basing aircraft here…Unless APD is reformed, people travelling to and from Scotland…will continue to face some of the highest levels of taxation in Europe which is clearly a disincentive to travel.”
In an evidence session to the Northern Ireland Assembly Finance and Personnel Committee on 18 September, the director of the City of Derry airport, Damien Tierney, described APD as one of the “big factors” influencing airline decision making. Low-cost carriers such as easyJet and Ryanair, which account for most of the Province’s air travel, are particularly influenced by APD.