Banking Commission Report
Malcolm Wicks Excerpts(12 years, 10 months ago)
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Mr Osborne
I have set out our view as the largest shareholder of RBS. We have to be careful of the shadow director rules and the like, but I was very clear in my statement that we expect and hope to see RBS shrink the size of its investment bank and focus on the UK and its UK customers. That is our proposal as an RBS shareholder. Of course, the question of how to dispose of our shares in RBS, which might arise in future, is one that we will address at the time.
Malcolm Wicks (Croydon North) (Lab)
Given the interesting speech recently made by the Prime Minister on the importance of Christian values, is there not a danger that the Chancellor and the Treasury as a whole are spending too long talking to the money changers and not enough time talking to more important elements of the British economy, such as manufacturers and small businesses? Does he feel that when Jesus overthrew the money tables he should have waited six years before acting?
Mr Osborne
I would not say that what we are undertaking is of biblical proportions, but we are acting now to deal with those problems. We are changing the system of regulation, which will be in place once the draft financial services Bill is passed next year; we are changing the competition remit, which will be in place by 2013; and we are committed to introducing all that legislation, including the secondary legislation, in this Parliament. We are undertaking those reforms, but in the years in the desert, which were the years under the Labour Government, none of those things was proposed at all.
Finance (No. 3) Bill
Malcolm Wicks Excerpts(13 years, 6 months ago)
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Malcolm Bruce
I want to make a bit more progress.
The Government have made their case, and have defended it. I am simply asking them to consider the real and legitimate concerns of the industry, to look at the independent assessments, and to accept that there is a danger of losing as much as £20 billion of investment and between 1 billion and 2 billion barrels of production over the next 10 years or so. That is a Forties field that we would simply discard. It would be a huge loss, and it would be very significant in the context of the British economy. If that investment is lost—or, indeed, secured—future jobs, export opportunities, imports and future tax revenues will be affected. They all hang on the restoration of that trust, and on the industry’s being persuaded to invest in the marginal projects that might be put at risk in the absence of negotiation.
Malcolm Wicks
The right hon. Gentleman is making a very thoughtful speech. Does he agree that there is a geopolitical and a national security implication? With global demand for energy increasing by a third or more over the next two decades, at the very time when the United Kingdom is becoming more dependent on imports, is it not important from a national security point of view for us to look after and nurture the North sea, and for that to have an impact on our fiscal treatment of North sea gas and oil?
Malcolm Bruce
It certainly is. The United Kingdom continental shelf has the potential to supply up to 70% of our requirements for quite a few years ahead. It is a more secure source, geographically and practically, than other parts of the world where the politics are uncertain. Given a high oil price, the Government, the industry and the economy can all benefit if we get the balance right, and can all lose if we get the balance wrong. It seems to me that negotiation is the way forward.
Let me explain how the amendments address some of the industry’s specific concerns. On amendment 13, the Government stated in the Budget that they will reduce the supplementary charge back to 20% on a “staged and affordable basis”. That is a welcome approach, but it would be more welcome if the charge had also been raised on a staged and affordable basis, instead of having a sudden 22% step increase. The amendment therefore proposes a graduated levy, increasing by 1% for every $5 the oil price rises above the Government’s arbitrary set trigger price of $75, up to a maximum of 32%. I stress that these amendments express the proposals of myself and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) as to how this could be done in a staged manner; they are not the amendments of the industry, although it is aware of them.
Amendment 14 sets up the basis for calculating the reference price. The Government seek to choose the spot price, but as I have said, few producers actually receive anything close to that. Indeed, it is not clear what calculations of what price the Treasury has made in determining its revenue projections. The amendment therefore proposes that there should be an independent mechanism for calculating a reference price, based on what producers actually receive. That would give predictability to the process and ensure that the tax base would adjust more smoothly when prices are volatile. I do not expect the Government to accept this proposal, but I hope they will accept that it is a constructive contribution to how an escalator could work both up and down, and in ways that would give the industry a lot more predictability than the Budget proposals as they stand.
Finance (No. 3) Bill
Malcolm Wicks Excerpts(13 years, 6 months ago)
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Mr Frank Doran (Aberdeen North) (Lab)
I shall speak about the oil and gas industry, to which the Chief Secretary gave prominence in his contribution. I am sorry that he has gone. He claimed the credit for the policy, but he may in future regret that rather naive political claim. He has produced a system that is too clever by half and does not pay much attention to the reality of the oil and gas industry.
The oil and gas industry is probably the single most important industrial investor in the UK. Some £6 billion was invested last year alone, with anticipated increased investment this year, led by the high oil price. The industry supports nearly half a million jobs throughout the UK, either directly or in the supply chain. A substantial proportion of those jobs are located in just four constituencies around the city of Aberdeen—my own constituency, Aberdeen North, and Aberdeen South, Gordon, and West Aberdeenshire and Kincardine, where we have a grand total of just over 132,000 oil and gas-related jobs. That has a huge impact on our local economy.
Oil jobs exist in other parts of the country too. There are, for example, 14,250 such jobs in the City of London, where many of the major companies have their headquarters, nearly 8,000 in Reading East, and over 8,000 in Poplar and Limehouse. Uxbridge has 2,170 oil and gas-related jobs, and Stockton North has 2,270. Even the Prime Minister in rural Witney has about 1,000 such jobs, according to figures produced last year by Oil and Gas UK. So it is not just a regional issue or one that involves only East Anglia or the north-east of Scotland. The last time such a survey was done—this one was carried out about a year ago—the Economic Secretary to the Treasury would have been able to claim several thousand jobs in her constituency, but Kellogg Brown and Root, which used to be located in Putney, has moved on. The industry affects the whole country.
Last year, the industry paid £8.8 billion in corporation tax and the estimates show that £13.4 billion is likely to be paid in 2011-12. Of that, £3 billion to £4 billion in revenue is linked directly to the oil price, so the Government are already benefiting from the spike in oil prices. Before the Budget the industry was already the most heavily taxed sector in the UK economy, with 50% to 75% of all UK continental shelf profits going to the Government. Given that we own the oil after all, since it was nationalised under the Petroleum (Production) Act 1934, such a split does not look excessive on either side.
However, exploiting our oil and gas resources is a dangerous and expensive operation that requires high levels of commitment and investment. Investment decisions in the UK industry are not all made in the UK. It is a genuinely global industry and UK sector decisions are made in Houston, Dallas, San Diego, Paris and Vancouver as well as in London and the middle east. Competition for investment is fierce. UK management has to fight against bids from other oil provinces, such as Brazil, Australia and India, and from emerging oil provinces such as west and east Africa and from a host of other foreign company headquarters.
The managers who make those decisions consider a number of factors in addition to the most prominent one—the likely return on investment. The key factors are a stable political background and a stable financial background. Above all, for long-term investment the oil industry needs certainty in the tax regime, and I am sure that the Economic Secretary had that message hammered home very seriously by the industry when she visited Aberdeen not so long ago.
Ever since the 1960s, when oil exploration started in the North sea, we have done very well on investment, mainly because we have had a stable political system and a more or less stable tax system, but it is getting much harder. The UK continental shelf is a declining province and the Government’s aim should always be to ensure that that decline is managed and is as shallow as possible. That means keeping the tax regime attractive enough to encourage investment while ensuring that the public purse gets its fair share. The Chancellor’s decision, which the Chief Secretary apparently claimed was his idea, will accelerate that decline rather than slow it down.
Professor Alex Kemp and Linda Stephen from Aberdeen university recently produced an authoritative study on the impact of the tax changes. The report looks at the impact of the Budget on a range of oil and gas price scenarios. It finds that at a $50 a barrel oil price and 30p per therm of gas, over the 30-year period to 2041, there could be a reduction of 23 new field developments and substantial incremental developments undertaken. There would be a cumulative reduction in production of 920 million barrels of oil equivalent and a reduction in field investment of £19.2 billion, at 2010 prices. Total field expenditure would be reduced by £34.9 billion and tax revenues would be reduced by £12.8 billion.
Under a $70 a barrel scenario, with 50p per therm of gas, there would 62 fewer new field developments, loss of production of 1.7 billion barrels and a total field expenditure loss of £33.2 billion, but for the Government the tax revenues would increase by £23.3 billion. The analysis for the $90 a barrel scenario, with 70p per therm of gas, shows that even at the top of oil and gas price scenarios damage is done—79 fewer fields, 22.54 million barrels of oil equivalent lost and total field expenditure of £52.2 billion—but, again, tax revenues would increase by £51.6 billion. The question we must ask in these scenarios, which have come from a very authoritative source, is whether that is a price worth paying, given the reduction in our oil and gas producing capacity and the importance of the industry to the country. The Government increase their tax take, but at a considerable loss elsewhere.
I have known Alex Kemp for many years. He is the country’s leading expert on oil and gas taxation and many hon. Members in the Chamber with an interest in the oil and gas industry will have had many conversations with him. He has advised many companies, emerging oil countries around the world on their tax systems and various Select Committees in this House. He is completely independent. He and his colleague have produced a damning indictment of the impact of these tax changes.
The approach that the report takes is extremely important. The oil price is volatile and can change dramatically. For example, I remember that in 1985, when I was a young and aspiring parliamentary candidate ploughing my furrow in Aberdeen, the oil price dropped from $32 to $8 a barrel virtually overnight. The oil industry is, if nothing else, extremely focused and unsentimental. If a company is not making the returns it anticipated, it will quickly change direction. In 1985-86, the price we paid was that a huge number of projects were quickly shut down. Estimates showed that around 50,000 oil jobs were lost, mainly in the north-east of Scotland. That is the sort of picture that Professor Kemp and Dr Stephen paint for us in their report.
The House of Commons Library has produced a valuable report on oil prices which shows just how serious that volatility is. For example, the Library’s figures show that in 2008 the minimum price for a barrel of oil was $39.25 and the maximum was $132.40, all in one year. Of course, that was the year when the global banking crisis was at its height. That was a huge shift in extraordinary times, but these are extraordinary times, too. Who can predict the oil price next month, never mind next year?
The average price for 2011 will be higher, mainly because of the crisis in the middle east. Perhaps the price will go as high as it was in 2008, but again, who knows? Will we still have the disruption in the middle east next year? Will the world economy have improved, increasing the demand for oil, or will it still be bumping along the bottom? What new technologies will come along? Shale gas is transforming gas industry economics and new oil provinces may be discovered, along with massive oil fields, as new technology allows us to explore in more difficult areas.
In the meantime, UK oil and gas production continues to decline. It is sustained by investment, much of it coming from new entrants in the North sea introducing new techniques to improve recovery from existing oil fields, many of which are the most heavily taxed under the new proposals. The development of much smaller fields relies on existing infrastructure, much of which is well beyond its expected working life and requires constant investment to maintain it. The report by Professor Kemp and Linda Stephen shows just what the impact of these tax increases on investment will be.
As other Members have said, there is also real concern about the application of the tax increases to gas. Gas projects in the UK are highly marginal and the economics of gas are very different from those of oil. The price of gas is much lower and is likely to stay that way, particularly given the continuing discovery of substantial gas deposits around the world and the growing impact of shale gas on the economics of gas. The current value of gas, as has been mentioned in previous interventions, is the equivalent of $55 a barrel, well below the Government’s proposed threshold for the tax increase, but there is no sign that gas revenue will be excluded from the increase. To pick up on the point made by the Chief Secretary to the Treasury in response to interventions, I do not think that tinkering with the field allowance will have much of an impact on the gas industry. It needs a lot more than that and a recognition of the different economics.
The west of Shetland area is estimated to hold around 17% of the UK’s remaining resources, and much of it is natural gas. Development will be challenging and expensive, but the Laggan and Rosebank developments, for example, would open up other areas west of Shetland and provide a lifeline for the Sullom Voe terminal on Shetland. By the way, roughly 1,100 jobs on Shetland and Orkney are sustained by the oil and gas industry. Development in this area is crucial to the national interest, but these are just the sorts of projects that are threatened by the tax increases and the lack of any differentiation between oil and gas as products for the application of the increase, which makes the threat much more serious to all future gas projects in the UK.
It is worth adding that those consumers who are saving a penny on their petrol bills may well end up paying it back in other ways. One major gas producer gave me figures showing that the extra cost of importing gas into the UK from abroad to replace gas which would otherwise have been produced before the introduction of the tax increase could be as high as £100 per household per year, which is a significant potential increase. There would obviously be other major effects on the economy because of the loss of an indigenous resource and the need to import gas to replace it.
Of course, this is not the first time a Government have increased oil taxation. The previous Conservative Government did it in 1993. The reception then was as bad as this one, as it came out of the blue without prior consultation, and a number of companies were hit hard. In 1998, the Labour Government proposed an increase in taxation on the industry, started a formal review and consultation process and flagged up the possibility of a supplementary charge. For the record, I have never been opposed in principle to taxing the profits of multinational companies, but on that occasion I opposed the measure. At the time it seemed the wrong thing to do, even by my own Government, because we were going through a sustained period of low oil and gas prices. It was the wrong time to apply a tax increase, and the review concluded with exactly the view that I take: the industry was suffering a sustained period of low prices, and it was not the time to increase taxation. The then Chancellor accepted that view, and no increase was imposed in that Parliament. He also made it clear that the decision would stand for the life of that Parliament.
In 2002, things in the industry had changed and the supplementary charge was introduced. It was increased in 2006, and just for the record I did not oppose those measures, because I thought that the industry could afford them at the time. On each occasion, in 2002 and 2006, as in 1998, however, the Chancellor made it clear that the tax decisions would be for the duration of the Parliament, and that was a crucial reassurance to the industry: nothing would happen in the following year’s Budget or the one after that; the decisions were sustained for the Parliament.
When Labour took office in 1997, it quickly understood the importance of the oil and gas industry to the economy—and how little it was understood by government and civil servants. The Oil and Gas Industry Task Force was created as a regular forum for discussion between the industry and government, and relations between both sides improved considerably. Treasury officials were not initially involved, but in the past few years they have attended as observers, and there was a strong feeling that right across Whitehall, and particularly in the Treasury, government understood the oil industry much better than it had in the past.
In 2006, the Labour Government, again, started a review of the offshore oil tax regime, and it has been clear for a long time that the regime, which developed for a growing industry, has to be changed to take account of the decline in the industry and, particularly, the needs of decommissioning. That review survived the change in Government, and all the feedback that I have had from industry and from some Ministers is that the process was being dealt with constructively on both sides, and that good progress was being made, particularly on some of the more difficult issues, such as decommissioning.
All that work has been undermined by the unexpected decision to increase the tax rate. The Chancellor, with the increases, has taken UK into the top three in the world league of high oil and gas tax payers. I think that we were No. 2 in the league table that I saw, a long way from the mid-point where we used to be. He is playing a dangerous game with a crucial but declining industry that will continue to need foreign investment to survive. At a stroke, he has destabilised the industry and prejudiced the view of potential investors. All new developments offshore have long lead-in times, and many can take as much as 10 years to plan, design and construct, with expenditure in the billions of pounds before a single barrel of oil is produced or a penny earned. The oil and gas industry wins big rewards, but it takes big risks.
Malcolm Wicks (Croydon North) (Lab)
I am enjoying my hon. Friend’s remarks on what remains one of Britain’s greatest industries, but does he agree that there is a national security and geopolitical dimension to the issue? As events in northern Africa and in the middle east show, much of the gas and oil in the world is in areas that are unstable and not readily associated with democracy or human rights, so the more energy we can produce ourselves in Britain or offshore, the better for our national security. That is a crucial defence reason why we should cherish the industry.
Mr Doran
My right hon. Friend is absolutely right, and he makes his point with the authority of having been Energy Minister for many years in the previous Government. The security that our indigenous oil and gas industry gives us is one of its most important benefits. We have never had full energy security, but the industry gives us a considerable edge in the current climate.
I mentioned the volatility of oil prices and the tax system in the UK, and the risks to future investment are real. The Chancellor has introduced even more uncertainty into the system with his proposal to link oil tax with fuel prices. We have a volatile system, and most predictions for oil prices in the medium to long term are wrong. We have not seen the Chancellor’s scheme for the new tax system, but it seems clear that it will add to more uncertainty about the tax rate.
The Government are absolutely right to express their concern about rising fuel costs, particularly given the impact on taxation, but I cringe a little when I hear Ministers talk, as the Chief Secretary did, about the Labour Government’s escalator. The escalator was introduced by the previous Tory Government, and during the Labour Government, particularly after the fuel crisis at the turn of the century, it was dropped. In 11 out of our 13 years in power, the escalator was suspended. That is the reality.
The current Government could have dealt with the problems faced by motorists in another way, without introducing all this complexity and the confusion that it will cause—particularly if the crisis in the middle east recedes and the oil price declines again. They have made a serious error by linking fuel costs to the taxation of the oil and gas industry.
Importantly, the oil industry has reacted very badly to the increases, with one senior figure describing them as a “drive-by shooting”. The industry relates to government in a very sophisticated way, and it probably has more contact than any other industry with government, but there is clearly genuine shock and concern about this Government’s decisions.
I have had many years of contact with leading figures and companies in the industry, and in the past I have seen the industry cry wolf more times than I care to remember. At the end of the day, it makes whatever adjustments necessary and gets on with it. This time, however, it seems very different. The sense is that there has been no proper consideration of the needs of the industry, as an industry in decline but one that will make a major contribution to our economy with the right support and management from government.
The sense is that Treasury Ministers in particular do not understand the industry and simply see it as a cow to be milked. They have taken a short-term decision, and the sense is that the cow has been milked for short-term political reasons—to throw some crumbs to the motorists and to accelerate the reduction of the deficit. Both are perfectly respectable aims, but not at the cost of causing the severe damage that Alex Kemp’s report envisages to our indigenous oil and gas industry.
Malcolm Wicks (Croydon North) (Lab)
This is a very useful debate. I particularly enjoyed the three well-informed and well-evidenced speeches on energy policy and the implications of the proposed tax changes for the North sea. A bit of my past tempts me to follow the theme of energy, but instead, I shall talk about the impact of the Budget decisions and statements, and of the Bill, on aspects of social security.
Welfare states across the world, not least in Europe, are in many respects on the defensive and under political attack. They are in difficulties because of demography—the ageing of our populations—and the impact of the economic situation on public finances, but also because of a loss of confidence in parts of public opinion in the foundation stones underlying our welfare states.
I shall ask two questions of the Budget. The first is on the future of our national insurance system and the crucial contributory principle, and secondly, I want to address whether we are wholly right to pursue the policy, which we are now doing quite rapidly, of raising the age at which our people can claim old age pensions in the light of increasing life expectancy.
On the contributory principle, I would welcome Ministers’ comments on paragraph 1.77 of the Red Book, which states:
“The Government believes that integrating the operation of income tax and National Insurance Contributions…can remove distortions, reduce burdens on business and improve fairness.”
However, what are the likely impacts of that on the contributory principle? To be fair—I want to be fair, because I do not think that I am making a partisan point—the Government say that they
“will maintain the contributory principle”,
which I welcome, but how can we bring about that administrative change, which presumably affects people of different age groups and income levels differently, while maintaining the contributory principle? That is a genuine question to which I am seeking an answer.
Mr Gregory Campbell (East Londonderry) (DUP)
The right hon. Gentleman touches on the important point of the contributory principle, but does he agree that the longer-term project of amalgamating national insurance and Inland Revenue contributions would at least do away with the nonsense of reducing the amount that people pay in income tax while increasing the amount that they pay in national insurance contributions, and of selling that as a policy of reducing the amount that they pay?
Malcolm Wicks
Such policies have regressive implications and I understand why the hon. Gentleman asks that question—a not dissimilar one could be asked of VAT contributions. Deeply regressive changes to how we gather money in from the wider community are taking place.
Although the contributory principle has for many years, and arguably for several decades, been withering away—it certainly looks tired and rusty—we need it in the 21st century. One reason why is that if we are to maintain our broader welfare state and social security system as an instrument for redistribution and for tackling the emerging needs of this century, not least those associated with long-term care and the ageing of our population, we need an ethical foundation to underlie social security, rather than bits-and-pieces mechanisms that can be hard to communicate to a wider public.
One basic concept in that respect is that of citizenship. What is it to be a citizen in the 21st century? What are our rights as citizens? Equally importantly, what are our duties and responsibilities? For me, in moving from that simple piece of social philosophy into policy mechanisms that work, we would do away with or neglect the social insurance contributory principle at our peril. That principle says that when people are able to work and to contribute to that community chest, they should do so. That is a duty. However, as of right as citizens, people should be able, at certain times in their life cycles or at times of social need, to draw out not means-tested benefits, but benefits that they have earned through their contributions.
Of course, that was the principle underlying the Beveridge report—that great Liberal—and the one that the 1945 Attlee Government sought to introduce after the war. I am arguing that we should today try to bring about a renaissance of belief in that principle, and to make it an underlying concept of our social security system.
The principle is well understood historically. Long before the advent of the modern welfare state in the 20th century, there were friendly societies, building societies and co-ops, and trade unions emerged. It was well understood that members had rights, but also that they had duties and responsibilities. People paid contributions to trade unions and building societies—interestingly, that was in the early days, when building societies actually built houses—and to friendly societies. As of right, they could then draw benefits when eligible.
It is no coincidence that when we wander through Members Lobby, we see great statues of pioneers of the national insurance system. We could even argue which party has done most for social insurance, as it used to be called, or national insurance. Churchill can lay claim to have done much of the work in the pre-war years, and Lloyd George had more than a hand in it, as did Clement Attlee and his 1945 Government. Our entitlements to claim social security, and our rights and duties, are not simply technical matters that should be detailed somewhat obscurely in social security manuals, but a social philosophy foundation stone that folk in this country can understand as fair.
Of course, the national insurance system as devised in the modern era by the Beveridge report and the Attlee Government was not perfect. Rightly, it was subjected to critique by women’s organisations and feminists, who said that it had more to say about a typical man’s life cycle than a woman’s. Past Governments have done their best to rectify the inadequacies of the system when a mother leaves her career, which happened for quite a long period in the past, to care for her children, and to deal with what happens to the insurance contributions of family carers, who are usually but not always women, who have had to leave the labour market. Labour Governments and others have done their best to modernise the national insurance system, but not with total success. I am therefore saying, not that the principle of national insurance has worked perfectly historically, but that it is a basis on which we should build.
One of the biggest difficulties with national insurance over recent years has been that increasingly our friends in the Treasury—both Ministers and officials—have regarded national insurance as just another form of taxation. To be blunt I would point my finger at Labour Governments as well as Conservative Governments. The Treasury has lost sight of the Beveridge report and the philosophy of citizenship. When considering how to raise revenue, it tends to ask, “What share should come from income tax, corporation tax or VAT, and what share should come from the national insurance system?” That is illustrated by the fact that when, a while ago, the two major parties were having that ding-dong—that argument—about whether extra revenue should be raised by VAT or national insurance, that is how it was viewed. There was very little in that debate about what national insurance should be about and how it should relate to a modern social security system. One reason why the contributory principle has grown rather tired-looking is a failure of communication and presentation. Governments have not gone out there to argue, as I hope to do—albeit inadequately—that social insurance and the contributory principle remain valid foundation stones for this aspect of our social policy.
The other aspect of the contributory principle I want to raise concerns the plans set out by the Department for Work and Pensions and, in particular, the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb), to move towards a far simpler state pension system in which everyone would be guaranteed a certain state pension. On paper, that looks like an interesting concept. I understand that, in theory, everyone is in favour of greater simplicity, but let us consider the matter in relation to the social insurance principle. I am alarmed by bits in the DWP document, “A State Pension Age for the 21st Century”, which was mentioned in the Budget. Although it states that in the future people should get the new simple pension after 30 years of qualifying, which addresses the issue about women—so far so good—it seems to imply, unless I have seriously misunderstood it, that no one would get more than a pension to which they had contributed for 30 years.
The Government are at pains to tell us that more and more people will have long life expectancies and will work longer in the labour market. What happens, therefore, to those who work 40 or 50 years? I might have misunderstood, but I was alarmed by paragraph 96 of the document, which reads under the heading, “Impact on individuals”:
“Groups who would expect to build up more significant amounts of State Second Pension, such as those with longer working lives and higher earners, would not be able to do so under this option.”
Well, why not? Is there not a danger of being so besotted with the idea of simplicity that we undermine the idea that if someone contributes more through their working life because they are working harder, they should be able to get more out of it at the end through a decent state pension scheme? I have serious concerns about that. Although there are many doubting Thomases in respect of social insurance, we must bear in mind the principles underlying it, such as citizenship and its common-sense nature: people can understand that they should make a contribution when they can and draw out of a community pot when they need to. If we sacrifice those things, we sacrifice a lot in our social security system.
I want to touch briefly on a matter that relates to a paper I published on my website last week. I question whether we are in the right place when it comes to raising the state pension age in the light of increasing life expectancy. May I say first and foremost that I am signed up—not least as a former pensions Ministers—to the reality of increasing life expectancy for most people. It cannot be right that we stick to state pension ages and occupational pension ages devised 40 or 50 years ago, given that more and more of us—hopefully—will live into our 80s and 90s.
Malcolm Wicks
My hon. Friend wants to become one of the centenarians. Indeed, to warm us up for difficult decisions, the DWP is now telling us, courtesy of statistics from the Office for National Statistics, that 11 million people alive today can expect to live to 100. That is an extraordinary piece of demography. I accept the logic, therefore, that most of us should expect to leave the labour market, retire and draw our state and occupational pensions at a later age. However, the main reason for raising this matter in the House today is that this is insensitive to, and has no understanding of, social class variations. There is an assumption that these broad figures about life expectancy apply equally to all of us, regardless of geography, constituency, whether people live in the north or the south, or the kind of work undertaken.
When I looked at some of these issues in the light of social class, I am afraid that, not for the first time, socio-economic status reared its ugly and unequal head. Nineteen percent—almost one-fifth—of men from social class 7, which encompasses those with routine occupations, such as cleaners, packers, van drivers and unskilled labourers, many of whom have been in work since the age of 15 or 16, are dead before 65. They never live long enough to draw their state pension. That compares poorly with those from the professional and business classes. There is a difference for women as well, but it is not so stark. I question, therefore, whether a one-size-fits-all scheme of increasingly raising the state pension age—the Government now want to consult on raising it even further to 68—is a sensible way ahead in this area of social policy. Furthermore, a second pension penalty is, of course, paid by the poorest men and women in our communities. Although most people from those social classes reach pension age, they enjoy far shorter pension lives than those from the better-off social classes. So a second pension penalty is paid.
The arguments for raising the state pension age across the board are based on the assumption that the labour market is sufficiently dynamic and flexible to provide the jobs for those people. Again, however, this ignores social status and the realities of many people’s working lives. It can be no coincidence that many who compete in a kind of macho competition to say how late we should draw our state pension—66, 67, 68, why not 70?—tend to be people from big business, the political class or the media, who may be able to continue their working lives almost indefinitely, writing articles, having portfolios, doing consultancy or, if they are unlucky, in the House of Lords. These people might be able to continue their work, but what about the van driver, the bus driver, the woman who cleans offices, the steel workers, the people with creaking backs and aching limbs, who come their 60s need to retire in a very old-fashioned sense?
The DWP would need to work on the details, but surely we could say that people in those social classes who typically started their working careers not in their early 20s, which will have been the lot of many of us, or their mid-20s, which will be the lot of many of our children and grandchildren with postgraduate qualifications, but at 15 or 16, and who often have worked hard ever since, once they have worked for, say, 50 years—we could check that in national insurance, tax and employment records— deserve a rest, in an old-fashioned sense. They need to retire. Given that the demography shows that those people are, sadly, likely to die four years before the average age, it would surely be only fair and just if they could draw their state pensions four years earlier than most of us.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a very useful debate this evening with a number of contributions. In particular, I thank my hon. Friends the Members for Newton Abbot (Anne Marie Morris), for Watford (Richard Harrington) and for Waveney (Peter Aldous), who spoke about the measures for small businesses in the Budget and the Finance Bill, my hon. Friend the Member for Bristol West (Stephen Williams), who brought his expertise in tax matters to the debate in a wide-ranging speech, my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Elmet and Rothwell (Alec Shelbrooke), who, in their different—but both eloquent—ways, set out how a Government must live within their means, and my hon. Friend the Member for West Suffolk (Matthew Hancock), who brought his economic expertise to the fore by highlighting the circumstances in which we find ourselves.
I remember our debate on last year’s Finance Bill following the June Budget, and this has been a somewhat shorter debate. I listened with great care to the speech of the hon. Member for Wallasey (Ms Eagle) and I think that only two of her 26 minutes were devoted to the Finance Bill. I wonder whether the Labour party’s interest in these matters is diminishing. If so, I would like to think that that is because much of the content of the Bill is uncontroversial, and because we have relatively few areas of contention. The Bill has been widely welcomed. It promotes growth alongside fairness, encourages investment and responsibility and provides for those who need help by supporting a more balanced economy on the basis of a credible and sustainable position.
We have set out our plans to reduce corporation tax—by 2p this year—moving us towards having one of the most competitive tax systems in the world once again, and meeting our objective of having the most competitive tax regime in the G20. We have set out our reforms of the taxation of foreign branches and our interim changes to the controlled foreign companies rules, which are resulting in companies looking to move back to the UK, not away from it. Britain is open for business again. We have set out our plans to double the amount of entrepreneurs’ relief to £10 million, and we have increased the research and development tax credits for small and medium-sized enterprises to 200%. Clause 42 increases the relief available through the enterprise investment scheme to 30%. Of course, tax rates matter as much to small companies as to large ones. Last year, we announced that instead of increasing the small profits rate we would cut it, and clause 5 reduces it to 20%.
Clause 1 increases the personal allowance by £1,000, which is the largest ever increase. In doing that we are removing 800,000 people from income tax altogether, as a step towards meeting our objective of a personal allowance of £10,000. Indeed, we announced in the Budget further measures toward achieving that objective.
Although supporting business is a necessary part of all this, it is important that the sectors with circumstances on their side contribute sufficiently to helping society. That is why we have increased the supplementary charge on profits from oil and gas extraction in the North sea. That will fund the 1p cut in the fuel duty that my right hon. Friend the Chancellor announced in the Budget and will delay the increase legislated for by Labour. As of 1 April, average pump prices have been approximately 6p a litre lower than they would have been had we continued with the previous Government’s escalator.
On VAT—this point was ignored entirely by the shadow Chief Secretary—it is remarkable that the shadow Chancellor still wants to talk about reducing VAT on fuel, which would take six or seven years to negotiate if it could be achieved at all. There is an easier way of cutting tax on fuel: it is by reducing fuel duty, and this Government have done it.
There are long-term proposals in the Bill dealing with annuitisation, the national employment savings trust and the taxation of pensions. At the other end of the scale, clause 40 introduces individual savings accounts for children, and my right hon. Friend the Chancellor has announced that support will be available for looked-after children through junior ISAs.
We are providing for a better environment. Clause 77 introduces a carbon price floor, which will provide the incentive for billions of pounds-worth of investment in cleaner sources of energy. The fact that we have ensured that the climate change levy maintains its real value adds to that incentive.
The Bill also helps to address other issues. The new duty on high-strength beers will help to tackle problem drinking by adding 25p to the price of a can of super-strength lager. That is coupled with a reduction in the duty on lower-strength beers to help to encourage the more responsible consumption of alcohol. I cannot promise my hon. Friend the Member for Elmet and Rothwell that there is anything in the Bill on draught beer, although we note his comments. I can only suggest that as he is dieting for his wedding, perhaps he should stay off the draught beer for another month or so. On behalf of the whole House, I wish him well. It is clearly the wedding of the year, and everyone will be looking forward to it.
We have set out to have a better tax system in the way that we make tax law, through a more deliberative and consultative approach, with greater emphasis on simplification. First, the corporate tax road map published last year set out changes to the regime. By introducing the changes to foreign branches and controlled foreign companies, the Bill takes the first steps alongside the corporate tax road map. Secondly, we published the majority of clauses in draft in the autumn. The Government have allowed proper time for better developed proposals and consultation. More than 200 responses were received on the draft clauses. Through the tax professionals forum which we set up, I received a large number of positive comments on our decision to consult.
Mr Gauke
The tax system needs to be simpler. Simplicity reduces the burdens on businesses—[Hon. Members: “Give way!”] Let me finish this point, then I will give way to the right hon. Gentleman. Simplicity reduces the burdens on businesses, individuals and HM Revenue and Customs. The Office of Tax Simplification set up last summer has already provided the first in a series of recommendations, and the Bill takes forward the first of those recommendations by removing tax reliefs. We will introduce further abolitions next year, after a period of consultation.
Malcolm Wicks
I am grateful to the Minister for so graciously giving way. He has spent most of his speech listing the contents of the Bill. Will he find time soon to respond to the debate?
Mr Gauke
I am not sure that it is necessarily wrong to describe what is in the Bill when we are debating that matter. I know it is not an approach that the shadow Chief Secretary took.
The Bill sets out our objectives. We need a competitive tax system. We must respond to the needs of the British people, who are facing higher fuel prices. The Government have been able to respond. Most of the debate today has not been about the specific measures; it has been about the broad approach. The Government believe that the structural deficit needs to be eliminated by the end of the Parliament. That position has the support of the International Monetary Fund, the OECD, the CBI, the British Chambers of Commerce, the European Commission, the World Bank, the Governor of the Bank of England, Tony Blair, credit rating agencies, the leading bond traders, the Institute for Fiscal Studies and a host of business leaders.
It is the lonely position of the official Opposition to believe that the biggest problem facing the UK economy is that the Government are not borrowing enough, but what have we seen in recent weeks? We have seen the likes of Portugal, after its Parliament could not reach agreement on a credible deficit reduction package, having to seek a bail-out. We have seen credit rating downgrades for the likes of Portugal and the Republic of Ireland. We have seen long-term interest rates rising, and we have seen, in response to the situation across the world, President Obama setting out a deficit reduction plan that is faster than that proposed by the Government.
It is clear that this is no time to be complacent about the dangers to our economy from failing to reduce the deficit. To abandon our plans for fiscal consolidation, as advocated by the Opposition, would risk a credit rating downgrade. It would put at risk our long-term interest rates and even put us back in the danger zone of a sovereign debt crisis. Those are not risks that the Government are prepared to take. That is why, in the Budget and the Bill, the Government remain determined to stay on course. I commend the Bill to the House.
Question put, That the amendment be made.
Comprehensive Spending Review
Malcolm Wicks Excerpts(14 years ago)
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Malcolm Wicks (Croydon North) (Lab)
I shall focus specifically on child benefit, and start by sincerely congratulating the coalition Government. In 1945 the coalition Government, which involved Liberals, Conservatives and Labour, introduced family allowances—a coalition Government who got something right. It was in the mid to late 1970s that child tax allowances were amalgamated with the family allowance scheme to form child benefit.
Unfortunately, there is now a need to restate the case for family support and for child benefit. I want to explain why it is such an important scheme to maintain as a universal scheme. First, there is the societal interest in bringing up our children. No one spoke more clearly about that than Eleanor Rathbone when in 1940 she said that
“children are not simply a private luxury. They are an asset to the community, and the community can no longer afford to leave the provision for their welfare solely to the accident of individual income.”
That was Eleanor Rathbone, the heroine of family support, back in 1940.
A second reason for child benefit is what we might call horizontal equity. The welfare state is not simply about poverty. In terms of child benefit, it is about the fact that whatever people’s income level, if they have children, they are taking on financial responsibilities over and above those who are childless or the single. Horizontal equity is important, as we are finding out now.
Thirdly, there is the sheer cost of bringing up a child. No longer is a child someone who becomes independent at 14, 15 or 16, when they leave school and get a job. Once upon a time children might have been an economic asset on the land. Today our children, with higher and further education, are dependent on their families for longer and longer.
People have had a go at estimating the costs of a child. The most recent estimate that I have seen is from the Liverpool Victoria Friendly Society, which said that the costs of a child could be as high as £200,000. We can add on to that other indirect costs when the mother, staying at home, loses her place on the career ladder, loses salary, loses income and loses pension rights. Our children are very expensive, as many of us who are parents know. It may be that for these economic reasons, the birth rate in societies such as the UK is below replacement level. These are significant issues.
The fourth reason is extremely important. The family allowance—now child benefit—was essentially an income for mothers. That is what Eleanor Rathbone was arguing for. Despite modern times, and despite the rise of the dual worker family and the rise of women’s rights, my guess would be that it is still mothers in most of our families who are responsible for juggling family budgets at different income levels. It is mums who make the judgment about whether the clothes and the shoes can be afforded, how to fund the school trips and the treats for children—[Interruption.] That obviously struck a chord with someone. If my hon. Friend the Member for Bishop Auckland (Helen Goodman) could also laugh at any jokes I make, that would be helpful.
The income for mothers is particularly important for mothers who, often pejoratively, are referred to as the stay-at-home mums—those who make the judgment that for the first few years, they want to look after their own children. Choice is so important. I think that in future we will see more parents wanting to spend time with their children, especially when they are young. That is why the family allowance and the child benefit have been so important, and that is why, following the modern coalition Government’s announcement, we have seen so much concern from those mothers in so-called higher income families about the loss of their income. That is very important.
A fifth reason is that child benefit, alongside other benefits, is part of the universalist spine that is so crucial to a modern welfare state. Alongside free education, a free national health service, pensions and national insurance benefits, child benefit is universalism, and I believe that universalism is a major force for cohesion in our society. It is a “We’re all in this together” social policy, which we start to erode with perilous implications. Child benefit is simple, easily understood and easily administered.
Malcolm Wicks
I agree, of course, because child benefit is easily understood, simple and a universal benefit. I am very happy to agree with my parliamentary neighbour.
Child benefit is now being undermined, which is why it is so important to restate the basics in favour of family benefits. We are seeing something that will attack the very principle of women’s entitlement. It will essentially punish mothers if their husbands earn above the higher tax threshold; the mums will suffer because of the father’s income. As an aside, let us not assume that in the 21st century income is shared by all families; there are still families where the father keeps more than he gives to the mother and the children. That is not just about poverty, either; it happens at other income levels, too.
The measure is also a snub to those mothers who, as I said earlier, choose to stay at home to look after their own children. We need more choices—about whether people go to work and use child care or stay at home to look after their own children. What message are we sending out to those mothers who want to care for their children in that way?
The measure also introduces, as we know, the unfairness between the dual-earner family on £80,000, who keep the child benefit, and the family with one earner above the threshold, who lose it. The measure is a recipe for complexity, and it will disincentivise those who are just below the tax threshold to earn more money in the future.
This is a measure that needs to be rethought. It undermines family support, and it undermines our children. So much for the party of the family.
Justine Greening
I was about to ask the hon. Gentleman to give way, Mr Deputy Speaker. The Government are spending slightly more on capital infrastructure than the previous Government, so heaven knows what the industry would have thought of Labour’s plans. In the next four years, we will invest more than £30 billion in transport projects, £14 billion of which will fund maintenance and investment in our railways and £10 billion of which will be spent on road, regional and local transport schemes. We have created the new green investment bank to help finance sustainable infrastructure for the future and we have launched the £1.4 billion regional growth fund, which has rightly been welcomed by my hon. Friends the Members for Bristol West (Stephen Williams) and for Macclesfield (David Rutley).
Even when faced with the economic problems bestowed by the Labour party, we are still investing tens of billions of pounds in Britain’s future. That goes alongside the reduction in corporation tax that we brought forward in the emergency Budget and the reduction in national insurance that we have also brought forward, scrapping the Labour party’s jobs tax. The hon. Member for Wallasey (Ms Eagle) said that the spending review is not just about numbers, but I shall give her a number—400,000. That was the number of extra unemployed at the end of Labour’s time in power, but Labour still wanted to introduce the jobs tax.
The hon. Members for Easington (Grahame M. Morris), for Stockton North (Alex Cunningham), for Middlesbrough South and East Cleveland (Tom Blenkinsop), for Penistone and Stocksbridge (Angela Smith) and for Nottingham South (Lilian Greenwood) all spoke of their concerns about the spending review and the cuts, but none of them offered any alternatives. We hear about the Opposition supporting cuts, but we never find out which ones they support.
The second principle behind our decisions is to ensure fairness and make sure that those with the biggest shoulders bear the largest burden, while protecting the most vulnerable in our society. That is why the Government have restored the earnings link for the state pension and ring-fenced NHS funding. We want to give every child the best possible start in life by increasing the child tax credit for the lowest-income families and by protecting our investment in schools. There is nothing fair about not tackling the deficit and placing the millstone of debt that we currently have around the necks of our country’s 20-somethings for the future.
Malcolm Wicks
Is it fair that when the cuts, including those to child benefit, are analysed, time and time again those who are hit the hardest are mothers and children? Does that make sense in terms of family policy?
Justine Greening
I do not accept that at all. The right hon. Gentleman needs to have a chat with the hon. Member for Hammersmith (Mr Slaughter), who was claiming that families on £79,000 a year are too rich to get support from the local council to access housing in London but too poor to have their child benefit withdrawn. That shows the incoherence of Labour’s policy on the economy, particularly on welfare—a budget that accounts for almost £1 in every £3 that we spend.
As my hon. Friends the Members for Harrow East (Bob Blackman) and for Brentford and Isleworth (Mary Macleod) said in their powerful speeches, work simply does not pay in our welfare system. People are put on benefits with no prospect of ever being better off in work and, as my hon. Friend the Member for Eastbourne (Stephen Lloyd) pointed out, successive generations are condemned to a life of state dependency. Opposition Members might think that that is fair, but I do not. It is one reason why over the coming years and next two Parliaments the Government will introduce the universal credit—to make sure that people on welfare will always be better off by moving into work.
Equitable Life
Malcolm Wicks Excerpts(14 years, 3 months ago)
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Mr Hoban
I am grateful to my right hon. Friend for welcoming the statement. I am committed to the process taking place as quickly as possible. There are some challenges in the design of the scheme that we will need to think about when it comes to payments, but I am determined to ensure that payments start at the end of the first half of next year.
I want EMAG and others to take part in the debate about the scheme, and I am very happy for them to make representations to the independent commission that will help to draw up the detail of the scheme. I think we have a programme that will deliver justice in a way that is more robust, transparent and open than the process set out by the previous Government. I would also say to my right hon. Friend that we would have been in a better place if the previous Government had acted sooner to tackle the problem rather than trying to kick it into the long grass.
Malcolm Wicks (Croydon North) (Lab)
I appreciate the difficulties of calculating loss and the complexities of the process that the Minister has set up, but can he give us any idea of the percentage range of compensation that our distressed constituents might receive? That is the question that people want an answer to.
Mr Hoban
I accept that point. It would have been better if this whole process had started much sooner and we could have given policyholders much more assurance. We will not be able to determine how much will be paid to policyholders until we go through the spending review process, but I have committed to return to the House in October to say how much will be allocated by way of compensation. That pot of compensation will then be allocated by the independent commission.