Taxation Freedom Day Bill

Rachel Reeves Excerpts

Friday 25th November 2011 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

I congratulate the hon. Member for Kettering (Mr Hollobone) on securing this debate, which is clearly of great importance to him. He referred to two dates: 1972, when tax freedom day would have been earliest in the year, and 1982, when it would have been latest.

In 1972 we had a three-day week, so there was not much happiness, and there would not have been much to celebrate on taxation freedom day. In 1982, we had unemployment of 3 million. The reason taxation freedom day came so late that year might be that there were not enough jobs and more was being paid out in benefits with not enough coming in via tax revenue.

The hon. Member for Shipley (Philip Davies) said that he would like us to be more like Cyprus and less like Belgium. The Belgian economy has grown by 1.8% over the past year, and Cyprus is one of just three countries in the European Union, along with Portugal and Greece, that has had a slower rate of growth than the anaemic growth that we have seen in the UK this year. I think that many of our constituents would rather we were a little more like Belgium, with stronger growth and lower unemployment, and a little less like Cyprus, but we may differ on that.

[Philip Davies]

I take it from what the hon. Lady has said that the Labour party’s official stance is that it would like taxation freedom day in this country to be 4 August.

[Rachel Reeves]

No, that is not our stance. If the hon. Gentleman would like us to be a bit more like Cyprus, he might want to look at it in the round, because, as I said, Cyprus is one of just three countries in the European Union that has grown at a slower rate than the UK this year.

Conservative Members have spoken about the difference between taxation freedom day in the US and in the UK. One of the reasons taxation freedom day in the US will come a little earlier is that it does not have a national health service, and, as a result, people have to pay from their own income for the health service. If hon. Members took into account how much individuals and businesses contribute towards health care insurance in the US, they might find that its taxation freedom day came a little later in the year—perhaps even later than in the UK.

My main question is why we need a Bill on this. Hon. Members, particularly the hon. Member for Kettering, have spoken about the work of the TaxPayers Alliance and the Adam Smith Institute. If they have all the facts and figures, why do they not organise a celebration for taxation freedom day? Why do we need Government legislation? If we had Government legislation on taxation freedom day as a result of passing this Bill, the day might fall a little later in the year because of the additional costs.

[Mr Bone]

Surely the hon. Lady is not saying that the cost of announcing taxation freedom day would shift it by one day—that is patently absurd.

[Rachel Reeves]

I am sure that the hon. Gentleman would agree, though, that there would be costs associated with the legislation, the statutory instrument, and civil servants’ time. I wonder why hon. Members want more legislation when presumably they really want less legislation and less money spent on civil servants and so on.

[Jacob Rees-Mogg]

The hon. Lady has converted me. I always thought that Palmerston was right when he said that the House of Commons would eventually run out of things to legislate on. It is a thoroughly good idea that we should run out of things to legislate on and not legislate for everything we feel like. For once, I have been converted by a Labour Front Bencher.

[Rachel Reeves]

I am not sure whether to celebrate that, but this does seem to me to be a strange thing to want to have a piece of legislation on.

[Mr Hollobone]

An interesting comparator would be the interest that my hon. Friend the Member for Wellingborough (Mr Bone) has taken in human trafficking. Her Majesty’s Government have designated an anti-slavery day and given it official recognition. All the Bill asks the Government to do is officially to recognise taxation freedom day.

[Rachel Reeves]

That does not seem necessary to me, but I guess that the hon. Gentleman and I disagree. If the work of the TaxPayers Alliance and the Adam Smith Institute is as fantastic as he thinks, why could they not organise a celebration, as other groups organise days to celebrate things? One does not necessarily need legislation in order to celebrate a day that one thinks important.

[Mr Bone]

There is a serious point here. Everyone knew when anti-slavery day was, but its official recognition by the Government lent weight to its importance. That is the reason taxation freedom day would be so important.

--- Later in debate ---

[Rachel Reeves]

I guess that we disagree on that. There are costs associated with all these things and I do not think this is a cost that my constituents and many hon. Members’ constituents would want to bear.

That brings me to my main point. This is a worrying time for businesses and families throughout the country. They are struggling with higher food prices and fuel bills, and are worried about their jobs and their children’s future. I am not convinced that the hon. Member for Kettering has explained what the Bill would do to help an ordinary family in Kettering who are struggling with stagnant wages, high unemployment and high inflation. In Kettering, there has been an increase in long-term youth unemployment of 127% since January this year.

It seems to me that the most important thing that Members of Parliament can do in representing our constituents is to put in place policies to address those issues. I am not sure that celebrating tax freedom day would help get young people back to work, help families facing a squeeze in their living standards or help businesses that are seeing demand dry up. I am certainly not sure what it would do for the 4,000 people who are unemployed in my constituency of Leeds West.

One tax that the hon. Member for Kettering might want to change is VAT. I wonder whether next Tuesday he and other Government Members will support the Opposition when we argue that VAT should be cut temporarily. That would bring forward tax freedom day and put £450 in the pocket of the average family. It would be a real step to help families and businesses across the country.

The hon. Member for Dover (Charlie Elphicke), who is no longer in his place, spoke about the tax on cigarettes. Many people would think—[Interruption.] Oh, here he is. Welcome back. It seems that if anyone mentions cigarettes, he is automatically in his place. Most of our constituents recognise that cigarettes should be taxed because they have social costs beyond the cost of producing and selling them. However, if one looks at the increase in the cost of petrol that we all face when we fill up our cars, reducing VAT back down to 17.5% would reduce the cost of petrol by 3p in the pound.

[Philip Davies]

If the hon. Lady is so keen for people to have an extra £450 back in their pocket, which I could certainly support, will her party propose a reduction in income tax to deliver that? If her party proposed cutting income tax to give £450 back to people, I might even be tempted to support it.

[Rachel Reeves]

The hon. Gentleman mentioned earlier—or it might have been the hon. Member for Bury North (Mr Nuttall), but I am sure that they agree—that the increase in the income tax threshold means that fewer people are paying income tax. The good thing about reducing VAT is that it has a progressive effect, because people on lower incomes spend a higher proportion of their income on VAT than people on higher incomes. A reduction in VAT would therefore help to get money in the pockets of the people who most need it at the moment in a way that a cut in income tax would not.

[Robert Halfon]

I am grateful to the hon. Lady for being so generous in giving way. She said that one way to reduce petrol and diesel prices would be to cut VAT. Is it not the case that the majority of businesses get their VAT back? What most people want is a fuel duty cut, which is why I welcomed the Government’s cut in fuel duty in the last Budget and hope that they will not increase it next year.

[Rachel Reeves]

The reduction in VAT would put money in the hands of families. Of course, most people who run businesses are also part of a family, so they would benefit from the reduction in VAT. Labour’s five-point plan for jobs and growth also includes a national insurance holiday for small businesses taking on new employees, so that plan would help families and businesses up and down the country.

[Mr Bone]

Are Government Members to assume that the hon. Lady has absolutely no support from her party, as the Opposition Benches are completely empty?

[Mr Bone]

Well, they were empty.

[Rachel Reeves]

I think my hon. Friends are where I would like to be today—in the constituency meeting constituents, rather than here. I usually try to go back to my constituency on a Thursday, as do many other MPs. Of course, the Members who are here today think that this issue is more important than doing work in their constituencies.

[Charlie Elphicke]

A few moments ago, the hon. Lady mentioned the taxation of cigarettes. Seeing my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) in the Chamber, it is only right that I remind her that the Roman emperor Marcus Aurelius said in his “Meditations”:

“Into every life a little rain must fall.”

Those of us who smoke have enough rain with the health hazard, without massive taxation on top.

[Rachel Reeves]

I am afraid I only went to a comprehensive school, so I did not study Latin. Maybe the hon. Member for North East Somerset (Jacob Rees-Mogg) would like to do some interpretation.

The hon. Member for Kettering reminds me of my holidays when I was at school. As he knows, I used to go to Kettering in all my school holidays, because my grandparents lived there. I still have many family members in Kettering.

[Philip Davies]

Do they vote for him?

[Rachel Reeves]

I expect not.

I was just thinking about the lives that my grandparents led and the things that mattered to them. Every day, they benefited from what happened in both the public and private sector. They worked in the shoe factories in Kettering, as the hon. Member for Kettering knows—we have discussed it before. However, they also lived in a council house, when they were ill they used Kettering general hospital, and their children went to state schools in Kettering. My father went to Kettering grammar school.

Having a tax freedom day suggests that until that date in May, June or whenever it falls, people are contributing to someone or something else, or to the Exchequer. Actually, the money that they pay in taxes every day from the beginning of January until the end of December is used for things that matter to them, for instance building council houses such as my grandparents lived in, paying for teachers and for schools such as they went to and paying for nurses and doctors in the hospital that treated them when they were ill. It seems a little irrelevant to have a tax freedom day, because whether it is 5 February or 25 November, people need both what they pay their taxes for and disposable income to pay for things that matter to them. That is why those suggesting a tax freedom day misconstrue the situation.

[Charlie Elphicke]

The hon. Lady makes the point that public services need to be funded. Does she not recognise that tax is needed also to fund the interest on the Government’s debt, much of which was added by the previous Government? Does she share my regret that we have so much debt as a nation?

[Rachel Reeves]

The reality is that because the current Government have failed to get a grip on growth, and because unemployment is rising and inflation is higher than forecast, borrowing is now expected to be £46 billion higher over the course of this Parliament than they had previously planned. When the Office for Budget Responsibility reports next week, we are likely to see that Government borrowing will be higher still.

The point is that we cannot reduce the budget deficit just through tax increases and spending cuts. We also need economic growth, and we can see the difference between the UK’s growth rate of 0.5% over the past year and the higher rates of other countries such as the US, Canada and even Italy. We cannot reduce the deficit and get debt down unless the economy is growing again and creating jobs; otherwise, we will end up paying more out in benefits and getting less in through tax revenues. That is why the Government’s deficit reduction plans are not bearing fruit—they do not have the strategy for growth upon which all that hinges. I believe that if we want to reduce the deficit and get our constituents back to work, we need a plan for jobs and growth. Without that, borrowing will continue to get higher and tax freedom day will be a little bit later in the year.

I was looking earlier at Labour’s five-point plan for jobs and growth and wondering how much of it Conservative Members, particularly the hon. Member for Kettering, might support. The first point is a temporary reduction in VAT, which he might support because it would bring forward tax freedom day to slightly earlier in the year. I suspect that he would not support the second point, which is a £2 billion tax on bank bonuses, although most of our constituents would not be affected by it. The bank bonus tax would be used to fund 100,000 jobs for young people, which would get more people back to work and paying taxes and mean that less was being paid out in unemployment benefits. Perhaps that, too, would bring forward tax freedom day.

The third point is the introduction of long-term investment projects. That might sound like something that the hon. Gentleman would disagree with, but if it helps people to get back to work, particularly in the construction sector, perhaps Conservative Members would support it. It would get more people back to work and paying taxes. The fourth component of Labour’s five-point plan for jobs and growth is a one-year cut in VAT—to 5%—on home improvements. Perhaps Conservative Members could also support that, given that it is a tax cut. The fifth point is a one-year national insurance tax break for every small firm taking on new workers. I hope that they could support that, too, because it would help small businesses to take on more employees and get the economy moving again.

[Charlie Elphicke]

The hon. Lady mentions a long wish list but what would be the total cost in extra public spending?

[Rachel Reeves]

The Government will be borrowing more this Parliament because they are paying the costs of economic failure: they are paying the costs of having 2.62 million unemployed people, including 1.02 million unemployed young people; they are paying because growth, at 0.5% over the past year, is lower than the Office for Budget Responsibility forecast; and they are paying for the higher levels of inflation, which was 5.2% in September compared with the 4.3% that the OBR forecast, which means that we are paying out more in benefits.

The Government are borrowing £46 billion more this Parliament, and as I said earlier, that number is likely to rise next week because the Government have not done enough to get the economy moving, to get people back to work and to contain inflation. The VAT increase led directly to that increase. I accept that these policies would cost money but they would get people back into jobs, get the economy growing again and reduce the budget deficit at a more balanced pace. As Conservative Members have said in the past couple of days, it is clear that although targeted tax cuts now might mean a bit more borrowing, they would help to get the economy back on track, which would also help to reduce the budget deficit in a balanced way.

[Charlie Elphicke]

But would that extra borrowing not put at risk our interest rates? I do not know whether the hon. Lady is aware, but today the interest rates on UK gilts are lower than those on German bunds. I do not know when that last happened. The risk is that if we borrow more, interest rates will be higher, which will have vastly more negative effects on our economy than the current spending squeeze—

[Charlie Elphicke]

May I finish first, Mr Deputy Speaker? That would delay tax freedom day.

[Rachel Reeves]

It is good to know that the hon. Gentleman will talk about more than just the cost of cigarettes. The last time I looked, yields on German Government bonds and UK gilts were 2.14% and 2.16% respectively. I do not know whether that changed when he nipped out of the Chamber for a cigarette.

Market traders are looking for a deficit reduction plan, but they are also looking for economies that will grow. Economic growth is a component of reducing the debt and tackling the budget deficit. Unless we have growth, we pay out more in benefits and get in less in taxes. If we want tax freedom day to be a bit earlier in the year, we need more people in work and more businesses succeeding, which is why Labour’s five-point plan for jobs and growth is so important to getting people back to work and achieving the balanced deficit reduction that we need.

In conclusion, I do not support the Bill. It is not a good use of Government time, parliamentary time or taxpayers’ money to celebrate a tax freedom day. Our constituents would all prefer us to concentrate on the things that matter to them: jobs, growth and the squeeze on living standards. The Minister said earlier in the week that the Government were on track to meet their deficit reduction plans. It would be interesting to hear what she has to say about that today, ahead of the OBR’s numbers’ coming out next Tuesday. I believe that a policy of targeted tax cuts to help families is more in touch than the Government sticking doggedly to plan A. I thank the hon. Member for Kettering for giving us a chance to debate these issues today, and I am sorry that I am unable to support his Bill.