Unauthorised Overdrafts

Rachel Reeves Excerpts

Wednesday 8th February 2017 Westminster Hall

[Rachel Reeves (Leeds West) (Lab)]

I beg to move,

That this House has considered fees and charges on unauthorised overdrafts.

Overdrafts are one of the most widely used credit products in the market. Almost three in 10 people in the UK with personal current accounts have been overdrawn in the past year. Overdrafts can be a flexible form of borrowing, and most people use theirs for only a couple of months in the year. However, a significant minority of people—around 10%—are much more frequent users and regularly go overdrawn for nine months or more each year. There are also people who regularly go over their overdraft limit and are hit by exorbitant and disproportionate charges. The major banks make more than £1 billion per year from charges on unauthorised overdrafts—the majority, according to the head of the Competition and Markets Authority, from financially vulnerable customers.

StepChange Debt Charity estimates that 1.7 million people in the UK are trapped in an overdraft cycle and consistently use overdrafts to meet essential and emergency costs. For many vulnerable customers who are already struggling, regularly having to go into an overdraft or over an overdraft limit can lead to and exacerbate financial difficulties. Many hard-working families live constantly on their overdrafts, and those in chronic financial difficulties often face impossible choices between meeting the costs of essential bills and going further overdrawn or over their overdraft limit. Those people can struggle to get out of their overdrafts, as fees and interest build up over time and make it increasingly difficult to get out of the red. Those households are also more likely to be on the edge of their overdrafts, and if they go over, they face substantial and punitive charges that push them into difficulties. If people do not have the means to get out of their unarranged overdrafts, that can lead to persistent charges, which make it successively harder for them to avoid financial difficulties each month.

Last year, StepChange surveyed its clients with overdraft debt to explore their experiences of overdraft charges. It found that people with overdraft debt who contact the charity regularly go into the red. On average, those people had been in an unarranged overdraft for 11 of the past 12 months. Almost two thirds—62%—of the people StepChange helps with overdraft debt regularly exceed their arranged overdraft limit as they struggle to make ends meet; they did so on average in five of the past 12 months. Borrowers face average charges of £45 a time for slipping into an unauthorised overdraft. That adds up to a massive £225 a year of unauthorised overdraft charges on average.

[Yvonne Fovargue (Makerfield) (Lab)]

Does my hon. Friend agree that the cap on payday lending has actually worked quite well and stopped unaffordable charges, so in its review of high-cost credit, the Financial Conduct Authority should look at introducing a similar cap on overdraft charges and more affordable ways of paying down debt?

[Rachel Reeves]

My hon. Friend has done a lot of work in this area, both as a Member of Parliament and before she came to this place, and she is absolutely right. I will come on to the difference between caps on overdraft charges and those on payday lending.

Research published today by Which? found that consumers needing as little as £100 could be charged up to £156 more by some major high street banks than the Financial Conduct Authority allows payday loan companies to charge when lending the same amount for the same period. For example, Which? compared the cost of borrowing £100 for 30 days and found that some high street banks’ unarranged overdraft charges were as much as seven and a half times higher than the maximum charge of £24 on a payday loan for the same period. And because bank overdraft charges apply to monthly billing periods, not the number of days money is borrowed for, consumers who need £100 could pay up to £180 in fees if they borrow over two calendar months from their high street bank in the form of an unarranged overdraft.

[Gloria De Piero (Ashfield) (Lab)]

A constituent of mine was made redundant and wanted to get back on his feet, so he set up a small business—a soft play area for kids, which was essentially a cash business. For every direct debit he paid, he had to pay 40p. For every automated debit and every internet payment, he had to pay 40p. Every time a payment was made to his account, the charge was 22p, and for every £100 paid to his account, he was charged 66p. Those are obscene amounts for what is essentially a cash business. I thank my hon. Friend for allowing me to put that on the record.

[Rachel Reeves]

I thank my hon. Friend for speaking on behalf of her constituent. We have all experienced people in our patches being ripped off by banks. Frankly, that is not what people expect. They expect to be able to trust their high street bank to give them a good deal and treat them fairly, yet in my hon. Friend’s constituent’s case, that just is not happening.

[Yasmin Qureshi (Bolton South East) (Lab)]

I congratulate my hon. Friend on securing this excellent debate. She talked about the Which? report. She will be aware that NatWest customers face fees of £180 for exceeding their limit by £100 for 30 days, and that Lloyds and Santander demand £160. That is completely uncalled for.

[Mrs Cheryl Gillan (in the Chair)]

Order. I remind Members that interventions need to be very short and punchy, particularly when we have only half an hour.

[Rachel Reeves]

My hon. Friend is absolutely right. We have a situation where people can be charged £5 or more per day by many high street banks for going just a few pence overdrawn. Those charges rack up very quickly. The issue is that they are totally disproportionate to the offence. Going just a few pence over an overdraft limit in one month could mean £100 of charges, and as she says, the charge for doing so over two calendar months is potentially £180.

It is simply not acceptable that banks are making large profits at the expense of pushing the most financially vulnerable people deeper into debt spirals. My hon. Friend the Member for Ashfield (Gloria de Piero) gave one example, and StepChange has told me about two other cases. The first is of a 42-year-old man who racked up overdraft charges after losing his job. Interest on his overdraft and persistent charges for going over his limit meant that on average, £80 a month was added to his debt. Over a year, his overdraft debt increased by more than £1,000 because of interest and unauthorised overdraft charges. The second case is of a 38-year-old woman who faced spiralling overdraft debt after getting divorced. The increased burden of managing financial commitments on her own meant that she slipped into an unplanned overdraft by £90. That led to a cycle in which she was constantly in and out of an unarranged overdraft, and her overdraft debt increased to £1,000 due to interest and charges.

Those people, like so many others, were already in difficulty and trying to manage their debt from day to day. The banks should have a responsibility to help them manage their finances and help them out of their cycle of debt rather than sending them deeper into crisis with extortionate charges. The banks know that those customers are financially vulnerable and struggling, yet they do nothing to help—in fact, they do the exact opposite by making it harder for them to get a grip of their finances.

[Chris Evans (Islwyn) (Lab/Co-op)]

I thank my hon. Friend for securing this timely debate. Does she agree that it is sometimes in the banks’ interest to allow customers to run massive overdrafts so that they can push them on to even higher personal loans and other products, which they might not need and might not be right for them in the circumstances?

[Rachel Reeves]

I agree. What really worries me is that most of the £1 billion that is made every year from unauthorised charges is made on the backs of those who are most financially vulnerable. It is a bitter irony that it is now a better deal for some people who need short-term credit to go to a payday lender rather than their high street bank. Most of us regard banks as more reputable and fairer to customers, yet for many people that is just not the case.

Huge progress has been made on the charges faced by people who access finance through payday lenders, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) mentioned, with the introduction of a cap following great work by my hon. Friend the Member for Walthamstow (Stella Creasy), so why are banks still allowed to get away with these unfair practices? There was some hope last year that this problem would be addressed when the Competition and Markets Authority undertook a review of the retail banking market. The CMA recognised the issue and the inquiry’s chair subsequently told the Treasury Committee that unauthorised overdrafts are

“the biggest single problem in the personal banking market”.

The CMA published its review of retail banking on 9 August, but frankly its conclusions and proposals were a missed opportunity. It found that overdraft users make up almost half of those with personal current accounts and that many find it hard to keep on top of their arranged or unarranged overdrafts. It acknowledged that failing to do so can be costly, since overdraft users can accumulate high costs from the complicated mix of interest, fees and charges.

The review goes on to say that overdraft users, like other personal current account customers, have very low switching rates, which is particularly striking given that they often have the most to gain from switching. One reason for that is that overdraft users can be uncertain about whether they will be able to obtain an overdraft facility from a different bank or when such a facility would be made available to them and are therefore worried about moving accounts,. Anyway, none of the major high street banks has a great offer for customers who are financially vulnerable.

When it came to remedies, the CMA’s proposals, quite frankly, fell well short of the mark. Some measures will go some way to addressing problems for some people, but not for those who most need support. One proposal says that customers need to be given clear notice when they are going overdrawn and that banks will be required to notify customers when they are going into an unarranged overdraft. Customers also need to be given the opportunity to avoid incurring charges, and the alerts that banks will be required to provide will inform them of a grace period during which they have an opportunity to avoid charges by paying more money into their account.

Critically, the CMA fell short of proposing an independently set maximum cap on the charges on overdrafts, as we have with payday loans. Instead, the report said that banks will be required to set their own ceilings on their unarranged overdraft charges in the form of a monthly maximum charge. However, most banks already have that. The problem is not that banks do not have a maximum charge—they do, and it might be £5 a day or £90 a month—but that the maximum charge is much too high.

The major four high street banks, which make up 77% of the current account market, already set their own caps on charges, and those charges can be up to £100 a month. The CMA’s proposals represent little more than business as usual for those banks. Competition in this section of the market is weak, and in the past few years it has got weaker still with the merger of many of our high street banks. Heavy unarranged overdraft users are the least likely to switch banks accounts. Banks make more than £1 billion from unarranged overdraft charges and, given the substantial revenues they generate, there is little financial incentive to lower existing charges.

Ultimately, the proposals in the CMA report might take small steps towards helping some, but for the majority of people who are already struggling and do not have the means to prevent unauthorised overdrafts even if they are alerted to them, they will do little, if anything, to help. The monthly maximum cap as proposed by the CMA will likely do nothing to stop the deepening of a person’s debt crisis, with punitive and disproportionate charges.

I do not want to deny the banks the right to charge for the services they provide, but I do want some fairness and proportionality. It is not fair to charge £5 a day or £90 a month for being a few pence over an overdraft limit, and it is not fair to whack charges on customers who are struggling with debt, in the knowledge that the charges will make their problems worse, not better. Banks need to take some responsibility for their customers.

As the Competition and Markets Authority admitted at a meeting of the Treasury Committee, the measures proposed in the report are geared at everybody and not in particular those who are financially vulnerable, for whom no direct action is proposed. When I asked whether the banks were taking advantage of financially vulnerable customers, it conceded that those customers who are least likely to switch are a “captive audience” for the banks and their excessive charges.

Ultimately, the Competition and Markets Authority report was a huge opportunity finally to put an end to what it calls “uncomfortably high” charges and to address what it said was the

“biggest single problem in the personal banking market”.

However, the opportunity was squandered. In effect, it passed the buck by asking the Financial Conduct Authority to respond to the recommendations. Peter Vicary-Smith, the chief executive of Which?, said to the Treasury Committee that the Competition and Markets Authority had left the heavy lifting and the difficult decisions for the Financial Conduct Authority to make. In response to that buck-passing, the new chief executive of the Financial Conduct Authority, Andrew Bailey, has made the welcome decision to include this issue in its ongoing review of high-cost short-term credit, which will report later this year.

The Financial Conduct Authority needs to do more to tackle the detriment caused by persistent overdraft use. I have been pleased by the focus that the FCA has placed on this issue so far, picking up where unfortunately the CMA left off. StepChange Debt Charity says that the review

“should include looking at what more can be done by lenders to support people who are trapped in an overdraft cycle and give them better and more affordable ways of paying back their debts.”

[Yasmin Qureshi]

Does my hon. Friend consider that what the banks are doing is insidious, bearing in mind that they and the Government can borrow at very low rates of interest?

[Rachel Reeves]

My hon. Friend is right. The bank rate is so low and banks are being given access to money at such low rates from the Bank of England. The problem is that they are not passing that on to their customers, and certainly not to those who most need it. The banks should be doing much more to ensure that those low interest rates are passed on, because that would give the whole economy a boost as well as helping those people who most need it.

I have been calling on and will continue to urge the Financial Conduct Authority to look at setting a cap for banks on unauthorised overdrafts as has already been done for payday lenders. It must look at such lending by banks in exactly the same way and not shy away from setting a cap for banks, too.

I also urge the Government to take action, because while the Financial Conduct Authority undertakes its review, every single day more financially vulnerable customers are being exploited and more and more are being pushed further into a cycle of debt. That is simply not acceptable. The justification for a cap in these markets has been made with the introduction of a cap in the payday lending market, and those are two different sources for the same short-term credit for people who need it immediately. They can either go to a payday lender or go into an unarranged overdraft. Whichever option they decide on to meet their short-term needs, they should not be exploited. The Government recognised that for payday lending and now need to recognise that on unarranged overdraft charges.

Frankly, it is a disgrace that the banks are charging more than payday lenders for short-term lending and getting away with it, so the Government should take action. That is why I am calling on the Minister and the Government to legislate for a cap on overdraft fees and charges, as they have already done for payday lending through the Financial Services (Banking Reform) Act 2013. That would allow the FCA to implement such a cap without delay and without the risk of the banks taking the matter to the courts.

It is not right that the banks are making huge profits at the expense of the most vulnerable. Anything less than an independently set cap on overdraft charges will not be enough. I urge the Minister and the Government to act now, and I ask that as a first step the Minister will agree to meet me and representatives of Which? and StepChange to discuss this issue further so that we can ensure that all customers are afforded the protection they deserve.

[The Economic Secretary to the Treasury (Simon Kirby)]

What a pleasure it is to serve under your chairmanship, Mrs Gillan. I thank the hon. Member for Leeds West (Rachel Reeves) for securing this important debate on an issue that we share a keen interest in. I am here to listen and, hopefully, to be helpful.

It is clear that we all share a commitment to ensuring that people across our society can rely on the financial services that they need to manage their money effectively, securely and confidently. We want an economy that works for everyone. For most people, the bedrock of that is a transactional bank account that enables them to manage their personal finances on a day-to-day basis. Access to credit, including the use of an overdraft facility, is an important part of that.

For that reason, the Government are committed to doing two things. First, we will support and encourage competition among financial services providers, not only so that people have more choice over who they bank with, but because we know that more competition inevitably means better options on offer for customers, who can then vote with their feet. Secondly, we want to make sure that British customers are supported in the important financial decisions they make.

The hon. Members who have spoken have expressed the same aims, and I want to discuss the key issues that have been raised. I thank the hon. Members for Ashfield (Gloria De Piero), for Makerfield (Yvonne Fovargue), for Bolton South East (Yasmin Qureshi) and for Islwyn (Chris Evans) for making some thoughtful points, sharing their constituents’ stories and making some more general observations. I am sure that the FCA, which is reviewing high-cost credit, will listen carefully to the debate.

The hon. Member for Leeds West rightly discussed the Competition and Markets Authority. A key question is how to ensure that there is competition. That is why we set up the CMA in the first place as a single stronger and independent competition regulator. It is the CMA’s role to review the market, assess how effectively competition is working and, where appropriate, propose remedies to address any issues. Hon. Members have referred to the CMA’s retail banking market investigation, which was published last summer. I am aware of the variety of opinions on that. It represented a thorough analysis of how competition is working in retail banking, including the role of both unarranged and arranged overdrafts.

The CMA concluded that the retail banking market is not working well for overdraft users. To tackle that, it is imposing remedies to improve overdraft transparency, including setting a monthly maximum charge for unarranged overdraft charges. It also looked closely at whether a hard cap on overdraft fees was necessary on competition grounds, and reached the conclusion that it was not. However, as hon. Members may know, it also recommended that the FCA should assess the ongoing effectiveness of the monthly maximum charge and consider whether other measures, including the introduction of rules, could be taken to enhance its effectiveness further.

The hon. Members for Leeds West and for Makerfield mentioned the action of the Financial Conduct Authority. It is true that the FCA has an important role to play in relation to overdrafts. It is worth pointing out, of course, that it has a much broader set of statutory objectives in relation to financial services, duties, powers and tools than the CMA. It has the power to cap the cost of all forms of consumer credit if that is deemed necessary and proportionate to tackle risks to consumers.

[Rachel Reeves]

I thank the Minister for his response to the substantive points that I and my hon. Friends have made. Does he think it is inconsistent that the Government have set a monthly maximum charge for payday lenders, but not for high street banks in relation to unarranged overdraft charges? If he does, is it time for the Government to act by setting a monthly maximum charge for unarranged overdrafts as well?

[Simon Kirby]

I understand the point that the hon. Lady is making. What I think is appropriate is for the Government to listen carefully to what the FCA comes up with later in the year, and to act in consumers’ best interests. I am sure we both agree on that. There is clearly an inconsistency; otherwise we would not be having this debate.

The Government welcome the fact that the FCA is looking closely at what action might be necessary on overdrafts, considering the twin objectives of enhancing competition and protecting customers. That is why, in the light of the CMA’s recommendations last November, the FCA launched a consultation on high-cost credit, including high-cost, short-term credit—payday loans—and overdrafts. The FCA’s call for contributions remains open for another week—until next Wednesday, 15 February. I encourage those watching or listening to the debate, or reading it afterwards, to contribute to that, so that the FCA will be fully informed of the variety of opinion.

Today’s debate is timely, in view of that. It has—and I thank the hon. Member for Leeds West for this—attracted quite a lot of press interest; the subject is obviously of interest out in the real world. I am certain that hon. Members’ views will be heard clearly.

[Rachel Reeves]

I get the idea that the Minister is wrapping up. At the end of my speech, I asked whether he would meet me and representatives of Which? and StepChange. I hope that he will accept that invitation and that the meeting can be arranged soon.

[Simon Kirby]

I am not quite ready to wrap up yet; I have a few things to say that I am sure the hon. Lady will be pleased to hear. I should be delighted to meet her and representatives of Which? at an appropriate point—the most constructive time, when we can make the most difference. Obviously, while the FCA is considering the matter and the consultation is still open, the appropriate time may not be next week, but I should be delighted to work with her to come up with a solution that benefits everyone.

I think it is safe to say that the Government will be working alongside the FCA to understand the issues in the market. We will continue to do so, to ensure that it has all the appropriate tools at its disposal to take action where problems are identified. We have heard about some of the issues that people face when taking on overdrafts or other forms of high-cost credit. I can reassure hon. Members that the Government will closely monitor the work of the FCA in looking at that area. I am sure that the views expressed by hon. Members this morning will be taken into consideration as the regulator carries out its work.

We in the Government will also continue our efforts, complementing the work of the FCA. We have taken steps to encourage competition, to support credit unions and to improve financial education. The Government will, through that comprehensive approach, continue to take steps to make sure that British customers have quality choices, good information and strong protection.

It may be helpful if I say, in closing, that the CMA is not the final word in competition. There are important areas outside the scope of its work and the Government will keep a keen eye on the entire area. The Government will take the necessary action to ensure that our banking sector is not only the most competitive and innovative in the world, but fair.

Question put and agreed to.

Oral Answers to Questions

Rachel Reeves Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Gauke]

My hon. Friend highlights the fact that digital must be key to improving productivity. That is why a £1 billion package was announced in the autumn statement. There was also specific help for rural areas through rural rates relief. Our ambition is clear: to provide the best digital infrastructure we can for urban and rural areas.

[Rachel Reeves (Leeds West) (Lab)]

In table 4.21 of the report Office for Budget Responsibility’s it forecast that the Government will underspend on infrastructure by £15 billion in the next five years—two thirds of the additional money announced by the Chancellor last week. Why should the public have any confidence in the ability of the Government to deliver on their promises when their own watchdog clearly does not?

[Mr Gauke]

The OBR has always taken a cautious view on delivery of infrastructure, but let us remember that we have already delivered 3,000 projects. We have set out an ambitious plan for delivery of infrastructure improvements in the course of this Parliament, and that is exactly what we will deliver.

Autumn Statement

Rachel Reeves Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

My hon. Friend has been kind enough to come to see me over the past few weeks to make some suggestions in this area. I did announce in my statement that the Treasury will conduct a review of the availability of patient capital in this country, and I include in that genuine individual investment in start-up businesses and how we make sure that that is incentivised to stay in for the long haul. I thank him for his input and we will look at this further.

[Rachel Reeves (Leeds West) (Lab)]

May I start by associating myself with the comments made by the Chancellor and the shadow Chancellor about the verdict in the Jo Cox trial? I hope that the whole-life sentence for Jo’s murderer can at least give some comfort to her family at this incredibly difficult time, and will also enable us to remember Jo for the way she lived, rather than the way she was murdered.

May I ask the Chancellor about the changes to universal credit that he announced today? The taper rate will now be 63p in the pound, which means that for every additional pound earned, the recipient of universal credit will lose 63p. That marginal tax rate is three times higher than the basic tax rate. Does he honestly think that sufficiently rewards work and encourages people to take on those extra hours that we all want them to do?

[Mr Hammond]

Again, I associate myself with the hon. Lady’s remarks. I am sure that she is right that the entirely sensible sentence that has been handed down will be a source of some comfort to the family.

The hon. Lady asks whether the taper rate is a disincentive or an incentive to work. Of course the lower the taper rate, the greater the incentive to work—I readily recognise that. I said in my statement that I had listened carefully to representations about doing something in this area and balanced those against my judgment about our fiscal capacity. I have funded every single spending commitment made today. If we had gone further than 63%, we would have had to raise more money somewhere else, and I judged that at the present time that was not the right thing to do. I also gently remind her that 65%, never mind 63%, is a lot lower than a marginal withdrawal rate of 90%, which was what many people were facing under the tax credits system.

Oral Answers to Questions

Rachel Reeves Excerpts

Tuesday 25th October 2016 Commons Chamber

[Mr Hammond]

I reassure my hon. Friend that that is not the case. North-east Lincolnshire is very much a focus of the Government’s attention. We have agreed growth deals with the Humber local enterprise partnership worth more than £110 million, including support for a regeneration programme for the centre of Cleethorpes. I am sure that one of my ministerial team will be very happy to meet him and his council colleagues.

[Rachel Reeves (Leeds West) (Lab)]

The floods in Yorkshire, including in Leeds, last Boxing day caused devastation, and many businesses have still not reopened. What conversations is the Chancellor having with insurance companies, which have restricted cover, increased premiums and put up excesses, thereby not only risking creating ghost towns in many of our communities, but risking jobs, too?

[Mr Hammond]

That is a matter on which my right hon. Friend the Minister for the Cabinet Office leads, but I have a considerable understanding of the problem, as my own constituency was subject to serious flooding in 2013-14. I will talk to my right hon. Friend and make him aware of the hon. Lady’s concerns.

Oral Answers to Questions

Rachel Reeves Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Hammond]

We have no plans to announce any changes to the business rate plans that are already in place.

[Rachel Reeves (Leeds West) (Lab)]

The Government have announced that they are going to give £375,000-worth of banking fines to the Jo Cox fund that was set up by her family and friends to support charities that mattered to her. That fund has already raised £1.5 million in just a month. May I welcome the Government’s decision to allocate banking fines to support that fund? Will the Chancellor join me in encouraging people to give to the fund, which supports the White Helmets, Hope Not Hate and the Royal Voluntary Service?

[Mr Hammond]

I am delighted to join the hon. Lady in making such an appeal. I am glad that the Government have been able to support this very valuable fund in memory of Jo Cox, and I am sure that members of the public, seeing the Government contribution, will now want to redouble their efforts to support it.

Surplus Target and Corporation Tax

Rachel Reeves Excerpts

Monday 4th July 2016 Commons Chamber

[Mr Osborne]

We have to be realistic about the economic shock that the referendum result has created, which is acknowledged not just by the Bank Governor but by many independent forecasters—it is reflected in the financial markets. It will have an impact on the public finances, which will partly be cyclical, but also partly structural. In the end, a structural deficit—my hon. Friend, who is a good fiscal conservative, will know this—needs to be addressed through either reduced spending or higher taxes over time. Obviously, as a Conservative, I tend to look at the spending solution rather than the tax one, but that is what happens when there is a structural deficit, as we know to our cost in this country. Let us wait for the OBR to make its assessment in the autumn, then we can collectively decide how to proceed.

[Rachel Reeves (Leeds West) (Lab)]

The OBR says that cuts in corporation tax have so far had no discernible impact on either business investment or growth. Indeed, in the latest forecast, despite cuts to corporation tax, business investment was revised down. I urge the Chancellor to look instead at helping small businesses or investing in infrastructure rather than going ahead with further cuts in corporation tax, which so far seem to have made no difference.

[Mr Osborne]

I am all for supporting small businesses, which is why we have a package of rates relief in the Budget. I am all for making the big transport investments, which this country has, frankly, not done for a generation. That is why I support High Speed 2 and indeed High Speed 3, as well as a new runway in the south-east of England.

The OBR has revised up its economic forecast for business investment when we have introduced corporation tax cuts, so it draws a link between the two. A study on the long-term impact of our corporation tax cuts so far suggests that they have seen an increase in our long-run GDP of 1.3%, which is the equivalent of £24 billion in today’s prices.

Oral Answers to Questions

Rachel Reeves Excerpts

Tuesday 7th June 2016 Commons Chamber

[Mr Osborne]

My hon. Friend raises an important issue. In recent years there has been a focus on economic development in the big cities of the north, but we now want to support the counties and county towns of the north of England. In the area that she represents so well we have the new growth deal for the Preston, South Ribble and Lancashire city deal area. We are looking to devolve more economic powers to counties so that they too can see the benefits of securing economic growth. My door is always open to good, sensible proposals for investment in the counties of the north of England.

[Rachel Reeves (Leeds West) (Lab)]

The Chancellor speaks about investment in transport and in flood defences, both of which are crucial in my city of Leeds. Yet last month the Government cancelled the Leeds trolleybus scheme, and in 2011 flood defences were cancelled in Leeds, which contributed to the flooding we saw in December. Earlier this year the Government announced some money for flood defences, but it was just a fraction of what was cancelled five years ago, so I am surprised by the complacency of the hon. Member for Pudsey (Stuart Andrew), and ask the Government to invest properly in flood defences in our city.

[Mr Osborne]

The hon. Lady is being a little churlish. We committed £6 billion to investment in transport in Humberside and Yorkshire, the area that her constituency is in. Specifically on flood defences, she raised on the Floor of the House very specific schemes that she wanted me to fund. I funded those in the Budget. As she well knows, the future phases do not yet have plans or a price tag, but I have said that in principle we are committed to those as well. If she works with us we will deliver those schemes, which of course were never delivered under a Labour Government.

Oral Answers to Questions

Rachel Reeves Excerpts

Tuesday 19th April 2016 Commons Chamber

[Harriett Baldwin]

It is wonderful to hear during Export Week about Colt and Lewmar, and their fantastic work exporting overseas. It is a key priority of the Government to continue to encourage more firms to export. In fact, we have ambitious aims to have another 100,000 businesses exporting over the life of this Parliament.

[Rachel Reeves (Leeds West) (Lab)]

The current account deficit is at a post-war high of more than 5% of GDP, and 44% of our exports go to the European Union. It took Canada seven years to negotiate a free trade agreement with the European Union. Does the Minister agree that the last thing that exporters need, and the last thing that the one in 10 jobs that depend on our exports to the EU need, is the uncertainty that the referendum is bringing—and, indeed, that Brexit would bring—to them and to those jobs?

[Harriett Baldwin]

The last time I looked, I thought it was also Labour policy to have such a referendum, but I agree with the hon. Lady that it is very important that she and others get out the message about the value of exports and the importance for manufacturing of the UK’s membership of the single market. That is why I shall vote in the same way as her on 23 June.

Finance (No. 2) Bill

Rachel Reeves Excerpts

Monday 11th April 2016 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

In 2010, the Chancellor promised us a new growth model based on higher savings, investment and exports. However, notwithstanding what we have just heard from the hon. Member for Somerton and Frome (David Warburton), those fundamentals, which underpin the economy and are the backdrop to the Bill, are not going as well as we might have hoped. Our national savings ratio has hit an all-time low of 3.3%. In the latest figures, investment has been revised down, with a staggering £87 billion wiped off forecast business investment since last November, and public investment is falling as well. Our export performance has deteriorated further, with the gap between the Chancellor’s 2020 target for a trillion pounds-worth of exports and the OBR’s expectations now widening to £357 billion. That is before we factor in the calamity that the Government have allowed to unfold in our steel industry or the enormous risks to our economy created by putting our membership of the European Union in question. Indeed, just a few weeks after the Budget statement, we have seen even more bad news about not only steel, but the manufacturing sector in general and the worst balance of payments figures that the country has seen since the second world war, with the deficit in the fourth quarter of 2015 reaching a staggering 7%.

All that has an impact on living standards. On top of the downward revisions that we saw in November, expected earnings have been revised down in the forecasts for every single year of this Parliament. Looking at the deterioration in expected earnings since the Budget just after the general election, the OBR forecasts that the average UK worker will be £823 a year worse off by the final year of this Parliament. Following the downward revisions, the total loss over the course of this Parliament is £2,000, the impact of which will be felt most by those on low and modest incomes. Indeed, because the national living wage is linked to average earnings, somebody on the minimum wage will be £600 a year worse off than when the Government originally announced it. In less than a year, the average worker will be £2,000 worse off over the course of this Parliament and somebody on the minimum wage will be £600 a year worse off compared with what the Government originally announced.

Against that background, one might think that a Chancellor who once proclaimed that we were “all in this together” would want to use the Budget and this Finance Bill to target help towards ordinary working families and the low-paid. Instead, we have a package of measures before us that disproportionately benefit the better-off, rather than those who most need support. Let me give three examples. First, fewer than one in five taxpayers will gain from the £2 billion cut in higher rate income tax in clause 2. Those who will gain will also receive the largest benefit from the expensive and poorly targeted increase in the personal allowance in clause 3. The 4.6 million lowest-earning workers in the country will receive no benefit at all from either change. At a time when the earnings of those on middle and low incomes are being squeezed and public finances remain extremely tight, raising the threshold at which people start paying the higher rate of income tax is the wrong priority.

Secondly, the cut in capital gains tax in clause 72 will cost taxpayers more than £2.7 billion over the next five years, but directly benefit only a tiny minority. Just 130,000 individuals will share the gains, the majority being higher rate taxpayers. Around half of capital gains tax is paid by just 5,000 individuals who will therefore receive a windfall and get the bulk of the advantage, so the benefits of this tax break will be pocketed by a relatively fortunate few. Again, that is not the right priority when the living standards of ordinary people are being squeezed and when our public finances are so stretched.

The Chancellor would no doubt protest that that is a price worth paying for the entrepreneurial energy that the capital gains tax cut will unleash, but the official documents reveal that the OBR has made no upward revisions to its forecasts for investment, productivity or growth as a result of the measure, which will cost £2.7 billion. Indeed, the most likely impact of the move will be to increase the incentive to avoid tax by converting income to capital gains. Perhaps the Chancellor has been taking advice from the Prime Minister, who seems to have enjoyed the benefit of some careful tax planning. But, again, I would argue that with squeezed family finances and tight public finances, this is neither fair nor fiscally responsible.

Thirdly, as part of his Budget the Chancellor has chosen to increase the amount any individual can contribute to a tax-free savings account to £20,000 a year, as the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) mentioned. I welcome action to make it easier for ordinary workers and families to save, but we have to ask whether this approach should be the priority when most of our constituents are lucky to earn £20,000 a year and have anything left to save at all. In my constituency, average earnings are just under £20,000 a year, and many people would struggle to put anything aside, let alone take advantage of a £20,000 individual savings account limit. In the latest year for which detailed data are available, the average ISA subscription was less than £4,000 in the year. Fewer than one in 10 people who contributed to an ISA were able to save the maximum amount of just over £15,000, with a disproportionate number of those who did so having incomes above £150,000 a year. The trends of recent years suggest that as the Government have focused on raising the annual limit for ISAs, the total amount of cash put into ISAs has increased sharply even as the total number of people contributing to an ISA has fallen. In other words, this is moving ISAs away from their original purpose as a platform to support broad-based saving and investment, and increasing their use as a way to minimise tax liabilities for those with large amounts of cash to move around. That is having the wrong effects and the wrong people are benefiting. I support ISAs and tax-free savings, but only if they are there to support those people who need to save. What we are seeing is a falling savings ratio, with the most wealthy people being incentivised to save. We need to help those people on more modest incomes to put something aside for their future.

This Finance Bill, like those before it under this Chancellor, contains a long list of clauses ostensibly aimed at reducing tax evasion and avoidance. Anything that genuinely advances that end is to be welcomed, but we will judge the Government’s achievements not on the number of clauses in their Bills, but on the real progress made towards closing the tax gap and ensuring that everyone pays their share. I urge the Government to do more, by supporting, not blocking, measures in the European Parliament that strive to meet that objective.

The truth is that HMRC’s own figures show that the tax gap fell by £4 billion over the last five years of a Labour Government but has risen by £1 billion under the current Chancellor. The consequences of this Government’s refusal to take the necessary action on UK Crown dependencies—[Interruption.] I am happy to take an intervention instead of having the Minister muttering from a sedentary position.

[The Exchequer Secretary to the Treasury (Damian Hinds)]

I wonder whether the hon. Lady would like to comment on the percentage tax gap.

[Rachel Reeves]

If the Minister is so concerned about the tax gap, why did his Tory MEPs block measures in the European Parliament to crack down on tax avoidance and why did the Prime Minister write to Herman Van Rompuy in 2013 asking for trusts to be excluded. As I say, instead of looking at the number of clauses in a Bill, we should judge the Government by their record, by their actions and by what is happening to the tax gap. Under Labour the tax gap narrowed but under the Tories it is widening. They need to make much more effort to ensure that people at the top and big corporations pay their fair share of tax, but that is not happening under a Conservative Administration.

I hope that I have demonstrated that this Finance Bill prioritises tax breaks for the wealthy at the same time as pulling vital support from the vulnerable and disadvantaged. The shadow Chief Secretary to the Treasury cited the Resolution Foundation. It has calculated that the tax and benefit measures already taken by this Chancellor since the election will cut the incomes of the poorest 30% by £565 a year, while increasing those of the richest 30% by £280 a year—and that is before we factor in the impact of any further cuts to social security needed to meet the Government’s welfare cap and fill the multi-billion-pound fiscal hole following their U-turn over personal independence payments.

During a sitting of the Treasury Committee I pressed the Chancellor on all of this, particularly the changes to disability benefits. All he would say was that he had “no plans” for further raids on the fragile finances of disabled people, low-paid workers or children living in poverty, but that gives very little reassurance to those who rely on social security because they are sick or disabled and cannot work, or because they are in low-paid work and struggle to make ends meet; nor does it reassure families bringing up children in poverty that the Government will not once again hit their family finances.

Perhaps even more problematic than the measures in the Bill are the measures that are missing from it. The House will remember that this was supposed to be the Finance Bill that reformed our unfair system of pensions tax relief. We spend £34 billion on pensions tax relief and 14% of that benefit goes to people earning more than £150,000 a year, even though they represent a tiny proportion of all taxpayers. Just 10% of the benefit from the relief goes to those in the bottom half of the income distribution. That is why I argued for a 33% flat rate of pensions tax relief, which would be fiscally neutral but fairer to families on ordinary incomes and those who are trying hard to put something aside for the future. It would also give a strong incentive to save by, in effect, providing a simple two-for-one offer: for every £2 people put into a pension, the Government would add another £1. At a time when wealth inequalities are widening, our savings rate is plummeting and the costs of an ageing society are increasing, that measure would provide a powerful incentive to save for millions more people and definitely help more people than a £20,000 ISA limit.

The Bill was also an opportunity for the Government to admit they had made a mistake and to reverse the Chancellor’s expensive and poorly targeted cuts to inheritance tax, due to be phased in from next year. The Treasury’s own leaked analysis confirms that the policy will

“most likely benefit high income and wealthier households”

concentrated in London and the south-east of England. It also states that

“there are not strong economic arguments”

for the cut, which will

“push up house prices and possibly rents”

and

“make it more difficult for younger households to buy a house.”

Yet that is a priority of this Government. Meanwhile, the overall cost is set to rise to almost £1 billion a year as the policy is introduced. I believe that the money could be much better used to help ordinary families who struggle to stay in work when their children are young by, for example, creating a universal childcare entitlement for children aged two. That would be a more prudent use of funds when family finances are stretched and so are our public finances.

I remember being shadow Chief Secretary to the Treasury in 2012, when we had what we dubbed the “omnishambles Budget”. This Budget has unravelled even faster than the 2012 Budget, with the flagship measure—changes to disability benefits—dropped and the changes to pensions tax relief dropped before they were even announced. The flagship measure in the 2012 Budget—the cut in the top rate of tax from 50p to 45p —stayed, but the flagship measure in this year’s Budget was dropped.

I believe that the Chancellor wanted to reform pensions tax relief, but could not do so because Tory MPs protested too loudly. Instead, at the last minute he decided to raid the disability budget, but then—after that was announced—recognised that it did not really fit with his rhetoric of, “We’re all in it together.” That is why the Budget has unravelled so quickly, but most important—well, not the most important—it is why the political prospects of the Chancellor have unravelled so quickly as well. The highest price for this Budget will be paid by ordinary taxpayers, working families and future generations. That is why I and my colleagues will vote against the Bill this evening. It represents the wrong priorities for our country.

--- Later in debate ---

[Caroline Flint (Don Valley) (Lab)]

I have no doubt that the support of the hon. Member for Macclesfield (David Rutley) for greater productivity and skills is heartfelt, but sadly, as my hon. Friend the Member for Feltham and Heston (Seema Malhotra) has outlined, this Finance Bill falls far short of meeting the needs of people on low or even average incomes in this country and helping them to do better for themselves and their families.

It is interesting that the Second Reading of the Finance Bill, which should be the centrepiece of today’s discussions, has been knocked off track somewhat by the disclosures in the Panama papers. Given that we have a major Finance Bill before the House, it is absolutely right that we consider whether it really addresses the central issue of fair taxation and how it can clamp down on tax avoidance and evasion.

Recent events have exposed parallel worlds. In the world of most of Britain’s 29.7 million taxpayers, taxes are deducted automatically. January was the month when 10 million everyday citizens submitted their tax returns. The first week of April is when most of the 22.7 million people who save in an ISA were looking at how they could top it up. That is the world of most of our citizens, the people who work, pay their taxes and follow the rules. They meet the deadlines. They are the people who put into the system and occasionally need to take out of it.

However, there is another world, a shadow world occupied by a group of people, small in number but big in influence, who share another set of characteristics. These are the people who play by a different set of rules. They are wealthy but, not satisfied with just being wealthy, they also want to be tax-free. Being rich is not rich enough. They live across borders, have homes in several countries and bank accounts in others, with businesses nominally located in low or no-tax regimes. That is not because they are busy or simply because they are successful. There is one overriding purpose: to maximise the income sheltered and obscured from tax authorities.

Tax avoidance is not illegal, but the Prime Minister himself has criticised aggressive tax avoidance schemes that subvert the intention of domestic tax laws. To muddy the waters over the past few days, some have suggested that ISAs and helping one’s children are forms of tax avoidance. They are not. To my mind, avoidance is when someone deliberately does something that Parliament never intended. Governments have legislated against particular means of avoidance, attempting to close a specific loophole each time. That kind of patchwork policy making has been described as like plugging holes in a colander, or playing whack-a-mole. The point is that, given the complexity of our tax system, tackling tax avoidance measure by measure is very hard to get right.

The disclosure of tax avoidance schemes regulations introduced by the previous Labour Government in 2004 were key to helping HMRC uncover new information about tax avoidance practices and getting hold of that information earlier. As a result, HMRC learned about schemes that it had never heard of, or ever imagined, and then it could act quickly to shut them down. Those were the first steps in a campaign for transparency. The coalition Government’s co-operation with the OECD’s base erosion and profit shifting measures was to be welcomed, as was their introduction of accelerated payment notices, which I believe have successfully recovered more than £2 billion in unpaid taxes.

This Bill includes a range of measures, including an updated general anti-avoidance rule, the publication of statements of tax strategy and tax planning, and a new asset-based penalty system for large-scale tax evasion, but it is as yet unclear what effect, if any, each measure will have. Even the most intense challenge to tax avoidance by the Government must compete with the ingenuity of legal and accounting experts that the very wealthy and the corporate giants have access to, and the global nature of their enterprises. That is why I want Parliament to tackle one of the strongest weapons in the tax avoider’s armoury: secrecy. If there is one thing that the Panama papers have shown us, it is the urgent need for more transparency.

It is tempting to focus on MPs’ tax returns this week—for the record, my taxable income for 2014-15 was £58,724, on which I paid £12,965.80 in tax—but the income of the largest multinational in one week is more than the combined annual incomes of every Member of Parliament. That is not surprising, and some may say thank goodness, but I want to make sure that, in the midst of all the comments about tax, we do not let multinational companies off the hook.

When Google agreed to pay HMRC £130 million in back taxes, the Chancellor claimed victory. My cross-party colleagues on the Public Accounts Committee and I questioned Google and HMRC. Yet even after a long session, not only was Google’s Europe, middle east and Africa president, Matt Brittin, unclear about his salary, but we remained unclear whether the £130 million represented a good deal. On top of that, I discovered that the Government’s diverted profits tax—the so-called Google tax—does not in fact apply to Google. It is still not certain what revenue the Government hope to gain from this measure. Even if Government estimates of £360 million a year are forthcoming, that is but a drop in the ocean when one begins to look at the operation of these enterprises.

I therefore decided to introduce a ten-minute rule Bill —the Multinational Enterprises (Financial Transparency) Bill. Its purpose is to require large multinational enterprises, which, as of January this year, must provide HMRC with their country-by-country reporting information, to include the same information in their annual returns to Companies House.

[Rachel Reeves]

Will my right hon. Friend give way?

[Caroline Flint]

I will give way to my right hon. Friend—sorry, my hon. Friend.

[Rachel Reeves]

Does my right hon. Friend agree that it is not only taxpayers who lose out when multinationals do not pay their fair share of tax? The other big losers are small businesses, which have to pay tax. This is therefore not a level playing field, because they pay taxes while some of these big multinationals get away with paying nothing or very little.

[Caroline Flint]

My hon. Friend, who should be right honourable, is absolutely right. This proposal is a pro-business measure, because many small and medium-sized enterprises in the UK and around the world have no place to hide when it comes to where they pay their tax and how much tax they pay. Putting information in the public domain would help.

In March, I wrote to the Chancellor about my Bill, urging the Government to support it or to include measures in the Finance Bill. After all, the Chancellor himself told a meeting of European Finance Ministers that he was in favour of public country-by-country reporting, and he tweeted about it afterwards—so I suppose it must be happening. I have not had a reply yet, but I wait in anticipation.

One Treasury Minister—I am not sure whether it was the Exchequer Secretary, who is on the Front Bench today—has since suggested that we could not possibly take such a step unilaterally, for fear that we would be disadvantaged by comparison with our European colleagues. Well, I say that it is time we stepped up. The British people are sick of hearing story after story about big businesses not paying their taxes. To be honest, in the digital age of today and the future, privacy of the kind that these companies have enjoyed will not last. We need Governments who lead on public transparency, instead of relying on exposures caused by whistleblowing or technical mishaps.

To those who argue that greater transparency would disadvantage us internationally, I simply suggest that they look at the settlements that France and Italy are pursuing with Google. Both Governments look set to recover a greater sum in unpaid taxes than we were able to, despite their having a much smaller share of Google’s business than we do.

I also challenge the argument that public country-by-country reporting would damage businesses. The information I propose should be placed in the public domain is information that businesses are required to give HMRC—it is not commercially sensitive. Publication is a straightforward way to persuade companies not only to come clean and to explain their tax planning, but to restore their tarnished reputations. I believe it would deter them from using tax havens and shell companies.

Publication would also send a strong signal to developing countries, which are often short-changed by corporates that have huge undertakings in those countries but that pay little or no tax to support their developing economies. Charities say that developing countries lose more potential revenue each year because of corporate tax dodging than the amount given annually in overseas aid by all richer countries. They calculate that developing countries’ revenue losses are two to five times higher than those of developed countries such as the UK. This simple measure could profoundly help developing countries to prosper and be more self-sufficient.

Aid is vital for poorer nations, but just as important as a hand down is a hand up, and that will not happen unless we force these companies to come clean. As Christian Aid has illustrated, the Democratic Republic of the Congo was deprived of $1.35 billion—twice its health and education budgets combined—owing to the sale of mining contracts to five anonymous Virgin Islands companies. How can a country such as the DRC ever be self-sustaining if it is deprived of vital corporate taxes in that way?

Budget Resolutions and Economic Situation

Rachel Reeves Excerpts

Tuesday 22nd March 2016 Commons Chamber

[Mr Osborne]

I will tell you what is unfair: to saddle the next generation with debts you have no way of paying off. That is what the right hon. Lady did. [Interruption.] That is what she did. I will come on specifically to disability benefits, but let me tell her about fairness and what we have done over the last six years. We have taken action that means 500,000 fewer children are growing up in workless households than when she was at the Treasury, 1 million fewer people are on out-of-work benefits and over 2 million more people are in work than when we came to office. That is the social justice record we on this side of the House are proud of.

I am also proud that the work continues, and in this Budget we are taking further steps to build a stronger society. There is money and reform to improve our nation’s schools. There is action to reduce sugar intake and give our children better healthcare. There is support for the savings of low-income families. There is more help and housing for homeless people. There are personal allowance increases that will lift another 1 million of the low-paid out of income tax altogether, and there is an increased minimum wage ahead of the introduction of the first ever national living wage in just two weeks’ time. Those are all in the Budget we will debate today—all the actions of a compassionate, one nation Conservative Government determined to deliver both social justice and economic security.

[Rachel Reeves (Leeds West) (Lab)]

The new Secretary of State for Work and Pensions said yesterday, in his first statement, that the Government would not be making any further cuts to welfare during this Parliament, but later on he said that there were “no plans” to make further cuts to welfare during this Parliament. Will the Chancellor now confirm, for the sake of disabled people and others, that there will be no further cuts to the welfare budget in this Parliament?

[Mr Osborne]

Yesterday, my right hon. Friend the Secretary of State gave exactly the Government’s position, which is that,

“we have no further plans to make welfare savings beyond the very substantial savings legislated for by Parliament two weeks ago, which we will…now focus on implementing.”—[Official Report, 21 March 2016; Vol. 607, c. 1268.]

I will now address the specific issue of welfare savings and disability, but I should have thought that the hon. Lady, when she got to her feet, might have thanked the Government for delivering the flood defence schemes that she asked for for her city, and which were in the Budget statement a week ago.

Let me turn to the disability benefits. We are proud that this Government are providing more support to the most disabled people. It was very clear that while the reforms proposed to personal independence payments two weeks ago drew on the work of an independent review, they did not command support. We have listened, and they will not go ahead. Even if they had, this Government are spending more on disabled people than the previous Labour Government ever did.

People have asked what this means for future support for disabled people, for our welfare cap and for the numbers in the Budget. Let me directly address all three points.

--- Later in debate ---

[Rachel Reeves (Leeds West) (Lab)]

The Budget was a story of missed targets for the Chancellor and missed opportunities for our country and, like the Budget of 2012, it is rapidly turning into a total mess. I am pleased to see some of the U-turns, but much more is needed.

I associate myself with the remarks of my hon. Friend the Member for Hartlepool (Mr Wright), the Chair of the Business, Innovation and Skills Committee. He spoke powerfully about the importance of rebalancing our economy. That is greatly needed, especially after some of the numbers we saw in the Budget last week. As a result of the lower productivity, the lower exports and the other things my hon. Friend spoke about, economic growth has been revised down for every single year of this Parliament. A staggering £71 billion has been knocked off our tax revenues. As a result, the Government are now set to borrow an extra £38 billion over the next five years. That is why, after breaking his promise to clear the deficit in the last Parliament, the Chancellor has now broken his pledge to bring the debt down as a share of GDP in this Parliament as well.

[Mr Stewart Jackson (Peterborough) (Con)]

Would the hon. Lady’s argument not have a lot more weight and credibility had her party—as she well knows because of her position on the Front Bench—not opposed every single one of the £83 billion-worth of welfare cuts that had to be made in the wake of the 2010 fiscal inheritance?

[Rachel Reeves]

I wonder whether the hon. Gentleman still thinks we should go ahead with the cuts to personal independence payments. It certainly sounds like it from those remarks.

Let me deal with the specific issues surrounding personal independence payments and the impact that this Government have had on disabled people. While the fiasco is unfolding around us, let us remember the broader points. This is a Government—the Chancellor, the Prime Minister, the former Secretary of State for Work and Pensions and the current Secretary of State for Work and Pensions—who forced through the bedroom tax, affecting 500,000 people, the majority of them disabled, by about £700 a year. This is the Government who forced through the closure of the independent living fund. This is the Government who forced through cuts to employment and support allowance only last summer, affecting 500,000 people and worth about £30 a week or £1,500 a year. The U-turn on personal independence payments, although welcome, deals with only a fraction of the damage and the pain that the Government have caused to disabled people in all our constituencies.

Let us be clear what this U-turn means. The new Secretary of State for Work and Pensions came to the Chamber yesterday and said that the Government are not going back to the welfare bill and to disabled people for further cuts. But in the course of yesterday’s statement, that was watered down a little. The Government now have “no plans” to come back to the welfare budget and disability benefits. That is reminiscent of when they had no plans to increase VAT and all the other things they had no plans to do, until they did them and until they hurt the people who least need to be hurt.

When the Chief Secretary winds up the debate this evening, I would like to hear whether there are no plans, or whether the Government can guarantee that there will be no further cuts to the welfare budget or to the benefits of disabled people. We know that there is a black hole of £4.4 billion in the public finances. If it is not the wealthy and not disabled people, who is going to pay the price? Are there going to be further cuts to education, health, defence and our police? Will there be further increases in taxes—on VAT and taxes for ordinary working people? Something has to give and we need some answers about the black hole in the Budget that we are voting on, although we do not know what it means. What does it mean for all those different groups of people?

As the Chair of the Office for Budget Responsibility told us at the Treasury Committee meeting this morning, the issue is not just that there is a £4.4 billion black hole in the social security budget, but that the Government have failed to meet their welfare cap. They are going to fail in every year of this Parliament, by a staggering £20 billion—£20 billion more on social security spending in this Parliament than the Government set out, a further black hole in their public finances. Why did they get into this mess in the first place? It is because they wanted to cut taxes for the wealthiest in society. They wanted to cut capital gains tax, increase the threshold before people started paying the 40p rate of tax, and increase the ISA limit from £15,000 to £20,000 so that we can all save the full £20,000 a year tax free. That is great for those who have the money, but most of our constituents are lucky to earn £20,000 a year, let alone put it away in savings. That is why the Government raided the social security budget yet again to give tax cuts to their friends, the wealthiest and the most privileged in our society.

Last week’s Budget could have been different. For example, the Government could have put more money into infrastructure investment. In my constituency, we are paying a heavy price for the floods on 26 December. The Chancellor said earlier that I should have welcomed the money for flood defences, but in 2011 the Government cancelled a flood defence scheme in Leeds worth £135 million. Last week, they announced £35 million for Leeds. Well, I am sorry for not thanking the Chancellor, but an offer of £35 million rather than £135 million is not really worth the thanks, and the businesses in my constituency will pay a heavy price if the rains come again.

[Rachael Maskell (York Central) (Lab/Co-op)]

I was with the Environment Agency just last night, and it told me it will not have sufficient funds to put in place measures—particularly catchment management measures —to prevent future flooding.

[Rachel Reeves]

Last week, the Government announced £150 million for York, Calder Valley, Leeds and Cumbria. However, as I said, the scheme that was cancelled in Leeds was worth £135 million, and that £150 million is for flood defences, flood resilience and flood maintenance. Yet again, the Government are short-changing people who need them to step up to the mark, as our volunteers in York and Leeds and across the north of England did when the rains fell, the rivers rose and buildings—houses and businesses—were flooded.

Last week’s Budget could have been different. It could have been a different Budget for disabled people. It could have been a Budget that helped ordinary working people and the most vulnerable in our society. It could have been a Budget that put money into the northern powerhouse and the infrastructure that we need. However, it was a different Budget, because this Government have different priorities. That is why we need a Labour Government on the side of ordinary working people and the most vulnerable in our society.

--- Later in debate ---

[Rachel Reeves]

Many Labour Members have asked about the £4.4 billion black hole. Will the Chief Secretary to the Treasury please confirm whether that £4.4 billion will be plugged by further cuts to welfare, tax increases, spending cuts or more borrowing? It has to be one. Which is it?

[Greg Hands]

It is always good to hear from the shadow shadow Treasury team. I can tell the hon. Lady that more will be outlined in the course of this year in the autumn statement. However, we remain on course—[Interruption.]