Equitable Life
Rebecca Long Bailey Excerpts(8 years, 9 months ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
I congratulate the hon. Member for Harrow East (Bob Blackman) on securing this important debate today and on the articulate way in which he described the events that many of our constituents have faced. He touched on many of the issues that I will highlight in my speech. And of course it is always a pleasure to stand opposite the Exchequer Secretary to the Treasury, the hon. Member for East Hampshire (Damian Hinds).
I would also like to thank the various Members who have spoken today. I will not go through them one by one as I know we are pushed for time, but there were several emotional contributions that I would like to highlight. My hon. Friend the Member for Great Grimsby (Melanie Onn) told the story of the lady in her constituency who lost £40,000 and got only £12,000 back. The hon. Member for Romsey and Southampton North (Caroline Nokes) said that she had noticed a decline in the number of constituents visiting her to discuss this issue and that, sadly, it was because many of them had either passed away or given up hope.
The fate of Equitable Life and those who invested in it has been debated in this House for more than 15 years by Members on both sides. I commend the work of the Equitable Members Action Group, which I will call EMAG for the sake of expediency. I would also like to thank the many Members of this House who have campaigned tirelessly on behalf of their constituents to ensure that this issue is not kicked into the long grass. It is difficult not to sympathise with the anguish and worry that many of those investors have experienced. Many have seen their nest eggs disintegrate, and they feel cheated. Over the years, it has become clear that, despite all the efforts to review the issue, there is no one universally agreed strategy to compensate them. It has therefore been difficult to establish a course of action that will truly put the matter to bed.
Along with many other Members, I appreciate the action that the Government have taken to compensate those who were disproportionately affected by this sorry affair. However, as we have heard today, concerns remain about the management and assessment of compensation payments. More than 90% of Conservative Members in the last Parliament signed the following pledge:
“I pledge to the voters of this constituency that if I am elected to Parliament at the next general election, I will support and vote for proper compensation for the victims of the Equitable Life scandal and I will support and vote to set up a swift, simple, transparent and fair payment scheme—independent of government, as recommended by the Parliamentary Ombudsman.”
The Prime Minister, the Chancellor of the Exchequer and the Exchequer Secretary to the Treasury signed that pledge to provide proper compensation for those affected by the events at Equitable Life. It would be helpful to ascertain whether the Minister feels that the pledge has been fully met today.
The assessment of compensation payments—and the amount allocated by the Government—is not a simple matter. At the time of the second ombudsman’s report, EMAG estimated the losses incurred by policyholders investing after 1990 at £3.2 billion if they remained with Equitable Life and at £4.6 billion if they had invested elsewhere. In comparison, the 2010 Chadwick report assessed the loss at £500 million on the basis of assessing maladministration. There is therefore a clear difference between the principles used to calculate the EMAG estimates and those used to calculate the Chadwick estimates. All those figures are of course different from the £1.5 billion and the subsequent £500 million top-up offered by the Government. EMAG states that, according to its own calculations, the outstanding figure is between £2.6 billion and £2.8 billion.
I should also like to address the administration of the scheme generally. The National Audit Office reported in 2013 that the scheme had faced a number of administrative issues. The NAO appreciated, as do I, that the task of setting up the scheme was a difficult challenge. It was a complex operation undertaken in quite a short period of time. However, it noted that the scheme had significant issues with tracing the identity of some policyholders, as the data provided by Equitable Life were out of date. Following the publication of the findings, the Public Accounts Committee undertook its own report into the administration of the scheme and concluded that the Treasury had
“not used all information available to trace as many policyholders as possible”.
In April 2013, the NAO reported that only 35% of payments had been made and the PAC quoted that the Treasury estimated that it may not trace 17% to 20% of policyholders. As of 30 December 2015, the scheme had issued payments to 915,453 policyholders, representing 88% of those eligible—only a slight improvement since the PAC’s critical findings. Given that the scheme closed for new claims on 31 December 2015, will the Minister tell us how many of the remaining 12% of eligible policyholders were found? At the time, it was also recommended that the Treasury and National Savings and Investments would
“work with the Equitable Members’ Action Group to explore options for utilising data to contact policyholders who have not yet received payment”.
Will the Minister confirm, therefore, that the recommendations of the PAC with regard to that were acted on and that all reasonable steps were taken to contact eligible policyholders?
The NAO and the PAC also found that some policyholders were dissatisfied with the responses to their queries and complaints. They included policyholders receiving duplicate requests for the same information and generic responses in relation to specific queries. Will the Minister outline what steps were taken to ensure that customer service has improved since the reports and that it will remain at an adequate level for those policyholders who are still in receipt of annuity payments from the scheme?
The next concern I wish to raise with the Minister is the amount of money it has cost to administer the payment scheme. National Savings and Investments, an executive agency of the Treasury, was tasked with operating the scheme. It originally outsourced to Siemens, whose contract was then bought by Atos. The PAC expressed concern in 2013 that the Treasury was not achieving value for money in the contract with Atos to deliver the scheme. The contract was based on time and materials, and it is argued that there was a vast amount of waste of taxpayers’ money as a result. The total budget for administering the scheme was set at £57 million. In 2013, National Savings and Investments estimated that the cost would go £4 million over budget. Will the Minister confirm whether the payment scheme was delivered on budget, and, if not, by how much it overspent?
Finally, the PAC recommended that the Treasury undertake a lessons-learned exercise, as it felt the failures of previous Government compensation schemes had not been addressed when setting up the Equitable Life payment scheme. The Government accepted that recommendation and confirmed that they would produce two reports: one in November 2013; and a final report, to be shared with the PAC, the NAO and the Major Projects Authority in early 2016. Will the Minister take this opportunity to update the House on the progress of the second lessons-learned report?
On the subject of lessons learned, it is, above all, incumbent on us to ensure that future such scandals do not take place. Will the Minister tell us, therefore, what measures the Government have put in place to stop this happening again? In particular, pension fund providers and their fund managers continue to resist calls for transparency of costs and performance, so are the Government taking any steps to ensure that they inform pension scheme members of the true costs of investing? What plans do the Government have to review the governance arrangements for pension funds? Will he confirm that governance committees are currently without a fiduciary duty to their members in contract-based pensions and have they given any consideration to changing that?
It is clear that that although some progress has been made to address the anguish and loss caused by this matter, a number of questions remain. I look forward to the Minister’s response.
Financial Conduct Authority
Rebecca Long Bailey Excerpts(8 years, 9 months ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
I congratulate the hon. Member for Aberconwy (Guto Bebb), my hon. Friend the Member for Bassetlaw (John Mann) and the hon. Member for East Renfrewshire (Kirsten Oswald) on securing such an important and topical debate, and I thank them for their excellent contributions. It is also a delight to debate opposite the Minister for the first time.
We have had some fantastic contributions from hon. Members. Transparency seems to be the key theme running through the debate. Members referred numerous times to Connaught and interest rate hedging products, and we heard some interesting case studies from the hon. Member for North Warwickshire (Craig Tracey), who shared his experiences of running his own insurance firm and how regulation affected his business. The hon. Member for Wyre Forest (Mark Garnier) highlighted the positive things the FSA was doing—for example, in supporting innovation in “fintechs”—and said that, although there were failings that needed to be addressed, it was important not to throw the baby out with the bathwater.
Operators in the finance sector, commentators, hon. Members and Members of the other place have recently expressed concern over the FSA’s ability to carry out its operational objectives—consumer protection, integrity and competition. Sadly, these concerns overshadow some of the fantastic work the FSA has carried out to date in the finance sector.
Many argue that the Chancellor’s Mansion House speech last year sent a clear message to the financial services sector that the UK was returning to business as usual. In outlining his new settlement for the finance industry, he stated that we must become
“the best place for European and global Bank HQs”.
That was widely interpreted by many in the finance industry to mean that there would be a softening of the FSA’s approach to banks. In fact, as an ode to the Prime Minister’s “hug a hoodie” period, which still tickles me when I think about it, I would suggest that many felt the Chancellor was entering his own love-in—the “hug a banker” period.
The bankers’ Chancellor had finally got his mojo back, and what a mojo it was! A string of concessions was handed to the banks: changes to the bank levy that significantly benefited large international banks; watered-down proposals for implementing the ring fence between retail and investment banking; a time limit on claims relating to the mis-selling of payment protection insurance; and confirmation that banks would not be asked to hold significantly more capital.
In January, however, in a complete U-turn from the autumn statement and the “never had it so good” euphoria, the Chancellor warned us of the risks to the UK from the shaky global economy, citing a
“dangerous cocktail of new threats”
and highlighting the dangers of “creeping complacency”. He failed, however, to address his creeping return to business as usual in our finance sector and the FSA’s role in dealing with the same.
Several factors have brought us here. The first is the feeling that the FSA’s independence has been compromised and that its agenda is being set by political pressure from the Government. Such independence was called into question by a recent external review that said the FSA board’s powers
“with respect to making independent decisions”
were limited and that external interventions
“can have dramatic effects on the organisation”.
This coincided with stories in the media that the Bank of England was directly involved in the highly criticised decision by the FSA to axe the review into the culture at some of the UK’s biggest banks.
Then there is the Chancellor’s influence over sacking or appointing chief executives to the FSA. [Hon. Members: “FCA!”] I mean the FCA. Martin Wheatley, who had been hired by the Chancellor as a tough guy, and a key figure in pursuing misconduct in the financial sector, was removed and replaced by Andrew Bailey. Many are concerned that the Chancellor’s new appointment, who is seen as more of a pragmatist, heralds a decisive shift towards greater leniency on the banking system.
I have no doubt that the new appointment seeks to be completely impervious to the Chancellor’s charms, but as one Treasury Select Committee member eloquently stated recently,
“there is a subliminal desire if you like, to please the masters by taking some of these decisions where the inference has been that potentially if you do not play ball you will lose your job.”
I turn now to transparency. I seek to highlight to the Minister a few examples of where achieving transparency has been a struggle. The conclusion of the FCA’s work on HSBC’s Swiss bank tax evasion and the decision not to take action led many FCA critics to ponder whether this had come as music to HSBC’s ears, given the bizarre coincidence that at the same it was considering whether it should relocate its headquarters outside London. Little detail was provided regarding the rationale for this decision and the FCA simply stated that such a major tax investigation was a matter for HMRC.
That highlighted two issues—transparency and the sharpness of the FCA’s teeth as a regulator. Those issues aside, I would welcome the Minister’s assurance that a thorough investigation will be carried out as a matter of urgency, that HSBC will pay the appropriate tax to the Treasury and that we will not see a repeat performance of last week’s Google tax debacle. Perhaps the incident will encourage the Minister to consider a U-turn on the Government’s proposed cuts to HMRC. If the FCA has no teeth in such situations, surely the Government must ensure that HMRC is adequately resourced—but I digress.
On the same theme of a lack of transparency, I must refer to the industry scandal surrounding the mis-selling of interest rate hedging products, as outlined by my hon. Friend the Member for Bassetlaw today. The FCA rightly launched a full review, resulting in the publishing of a set of rules. What remains worrying is that the FCA had to be pushed by the Treasury Select Committee to publish the rules at all; and, even now, we await details of the methodology agreed with each bank so that we can be satisfied that all banks are in fact complying.
Similar calls for more FCA transparency surrounded the review of the collapsed Connaught Income Funds, as highlighted by the hon. Member for Aberconwy. Here, the FCA faced criticism from the Under-Secretary of State for Wales, the hon. Member for Vale of Glamorgan (Alun Cairns), who set up the all-party parliamentary group on the Connaught Income Fund, and who cited a “generally defensive approach” from the FCA and lack of “transparency”.
Then there is the highly criticised scrapping of the review into banking culture. The Treasury Select Committee recently found that there was no FCA board consultation on this issue. Even the Chairman was not privy to the decision. It is also important to note that no public statement was made regarding the decision—it was simply leaked. When pushed, the FCA commented that
“we decided that a traditional thematic review would not help us achieve our desired outcomes and we would therefore take forward our work on culture through other routes.”
That hardly explains the position at all, but essentially these “other routes” refer to “self- regulation” underpinned by the FCA’s new conduct rules, which centre largely on a presumption that those at the top simply do all that is “reasonable” to ensure good governance.
As we heard in the earlier debate on the Bank of England and Financial Services Bill, the removal of a reverse burden of proof further diminishes any legal recourse that could be pursued. The Chair of the Treasury Select Committee has himself warned that much of the responsibility for implementation is left to banks. He stated that
“the spirit is willing at the top, but the flesh is weak…The board may will the change and culture, but not enough happens lower down.”
Now the FCA’s new direction on this issue deserves close examination, but unfortunately we do not have the time to debate this today. The point is that such a radical step change away from what the public believed would be a root-and-branch banking culture review should arguably not have happened without—at the very least—board approval and transparent consultation.
In conclusion, although I applaud much of the FCA’s work and many of its achievements to date, the issues raised today ring some very loud alarm bells. I hope that the Minister realises that the British public are still paying the price for a financial crisis that they did not cause and that they require an FCA that truly holds the banking system to account—an FCA that ensures that financial productivity does not come with an immoral price tag that ignores the principles of fairness and fair play on which British society is built.
I look forward to hearing the Minister’s comments, and I hope she will confirm that my concerns will be addressed—otherwise, I am afraid that the so-called bankers’ Chancellor will be letting down the British public who bailed the banks out and sending out a clear signal of a return to “business as usual”.
Oral Answers to Questions
Rebecca Long Bailey Excerpts(8 years, 10 months ago)
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Mr Osborne
My hon. Friend raises an important issue. The pension freedoms we have introduced have been widely welcomed, but we know that 700,000 people who are eligible face some form of early exit charge. The Government are not prepared to stand by and see people being either ripped off or blocked from accessing their own money by excessive charges. We have listened to the concerns and the newspaper campaigns that have been run. Today, we are announcing that we will change the law to place a duty on the Financial Conduct Authority to cap excessive early exit charges for pension savers. We are determined that people who have done the right thing and saved responsibly should be able to access their pensions fairly.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Recent statistics show that household debt is now at a record high, but back in 2010 the Chancellor promised to move from an economy built on debt to one that saves. Will he tell us today why the figures contradict his original promise?
Mr Osborne
Household debt as a proportion of household income was 168% in 2008 and today it is 142%, so it has fallen.
Draft Disclosure of Exporter Information Regulations 2015
Rebecca Long Bailey Excerpts(8 years, 11 months ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
It is a pleasure to serve under your chairmanship today, Mr Wilson. I thank the Minister for his thorough introduction to the measure before us today. I am quite blessed; this is the second time this week that we have debated opposite each other.
As we have heard, the draft regulations permit the disclosure of certain information about exporters and the goods they export. This includes the business name and address, the commodity code, a description of the commodity code covering the goods and the month and year of export. Powers to introduce such regulations were provided by section 10(1) of the Small Business, Enterprise and Employment Act 2015. Although we took issue with many aspects of the Act, the Opposition did not oppose the creation of these powers, nor shall I oppose the enactment of the regulations today.
Indeed, this measure is an example of public sector information, infrastructure and investment playing a critical role in supporting the success of the economy as a whole, an approach that we all advocate more widely. Similarly, I am sure we all have an interest in successful exports that stimulate growth, not least in manufacturing, and create good jobs for our constituents. This is something that I am particularly passionate about, because my own constituency of Salford and Eccles has historically been a hub of both industry and export, with the two of course being linked. Nor is this a matter simply of history. I hope that Port Salford will be Britain’s first tri-modal inland port, but the investment and jobs that go with that are of course dependent on the future demand for transport links. Many of my hon. Friends here today represent constituencies with similar traditions and needs for the future. However, I am sure it will not surprise the Minister that I have a few questions and points for clarification on which I hope he will be able to respond today.
The Government have indicated that sufficient safeguards are in place to ensure that taxpayer confidentiality remains intact. It is my understanding that this includes omitting any data that would identify three or fewer exporters in a given market and providing an option to opt-out in much the same way as for the disclosure of importers’ information. Can the Minister clarify what criteria will be used to judge whether an opt-out request is valid?
The Government said in the other place that they would consider issues such as danger to the personal safety of owners and employees. I am sure all hon. Members here today would certainly hope that that would be a valid ground, but that is of course quite a high bar and hopefully also a quite exceptional circumstance, so it would be helpful to clarify whether less serious but none the less valid concerns will be addressed. I also want to know what level of opt-out the Minister anticipates, and whether he thinks that such an opt-out is likely to affect the overall value of the data published.
Furthermore, the consultation carried out by the Government attracted only 15 responses. Of those, only five were from businesses and two from individuals. Can the Minister confirm what steps the Government took to ensure the consultation was widely advertised? Does he think that five responses from businesses is a sufficient sample to get an accurate idea of the feeling in the sector?
On the wider context, I am sure the Minister is aware of the Chancellor’s commitment to double exports to £1 trillion by 2020 and get an additional 100,000 companies exporting. Can he provide a brief update on the progress towards that goal? The British Chamber of Commerce recently reported that the target would be missed by 14 years. In addition, earlier this year the independent Cole commission, set up by the then shadow Chancellor and shadow Business Secretary, reported that significantly more must be done to encourage and support export growth. As no impact assessment has been provided, will the Minister confirm that these draft regulations will contribute to that much-needed growth in exports? He alluded to that earlier in his speech, but further clarification would be helpful. Specifically, how will they enable more small and medium-sized businesses to begin exporting?
On a similar issue, does the Minister anticipate that the measure will help other companies to source supplies or services in their supply chains within the UK, rather than needing to import? What efforts will be made to promote that? Again, he alluded to that earlier, but more detail would be helpful. Can he also confirm that the restriction that is applied to the disclosure of importers’ information, limiting it to non-EU trade, does not apply here?
On the logistics of reporting, we have received a helpful spreadsheet—it is quite exciting. Will the Government use exactly the same format as the database for exporters, or do they anticipate making changes to it? Can the Minister indicate the costs that he anticipates being incurred in the creation and management of this, and is there any intention to recover any of the costs from the beneficiaries?
Finally, the Cole commission made a series of helpful recommendations, including Cabinet-led action to simplify support to businesses. Specifically, the report called for a committee to be convened to ensure that urgent action was taken. Will the Minister confirm whether the Government will act on the Cole commission’s recommendations in the near future?
Draft Small Charitable Donations Act (Amendment) Order 2015
Rebecca Long Bailey Excerpts(8 years, 11 months ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
It is a pleasure to serve under your chairmanship, Mr Pritchard, and, as always, to debate with the Minister.
As we have heard, the order is designed simply to amend the Small Charitable Donations Act 2012 to increase from £5,000 to £8,000 the amount on which charities can claim a gift aid-style top-up payment on small donations. The order will come into effect on 6 April 2016. Charitable giving is supported on both sides of the House, but I note the evidence that people on lower incomes donate a greater proportion to charity. It is important, therefore, that what is in effect taxpayer subsidy is not unfairly skewed to the largest donations made by the very rich. Ensuring that gift aid is extended to smaller donations is therefore an important point of principle. The increase proposed in the draft order will undoubtedly help smaller donors and smaller charities achieve that end. It also meets one of the recent recommendations made collectively by the National Council for Voluntary Organisations, the Institute of Fundraising and the Charity Finance Group. On that basis, I do not intend to oppose the order, but I will take the opportunity to voice a number of related concerns and questions about the scheme that I hope the Minister will be able to answer.
During the passage of the 2012 Act, the Opposition raised concerns that the scheme was quite complex and would potentially create barriers for small charities that could be eligible to claim the top-up payment. Although we appreciate that there is a fine balance between allowing charities to access the scheme and protecting it from fraud, we are aware that a number of charities and organisations have reported that the scheme is complicated, thus rendering it inaccessible for smaller organisations that may find the administrative burden difficult to navigate.
In particular, research from the NCVO, the Institute of Fundraising and the Charity Finance Group found that the smallest charities are having difficulty even finding out about the scheme and working out whether they qualify for it. Some 38% of the small charities surveyed reported that they found it either difficult or very difficult to find out about the scheme, and 66% of small and micro-organisations said that it was difficult to understand what types of donations they could make a claim on. A third of small charities found understand the claiming process difficult.
Welcome as the increased limit is, the chief executive of the National Association for Voluntary and Community Action has made the point that
“unless the barriers to claiming are removed, the higher limit seems meaningless.”
Similarly, although the director of public policy at the NCVO welcomed the increase, he said:
“Increasing the limit will not in itself mean that more charities will claim the money… it will mean that more money will go unclaimed.”
He expressed concern that because smaller organisations often employ few or no staff, trying to claim under the scheme is not worth the administrative costs and effort involved. For the benefit of any charities following our debate today, will the Minister update us on efforts that the Government are making to publicise the scheme, especially to the types of smaller charities that have so far been left out? For example, are any new promotional campaigns planned?
Another point made by the sector is that the scheme applies only to cash donations, thus excluding charities that largely take donations in kind, such as food banks. Although we understand the challenges that such donations pose, has there been any consideration of whether there is a way to address that issue, given the potential inherent unfairness?
It would be helpful if the Minister could tell us what the Government’s assessment is of any abuse of the scheme for fraud or tax evasion to date. For example, how many instances of abuse have taken place so far? Are the safeguards that are already in place sufficient, or indeed excessive?
I turn to the amounts expected to be paid through the scheme. I recall that when the Chancellor of the Exchequer originally unveiled it, he told the House with his usual degree of excited modesty that these were among
“the most radical and most generous reforms to charitable giving for more than 20 years.”—[Official Report, 23 March 2011; Vol. 525, c. 962.]
It would be useful for my assessment of the scheme if the Minister could first set out his expectations of the amounts that will now be paid out through the scheme, and secondly update us on its impact to date, particularly its performance against the expectations first set out by the Chancellor. For example, the scheme was estimated to cost £50 million in its first year, yet Her Majesty’s Revenue and Customs estimates that the cost was only £6 million in 2013-14— an underestimate of nearly 91%—rising to only £21 million in 2014-15. The Chancellor also claimed that 100,000 charities would see their income boosted by the scheme, so will the Minister tell us how many charities have in fact benefited so far?
Finally, back in 2012, the right hon. Member for Bromsgrove (Sajid Javid) assured the House that a review of the efficacy of the scheme would be carried out. It is my understanding that, as the Minister outlined, that review is set to take place in 2016, with the call for evidence beginning this month. As he may be aware, the umbrella organisations that I have referred to today have called for the Government’s review to be brought forward and asked for steps to be taken specifically to make the scheme less complicated. With the sector’s views in mind, which I have outlined today, will the Minister now confirm the timetable for the review, and particularly when it will begin and end? Will it be in time for any improvements in the scheme to be implemented for the next tax year, when the order comes into force? Will he also confirm what the terms of reference will be and provide assurance that the concerns that I have expressed today will be examined carefully?
Oral Answers to Questions
Rebecca Long Bailey Excerpts(8 years, 11 months ago)
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Greg Hands
My hon. Friend is absolutely right. That is why it is so important that local authorities are able to keep the proceeds of growing their local business rates, if that is what they are capable of doing. I am sure my hon. Friend will play his full part in attracting more business to his constituency.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Commenting on the Chancellor’s proposal to allow local authorities to raise council tax by up to 2% in order to fund social care, the Conservative vice-chair of the Local Government Association referred to the creation of a “postcode lottery”, stating:
“If you are in one of those areas with a very low council tax base, what you are likely to be saying is that, unless you are someone who physically cannot get out of bed . . . you are not going to get any help at all.”
What equalisation measures will the Chancellor take to ensure that there is no disparity between local authorities in the funding they receive and the resultant quality of service they can provide?
Greg Hands
One of the other announcements that the hon. Lady might have missed was the extra £1.5 billion going into an improved better care fund, thanks to this Government. She quotes the vice-chair of the LGA, but she could have quoted the LGA chairman, also a Conservative, who said:
“The LGA has long called for further flexibility in the setting of council tax and it is right that Greg Clark and Greg Hands have listened to the concerns set out by local government.”
National Insurance Contributions (Rate Ceilings) Bill
Rebecca Long Bailey Excerpts(9 years ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
As we have heard, this Bill enacts the Conservatives’ manifesto pledge not to increase NICs in this Parliament. It is part of their wider pledge to cap income tax, VAT and national insurance contributions. The Bill contains only three substantive clauses and, as we have heard, no amendments have been tabled for consideration today. Clause 1 creates a “tax lock” for employee NICs, capping the rates of employee class 1 NICs to 12% and setting the additional percentage to 2% for the duration of this Parliament. Clause 2 freezes the rate of employer NICs by setting the maximum secondary percentage payable by employers at 13.8%. By doing so, it also fixes the class 1A and 1B contributions. Clause 3 links the upper earnings limit to the higher rate income tax threshold by setting out that it shall not exceed the weekly equivalent of the proposed higher rate threshold for that tax year. In practice, that means that employees stop paying class 1 national insurance contributions at the 12% rate when their income reaches the higher rate income tax threshold. Thereafter, the rate of national contribution is 2%.
As the Minister is aware, my Labour colleagues are not opposed to the principle of maintaining the rates of national insurance contributions. Indeed, it was Labour that, on 25 March, first committed to halt any increase, and I am pleased that the Conservatives heeded our wise advice. It is just one of our many pre-election pledges that the Chancellor has chosen to implement.
However, without wishing to repeat what has already been said by my colleagues in previous debates, I question the need to implement legislation that forces the Government to keep their own election pledges—surely they should do that anyway. The Chancellor also seemed to share my sentiments back in 2009 when he stated:
“No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget.”
Indeed, he went on to suggest that only two conclusions could be drawn from such an occurrence:
“Either the Chancellor has lost confidence in himself to stick to his resolution, and is, so to speak, asking the police to help him, or he fears that everyone else has lost confidence in his ability to keep his word”. —[Official Report, 26 November 2009; Vol. 501, c. 708.]
John Redwood
I thought that the previous Labour Government enacted legislation to bring down the budget deficit, because they could not trust themselves with the money, and they were perhaps wise about that.
Rebecca Long Bailey
The right hon. Gentleman makes an important point, but I am citing what the current Chancellor has stated.
I question which of the scenarios the Government feel is applicable. The Government have argued during the passage of this Bill that legislation is required to ensure that the market has confidence in their keeping their election promises. It leads to the question why the Chancellor thinks that the electorate and businesses will not simply trust his word. In addition, the Government promised before the 2010 election that they would not raise VAT, but then proceeded to do quite the opposite. Indeed, in the previous Parliament, the Chancellor raised taxes 24 times despite waxing lyrical about creating a low-tax, high-pay economy. The director of the Institute for Fiscal Studies said of the most recent Budget:
“The figures are quite clear though—this was a tax-raising Budget.”
Perhaps the Chancellor has lost confidence in himself. That is not surprising given that he has missed all of his deficit reduction targets for the past five years.
I fear that legislating in this manner is only a political gimmick to convince the market and the electorate that the Government are not increasing taxes when, in fact, tax policy measures in the Budget are expected to raise £5.1 billion by 2018, rising to £6.5 billion by 2021.
Putting that issue to one side, I must once again stress my concern that the Government are severely limiting their options should the economy take a turn for the worse. This summer, the Bank for International Settlements stated simply that this is
“a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.”
The feeble recovery that we have seen thus far is built on private debt, which leaves us with a ticking time bomb. The IFS predicts that house prices will rocket across the whole of the UK, most drastically in London, leading to levels of household debt exceeding those of 2008 at the time of the credit crunch.
The warning signs are there and I harbour grave concerns that the Government are simply not paying attention. My sentiments are shared by many commentators, including the director of the IFS, who said that it would be
“extreme to tie your hands for such a long period of time with the main rates of the three largest taxes.”
Particularly worrying is the fact that the Chancellor’s spending plans are predicated on
“a forecasted rise in revenue yield from NICs.”
That fact was highlighted by the hon. Member for Dundee East (Stewart Hosie). However, should the yield be less than forecast, due to an economic downturn, what will the Chancellor do? He cannot, according to his own legislation, raise VAT, income tax or national insurance contributions. Would further cuts be imposed on public expenditure at precisely the time economic stimulus would be needed?
In Committee, the Minister assured us that, in such a circumstance, the measures before us today would not endanger the fund or be an excuse to undermine the NHS. However, he did enter the caveat that such an assurance was predicated on the Government making “difficult choices” on public spending and
“identifying savings in the welfare budget”.––[Official Report, National Insurance Contributions (Rate Ceilings) Bill Public Bill Committee, 27 October 2015; c. 18.]
I fear that what he meant was that far from legislating on their election promises on the Government’s tax credit work penalty, they have ripped them up within months of taking office.
In conclusion, we will not oppose this Bill as before the general election we also committed to capping national insurance contributions. However, it is not an effective use of precious parliamentary time and resources, and I do hope that the Minister will bear that in mind for the future.
Tax Credits
Rebecca Long Bailey Excerpts(9 years ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
As you are no doubt aware, Mr Speaker, I am new to the Front Bench. This is the second time that I have been let loose at the Dispatch Box this week. Earlier this week, I had the pleasure of facing the Financial Secretary. Today, I am delighted to face the Exchequer Secretary for what I hope will be the first of many lively debates.
I thank the Backbench Business Committee, my right hon. Friend the Member for Birkenhead (Frank Field) and the other hon. Members from across the House who secured this important debate. I place on the record my thanks to the IFS, the Resolution Foundation and other groups for their ground-breaking work on this issue.
We have heard some extremely thought-provoking contributions from Members today. My right hon. Friend the Member for Birkenhead set out his case eloquently, stating that to make the reforms next April is not acceptable and that the Government must carry out proper due diligence, focusing on a range of data groups, such as decile groups, family types, annual effects and life chances, to name but a few.
I commend my right hon. Friend for realising that his nil-cost reform suggestions would create a greater work penalty. That is the beauty of debate in this Chamber—sometimes we are convinced to change our minds.
Frank Field
I am grateful to my hon. Friend for giving way. Perhaps I may address the Scottish nationalist spokesman. I emphasised that I had put forward one idea to initiate debate. I have put forward three others today. I hope that the Scottish nationalists will not use that as an excuse for a cop-out, but will send a clear message to the Government on the very point that my hon. Friend has just made.
Rebecca Long Bailey
I thank my right hon. Friend for that intervention. I want to highlight one more comment that he made earlier: the people we should be saluting and cheering are sick with worry.
Countless Government Members spoke out against the Government’s plans today. I commend them wholeheartedly. The hon. Member for Stevenage (Stephen McPartland) said that he could not support the Government’s statutory instrument because families were coming to his surgery all the time who were frightened. The hon. Member for Aberconwy (Guto Bebb) said that we need to look at this issue again to create a system that does not penalise the poorest in society. The hon. Member for Tiverton and Honiton (Neil Parish) said that everything he believes in as a Conservative is about getting people into work, but there is a risk that these proposals will do the opposite. The right hon. Member for Haltemprice and Howden (Mr Davis) said that this policy was a mistake and highlighted the absence of a proper impact statement.
We had a refreshing change from that kind of dialogue when the hon. Member for Morecambe and Lunesdale (David Morris) became one of the few Government Members to applaud the Chancellor and champion some of the so-called measures that the Government say will offset the tax credit losses.
The hon. Member for Colchester (Will Quince) supported the call for mitigation. The hon. Member for Twickenham (Dr Mathias) fully supported the Chancellor’s claims about higher wages, but agreed that those at the lowest end of the income scale must be protected. The hon. Member for North Cornwall (Scott Mann) broadly supported the Government’s proposals. In stark contrast, the hon. Member for Harrow East (Bob Blackman) supported an examination of the proposals.
The hon. Member for Colne Valley (Jason McCartney) supported other Members on the need to reconsider the pace of change. The hon. Member for Waveney (Peter Aldous) agreed that there is a need to review the measures and that more transitional support is needed. The hon. Member for Torbay (Kevin Foster) supported the motion because his family was rich in love as he grew up, but poor in money. He realised the effect that the proposals may have on aspiration in the long term.
The hon. Member for Stafford (Jeremy Lefroy) cited JFK and stated that if we see everything in terms of income, we are a poorer society. I applaud his condemnation of trickle-down economics. He also made refreshing comments about improving the national insurance system.
Moving over to the Opposition Benches, we heard from my hon. Friend the Member for Darlington (Jenny Chapman), who said that the fear of what may happen is out there already and that the Government must act quickly. My right hon. Friend the Member for Don Valley (Caroline Flint) highlighted the fact that the distributional impact of the cuts will be severely regressive. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) said that his mailbag was full of letters from people who are terrified about what is to come, and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) highlighted Labour’s desire to ensure that we build an economy where families do not need to rely on tax credits. He said it was a mistake to take money from the working poor before their wages have risen. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) stated that the Chancellor could still change his mind and that Labour would welcome such a move, and my hon. Friend the Member for Lewisham, Deptford (Vicky Foxcroft) highlighted the risk that struggling families may fall into debt.
My neighbour and hon. Friend the Member for Heywood and Middleton (Liz McInnes) mentioned the potential increase in child poverty, and my hon. Friend the Member for Nottingham North (Mr Allen) said how lovely today’s debate had been, as it seemed to be a collection of all the sensible people in the House. He said that perhaps the Government should have done things that way in the first place, and I share his sentiments. My hon. Friend the Member for Edmonton (Kate Osamor) said that 72% of people in her constituency receive tax credits, and my hon. Friend the Member for St Helens South and Whiston (Marie Rimmer) outlined—worryingly—that her constituency has the seventh highest levels of unemployment poverty.
The hon. Member for Airdrie and Shotts (Neil Gray) confirmed that we can do better than we are currently doing, and the hon. Member for Arfon (Hywel Williams) highlighted the disincentivising effects of the changes, and especially the impact on under-25s. The hon. Member for Kilmarnock and Loudoun (Alan Brown) rightly asked the Government to revisit their tax avoidance policies, and the hon. Member for Dumfries and Galloway (Richard Arkless) highlighted the worry that his local economy would be affected by cuts to tax credits because those on low incomes are less likely to holiday in Scotland.
The hon. Member for East Antrim (Sammy Wilson) was broadly supportive of the Government’s proposals but questioned their timing, and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) highlighted household debt and the potential of the changes to exacerbate an already serious problem. Last but not least, the hon. Member for Ross, Skye and Lochaber (Ian Blackford) said that we need to drive sustainable economic growth, which we will not do by taking £4.5 billion out of the economy.
The motion before the House is timely in light of events in the other place this week. Labour supports the position of our noble Friends, which is that the proposals should not go ahead until there has been proper consultation, a Government response to the distributional analysis conducted by the Institute for Fiscal Studies, and mitigation, reform, or indeed withdrawal of the changes if appropriate.
Given the names on the motion and the contributions from across the Chamber, it is clear that widespread pressure spans all parties in the House for the Government to carry out and publish a detailed and adequate impact assessment of the cuts to tax credits. Following such an assessment, they should detail proposals that will ensure that no family is worse off. Labour is clear that if the Government commit to ensuring that no family will be worse off as a result of amended proposals, we will put the interests of those families above party political considerations, and we will not attack the Government for such a move. I cannot think of any recent occasion when any Opposition have made such an offer, so I call on the Minister to listen to the contributions made today.
This House is at its best when we use the power of debate to convince other Members of the merits of a particular argument, whatever our deeply held values or ideologies, and on rare but welcome occasions such as this we can reach a consensus in the House on certain issues. I hope that the Minister and hon. Members will agree that the Government’s policy on tax credits needs to be reviewed and changed.
Let me anticipate what the Minister might say in responding to the debate, because he and I agree on one key point: it is necessary to reduce the deficit over the economic cycle. What we disagree on is the economic strategy used to achieve that, and I do not believe that the Government’s plans achieve that goal fairly or effectively—indeed, in the long term, these savage cuts and the resultant pressure that they will place on other parts of the welfare system will achieve quite the opposite. As we were reminded during the debate, the Prime Minister denied any need or plan to cut tax credits during the election, and the Minister must understand that members of the public—especially those who voted Conservative—are rightly angry.
Cuts to tax credits would mean that more than 3 million families will be on average £1,300 worse off next year. Some working families will lose nearly £3,500 a year, yet £2.5 billion pounds has been found for a cut to inheritance tax that will benefit the wealthiest 4% of people in this country. At the same time, £4.5 billion is being taken out of the pockets of low and middle-income families. The Treasury’s own analysis, and that of the Resolution Foundation, shows that the cuts to tax credits, based on the Government’s current proposals, will put another 200,000 children into poverty. There are already half a million more children in poverty than there were in 2010.
We are told by the Government that cuts to tax credits will be compensated by the so-called living wage. Let me be clear: they will not. In fact, the Institute for Fiscal Studies made that clear:
“the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced…That is just arithmetically impossible.”
We are grateful for its analysis of course, because the Government have refused to publish an adequate version of their own. The IFS research shows that because of the different profile and scale of families and individuals on the minimum wage versus those in receipt of tax credits, an increase in the minimum wage, though welcome, will not mitigate the effect of the cuts. The average family will still be significantly worse off.
The rise in the minimum wage was accompanied by £4 billion of giveaways in cuts to corporation tax. We are also told that the Government will compensate for losses to income by providing 30 hours’ free childcare for three and four-year-olds. In my constituency of Salford and Eccles, our Labour council already provides 25 hours’ free childcare, but demand for nursery places currently far outstrips supply. The Pre-School Learning Alliance has warned that councils are already paying childcare providers insufficient hourly rates to provide the existing hours of free childcare, and that going up to 30 hours would push many providers to breaking point. If the Minister intends to cite childcare as the answer to tax credit cuts, perhaps he will confirm that the 30 hours scheme will be properly funded and will not push providers to the limit.
In conclusion, in my constituency more than 61% of families are receiving tax credits. They are not the so-called scroungers we hear about; they are men and women who are working hard to try to build a future for themselves and their children. They are trying to lift their children out of poverty and provide them with the nourishment and financial support they need so that maybe, just maybe, they will not have to endure the same hardship their parents endured. We have heard about the American dream, but there is no equivalent British dream for these people. They work hard and get nowhere. Low-paid, unskilled work is often the order of the day for many. For some, it is a case of trying to build up a business to be proud of. For others, they simply juggle work with the responsibility of caring for loved ones. It is clear that the Government’s claims that tax credits cuts will not cause any family to be worse off simply do not stand up to scrutiny. These families deserve a future. As such, we will support this motion.
National Insurance Contributions (Rate Ceilings) Bill (Second sitting)
Rebecca Long Bailey Excerpts(9 years ago)
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Mr Gauke
Like clause 1, clause 2 is a simple provision and I do not intend to detain the Committee for long in explaining it. The rate of secondary class 1 contributions payable by employers for employees who are not under the age of 21 is 13.8%. It is payable on earnings above £156 per week. The clause simply provides that the rate shall not exceed 13.8%.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Again, as this is part of the Government’s policy to cap national insurance contributions for this Parliament, we do not oppose it in principle, but I hope that the Minister will address a few issues.
The national insurance fund is used almost exclusively to pay for contributory benefits. However, one portion, as we discussed this morning in the evidence session, is used for the NHS. Will the Minister assure us that the Government are not tying their own hands should there be another economic crisis? There could be a danger in such circumstances that the Chancellor may decide to reduce public spending further, just at the point when a stimulus is needed.
Economists the world over warn that the global economic situation is becoming increasingly precarious, and the Minister will no doubt be acutely aware that the Opposition have concerns that the Government are not taking sufficient measures to increase our financial resilience. I ask the Minister, in the words of Keynes: if the facts change, will the Chancellor change his mind? Alternatively, if the Government are committed to keeping this framework in place regardless, what contingency plans exist to protect the fund if unemployment starts to rise and receipts from national insurance consequently fall?
On Second Reading, the point was made that the Chancellor’s spending plans are predicated on,
“a forecast rise in revenue yield from NICs”.—[Official Report, 15 September 2015; Vol. 599, c. 941.]
However, should this yield be less than forecast, whether due to unforeseen circumstances, simple miscalculation or, indeed, economic policy failures, what will the Government do? Will further cuts be imposed on public expenditure, or will borrowing rise and the Chancellor simply change his targets once again?
I was grateful for the Minister’s response this morning when he confirmed that NHS funding would not be cut directly as a result of any impact that the Bill has. However, in the same way as the Bill provides an assurance to the market that the Government will keep their promise on national insurance, it would be prudent to legislate for the promise on the NHS. I trust that the Minister has listened diligently to my concerns and I look forward to his response.
Mr Gauke
I am grateful to the hon. Lady for her questions. She asked whether we are tying our hands in these circumstances. To the extent that we are not putting up the employers’ rate of national insurance contributions, for which the clause provides, or the employees’ rate, for which clause 1 provides, we are making it clear that we do not believe that that would be the right thing to do.
The hon. Lady draws me on to hypothetical ground when she asks what would happen if there were a crash, but even on a Keynesian analysis, I do not think anyone would particularly advocate, as an immediate response to an economic downturn, increasing employers’ or employees’ national insurance contributions. I do not claim to be an expert on Keynesian orthodoxy, but I do not think that that would constitute an orthodox Keynesian response to a downturn.
On the hon. Lady’s points about the impact on the national insurance fund, let me repeat the assurances that I gave this morning. There is no question of the fund not being able to fund pensions or the NHS. The Government will introduce the new state pension from 2016, which will make pensions affordable and improve the sustainability of the national insurance fund in the long term and provide the right support for private saving.
The Government Actuary recommends a working balance of one sixth of benefit expenditure for the national insurance fund, as we heard this morning. There is provision to top up the national insurance fund from the Consolidated Fund to maintain the balance at that level. For the 2015-16 tax year, a top-up of £9.6 billion has been provided for in legislation. The future funding of contributory benefits, should NICs receipts prove insufficient, is a matter for the Chancellor and that decision would need to be made at the relevant fiscal event, based on the latest projections available at the time, and taking account of this Bill. I hope that that provides some reassurance that there is flexibility.
It is not the case—nor is this an argument that a future Government would make—that, if the national insurance fund were lower than we expected, we would not honour our commitments on the NHS and on the state pension. I have to make the point that, when it comes to ensuring that we can have a properly funded NHS and properly funded pensions, we need to make sure that the economy is on a sound footing, and that the public finances are strong. That means that we have to make choices, and, in some cases, difficult choices about public finances. That includes, for example, identifying savings in the welfare budget, but, Mr Bailey, that would be taking me away from clause 2.
Rebecca Long Bailey
Hon. Members will be pleased to hear that I do not wish to go into great detail on clause 3. We are aware that the clause links the upper earnings limit to the higher rate income tax threshold by setting out that it shall not exceed the weekly equivalent of the proposed higher rate threshold for that tax year. That means that employees stop paying national insurance contributions at the 12% rate when their income reaches the higher rate income threshold, and thereafter the rate of national insurance is 2%.
Mr Gauke
I am sorry if we are detaining the hon. Lady. I am sure she has many useful things to do this afternoon, so I will not detain her longer than I have to. I come back to the point that we debated this morning. It was a manifesto commitment that we would legislate for this and it is similar to the argument on rates that we have just had on clauses 1 and 2. It underlines our commitment.
I suspect that, had the Bill contained just clauses 1 and 2, and not dealt with the upper earnings limit alignment, the hon. Lady would have been one of the first to identify an apparent lacuna in the legislation and would say that there was nothing to stop us increasing the 12% band of national insurance contributions above the point at which the higher rate threshold came into place. Indeed, I think that that was Labour party policy in 1992, so it is not an immaterial issue or one that has never been considered in public debate.
To be consistent with the capping of the employees’ NICs rate, it is right to set out the threshold and the fact that that is tied in with the higher rate threshold. That has been the practice for some years now and we wish to maintain it.
Rebecca Long Bailey
On highlighting a lacuna, several need to be highlighted and we will take the same approach as the Government to the Bill. If they are going to legislate for every single pre-election promise, surely they should apply the same sort of legislation to every manifesto pledge. They are certainly not doing that.
As my hon. Friend the Member for Wolverhampton South West rightly said this morning, while the Government might be providing assurances to the market on this issue, they are certainly not providing any assurances on all their other pre-election promises because they are not legislating for them in the same way.
Mr Gauke
On a point of order, Mr Bailey. I am not sure whether it is appropriate or necessary to make a point of order at this point, but I think I should. I thank you for your guidance over the last 21 minutes. You have demonstrated all the skills we needed this afternoon, and I am grateful for that. I also thank Mr Rosindell for his assistance this morning.
I thank all hon. Members for their participation in our proceedings. They can report back to the Whips that they have served on yet another Bill Committee, and I hope they feel that this has been a day well spent.
I thank the Whips—the Lord Commissioner of Her Majesty’s Treasury, my hon. Friend the Member for Central Devon, and the hon. Member for St Helens North—for their assistance. I also thank Opposition Members, including the Front-Bench spokespeople, the hon. Members for Wolverhampton South West and for Salford and Eccles, for their constructive engagement with the Bill.
This is the second Bill that some of us have completed in recent days. It has taken considerably less time than the Finance Bill, for which I, for one, am very grateful.
May I conclude by thanking the Clerks, the Hansard reporters, the police and the attendants, as well as the officials from Her Majesty’s Revenue and Customs and the Treasury, for their assistance with this short but important Bill? I look forward to discussing these issues again—no doubt at some length—on Third Reading.
Rebecca Long Bailey
Further to that point of order, Mr Bailey. I reiterate the thanks the Minister has expressed. I also thank him for what has, as always, been a lively and engaging debate. It has been a pleasure.
John Mc Nally (Falkirk) (SNP)
Further to that point of order, Mr Bailey. This is the first Bill Committee on which I have sat. May I, too, thank the Minister and the Clerks for taking us through the Bill and for the guidance they have given us? I am equally glad that our proceedings have been quite short and relatively simple to follow and that I could associate them with my constituents back home in Falkirk.
Bill to be reported, without amendment.
Finance Bill
Rebecca Long Bailey Excerpts(9 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I can assure the hon. Gentleman that the Government are talking to the devolved Administrations about exactly how we are going to do that. We are conscious that these are devolved matters, and we are actively engaged with the devolved Administrations.
I hope that the new clauses and amendments to which I referred earlier in the context of the enterprise investment scheme, venture capital trusts, corporation tax instalment payments and restitution interest payments will be able to stand part of the Bill and have the support of the whole House.
Rebecca Long Bailey (Salford and Eccles) (Lab)
It is an honour for me to speak from the Dispatch Box for the first time under your chairmanship, Madam Deputy Speaker, and I hope that this will be the first of many debates in the Chamber with the Financial Secretary to the Treasury.
I shall first speak to the Government’s amendments and new clauses, before speaking to our amendments on vehicle excise duty. On the whole, the Government’s amendments are technical in nature, designed to preserve the integrity of the Bill, to comply with EU law and to close loopholes. On that basis, we broadly support them, but I will make a few comments.
The explanatory notes and impact assessments relating to the measures were only provided by the Government at 11.50 this morning. Given the detailed nature of the proposed changes, that simply does not allow sufficient time for scrutiny. The hon. Member for Hereford and South Herefordshire (Jesse Norman) has already made that point, and KPMG has also voiced its concern, stating:
“It is important…that the Government is seen to follow the process consistently, and provide suitable time for consultation and Parliamentary scrutiny wherever possible: the addition of entirely new measures to the Summer Finance Bill so late in its passage through the Commons…is likely to foster only uncertainty.”
I hope that the Minister will take these concerns into account and ensure that this does not happen again.
New clause 4 will exclude certain contractual activities relating to reserve electricity generating capacity from the scope of venture capital trusts. These proposals are required to comply with EU state aid rules, along with amendments 31 to 45 and 46 to 70. New clause 5 relates to corporation tax instalment payments and corrects a legislative defect that has previously caused uncertainty over how the legislation will apply to accounting periods that run over 1 April 2015.
New clause 6 relates to carried interest and disguised investment management fees. These are technical corrections to clause 40 that are meant to ensure that where carried interest is charged to tax under the capital gains tax code, the full economic gain is brought into charge to tax. This new clause is intended to prevent sums arising to a fund manager as investment management fees or carried interest from being sheltered from tax through arrangements that have the effect that the amounts arise to other persons.
New clause 8 relates to restitution interest payments and introduces a new rate of corporation tax on amounts of restitution interest that may be paid by HMRC under a claim relating to the payment of tax on a mistake of law or the unlawful collection of tax. The interest element of a restitution award will be chargeable to corporation tax at a special rate of 45% instead of the normal 20% rate. We broadly support this measure, but the Minister will be aware of the hostile views that have been expressed by some businesses. He might wish to take this opportunity to respond to some of those views today.
New clause 3 requires the Chancellor to lay a report setting out proposals for amending the law to ensure that no element of the remuneration aid to an investment fund manager may be treated as a capital gain and that such remuneration shall be treated as income for tax purposes. We agree with the general aims of the new clause but we will listen carefully to what the Minister has to say on this issue.
The proposal dealing with vehicle excise duty relates to rates for light passenger vehicles in the UK and considerably flattens them out by introducing a flat-rate excise charge for every vehicle, regardless of carbon dioxide emissions, from 1 April 2017. First-year rates will continue to be determined by a sliding scale, depending on CO2 emissions. For most greener cars, which emit below 120g of CO2 per kilometre, people will now pay VED of up to £160 in the first year, whereas previously they paid nothing—only zero-emission cars will be liable for zero VED. In subsequent years, there will be a flat-rate of VED of £140 a year. Hon. Members will note that this will result in a substantial VED increase for low-emission cars in the first and subsequent years, while there is a substantial reduction for cars that are less carbon-efficient. Previously, VED for subsequent years was banded, with the more polluting cars paying more—up to £505.
Clearly, over time, the approach being taken strongly benefits more polluting cars, which will pay hundreds of pounds a year less, while greener cars, aside from those with zero emissions, will pay about £100 a year more. To put this into perspective, approximately 445 cars are currently in the top least polluting bands and so pay no VED, as they emit less than 100g of CO2 per kilometre, whereas under the proposed changes only 13 will fall into the exempt category. That represents a significant drop. In addition to those proposals, moves are also being made to additionally penalise vehicles priced at over £40,000 and, over time, there will also be a supplementary rate of £310 for the first five years.
A tax on passenger vehicles has been a feature of Government policy since as far back as 1889, but it is important to note that it was the Labour Government in 1999 who introduced bands of VED linked to the levels of CO2 emissions. The measure was designed to encourage the purchase and use of more fuel-efficient and low-emission vehicles, with the aim of lessening the environmental impact of an ever-increasing number of cars on the road. There is broad consensus on both sides of the House that VED reform is needed. Greener, more carbon-efficient vehicles are slowly becoming more commonplace across the UK, and this will undoubtedly have clear implications for VED as a future source of Government revenue. VED bands were set up in 2008, when the average emission was 158g of CO2 per kilometre, whereas the average car now produces 125g of CO2 per kilometre. Many cars therefore pay no VED at all.
Labour Members agree with the Government that this is unsustainable, but we question whether the approach they have taken to address it is pragmatic. We do not agree that increasing the duty paid on low-emission cars while decreasing the duty paid on higher-emission cars is the logical solution. The fact that zero-emission vehicles will continue to be exempt from road tax is welcome, but we are concerned that a flat rate of VED, as outlined in this proposal, will mean that low-emission vehicles will pay £800 to £1,000 more over a seven-year period than they do now, while many high-emission vehicles are expected to pay up to £440 less.
Mark Field
I congratulate the hon. Lady on her debut at the Dispatch Box, and I hope she will be looking across in precisely the same direction for many years to come. Will she give at least some thought to what was said by the Minister, in that there is a delicate balance to be struck here? We are trying not only to encourage people to have low-emission vehicles—this is not just about carbon dioxide, because nitrogen dioxide is increasingly seen as being a problem, although none of this legislation properly addresses that—but to ensure that relatively less well-off people who perhaps have to hang on to a car for many years should not be artificially penalised. Does she not recognise that the balance the Government have tried to put in place is at least a sensible one?
Rebecca Long Bailey
I welcome the right hon. Gentleman’s comments. He is certainly a silver-tongued fox, and I look forward to staring at him from these Benches in the months to come. He raises some important issues. Hopefully, I will address them during my speech.
Rebecca Long Bailey
I wish to make a little progress before I take any further interventions.
Let me cite an example to show the absurdity of the current proposals. Although I appreciate and agree that VED needs to be reformed as it is unsustainable in its present form, the current proposals create the obvious absurdity of a Mitsubishi Outlander plug-in hybrid owing as much VED as a BMW 5 series saloon from year 2. On top of that, many vehicles that harness the latest technological developments tend to be rather expensive and may be hit by the supplementary rates as well as by the higher flat rate. For instance, the Volvo V60 plug-in hybrid estate—a hybrid suitable for families—would have to pay a first-year rate of £320 and a supplementary rate of £450 for five years thereafter despite being at the forefront of low-emission technology.
Sammy Wilson
I think that there is merit in what is proposed in new clause 3, at a time when the tax system is under scrutiny and people feel under pressure. We must look at both the economic and political consequences of tax proposals, because no tax regime can be viewed in isolation from the political context in which it is set. At a time when many people in lower-income groups feel that they are bearing a disproportionate burden, despite paying less tax, loopholes that become apparent should be closed where possible. I would be worried if it was shown that closing such loopholes would have a detrimental impact on the efficient working of the capital markets, but if that is not the case, then I think there is an important reason for closing them.
With regard to the Opposition’s amendment on vehicle excise duty, I must say that I was very surprised by the stance taken by the hon. Member for Salford and Eccles (Rebecca Long Bailey). The one thing that is quite clear in the amendment is that although it might be very green, it is not very fair, with regard to the burden of taxation. It is more likely to impose a higher tax burden on those on lower incomes, who tend to have older cars with higher emissions, so it would be highly regressive.
Rebecca Long Bailey
The average car currently emits 128 grams of CO2 per kilometre, which is actually in the lower band. It is also important to note that these provisions would come into effect from April 2017, so they would not be retrospectively applied—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I fully appreciate that it is the hon. Lady’s first time at the Dispatch Box, but—I am not reprimanding her, but merely giving a little hint for future reference—turning her back on the Chair is not acceptable. Even though she wants the hon. Member for East Antrim (Sammy Wilson), who is sitting behind her, to hear what she is saying, she still must face the Chair at all times. [Interruption.] No, she need not apologise, because it is her first time at the Dispatch Box, but she will always get it right in future.