Finance (No. 4) Bill

Sheila Gilmore Excerpts

Monday 16th April 2012 Commons Chamber

[Danny Alexander]

I thank my hon. Friend for his support, but I cannot confirm that intention at this stage. We have a major ongoing problem with the sustainability of our public finances. We set out in the spending review last year, and reaffirmed in this year’s Budget documentation, the need for further spending—

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the right hon. Gentleman give way?

[Danny Alexander]

I am just responding to the previous intervention, if the hon. Lady will just hold her horses for a second.

We confirmed in the Budget document the need for further fiscal consolidation in the years 2015-16 and 2016-17. We cannot simply promise to reverse measures, although that is the policy of the Labour party, which seems quite happy to return to its old habit of high spending and introducing measures that would return this country to the mess that Labour has already put us in.

[Sheila Gilmore]

Over the Easter recess, did the right hon. Gentleman have a chance to reflect on the question that I asked him during the Budget debate? Why, having listened to people’s concerns about child benefit, was he not prepared to make any concessions to the much poorer group of people who were going to lose their tax credits?

[Danny Alexander]

I explained in the Budget debate that reforms to tax credits were necessary to deal with the rapidly growing cost of a system that had started out costing £18 billion a year and was now costing £30 billion. It will still cost about £30 billion, but that money will be more focused on those on lower incomes. When we first came into office, we inherited a tax credit system that could pay tax credits to people on £50,000 or £60,000 a year—

[Sheila Gilmore]

rose—

[Danny Alexander]

Let me answer the hon. Lady’s point. Reform of the system was necessary. It was one of the hard decisions that we have had to make in dealing with the massive budget deficit and the huge mess that her party left the British economy in. Recognition on her part that that has to be dealt with would be a welcome way in which to start her next intervention.

[Sheila Gilmore]

This is a matter of fairness. I am not talking about the tapering off of tax credits at the top end, although I might have a view on that as well. I am talking about the changes that came into force the week before last, which are hitting the very lowest earners—people at the very bottom end, who will not benefit from the changed tax thresholds as they already earn too little to pay income tax. Has the right hon. Gentleman reflected on why he is prepared to make concessions on child benefit to the much better off taxpayers when he is not prepared to reconsider the hit that some of the very lowest earners are taking? Those people might end up having to give up work as a result.

[Danny Alexander]

I notice from the matters for debate selected by the hon. Lady’s Front-Bench colleagues for the next two days’ consideration of the Bill that restoring child benefit for this country’s highest earners and multimillionaires is a major priority for her party. As for the tax credit changes, in a system where we expect a lone parent to work 16 hours in two days a week to qualify for tax credits, it is reasonable to ask more from a household that has two earners working 24 hours a week in three days. I view that change as reasonable.

--- Later in debate ---

[Mr Brown]

Only in certain respects. The hon. Gentleman talks about mortgage interest rates; I am sure that he does not need me to remind him that not every household has a mortgage. Some families are finding it difficult to pay their rent, let alone a mortgage. That is why I make the point that £10 a week would make a real difference to many families.

[Sheila Gilmore]

Does my hon. Friend agree that many families are experiencing increases in mortgage rates? Increases have recently been announced, despite what the hon. Member for Enfield North (Nick de Bois) says. People are feeling the pain.

[Mr Brown]

I thank my hon. Friend for her intervention. There is no doubt that there are myriad different experiences out there in our communities, towns, cities and villages. To keep their jobs, people are deciding to take pay cuts or to work fewer hours, and that is tragic, because when that happens, household income is affected. That will have a greater impact on some families than on others.

A point was made about the working tax credit. I have spoken to welfare rights services in my constituency, and to Citizens Advice, and only now—since the end of last week, and in the two or three weeks ahead—are we all beginning to see the impact. It had not really dawned on people how much of an impact there would be. I will undoubtedly see some of the 400 families in my constituency who will lose all their tax credits. They do not have a hope of moving from 16 hours’ work per week, for a couple, to 24 hours’ work a week. I just mentioned that some families are working fewer hours to keep their job. The work is not there. For those families, the loss is potentially in excess of £70 per week. In many cases—this has been mentioned to me by two constituents whom I have met—people feel that they would be better off quitting work and living off benefits. That is not to say that benefits are excessive in this country—anything but. People are struggling to make ends meet. How does that square with the idea, which I hope all of us in this House agree on, that work pays? Some families are saying, “It’s a waste of time working; I would be better off on benefits, because I am about to lose my tax credits.”

There are key Budget decisions that it is not too late to stop. The £3 billion tax rises for pensioners—the so-called granny tax that the Chancellor announced last month—does not kick in until next year. That is why I say to Government Members that, to a certain extent, I live in hope that there will be a change of heart over the next few days. Then there is the £3 billion handout that the Chancellor announced for people earning more than £150,000, when he cut the 50p top rate of income tax. That is a tax cut of more than £40,000 for 14,000 millionaires, all on the back of pensioners and working families. How out of touch are the Prime Minister and the Chancellor if they think that millions of pensioners who have worked hard all their life should have to pay more tax next year, so that millionaires can pay less? It does not square. Ministers boast that the state pension is increasing, but when we look at it in more detail, we see that it is only keeping up with inflation.

What is happening in the Budget is not fair or right. That is why, as my hon. Friend the Member for Leeds West (Rachel Reeves) said, Labour will hold a vote in the House on Thursday to try to defeat the granny tax. We will ask MPs from other parties to join us. We will also vote to stop the £3 billion tax cut for the richest. We will call for a tax on bank bonuses to fund a guaranteed job for every young person who is out of work for more than 12 months—a job that they should have to take up, and that they will relish the challenge of taking up, given the opportunity.

I shall soon conclude, because my points about VAT have already been made, but I did mention, in the three or four-day debate that followed the Budget towards the end of March, the issue of VAT on caravans. I said that I did not know how many caravan parks I had in my constituency, but I guessed that in no part of my constituency would a person be more than 8, 10 or 12 miles from a caravan park. There are 58 sites in my constituency. The VAT will have an impact on those businesses, and a considerable number of them have contacted me already. It is my intention to meet them to discuss how much of an impact the measure is having.

We have talked about hard-working families; the plea to families is that they should enjoy a staycation this summer—in other words, they should holiday here in the United Kingdom. That is the right thing to do. After October, unless there is a change of heart, there will be an increase in the cost of holidays for hard-working families on many of the sites that I am talking about. It is not just my constituency that is affected; I know from my discussions with Government Members that it is a serious issue for the tourism sector the length and breadth of the UK.

Let me say for the third and perhaps final time that I hope that there will be a change of heart, because we are heading in the wrong direction. There is far too much pain in the country at the moment. There is more to come—I recognise that—but it is not being shared fairly.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

After that version of what the Budget holds, it is worth quoting another, as today’s editorial in The Times was not nearly as enthusiastic as the hon. Member for North East Somerset (Jacob Rees-Mogg). In its words:

“When the Budget speech is still leading the news three weeks after delivery, something has gone awry.”

It is rather strange, because in the beginning people thought that so much had been spun out to the press in advance that there could not be much controversy left. It all seemed to have been massaged and put out in advance, so people would not be too surprised. Three weeks after the Budget, however, as The Times says, something has gone awry. Clearly, that view is not shared by the hon. Gentleman, but it is widely held throughout this country. Behind all the jokes about pasties, granny tax, stamp duty and caravans, the biggest thing that has gone awry is the fact that there is very little in this Budget to help grow the economy. That is the serious part of all this.

This morning—I think it must have been on the “Today” programme—I heard the commentator say that the Government have handed over the responsibility for economic recovery to business. The problem is that the OBR does not expect business to step up to the plate any time soon, so it appears that nobody will be responsible for the recovery. This is what the OBR had to say in its March report:

“Relative to our November EFO”

report,

“we have made a further downward revision to business investment, as we believe that non-financial companies’ balance sheets may be weaker than official statistics suggest. Set against this, we expect a boost to the level of business investment of 1 per cent from the corporation tax rate cut announced in the Budget.”

The reduction in the forecast for business investment for 2012-13 is 6.9% off the November forecast and the increase that is expected this year in business investment is only 0.7%, so it appears that business will not be stepping up to the plate.

We have heard a lot about corporation tax and Opposition Members have been accused of not being interested in that, but when one looks at the detail, one sees that the corporation tax cut that people have made so much of is expected to lead to an increase of only 1% in business investment over the whole forecast period. If a reduction in corporation tax is so important to the Government, it seems a rather modest step. In striving above all to create what he feels is a fiscally neutral Budget the Chancellor is constraining his Government’s apparent remedies to our economic situation. We have seen the same thing with the national loan guarantee scheme and the credit easing we were promised in November which was finally announced to be alive and kicking the day before the Budget. That is really an acknowledgement that previous measures to encourage business to invest have not worked.

What does the OBR say? It says:

“Under current funding market conditions, the Government guarantee on the first tranche should lead to lower funding costs and some additional net lending. The scale of the initial tranche is not large enough to have a material impact on our aggregate business investment forecast”.

It goes on to say that the

“benefits associated with further tranches are less certain.”

Again, one of the tools that the Government say they have to aid economic recovery appears to be exceptionally modest, so it is not surprising that the OBR does not expect a recovery in growth to the historical average before 2014.

The rise of the tax threshold is something that the Liberal Democrats are very proud of. They waved their Order Papers frantically at the time of the Budget.

[Lorely Burt]

Yes, we did.

[Sheila Gilmore]

And we heard a great deal about it from the hon. Member for Bristol West (Stephen Williams). I would be more interested in listening to their view on this if they acknowledged how many other measures have not helped many of the low-paid. Raising the tax threshold is not in itself a bad thing—[Interruption]—but when people have suffered other losses, the net effect is not what the hon. Member for Solihull (Lorely Burt) appears, from a sedentary position, to think it is. Someone who is now out of tax as a result of this year’s tax threshold increase will find that it is not worth as much to them as they might have thought because while they are gaining with one hand they are losing with the other. If they are entitled to housing benefit or council tax benefit, they will get less because of the changes in tax so the net effect will be that they receive less. Over the period since 2010, families in particular have taken a big hit with more than £500 a year being lost through changes in tax credit and other benefits. The hon. Member for Solihull laughs and perhaps she does not care about that because the tax threshold seems to be such an important mantra for her party but it is not enough if at the same time people are suffering losses. If we want to talk about the real position for families, particularly those with children, we have to look at the whole picture. Those who face the loss of tax credits this year know exactly what that means for their families. As I said earlier, I am very disappointed that the Government were willing to listen to some critics, and make changes for those on the higher rate of tax who are about to lose child benefit, but were not prepared to look at the much bigger working tax credit losses that will be suffered by people on much lower rates. If they were listening, they should have made the change for both, not simply for those on higher rates of tax.

We have heard a lot about tax simplification—indeed, it was the reason for the so-called granny tax—but it appeared to go out of the window when it came to child benefit changes for higher rate taxpayers. The Finance Bill will give us a complicated set of arrangements that will involve making decisions about whether two people are a couple, whether or not they are regarded as living together and when a relationship has sufficient permanency to affect the provisions. All those issues are extremely complicated and, as even some Government Members have said, they will involve employing more people to work them out. As we said, there will be administration costs.

When the changes were announced with a great flourish at the Tory conference, we pointed out the anomalies, difficulties and expense that would arise. I suspect that there will be further changes yet, because there is no point in pretending that the measure is not difficult.

On the higher tax rate issue, it was far too soon to jump to the conclusion that the 50p rate was not bringing in the revenues one might have hoped for. It was hardly given the opportunity to start. In effect, people on high incomes were using a form of blackmail on the rest of us: “If you put up taxes, we’ll find ways of avoiding them.” What did the Government do? They rolled over and said, “Oh all right then, we’ll lower the rate of tax.” If low-paid workers or people who lost their working tax credit when they could not find enough hours decided that sensible tax planning for them would be to stop work, because they would better off, they would be regarded as people who would rather stay at home watching daytime television than work hard. There is one rule for one set of people and one rule for another.

Tax avoidance should be tackled, but it is not a good sign when at the first whimper from higher rate taxpayers—the first effort to avoid the tax—the Government say, “Okay, we’ll change the tax rate for you.” That is what the Government stand for. It has been clear in this and previous Budgets that there is gross inequality in the way people are treated. People at the bottom who have been suffering from the changes in tax and benefits and are struggling to keep their heads above water find that even the new jobs supposedly created over the past two years—most of which were created in 2010—are part time and do not give them a higher standard of living. I urge Government Members to rethink their support for the Budget and to vote with us tonight.