Business and the Economy

Sheila Gilmore Excerpts

Monday 14th May 2012 Commons Chamber

[Vince Cable]

Clearly, the previous Government were not responsible for the global meltdown, but they were responsible for building up the largest and most volatile banking sector in the western world, and it was from that that the collapse followed.

To achieve a recovery, we need to build on some of the positive trends that are beginning to emerge. Despite the deep-seated problems of the economy and the slow growth, we have seen 634,000 private sector jobs created in the past two years, which is almost twice as many as have been lost in the public sector. Private sector job growth explains why our unemployment level, although distressingly high and a tragedy for many individuals, is no higher than that in the United States.

[Sheila Gilmore (Edinburgh East) (Lab)]

That figure of 600,000 private sector jobs has been given, on and off, for the past two years. Is it not the truth that the vast bulk of those new jobs were created in the early part of this Government’s term but were clearly related to the financial policies pursued by the previous Government, and that the number of private sector jobs created in the latter part of this Government’s term to date is extremely small?

[Vince Cable]

That is not correct. There has been a sustained improvement in private sector employment.

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[Vince Cable]

I am not here to attack journalists; I am not sure which ones the right hon. Gentleman is referring to. It is certainly true that the Governor of the Bank of England has been absolutely clear from the outset that in order to have long-term stability in banking, these reforms, or something very like them, had to be implemented, as we are now doing.

One area where business success and responsibility coincide is in relation to flexible working. The UK employment framework compares well internationally and has helped to keep unemployment relatively low, despite the extremely difficult economic conditions, but that is not to say it cannot be improved, both for workers and employers. We want a flexible labour market that supports growth and creates employment, and making sure that that happens requires acknowledgement of changes in family life.

Most women now go out to work and men shoulder more of the duties at home. As roles and responsibilities have changed, our lives have become increasingly complex. That is not just true of parents with young children. Many have to combine working with looking after an elderly parent, a sick partner or a grandchild. Extending the right to request flexible working to every employee will make that easier.

[Sheila Gilmore]

I am pleased to hear the Secretary of State endorse the needs of parents and carers. Will he comment on and perhaps put to bed the proposals appearing in the media over this weekend saying that we should restrict maternity leave to no more than six months? For example, The Sunday Times seemed to be full of that proposal yesterday.

[Vince Cable]

That proposal is not in the enterprise and regulatory reform Bill. We are committing to extending flexibility at work in a way that avoids unnecessary costs for companies and delivers real economic benefits. Research from the CBI, for example, found that 63% of firms offering flexible working reported lower staff turnover, saving on recruitment and training costs.

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[Mr George Howarth (Knowsley) (Lab)]

It is a pleasure to follow the hon. Member for Wirral West (Esther McVey). She will not be surprised to learn that I do not share all of her analysis of the problems, but I hope to refer to some of the points she made about the banking system.

When I was considering what I wanted to say in today’s debate, I was struck by a depressing familiarity—not about what I wanted to say, but about some of the relevant issues—as what I am about to say about youth unemployment in my constituency could have been said in the 1980s and in the first half of the 1990s. As of March, 16.3% of 18 to 24-year-olds in Knowlsey were jobseeker’s allowance claimants. To bring that into a more human focus, I should say that that amounts to 1,725 young people in that age range. Even though the figures were even worse in the 1980s, that is alarming enough. The question I wish to address in the time available to me is: what is going to happen as a result of this Queen’s Speech or the Budget that preceded it that will give those young people hope that opportunities are available to them?

In that regard, I wish to discuss a couple of possibilities, the first of which is apprenticeships. The Government make frequent broadcasts about how much they have invested in apprenticeships. Perhaps unusually for someone in this House these days, I actually was an apprentice—I served a five-year engineering apprenticeship—and the opportunities now being called “apprenticeships” are not what my generation knew as apprenticeships; they are training opportunities, but they do not have any of the characteristics of the apprenticeships of my day.

I have to say—this was as true of my Government as it is of this one—that the whole training system is in a complete muddle. I chair a local charity—the Knowsley Skills Academy—that trains young people who would struggle to find a place in the job market. Unless they are on sweet terms with such wonderful organisations as A4e, it is nigh on impossible for them to get any funding for that kind of training. The situation is not unique to this Government—my own Government got this wrong too—but it is time that we woke up to the fact that the national training systems do not work and that what we want to do is fund and support local organisations that actually can provide realistic training for young people.

[Sheila Gilmore]

Does my right hon. Friend agree that one of the problems with the way that things such as the Work programme are being funded is that the local organisations at the end of the supply chain are not getting the work at the moment and may go out of business altogether, along with their expertise?

[Mr Howarth]

Of course I agree entirely with my hon. Friend. What she says brings me on to my second point: what in the Government’s programme will be attractive to small and medium-sized enterprises? Last October, the Department for Business, Innovation and Skills carried out a survey of 500 SMEs, in which they listed the things they found to be obstacles to success. Some 45% cited the state of the economy; 12% cited obtaining finance, and I wish to discuss that in a moment; and 6%—it was there but it was mentioned by only that number—cited the issue of regulation. I want to talk about small businesses, because they could provide the work opportunity that young people in my constituency and elsewhere need.

I wish to discuss a firm in my constituency, Sterling Services. Its owner, Mr Blennerhassett, has been to see me to talk about the problem he faces. He described how he has been in business for 28 years, has always been in the black and has never had any financial problems with the banks. He told me what happened when he tried to get a loan of £70,000 from the Royal Bank of Scotland to employ two full-time adult employees and two apprentices, to pay for two vans and to make some minor adjustments to his premises. The response he got from RBS was, “We don’t have a flavour for construction at the moment.” So the possibility of him taking on two young people and giving them a real apprenticeship has been closed off by RBS.

Higher education might offer another opportunity for young people. I want to refer briefly to the so-called core and margin model mentioned by my hon. Friend the Member for West Bromwich West (Mr Bailey), which effectively means that universities charging £9,000 in fees will have a proportion of their students directed to lower fee higher education institutions. Some universities will therefore have fewer places and the Government have provided no assessment of how they think that will work in practice. It might mean that opportunities in local higher education institutions will be closed off to young people, which would be a further obstacle in the way of their finding employment.

Finally, I talked earlier about regulation. If one were to compile a list of things that are important for creating jobs and getting the economy going again, I would think that the last place one would look would be regulation. The idea that making it easier to sack people will kick-start the economy is, to say the least, foolish. It is worse than that, however. If the Government really think that the most important priority for legislation is to make it easier to sack people, they should be ashamed.

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[Sheila Gilmore (Edinburgh East) (Lab)]

I start by repeating something that I raised in an intervention with the Secretary of State at the outset. He repeated the oft-made claim about the number of private sector jobs that are being created in order to prove that the Government’s policy is working. In about January 2011, after just over six months in government, the Prime Minister told us that 500,000 new private sector jobs had been created by his Government. After another few months, he said that in the first year of his Government they had created 500,000 jobs. Now the Secretary of State tells us that in two years they have created 600,000 jobs. Presumably, if the 500,000 figure was correct in the first place, only 100,000 have been created in the last 18 months. At that rate of job creation, we will expect the next 18 months to give us about another 20,000 jobs. They cannot keep repeating the same jobs. The key fact here is that that 500,000, the Prime Minister’s original boast, was largely the result of the economic stimuli applied by the outgoing Labour Government. In other words, this Government have done virtually nothing to create private sector jobs, despite all their claims—claims that were repeated again today—that the public sector was crowding out the private sector and that was the problem.

I am not, on the whole, the kind of person who goes in for the Armageddon-like language that one sometimes hears on the left. In fact, I am usually irritated by it; language such as, “We are all going to hell in a handbasket” and “People will be walking in the streets without shoes.” Actually, I am beginning to wonder. At my surgery on Friday, two people came who had both been recently sanctioned as a result of disputed issues about non-attendance at the Work programme. Neither qualified for hardship payments because they do not have dependants. The only thing their local citizens advice bureau could tell them to do in the short term was to go to a food bank.

I did some research on food banks. The Trussell Trust, which many talk about as being a wonderful charity, on its website says that in 2011-12 food banks fed 128,687 people nationwide—100% more than in the previous year. It has more than 200 food banks nationally and it hopes to have one in every town. I do not think I am overly naive, but in my lifetime I thought that this sort of thing was history. I represented an area as a councillor for 16 years, which included a district that ticked all the deprivation indices boxes, and I do not recall a constituent telling me that they had had to resort to a food bank. The only food provision that I was aware of in Edinburgh then was some vans for the street homeless, but not for people who had simply found themselves unemployed.

It must give us food for thought that one of the most rapidly growing charities in our country is one providing food banks. That is not a criticism of the charity or those who volunteer for it; I am sure that they are doing an important job, which is obviously necessary. But what should make us angry is that there is a need for that.

[John Hemming (Birmingham, Yardley) (LD)]

Will the hon. Lady accept that the Trussell Trust was set up with food banks in the first Blair Government?

[Sheila Gilmore]

I am not saying it was not set up then. I am giving its own information that in the year 2011-12, it increased the number of people it was helping by 100%.

One of those constituents has been sanctioned for six months. Unless she succeeds in an appeal shortly, she will not get jobseeker’s allowance until November this year. She has very little family support for circumstances in her life. Do any of us sitting here have any concept of what it is like to feel that they will have no income for that length of time? I do not think that we have any concept of what that must feel like. I have also to ask, as she does seem to have certain health and personal problems, what has happened to all the boasts about the Work programme. The Work programme was going to be so personalised. Edinburgh MPs were taken in by one of the providers and told that they would have health professionals and counsellors who would help people with complex needs. I am afraid that it does not appear to have helped that particular constituent. Someone like that is collateral damage from a Government who frequently talk as though the problem that faces this country is that there are too many people on out-of-work benefits, as if their obduracy or the fact that benefits are somehow too high is causing the economy to flatline.

Only this weekend a Scots business man, Tom Hunter, was widely quoted as saying that Scots were addicted to welfare. He had just returned from China, where the economy is booming, and explained that the biggest worry there is that people in China might suddenly decide that they wanted high levels of welfare. I find that fairly incredible. I cannot really picture the situation—Tom Hunter and, presumably, a Chinese business man discussing how the biggest threat to China’s economy is welfare—but that is what he tells us.

Apparently, it is not just workers who are not working hard enough; now their employers are not working hard enough either. We know that some of those employers are sitting on capital, but why do they not want to invest it? For those running businesses, surely the major reason why they do not want to invest their capital and earn more money is that there is no demand for their products or services. If there is no demand, we have a big problem. Simon Jenkins, writing in The Guardian on 9 May, stated:

“Europe’s collective response to the 2008 credit crunch ranks with the treaty of Versailles and German reparations among the great follies of history… Those who warned at the time that the coalition risked double-dip recession by over-suppressing demand have been proved right.”

What is the solution? Simon Jenkins, like the Opposition, thinks that the British economy needs three things: demand, demand and demand. It needs cash in pockets and cash in tills. It needs the old Keynesian salve: money in circulation. That is what our plan is about: cutting VAT, removing the cuts to tax credits in order to put money back in people’s pockets, reducing the rate of VAT on home improvements, and all those housing proposals that my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) explained so eloquently. If we put that investment into housing, we would not only give badly needed homes to the people who need them, but create the jobs that would boost demand in local economies. That is what we need to do, and there is no excuse for not doing it. In Edinburgh we have the land and the planning consents; we just need the funding.

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[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

There has been a lot of doom and gloom today, I must say. I was sure that someone on the Government Benches would mention the fact that retail sales bounced back by 1.8% in March 2012. The House of Commons research paper, “Economic Indicators, May 2012”, states on page 20 that that was down to the fact that:

“Unusually high automotive fuel sales were a major contributor to retail sales growth in March.”

I think everyone in the Chamber knows why that was.

So many chief executives have been sacked in recent weeks for failing to deliver the performance promised by their high salaries that we might think the brief reference to directors’ pay in the Gracious Speech was unnecessary, or more appropriate to current Ministers. Apart from that, there was little in the Gracious Speech about business, investment, employment or growth. In fact, since the speech last week, the Government’s lack of vision for business has degenerated into an attack on entrepreneurs.

Aviva, Trinity Mirror and AstraZeneca shareholders have recently indicated that they have had enough of their chief executive officers. Why now? It is obvious that those shareholders sensed that they were beginning to lose control of the companies that they owned. The parallels between business and the Government are only negative in that respect. More importantly, is that situation just about executive pay, or is it a further indicator of corporate financial hoarding? Shareholders are savers who want great returns, of course, but what are the Government doing to get shareholders to increase their intention to part with their profits for further business investment? The real economic impasse is in getting companies to part with their hoarded billions of pounds, and that was not addressed in the Gracious Speech.

BT recently paid off a considerable deficit in its pension scheme. It paid £3 billion by the end of March and will make nine annual payments of £325 million. BAE Systems had a £2.1 billion cash pile, yet in the past two years it has cut 22,000 jobs, 3,000 of them in the UK, while returning £2.2 billion to shareholders. The story is similar at the oil services company AMEC, which ended 2011 with £521 million of cash and unveiled a £400 million share buy-back programme. Last year, shareholders’ dividends paid by listed companies jumped by 19% to a record £67.8 billion, according to Capita Registrars, and they are expected to hit a new high of £75 billion this year. Jonathan Bye, chairman of the Food and Drink Federation’s SME forum, says:

“Companies like Nichols have plenty of cash…the irony is that the big manufacturers are sitting on cash because they just don’t know how to use it.”

After this Gracious Speech, they still will not.

The Government’s ideological strategy is to focus on an enterprise and regulatory reform Bill that is supposed to reduce burdens on businesses by repealing unnecessary legislation and limiting state inspections. The argument is the same as ever—shrink the state, deregulate and get out of the way of the private sector. They say that it worked perfectly in the years following the 1990s recession and the early 1930s depression. It is expansionary fiscal contraction, the antithesis of Keynesian stimulus spending.

We have had two years of this already. Despite the evidence provided by the double-dip recession, of which Opposition Members forewarned, the resounding message of the Gracious Speech is “more of the same”.

[Sheila Gilmore]

It is interesting that my hon. Friend mentions the parallel with the 1930s. One parallel that worries me is that, as in the 1930s, there is a huge difference between different parts of the country. Does that perhaps explain why so many members of the Government are apparently unaware of the effects of the recession—they represent parts of the country that are not suffering as badly as others?

[Tom Blenkinsop]

My hon. Friend makes an excellent point. Before the general election, the now Prime Minister stated that the north-east economy needed serious rebalancing. Actually, the north-east is the lead region for exports, with more than £13 billion a year. If the Labour Government got everything so economically wrong, why, despite the overarching burden of the public sector, has the north-east managed to beat every other region in the country? I am bemused, foiled and perplexed by that one. The Prime Minister might want to come to the Dispatch Box on Wednesday and explain it to the workers of Alcan and other industrial workers in the north-east let down by the current economic policy.

Business investment is actually shrinking, and in the final three months of 2011 fell by a whopping 5.6%. It is the single biggest drag on economic growth, with a negative gravitational pull of 0.5%. Business investment is still more than 15% below its pre-recession peak in 2008. Unlike in the 1990s recovery, when private sector hiring employed four people for every one public sector job cut, business recruitment is extraordinarily weak. For evidence of that, we only have to look at the private sector last year. Admittedly, it took on 226,000 staff in full-time but mostly part-time positions, yet figures from the Office for National Statistics show that 270,000 public workers were laid off. The Government’s official forecaster, the Office for Budget Responsibility, said that 2012 should be the year of the business renaissance. Of the weak 0.7% growth the OBR expects the UK to eke out over the next 12 months, 0.6% is scheduled to come from business investment—the single largest contributor.

We have been here before. Last year, the OBR forecast that business investment would deliver 6.7% growth, but it did not. Instead, it shrank by 2%. According to the Bank of England, 2012 is not looking very encouraging either, despite the OBR’s optimism. Its recent agents survey for February found that

“investment intentions continued to weaken, suggesting little growth in spending on capital over the next 12 months”.

That is mirrored by Barclays Capital’s Simon Hayes, who said that the OBR’s projections required a level of spending not seen in 30 years.

Essentially, my point is that the Queen’s Speech does not introduce any policy or legislation to enable this Parliament to get hold of the £750 billion of cash under the corporate mattress to invest in Britain and ensure we have a genuine rebalancing of our national economy.

Financial Services Bill

Sheila Gilmore Excerpts

Monday 23rd April 2012 Commons Chamber

[Lorely Burt]

I agree that the companies that spend money on unsolicited calls to people who may have a financial problem are the ones that need to make the most profit, to cover the cost of doing so. However, responsibility for debt management is moving to the new FCA, and new guidelines are being issued. As long as those guidelines are strong and properly enforced, part of the market may still be able to benefit from providing debt management advice.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the hon. Lady consider the fact that it is not necessarily about whether there are charges so much as it is about who pays them? The intention behind the new clause is to protect consumers from being the ones who pay. Is it not possible that debt management companies can find another way of funding their work rather than having consumers pay the price?

[Lorely Burt]

That should ideally be the situation, and when the new regulations are produced there should be a careful consideration of whether any up-front fees should be paid to debt management companies.

New clause 10 would require mortgage lenders to inform existing customers about potential interest rate changes. I have to declare an interest: I was a mortgage adviser in one of my past lives, so I know a little bit about the matter, and I suggest that any reputable mortgage company should do that anyway. It is not in their interests to encourage people to take on mortgages that they will not be able to repay should financial circumstances worsen. The new clause may therefore be superfluous. I completely understand and appreciate the sentiment behind it, but the matter will probably fall within the FCA rules and within the ethical behaviour that one should expect from any mortgage lender.

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[Neil Parish]

Yes, I do. Many people in the banking sector would probably disagree, but I believe that anything over 50% is far too high. It is obscene and immoral to allow companies to go on charging vast amounts of interest—I do not care who they are—and that is why we have to take action. I am looking to the Government to do so, not only through legislation but through stating that such companies should clearly set out their rates of interest and the consequences of non-repayment, so that our constituents can take advantage of credit that is competitive and that will not ruin them.

[Sheila Gilmore]

In speaking to the new clauses and amendments in this group, the Minister appeared to say that many of them were unnecessary because the issues would be dealt with through the setting up of the Financial Conduct Authority. However, it is our role as parliamentarians to take up these issues, to state explicitly that we need to give political guidance on the matters that our constituents find important, and to discuss the work that needs to be done by the FCA. There is no reason why these measures should not be incorporated into the Bill. That is surely better than waiting for four or five years, only to discover that the problems have not been addressed because the means of doing so had not been set out as clearly as they might have been. I hope that the Government will therefore reconsider their position on this.

I am surprised at the way in which the Minister dealt with amendment 55. His objection to its proposals on legal aid and legal advice seemed to be that they would undermine the provisions of the Legal Aid, Sentencing and Punishment of Offenders Bill. Perhaps I have got this wrong, but I had understood that the justification for restricting legal aid was a financial one. We have been given the usual argument that the country is in a financial mess, we have a deficit and we have to save money on the legal aid bill, among many other things. It is therefore disappointing, when someone comes up with another way of financing legal advice for complicated cases, that that is not acceptable either. The Government therefore seem to be suggesting that granting legal aid in such cases is, in itself, a bad thing.

After all, we are not stopping litigation, and we are not preventing people with plenty of money from litigating on any issues. The ending of legal aid will simply result in considerable detriment for people who do not have the money to pay for their legal advice. It is regrettable to say that the proposals would somehow undermine the Government’s intentions. When we were debating the Legal Aid, Sentencing and Punishment of Offenders Bill, various speakers on the Government Benches said, “We would like to do these things, if we had a way of funding them.” They were not saying, “We really do not want to do these things at all.” They seemed to be saying that the measures were being brought in with some sadness, so when someone comes up with a partial solution, it is a shame that we cannot investigate it further.

Amendment 37 seeks to make it explicit that the work of the Money Advice Service should be to help those with the greatest problems who are suffering particular difficulties as a result of financial exclusion. The previous Government tried to address those problems through various formats. The present Government are suggesting that this will be done anyway, and that the service will be the same for everybody. However, that assumes that everyone is starting off on the same footing, which is not the case. Many people have limited choices and are therefore more likely to get into financial difficulties. The Money Advice Service should be giving those people a specific amount of its attention, and to spell that out in the Bill would not be unreasonable.

I listened to what the hon. Member for Solihull (Lorely Burt) said about the phasing out of debt management companies. We are not saying that such companies that operate on a commercial basis should disappear. The amendment suggests that it should not be the individual consumer who pays the up-front price for those services. There are alternatives, and some commercial companies could continue to operate if the financial organisations were to foot the bill. We shall be seeking to achieve that.

Finally, I want to say how important it has been that people have campaigned on these issues; for example, my hon. Friend the Member for Makerfield (Yvonne Fovargue) has campaigned hard on debt management companies, while my hon. Friend the Member for Walthamstow (Stella Creasy) has campaigned on high-cost credit. We are now some considerable time on from when we had a big debate in this place, with many Members attending and speaking on these issues, yet we are so little further forward.

If we look at the wording of amendment 40, it makes no specific pitch for a particular cap or how exactly to achieve the aim; it simply asks the FCA to make the rule. Further discussion and consultation will be necessary about what those rules should be, but the amendment asks the FCA to make this an important and early part of the work it does. I do not view that as at all unreasonable.

The alternatives proposed are not good enough. Financial education is fine, but when facing a difficult situation, no amount of financial education is good enough when there is so little choice. Sometimes regulation and financial education are proposed as alternatives, but I do not think they are. It would be great if people were better financially educated, but in a tight spot, that is not enough.

[Steve Rotheram (Liverpool, Walton) (Lab)]

One of my constituents wrote to me to say that he thought he had had a particularly good deal because the APR was at 5,200%. He thought that that was better than what the banks were offering, which was obviously just a two-digit figure. Does that not show that financial education is something that this Government need to take on board, because it shows how people get into debt when they do not understand the ramifications of those high interest rates?

[Sheila Gilmore]

I think financial education is extremely important, but on its own, it will not necessarily equip people to avoid the enticements of the lenders.

[Justin Tomlinson]

I cannot resist intervening on this specific point. With financial education, consumers can make informed decisions. If people are financially savvy and well financially educated, they can carry out the actions that they would otherwise have to pay a debt management company to do.

[Sheila Gilmore]

That is indeed the case. I am not suggesting that we should not have financial education. What I am suggesting is that we also need regulation. My hon. Friend the Member for Walthamstow eloquently outlined the various forms that high-cost credit takes, so control over it is also important.

[Stella Creasy]

I thank my hon. Friend for giving way. Much as I support a good deal of what the hon. Member for North Swindon (Justin Tomlinson) said, I think he misunderstands the situation. Many of my constituents have tried to negotiate, but these companies will not respond to constituents individually as they do not recognise individuals in the negotiation of credit plans, so it is often organisations that have a status—a citizens advice bureau or Christians Against Poverty, for example—who are able to make the breakthrough. That is why these debt management companies are so invidious. They claim the same status as Christians Against Poverty and the citizens advice bureaux, so it is not just a case of being financially savvy; it is also about the having the muscle of a respected organisation behind people. That can cause some of the problems.

[Sheila Gilmore]

I thank my hon. Friend for that important point of view.

If we do not take steps to deal with high-cost credit, we will do many people a disservice. I urge the Minister, even at this stage, to support amendment 40. It does not lay down a set of rules, but merely asks the FCA to make the rules an important priority. In order to protect people who will often feel that they have little choice but to use this sort of lending, we need to have controls in place.

[Alun Cairns]

I am grateful for the opportunity to contribute to the debate and to speak to the amendments. I welcome the Financial Secretary’s opening statement on the establishment of the Financial Conduct Authority, and the development away from the Financial Services Authority and the tick-box approach it adopted under the structure set up by the former Administration, which contributed to failures and had a harmful impact on many families and individuals. That is relevant to the responsibilities that the FCA will inherit. We shall now be able to secure an appropriate degree of protection; to promote choice and competition, which are regulatory concerns within the industry; and to protect and enhance the integrity of the UK financial system.

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[Chris Leslie]

It is entirely hypothetical. Of course we cannot do that at this stage, but there might be circumstances. I will remember the hon. Gentleman’s intervention for the many years that he will be in Parliament for when the time comes, if it comes, that he disagrees with a particular outcome of a regulation as it affects his constituents.

Amendment 35 talks about the impact of many of the changes within the regulatory system on consumers, particularly those on lower incomes. We believe that the FCA should have enshrined in its objectives a commitment to consider how easily consumers are able to find products that are appropriate to their income, and more broadly, products that provide value for money. In difficult times as incomes are squeezed it is right that consumers feel that they have a regulator that is on their side. If we are creating a genuine consumer champion in the FCA, it is important that it has a set of objectives and values that reflect that, particularly for those on the lowest income. It is a similar argument to that made in the previous group of amendments in respect of the Money Advice Service. We have seen excessive overdraft charges, high interest rates, and charges for hidden services. Those require a genuine consumer champion and this amendment would help to create that.

Amendment 36 would also shift the balance in favour of the consumer. It would introduce what is known as a fiduciary duty of care by authorised persons, by financial services providers, towards the consumers who are their clients. “Fiduciary” means holding in trust, holding in good faith, a concept that would help to rebuild confidence among the public in financial services. There is a serious lack of trust at present that is bad for consumers, providers and society at large. The Bill contains no explicit obligation on firms to avoid conflicts of interest, nor to profit at consumers’ expense without their knowledge and consent, nor to have undivided loyalties and duties of confidentiality to the customer. The pre-legislative scrutiny Committee commented on many of these aspects and recommended that some action be taken. Although the FSA has recently had its treating customers fairly initiative, we do not think that that is enough. We believe that a fiduciary duty of care is necessary, especially in the light of some of the major concerns of mis-selling scandals and the need to learn lessons from those.

Amendments 33 and 34 relate to the costs and expense of establishing the FCA and PRA, splitting the FSA into those component parts. I apologise for rattling through these. We have to minimise unnecessary additional expenses incurred, because ultimately the consumers will pay. The FSA’s budget for 2013-14 has gone up by 15.6%. I accept that the new regulatory system will have some costs involved in that, but the majority of those costs are operational and not necessarily related to the principles of regulation involved. It was a bit of a joke to see in the White Paper the Government say that the running costs under the new arrangements should not be “materially different” in real terms and aggregate from the current FSA. That will not happen. We are talking about extremely significant extra costs.

We suggest that the memorandum between these organisations should contain an estimate of the annual costs involved in administering the FCA and PRA, and compare those to the estimated costs of the administration of the FSA. That is a bit of a crude way of getting a cost comparator, but I would be interested in seeing it. Similarly, amendment 34 talks about minimising the

“unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close co-ordination.”

The PRA is moving to plush offices in Moorgate, leaving vacant space at Canary Wharf, a lease that expires way down the line in 2018. There is a sense in which there is a bit of empire building going on at the Bank of England, which will be responsible for the PRA. The Threadneedle street empire is growing strongly.

[Sheila Gilmore]

Will my hon. Friend also give some thought to those organisations that will be dual regulated and the additional costs that might be incurred?

[Chris Leslie]

That is why it is important that at the very least they have information, and some level of accountability, about the likely costs of this tangle of regulatory structures for them. The Association of British Insurers has voiced its concerns about the costs of the new regulatory system and it is important that we at least know from the Minister exactly what those costs will be. He skirted around the issue in Committee. Even when I asked the cost of the new building for the PRA next to Threadneedle street he said that that might be commercial in confidence. If he can help us with that I will be grateful.

The hon. Member for Chichester also spoke about publication of the minutes of the Bank of England’s court of directors. Amendment 27 seeks to introduce exactly the same for the FCA. If the FCA is to be a consumer champion, at the very least consumers should be able to see what is being discussed, who—potentially—is discussing it and, most importantly, what the nature is of the dialectic and discussions going on in its board. The Financial Secretary said in Committee that that will be a matter for the FCA, even though he could not really argue against the transparency principle, but he did promise that he would think about it. I saw a chink of light at the time and thought that publication of the FCA’s minutes was a simple concession that we might get in the Bill. I hope that he has had a chance to reflect on that.

Amendment 39 relates to the relationship between the new regulators and the European supervisory arrangements. We might think that all these decisions on regulating credit, businesses and financial services are for us to take domestically in the UK, but I am afraid that 80% of the regulatory decisions are in fact taken in Brussels by the European Commission. Commissioner Barnier has his pipeline of proposals, which is very much the driving force behind the regulatory arrangements. Some of those are good changes, but nevertheless many people feel that the UK’s domestic regulators are there merely to transpose what is decided further up the chain, and that is of concern. Therefore, we want the regulators to be fit for purpose and able properly to influence and steer some of the policy decisions that are taken in Brussels.

Finance (No. 4) Bill

Sheila Gilmore Excerpts

Thursday 19th April 2012 Commons Chamber

[Ben Gummer]

I thank my hon. Friend for his intervention and for his compliment, because I, too, could be critical of the Government in one respect—[Hon. Members: “ Ah!”] It is not a criticism of the policy. None of us in this place has yet started to be completely straight with people about the enormous scale of the challenge that faces us.

[Sheila Gilmore (Edinburgh East) (Lab)]

rose—

[Ben Gummer]

I will give way to the hon. Lady and then make some progress.

--- Later in debate ---

[Sheila Gilmore]

The hon. Gentleman’s discussion about the issue of old people is interesting, but is it not the purpose of this provision not to provide greater pensions—or, perhaps, better social care—but to balance the cut to the 50% tax rate?

[Ben Gummer]

I wish we could deal with this canard. I did not want to be political about this—[Interruption.] No, I tell the hon. Member for Nottingham East (Chris Leslie) that I did not. Five times more revenue is being taken from the wealthiest people in this country as a result of the Budget than from reducing the top rate of tax. That argument has been dealt with and, although it is pity, I suspect that that is why the hon. Member for Leeds West, who is a serious-minded and intellectual member of the Opposition Front-Bench team, realises that the only way she can make an argument about this issue is by trying to shackle it to a false argument about the top rate of tax, to which it has no relation whatever. This is about beginning to reform provision for people who are retiring in our country. If we do not begin to make these small changes, we will not even be in a position to make the changes that will be necessary in future.

--- Later in debate ---

[Graham Evans]

I am most grateful to my hon. Friend for making that good point, with which I agree. It is a good Budget for working people on basic rate tax.

[Sheila Gilmore]

Does the hon. Gentleman accept that, particularly for families with children, the decreases in tax credits and other benefits more than outweigh the increase in the personal allowance?

[Graham Evans]

As a father of three young children, I realise that we are all in this together, and we need to make those sacrifices. The Government’s maximum benefit cap of £26,000 is all to do with that.

--- Later in debate ---

[Nigel Mills]

The hon. Lady is tempting me to make an even more broad-ranging speech than I had intended, and if I were to talk about such matters, I suspect I might be in danger of being ruled out of order. Let me repeat that there are things that would be nice to have but that are unaffordable in the current situation. Difficult decisions have had to be taken and spending has had to be targeted where it is most needed.

Returning to the topic of the granny tax, I do not feel guilt—that is the wrong word—but I do strongly believe that we need to simplify our tax system. Setting up the OTS is a great measure that this Government have taken, and it has performed the tasks given to it incredibly well. Those of us who advocate tax simplification have to accept that whenever we try to simplify tax, it is likely that some people will win and others will lose out. At a time of budget constraint, there is no way of softening the blow on those who will be losers, so we are left with a choice between muddling on as we are, with a ridiculously complicated and clunky tax system, or trying to simplify it in the hope that in the long run we will end up with a far better system.

[Sheila Gilmore]

rose—

[Nigel Mills]

I have given way many times, so I shall not do so again.

I am not sure that the Government have quite gone down the model line by picking up on the key points made in the OTS report on pensioner taxation. However, if we consider the tax system for pensioners—with higher personal allowances for those over 65 and those over 75, the tapering or claw-back of money depending on how much income they have, as well as all the other different allowances—we can see that the situation is incredibly confusing.

--- Later in debate ---

[The Temporary Chair (Hywel Williams)]

Order. I intend to call the Minister at 4.23 pm, so I ask hon. Members to keep their contributions short.

[Sheila Gilmore]

I am now totally baffled, because the hon. Member for Amber Valley (Nigel Mills) returned to the simplification issue, but what we heard earlier, when he perhaps was not in the Chamber, was an impassioned ex post facto rationalisation for this change given by the hon. Member for Ipswich (Ben Gummer) and, to a lesser extent, by the hon. Member for Stourbridge (Margot James). They sought to assure us that this really was not about simplification, and that it was all part of a master plan to deal with the problems of an ageing population and make the pensions system better for people. So I am now baffled as to which it is. Is it about tax simplification only or is it about a very thoughtful plan, which had not previously been mentioned? This is where I was also puzzled by what the hon. Member for Ipswich said, because nothing of what he said was said by the Chancellor; no obvious rationale on those terms was given by the Chancellor when he introduced this measure in his Budget speech, as he slipped it in as being “simplification”.

This is not part of dealing with the problem of an ageing population; there are other ways of doing that. If the money raised was to be used to help with pensions, it would be a different matter. If it were to be used to help people in my constituency who are struggling with increased care costs and who are not getting assistance with care because they do not meet the extremely high thresholds that are now being imposed, we would have to listen to the suggestion. However, the provision is about finding some extra money to fund the big tax cut that has been given to people with high incomes.

[Richard Harrington]

I am trying to follow the hon. Lady’s rationale and that of her colleagues about this change in the pension arrangements. Their argument is that this money is being used to fund wealthy people through the reduction from 50p to 45p, but would it not be just as logical to say that it is being used to fund the big increase in personal allowances, which benefits everybody?

[Sheila Gilmore]

I think it is important to see this in the context of the cut in the 50p rate.

I am also concerned about some of the attempts today to counterpose and, as usual, level down. It is fascinating. We heard earlier that if we were going to increase the allowances for young people and working people, it was not fair that older people who were already retired should have a higher threshold. Why do the Government always want to level down? Why do they feel, essentially, that they have to pit one group against another rather than saying that the unfairness lies in the high tax levels for working families? Let us not forget that many of those families have not benefited from the rise in the tax threshold because of the changes to tax credits.

Some of the apparently quite small measures that the Government are introducing are illogical. We keep being told that we want people to save and to benefit from savings and work, but yet again this measure undermines that. We have seen that, too, in the way in which working tax credit has been dealt with. We have heard about people with very low working hours who will lose a lot of working tax credit. Working tax credit was frozen, however, and was not increased in line with inflation when benefits were. That totally contradicts the Government’s own policies, because if we want to make work pay rather than benefits, why put up benefits in line with inflation but not working tax credit?

At lot of what is happening is illogical and it is important that we straighten things out and oppose this provision. I shall sit down now so that my hon. Friends can speak.

[Charlie Elphicke]

One key point is missing from this debate, and that is a memory on the part of the Labour party. We have heard a lot of cant from the Opposition and they have shown very little memory of the pensions raid back in 1997, which knocks the issue of age-related allowances into a cocked hat. It should be remembered that there was a £150 billion pension stealth tax at that time. Indeed, Ros Altmann, who was an adviser to Tony Blair, famously said that Labour “destroyed our pensions system”. The numbers involved as regards age-related allowances are small compared with that massive and unjustified smash-and-grab raid on our pension system, which destroyed the private savings culture that had been built up over so many years. Then, considering the insidious introduction of pensions means-testing, which was a massive attack on personal responsibility, it is extraordinary to hear arguments from the Labour party that the measures on age-related allowances somehow take away that personal responsibility, given that it introduced a whole system that systematically wrecked the taking of personal responsibility. We need to hear a bit more humility from the Labour party and a bit more of an apology.

Finance (No. 4) Bill

Sheila Gilmore Excerpts

Wednesday 18th April 2012 Commons Chamber

[Elizabeth Truss]

I am not quite sure whether their amendment expresses what they wanted it to express. As with the HMRC report, there may be some uncertainty about what exactly the Opposition intend to do.

First, the introduction of the 50p tax rate diverted resources from the productive economy at a very important time—just as we were heading into the worst recession, thanks to the dreadful economic policies of the previous Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

How can people postponing their income from one tax year to another, but nevertheless presumably still getting that income, prove so damaging to the economy? Is the hon. Lady suggesting that, having got the income a year early, they simply sent it abroad? Surely it can still be invested.

[Elizabeth Truss]

When income is artificially moved from one year to the next, it is not properly used for investing in projects. Under the previous Government, a lot of expenditure went into unproductive areas of the economy. Much of it went on excessive public spending and into the property industry, leaving us with the scorched-earth situation that we have had to address.

The signal that the previous Government sent to the rest of the world was that Britain was anti-aspiration, anti-business and anti-work. That happened at a time of increasing international competition, as it is now ever easier to move people and capital around the world because of improved technology and globalisation. Other countries were reforming their tax system, however, so as they were moving forwards, we were moving backwards.

--- Later in debate ---

[Karen Bradley]

My hon. Friend makes an important point. Financial services are an incredibly important part of our economy. The 2002 pre-Budget report revealed a drop in revenue, and the explanation it gave for that was that the expected City bonuses had not been paid, and as a result those bonuses were not contributing as much tax as forecast—and we all accept that we need to raise tax in order to pay for our schools, hospitals, police officers and all our public services.

The bank levy is the right way to tax the banks. It is not unpopular with the industry, so far as I can ascertain from the experts to whom I have spoken. They accept that they have to pay their share, and that that is the way they will do it.

[Sheila Gilmore (Edinburgh East) (Lab)]

This debate has clearly demonstrated that Members have very different views on how to tackle the current economic situation. I was very struck by one commentator’s observation that the Government were leaving economic recovery to business—that they were expecting business to spring up and solve our problems. That is what we heard almost two years ago, in the so-called emergency Budget—which did not, in fact, do anything terribly urgent. We were told then that very shortly the shoots of private enterprise would spring to life, particularly if we cut the public sector. Almost two years later, we are still waiting for that, however; it simply has not happened. It is not good enough for us simply to sit back and say, “Somehow, this is going to sort itself out.” It is right to want to stimulate the economy, and to create jobs and work.

Construction and affordable housing are essential. I live in a city with an acute shortage of affordable housing. There are many planning permissions and consents in place for new house building, which would have had at least an element of affordable housing, so the problem is not the planning system. Nothing is happening, however. The ground lies idle, and the building firms have paid off their workers and are waiting for the upturn, hoping that the land values will carry them through.

What is so wrong with wanting to raise some extra revenue and stimulate the economy in that way? If building workers are back in employment and private building firms are flourishing, then those workers will have income with which to stimulate the economy.

There has been a huge downturn in retail over the past few months. I read today that there has recently been a slight upturn because of the good weather in March, but, certainly where I come from, that has now been followed by three weeks of pretty rubbish weather, so presumably that upturn will now have been reversed. There has been a downturn in retail because people feel they do not have money to go out and spend. The whole local economy is affected by that. The knock-on effects on the local economy of investment in affordable housing are huge.

[Jack Dromey (Birmingham, Erdington) (Lab)]

The Government’s own figures show that house building is down and homelessness is up. In 2008, a Labour Government acted, at the time of the bankers’ crisis, with a kick-start programme, which resulted in 110,000 homes built, 70,000 jobs created and 3,000 apprenticeships. That sustained the building industry. Do we not now need a fresh kick-start programme—hence the importance of our bankers’ bonus tax—so that we can build 25,000 homes straight away, create jobs for unemployed building workers and create hope and apprenticeships for the young people of our country?

[Sheila Gilmore]

I agree absolutely. I saw clearly, in my city, the follow-through of that financial stimulus. It was followed through to the Scottish Government, and I give them credit for bringing forward some of the construction spending at that stage. We had more affordable homes built in 2009 than we had had for some years. I believe that the figure was 900 affordable homes, which is high for Edinburgh, but that has now plunged right down again. This was not sustained and we are back in the same cycle as we were in before. Such an approach can work, as we get the homes and the jobs, and we ensure that unemployment is not rising as fast as it otherwise would.

When Labour Members suggest stimulating the economy, Government Members invariably ask how we would pay for it. They say, “Oh, you are going to borrow yet more. That is absolutely shocking.” When we make any proposal on how we would fund it, we are immediately told, “You cannot possibly do that. You should not do that.” We are making a genuine proposal here. We have talked about it for several months, but it has not yet been taken up by the Government. The economy is still flatlining and we are seeing all the results of that in our local communities. So, yet again, we are justified in tabling this amendment.

We are constantly told about all the people who are going to go abroad if we do such and such a thing—we hear that banks are going to disappear off, to wherever—but there is not a great deal of evidence of that happening. It feels very much as if we are being blackmailed and as if powerful people are trying to say, “We will take our ball away. We are not going to play.” We have to be very clear that a lot of this does not actually happen in practice; indeed, there is evidence to suggest that the bankers did not leave the country during the period of the previous bonus levy. There is no evidence to suggest that they suddenly swanned off somewhere else. If we are serious about building and growing our economy, as we have to be, this measure will be one small part—it is not suddenly the answer to everything—of enabling us to get this economy going again. It will stop us from sitting on our hands and expecting that somehow to happen, because it will not.

[Mr Redwood]

I remind hon. Members that I am an adviser to an industrial company and to a small investment management business. I am not a tax adviser, so I feel able to participate in this debate.

I was interested in the Opposition amendment and it turns out to be rather disappointing, for a number of reasons. It asks the Government to produce a report

“on how the additional revenue…would be invested to create new jobs and tackle unemployment.”

As phrased, it does not actually ask for a report on how a bank payroll tax would work, although that is perhaps what Labour Members wanted, too. Interestingly, the Opposition have shifted from wanting a bank bonus tax—a tax originally described as a “one-off” and clearly aimed at very high earners in certain kinds of investment bank, which everybody loves to hate at the moment—to wanting in this amendment a general bank payroll tax. I ask them to think about what that means, because most of the people on the payrolls of our leading large banks are, of course, modestly remunerated. This payroll tax would give a further incentive to bank directors and managers to try to get rid of personnel they are employing, because if we tax something, we clearly do not like it. The Opposition say that they do not like payroll, so they are trying to tax payroll.

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.

Amendment of the Law

Sheila Gilmore Excerpts

Monday 26th March 2012 Commons Chamber

[Danny Alexander]

First, I am very grateful to the hon. Lady for at least agreeing that we are going considerably further on the personal income tax allowance. That was sadly lacking from most of the contributions from the Opposition. They will also know that the OBR’s forecast that was published alongside the Budget revised downwards the forecast for the claimant count this year, next year and in every year over this Parliament.

As I was about to say, in this Budget we have announced the largest ever increase in the amount that people can earn tax-free—an increase next April of £1,100 to £9,205. That is a tax cut of £3.5 billion for working families and is the biggest ever increase in the personal allowance. It is the biggest income tax cut for people on low and middle incomes for a generation—a tax cut for more than 23 million people. It means £220 for every basic rate taxpayer, or £170 in real terms. The tax bill of someone who works full time on the minimum wage will already have been halved by this Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

While he was arguing for the rise in the tax threshold, did the right hon. Gentleman at any time argue for the people who are losing their working tax credit from April this year, or did he just not bother to argue for those very low-paid people?

[Danny Alexander]

We have argued for measures to ensure that people on low and middle incomes are taken out of income tax altogether. We have made significant changes to the tax credit system, which, frankly, under the previous Government, reached way up the income distribution. The changes we have made are appropriate and fair, and it is right that we have drawn back on a system that was costing many billions of pounds under the previous Government.

Taken with the previous increase in the income tax personal allowance, this measure means that this coalition Government have reduced tax paid already by basic rate taxpayers by £350 in real terms. It is this coalition Government who, as a result of the measures in this Budget, will have lifted 2 million people out of income tax altogether—59% of them women, to respond to a point made during the debate. That is the right measure on taxation and the Labour party should support it. Labour thought it was right to double the tax on people on low incomes, but we do not; we think it right to halve the tax on people on the minimum wage.

Budget Leak Inquiry

Sheila Gilmore Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mr Gauke]

Some things are not entirely new. The Labour party really does have to think back to its time in government and to the behaviour undertaken then. What is remarkable is that Opposition Members managed to brief some of their announcements, given that most were decided only at the very last minute.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the Minister clarify whether he expounds the virtues of advance notification and discussion because we have a coalition, or whether he thinks that it is a bad thing to leak? Was the one thing that he did not share with his coalition partners perhaps the granny tax?

[Mr Gauke]

All Budget decisions were agreed by the Government as a whole, and the quad was heavily involved at all stages in that. People in a coalition will always make their arguments and set out their case, and some of that will be done in private, some of it in public, but it is a far more orderly process of Budget policy making than we have seen for many years.

Amendment of the Law

Sheila Gilmore Excerpts

Thursday 22nd March 2012 Commons Chamber

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

The central issue on which this Budget—and, indeed, the coalition Government—will be judged is how we cope with the fallout from the massive financial collapse and the destruction of wealth, with the loss of approximately 10% of our national income, and put the economy back on a sustainable path.

The shadow Chancellor made some very kind and considerate remarks, and I thank him for his concern about my personal finances. Perhaps I can take him back to a toe-curling interview he gave a few days ago, when he described his two-decade relationship with his former boss, mentor, guide and friend as “unbelievably debilitating”. That is relevant to this debate, because it gets to the heart of the problem of who is responsible for the legacy that we are having to manage. We inherited not merely a large fiscal deficit, but the largest in the G20 and the largest amount of household indebtedness of any developed country.

We inherited an economy in which the share of the banking sector—the banking assets—had doubled in Labour’s period of government, to become the largest of any major economy, and in which, simultaneously, the share of manufacturing had contracted by almost a half, from 18% to 10%. We have heard a long speech about equality and fairness, but we also inherited an economy in which, throughout Labour’s period of government, the share of income of the top 1% and the top 10% of the population inexorably rose, and in which wealth became progressively more unequal.

[Sheila Gilmore (Edinburgh East) (Lab)]

rose—

[Vince Cable]

I will take the intervention in a moment.

A narrative has developed in which one man was responsible for this fiasco, but it was a genuine team effort, and the shadow Chancellor was an absolutely key member of that team. Being lectured now on how to manage an economy is a little bit like being given a talk on seamanship by the captain of the Costa Concordia—another believer in light-touch steering.

[Vince Cable]

It was actually on the back of an uncontrolled housing boom. Personal indebtedness as a share of people’s incomes doubled in the period of the last Government. Of course the process of deregulation beforehand did not help, but the core increase—the fundamental problem of indebtedness—arose when the shadow Chancellor was a key decision maker in that Government.

I want to talk about the Government’s basic economic strategy, but before I do, I want to address the issue of unfairness and distribution. There were two allegations. One was that the policies have had a damaging effect on the so-called squeezed middle; the other was about the millionaires. Let me deal with each in turn. On the squeezed middle, if hon. Members look at the distribution charts, they will see that the squeezed middle has been squeezed a great deal less than the squeezed top. The major cash impact of the Budget was on low and middle-income families, as a result of lifting the threshold to over £9,200, with £220 for more than 20 million taxpayers. That was right, not just because of the fairness involved, but because it gives a significant economic stimulus, and at the margin—the 1 million people being lifted out of tax—it is a major incentive to work. The policy also contrasts favourably with the strategy that the Labour Government adopted in office—which we discussed many times—of using tax credits. By increasing tax allowances in the way we have, we are giving people the freedom to choose how to spend their own money, not taking it from them and then giving it back to them, through a complex, means-tested system, with high marginal rates of withdrawal.

[Sheila Gilmore]

Is the Secretary of State disappointed that he lost the battle to rescind the cuts to working tax credit for couples working 16 hours, given that they do not benefit at all from raising the tax threshold, because they already do not pay tax? Did he lose that battle or did he not fight it?

[Vince Cable]

The shift from a system based on tax credits to one based on tax allowances obviously benefits the middle and low-income population as a whole. The impact on particular groups depends on a variety of things, including the minimum wage, which we have just uprated, and the complex interaction of tax and tax credits.

However, let me turn to the point about pensioner income. I find it quite extraordinary to hear the shadow Chancellor expressing such alarm about the impact of the Budget on pensioners. I do not know whether he has looked at the scorecard, but it is clear. In 2012-13, the effect of the increase in the basic state pension and the pension credit minimum income guarantee will be to transfer £1.75 billion to pensioners. The impact of the changes on age-related allowances is £360 million—one fifth of the additional funding going to pensioners as a consequence of this Budget. When we look at the pensioner population, we of course see big differences. There are 5 million pensioners who do not pay tax, many of whom are poor, and who are not, of course, affected by the changes at all. There is a small group of people—frankly, my contemporaries—who have high retirement incomes and considerable asset wealth, and it is right in principle that they should pay a bit more. There is a group in between, as the shadow Chancellor rightly said, of people who are not wealthy and do not have particularly high incomes, but who could be affected to a limited extent, as a result of inflation eroding the value of the allowances—inflation is currently estimated at 2.5%. Those people will benefit enormously from the increase in the basic pension.

Let us just remind ourselves what is happening. We have an increase of £5.30 in the basic state pension for a single person. On top of the increase last year, we are talking about a £10 increase in the basic state pension, as a result of the protections that this Government have introduced. For many years, the pension steadily fell behind earnings as a result of de-linking, and, despite numerous promises, the previous Government did absolutely nothing about the problem. More and more pensioners were sucked into means-testing. This Government have corrected that problem. We have a triple lock system and, as a result of that, and of this Budget, the vast majority of pensioners on low and middle incomes will be considerably better off than they were before.

--- Later in debate ---

[Mark Durkan (Foyle) (SDLP)]

Unlike Government Members, I am not in a rush to gush about how much this Budget does for families or firms in my own or anybody else’s constituency. However, I am also not here to pretend that everything in this Budget is bad, as it contains measures that will help some sectors and areas. Moving on general anti-abuse rules to deal with tax avoidance is good in principle and welcome. Obviously, we have to see the exact detail to know whether the effects will match up to the stated intent. Similarly, tax simplification for small businesses is a good thing in principle, but again the devil will be in the detail, as it will be in respect of removing borderline anomalies. Many of us have been lobbied by our local chippies and others about removing some of those anomalies, but of course there is always the danger that we end up redrawing the margins in particular businesses or sectors.

The Budget makes new provisions for the carbon price floor. Coming from Northern Ireland, I am sorry that the Government have not seen fit to open a window to relieve the serious competitiveness and investment problems that will be caused to our generating industry, because, in the context of the single energy market in Ireland, the carbon price floor will, in effect, incentivise investment to go south of the border and not stay in the north.

There are other issues to address, such as fuel duty. Again, I regret that the Government have not done more to help firms and families, who have both been affected deeply by these problems. The Government have boasted greatly about the measures that they have taken to date to protect people from the price surge, but that surge protection is still needed and now is not the time to let it go on the assumption that the other tax changes that the Government have announced will somehow carry people through or forward.

Obviously, not least in the context of Northern Ireland, I support the further moves in relation to “above the line” research and development tax credits and the tax reliefs in the creative sector, not least in film and high-end television, where Northern Ireland has recently been doing well.

On corporation tax, we in Northern Ireland are faced with the highly competitive corporation tax rate on the other side of the border and we have been looking for reductions and modifications there. I have no argument in principle with moves to reduce corporation tax, but I wonder about the Government’s measures on the control of foreign companies and the full reform that is there. Previously, I have asked about the impact that that would have on the moves to restrict the incentives towards using tax havens, and I remain concerned that while the Government have perhaps redressed some of the concerns that have been raised about the possible loss to business and revenue in the UK, there will still be a loss to developing countries’ revenue, which they absolutely need, as a result of the measure.

The Government are making much, not just in the Budget but more widely, about what they are doing for business lending. We have all heard this before. All the measures that are made relying on quantitative easing and now credit easing depend on the banks. We are told about the £20 billion guarantee, so that some banks—those that opt into the scheme—might give businesses credit at 1% less than they would otherwise have given. If yet more billions are being spent just to make that marginal difference, one has to wonder whether that is the best way of gearing support towards growth and the economy. More direct uses of that money could yield a much readier growth impact.

On the tax side, we have the hit on pensioners, with the move in the allowance and more people being brought into taxation. At a time when we are again encouraging people to save towards pensions and we again have a reform and recasting of the pension system, for the Government to come along and make another tweak that appears to hit pension provision and pension plans sends the wrong signal. It gives people the idea that the Government engage in jiggery-pokery—that they encourage people to save pensions but that then when they do so they will be clobbered. It is just a bad and unnecessary measure at a time when we are trying to encourage people to save more for pensions. Other people whom we are asking to save for their pensions are middle-income earners: we are asking them to make strong provision for their pensions and to make provision for their children’s third-level education. Many of them are still being hit by the change to child benefit. That will hit some of those people’s capacity to save for their own pensions as well as to support their children.

The Chancellor has told us of the Adam Smith principles of tax being simple and predictable, supporting work and being fair, but the tax charges being introduced in relation to child benefit go completely against that. It is a very complicated and clumsy system that is going to cause problems, and not just for those families who are affected—it will cause serious problems for employers. It will not be long before employers’ bodies will be coming to Government and saying, “You have created a very serious problem here”—a much bigger problem than the 50p tax ever created for those firms in how they could incentivise rewards and repay people. The Chancellor also mentioned the £10 billion cut in welfare coming after the next election, which he has been framing as necessary if other cuts are to be sustained.

[Sheila Gilmore]

Will my hon. Friend comment on the initial speculation in today’s edition of The Times, which is hardly a bastion of left-wing politics, that those cuts might affect attendance allowance, means-tested disability living allowance or mean the taking away of carers’ allowance?

[Mark Durkan]

Of course, these cuts could affect anything. We were told when the Welfare Reform Bill went through Parliament that that was the final destination of welfare reform. Now it is clear from the Chancellor that it is simply a staging post for further cuts. We were told about the spoonful of sugar—the extra money going into making universal credit work in the transition period—but is it the Chancellor’s plan to remove some of that, and to pull back the extra investment that has gone into making universal credit work and more acceptable, or will other benefits such as those for people with disabilities be affected? We know that families with disabilities are already being squeezed. Are they going to suffer more?

In the light of people in the Chamber teasing others about what they will put in their next manifesto, will the Government parties tell us what they will be putting in their manifestos about the £10 billion-worth of further cuts in welfare? Who will be hit? There is no point in people asking one party what they are going to put in their manifesto unless others are going to follow through. The Government are saying that such cuts will be needed after the election; will they say during the election campaign where those cuts will be made?

--- Later in debate ---

[Alex Cunningham (Stockton North) (Lab)]

I am proud to be a socialist, although hopefully not such an old one.

The rich will get richer and the poor will get poorer—the Tory party has very clearly reverted to type, putting the needs of the wealthy first while abandoning the poor, whether they are working or not. Even the Chancellor’s favourite red-top newspaper, which today portrayed him as Wallace, agrees and says that he has put money in “The Wrong Trousers”. Yes, Mr Speaker, women wear trousers! The Prime Minister, himself a man with young children and a working wife, once promised that he would make this country the most family-friendly in Europe, but this week’s Budget will make life even more difficult for ordinary, hard-working families—not that he knows what it means to struggle to feed a family.

Yesterday, I met Terry Fullerton from Holme House prison immediately after the Budget. He pointed out that the tax cut for many of the super rich, such as bankers, celebrities and others, is about the same as the starting salary for a prison officer. It is also several thousand pounds more than the average annual wage in my constituency. That is not fair.

Brendan Cox, director of policy and advocacy at Save the Children, said that some had called it a Robin Hood Budget. He said:

“Robin Hood was known for hitting his target. If help to the poorest was his aim, the Chancellor will be known for missing his.”

The Institute for Fiscal Studies says that an average family will be £530 a year worse off after the Chancellor’s tax and benefit changes. On top of that, the poorest 20% of households will see their incomes fall by about 1.5% in 2012-13, scuppering any chances of meeting coalition targets of reducing child poverty.

[Sheila Gilmore]

Will my hon. Friend comment on the fact that, as detailed in the Budget, the cut in the 50% rate will mean the Exchequer forgoing £3 billion of income, whereas it would cost £500 million to reverse the cut to working tax credits for people about to lose it because they only work 16 hours a week? Which does he think is the better choice?

[Alex Cunningham]

I am sure that my hon. Friend knows exactly what my choice would be—it would be on the part of working families.

I have mentioned the 1.5% cut. It might sound paltry, but even if it represents as little as £1 or less per week, it is still worth a lot for those on a low income who need to feed a family. It will also be the poorest families who are, or will be, hardest hit through the uprating of benefits in line with the consumer prices index rather than the retail prices index, through higher food and fuel costs, through the freezes to child benefit and working tax credit, and through the time-limiting of employment and support allowance.

We must not forget that for low-paid workers inflation is not 3.4%, as it was yesterday, but nearer 10%, because they spend proportionately more on food, fuel and transport. The Government’s raising of the personal tax allowance is welcome but sadly does nothing to help the one third of the adult population, including part-time workers and pensioners, who are too poor to pay income tax, yet still have to face those same challenges.

--- Later in debate ---

[Angela Smith]

I agree with my hon. Friend; unemployment already stands at 2.67 million, and youth unemployment is at a record level.

Despite the Chancellor’s predictions a year ago, things have turned out very differently in the real world. As we enter spring 2012, it is clear that the British economy is flatlining, and the OBR is forecasting just 0.8% growth for 2012.

In effect, the economy will continue to flatline. The Government have conceded that they will overshoot their borrowing target by £150 billion. Consumer confidence is also at a record low. As people see their income squeezed while VAT increases push prices up and inflation runs ahead of wages, many are fearful for the future. VAT costs a family an average of £450 a year, and while the increase in personal allowances reduces tax for the low paid, that is completely outweighed by the VAT rise, cuts to tax credits and higher fuel duty—again, smoothed over by the Chancellor yesterday.

The major beneficiaries of this Budget are, of course, those 14,000 people earning £1 million or more, who are receiving a tax cut of more than £40,000 a year. Some 300,000—just 2% of earners in the UK—will benefit overall from the cut of the top rate to 45%, yet just 4,000 houses a year are sold for more than £2 million. That means that the vast majority of those who gain from this tax cut for the richest will be totally unaffected by the rise in stamp duty to 7%.

[Sheila Gilmore]

What we hear from the Government is that if people are avoiding those taxes, we should just give up on it. Is there are any reason, however, in my hon. Friend’s opinion, why we cannot bring in measures to clamp down on tax avoidance while retaining the 50p tax rate?

[Angela Smith]

I completely agree with my hon. Friend, and I shall come to the point a little later.

To put the tax reductions for top-rate earners in context, we need to understand that these are people who earn £2,900 a week—that is right, each week. That is more than an average worker in Sheffield earns in a month. It is quite ironic, is it not, that this Government should believe that the best way to make the poor work is to cut their income, while at the same time believing that the best way to get the rich to work harder is to boost their income. The reduction is also a massive gamble. As Jonathan Freedland points out in The Guardian, today, it is built on

“a hoped-for influx of returning top-rate taxpayers: to most people that looks like giving up hard cash in return for a wish.”

Since when has tackling tax avoidance qualified as a tax increase for the rich?

Pensioners are also hard hit. The granny tax—the £3 billion raid on pensioners by freezing their personal allowance—will mean that people who turn 65 next year will lose out by £314. On average, 4.5 million pensioners will lose £84 a year from next April.

One has to ask what influence the Deputy Prime Minister has had on this Tory Budget, when the personal allowance increase delivers less than the recent increase in VAT, so it amounts to a tax cut for the rich. Let us not forget that the Chancellor has pencilled in more tax increases for after 2014 and a further £10 billion cut in welfare costs. To people out there, that means even further potential cuts to child benefit, pension credit and tax credit.

In difficult times—and these are difficult times for many families—a Budget needs to be fair, and it needs to give people hope. Is it fair that a one-earner family on £55,000 will lose much of their child benefit, while a couple on as much as £99,000 can keep every penny of it?

As for jobs and growth, as the Business Secretary has said, this Government do not have

“a compelling vision of where the country is heading”.

For once, I agree with the Business Secretary. There are no measures of substance in the Budget to help rebalance our economy, either geographically or structurally.

Last year, the Chancellor told us he had put fuel in the tank of the economy. Unfortunately, he put the wrong fuel in the tank and the economy has stalled. If he does not do something soon for the many in this country, the economy will not only continue to splutter along, failing to fire on all cylinders, but will continue irreparably to damage the lives of those who need jobs and growth to improve their life chances.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

The altruism of the high-paid is remarkable. If they are not paying tax because of successful avoidance measures, their delight at the rate reduction requires some explanation. Perhaps they agree with the Chancellor’s statement that they will pay more tax as a result; if so, their delight is clearly because they are ready to pay more tax than they were previously.

[Mr Bain]

I wonder whether my hon. Friend has had an opportunity to consider what the Institute for Fiscal Studies has said this afternoon—that there is a one in three chance that the Treasury will recoup only 30% of the £2.9 billion in the Red Book that relates to behavioural changes and to people moving from the 50p to the 45p rate. Does not that bear out her point?

[Sheila Gilmore]

It definitely does.

Of course, that may not have been what people were cheering. They may have been cheering in relief at not having to do tiresome tax avoidance planning all the time. If the HMRC’s calculations are correct, high-paid employees are a bit like highway robbers who are holding a musket up to the rest of us and saying, “If you tax us, we are going to take our ball away and not play any more.”

[Mr Tom Clarke]

Is my hon. Friend as concerned as I am that the Government seem to pay little attention to HMRC’s informed views?

[Sheila Gilmore]

Clearly, the Government see tax planning as a perfectly rational and sensible reaction to tax changes. However, if a working couple who are about to lose £3,000 in tax credits make a sensible and rational decision to stop work because that will make them better off, will they be seen as merely making a sensible and rational decision, or will they be seen as lazy, as scroungers, and as people who prefer to watch daytime television than hold down a job? If they make that decision, which is rational for them, the outcome will be wholly irrational for the Government, because it will cost the Government more if that family stop work.

I have still not had a satisfactory response from the Government to a question I asked in an earlier intervention. I also asked it of the Deputy Prime Minister earlier this week, because he is fond of telling us that Government can do two things at once. Why can we not retain the 50p tax rate and deal with tax avoidance? Apparently, in the previous year, when people were expecting more tax, they brought their income forward, so presumably this year, knowing that the measure has only a year to run, they will be able to put their income back to the following year so that they do not have to pay more. If we know that such things are happening, why are we unable to find a means of stopping it? Perhaps people’s incomes should be looked at over two or three years to ensure that they cannot engage in these blatant tax avoidance games, which many people on lower incomes cannot do.

When we had the discussions some months ago about bankers’ bonuses and executive pay, the Secretary of State for Business, Innovation and Skills told us, “Well, these people are paying 50% tax.” Either they are paying it or they are not. One moment we are told that we do not need to bother doing more about bonuses and high pay because the tax rate is dealing with it and the next we are told, “It’s not bringing anything in, so we shouldn’t bother.” There is a lot of smoke and mirrors.

It is clear from the Red Book and it is even clear from the Daily Mail—I am hardly a friend of that paper—that the Exchequer plans to forgo £3 billion in making this change to the tax rate. It hopes to get that back through people willingly paying more tax in various ways and through the relatively small amount that is expected from the changes in stamp duty.

Since May 2010, we have been told regularly by the Government that the way to achieve economic growth is to cut the public sector, which has been stifling the private sector, and then the private sector will spring to life and replace the jobs that are lost. Two years on, we are still asking where those jobs are. Yesterday at Prime Minister’s questions, the Prime Minister told us yet again how good it is that so many private sector jobs have been created. The figure that he used was 600,000, which was repeated a few minutes ago by the hon. Member for Mid Norfolk (George Freeman).

More than a year ago, we were told that 500,000 jobs had been created since the election. Many commentators have made it clear that most of those jobs were created in the first six months of the financial year that started in 2010, and that the likeliest cause for their creation was the previous Government’s economic stimulus. The Government cannot keep recycling the figures. The number of times that the Prime Minister has talked about those 500,000 jobs is incredible. I accept that it has gone up slightly and he is now talking about 600,000 jobs. He should get a prize for recycling, even if he does not get a prize for job creation. If those jobs were created as a result of the economic stimulus, the Government should look again at whether they should continue to rule out such a stimulus.

Do we even know that those private sector jobs are completely new jobs? In my city, there has been a lot of outsourcing and people have moved positions through tendering processes. For example, 2,000 care workers in Edinburgh will now be in the private sector because of the decisions that the council has taken. No doubt those jobs will move from the public sector side of the equation to the private sector side, but they are not new jobs that are driving economic growth. Once again, this is smoke and mirrors and there is no economic growth. That is the important point. If we do not get jobs and growth, we will not get out of the recession.

[Several hon. Members]

rose—

Amendment of the Law

Sheila Gilmore Excerpts

Wednesday 21st March 2012 Commons Chamber

[Mr Redwood]

I have just given the figures—they are taken from past and current Red Books—and the hon. Gentleman must make his judgment. I am giving the House my interpretation. Most people who see spending going up by £90 billion and revenue going up by £174 billion will say that the increase in revenue is doing the job of bringing the deficit down. If he compares that with Labour’s plans for even bigger increases in public spending, he can make a case. He may also have in mind—we have debated this in the House before—whether the cuts are real or not. Some programmes will experience real cuts. We know that because there is a much slower rate of growth in cash spending than anything this country has been used to for a very long time.

If debt interest takes too much of the extra money, and if welfare benefits take too much, other things will obviously be squeezed more, which could lead to very unpleasant consequences. That is even more reason why the Government are right to try to get the deficit down, so that we do not keep on increasing the debt at such a huge rate, and why they are right to keep official interest rates low—that helps with the cost of the deficit. It is also why they are right that we need to earn our way out of the situation by getting many more people back into decent jobs, so that they are paid more in work than they are paid on benefit. Surely the whole House can agree on that and share that aspiration.

[Sheila Gilmore (Edinburgh East) (Lab)]

We obviously want to get more people into jobs, but will the right hon. Gentleman comment on something the Prime Minister said in Prime Minister’s questions? He said that 600,000 new private sector jobs had been created since the election, but a year ago he said that 500,000 new private sector jobs had been created since the election, and three months before that he said that 500,000 new jobs had been created since the election. Is not the rate of creation of new jobs slowing down massively under this Government?

[Mr Redwood]

We all know from the output and jobs figures that the economy did not do as well at the end of last year as it had done at other times since the Government were elected, but we also know that the forecasts are that growth will now pick up. I am sure the hon. Lady will welcome that and join me in having a serious debate on what this Parliament can do to make it more likely that my constituents and hers have jobs, and more likely that they are better-paid jobs.

The question whether real public spending is falling or not depends on the rate of inflation in the public sector, so I urge again that we take advantage of the tough times. There is a two-year pay freeze for public sector workers, and the Government say that they are buying things more cheaply throughout the public sector. In addition, there are recessionary conditions in Europe and other parts of the world. If we take advantage of those things, it should mean that we do not have to have big real cuts in spending, because we will have that £90 billion per annum to spend by the fifth year of the strategy.

However, we should focus today on taxation, which is clearly what the Leader of the Opposition wanted to focus on. I do not think he listened to the Budget speech or the numbers he was told, because my right hon. Friend the Chancellor made it very clear that he had come up with a series of targeted measures to tax the very rich more than if he had not made the changes. That is fine by me, and I would hope it is fine by the Labour party, but the Leader of the Opposition seemed to say that it was not fair, because some rich people would still get away with it. However, if we get enough or more out of them overall, is that not worth while? Surely even Labour would accept that if we raise rates too high, the very rich go away—they find ways around paying the tax or do not pay.

Labour in opposition does not take that seriously enough, but the former Chancellor and Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), took it very seriously when he was in office. As Chancellor, he had the option of putting the 40% rate up to 45% or 50%, or the 83% that Labour had when previously in office, but he never chose to do it. I wish he were here today. If he were, I would ask him, “Why not?” I think his answer to Labour groups around the country is, reportedly, that had he raised it above 40%, he would have raised less money in taxation rather than more. Naturally he wanted to get more out of the rich—on that I agree with him entirely—but the way to do that was to keep the rate at a sensible level.

The Opposition should study the figures for tax receipts. If they look in the new Red Book, they will see that self-assessment income tax is plunging this year. That is exactly the problem that my right hon. Friend the Chancellor has to tackle. Under Labour, self-assessment taxation at 40%—the then rate—brought in £22.5 billion at its best, before it made a mess of the economy. The forecast for 2010-11 out-turn is £22 billion, and the forecast for the 2011-12 out-turn—soon to be seen—is only £20 billion. That means that the Treasury now expects a 10% reduction in self-assessment income tax receipts, which is where many of the high earners congregate with their complicated tax affairs. Those, then, who think that a 50p rate raises a lot more money have a lot of explaining to do given that we are in the middle of this collapse.

Living Standards

Sheila Gilmore Excerpts

Monday 5th March 2012 Commons Chamber

[Rachel Reeves]

My hon. Friend is absolutely right. As we all know, unemployment is at a 17-year high and youth unemployment at an all-time high. That is taking more people out of tax and costing taxpayers more and more every day, as the bills of this failed economic policy add up.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will my hon. Friend consider the point that the people affected by the change to working tax credit who work 16 hours a week—probably on the minimum wage—already fall well below the tax threshold, so however desirable it is to raise the tax threshold, it will not help those people at all?

[Rachel Reeves]

My hon. Friend is absolutely right. The most by which someone affected by the changes to working tax credits could benefit from next month’s increase is £125. That pales into insignificance compared with the £3,800, which is the amount by which these families will be worse off because of these changes.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

After all the sound and fury that we have just heard, perhaps I may provide a little context for the benefit of the Opposition. When this Government came to power, we had the highest borrowing in our peacetime history. We were borrowing one in every four pounds that we were spending. It was clear then, and it has since become clearer, that countries that lack fiscal credibility pay the price in higher market interest rates, at a cost to mortgage holders and businesses throughout the country.

In order to reduce a structural deficit—that is, one that will not go away with growth—it is necessary to cut spending or raise taxes, or a combination of the two. Cutting spending and raising taxes will, unfortunately, have an impact on people’s living standards. We do not want that to happen—we did not go into politics to do that—but the impact on living standards is the inevitable consequence of the dire state of the public finances left by Labour and the recognition by the coalition parties that we could no longer continue to borrow in the same reckless way.

[Sheila Gilmore (Edinburgh East) (Lab)]

Does the Minister acknowledge that if some of the families that we are talking about give up their employment and claim other benefits—including, in some cases, help with their mortgages, to which they would then become entitled—the savings that he is trying to achieve would simply not be made?

[Mr Gauke]

I shall speak in greater detail about the reforms to the working tax credit in a moment, but there is a question that we all have to answer. As the hon. Lady knows, there is a threshold for claiming the credit. For lone parents, it is 16 hours a week. We think it entirely reasonable that the joint target for couples should be not 16 hours a week but 24; we believe that that incentive will be helpful. The principle of a threshold has been in the tax credit system since it was put in place.

--- Later in debate ---

[Mr Gauke]

No, I am going to make a bit more progress. I have already given way to the hon. Gentleman once, and I think that that was enough for all of us.

It is because of our decisions that we have secured record gilt yields, feeding through to record low and stable interest rates that make a real difference to families paying their mortgages and businesses refinancing loans throughout the country. If we are going to discuss a squeeze on living standards, let us discuss what an increase in market interest rates would mean for families throughout the United Kingdom. It would force taxpayers to find an extra £21 billion in debt interest payments, increase the cost of business loans by £7 billion, and add £10 billion to mortgage bills every year, an extra £1,000 for the average family—and that is just a 1% rise. Let me remind the House that when the Government came to office, our rates were tracking those of the likes of Spain and Italy, and that they are now close to those of Germany. It is because of the tough decisions that we have made to cut the deficit that the UK has broken ranks. In the last year alone, its rates have fallen by about 1.5%, whereas those of Italy and Spain have risen by almost 3%.

I know the shadow Chancellor considers that low interest rates are a sign of trouble, and that he would prefer higher interest rates, a bigger squeeze on families, and an even bigger fall in living standards, but the simple truth is that the Opposition have no credible response to the economic challenges that the country faces.

[Sheila Gilmore]

rose—

[Mr Gauke]

I look to the hon. Lady to rectify that.

[Sheila Gilmore]

I am wondering whether the Minister has been out of the country for the past few days, and therefore has not noticed that several banks are increasing their mortgage rates.

[Mr Gauke]

If we had pursued the policy advocated by the Opposition, our market rates and gilt yields would be going up and we would be facing a very significant problem. We have record low interest rates at present. That does not necessarily mean mortgage rates will remain at their current levels for ever across the board, but the fact is that the tough steps we have taken have ensured that interest rates are much lower than they would otherwise be, which is to the advantage of both mortgage holders and businesses looking for finance.

--- Later in debate ---

[Stephen Williams]

I have given way twice and I am on a time limit, unlike some previous speakers. The hon. Lady will have her turn later.

That is why reducing the tax burden for the lowest paid is the No. 1 priority, as far as the Liberal Democrats are concerned, of this coalition Government. I and all my colleagues stood at the last election on a promise that the income tax threshold would be raised to £10,000 and the coalition Government’s first budget raised the threshold by £1,000 to £7,475 a year, taking 800,000 people out of income tax altogether and giving a £200 tax cut to every basic rate taxpayer. From next month, the threshold will be raised again to £8,105, cumulatively taking 1.1 million low-paid people out of income tax altogether with a cumulative income tax cut for every basic rate taxpayer of £330. That is £330 extra take-home pay, particularly for part-time workers, who are disproportionately women and young people, that they can spend immediately in their communities.

Two weeks ahead of the Budget—16 days, as the shadow Chief Secretary kept saying—the Liberal Democrats want the Chancellor to go further and faster in announcing a timetable to reach that £10,000 threshold in this Parliament. We want to know that when all our constituents go out to work, they will be able to take home £10,000 a year and not face the burden of income tax. That will send out a message that we are determined to make work pay and to reduce the tax burden for everyone on the basic rate of tax.

[Sheila Gilmore]

rose—

[Helen Jones]

rose—

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

If I showed some hesitancy in rising, Madam Deputy Speaker, it is because I tend to find that I am called at the very end of debates, so I am extremely grateful to you for calling me at this stage.

Sometimes Government get things wrong and must have the grace to say so. The change in working tax credit proposed for this April is one of those occasions. Interestingly, it was announced in October 2010, before the Government’s proposals on welfare reform were fully announced and explained. There is an obvious dichotomy between what the Treasury is saying and what the Department for Work and Pensions is saying. It is unfortunate that DWP Ministers have not been present in the debate to give their point of view. Those of us who served on the Welfare Reform Bill Committee had hours of Ministers and Government Back Benchers telling us that any job and any hours of work were better than none, and how important it was that we should be encouraging the mini-jobs that we were hearing so much about. The DWP is very clear that it is important that people should be supported in working, even for relatively short hours, whereas the Treasury Minister who opened the debate told us that it is very important that a couple should work more hours, and that if they do not the Government are going to take their working tax credit from them. Those two positions are irreconcilable. It is not good enough to say that it will all come right next year when the universal credit comes into being, because people will soon be suffering from this change, which is the complete and direct opposite of what the Secretary of State for Work and Pensions has been telling us he is going to do.

Is it really the Government’s position that they want people to stop work, as some people will in this situation because it is more attractive to do so? If the family who cannot find the extra eight hours’ work give up work altogether, then without the working tax credit they will get benefits paid at a higher rate than they would otherwise have received. In addition, if they are home buyers they will qualify for other things such as help with the mortgage, which they do not get if they are working. At that point, they may well conclude that it is not worth their while to continue with their jobs. They may continue to think like that in the future. We hear a lot from the Government, particularly from the Department for Work and Pensions, about how benefits policy should drive behavioural change. This policy will drive behavioural change, but in precisely the wrong direction.

[Meg Hillier]

Does my hon. Friend agree that one of the best things parents can do for their children is to embed the work ethic early on? By working, parents not only bring in an income for their children, but set an example for them and bring future benefit.

[Sheila Gilmore]

There is a long-term benefit in people learning from their parents what it is to work.

We used to hear so much about the couples penalty from the Conservative party. It used to say that there should no longer be a couples penalty and to talk about how unfair it was. However, this provision creates just such a couples penalty. A couple who lose their working tax credit might look at their neighbour, who is a single parent, and think, “She’s not losing her working tax credit. That doesn’t seem fair.” Why, when we have heard so much about that, are the Government creating a new penalty for the sake of just 18 months or two years?

That all comes on top of the decision not to increase working tax credit in line with inflation. We have heard a lot, particularly from the hon. Member for Bristol West (Stephen Williams), about how wonderful it is that benefits will rise by 5.2% in the coming year, as if it is some unique act of generosity. In fact, people are simply being given the rate of inflation.

[Stephen Williams]

There were, of course, other choices that the Government could have made. There were voices —I will not say who they were—telling the Government not to raise benefits by that historically high rate of inflation. The previous Government used the lowest possible rate when they raised pensions by 75p. This Government took a different view.

[Sheila Gilmore]

I think that the hon. Gentleman would accept that the 75p increase followed the rate of inflation. I might not have made that decision if I had been the Chancellor of the Exchequer, but that is the decision that was made.

I am pleased that the hon. Member for Bristol West and his colleagues, who are remarkably absent from this debate, managed to persuade the Government that out-of-work benefits should increase by the full amount. I support that. What I find strange is that a Government who wish to support work did not take the same view about working tax credit. I am not talking about levelling down the increase for out-of-work benefits. I am talking about a decision that increases the degree to which work does not pay, when the Conservative party says that it wants work to pay. If all these things are taken together, one begins to wonder where the Government are going.

People are sceptical about universal credit and anxious about what will happen. Let us consider something else that will happen under universal credit. Somebody who is working and who qualifies for universal credit will have their universal credit reduced if they have savings of more than £6,000 and eliminated if they have savings of more than £16,000. People who have managed to save, perhaps towards buying a house or towards their retirement, will be told, “You don’t need support, so we’re going to take it away from you.” Despite all the Government’s warm words about how much they want to support hard-working people and people who save, this is another example of how their policies will not do that in practice.

I say one last time to the Minister: change now. You —the Government, not you, Madam Deputy Speaker—know it makes sense.

[Several hon. Members]

rose—