Economic Growth

Simon Clarke Excerpts

Tuesday 14th November 2023 Commons Chamber

[Sir Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

I warmly commend the hon. Member for Mid Bedfordshire (Alistair Strathern) on what I thought was an excellent maiden speech. The movement has a funny way of delivering its ends these days, but I think it has come up with an excellent candidate in him and I wish him an enjoyable career in this place and serving his constituents. As he rightly says, it is the privilege of one’s life to represent where you grew up and I know he is obviously very aware of that, and given that we have all had the opportunity to enjoy Mid Bedfordshire at length over recent months, I share his diagnosis of its charm.

It is an absolute privilege to open the Back-Bench speeches this afternoon on the main topic of our debate, because my community, like the hon. Gentleman’s, is also looking for change. On Teesside, we need no lessons about the legacies of the last Labour Government. Frankly, we have had to live with them for too long: an industrial base abandoned; lives blighted by welfarism and low unemployment; and public services characterised by mediocrity and failure. This comes the week after British Steel announced that steelmaking is coming back to Teesside, which is a decision of huge significance for my local economy and follows a string of major successes, from the SeAH offshore wind factory, the new Net Zero Teesside power station and carbon capture and storage—all the things that our Mayor Ben Houchen, working together in lockstep with the Conservative Government, is helping to deliver for a part of the country that needs this success and opportunity.

I look forward to the autumn statement this week, and I welcome the Chief Secretary to the Treasury, my hon. Friend the Member for Sevenoaks (Laura Trott) to her position in my former bailiwick as Chief Secretary. The autumn statement represents an enormously important moment and all of us—on the Government side of the House at least—want to see pro-growth measures, the lowering of the tax burden when possible and a robust commitment not to take us back to the disastrous economic prescriptions of the Labour party. We have to recognise that it is at a time of global challenge here at home that we have some of the most important policy levers to improve our constituents’ lives.

I warmly welcome the Government’s commitment to act on leasehold and renters reform, but I also believe that we need to recognise the need in the housing sector for serious, sustained reconsideration of our planning laws if we are to ensure that the potential of this country is fulfilled. Ultimately, the honest truth is that we need to earn growth and not duck the fundamental reasons why it is so lacklustre. Many of us were aghast at the decision last week to block a new, much-needed £2.5 billion datacentre on the site of an old quarry adjacent to the M25. It was blocked on the basis that it would

“harm the openness of the green belt”

and would have been visible from bridges over the motorway. This is madness. We can delude ourselves all we want about being a science superpower or a new silicon valley, but if we do not will the means, we will not secure the ends that this country needs to see.

Our crippling lack of predictable, secure land supply is testament to a wider political failure. That applies on a cross-party basis. Ultimately, one could point the finger at the Mayor of London and his dismal record on housing just as much as one could at my own side of the House, but we need to move forward on a cross-party basis at local and national Government levels to achieve a better system of planning. Ultimately, the current discretionary system is not delivering for my constituents or for my country, and I believe that a move, as the Growth Commission has suggested this morning, to a zonal planning system along the lines suggested by my right hon. Friend Boris Johnson when he was Prime Minister and by my right hon. Friend the Member for Newark (Robert Jenrick) when he was Secretary of State, would be the right thing to do.

Schroders has estimated that house prices are at their least affordable compared with earnings since ’76. That is not the long hot summer of 1976 but 1876, the year Victoria became Empress of India. All our infrastructure capacity is being hamstrung by the underlying problem that we cannot build quickly enough where we need to. Roads, rail, data, energy and, most of all, good affordable homes are being delayed, made more expensive and in some cases being prevented entirely by this British disease.

Apart from the usual Westminster knockabout that a debate like this inevitably engenders, I think there is a serious point for Members across the House to consider, which is that there is a broken planning system at the heart of our society. Whether in central Bedfordshire or in Middlesbrough, we need to do more to make sure we can unlock growth, jobs, homes and opportunity.

Our politics deserves better and the public deserve better. This is not a right versus left issue; it is about growth versus stagnation, prosperity versus poverty or ambition versus relative decline. I hope that, over the months ahead, the Government will do much to take forward an ambitious agenda in this space.

Mortgage Market

Simon Clarke Excerpts

Tuesday 13th June 2023 Commons Chamber

[Mr Speaker]

I congratulate the now Sir Simon Clarke.

[Sir Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

That is very kind, Mr Speaker.

I pay tribute to the right hon. Member for Dundee East (Stewart Hosie) for the previous question, which was extremely interesting and perceptive. Of course, it should escape nobody’s attention that, today, gilt yields are higher than they were when my right hon. Friend the Member for South West Norfolk (Elizabeth Truss) was forced from office in the autumn. I agree entirely with the Minister that it is important to avoid the inflaming of inflation that the Opposition would do, but does he also agree that ultra-low interest rates cannot be seen as the sole benchmark of economic success and that we ought to aspire to higher trend growth as much as low interest rates?

[Andrew Griffith]

I add my congratulations to my right hon. Friend, who is right that a stable fiscal environment and the lowest possible interest rates are two ingredients and prerequisites for success, but so, too, is a supply-side economy that works to support growth and having the most competitive fiscal environment, which is one reason why the Chancellor has asked the Chief Secretary to the Treasury to look at public sector productivity, with a view to achieving that.

Finance (No. 2) Bill

Simon Clarke Excerpts

Committee of the whole House
Tuesday 18th April 2023 Commons Chamber

[Mr Rees-Mogg]

It is a great pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman), although I must say that there was some irony in a representative of the Scottish nationalist party speaking in favour of following financial rules, which sometimes seems not to happen in that part of the United Kingdom.

Of course, like everyone else here, I am a taxpayer, so we all have to declare some element of interest, and I am a corporate tax payer, under a particular hat, so I have an interest in the subject. Today—perhaps suitably, for what we are discussing—is the eve of the feast of St Alphege. Hon. Members will recall that St Alphege was murdered for refusing to pay higher taxes. He was, in many ways, the first tax martyr, who, reluctant to pay an additional Danegeld, had ox bones thrown at him until he was dead. I fear that, under current circumstances and with the approach taken by those on both Front Benches, we see endlessly higher taxes, and we are having metaphorical ox bones continually flung at us. Let us hope that we do not get martyred through it.

It is appropriate to think of St Alphege, because we are debating the worst bit of the Budget today, turned into law. It is the bit that will be most damaging to the economy, and it is the bit that is least in the interests of the United Kingdom. Let us start with clause 5, which is an historic mistake—it is a major blunder being made by His Majesty’s Government, and it fails politically and economically. It is worth remembering why the then Chancellor, George Osborne, started to reduce corporation tax. He got the Treasury for the first time to do a dynamic assessment of the consequences of cutting a tax. What did that dynamic assessment show? It showed that more revenue would be raised, which is precisely what happened. More revenue came through, both in actual, nominal cash terms and as a percentage of GDP. That cannot just be ascribed to general economic improvement and growth: it was a fundamental change in the level of corporation tax raised at a lower rate. Why was that? Well, it made the country more competitive, it encouraged people to set up businesses, and it created a system where people thought that the United Kingdom was open for business. What we are doing now is the precise opposite.

In her opening remarks, my hon. Friend the Minister referred to our noble Friend the late Lord Lawson—most distinguished Chancellor, most effective Chancellor—but this goes against everything that he did as Chancellor. In every single Budget that he presided over, he managed to abolish one tax. Why? Because he realised that simplification of the tax system was the right way to go, and because he realised—we saw more of this in the United States during the same period—that lower rates with fewer write-offs is a better way to go than higher rates and complex write-offs. Today, His Majesty’s Government are doing the exact opposite, because the Government think that they know how businesses should spend their own money better than businesses do themselves, which is fundamentally wrong.

As such, we get a raise in the basic rate, which will hit small businesses. It actually hits them at a higher marginal rate, because between £50,000 and £250,000, it has to make up the 19% to the 25%. As people get their business out of the foothills and begin to climb the mountain, we start hitting them with a high marginal rate, which is not particularly clever. Then we say, “You, dear business, do not know how to spend money—you are far too stupid—so we will tell you how”, which fundamentally misunderstands the British economy. It may be that we were a wonderful manufacturing economy in the 19th century. I love the 19th century; I have great affection for the 19th century. Some people accuse me of being the hon. Member for the 19th century—I would point out that it is the right hon. Member, and it may be earlier than that, but never mind. However, that is not the economy we have now. Our economy is primarily a service economy, and providing complex write-offs for investment that benefit manufacturing but hit services does not understand where our economy is based.

[Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

I agree with my right hon. Friend. I would add that, even for the manufacturing sector, we are obviously facing an extremely concerning tax situation—I refer him to AstraZeneca’s recent decision to locate in the Republic of Ireland rather than the UK. It is absolutely imperative that we lower our corporation tax rather than raise it, because that is ultimately the key test of our competitiveness.

[Mr Rees-Mogg]

My right hon. Friend is right, and for once, those on the Opposition Front Bench were right as well. Part of the problem with the write-offs is that they are temporary, but why are they temporary? Not because that is what the Government want to do, but because the Government are in hock to the OBR, which gets all its forecasts wrong. All the OBR has managed to say about the write-offs is that they will bring forward investment. That is not a bad thing in and of itself, but the long-term benefit is not being achieved because we insist on following what a bad forecaster tells us will happen. Actually, to the credit of the bad forecaster, it admits that what it says will happen will not happen, so we are doing something on the basis of something that even the forecaster says will not be the case when the years have passed. That cannot possibly make sense. We are making it more difficult to do business in this country, and our aim should be lower rates and fewer write-offs. That is the way to encourage business, and it is the way to grow the economy. If we grow the economy, we can afford the public services that we want. At the moment, we are risking shrinking the economy, encouraging business to leave and set up elsewhere and not having the money we need for public services. Clause 5 is a bad clause; it is a bad thing to be doing, and it is a bad thing for the British economy.

I would go further, because this idea that attacking corporations is a free lunch for Governments is a mistake. Corporation tax is of itself a bad tax, because it is not a tax that falls on nobody; it actually falls directly on consumers. It comes through to consumers, because businesses thinking of operating in this country do not care about their gross margin; they care about their net margin. When the corporation tax rate goes up, what do they do? They say, “We either have to increase prices or reduce employment to maintain the net margin.” Increasing corporation tax from 19% to 25% in a period when there is already inflation in the system will be more inflationary, as multinationals will raise their prices to compensate and maintain the net margin, or they will reduce employment, which makes the cost of living crisis worse for people, because people’s incomes then fall when they are trying to deal with rising prices.

I fear that there is a view among politicians that we tax corporations because they do not vote, and it is therefore an easy raid to make and therefore it does not matter. It is the old saw about plucking the goose with the least amount of hissing. Unfortunately, the hissing on corporation tax is delayed, but all taxation ultimately falls on individuals, and that is true of corporation tax. That is why it is a bad tax and why increasing it is a mistake in these current circumstances—indeed, it is a mistake in almost all circumstances.

The multinational minimum tax is also a mistake, and it is a mistake in terms of diplomacy and foreign policy. It was a daft thing to agree at the G7. We had no interest in doing it, and my hon. Friend the Minister said that they have all done it in the EU, as if that was meant to be any salve or balm in Gilead for us anyway. The fact that the high-tax, highly inefficient, highly regulatory EU is keen on it is enough to make most people reach for the smelling salts, rather than to think it is some glorious success of His Majesty’s Government. Why is it a bad idea? It is a bad idea because it deprives us of ambition. My right hon. Friend the Chancellor himself called for corporation tax to come down to 12.5%, and we are now legislating to make his ambition impossible. That is not something that Governments usually do; they normally try to ease their way through to something that they have set out, even if they recognise that the circumstances are not immediately possible in which to do it.

The other reason that the tax is wrong and deprives us of ambition is that it is about settling for a high-tax, inefficient world. I think Angela Merkel, the former German Chancellor, said, “We have a system where we have all this welfare, and other countries do not. How are we going to carry on paying for it when they are so competitive?” That is a quotation from her from a few years ago. We are trying to make the whole of the rest of the world as uncompetitive as we have allowed ourselves to become. That is surely not the answer; the answer is to make ourselves more competitive and therefore to have and to be able to afford lower taxation. Instead of looking at those countries that have low-tax regimes as pariahs, we should look at them as models. Instead of saying that Ireland with its low tax rate is doing something scandalous and should be punished, we should say, “No, Ireland has got more from corporation tax than it gets from value added tax.” We do not get a fraction of the money from VAT and corporation tax, because we have a much higher rate, and we have not attracted the businesses that Ireland has attracted.

Autumn Statement Resolutions

Simon Clarke Excerpts

Monday 21st November 2022 Commons Chamber

[Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

Given that it is my first chance to speak from the Back Benches, I would like to pay tribute to the officials at both of my former Departments for their exemplary work supporting me over the course of the past couple of years. I found them consistently outstanding, and I am very grateful to them for all their support. I know, at the Treasury in particular, just how much work would have gone into the autumn statement, and I pay tribute to them for that.

I also thank my right hon. Friends the Members for Uxbridge and South Ruislip (Boris Johnson) and for South West Norfolk (Elizabeth Truss) for giving me the privilege to serve in their Cabinets. It is a remarkable experience to serve in Government. I know that my right hon. Friend the Chief Secretary to the Treasury, whom I am glad to see in his place, will be experiencing the full weight of the responsibilities that rest on him, and I wish him luck with his new portfolio.

The autumn statement was important as it had stability at its heart. This addressed the fundamental challenge that was levelled at the mini-Budget in September, delivered by my right hon. Friend the Member for Spelthorne (Kwasi Kwarteng). This is clearly at the heart of what went wrong with that mini-Budget. There is obviously a very important debate to be had about the willingness of our financial institutions to conduct dynamic modelling of the impact of both economic reforms—supply-side economic reform and also lower taxes—on economic growth. However, noting that we are where we are, it would clearly have been better for that statement to have been accompanied by a full spending review, and I regret that that did not happen. It would have allowed us to have shown that tax and spending were going to be set in alignment, and we would have been able to set out a plan for lower tax and also a smaller state, which would have been more conducive to economic growth.

[Andy McDonald (Middlesbrough) (Lab)]

I am very grateful to my constituency neighbour for giving way. If that mini-Budget was so disastrous and ill-thought through, why did he support it?

[Mr Clarke]

It is precisely because I do not believe that the mini-Budget was disastrous and ill-thought through. I believe very firmly in the merits of a lower tax, higher-growth economy. Indeed, that is why I sit on the Conservative Benches and he sits on the Labour Benches. It was the lack of alignment with our spending plans, which would have been addressed through a spending review. That would have allowed us to set out the runway—if you like—to the landing zone that the Government were intent on delivering. It was the lack of ability to model the benefit of robust supply-side reform and lower taxation properly that was, I think, at the heart of what went wrong.

[John Redwood]

Did my right hon. Friend notice that the week before the mini-Budget was presented, the Bank of England and the Federal Reserve Board were deliberately driving down bonds on both sides of the Atlantic, wanting rates higher, and that the Bank of England hit the market more when it announced that it would start selling bonds worth £40 billion into a falling market?

--- Later in debate ---

[Mr Clarke]

Indeed, my right hon. Friend, I am afraid, is correct in that. There is no doubt that, while the Bank has a very difficult mandate to discharge, it has been slow in addressing some of the fundamental issues around inflation risk in particular over the year that led up to the mini-Budget.

I will make three major points about the autumn statement shortly, but before doing so, I want to turn to two specific areas where I believe urgent action needs to be taken to benefit the public finances. The first is in regard to the future of the Homes for Ukraine scheme. We owe a debt of gratitude, which I think is recognised across the House, to all those families who have opened their doors to Ukrainian families. However, tens of thousands of sponsorship arrangements that have been established are due to elapse over the weeks ahead, and it is directly in our interests that those arrangements should be renewed. Clearly, quite apart from the benefit to the Ukrainian families themselves of being with host families, there was a massive saving to the Exchequer. If those families end up either in hotels or in homelessness accommodation, the cost will be dramatically higher—more than tenfold higher—than if they had been accommodated in homes. Getting that established as quickly as possible—renewing the sponsorship arrangements—is an urgent priority for the Government.

[Andy McDonald]

I thank my constituency neighbour for giving way. I think he will find that the scheme has been renewed—that is the information that has come through to me. He may want to check that, but that is what I hear.

[Mr Clarke]

It is critical that it is renewed over the foreseeable future, because the reality is that the issue is not going away. If we are to be serious about addressing the fundamental concerns that exist about the duration of the conflict and how it will affect people for many months to come, it is vital that the scheme is renewed long into the future.

The second is the need to resolve the current crisis of illegal immigration. Clearly, it is unacceptable for the country to spend some £5 million a day on hotel costs. It is a multi-dimensional challenge. I welcome the deal that was agreed with France last week, but the Home Office clearly needs to do more to secure lower cost accommodation and to improve the processing times for asylum claims, which are both key drivers of the backlog that has been allowed to accumulate. The Home Office received funding in the spending review in 2021 precisely for that purpose, and addressing that is vital.

We also need to alter the incentives that drive people into the arms of people traffickers. That means making the Rwanda scheme work and doing all that is required over the months ahead to ensure that it is able to be enacted. Both of those problems, if allowed to persist, would represent a risk to the public finances, and I very much hope that we can get an update on them from Ministers.

Those are specific issues, but I now wish to turn to the three broad principles that the autumn statement spans and on which we need to touch today. The first is the balance of tax and spending. Clearly, we are living through hugely challenging times. We have already rightly heard reference from the Front Bench to Putin’s illegal war in Ukraine. The Chancellor was right to say that this is a recession made in Russia and, of course, it comes hard on the heels of the covid pandemic. There are simply no easy choices here, and I recognise that, but faced with the available options I would have preferred to see a much greater emphasis in the statement on spending reductions rather than tax rises.

We simply cannot ignore the fact that the OBR says that the tax burden will now rise to its highest sustained level since the second world war, hitting 37.1% of GDP by 2027-28. Faced with that, I would have curbed our capital spending in particular more sharply. Most Departments have pronounced covid-related underspends and for many projects, such as HS2, the business case no longer looks as robust as it once did, after the pandemic. On current spending, I would not have increased spending on out-of-work benefits in line with inflation at a time when wages clearly will not rise in the same way, and I believe that there is a strong need to drive NHS efficiencies. At a time when we spend the equivalent of the GDP of Greece on our health service, we need to make sure that there is a robust plan to get maximum value for the taxpayer. While many NHS trusts perform fantastically, including mine in South Tees, we need to make sure that we measure outputs rather than simply inputs in the health service.

[Ms Lyn Brown (West Ham) (Lab)]

I just wonder whether the right hon. Gentleman lives in the same world as I do. I have families who pay £2,000 per calendar month to live in a really grotty basement flat, and he thinks that they can do without a percentage uplift on their benefits. Really?

[Mr Clarke]

It is very important that we do not indirectly increase the disincentives to work. That sits at the heart of the wider debate around the affordability of the welfare system. The hon. Lady is quick to forget that we spent some £37 billion compensating people for the cost of living increases they have suffered in the past year, including £1,200 for any family on benefits.

The second issue is one where I believe spending does need to increase, and that is defence. We heard reference to this earlier, and I note that the former Prime Minister committed us to spending 3% of our GDP on defence by 2030. I believe that is a pledge that should be honoured. In a world where the challenge not only of Putin’s Russia, but frankly of China, too, is only worsening, we need to make sure we do not regard ourselves as having some kind of peace dividend. The only dividend of peace is peace. As my hon. Friend the Member for South Dorset (Richard Drax) said in his intervention, defence spending during the cold war was significantly higher as a percentage of GDP. We should return to that, not least because delivering our existing defence commitments will require some 2.5% of GDP by the middle of this decade. There is a clear priority for us to move on defence.

Ultimately, the only sustainable way to fund public services is if we can grow the economy, and that leads to the third and final point that needs to be addressed in today’s debate. We need to facilitate more robust underlying economic growth. I welcome what my right hon. Friend the Chancellor said about solvency in his statement, too. This is a welcome opportunity to address that. Our reforms should be delivered at the maximum possible pace.

I put on record just how strongly I would oppose any move to a Swiss-style relationship with the European Union, which the Prime Minister has addressed decisively today. I just put a marker down that I do not believe that would be the right approach. We need more divergence, rather than less, if we are to make a success of Brexit.

We have to confront the harsh reality that the typical British family are set to be poorer than a Polish family by the early 2030s if we do not achieve more robust growth. That will not come if we have a blizzard in taxes and regulation under the Labour party; it will come if we deliver robust supply-side reform. The most important reform we can offer is on housing. There are specific challenges here around nutrient neutrality, but there are also general ones about our attitude to new homes, which need to be addressed. We need to make sure that, on the Government Benches, we are standing in support of families who wish to own homes of their own by building them where they are needed, but the challenge is not restricted to housing. We need to adjust childcare ratios, which are driving up the cost of childcare unnecessarily, and we need to tackle the cost of judicial review and the curse and problem that so much infrastructure is thwarted or delayed by abuse of that system.

We also want to see rational energy generation, including the use of onshore wind. I will give the Government my loyal support in the Lobby tomorrow, but if we can address these fundamental pro-growth measures, we will be in a much better position to weather the challenges that lie ahead. I look forward to hearing more from Ministers in this debate and over the weeks ahead about how we will deliver the growth that ultimately was the whole purpose of the autumn statement in September, and which needs to be the animating principle of this Government over the years ahead.

[Several hon. Members rose—]

--- Later in debate ---

[Sir Stephen Timms (East Ham) (Lab)]

On 10 November, a week before the Chancellor stood up to make his statement, the Trussell Trust published its latest figures on the number of emergency food parcels that it has delivered over the first six months of this financial year. The number was 1.3 million, which is an increase of one third on the previous year, and it looks as though around 2.5 million will be delivered over this financial year as a whole. That will be a more than fortyfold increase compared with the number of emergency food parcels handed out by Trussell Trust food banks in 2010-11.

Why is the number so much more in this financial year than it was in the previous financial year? Part of the reason is undoubtedly that there has been a big real-terms cut in benefit levels this year. Universal credit was increased by 3.1% in April, when inflation was nearly 10%. According to the House of Commons Library, the consequence of that is that the headline rate of benefit is at its lowest level in real terms for 40 years—since 1982-83. Of course, a real-terms cut this year means significantly more people being forced to go to food banks than in the previous year.

I was interested to hear the right hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) say that he would not have increased benefits in line with inflation next year. In September I asked the then Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), what his intention was on uprating benefits and he did not answer, but I suspect that what was said by the right hon. Member for Middlesbrough South and East Cleveland, who was a leading member of that Administration, speaks for that Government as a whole and that benefits would probably not have been increased in line with inflation. That would have meant several hundred thousand more people going to food banks in the coming year. The question we have to ask ourselves is why our economy is failing so badly that so many people are unable to obtain, through their work and other efforts, the means to sustain the absolute basics of living for themselves and their families.

I am extremely relieved, then, that the Chancellor announced that benefits will be uprated properly next April in line with the usual formula, meaning there will be a 10.1% rise. I do not think that will significantly reduce the problem of people going to food banks, but it should at least ensure that that problem will not get a great deal worse next year, as it has this year. For that we can be thankful.

I am also pleased that the benefit cap is to be uprated. It was introduced in 2012, and at the time we were told that it was to constrain the total of benefit that a household could receive in relation to median earnings. There was some sort of rationale given for the level that was set. But then it was frozen—there was no link at all with median earnings beyond the initial announcement—until 2016. That was the only time the benefit cap was changed, and it was significantly reduced, to another, lower level, whose significance was never explained to us, except that it was a lot less than the level at which the cap had been introduced.

Now, thankfully, the Chancellor is finally going to uprate the level next year by 10%, in line with inflation, but surely it should be uprated each year. If there is some rationale for the level at which the cap is set—presumably it is linked to inflation in some way—we ought to know what that rationale is, and then it should be raised each year. All this time that the level has been frozen, more people have crashed into it each year and had to go to food banks to obtain the means to maintain their lives and those of their families. So I am very relieved that the cap will finally be uprated—although it is a one-off—next April.

As I understand the statement published by the Secretary of State for Work and Pensions, he has conducted a review of the level of the benefit cap—something that he is required by law to do every five years. I very much hope he will publish that review, so that we can see what the rationale is for the level at which the cap has been set and get some idea of what the Government’s intentions are for the future of that level. The Secretary of State will be coming to the Select Committee next week—we look forward very much to our discussion with him—when I hope he will be able to tell us that that review will be published.

But as my right hon. Friend the shadow Secretary of State rightly pointed out, the thing that has not been uprated is the local housing allowance. It is worth spending a moment on the history of this, because the local housing allowance, which limits how much housing support can be provided, was initially set at 50% of the median rent in each area. The idea was that support would cover at least half the homes available for rent in the area. In 2011 it was reduced to 30%, so that it would cover only the cheapest three in 10 homes available to rent in the area, and then it was frozen for years—it was not increased at all. People increasingly had to dip into the rest of their benefit to pay their rent, and the pressure on them became tighter and tighter—until the beginning of the pandemic, when it was raised back up to 30%.

That was a very helpful move, but since then the level has been frozen again, and we are told that it will also be frozen next year. That will be three years in which it has not been raised at all, despite the fact that, as my right hon. Friend the shadow Secretary of State rightly pointed out, rents are surging, and the only way people can pay the rent is by dipping into the other benefit they receive, which is supposed to meet their other living costs. I think the idea is that, by keeping the local housing allowance down, the Government will restrain the increase in rents, but I have seen no evidence at all that that is happening; it is just making things harder and harder for families.

I agree with what the Chancellor said about inactivity. There is a big problem with the large number of people—again, my right hon. Friend on the Front Bench made this point—who have dropped out of the labour market since the pandemic. The former Prime Minister told the House 12 times, between November 2021 and July this year, that we had more people in employment than before the pandemic. That was not true, he knew it was untrue, and what the Chancellor said is correct: a lot of people have stopped working. We do not quite know what they are living on—whether they have dipped into their pensions earlier, or what is happening. The Chancellor is right that that needs to be addressed. We need to find ways of giving incentives and encouraging people to return to work. Again, we look forward to discussing that with the Secretary of State at the Work and Pensions Committee meeting next Wednesday.

I want finally to come back to the points I made at the start. Can we not all agree there must be a serious effort to reduce dependence on food banks? We cannot keep on, year after year, seeing hundreds of thousands more people having to go to a food bank, including people who are working, in some cases full time, who are unable to obtain enough to sustain their life and the lives of their family members. Surely, where people are working a full week, that ought to be enough to sustain their costs. Where people are unable to work due to illness or disability, surely our society ought to be able to support them sufficiently. They should not have to go to a food bank.

[Mr Clarke]

The right hon. Gentleman makes a persuasive case for the need to ensure that work pays. Does he recognise that one of the most welcome measures in the Chancellor’s autumn statement was the increase in the national living wage, which will stand at well over £10 from next April?

[Sir Stephen Timms]

I am glad that it is being raised; it certainly needs to be, and it will need to go further. The right hon. Gentleman would probably agree that if someone is working full time at the legal minimum allowed, that ought to be enough to enable them to live and to support their family, but at the moment it is not. Why is that, and what are we going to do to put it right? Part of the answer must be an adequate social security safety net. We do not have that at the moment, and we are going to need it in future.

Annual European Union Finances Statement

Simon Clarke Excerpts

Thursday 21st July 2022 Written Statements

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I am today laying before Parliament a document entitled “The European Union Finances Statement 2021 on the implementation of the Withdrawal and Trade and Cooperation Agreements” (CP 732). This is an annual publication and the 41st in the series.

This year’s statement continues to include an updated Government estimate of the financial settlement. As detailed below, the estimate can be found in annex A and contributing figures in chapter 2 and 4.

This year’s edition is the first in the publication series to cover the UK as a non-member state and having completed the 11-month transition period. Now that the UK has left the EU and is no longer involved in the EU’s multiannual financial framework, detailed financial reporting on participation is of diminishing relevance.

This year’s edition follows the recommendations from the European Scrutiny Committee in relation to how the information is presented in this year’s document. The cut-off date for reporting for this edition of the EU finances statement is December 2021, as these statements will continue to be published on a yearly basis. However, the statement also provides brief details of the invoice received subsequently to this period in April 2022, and which will be reported on in detail in next year’s statement. This year, the April invoice provides a single net liability for the UK of €3,419,693,252.35 (£2,877,500,887.19)

The focus of this statement, therefore, is on the implementation of the withdrawal agreement and the trade and co-operation agreement, in effect turning the formerly annexed chapters into the main body of the text. The presentation of both payments and the outstanding liability under the WA has changed accordingly.

This year the statement separates backward-looking reporting on the payment of net liabilities made by the UK from HM Treasury’s forecast of outstanding liabilities. Chapter 2 gives a breakdown of the April and September 2021 invoices received from the EU and their payment during that calendar year. It gives an updated figure for the total paid up to 31 December 2021 of £5,812,719,159.

Chapter 3 of the statement provides detail on the verification arrangements that HM Treasury has undertaken in relation to the financial settlement under the WA and which was reflected in domestic law in the European Union (Withdrawal Agreement) Act 2020.

HM Treasury estimates that the current net value of the financial settlement is £35.6 billion. Chapter 4 breaks down the forecast outstanding UK net liabilities to the EU from 1 January 2022 onwards, providing a point estimate of the total outstanding of €29.0 billion (£24.6 billion).

This statement reports on the status of EU programme association in chapter 5. In this edition we give the current estimate for the total cost of participation in all three programmes over the seven-year MFF (around £17 billion). This breaks down to in the region of £15 billion for Horizon Europe, £1.2 billion for Euratom R&T and Fussion4Energy, and £0.8 billion for Copernicus.

As all payments will be made from departmental accounts, HM Treasury do not plan to replicate or consolidate financial reporting on the TCA in future editions of the statement. Nor do we intend to report annually our revised estimate of liabilities expected under the TCA, because actual costs will, in future years, appear in the departmental resource accounts.

The latest estimate of £42.5 billion shows an increase against the original range of £35-39 billion, which is primarily due to the most recent valuation of the UK’s obligation under article 142 for EU pensions. The primary drivers are the latest discount rates and inflation assumptions, which are centrally set by the Government for valuing long-term liabilities. However, given that this is a multi-decade liability, the variables used in this forecast will continue to fluctuate up and down. The agreed scope of the underlying liability remains unchanged, and the UK will continue to pay those liabilities as they come due, according to the actual value at the time.

[HCWS272]

Contingent Liability: UK Infrastructure Bank

Simon Clarke Excerpts

Wednesday 20th July 2022 Written Statements

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

It is normal practice when a Government Department proposes to undertake a contingent liability in excess of £300,000, and for which there is no statutory authority, for the Minister concerned:

To present a departmental minute to Parliament, giving particulars of the liability created and explaining the circumstances; and

To refrain from incurring the liability until 14 parliamentary sitting days after the issue of the minute, except in cases of special urgency.

I am writing to notify Parliament of a contingent liability that the Treasury intends to create related to the final stage of the establishment of the UK Infrastructure Bank as a publicly owned company with operational independence.

As set out in the UKIB policy design document published at Budget 2021, in UKIB’s framework document and most recently in UKIB’s strategic plan published last month, the ambition is for UKIB to offer sovereign equivalent guarantees to support and enable private and public investment in infrastructure, with core objectives to help tackle climate change and support regional and local economic growth.

UKIB will be able to deploy these guarantees flexibly up to an overall limit of £10 billion, which is capped at £2.5 billion in any given year.

UKIB will manage its capital position through its economic capital framework with an appropriate buffer, as well as through the institution’s wider liquidity and operational risk management. The Government’s expectation is that the default position is for UKIB to meet any calls on its guarantees from its existing funded financial capacity.

To maximise the impact of UKIB’s guarantees and promote crowding in of private investment, it is important to allow UKIB to rely on the UK Government’s credit rating. To ensure UKIB can utilise this credit rating, HMT intends to provide backing to UKIB such that rating agencies would consider it to have a sovereign credit rating. This backing will create a new contingent liability from HMT to UKIB.

UK Government Investments contingent liability central capability has been consulted as part of establishing the structure of the new scheme.

UKIB will report to Parliament through its annual reports and accounts on any guarantees entered into, providing details on the amount of actual or contingent liabilities.

Authority for any expenditure required under this liability will be sought through the normal procedure.

A departmental minute has been laid in the House of Commons providing detail on this contingent liability.

[HCWS255]

Energy (Oil and Gas) Profits Levy Bill

Simon Clarke Excerpts

2nd reading
Monday 11th July 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I beg to move, That the Bill be now read a Second time.

People across the country are facing rising energy costs and an increase in the overall cost of living. Of the basket of goods and services that we use to measure inflation, a record proportion are seeing above average price increases. Indeed, the country is now experiencing the highest rate of inflation for 40 years, which is causing acute distress to the people of this country. In May the Government announced a series of measures to help the British people during this difficult time, in which we have seen oil and gas prices reach new highs; oil prices have nearly doubled since early last year and gas prices have more than doubled. This is a global phenomenon that is driven by factors out of any single Government’s control, in large part resulting from Russia’s illegal war.

With increased prices at the global level, profits from oil and gas extraction in the United Kingdom have also shot up. These are unexpected, extraordinary profits—above and beyond what forecasters could have expected the sector to earn. Because of these extraordinary profits, and to help fund more cost of living support for UK families, the Government are introducing an energy profits levy. The temporary levy is a new 25% surcharge on the extraordinary profits. When oil and gas prices return to historically more normal levels, it will be phased out.

[Stephen Flynn (Aberdeen South) (SNP)]

I would welcome some clarity from the Minister as to what his Government regard normal prices to be, because those involved in the industry will be watching on at this moment.

[Mr Clarke]

The answer is: prices of an order that we saw prior to Russia’s invasion of Ukraine and prior to some of the inflationary pressures resulting from the covid disruption—prices more akin to those seen in 2021. Indeed, we could also refer to factors that predate that, back to 2019. The system has clearly been in flux, but I would certainly not want to encourage the artificially low prices of 2020 to be seen as a baseline for these purposes.

[Stephen Flynn]

I thank the Minister for giving way again. Getting investment into the industry is one of the Government’s big arguments for the tax break incentives they are providing to the industry. How can that possibly happen when they do not even say what a normal price is?

[Mr Clarke]

I will set out more about our investment incentives in a moment. We are not going to tie ourselves to a specific price level, but will obviously look towards a return to more normative market conditions—not, as I said, the artificial lows of 2020—such as the pre-crisis situation in 2019 and some of the much healthier pattern of last year, prior to what Russia has done in Ukraine, which has obviously driven prices to new highs. That gives the House a sense, but we will obviously set out our thinking well in advance of repealing the levy.

I am firmly committed to our net zero strategy.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Will the Minister give way once more?

[Mr Clarke]

No, I will not; I am going to make some progress.

As set out in the energy security strategy, the North sea will still be a foundation of our energy security for years to come. Currently, about half our demand for gas is met through domestic supplies. In meeting net zero by 2050, we have to be realistic; we will still be using about a quarter of the gas that we use now. It is therefore necessary to incentivise investment in oil and gas, and to encourage companies to reinvest their profits to support the economy, jobs, and our energy and security, but it is possible to tax extraordinary profits fairly and to incentivise investment. That is why, within the energy profits levy, a new “super-deduction” style relief has been introduced to encourage firms to invest in oil and gas extraction in the UK. We expect that the energy profits levy, with its investment allowance, will lead to an overall increase in investment. Indeed, one oil and gas company has already said that the immediate investment allowance should spark further investment in the North sea. The new 80% investment allowance will mean that, overall, businesses will get a 91p tax saving for every £1 they invest, providing them with a clear incentive to do so. This nearly doubles the tax relief available and means that the more investment a firm makes, the less tax it will pay. Unlike Labour’s windfall tax in 1997, this levy both incentivises investment and raises more revenue.

The energy profits levy contains an investment allowance that doubles the overall investment relief for oil and gas companies, unlike Labour’s proposal of a few weeks ago. Our levy raises around £5 billion over the next 12 months against Labour’s estimate of around £2 billion for its proposals. Its windfall tax would raise less than £70 per household, not £600 as it claimed. In fact, the Opposition’s regressive VAT plans would give millionaires in mansions more off their bills than those in need. They are now caveating their windfall tax costings by stating that their £600 per household support will be supported by “other measures”. By that I presume they mean more public spending and a higher rate of taxation for hard-working people across this country. As usual with Labour, the sums sadly do not add up.

The new tax we are introducing today ensures that the extraordinary and unexpected profits from which oil and gas companies have benefited are taxed fairly and provide a significant investment incentive. This is a sensible considered move and one that will be warmly welcomed across the House.

Our plans mean that the oil and gas producers can claim the allowance when their spending on investment is actually incurred. This is unlike the allowance under the existing permanent tax regime for oil and gas companies, which can be claimed only once income is received from the field, subject to the investment, and, as some Members of the House will know, that can take several years.

I want to make it clear what the investment allowance will apply to. First, if capital or operating expenditure qualifies for supplementary charge allowance, it will qualify for the energy profits levy allowance. As the levy is targeted at the extraordinary profits from oil and gas upstream activities—that is the profits that came about owing to global price increases—it makes sense that any relief for investment must also be related to oil and gas upstream activities.

Secondly, such spending can be used to decarbonise the oil and gas production, for example through electrification. Therefore, any capital expenditure on electrification, as long as it relates to specific oil-related activities within the ringfence, will qualify for the allowance.

[Stephen Flynn]

I thank the Minister for giving way once again; he is being very generous. On that specific point, the Financial Secretary to the Treasury stated the same last week. It is good to have that clarification, but why is it not written into the text of the Bill?

[Mr Clarke]

I can provide that assurance from the Dispatch Box. Examples of electrical expenditure on plant and machinery will be things such as generators, which include wind turbines, transformers and wiring. I also remind the House that there are other tax and non-tax levers to support non-oil and gas investments, such as in renewables. Those levers include the super-deduction and our competitive research and development tax credit regime. Importantly, the returns on these investments are taxed at 19% rather than at 65% as for UK oil and gas profits.

We have been listening closely to feedback from industry. Late last month, my right hon. Friend the former Chancellor met industry stakeholders in Aberdeen to discuss the levy and to make sure that it works as the Government intend it to. As my right hon. Friend the Financial Secretary to the Treasury confirmed in a debate last week, the Government have changed the legislation, which is reflected in the Bill before us today.

Tax repayments that oil and gas companies receive for petroleum revenue tax related to losses generated by decommissioning expenditure will not be taxed under the levy. These are repayments that are typically taxed under the permanent tax regime. However, as wider decommissioning expenditure is also left out of the account for the levy, this change is both consistent and fair. I wish to reiterate my thanks to those in the industry with whom we have engaged on this matter, and to again reassure the House that, with this change, the Government still expect the levy to raise around £5 billion over the next year.

On how long the levy will be in place, it will take effect from 26 May this year and, when oil and gas prices return to historically more normal levels, it will be phased out. The sunset clause in the Bill ensures that the levy is not here to stay. There are very few taxes that have their expiry date set in law, so this provision demonstrates the Government’s commitment to keeping the levy temporary and gives oil and gas companies further reassurance as they seek to plan their investments.

Our permanent oil and gas tax regime is competitive globally against similar operating environments and is lower than that of Norway, the Netherlands or Denmark. However, it is both fiscally prudent and morally right that we have a temporary and targeted levy that applies to extraordinary profits in our oil and gas sector and reflects an extraordinary global context.

Through the Bill, the levy will raise some £5 billion of revenue over the next year so that we can help families with the cost of living through significant and targeted support to millions of the most vulnerable. These are extraordinary times and we are seeing extraordinary prices, and that requires extraordinary Government action.

I did not come in to politics to raise taxes, nor did this Government, but we are about delivering the action required to support families in their time of need. At the same time, the Government are clear that we want to see the oil and gas sector reinvest its profits to support our economy, jobs and energy security. For those reasons, I commend the Bill to the House.

Fiscal Risks and Sustainability Report 2022

Simon Clarke Excerpts

Thursday 7th July 2022 Written Statements

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

The Office for Budget Responsibility has published its Fiscal Risks and Sustainability report today. This report fulfils the OBR’s obligation to examine and report on the sustainability of, and the risks to, the public finances, in accordance with the Charter for Budget Responsibility. The UK continues to be a leading example in fiscal transparency and risk management.

The FRS has been laid before Parliament today and copies are available in the Vote Office and Printed Paper Office. The Government will respond formally to the FRS 2022 at a subsequent fiscal event.

The UK has experienced several significant shocks over the last decade, including the challenges posed by the covid-19 pandemic, Russia’s invasion of Ukraine and a spike in global energy prices.

The Government have taken a balanced approach, ensuring that it continues to support people and the economy in the face of global pressures and uncertainty with temporary, timely and targeted support, while reducing debt over the medium term. The Government support for cost of living has now totalled over £37 billion this year, with the OBR noting in today’s report that the Government spent as much

“as it did supporting the economy through the financial crisis”.

The Government are also committed to building a stronger economy for future generations, and the OBR today has revised up long-run productivity growth because of the Government plans to deliver over £600 billion in gross public sector investment over the next 5 years, reaching the highest sustained levels of public sector net investment as a proportion of GDP since the late 1970s.

In the long run, the OBR’s projections show that demographic change, other cost pressures and the transition to net zero will present significant challenges to the public finances. The OBR note the actions the Government have taken to strengthen the public finances and reduce debt levels over the medium term, but significant pressures remain. The report also highlights that the UK still faces threats in the near term. The public finances remain sensitive to inflation and interest rates, with the outlook for energy prices being uncertain and made more pronounced by heightened geopolitical tensions. The Government must therefore continue to bring down the level of debt and rebuild fiscal space, so we can safeguard the economy against future challenges and respond as future risks materialise.

[HCWS191]

Depositing Framework Documents in the House Libraries

Simon Clarke Excerpts

Monday 4th July 2022 Written Statements

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

Framework documents constitute a core constitutional document of arm’s length bodies, and it is imperative that accounting officers, board members and senior officials are familiar with them, ensure they are kept up to date and use them as guide to govern the collaborative relationship between the arm’s length body, the sponsor Department and the rest of Government. It is also important for the purposes of scrutiny that Parliament is familiar with these documents, and has ready access to them as they are agreed and updated.

It has long been a requirement under the rules as set out in Managing Public Money for framework documents to be deposited in the Libraries of both Houses. In order for the Libraries to receive documents for deposit a ministerial commitment to deposit must be made in the House. To facilitate transparency and ease the process of ensuring these important governance documents are made available to Parliament I am making a commitment on behalf of Government that all framework documents of all central Government arm’s length bodies and public corporations shall be placed in the Library. This commitment should allow Departments to meet their obligations to Parliament more easily and promptly.

I have also asked the Treasury Officer of Accounts to write to all accounting officers to ensure that all existing framework documents have been properly deposited. The public will continue to be able to access these documents via www.gov.uk or the relevant body’s website.

In addition to framework documents transparency is served by Parliament having the opportunity to scrutinise the summaries of accounting officer assessments of major projects. I also make a commitment on behalf of Government that copies of summary accounting officer assessments for projects on the Government Major Projects Portfolio should be deposited in the Library of the House of Commons in line with existing HMT guidance.

[HCWS176]

Customs Undervaluation Case

Simon Clarke Excerpts

Thursday 30th June 2022 Written Statements

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

In March 2018, the European Commission launched infringement proceedings against the UK, alleging that between 2011 and 2017 the UK had failed to prevent undervaluation fraud involving importations of Chinese textiles and footwear, leading to approximately €2.7 billion of customs duty going uncollected. Since leaving the EU, the UK has continued to engage with these infringement proceedings as per the legal obligations set out in the withdrawal agreement. Throughout the case, the UK argued that we took appropriate steps to tackle the fraud in question and that the size and severity of the alleged fraud had been overstated. The UK has since taken proportionate and increased steps to combat this fraud without impacting legitimate trade, liquidating suspect traders through enforcement action, and substantially eliminating the illegitimate trade with significant investments in new inland customs infrastructure that opened in October 2017.

On 8 March 2022, the CJEU published its judgment, finding against the UK on most liability points. Importantly however, the Court found that the European Commission overstated the size of its losses, by expanding its claim for losses prior to 2014 beyond those originally claimed and by ignoring action taken by the UK in raising assessments for the period from 2015 onwards. The judgment did not endorse the €2.7 billion claim, instead limiting the Commission’s claim for imports from 2011 to 2014 to the amount of certain customs assessments issued and cancelled in error and, for imports in the period January 2015 to 11 October 2017, instructing the European Commission to recalculate the figure. We understand this exercise to be under way and we have not yet received the Commission’s revised estimate of the liability. These calculations are likely to be complex.

Following the judgment, the UK is liable for both outstanding customs duties and interest. This could potentially be 16% plus Bank of England base rate and accrues in the absence of any payment. With this in mind, and in order to protect UK taxpayers from significant continued interest accrual, the UK made a payment on 10 June 2022 to the European Commission of €678,372,885.63. This paid in full the amount due regarding cancelled customs assessments to the end of 2014 and, in respect of the subsequent period, represents the amount the UK considers due at this time, in light of the CJEU judgment, thereby stopping interest accruing on this amount. When the UK receives the Commission’s recalculation for the period 2015 to October 2017, we will examine their methodology closely and will not hesitate to reject any claim should we believe it to not be accurate or in line with the CJEU’s judgment, to ensure we protect UK taxpayers’ interests.

[HCWS167]