Finance Ministers’ Meeting (Ireland)

John Bercow Excerpts

Wednesday 17th November 2010 Commons Chamber

[Several hon. Members]

rose—

[Mr Speaker]

Order. There is much interest and little time, so in questions and answers alike I require brevity.

[Mr William Cash (Stone) (Con)]

The €440 billion eurozone facility can be used without infringing either UK liability or sovereignty. The Darling guarantee mechanism with qualified majority voting involves, unnecessarily, both UK liability and sovereignty. Where it is in our national interest and we can afford it, why not provide a UK-Irish but non-EU loan?

Oral Answers to Questions

John Bercow Excerpts

Tuesday 16th November 2010 Commons Chamber

[Alan Johnson]

That was not the question. The fact that one looks at every available tax before reaching a conclusion is nothing new. The conclusion we reached is that VAT should not be increased and that national insurance should be. The Liberal Democrats have been very fair in the way that they have betrayed the electorate. They have broken promises across the age divide—children, students and pensioners—so there is no age discrimination there. The Conservatives specifically said that they would not increase VAT. During the election campaign, we said that if they did not increase national insurance, they would increase VAT. The Prime Minister denied that and said that they had no plans to increase VAT. He said that VAT was

“very regressive, it hits the poorest the hardest”.

I can promise Members that it does. We are now in the unique situation in which we face a tax rise that our Prime Minister has promised will affect “the poorest the hardest”. At the time, the Conservatives said that an increase in national insurance would be “a tax on jobs”. The Chartered Institute of Personnel and Development said that it would lead to 75,000 jobs being lost while an increase in VAT would cost 250,000 jobs.

[Mr Speaker]

Can we have a question from the shadow Chancellor?

[Alan Johnson]

Why is the Chancellor proceeding with this tax on jobs that hits the poorest the hardest?

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. From now on, first of all, exchanges must be shorter. Secondly, let it be clear beyond doubt that Ministers answer for the policies of the Government, not for those of the Opposition. That is the end of the matter.

[Nigel Adams (Selby and Ainsty) (Con)]

2. What fiscal measures he has introduced to provide assistance for pensioners since his appointment.

--- Later in debate ---

[George Freeman (Mid Norfolk) (Con)]

Does the Minister agree that it is appallingly disingenuous of Labour Members to posture as the friends of child savings, having left every man, woman and child in this country with debts of more than £22,000 each?

[Mr Speaker]

Order. The Minister, who is a dexterous Minister, will relate her answer to the policy of the Government, not that of the Opposition.

[Justine Greening]

I think it is a shame. The best thing we can do for all our children, including looked-after children, is to build a stronger country in which they can grow up and enter the workplace. I am afraid that it simply is not good enough to duck the serious questions of the day, which include sorting out not only our economy, but our broken welfare system, which does those looked-after children no service either.

--- Later in debate ---

[Andrea Leadsom (South Northamptonshire) (Con)]

Recent press reports have suggested that there are many so-called zombie households in the United Kingdom, in which families have got themselves into so much debt that they rely on interest rates remaining low to stay afloat. Does my hon. Friend agree that our policies to keep interest rates low, and to enable the Bank of England and the Monetary Policy Committee to keep them low, are key as we go through a critical period in our recession?

[Mr Speaker]

A sentence from the Minister in reply will suffice, as the question is about tax inquiry services. We are grateful to him.

[Mr Gauke]

Let me put it this way: we would have a lot more inquiries if taxes were going up, which is the policy the Opposition advocate.

--- Later in debate ---

[Richard Graham (Gloucester) (Con)]

Does the Minister agree that the logic of the policy outlined by Opposition Members is that any child from Prince William and Catherine Middleton would benefit from child tax benefit, whereas the poorest of my constituents would not?

[Mr Speaker]

Members really should not refer to members of the royal family in questions. That is strongly to be deprecated, and it certainly should not happen again. I ask the Minister to give a very brief reply.

[Mr Gauke]

My hon. Friend is perhaps getting a little ahead of himself. I think all we should say is that should that happy eventuality occur, I am sure he or she will get by without child benefit.

--- Later in debate ---

[Mr Osborne]

The whole point is that we have given these forecasts to an independent body, rather than just relying on the forecasts given by the Chancellor of the Exchequer at this Dispatch Box, so that people can believe in their independence and credibility. The Office for Budget Responsibility will produce its autumn forecast on 29 November. But of course the OBR figure that all Labour Members seem to use is the one for the public sector head count, but they seem to forget that this same body made a forecast of an increase in net employment, which sadly they never use.

[Mr Speaker]

David Tredinnick, not here.

[Mr Marcus Jones (Nuneaton) (Con)]

What steps can the Chancellor take to ensure that the Financial Services Authority’s mortgage market review proposals do not have a disproportionate effect on home buyers and the housing market, particularly at a time when we are trying to encourage growth through the private sector?

--- Later in debate ---

[Mr Osborne]

The commission that we have set up is looking principally at the structure of the banking sector, which is another very important issue. We have said that we want the banks to make a contribution, which is why we introduced the permanent banking levy; we did not agree with the previous Government that that should not happen. We followed the best practice set out by the International Monetary Fund, which outlined two taxes that could be pursued—one was a bank levy and the other was a financial activities tax, which we also said that we would consider in the Budget. On the broader point of the Robin Hood tax, or the financial transactions tax, which is sometimes discussed at ECOFIN, I think that everyone accepts that it would have to be introduced internationally or else it would be almost impossible to collect any revenue.

[Mr Speaker]

I think we have got the drift.

[Jim McGovern (Dundee West) (Lab)]

Can the Chancellor or another Minister tell us what assessment has been made regarding potential job losses due to changes in the benefit system? Much concern has been expressed in my constituency, particularly yesterday in the local press, that up to 700 jobs might be lost in the HMRC office in Dundee as a result of such changes. What assurances can Ministers give me and my constituents that that will not be allowed to happen?

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. We must move on.

European Union Economic Governance

John Bercow Excerpts

Wednesday 10th November 2010 Commons Chamber

[Mark Reckless (Rochester and Strood) (Con)]

rose—

[Mr Speaker]

Order. Before the hon. Gentleman intervenes, I note that the Minister has been on his feet for 21 minutes and has attended most assiduously to a number of interventions, and that is perfectly in order. However, I emphasise that there is an hour and a half for this debate, and a substantial number of Back-Bench Members have indicated to me that they wish to speak. It would be a very sad and unsatisfactory state of affairs if contributions from those on the Front Bench were to exceed in total those from Back Benchers. On that basis, I feel sure that the Minister, who is an adroit fellow, will be bringing his remarks to a close ere long.

[Mr Hoban]

I thank you, Mr Speaker, for that encouragement and guidance, and I apologise for being generous in taking interventions. Let me make rapid progress.

On the issue of sanctions, the same principle applies for those eurozone countries that are in breach of the stability and growth pact excess deficit procedures. In the run-up to the crisis, there was a lack of fiscal discipline, for those inside and outside the euro. Despite the existence of the stability and growth pact and the excess deficit procedure, the eurozone was still undermined by a failure to exert fiscal discipline, and a number of member states in the eurozone have to take tough action to tackle the deficit.

To avoid a recurrence, the Commission and member states in the eurozone have sought to reduce the discretion on the application of the sanction process. The position reached by eurozone countries is set out in the taskforce report. Again, it is worth reminding the House that the sanctions regime does not apply to the UK by virtue of protocol 15 of the current treaty.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. Members are free to try to intervene whenever they wish, and Ministers can respond accordingly. I simply want it to be understood that the House can do as it wishes, but it should do so with its eyes open.

[Mark Reckless]

On a point of order, Mr Speaker. Did not the Minister agree to take an intervention, before the intervention from the Chair?

[Mr Speaker]

That is not a point of order at all. The hon. Gentleman should resume his seat and not dilate. Mr Christopher Leslie.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. We have fewer than 45 minutes and approximately 15 Members are seeking to catch my eye. Right hon. and hon. Members can do the arithmetic for themselves, but a certain economy will be required if many are to be satisfied.

[Mr William Cash (Stone) (Con)]

This debate and the Minister’s remarks remind me of what Alice said in “Through the Looking-Glass”, when she referred to Humpty Dumpty and his rather scornful tone:

“‘When I use a word,’ Humpty Dumpty said…‘it means just what I choose it to mean—neither more nor less.’

‘The question is,’ said Alice, ‘whether you CAN make words mean so many different things.’

‘The question is,’ said Humpty Dumpty, ‘which is to be master—that’s all.’”

That is the essence of the question of European economic governance. We have been told that it is good for us, that it does not affect us and that it does not make a difference. However much one gets into the interpretation of those words, the European Scrutiny Committee’s report makes it clear that there are significant differences, in aggregate, between different parts of the regulations and directives. If the proposal is accepted by the Government, they will effectively cross the Rubicon and similarly, by acquiescing in ever-greater European governance over our economy, they will significantly undermine our ability to govern ourselves. We need less Europe, not more.

The proposals extend to the United Kingdom, as a member of the European Union, thereby raising questions of sovereignty. Under the aegis of the forthcoming Bill on the European Union, my Committee will hold an inquiry so that we can sort out once and for all whether it is the House of Commons, Parliament and that sovereignty which governs the country, or whether it is the European Union. Under Standing Orders, the Committee’s duty is to report to the House, not to the Government, on matters that we regard as requiring debate by reason of their legal or political importance. The scrutiny reserve remains in place until the debate has taken place, and thereafter Ministers can, and no doubt will, vote and/or agree the proposals, but may continue negotiations.

I was glad that the Minister’s explanatory memorandum stated specifically, on several vital matters, that the Government would

“seek to ensure in negotiations”

that matters of concern would be improved. In doing so, the memorandum by definition conceded that these issues have not been resolved entirely, that negotiations could improve them, that they do make a difference to the United Kingdom, its Government and its Parliament and that they have to be remedied. As Chairman of the Committee, I have placed in the Library a note in my name on all these matters, so anyone who wishes to look at them may do so.

I was puzzled by the Prime Minister’s response to a question that I asked during his statement to the House on the outcome of the European Council meeting. He accepted that the matter was complex and required a greater opportunity for exchange of opinions and explanation, but he also said:

“This is not a new framework.”—[Official Report, 1 November 2010; Vol. 517, c. 614.]

I find that extremely puzzling, however one construes it, given the evidence before us and the specific reference to a new surveillance framework in the taskforce report and in the presidency conclusions that he signed off. The truth is that the Commission intends to exert peer pressure on all member states of the European Union. The taskforce report of 21 October preceded documents being placed in the Library, following an urgent question I asked, emblazoned with the word “limité”, which means very restricted circulation. They included a letter of 9 July from the Chancellor of the Exchequer to other member states. It might be thought that there was every reason to present those documents to the European Scrutiny Committee, even if they were not specifically depositable. The Committee does not operate by website.

A substantial question on whether the UK is affected has been dealt with in a note that I received from the Library, from which I shall quote, on increased macroeconomic surveillance. It says:

“It is proposed that a greater role is played by the Commission in macroeconomic surveillance. This surveillance mechanism would be distinct from that currently taking place under the SGP”—

the stability and growth pact—

“because it is non-fiscal in nature; it will focus on countries’ broader macroeconomic positions in relation to the rest of the EU.”

The note goes on:

“The idea of deeper macroeconomic surveillance was put forward in March this year as part of the…Europe 2020 proposals”,

which were, of course, under the previous Government. The note continues:

“As originally envisaged, the deeper surveillance framework would apply only to the euro area countries; however, the Commission proposals of 30^th June”—

after the general election—

“and the Task Force Report of 21^st October”

both apply to “all Member States”. That is a matter of considerable concern. Why have the coalition Government agreed to extend the framework to all the member states, whereas the previous Government appear to have confined it exclusively to the euro area? As my hon. Friend the Member for Hertsmere (Mr Clappison) said, the taskforce recommends deeper macroeconomic surveillance, with the introduction of a new mechanism underpinned by a new legal framework based on article 121. The Minister’s explanatory memorandum specifically refers to the legal impact and therefore the jurisdiction of these matters, as I have already mentioned, which clearly shows that there is a legal impact on the UK. Therefore, by definition, the proposed mechanism affects the UK and hands over jurisdiction in these matters to the European Court of Justice for interpretation and construction.

Furthermore, it is possible, and even likely, that the stricter reporting requirements will apply to the United Kingdom under the macroeconomic surveillance proposals, particularly if the UK were placed in an excessive imbalance position. We have always conceded, right from the beginning, way back to the time of the Maastricht rebellion, that there would be no sanctions because of the opt-out that we achieved. The fact that the Government continuously state that it is a victory not to have had sanctions imposed is merely a statement of the obvious. I go further. I would be grateful if someone could tell me which member states have ever paid any fines or had any sanctions imposed upon them under any of these arrangements. The answer is none, and there are those who argue that there never will be.

We are in a difficult situation with regard to how we will vote on the motion. Serious questions arise, and I was concerned when I read the letter and the appended document from the Chancellor of the Exchequer, which I had to extract by way of an urgent question, for which I was most grateful, Mr Speaker. In that, there is a description of economic governance, the words of which would not be easily understood. It states:

“Democratic legitimacy is vital to everything that the EU does, and Ministers need to be accountable both to other Member States and to their electorate.”

I find that a new and strange doctrine, and a rather dangerous one. I had no idea that Ministers were accountable to other EU member states. It is conceded, and I agree, that the United Kingdom Budget will be presented first to the UK Parliament, but the essence of the problem is that in the compilation and the construction of the Budget, a series of data and statistical information would have to be provided. That in itself creates the framework that constricts our ability within our parliamentary process to act on our own terms and in line with the principles that underpin our parliamentary Government—that matters of taxation and spending and the formulation of them depend upon the House of Commons, not upon the European Union.

Given the significance that has been attached to these ideas, they represent a drift and an acceptance of European economic government through the surveillance framework by increasing the powers available to the Commission. This does not in any way alter the degree of intrusion into the construction of our Budget before it is presented to Parliament. One of the most difficult aspects is that far from our having a need for much less European economic governance, we are having more. As we move further forward and become more absorbed into this arrangement, we have to ask what is actually happening in the EU itself. As one of the other national European scrutiny committee chairmen said to Mr Van Rompuy when I was in Brussels the other day, “Will the European Union go bankrupt if we refuse to obey your rules?” Other member states are beginning to get the message, which is why I think Mr Van Rompuy issued that assault on Euroscepticism throughout Europe. He is getting the message that people in national Parliaments are not prepared to accept, for example, the fact that their economies have failed because of the EU’s refusal to deregulate and repatriate. I mention in brief the Deputy Prime Minister’s remarks on that subject, because he clearly stated that there would be no repatriation, despite what my right hon. Friend the Prime Minister asserted in his speech to the Centre for Policy Studies in 2005.

We need to generate enterprise for small and medium-sized businesses. There is the failure of the Lisbon agenda, massive unemployment, of more than 20% in some countries, riots, protests and a sense of failure, despair and democratic hopelessness. This is reflected—

[Mr Speaker]

Order. The hon. Gentleman is straying very considerably wide of the matters under discussion. I know that he is a sensitive fellow and will be aware of the significant number of other Members who wish to contribute, so I feel sure that, in bringing his remarks to a fairly early close, he will focus on the matters that are before us, rather than those that are not.

[Mr Cash]

I entirely accept that and will bring my remarks immediately to a conclusion.

Rules and regulations will not turn the European Union into a thriving economy with which we trade. It is said that 50% of our trade is with the European Union, and that the proposals before us are necessary to achieve stability in the European Union. The crucial point is that, underneath all those rules and regulations and the determination to achieve European economic governance, we are going the wrong way, not the right way. The measures do affect us. We need more enterprise, more small businesses, more deregulation and repatriation. I am not surprised, therefore that in a recent opinion poll 80% of people said that they wanted the repatriation of powers from the European Union.

We are being more and more absorbed by a failed European Union. Under this coalition, roadblocks are being put up to prevent us from sorting that out, and the new surveillance framework is part of the problem, not the solution. I shall vote against the motion.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. I intend to call the Minister to wind up the debate no later than 6.31 pm, and I am sure that that will be borne in mind.

Finance (No.2) Bill

John Bercow Excerpts

Monday 8th November 2010 Commons Chamber

[Mr David Hanson (Delyn) (Lab)]

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

[Mr Speaker]

With this it will be convenient to discuss

New schedule 2—Video Game Production—

1 After section 1216 of CTA 2009, insert—

Part 15A

Video Game Production

Chapter 1

Introduction

Introductory

1216A Overview of Part

‘(1) This Part is about video game production.

(2) Sections 1216B to 1216G contain definitions and other provisions about interpretation that apply for the purposes of this Part. See, in particular, section 1216C which explains how a company comes to be treated as the video game production company in relation to a video game.

(3) Chapter 2 is about the taxation of the activities of a video game production company and includes—

(a) provision for the company’s activities in relation to its video game to be treated as a separate trade, and

(b) provision about the calculation of the profits and losses of that trade.

(4) Chapter 3 is about relief (called “video game tax relief”) which can be given to a video game production company by way of additional deductions to be made in calculating the profits or losses of the company’s separate trade.

(5) Chapter 4 is about the relief which can be given for losses made by a video game production company in its separate trade including provision for certain such losses to be transferred to other separate trades.

(6) Chapter 5 provides—

(a) for relief under Chapters 3 and 4 to be given on a provisional basis, and

(b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met.

Interpretation

1216B “Video Game” etc

‘(1) This section applies for the purposes of this Part.

(2) “Video Game” includes a game played by electronically manipulating images produced by a computer program on a display screen.

(3) A video game is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be distributed to the general public.

1216C “Video game production company”

‘(1) For the purposes of this Part “video game production company” is to be read in accordance with this section.

(2) There cannot be more than one video game production company in relation to a video game.

(3) A company that (otherwise than in partnership)—

(a) is responsible—

(i) for design, programming and production of the video game, and

(ii) for delivery of the completed video game,

(b) is actively engaged in production planning and decision-making during design and programming, and

(c) directly negotiates, contracts and pays for rights, goods and services in relation to the video game,

is the video game production company in relation to the video game.

(4) If there is more than one company meeting the description in subsection (3), the company that is most directly engaged in the activities referred to in that subsection is the video game production company in relation to the video game.

(5) If there is no company meeting the description in subsection (3), there is no video game production company in relation to the video game.

(6) A company may elect to be regarded as a company which does not meet the description in subsection (3).

(7) The election—

(a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and

(b) may be withdrawn by the company only by amending its company tax return for that accounting period.

(8) The election has effect in relation to video games which commence design in that or any subsequent accounting period.

1216D “Video game-making activities” etc

‘(1) In this Part “video game-making activities”, in relation to a video game, means the activities involved in design, programming and production of the video game.

(2) The Treasury may make regulations to—

(a) amend subsection (1),

(b) provide that specified activities are or are not to be regarded as video game-making activities or as video game-making activities of a particular description, and

(c) provide that, in relation to a specified description of video game, references to video game-making activities of a particular description are to be read as references to such activities as may be specified.

“Specified” means specified in the regulations.

1216E “Production expenditure”, “core expenditure” and “limited-budget video game”

‘(1) In this Part, in relation to a video game— “production expenditure” means expenditure on video game-making activities in connection with the video game, and “core expenditure” means the total costs that relate specifically to the producing and developing of the video game up to the point of commercial release.

(2) For the purposes of this Part a “limited-budget video game” is a video game whose core expenditure is £3 million or less.

(3) In determining if a video game is a limited-budget video game, any core expenditure that—

(a) is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

(b) might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length, is treated as having been of an amount equal to the arm’s length amount.

1216F “UK expenditure” etc

‘(1) In this Part “UK expenditure”, in relation to a video game, means expenditure on goods or services that are used or consumed in the United Kingdom.

(2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis.

(3) The Treasury may by regulations amend subsection (1).

1216G “Company tax return”

In this Part “company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1)).

Chapter 2

Taxation of Activities of Video Game Production Company

Separate video game trade

1216H Activities of video game production company treated as a separate trade

‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.

(2) The company’s activities in relation to the video game are treated as a trade separate from any other activities of the company (including any activities in relation to any other video game).

(3) In this Chapter the separate trade is called “the separate video game trade”.

(4) The company is treated as beginning to carry on the separate video game trade—

(a) when design begins, or

(b) if earlier, when any income from the video game is received by the company.

1216I Calculation of profits or losses of separate video game trade

‘(1) This section applies for the purpose of calculating the profits or losses of the separate video game trade.

(2) For the first period of account the following are brought into account—

(a) as a debit, the costs of the video game incurred (and represented in work done) to date, and

(b) as a credit, the proportion of the estimated total income from the video game treated as earned at the end of that period.

(3) For subsequent periods of account the following are brought into account—

(a) as a debit, the difference between the amount of the costs of the video game incurred (and represented in work done) to date and the corresponding amount for the previous period, and

(b) as a credit, the difference between the proportion of the estimated total income from the video game treated as earned at the end of that period and the corresponding amount for the previous period.

(4) The proportion of the estimated total income treated as earned at the end of a period of account is given by— C / T x I where— C is the total to date of costs incurred (and represented in work done), T is the estimated total cost of the video game, and I is the estimated total income from the video game.

Supplementary

1216J Income from the video game

‘(1) References in this Chapter to income from the video game are to any receipts by the company in connection with the making or exploitation of the video game.

(2) This includes—

(a) receipts from the sale of the video game or rights in it,

(b) royalties or other payments for use of the video game or aspects of it (for example, characters or music),

(c) payments for rights to produce games or other merchandise, and

(d) receipts by the company by way of a profit share agreement.

(3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature.

1216K Costs of the video game

‘(1) References in this Chapter to the costs of the video game are to expenditure incurred by the company on—

(a) video game-making activities in connection with the video game, or

(b) activities with a view to exploiting the video game.

(2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade.

(3) Expenditure that (apart from this subsection) would be regarded as of a capital nature only because it is incurred on the creation of an asset (the video game) is treated as being of a revenue nature.

1216L When costs are taken to be incurred

‘(1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress.

(2) Accordingly—

(a) payments in advance of work to be done are ignored until the work has been carried out, and

(b) deferred payments are recognised to the extent that the work is represented in the state of completion.

(3) The costs incurred on the video game are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.

(4) If an obligation is linked to income being earned from the video game, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account.

1216M Pre-trading expenditure

‘(1) This section applies if, before the company began to carry on the separate video game trade, it incurred expenditure on development of the video game.

(2) The expenditure may be treated as expenditure of the separate video game trade and as if incurred immediately after the company began to carry on that trade.

(3) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.

(4) Any amendment or assessment necessary to give effect to subsection (3) may be made despite any limitation on the time within which an amendment or assessment may normally be made.

1216N Estimates

Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances.

Chapter 3

Video Game Tax Relief

Introductory

1216O Availability and overview of video game tax relief

‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.

(2) Relief under this Chapter (“video game tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the video game—

(a) section 1216P (intended for commercial release),

(b) section 1216Q (British video game), and

(c) section 1216R (UK expenditure).

(3) Video game tax relief is given by way of additional deductions (see sections 1216S and 1216T).

(4) Section 1216U contains provision about unpaid costs and artificially inflated claims.

(5) In this Chapter “the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H).

(6) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for video game tax relief.

Conditions of relief

1216P Intended commercial release

‘(1) The video game must be intended for commercial release.

(2) For this purpose—

(a) “commercial release” means distribution to the paying public, and

(b) a video game is not regarded as intended for commercial release unless it is intended that a significant proportion of the earnings from the video game should be obtained by such distribution.

(3) Whether this condition is met is determined for each accounting period of the company during which video game-making activities are carried on in relation to the video game, in accordance with the following rules.

(4) If at the end of an accounting period the video game is intended for commercial release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

(5) If at the end of an accounting period the video game is not intended for commercial release, the condition—

(a) is treated as having been not met throughout that period, and

(b) cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.

1216Q British video game

‘(1) Subject to subsection (2), a video game is a British video game for the purposes of this Part if it achieves a minimum of 19 points out of a maximum of 37 from the following table, with a minimum of 9 points being obtained in sections A and B:

[Mr Hanson]

As the House will be aware, my hon. Friend the Member for Wallasey (Ms Eagle) referred on Second Reading to the fact that we want to bring forward a provision on tax relief in order to help to support the video games industry. Although, undoubtedly, new clause 1 would not do that in every respect, I want to put it before the House, so that we can have an in-principle debate about video game industry tax relief. The new clause provides an opportunity for the House to consider enhanced relief based on UK expenditure on video game production.

The new clause suggests that we might consider qualified tax relief for the video game industry, and that it should be based on strict criteria: the video game must be for commercial release; it must be a British video game, assessed on the basis of a points system; and it must meet a 25% UK expenditure threshold, whereby 25% of the total expenditure on the production and development of the video game is UK expenditure on goods or services. We intended to look at that issue, and I would have tabled a much more detailed new clause, but the advice was that we could not. I hope that I have, however, tabled sufficient proposed changes for the Government to consider bringing back at a future date, or supporting the principle of, tax relief for this vital sector in the United Kingdom.

The video games industry is a real success story for British industry, and we look to support it in detail. As I am sure that the Minister is aware, research from TIGA, which represents the gaming industry, shows that over a five-year period games tax relief could create or save about 3,500 graduate-level jobs, secure £450 million-plus in new and saved development expenditure, and generate about £415 million in new and saved tax relief. I hope that it would do so in a way that ensures that the cost to the Treasury amounts to about £192 million over five years, which would be more than paid for by the jobs and investment, and encouragement to the industry, that that would develop in due course.

My hon. Friends the Members for Dundee West (Jim McGovern), for Liverpool, Wavertree (Luciana Berger) and for West Bromwich East (Mr Watson) have been very vocal in supporting such a tax relief. I hope that the Minister will consider it in principle, so that we can begin to develop a cross-party consensus in due course.

Economic Governance (EU)

John Bercow Excerpts

Wednesday 27th October 2010 Commons Chamber

[Mr William Cash (Stone) (Con)]

(Urgent Question): I have an urgent question for the Prime Minister, which is being answered in the name of the Chancellor of the Exchequer, as to what negotiating position the Government intend to adopt on the conclusion of the taskforce on strengthening economic governance in the European Union that was presented to the European Council on 21 October with the claim that the endorsement—[Interruption.]

[Mr Speaker]

Order. First, I appeal to right hon. and hon. Members who are leaving the Chamber to do so quickly and quietly. Secondly, may I say to the hon. Member for Stone (Mr Cash), who has 26 years’ experience in the House, that this is not the point at which he is supposed to dilate? He will have his opportunity. He has said what the substance of the matter is, and we look forward to the Minister responding.

[Mr Cash]

rose—

[Mr Speaker]

Order. The hon. Gentleman must not get too excited: he will have his opportunity. I have granted him his chance, and he should not worry: we will come to him in due course.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I am very grateful for the opportunity to update the House on the conclusion of the taskforce on strengthening the economic governance of the European Union, and to report on the UK’s position on the taskforce. In particular, I wish to restate that the UK is exempt from the current and future sanctions regime.

Heads of State and Heads of Government commissioned the President of the European Council, Herman Van Rompuy, to produce a report on EU economic governance and report back to the October Economic Council. Mr Van Rompuy chaired a taskforce meeting consisting of EU Finance Ministers, and the Chancellor represented the UK on the taskforce. The report has been agreed by the taskforce, and the European Council is expected to endorse it tomorrow. Copies of the report, along with the Chancellor’s submission to the taskforce, have been placed in the Library of the House this morning.

The report concludes that the EU should take steps to reinforce fiscal discipline and that the euro area in particular must face tougher surveillance of its fiscal policies, with sanctions for non-compliance with the pact where appropriate. It also recommends measures to improve EU-level co-ordination of macro-economic policies. That will ensure that any harmful macro-economic imbalances between member states can be identified and corrective action taken. Finally, the report notes that there should be a permanent crisis resolution mechanism for the euro area. The UK supports its conclusions.

A strong and stable euro area is firmly in the UK’s own economic interests, given the high level of UK exports to those countries and our close economic ties. In the years before the crisis, fiscal discipline was absent, and not just in states in the eurozone. High levels of debt have exacerbated the problems that some member states face during the economic downturn. The taskforce recommends that there should be greater focus on member states’ public debt levels in future, and the Government agree with that approach.

I am pleased to note that the report explicitly states that sanctions cannot be applied to the UK under the stability and growth pact. Domestic fiscal frameworks play a crucial role in ensuring that member states act responsibly. EU surveillance is useful, but as the House knows, national Parliaments and national institutions must hold Governments to account for their economic and budgetary policies.

Let us be absolutely clear: yes, we want to see a strong and stable eurozone. That is in our interests just as much as those of our neighbours. The UK has led the way on economic governance. Multi-year budgets and independent statistics and forecasting have already been introduced, and we have a clear fiscal mandate to eliminate our structural deficit. We are leading the eurozone, and our high standards have already received international endorsement. We will examine any proposals to help the eurozone overcome its problems.

However, as the Prime Minister has just said, we will not agree to any changes to EU treaties that move more powers from this country to the EU. The UK’s exemption from the sanctions proposal will be explicit, and there will be no shift of sovereignty from Westminster to Brussels. The report makes that clear, agreeing that

“strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty”.

While we are looking at problems in the EU, I should like to say that we have serious concerns about the proposed size of the 2011 EU budget. I was shocked to see that on the day of the spending review, the vast majority of Labour MEPs voted against a freeze in the EU budget. When countries across Europe are taking tough decisions to put their public finances in order, it would be wrong—unjust, even—to have a 6% rise in next year’s EU budget, as has been suggested. We cannot accept that and will fight it hard. We are protecting British interests in the EU and doing what is right for our country and our people, and the Prime Minister will update the House next week.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. I would remind the House that if I am to accommodate a reasonable number of colleagues within the very limited time frame available, brevity in both questions and answers is essential.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

Can the Minister confirm that even if the proposed treaty concerns only and exclusively the member states of the eurozone, it would still require the support of the British Government to go ahead? Can he assure me that that support will not be given without obtaining concessions in return, such as the return of powers to this country that were unnecessarily given? Can he assure me that we will not give that support without demanding a price? This is the ideal opportunity to obtain that price.

--- Later in debate ---

[Mr Hoban]

The coalition is at its best when all Members are united behind it.

[Mr Speaker]

I reserve judgment at this stage as to whether the expression “duff over” constitutes parliamentary language, but the hon. Member for Wellingborough (Mr Bone) has got away with it on this occasion.

Savings Accounts and Health in Pregnancy Grant Bill

John Bercow Excerpts

Tuesday 26th October 2010 Commons Chamber

[Sarah Newton]

You are making a very powerful speech for us this evening, and I completely agree with you about the importance of savings and of encouraging a savings culture. However, I am rather disappointed by the glib response to my hon. Friend the Member for South Staffordshire (Gavin Williamson), who asked how Labour Members would pay for those benefits. Every time that question is raised, Labour Members say that we should tax the rich. What calculation has the hon. Gentleman made of the effect of increasing taxes to 70%, 80% or 90%? Is that where you would like to go? And what estimation—

[Mr Speaker]

Order. I gently say to the hon. Lady, first, that I am not going anywhere—the debate goes through the Chair—and, secondly, that interventions from now on must be short, because there is a lot of pressure on time and several hon. Members want to contribute.

[Alex Cunningham]

I have never had a problem with taxing the rich a little bit more. If that means a penny on income tax, I would be fine with it, although I do not know what encouragement I would get from my Front Benchers.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

There is no formal time limit on Back-Bench speeches in this debate, but it might help the House if I mention that no fewer than nine hon. Members—all, as it happens, on the Opposition side of the House—are seeking to catch my eye. The Front-Bench winding-up speeches will begin no later than 9.40 pm. I know that hon. Members can do the arithmetic for themselves and I am sure that they will want to help each other.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. We have just over 40 minutes, and I still have seven names on my list.

--- Later in debate ---

[Catherine McKinnell]

Am I the last speaker?

[Mr Speaker]

Yes.

[Catherine McKinnell]

In that case, I will give way.

Comprehensive Spending Review

John Bercow Excerpts

Wednesday 20th October 2010 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

Today is the day when Britain steps back from the brink and when we confront the bills from a decade of debt; a day of rebuilding, when we set out a four-year plan to put our public services and welfare state on a sustainable footing for the long term, so that they can do their job of providing for families, protecting the vulnerable and underpinning a competitive economy. It is a hard road, but it leads to a better future.

We are going to bring the years of ever-rising borrowing to an end. We are going to ensure, like every solvent household in the country, that what we buy we can afford, that the bills we incur we have the income to meet and that we do not saddle our children with the interest on the interest on the interest on the debts that we were not prepared ourselves to pay.

Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices, and today we make them. Investment in the future, rather than the bills of past failure: that is our choice. We have chosen to spend on the country’s most important priorities: the health care of our people; the education of our young; our nation’s security; and the infrastructure that supports our economic growth. We have chosen to cut the waste and reform the welfare system that our country can no longer afford.

This is the context of this spending review. We have, at £109 billion, the largest structural budget deficit in Europe—this at a time when the whole world is concerned about high deficits and our economic stability depends on allaying those concerns. We are paying at the rate of £120 million a day, £43 billion a year in debt interest—this at a time when we all know that the money would far better serve the needs of our own citizens than those of the foreign creditors we borrow from. We have inherited from the previous Government plans—if one can call them that—that envisaged our national debt ratio still rising in the year 2014. Not a single penny of savings had been identified. Indeed, they were plans that envisaged the Chancellor of the Exchequer standing here in 2014, presenting a spending review that still had years of cutting public spending ahead of it. That is why, last year, the International Monetary Fund warned this country that it had to accelerate the reduction in the deficit. That is why the OECD, the Governor of the Bank of England and the CBI all agreed with the IMF.

The action we have taken since May has taken Britain out of the financial danger zone. The immediate reductions to in-year spending have bought us a breathing space in the sovereign debt storm. The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts. I can confirm to the House that the OBR and its new chair, Robert Chote, have audited all the annually managed expenditure savings in today’s statement.

The emergency Budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near-record lows, our country’s credit rating was reaffirmed and the IMF went from issuing warnings to calling our Budget essential. Now we must implement some of the key decisions required by that Budget. To back down now and abandon our plans would be the road to economic ruin. We will stick to the course, we will secure our country’s stability and we will not take Britain back to the brink of bankruptcy.

In the Budget, I set out the tax increases we were prepared to make, including on capital gains at the higher rate, pensions relief on the largest contributions and, for the first time, a permanent levy on banks. We also had to increase value added tax, where, fortunately, we were able to benefit from the preparatory work in the Treasury of the previous Government. I made it clear that spending reductions rather than tax rises needed to make up the bulk of the consolidation. That is what the leading international evidence suggests works best. So I set out spending totals for the coming years and announced some £11 billion of welfare savings that would help to achieve them. I also set out a new fiscal mandate for the public finances to eliminate the structural deficit by balancing the cyclically adjusted current Budget over five years by 2015-16. We set a target of national debt falling as a proportion of national income by that same year. We explained how, for reasons of caution, we will achieve both these objectives a year earlier, in 2014-15.

I can confirm that the spending plans I set out today achieve a balanced structural current Budget and falling national debt on the same timetable. I can further confirm that the current spending totals I set out in the Budget for each of the next four years are the same as the current spending totals I set out today. They have not changed. Next year, current expenditure will be £651 billion, then £665 billion the year after and £679 billion the year after that, before reaching £693 billion in 2014-15. The House will note that current spending is rising, not falling, over that period. That is partly because, even with the measures we take today, debt interest payments continue to grow in these years. Debt interest payments will reach £63 billion in 2014-15—it takes time to turn around the debt supertanker—but I can now report to the House that against the plans we inherited, one of the departments which suffers the greatest cut today, and at the steepest rate, is the department for debt interest. Debt interest payments will be lowered by £1 billion in 2012, then by £1.8 billion in 2013 and by £3 billion in 2014—a total of £5 billion over the course of the spending review, which is equivalent to 16 new hospitals or the annual salaries of 100,000 teachers.

At the Budget, I also set out my plans for capital spending over the next four years. I can tell the House that capital spending will be at £51 billion next year, then £49 billion, then £46 billion and at £47 billion in 2014-15. This is about £2 billion a year higher than I set out in the Budget. Given the contractual obligations we inherited from the last Government, doing anything else would have meant cutting projects that would clearly enhance the economic infrastructure of this country. This has no direct impact on whether we meet the fiscal mandate or the year in which the debt ratio starts falling. So, total public expenditure—capital and current—over the coming years will be £702 billion next year, then £713 billion, then £724 billion and £740 billion in 2014-15. In real terms, public spending will be at the same level as in 2008. Our public services and our welfare system will be put on a sustainable long-term footing and we will make sure that the financial catastrophe that happened under the previous Government never, ever happens again.

Let me now turn to the spending decisions and the three principles that we propose to apply to the choices that we have made. First, on reform, in every area where we make savings, we must leave no stone unturned in our search for waste, and we must deliver the changes necessary to make our public services fit for the modern age.

Secondly, on fairness, we are all in this together and all must make a contribution. Fairness means creating a welfare system that helps the vulnerable, supports people into work and is affordable for the working families who pay for it from their taxes. Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden; those with the most should pay the most, and that includes our banks.

Thirdly, on growth, when money is short, we should ruthlessly prioritise those areas of public spending that are the most likely to support economic growth, including investments in our transport and green energy infrastructure, our science base and the skills and education of our citizens.

Let me explain now how those principles have guided our specific decisions. First, on reform, I believe that the public sector needs to change to support the aspirations and expectations of today’s population, rather than the aspirations and expectations of the 1950s, so the spending review is underpinned by a far-reaching programme of public service reform. We saw over the last decade that more money without reform was a recipe for failure; less money without reform would be worse, and we are not prepared to accept that, so we have begun by squeezing every last penny that we can find out of waste and administration costs.

Our ambition in this review was to find £3 billion of savings from the administrative budgets of central Government Departments. With the help of the Green review and the work done by my right hon. Friend the Minister for the Cabinet Office and Paymaster General, I can tell the House that we have gone further than we thought possible in cutting back-office costs. Quangos will be abolished; services will be integrated; assets will be sold; and the administrative budget of every main Government Department will be cut by a third. The result is this: we promised £3 billion of Whitehall savings; we will deliver £6 billion.

Of course, there is a very understandable concern about the reduction in the total public sector head count that will result from the measures in the spending review. We believe that the best estimate remains the one set out by the independent Office for Budget Responsibility. It has forecast a reduction in the head count of 490,000 over the spending review period. Now let us be clear: that is over four years, not overnight, and much of it will be achieved through natural turnover, by leaving posts unfilled as they become vacant. Estimates suggest a turnover rate of over 8% in the public sector; but, yes, there will be some redundancies, and that is up to the decisions of individual employers in the public sector. That is unavoidable when the country has run out of money.

We feel responsible for every individual who works for the Government, and we will always do everything that we can to help them to find alternative work. In fact, in the last three months alone, this economy created 178,000 jobs. So we should remember that, unless we deal with this record budget deficit decisively, many more jobs will be in danger in both the private and the public sector.

The Cabinet Office and the Treasury will oversee the programme of Whitehall savings. Both Departments will lead by example. The core Cabinet Office budget will be reduced by £55 million by 2014-15. Additional allocations will be provided to fund electoral reform, support the big society projects, establish community organisers and launch the pilots for the national citizen service, which will give young people for the first time a right of passage to citizenship. In recognition of the challenges faced by the voluntary and community sector, I am establishing a one-year £100 million transition fund to help those facing real hardship. The Treasury will see its overall budget reduce by 33%, and we will share the Department’s enormously expensive private finance initiative building, which my predecessor but one signed up to, by moving part of the Cabinet Office into the same premises.

The Chancellor is also a royal trustee, and I want to say something briefly about the civil list. As I outlined in the Budget, the 10-year settlement expired this year, and no provision for a new settlement had been made when we entered office.

Her Majesty has graciously agreed to a one-year cash freeze in the civil list for next year. Going forward, she has also agreed that total royal household spending will fall by 14% in 2012-13, while grants to the household will be frozen in cash terms. In order to support the costs of the historic diamond jubilee, which the whole country is looking forward to celebrating, there will be a temporary additional facility of £1 million. After that, the royal household will receive a new sovereign support grant linked to a portion of the revenue of the Crown estate, so that my successors do not have to return to this issue as I often as I have had to.

Central to this review—[Interruption.]

[Mr Speaker]

Order. All this noise makes progress slower and saps time that would otherwise be available for Back Benchers to question the Chancellor. Apart from anything else, it is unfair and discourteous.

[Mr Osborne]

Central to this review is the reshaping of our public services. First, there needs to be a dramatic shift in the balance of power from the centre to the locality. A policy of rising burdens, regulations, targets, assessments and guidance has undermined local democracy and stifled innovation. We will completely reverse that. We will give GPs powers to buy local services, schools the freedom to reward good teachers, and communities the right to elect their police and crime commissioners.

Secondly, we should understand that all services paid for by the Government do not have to be delivered by the Government, so we will expand the use of personal budgets for special education needs, children with disabilities and long-term health conditions. We will use new payment mechanisms for prisons, probation and community health services, and we will encourage new providers in adult social care, early years and road management.

For local government, the deficit that we have inherited means an unavoidably challenging settlement. There will be overall savings of funding to councils of 7.1% a year for four years, but to help councils we propose a massive devolution of financial control. Today I confirm that the ring-fencing of all local government revenue grants will end from April next year. The only exception will be simplified schools grants and a public health grant. Outside of schools, police and the fire service, the number of separate core grants that go to local authorities will be reduced from over 90 to fewer than 10. Councils and their leaders will remain accountable, but they will no longer have to report on 4,700 local area agreement targets.

The local government settlement includes funding for next year’s council tax freeze to help families when their budgets are tight. We are also introducing tax increment finance powers, allowing councils to fund key projects by borrowing against future increases in locally collected business rates.

Some in local government have concerns about the financing of social care. I can announce that grant funding for social care will be increased by an additional £1 billion by the fourth year of the spending review, and a further £1 billion for social care will be provided through the NHS to support joint working with councils, so that elderly people do not continue to fall between the cracks of two different systems. That is a total of £2 billion of additional funding for social care to protect the most vulnerable.

We will also reform our social housing system, for it is currently failing to address the needs of the country. Over 10 years, more than 500,000 social rented properties were lost. Waiting lists have shot up, families have been unable to move, and, although a generation ago only one in 10 families in social housing had no one working, this had risen to one in three by 2008-09.

We will ensure that in future social housing is more flexible. The terms for existing social tenants and their rent levels will remain unchanged. New tenants will be offered intermediate rents at about 80% of the market rent. Alongside £4.4 billion of capital resources, this will enable us to build up to 150,000 new affordable homes over the next four years. We will continue to improve the existing housing stock through the decent homes programme, and we will reform the planning system so that we put local people in charge, reduce the burdens on house builders and encourage more homes to be built, with a new homes bonus.

Within an overall resource budget for the Department for Communities and Local Government which is being reduced to £1.1 billion over the period, priority will be given to protecting the disabled facilities grant. This will go alongside a £6 billion commitment over the four years to the supporting people programme, which provides help with housing costs for thousands of the most vulnerable people in our communities. In recognition of the important service provided by the fire and rescue service, we have decided to limit its budget reductions in return for substantial operational reform.

Let me turn now to reforms in our security and defence. Yesterday, my right hon. Friend the Prime Minister set out the conclusions of the strategic and defence review. He explained in detail how we will protect the British people, deliver on our international obligations and secure British influence around the world. This spending review provides the resources to do just that. The budget for the Ministry of Defence will reach £33.5 billion in 2014-15, a saving of 8% over the period. On top of this settlement, we will continue to provide out of the reserve the resources that our forces in Afghanistan require. As the Chancellor, I believe strongly that if we ask our brave servicemen and women to risk their lives on our behalf in active combat, then we will give them all the tools they need to finish the job.

Our international influence and commitment to the world are not determined only by our military capabilities; our diplomacy and development policy matter too. Savings of 24% in the Foreign and Commonwealth Office budget will be achieved over the review period by a sharp reduction in the number of Whitehall-based diplomats and back-office functions. There will be a focus on helping British companies win exports and secure jobs at home, and with the help of UKTI we will attract significant overseas investment to our shores.

I can also confirm that this coalition Government will be the first British Government in history, and we will be the first major country in the world, to honour the United Nations commitment on international aid. The Department for International Development’s budget will rise to £11.5 billion over the next four years. Overseas development will reach 0.7% of national income in 2013; this will halve the number of deaths caused by malaria and save the lives of 50,000 women in pregnancy and of 250,000 newborn babies.

Whether working behind the counter of a charity shop, volunteering abroad or contributing taxes to our aid budget, Britons can hold their heads up high and say, “Even in these difficult times, we will honour the promise that we made to some of the poorest people in our world.”

Our aid budget allows Britain to lead in the world. It may be protected from cuts, but it is not from scrutiny. I have agreed with my right hon. Friend the International Development Secretary a plan of reform that reduces administration costs to half the global donor average, ends the aid programmes that we inherited in China and Russia, focuses on conflict resolution and creates an independent commission to assess the impact of the money that we commit.

Let me now turn to security at home. Protecting the citizen is a primary duty of the Government. Our police put themselves in harm’s way to make the rest of us safe, and we owe them our gratitude. But no public service can be immune from reform. Her Majesty’s inspectorate of constabulary found in his recent report that significant savings could be made to police budgets without affecting the quality of front-line policing. Tom Winsor is leading a review of terms and conditions that will report on how the police service can manage its resources to serve the public even more cost-effectively.

Using independent forecasts for the precept, the settlement that I am proposing today will see police spending falling by 4% each year. By cutting costs and scrapping bureaucracy, we are saving hundreds of thousands of police man hours. Our aim is to avoid any reduction in the visibility and availability of police in our streets. Our new national security strategy judges terrorism to be one of the highest risks facing this country. Therefore I am prioritising counter-terrorism over the review period, both in the Home Office budget and the single intelligence account. We have been assured that this will maintain our operational capabilities against both al-Qaeda and its affiliates and against Northern Irish terrorist threats. This will enable us to meet the terrorist threat and to protect the Olympic games in 2012.

Overall, the Home Office budget will find savings of an average of 6% a year. The Ministry of Justice’s budget will reach £7 billion by the end of the four-year period, with an average saving of 6% a year. A Green Paper will set out proposals to reform sentencing, intervene earlier to give treatment to mentally ill offenders and use voluntary and private providers to reduce reoffending. Some £1.3 billion of capital will also be provided over the period to maintain the existing prison estate and fund essential new-build projects, but plans for a new 1,500-place prison will be deferred.

The Law Officers’ Department will reduce its budget by a total of 24% over the period, with the Crown Prosecution Service greatly reducing its inflated cost base. Reforms will also be required to streamline the criminal justice system, close underused courts and reduce the legal aid bill. We do need fair access to justice but provided at a fair cost for the taxpayer.

All the reform that I have spoken of—to Whitehall and the way services are provided, to local government and to our defence, security and justice system—will improve both value for money for taxpayers and the service provided to the public. Next month, each Government Department will publish a business plan setting out its reform plans for the next four years, so that their priorities are clear and the public can hold them to account.

Reform is one of the guiding principles of this spending review—and so, too, is fairness. Let us be clear: there is nothing fair about running huge budget deficits and burdening future generations with the debts that we ourselves are not prepared to pay. How ironic that it was the last Labour Prime Minister himself who once observed that

“Public finances must be sustainable over the long term. If they are not then it is the poor…that will suffer most.”—[Official Report, 2 July 1997; Vol. 297, c. 304.]—

not that he is here in the Chamber today. That is why we are restoring order to our public finances before that is allowed to happen.

A fair Government deal with the deficit decisively, and that is what we are going to do. A fair Government make sure that those with the broadest shoulders bear the greatest burden. The distributional analysis published today shows that those on the highest incomes will contribute more towards this entire fiscal consolidation, not just in cash terms but also as a proportion of their income and consumption of public services combined.

I completely understand the public’s anger that the banks, which were so appallingly regulated over the last decade, and whose near-collapse wrought such damage to our economy, should now be contemplating paying high bonuses. We are overhauling the system of regulation that we inherited, so that the Bank of England, with its clout and reputation, is put in charge. We have set up the Independent Commission on Banking to look at the structure of the industry, and next year we will receive its report.

Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward. We neither want to let banks off making their fair contribution, nor do we want to drive them abroad. Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services.

Our aim will be to extract the maximum sustainable tax revenues from financial services. We will assess what those maximum revenues could be—not just in one year, but over a period of years. We have already decided, in the face of opposition from the previous Government, to introduce a permanent levy on banks. The legislation will be published tomorrow. Once fully effective, the permanent levy will raise more net each year and every year for the Exchequer than the one-year bonus tax did last year. I note that the previous Chancellor now admits that that failed to curb behaviour and was not sustainable.

However, that is not enough. We want the banks to pay not just by the letter of the tax law, but by its spirit. A year ago, the previous Government announced in a fanfare that they would require banks to sign up to the code of practice on taxation. I have asked the Revenue how many of our leading 15 banks actually signed up. The answer is four—four out of 15. That is what happened when they were in office—all talk and no action.

I have instructed the Revenue to work with the banking sector to ensure that the remaining banks have implemented the code of practice by the end of next month. We will also address the situation under the last Government where the gap between the taxes owed and the taxes paid grew considerably. So in this spending review, while the HMRC budget will be expected to find resource savings of 15% through the better use of new technology, greater efficiency and better IT contracts, we will be spending £900 million more on targeting tax evasion and fraud. This additional £900 million is expected to help us collect a missing £7 billion in tax revenues. Nor will fraud in the welfare system be tolerated any more. We estimate that £5 billion a year is being lost in this way—£5 billion that others have to work long hours to pay in their taxes. This week we published our plans to step up the fight to catch benefit cheats and deploy uncompromising penalties when they are caught.

That brings me to the wider welfare budget. A civilised country provides for families, protects the most vulnerable, helps those who look for work, and supports those in retirement. That is why one of the first acts of this coalition Government was to re-link the basic state pension to earnings and guarantee a rise each year by earnings, inflation or 2.5%. Never again will those who worked hard all their lives be insulted with a state pension increase of just 75p. But this guarantee of a decent income in retirement has to be paid for at a time when people are living much longer than anyone predicted. We should celebrate that fact, but also confront it. Lord Turner’s report on pensions, commissioned by the last Government, acknowledged that a more generous state pension had to be funded by an increase in the pension age. Even since its publication, life expectancy has risen further than it predicted.

Before the summer, we launched a review on increasing the state pension age, and that review has now concluded. As a result, I can announce today that the state pension age for men and women will reach 66 by 2020. This will involve a gradual increase in the state pension age from 65 to 66, starting in 2018, and it will mean an acceleration of the increase in the female pension age already under way since this April. From 2016, the rate of increase will be three months in every four rather than the current plan of one month in every two. Raising the state pension age is what many, many countries are now doing, and will by the end of the next Parliament save over £5 billion a year—money that will be used to provide a more generous basic state pension as we manage demographic pressures.

Earlier this month, we also received the interim report from John Hutton’s public service pensions commission. I am sure that the whole House will want to thank John Hutton for his excellent and independent piece of work. I welcome his findings. I hope that it will form the basis of a new deal that balances the legitimate expectations of hard-working public servants for a decent income in retirement with the equally legitimate demands of hard-working taxpayers that they do not pay unfairly for it.

I think that the elements of this new pension deal are clear. We should accept that public service pensions continue to provide a form of defined benefit and that there is no race to the bottom of pension provision. We want public service pensions to be a gold standard. At the same time, we should accept that they must be affordable. When these public service pension schemes were established in the 1950s, taxpayers made half the contributions; today, they make up two thirds of the contributions, and the unfunded bill is set to rise to £33 billion by 2015-16.

We should accept, as John Hutton does, that there has to be an increase in employee contributions, although I also agree with him that this should be staggered and progressive. That means that the lower-paid—and those in the armed forces—are protected, and the highest-paid public servants, who get the largest benefits, pay the highest contributions. We will await the full commission report next spring before coming to any conclusions on the exact nature of the defined benefit and the progressive contribution rise. We will also launch a consultation on the fair deal policy, as he recommends, but we will now carry out, as the interim report suggests, a full public consultation on the appropriate discount rate used to set contributions to these pensions. From the perspective of filling the hole in the public finances, we will seek changes that deliver an additional £1.8 billion of savings per year in the cost of public service pensions by 2014-15, over and above the plans left to us by the last Government.

It is also clear that the current final salary pension terms for MPs are not sustainable, and we anticipate that the current scheme will have to end. We will make a further statement following the publication of Lord Hutton’s findings.

The welfare system is also there to help people of working age when they lose their job, have a disability, start a family and need help with low pay. But the truth, as everyone knows, is that the welfare system is failing many millions of our fellow citizens. People find themselves trapped in an incomprehensible out-of-work benefit system for their entire lifetime because it simply does not pay to work. This robs them of their aspirations and opportunities, and it costs the rest of the country a fortune. Welfare spending now accounts for one third of all public spending. Benefit bills soared by 45% under the previous Government. In some cases, the benefit bill of a single out-of-work family has amounted to the tax bills of 16 working families put together. This is totally unsustainable and unfair. The last Government promised reform and flunked it: we will deliver.

My right hon. Friend the Work and Pensions Secretary is setting out proposals, with my support, to replace all working-age benefits and tax credits with a single, simple universal credit. The guiding rule will be this: it will always pay to work. Those who get work will be better off than those who do not. This represents the greatest reform to our welfare state for a generation. It will be introduced over the next two Parliaments at a pace that ensures that we get this right. I have set aside over this spending review more than £2 billion of resources to make this happen, and it will go alongside our new Work programme, which we are also funding today. Drawing on the skills of the voluntary sector and private providers, the Work programme will provide intensive help for those looking for work and support for those who could look for work but currently lack the confidence or the skills to try.

The Department for Work and Pensions will make savings to help to deliver these schemes by increasing the use of digital applications and reducing overheads. But we will also be seeking substantial savings from the rest of the £200 billion benefit bill, on top of those already identified in the Budget. As I said in June, the more we could save on welfare costs, the more we could continue other, more productive areas of Government spending. And in the massive public consultation we conducted over the summer, the overwhelming message we received was that the British people think it is fair to reform and reduce welfare bills in order to protect important public services.

So today I announce these further welfare savings. We will time limit contributory employment and support allowance for those in the work-related activity group to one year. This is double the length of time that applies to contributory jobseeker’s allowance. We will increase the age threshold for the shared-room rate in housing benefit from 25 to 35, so that housing benefit rules reflect the housing expectations of people of a similar age not on benefits. We will give local authorities greater flexibility to manage council tax, together with direct control over council tax benefit, within an overall budget that will be reduced by 10% from April 2013.

We will align the rules for the mobility and care elements of disability living allowance paid to people in residential care, generating savings but enabling us to continue with this important benefit. We will freeze the maximum savings credit award in pension credit for four years, thereby limiting the spread of means-testing up the income distribution.

We will further control the cost of tax credits by freezing the basic and 30-hour elements for three years; we will change the working tax credit eligibility rules so that couples with children must work 24 hours per week between them; and we will return the child care element of the working tax credit to its previous 70% level. We will also introduce a new cap on benefits. No family that does not work will receive more in benefits than the average family that does go out to work. That is tough, but fair. Of course, those in receipt of disability living allowance, working tax credit or the war widow’s pension will be excluded.

Taken together, all these welfare measures I have outlined will save the country £7 billion a year. But we want to ensure that low-income families with children are protected from the adverse effects of these essential savings—because this Government are committed to ending child poverty. I can announce today that I am increasing the child element of the child tax credit by a further £30 in 2011-12 and £50 in 2012-13 above indexation. This will mean annual increases of £180 and then £110 above the level promised by the last Government, and it will provide support to 4 million lower-income families. And I can confirm that using the same model we inherited, the spending review will have no measurable impact on child poverty over the next two years, while we await the conclusions of the report by the right hon. Member for Birkenhead (Mr Field).

Let me now turn to the universal benefits. I have taken the difficult decision to remove child benefit from families with a higher rate taxpayer. I wish it were otherwise, but I simply cannot ask those watching this earning just £15,000 or £30,000 a year to go on paying the child benefit of those earning £50,000 or £100,000 a year. The debts of the last Labour Government, and the need to ensure that the better-off in society also make a fair contribution, make this choice unavoidable. It also means that no further changes to child benefit are required. Child benefit will continue to be paid in the normal way to the great majority of the population from birth until a child leaves full-time education at the age of 18 or even 19. We can afford to do that because, according to the latest independent estimates we have received from the Office for Budget Responsibility, removing child benefit from higher rate taxpayers will actually save Britain £2.5 billion a year.

We will also keep the universal benefits for pensioners, in recognition of the fact that many have worked hard and saved hard all their lives. Free eye tests, free prescription charges, free bus passes, free TV licences for the over-75s and winter fuel payments will remain exactly as budgeted for by the previous Government, as promised. I am also turning the temporary increase in the cold weather payments introduced by the last Government into a permanent increase. In my view, higher cold weather payments should be for life, not just for general elections.

So, too, are the promises that we make on the national health service. The NHS is an intrinsic part of the fabric of our country. It is the embodiment of a fair society. This coalition Government made a commitment to protect the NHS and increase health spending every year. Today we honour that commitment in full. Total health spending will rise each year over and above inflation. This year we are spending £104 billion on health care, capital and current combined. By the end of four years we will be spending £114 billion. We can afford that, in part because of the decisions on welfare that I have just announced, and also because we have made tough decisions in other parts of the Government budget. But to govern is to choose, and we have chosen the national health service.

That does not mean that we are letting the Department of Health off the need to drive real reform and savings from waste and inefficiency. Productivity in the health service fell steadily over the past 10 years, and that must not continue. By 2014 we are aiming to save up to £20 billion a year by demanding better value for money—but the money we save will be reinvested in our nation’s health care.

As the independent forecasts we published in the Budget show, we need to make those savings to deal with our ageing population and the rising costs of new medical treatments, but there are also new services we can offer. A new cancer drug fund will be provided, spending on health research will be protected, and we will prioritise work on the treatment of dementia. We will expand access to psychological therapies for the young, the elderly and those with mental illness. We will fund new hospital schemes, including the St Helier, the Royal Oldham and the West Cumberland.

For health spending, as for other spending announcements, there will be consequential allocations for Scotland, Wales and Northern Ireland. The Barnett formula will be applied in the usual way, which means that the increase in health spending and the relative protection of education spending will feed through to the devolved resource budget. It means that all three nations will actually see cash rises in their budget, although rises below the rate of inflation. For Scotland the resource budget will rise to £25.4 billion in 2014-15. For Wales it will rise to £13.5 billion, and for Northern Ireland to £9.5 billion. In Scotland we are proceeding with the implementation of the Calman reforms. In Wales we will consider with the Assembly Government the proposals in the final Holtham report, consistent with the Calman work being undertaken in Scotland.

In Northern Ireland, the collapse of the Presbyterian Mutual Society has caused great hardship, and people have been left without their money for far too long. I confirm today that we will provide the Northern Ireland Executive with £25 million in cash and a £175 million loan to help those who have lost their life savings.

We will also help those across the United Kingdom who have lost money as a result of the collapse of Equitable Life. For 10 years the Equitable Life policyholders have fought for justice. For 10 years the last Government dithered, delayed and denied them that justice. It is time to right the wrong done to many thousands of people who did the right thing, saved for their future and tried not to depend on the state, and then were the innocent victims of a terrible failure of regulation.

So let me make it clear: I accept the findings of the parliamentary ombudsman in full. I have read the advice of Sir John Chadwick and I thank him for it, but I do not agree with the level of compensation that his analysis suggested. I agree with the ombudsman that the relative loss suffered is the difference between what policyholders actually received from their policies and what they would have received elsewhere. The parliamentary ombudsman herself recognised that a balance had to be struck between being fair to policyholders and being fair to taxpayers, particularly when many budgets and benefits are being cut. But money that we pay out has to come from general public expenditure. I have decided that the fair amount to pay out in total is in the region of £1.5 billion, two thirds of which will be found in this spending review period. Those who had with-profits annuities were particularly hard hit, as they were retired and were unable to move their savings elsewhere. As a result, the Government will cover the cost of the total relative loss suffered by those deserving people. The scheme will start making payments next year.

Those measures, and our welfare reforms, mean that it will always pay to work; the benefits savings will help us protect key public services such as the national health service; and there is help for those who have saved and lost everything. These are fair decisions, consistent with the second principle of this spending review.

The third and final principle centres on growth and promoting a private sector recovery. By restoring macro-economic stability we have brought certainty to business, and by cutting business taxes we are giving businesses the freedom to compete. Today’s review builds on those steps, because even when money is short we should prioritise the areas of public spending that are most likely to support economic growth. That is what we are doing with the Department for Business, Innovation and Skills. Administration will be cut by £400 million, 24 quangos will go, lower-priority programmes such as Train to Gain will be abolished, and adult learners and employers will to have contribute more to further education. But that means that today I can announce the largest ever financial investment in adult apprenticeships—an increase of more than 50% on the previous Government’s provision, helping 75,000 new apprentices a year by the end of this spending review period.

We will maintain and invest in the post office network and protect community post offices. We will come forward with our detailed response to Lord Browne’s report on higher education funding and student finance, including our plans to provide financial support to encourage those from the poorest households to stay in education. Our universities are the jewels in our economic crown, and it is clear that if we want to keep our place near the top of the world league tables, we need to reform our system of funding and reject—as, to be fair, many Opposition Members do—the unworkable idea of a pure graduate tax. Clearly, better-off graduates will have to pay more, which will enable us to reduce considerably the contribution that general taxpayers have to make to the education of those who will probably end up earning much more than them.

Overall, annual savings of 7.1% will be found from the budget of the Department for Business, Innovation and Skills—the minimum it was asked to find. Within those savings, however, the Secretary of State and I have decided to protect the science budget. Britain is a world leader in scientific research, and that is vital to our future economic success. That is why I am proposing that we do not cut the cash going to the science budget. It will be protected at £4.6 billion a year. Building on the Wakeham review of science spending, we have found that within the science budget, significant savings of £324 million can be found through efficiency. If they are implemented, with this relatively protected settlement I am confident that our country’s scientific output can increase over the next four years.

We will also invest £220 million in the UK Centre for Medical Research and Innovation at St Pancras, and fund the molecular biology lab in Cambridge, the Institute for Animal Health in Pirbright and the diamond synchrotron in Oxford.

Research and technological innovation will help us with one of the greatest scientific challenges of our times—climate change—and support new jobs in low- carbon industries. So today, even in these straitened times, we commit public capital funding of up to £1 billion to one of the world’s first commercial-scale carbon capture and storage demonstration projects. We will also invest more than £200 million in developing offshore wind technology at port sites.

Yesterday protesters scaled the Treasury, urging us to proceed with their idea for a green investment bank. That is the first time anyone has protested in favour of a bank—but we will go ahead. I have set aside in the spending review £1 billion of funding for that bank, but I hope that much more will be raised from the private sector and the proceeds of future Government asset sales.

The aim of all those investments is for Britain to be a leader of the new green economy, creating jobs, saving energy costs and reducing carbon emissions. We will also introduce incentives to help families reduce their bills. We will introduce a funded renewable heat incentive, and our green deal will encourage home energy efficiency at no up-front cost to homeowners, allowing us to phase out the Warm Front programme.

Overall, the total resource settlement for the Department of Energy and Climate Change will fall by an average 5% a year, but there will be a large increase in capital spending, partly to meet the unavoidable commitments that we have been left on nuclear decommissioning.

The Department for Environment, Food and Rural Affairs will deliver resource savings of an average 8% a year, but we will fund a major improvement in our flood defences and coastal erosion management that will provide better protection for 145,000 homes.

Britain’s arts, heritage and sport all have enormous value in their own right, but our rich and varied cultural life is also one of our country’s greatest economic assets. The resource budget for the Department for Culture, Media and Sport will come down to £1.1 billion by 2014-15. Administrative costs are being reduced by 41% and 19 quangos will be abolished or reformed. All that is being done so that we can limit four-year reductions to 15% in core programmes such as our national museums, the front-line funding provided to our arts and Sport England’s whole sport plans. We will complete the new world-class building extensions for the Tate Gallery and the British Museum. The Secretary of State will provide details of further projects shortly. I can also announce today that, in order for our nation’s culture and heritage to remain available to all, we will continue to fund free entry to museums and galleries. There is also ongoing provision of the £9.3 billion of public funding for a safe and successful Olympic and Paralympic games in London in 2012.

We have approached the BBC to ensure that it, too, makes its contribution, as a publicly funded organisation, to savings during the spending review. I am pleased to confirm that this week we have struck a deal. The BBC will take from the Government the responsibility for funding the BBC World Service and BBC Monitor, as well as part-funding S4C. That amounts to some £340 million of savings a year for the Exchequer by 2014-15.

To ensure that the cost of those new obligations is not passed on to the licence fee payer, the BBC has agreed a funding deal for the full duration of its charter review. The licence fee will be frozen for the next six years. That deal helps almost every family, and is equivalent to a 16% saving in the BBC budget over the period, similar to the savings in other major cultural institutions.

The BBC has also agreed to reduce its online spend and make no further encroachments into local media markets in order to protect local newspapers and independent local radio and TV. It will contribute to the £530 million that we will spend over the next four years in bringing superfast broadband to rural parts of our country that the private sector will take longer to reach. Pilots will go ahead in the Highlands and Islands, North Yorkshire, Cumbria and Herefordshire. All that will help encourage the growth of our creative industries as a key part of the new economy that we are seeking to build.

After our defence requirements are met, the Department for Transport will receive the largest capital settlement. Over the next four years we will invest more than £30 billion in transport projects—more than was invested during the past four years. Of that, £14 billion will fund maintenance and investment in our railways. Direct bus subsidies will be reduced, but statutory concessionary fares will remain.

The cap on regulated rail fares will rise to RPI plus 3% for the three years from 2012, but that will help this country afford new rolling stock as well as improve passenger conditions. The Secretary of State will set out how more of the transport money will be allocated next week.

However, I want to tell the House today about some of the projects that will go ahead. For let us remember that, even after the tough spending settlements, the country will still be spending more than £700 billion a year. In Yorkshire and Humber, capacity on the M62 will be expanded, £90 million will be spent on improving rail platforms across various towns and cities, and we will also improve line speeds across the Pennines. In the north-east £500 million will be spent on refurbishing the Tyne and Wear metro and the Tees valley bus network. In the north-west we will invest in rail electrification between Manchester, Liverpool, Preston and Blackpool, and we will provide funding for a new suspension bridge over the Mersey at Runcorn.

Rail and roads in Scotland are devolved to the Scottish Executive, and roads in Wales are also devolved, but I can tell the House that major rail investments around Cardiff, Barry and Newport will go ahead.

In the east midlands the M1 and the A46 will be improved. In the west midlands we will extend the Midland metro and completely redevelop Birmingham New Street station. In the south-west we will fund improvements on the M5 and the M4, and the new transport scheme for Weymouth. In the east of England, colleagues will be delighted to know, the A11 to Norwich will be upgraded. Around London, we will widen the M25 between 10 different junctions and complete improvements to the A3 at Hindhead.

In London, on top of the Olympics, a major investment in our capital city’s transport infrastructure will take place. Crossrail will go ahead and key tube lines will be upgraded for the 21st century.

That is nothing like the complete list, because next week, we will set out more details. So, yes, we are saving money and putting the state on a more sustainable footing, but even then, we will spend tens of billions of pounds on Britain’s future infrastructure. Next week the Secretary of State will also set out our national infrastructure plan, so that private money is put to work in building for this country the economic infrastructure that our businesses need. Our regional growth fund will also help us do that. As promised, £1 billion has been found for the fund over the next two years—money designed to lever in private investment in areas of our country where it has been too absent over the past decade. I can announce today that I am providing close to half a billion pounds extra in the third year for the regional growth fund.

Long-term investment in the capacity of our transport, our science and our green energy will all help move Britain from its decade-long dependence on one sector of the economy in one part of the country, and the ruin to which that has led.

The most important ingredient of a 21st-century economy is well-educated children, who believe in themselves and aspire to a better life, whatever their background or disadvantages. In June, after the Budget, when the Chief Secretary to the Treasury and I turned our attention to how to allocate spending between Departments, we set ourselves a goal. We wanted to see if it was possible, even when spending was being cut, to find more resources for our schools and for the early years education of our children. I can tell the House that we have succeeded. It has meant other Departments taking bigger cuts, but I believe strongly that that is the right choice for our country’s future.

There will be a real increase in the money for schools, not just next year or the year after, as the previous Government once promised, but for each of the next four years. The schools budget will rise from £35 billion to £39 billion. Even as pupil numbers greatly increase, we will ensure that the cash funding per pupil does not fall. We will also sweep away all the different ways in which money is ring-fenced so that schools can decide how to spend their money as they think best.

We will also introduce a new £2.5 billion pupil premium, which supports the education of disadvantaged children and will provide a real incentive for good schools to take pupils from poorer backgrounds. That pupil premium is at the heart of the coalition agreement, and at the heart of our commitment to reform, fairness and economic growth.

Parents, teachers and community groups will be supported if they wish to establish free schools. We will fund an increase in places for 16 to 19-year-olds, and raise the participation age to 18 by the end of the Parliament. That enables us to replace education maintenance allowances with more targeted support.

We will also provide support for the early years of our children. The increased entitlement to 15 hours a week free education for all three and four-year-olds that was introduced under this Government will continue. Sure Start services will be protected in cash terms and the programme will be focused on its original purpose. We will help them further by introducing for the very first time 15 free hours of early education and care for all disadvantaged two-year-olds, so that those children have a chance in life and are ready like the rest of their classmates for school.

Overall, the Department for Education will be required to find resource savings of only 1% a year. Central administration will be cut by a third and five quangos will go. The capital budget will, as we know, have to bear its share of the reductions, but as the House knows, we have had to phase out the hopelessly inefficient and over-committed Building Schools for the Future programme. However, £15.8 billion will be spent to maintain the school estate and to rebuild and refurbish 600 schools. I repeat: the resource money for schools—the money that goes into the classroom—on the broadest definition, including all the main grants, will go up in real terms every year. That is a real investment in the future of our children and in the future growth of our economy too.

Let me conclude. The decisions we have taken today bring sanity to our public finances and stability to our economy. We have dealt decisively with the largest budget deficit this House of Commons has ever had to face outside of wartime. We have had to make choices—choices about the things we support—and today I have announced real increases in the NHS budget and the resources of schools, as well as new investment in the infrastructure of our economy. I have announced real reductions in waste and reforms to welfare and although that will reshape public services to meet the challenges of this time, I think it is the right choice.

I have one final observation. During the process of this spending review, I have received many submissions, including one from the Labour party. It said that the average cut for unprotected Departments should be set at 20% over the coming four years, rather than the 25% that I anticipated in my June Budget. I have examined that proposal carefully and consulted the published documents of my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), and because of our tough but fair decisions to reform welfare and the savings that we have made on debt interest, I am pleased to tell the House that that has been possible. The average savings in departmental budgets will be lower than the previous Government implied in their March Budget. Instead of cuts of 20%, there will be cuts of 19% over the four years, so I thank the Opposition for their support and input and look forward to their votes.

This coalition Government faced the worst economic inheritance in modern history. The debts we were left with threatened every job and public service in the country, but we have put the national interest first. We have made the tough choices. We have protected health and schools and investment in growth, and we have reformed welfare and cut waste. We have made sure that we are all in this together, and we have taken our country back from the brink of bankruptcy. A stronger Britain starts here, and I commend this statement to the House. [Interruption.]

[Mr Speaker]

Order. I call Alan Johnson.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Mr Speaker—[Interruption.]

[Mr Speaker]

Order. The House needs to calm down. It is getting a little over-excited and there is a long way to go.

[Alan Johnson]

Mr Speaker, we remember well the cheers at the end of the emergency Budget in June, when the Chancellor finished on a peroration about his Budget being progressive and fair. It took the Institute for Fiscal Studies only 48 hours to show that it was totally unfair, and that the burden of the emergency Budget fell two and half times more on the poorest than on the richest. We have seen today hon. Members cheering the deepest cuts to public spending in living memory. For some Government Members, that is their ideological objective—[Interruption.] Not all of them, but for many, that is what they came into politics for—[Interruption.]

[Mr Speaker]

Order. Ms Bray, you are getting quite over-excited. You must calm yourself—and remain calm. It is in your interest and the House’s interest.

[Alan Johnson]

Today is the day that abstract figures and spreadsheets turn into people’s futures, people’s jobs, people’s pensions, people’s services and their prospects for the future, and the day when the statistics that were nestling comfortably in the lap of the Chief Secretary yesterday actually become the uncomfortable truth for many people and families throughout this country.

We hear the chant on every occasion, but Government Members are deficit deceivers. They have peddled a whole series of myths to the British public. The most incredible myth of all is that the biggest global economic crisis since the great depression is the fault of the previous Government—[Interruption.] You see? The strings are pulled and away they go.

The Chancellor said that the Government have brought Britain back from the brink of bankruptcy. Perhaps he will confirm three facts. Fact No. 1: when the global crisis hit, the UK had the second-lowest debt of any G7 country. Fact No. 2: the previous Government inherited a debt interest level of 10p in every £1 of tax received, and even after a world recession, we bequeathed a figure that was 15% lower. Fact No. 3: the interest rates that the UK pays on its debt have been falling since the beginning of the year. Perhaps the Chancellor, in the interests of accuracy, can confirm those statistics.

When the last comprehensive spending review took place in 2007, the Chancellor was the shadow Chancellor. Was he calling for reduced public spending? Read the Hansard. Was he calling for regulation of the banking industry? I have two things to say about 2007. I have read his contribution to the debate. First, instead of arguing for reduced public spending, he argued that we were spending too little. He complained that we were slowing the growth in health and education expenditure. Indeed, the Conservative party supported every penny of our spending plans until well after the collapse of Lehman Brothers in America, which set off the disastrous chain reaction that caused the global recession.

In 2007, far from calling for regulation of the banks, the Conservatives were calling for deregulation of the banks. The right hon. Member for Wokingham (Mr Redwood) produced a report on behalf of the then Leader of the Opposition who had called for greater regulation of the banking industry. We need to get the facts right.

The Chancellor described his emergency Budget in June as being unavoidable and fair. We know that it was unfair, because the IFS produced the statistics with devastating and forensic accuracy a few hours later, and we also know that it was avoidable. The deficit has to be paid down—[Hon. Members: “Ah!”] Here they go again. The Chief Whip’s spreadsheet tells them when to stand up and what to say. Where is he? He does not need to move to have influence on his Back Benchers. So we do need to bring the deficit down.

Today’s reckless gamble with people’s livelihoods runs the risk of stifling the fragile recovery. The ridiculous analogy with credit card debts insults the intelligence of the British public. If countries around the world had not run up debts—that is what the fiscal deficit is, by the way—to sustain their economies, people would have lost not their credit cards, but lost their jobs, lost their houses and lost their savings. The Liberal Democrats know that, and they argued that when seeking the support of the electorate. The Deputy Prime Minister argued that, and then he discovered Greece. In the period between the ballot box closing and his ministerial car door opening, the Deputy Prime Minister discovered a different approach.

Like us, the Liberal Democrats—every single one of them—were elected to this House on a platform that said, in the context of reducing the deficit, that speed kills. The Chancellor repeats a long list of those who support his swift cuts; he mentions it all the time. Curiously, he failed to mention the other countries in the United Kingdom—Scotland, Wales and Northern Ireland—which do not support these measures. Perhaps that is why he calls himself a one-nation Tory. Here is another supportive quotation that he missed out, and he can take this down and use it in future briefings:

“The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD. They have also won the approval of the international markets.”

That was the Irish Minister of Finance last December, when he told the Irish Parliament that his austerity plan meant that they had turned the corner. Four months later, they slid back into recession.

The concerns of those watching this announcement today went beyond the misrepresentation of figures and the clever Punch and Judy stuff in which we all engage—including myself at times. They will be interested in whether they will stay in work, whether they will stay in their homes and whether they will stay safe on the streets. We are told that the expected job losses from this spending review—and the Chancellor confirmed it—will be some 490,000. PricewaterhouseCoopers reported last week that 1 million jobs were at stake because the impact on the private sector is just as severe. Is it not the case that at the same time as the Government are throwing people out of work, they are reducing the support to help people return to the workplace?

I applaud the ideas and the efforts of the Secretary of State for Work and Pensions to do what we were seeking to do and make work pay—[Interruption.] He often gives credit to what we did when we were in government. The fact is, however, that today’s proposals will make it harder for people to return to work because of the changes to working tax credit; because of the changes to support for working parents; and because of the huge increase in fares for those who have to travel to get the jobs. The Secretary of State has had his job made harder by today’s announcement.

On housing, the Chancellor has announced the retreat of central Government from any role in building new affordable homes. Can he tell the House how many jobs will be lost in the construction sector as a result of his decision to all but end capital funding for house building? Crime has fallen dramatically in the last 13 years. I heard what the Chancellor said about the report from Her Majesty’s inspectorate of constabulary, but the Home Office is not a protected Department. As it deals with counter-terrorism and policing, the public will be worried that they will lose more police on the streets.

Spending has to be reduced—[Interruption.] Yes, spending has to be reduced, but the front-line services on which people rely must be protected. We support moves to ring-fence the health budget—[Hon. Members: “Ah!”] The point about the health service is not that its budgets will be protected, it is the taking of £2 billion to £3 billion out of those budgets to pay for a top-down structural reorganisation that the Conservatives told the public in their manifesto would not happen. This is the top-down reorganisation to end all top-down reorganisations, and we are already seeing the loss of jobs in the NHS as a result.

On education, the Chancellor mentioned that the pupil premium would be funded. There are stories already about teachers and teaching assistants losing their jobs as a result of today’s announcement. We will have to look at the statistics carefully, including the small print, before we can see what is happening on education. The Chancellor said that they will keep a version of education maintenance allowance. That is good, because it has been the biggest single contributor to lifting the number of children from poorer homes who stay in education—and it was introduced by the Labour Government. He told us that it will be introduced in some form, but he did not say how. Nor did he say what effect the removal of ring fences will have on Sure Start, which is crucially important to ensuring that we have a more progressive society.

On the NHS, we believe that the real-terms increase will be more than swallowed by the cost of the reorganisation. It would be good if the Chancellor could confirm that the baseline for the NHS will exactly reflect its actual budget this year. It seems to us from the statistics that there may be some smoke and mirrors.

Without growth, the job of getting the deficit down becomes impossible. A rising dole queue means a bigger welfare bill and less tax coming in—a cost of at least half a billion pounds for every 100,000 people thrown out of work by the Government’s approach. To get the deficit down, the starting point must be jobs, jobs, jobs. That remains the core of the difference between us and the Government. We were told that the Ministry of Justice will see 14,000 jobs cut. Does the Chancellor agree with the Department’s assessment that the vast majority of those—11,000—will be from the front line? Can he confirm that £230 million of taxpayers’ funds have been earmarked for redundancy costs in that Department alone? What is the total scale of redundancies expected across the public sector? What will the total redundancy bill be? Thanks to the Chief Secretary’s gaffe yesterday, we know that the Treasury has provided the Chancellor with estimates: he should share them with the House. Can the Chancellor confirm that the poorest will still bear a greater burden than the richest, with the middle squeezed even further, and that women will shoulder three quarters of the cuts? Does he still claim that these measures are progressive and fair?

There is an alternative approach. The Chancellor finished by suggesting that their cuts were the same as ours—[Hon. Members: “Less.”] Less than ours? That is even more utter and complete nonsense, for two reasons. First, the Conservatives calculated the 20% figure by some very dodgy formulae that stretched the limit of credibility for the protected Departments. Secondly, the Chancellor has not caught up with the fact that we have listed a series of measures with which we agree—for instance, the increase in capital gains tax and the changes to welfare. The Chancellor has not caught up with the statements that we have made about the welfare bill. We will look at the further measures that the Chancellor has announced today, but if we take the statements that we have made into account, we came into this debate with departmental cuts half the level of those that the Government are proposing.

This spending review is not about economic necessity; it is about political choices. The Chancellor argues that Labour would have done nothing about the deficit; he goes on to say that his cuts are no worse than ours. He cannot have it both ways. He cannot be right in both arguments, although he does manage to be wrong on both counts. The difference between us is that the Government are removing almost twice as much from Department budgets, while we were looking for a much more gradual, much slower reduction, which would not stifle the very low levels of growth in our economy. It is our firm belief that the rush to cut the deficit endangers the recovery and reduces the prospects for employment in the short term and for prosperity in the longer term. We believe that we can and should sustain a more gradual reduction, securing growth. I do not believe that the Chancellor or the Prime Minister sufficiently understands the worries and concerns of families up and down this country. Those worries will have multiplied considerably as a result of the Chancellor’s statement today.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. A very large number of right hon. and hon. Members are seeking to catch my eye, and I would like to accommodate as many of them as possible. I therefore issue my usual exhortation to brevity with particular force. Single supplementary questions, please, and economical replies from the Chancellor of the Exchequer.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

In cutting the deficit, why did the Chancellor ignore the economic growth dividend, which could yield at least £60 billion in extra Government tax revenues over the next five years? Why did he not tax at all the 1% super-rich, whose wealth has quadrupled over the past decade? And why did he not introduce a major public sector, as well as private sector, jobs and growth programme, which could most effectively cut benefit payments and increase tax revenues?

--- Later in debate ---

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

The shadow Chancellor, although very good at the jokes, demonstrated in his response his confusion about the difference between fiscal and structural deficit. I wondered whether the Chancellor could help by explaining that difference to him.

[Mr Speaker]

Order. I do not think that we will go with that. With respect, Members must get into the habit of asking questions about the policy of the Government, not about advice to shadow Ministers. Let us get that straight.

[Mr Jack Straw (Blackburn) (Lab)]

The Chancellor of the Exchequer failed to answer the question put by my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) about the extraordinary 11,000 reduction in the number of front-line probation and prison staff in the Ministry of Justice. Will the Chancellor confirm that this runs completely counter to what the Prime Minister said on 2 May about protecting front-line services, and that, even worse, it can only be a grave gamble with the security and safety of the British public and will eat away at the very successful fight against crime?

--- Later in debate ---

[Ms Louise Bagshawe (Corby) (Con)]

Does my right hon. Friend share my joy at the shadow Chancellor’s admission that the deficit must be reduced, and my mystification that he is apparently so bereft of ideas that today he sent an e-mail asking for “Answers on a postcard, please”?

[Mr Speaker]

Order. I must ask for a very brief reply. I hope that the message will be received.

[Mr Osborne]

I agree with my hon. Friend.

--- Later in debate ---

[Mr Speaker]

Order. This statement can run for only a few more minutes, so some people will be disappointed, but I reiterate the appeal for short questions. Help yourself and help others in the process.

[Natascha Engel (North East Derbyshire) (Lab)]

The Chancellor has announced a cut of 490,000 jobs in the public sector. Whichever way he slices it, that still means that even after four years and even if it is down to natural wastage there will be 490,000 jobs in the public sector that are lost to the economy. He also wants to move people off benefit and into work to save on the welfare budget. How does he make this add up? Where are the jobs coming from that the people who are now on welfare—

[Mr Speaker]

Order. We are grateful, but I think we have the thrust of it.

[Mr Osborne]

First, to put it in context, close to 200,000 jobs have been created in the last three months. Secondly, the Labour party’s plans involved a head-count reduction of more than 400,000. It was accepted by Labour politicians during the election that there would be a head-count reduction and that there would be redundancies. This is what happens when a country loses control of its public finances. If we had been better managed over recent years—if the people doing my job before me had managed to avoid this record budget deficit, which is the largest in the G20—[Interruption.] Opposition Members keep saying that this is all to do with the international situation. They have not yet managed to explain to me why we were the worst affected in that international situation. We have to take some difficult decisions, but it will help if private sector recovery helps to create jobs. The number that the hon. Lady keeps using is a number from an independent body—the Office for Budget Responsibility—that she presumably regards as credible, since she is quoting it, but the OBR also forecast falling unemployment over the period. She cannot really use one forecast from the body and not the other.

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. I am sorry to disappoint colleagues, but we have had a marathon session. I am grateful to the Chancellor and colleagues for their co-operation, but we must move on.

Draft EU Budget 2011

John Bercow Excerpts

Wednesday 13th October 2010 Commons Chamber

[Justine Greening]

I will not pre-empt where we will be for the financial framework, but my hon. Friend is right to point out that this debate is incredibly important because it sets out the context for that next financial framework—

[Mr Speaker]

Order. I understand that the Minister is looking backwards in the direction of her hon. Friend who intervened, but perhaps she could look towards the House.

[Justine Greening]

So, my hon. Friend is right to raise that issue.

In conclusion—

--- Later in debate ---

[Mr Philip Hollobone (Kettering) (Con)]

On a point of order, Mr Speaker. My hon. Friend the Minister said that the amendment in the name of my hon. Friend the Member for Clacton (Mr Carswell) would commit the Government to an illegal act. Am I right in saying that any amendment accepted by the House for debate is in order and that it would be quite improper for any amendment to commit Her Majesty’s Government to anything illegal? Were not the Minister’s remarks a matter of debate rather than a statement of fact?

[Mr Speaker]

I am very grateful to the hon. Member for Kettering (Mr Hollobone) for his point of order. Certainly, from my reading of amendment (b), I am not aware of any exhortation to illegality. The hon. Gentleman will understand, and the House will appreciate, that it is not for me to become enmeshed in an argument between hon. Members as to the merits or demerits of a particular amendment. What I can say to the hon. Gentleman, whose concern for propriety is unsurpassed in any part of the House, is quite simply that the amendment is not improper. If it were improper, I would not have selected it; it is perfectly proper. On the subject of propriety, therefore, he and others need have no cause whatever for concern. I hope that is helpful to the House.

--- Later in debate ---

[Mr Cash]

rose—

[Mr Speaker]

Order. May I gently say, with reference to the right hon. Gentleman’s intervention, and as an encouragement and a cautionary note to the hon. Member for Stone (Mr Cash), that I know the hon. Gentleman’s response will very much focus on matters relating to the European budget?

[Mr Cash]

It will, indeed. I shall make no response to that absurd intervention.

We must achieve our objectives, which are not only to prevent any increase in the budget, but to reduce it. I say that to my hon. Friends as one who, I think, can undoubtedly claim to have fought these battles relentlessly, persistently and consistently for the best part of 25 years—and, if I may say so, with some degree of success in establishing the parameters within which we are now able to address the European issue. In a moment I shall mention what happened at the European Scrutiny Committee this afternoon, merely to illustrate the progress that we have already made in the few weeks that I have had the honour of being the Committee’s Chairman. The whole process has to be conducted in an effective and orderly manner. Otherwise, it plays into the hands of those such as the right hon. Member for Rotherham (Mr MacShane), who want to pretend that somehow there is no justification for our adopting the position that we need to adopt. Tortuous and tedious as it is, the most important thing is to get it right. We have to get the blocking minority if we want to move from wanting to stop the increase to achieving the reduction that follows from it. Let us be responsible about this.

I do not have the slightest objection to the sentiments that lie behind the other amendment. It bothers me, however, that we have two amendments that appear to compete with one another, but in fact convey the same ideas, yet one is orderly while the other is disorderly. I leave it at that; it is for my hon. Friends to judge.

Oral Answers to Questions

John Bercow Excerpts

Tuesday 12th October 2010 Commons Chamber

[Kerry McCarthy (Bristol East) (Lab)]

I am afraid that the answers that the Minister is giving are simply not good enough. Can he explain the logic behind the child benefit proposal, if there is any? Why is the assessment not being made on household income rather than just on the highest earner’s income? Will it apply to a cohabiting high earner or just to married couples, and why will there be a phenomenally high marginal deduction rate? Is it not true that this is just another “back of a fag packet” policy that the Government have not thought through at all?

[Mr Speaker]

There were four questions there, but one answer will do.

[Mr Gauke]

I congratulate the hon. Lady on her appointment to her shadow ministerial position, but I point out what her former colleague Alan Milburn has said:

“In times of plenty, giving child benefit to high earners is a luxury the country can afford; in times of want I don’t think it is. We would be wrong to oppose it. I can’t see it having an adverse impact on social mobility.”

I know Alan Milburn belongs to the centre ground, but the Opposition really should not abandon it.

--- Later in debate ---

[Danny Alexander]

The answer is yes. Departments will be carrying out these assessments on their spending decisions, and I myself held a round-table meeting in the Treasury with a number of different organisations involved in the equalities area to ensure that we were considering all the relevant issues in the run-up to publishing the spending review.

[Mr Speaker]

Order. There is quite a lot of chuntering from sedentary positions, but I want to hear both the questions and the answers.

[Matthew Hancock (West Suffolk) (Con)]

Since the formation of a Government who are determined to deal with the deficit, market interest rates have in some cases halved. What impact does the Chancellor think that has had on both our GDP growth and the interest payments that we have to make on Government debt?

Equitable Life (Payments) Bill

John Bercow Excerpts

Tuesday 14th September 2010 Commons Chamber

[Mr Hoban]

Before Opposition Members get excited—[Interruption.]

[Mr Speaker]

Order. Let the Minister develop the point. He will give way when he is ready. There is much competition on that front.

[Mr Hoban]

Before Opposition Members get to their feet, they should think about what happened over the past decade. The bill for the taxpayer would have been much less if rather than waiting till now, the matter had been resolved under the last Government. They had 10 years to resolve it. Nothing happened until the present Government took power.