Changes to the Budget

Stephen Gilbert Excerpts

Monday 11th June 2012 Commons Chamber

[Stephen Gilbert (St Austell and Newquay) (LD)]

On behalf of the thousands of people who supply, make and sell the £180 million of Cornish pasties produced each year, and the millions of people throughout the country—including my hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke)—who enjoy eating them, may I say “Thank you” to the Minister? It is great that we finally have a Government who listen and do not plough on regardless.

[Mr Gauke]

I am grateful for the constructive way in which my hon. Friend and other Cornish Members have engaged in this process throughout.

Hot Takeaway Food (VAT)

Stephen Gilbert Excerpts

Wednesday 23rd May 2012 Westminster Hall

[Stephen Gilbert (St Austell and Newquay) (LD)]

It is a pleasure to serve under your chairmanship again, Mr Scott, and to welcome so many hon. Members. I place on the record my personal thanks to Mr Speaker for allowing the debate, which was originally slated for the day of Prorogation and so fell from the order of business. I am grateful to Mr Speaker for allowing it to take place today instead.

There is much to welcome in the Budget announced by my right hon. Friend the Chancellor, particularly the lifting of more than 2 million of the lowest paid out of paying income tax and the additional tax burden placed on those fortunate enough to be among the wealthiest in our society. However, I would not be doing my job as a Member of Parliament if I welcomed only the good news from the coalition Government and turned a blind eye to Government proposals that had a significant negative impact on my constituents and the country. The proposals for the extension of VAT to hot food, and in particular how they relate to baked goods, fall into that category.

I am, however, grateful to the Minister and to other colleagues in Government for the constructive way in which they have handled this issue and the concerns raised by me, my hon. Friends and the industry. I found them willing to listen and receptive to alternative solutions. It is surely in the best tradition of Government to recognise that none of us has a monopoly on wisdom. Their constructive engagement with me and others has been welcome.

I support the overall aims of the Government. It is right to seek to simplify the application of VAT rules on hot food, to close anomalies that have been exploited by supermarkets and others and raise revenue from those flouting the rules, to help tackle the national deficit and create a level playing field as between bakeries and other sellers of hot food, such as fish and chips. However, we have to do so in a way that actually creates simplicity, is enforceable by Her Majesty’s Revenue and Customs, is deliverable by businesses across the country, and, crucially, is understandable for consumers. The effect of the Government’s current proposals on the baking industry fall short in all four of those tests.

I would like to set out the practical problems and concerns with the Government’s proposals, and the likely economic impact on the baking sector if the proposals are not altered, and then present an alternative way forward that I hope will achieve the Government’s aims without any negative impact. I am not proposing, however tempting it is, to stand here and argue for an exemption for the Cornish pasty or the baking industry. I want to set out a framework that delivers the Government’s intention of consistency and simplicity.

I am delighted to have the support of my hon. Friends the Members for St Ives (Andrew George), for North Cornwall (Dan Rogerson), for Truro and Falmouth (Sarah Newton), for South East Cornwall (Sheryll Murray), and for Camborne and Redruth (George Eustice), and that of many other hon. Members from across the House and the country, including an alliance, however unlikely, with Devon.

It is understandable that the Government should seek to move away from the current situation in respect of VAT on hot food, where the basis of the test rests on the intention of the supplier. That is subjective, and has led to considerable inconsistency of application. In recent years, a plethora of case law tribunals have established significant anomalies—for example, two hours for zero-rated food, a position exploited by supermarkets in particular.

In place of that subjective and contestable test of intention, the Government’s proposals attempt to move towards a more precise test that centres on ambient air temperature, but that simply replaces one set of anomalies with another when it comes to baked products—pasties, sausage rolls, meat and potato pies and all the other savoury staples in our high street. There is little doubt that the ambient air temperature test will become the subject of significant dispute between bakeries and HMRC, with the potential for litigation. Why is that? The ambient air temperature is constantly changing. As the temperature of a naturally cooling baked product is also constantly changing, it raises the possibility of a pasty or pie at the same temperature being subject to different VAT rules in different parts of the country at the same moment. That is clearly a nonsensical position that will cause considerable difficulties in establishing a consistent ambient air temperature for every bakery in the country, a duty unlikely to be welcomed by HMRC. It will place an additional difficulty for the businesses concerned in deciding when to charge the customer VAT.

The proposed changes would be open to challenge in terms of legal certainty, and could tie up the industry and the Government in the courts for some time. The changes are contrary to the stated intention of the consultation—to simplify current rules and reduce uncertainty and costs for both businesses and HMRC. The ambient air temperature has already been found wanting by the courts. In the Court of Appeal, during the Pimblett case in 1988, Lord Justice Parker said:

“The test is a precise one. It involves a remarkable result that frozen food would be regarded as hot if the ambient temperature was one degree lower than freezing. A praiseworthy attempt to produce precision does not, in this instance, appear to me to have advanced clarity one whit”.

To an extent, that view seems to be shared by colleagues in the Treasury. In my discussions with them, it seems that the Government’s intention is not even to enforce the letter of the proposed rules, but to make a number of assumptions based on the quantity of each bakery’s products that should be standard-rated. That is untenable.

Any apportionment scheme cannot override the basic rules on supply, consideration and liability. That is even recognised in HMRC’s guidance. Any agreement based on the temperature of cooling products will be impossible, given the size and variation in bakeries and the fact that a reference point for ambient air temperature cannot be established.

There are a number of other practical difficulties for businesses. When do they issue a VAT receipt if requested to do so by customers? They will have to re-write till software systems and determine the price on which VAT would be charged, all set against the unworkable backdrop of legislation that will be prone to confusion and challenge.

Another issue relates to products sold on a seasonal basis—perhaps we can add mince pies to the list. At what point would HMRC agree with bakeries on the apportionment scheme for seasonal products such as mince pies? I doubt whether that would be able to be done in a timely way, and it shows that the Government’s tests are unworkable. If agreement on an apportionment scheme cannot be reached, the industry will have to fall back on legislation, which would be problematic at the very least.

The Government’s current proposals are unenforceable by HMRC and undeliverable by the industry. They will be confusing to customers and open to challenge in the courts.

[Andrew George (St Ives) (LD)]

My hon. Friend has ably demolished the Government’s primary claim that the measure is a means by which they can resolve an anomaly. The Treasury knows that wherever a line is drawn, even a new line, a new anomaly is created. Does my hon. Friend agree that under all Governments the Treasury tends to use sophistry when arguing that it is resolving an anomaly and that that is simply a way of increasing tax income?

[Stephen Gilbert]

My hon. Friend puts his finger on the Treasury’s intention, but I will demonstrate that the negative effects of the measure make it unlikely that any net additional revenue would be raised, when the damage to jobs, business rates and so on is taken on board. He is right to say that the Government expect to raise money from this measure—their impact assessment suggested that £50 million would be raised in the first year, rising to £120 million annually in subsequent years—but at what cost would that be to the baking industry in particular? I am afraid that it will cost jobs and investment in an industry that we want to see more of, not less, on our high streets.

[Julian Sturdy (York Outer) (Con)]

My hon. Friend is making a powerful argument. Surely there has been unfairness in the takeaway industry, with the fish and chip shop up against the supermarket selling hot chickens, as he has already mentioned. There has to be a clear definition of what constitutes takeaway food, because that is lacking at the moment.

[Stephen Gilbert]

I share my hon. Friend’s concern. There needs to be a level playing field. I shall say how I seek to achieve that for the Government, but with a simpler test. He is right to say that there is confusion between different takeaway outlets and types of takeaway food. That is also reflected in planning law, in which takeaways selling fish and chips are in a different category from bakeries.

It has been estimated that some 2,000 jobs throughout the UK are at risk and 300 bakeries on our high streets are at risk of closure. With the impact of the ongoing recession and the significant supply side inflation of recent years, the baking industry is unable to absorb the imposition of the standard rate of VAT, and price increases are inevitable. Research from YouGov shows clearly that this proposal is unpopular with the public—69% of people have said that they do not support it—and that is also demonstrated in a petition signed by more than 50,000 people, which hon. Friends and I gave recently to Downing street. That research also suggests that the measure will change people’s behaviour, with up to one in three people saying that they will stop buying baked savouries. Consumers being able easily to swap to cheaper zero-rated alternatives will impact on the entire supply chain, but with no net additional receipts to the Exchequer.

As I said, the National Association of Master Bakers estimates that some 2,000 jobs will be lost nationally, many hundreds in Cornwall. Bakeries will close on our high streets, creating more empty units at a time when, through the Portas review and other measures, the Government are seeking to boost the high street. The overall economic costs created will undermine any additional tax from the baking industry.

Cornwall Food and Drink estimates that at least 100 businesses in Cornwall contribute to the production of more than 170 million Cornish pasties each year. The total turnover of the industry is thought to be more than £280 million, double the estimates of 2005. It is a growing industry. At least 25% of the turnover is spent in the local economy; the industry is thought to be worth £72 million indirectly, with £15 million going to Cornish farmers.

Pasty production produces other socio-economic benefits as well as purely economic ones—supporting village shops in rural communities, for example. It is a vital part of the Cornish economy, which still languishes on European aid.

In 2011, the university of Exeter showed that keeping retail prices down while suffering strong increases in input costs, particularly fuel and other costs, would seriously affect margins in the Cornish food and drink sector. The industry is clear that it cannot afford to absorb the potential increase in VAT, which will be passed to consumers.

What does that mean for my constituents? The impact will be devastating. The producers, retailers and suppliers will lose more than £100 million a year, an estimated 1,100 jobs will be lost and scores of high street bakeries will close. These proposals come at a time when retailers, including food-to-go shops, have already been hit by an additional £350 million business rate bill this year and when the sector overall already contributes £5 billion a year in VAT—some 9% of the total VAT take—despite accounting for only 5% of gross domestic product. The British Retail Consortium tells us that consumer spending is falling and household incomes are shrinking.

Sadly, there is no evidence that HMRC has considered the impact on the cost of welfare payments resulting from job losses, the reduced amount of corporation tax that the Revenue will receive, the loss of income tax and national insurance revenue as a consequence of the bakery industry’s contracting, and the high street supply chain’s being hit, including the loss of business rate revenue to local authorities.

There is also the socio-economic consideration, pointed out by the Association of Convenience Stores, among others. This change will hit the least well off the most. The poorest households spend almost one fifth of their net household incomes on VAT, but the richest spend only 9%. The measure will compound that, hitting the lunch of hundreds of thousands of people throughout the country.

What is the alternative? The Cornish Pasty Association, the National Association of Master Bakers, Greggs, the West Cornwall Pasty Company and others have suggested in their responses to the Government’s consultation that we need to return to the original intention. VAT was first extended to hot takeaway food in 1984 by the then Chancellor of the Exchequer, Nigel Lawson, who said in his Budget speech:

“Most food is zero rated, but food served in restaurants is taxed, together with a miscellaneous range of items including ice cream, confectionery…Takeaway food clearly competes with other forms of catering, and I therefore intend to bring into tax hot take-away food and drinks”.—[Official Report, 13 March 1984; Vol. 56, c. 303.]

That relates to the point that my hon. Friend the Member for York Outer (Julian Sturdy) ably made about the need for a level playing field.

The then Chancellor elaborated that statement in a written response to the former Member of Parliament for Leeds South, Merlyn Rees:

“The VAT extension to hot take-away food which I announced in the Budget applies to food and drink which has been deliberately heated so that it can be consumed whilst still hot. It does not apply to food and drink which has cooled to room temperature by the time it is sold, or to things like pies and pasties which are sold warm because they happen to be freshly baked, and not to enable them to be consumed while still hot.”

I could not have put it better myself. That is the fundamental difference between a meal cooked to order in a fish and chip shop—or a curry or a pizza—and a baked product, which is simply hot as a result of its production, but cools naturally over time. The former Chancellor recognised that baked products are hot or warm by virtue of being baked, not because they are made to order and hot for consumption in the same way as curry or fish and chips are. His position has not been challenged by subsequent Governments and it is my view, and that of my hon. Friends, that it should be upheld while we seek to clarify the additional anomalies that have arisen since 1984.

To put it crudely, we can hit the £280 million rotisserie chicken business and provide the level playing field with fish and chips, but we must maintain the additional principle of food being hot at the time it is provided to the customer, recognising the differences that the former Chancellor recognised many years ago. The additional principle should be that baked goods are zero-rated, except where they are kept hot for consumption.

In short, we seek to amend the Government’s proposals to include the provision that VAT on baked goods should be charged only if they are kept in heated cabinets or if other paraphernalia are used to keep them hot for sale, in the same way that battered fish and chips are kept hot for sale in a cabinet in fish and chip shops. That would not interfere with the Government’s proposals to charge VAT on hot food cooked to order and provided hot to the customer for consumption.

I am sure that the Minister will want to consult Treasury counsel on the exact wording of any change and that he has a mountain of responses from the consultation to wade through. However, my view is held not only by me, but my hon. Friends and the industry. In practice, our suggestion would mean that a pasty sold in a fish and chip shop that is currently standard-rated, because it is kept hot for sale alongside some pre-cooked fish or a battered sausage, would be on the level playing field sought by the Minister and my right hon. Friend the Prime Minister.

The alternative would mean that any pasty kept hot for sale in a bakery would also be standard-rated, achieving the level playing field that the Government want in a way that is enforceable by HMRC. By closing the loopholes exploited by the supermarkets, the measure would raise at least £56 million per annum, which is equivalent to the vast bulk of the Government’s expected revenue from the changes.

The alternative provides a simple test for business: VAT on baked goods that are kept hot artificially, and no VAT on those that are hot simply as a result of their cooling process. It avoids the legal uncertainty and likely challenge to HMRC, it delivers to the customer a clear and understandable difference in pricing—VAT on a product that is kept hot, no VAT for a product that is not—it allows flexibility for businesses to adapt their models accordingly and, crucially, industry suggests, it would have none of the damaging effects that I outlined earlier.

My view and that of my hon. Friends is that the Government’s proposals are unenforceable, are undeliverable by business, replace one set of anomalies with another, are likely to be heavily contested and will do significant damage to the Cornish economy and to high streets throughout the country. By contrast, the alternative proposal put forward by me and my hon. Friends is clear and consistent, is enforceable by the Revenue, closes the loopholes exploited by the supermarkets—therefore raising the vast bulk of the revenue that the Treasury wishes to obtain—and creates the level playing field with the fish and chip shops that my right hon. Friend the Prime Minister rightly demands. It is deliverable and would be publicly welcomed by the baking industry. I hope that the Minister will say in his remarks that he is actively considering our alternative as the consultation proceeds.

[Several hon. Members]

rose—

--- Later in debate ---

[Stephen Gilbert]

The hon. Lady is making a powerful case. Does she agree that one of the interesting things about this debate is the fact that the scope of concerns has widened rather than narrowed? I have mentioned mince pies, the hon. Member for Bassetlaw (John Mann) has mentioned Bakewell puddings and the hon. Lady is now talking about samosas. Muffins, doughnuts and other products have also been thrown into the mix.

[Cathy Jamieson]

Indeed. That highlights the powerful case that, initially, the Treasury may have viewed the proposal as something that could be taken off the shelf, dusted down and presented as a way to correct some anomalies. However, as my hon. Friend the Member for Rochdale has argued, it did not consider the detail and the issue has become a problem. It has become a problem in relation not only to pasties—I am aware that we cannot deviate too far from the issue under discussion—but to the proposals for VAT on work on church buildings, on which there has been some movement.

Moreover, last night, multiple petitions were presented in relation to the caravan tax, and yesterday, I, along with a number of other Members, met representatives from the newly formed—it was formed in response to Government proposals—UK Specialist Sports Nutrition Alliance, which has pointed out that some of its members’ products do not appear to fall under the categories for which VAT was originally intended to be charged.

This series of Government proposals do not seem to have been properly thought through. Their impact on our high street has not been considered. That is important. We want to see people shopping on their high streets and spending what cash they have on local businesses in particular, and to ensure that our high streets continue to thrive. When the British Retail Consortium, the Association of Convenience Stores and the whole range of organisations that represent the baking industry, as well as ordinary people, think that the Government have got it wrong, it is time for the Government to think again.

I will not speak for much longer, because I want to allow the Minister as much time as possible to respond to the debate, but I want to return to the widening scope of things affected by the proposals. The hon. Member for St Austell and Newquay suggested during his opening speech that the Government were prepared to listen, but I am disappointed to say that I have not found that to be the case. We have raised the issue on the Floor of the House and have continued to raise it and a number of other issues in the Finance Bill Committee, but on every occasion—no matter what the subject—when we have asked the Government to go away, make another assessment, come back with a report and consider the implications, they have not done so.

Finance (No. 4) Bill

Stephen Gilbert Excerpts

Wednesday 18th April 2012 Commons Chamber

[Karl Turner]

My hon. Friend makes an excellent point.

The Government’s impact assessment suggests that sales will drop by 30% as a result of VAT on static caravans. That would be disastrous for the static caravan manufacturing industry in Hull. I appeal to the Government to listen to the representations that have been made from both Members Opposition and Government and to think again. The measure will be disastrous for that industry.

[Stephen Gilbert (St Austell and Newquay) (LD)]

I shall speak to new clause 5, in my name and the names of all Cornish MPs. We have a Cornish coalition moving forward to try to protect the Cornish pasty. The proposals from the Government are, I fear, unfair and unworkable and will be bad for the economy of Cornwall.

Let us consider the economic impact first. Cornwall is already an extremely disadvantaged part of the United Kingdom, being the only part that qualifies for convergence funding, yet the 86 million pasties that are produced contribute £37 million directly to the Cornish economy, and the 40 Cornish Pasty Association members turn over £150 million a year.

[Sheryll Murray (South East Cornwall) (Con)]

Does my hon. Friend agree that the small bakeries in our town centres and villages are keeping or helping to keep those town centres and villages alive? This measure could push them beyond economic viability.

[Stephen Gilbert]

My hon. Friend makes an entirely relevant point. Some 2,000 people in Cornwall are employed directly in the production of the 84 million pasties a year and that 2,000 does not count the many scores of others who work in bakeries on the high streets of many towns across Cornwall.

We know from YouGov research that 32% of people said that they would stop buying pasties altogether if the VAT extension went forward. Let us assume that one in three is too high a number and that there is a 20% fall in sales. What will that mean? The Cornish pasty producers will lose £30 million a year, £7.5 million will be lost in secondary spend in the Cornish economy and 400 jobs will be lost directly in the industry.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

The hon. Gentleman will appreciate that we also have a pasty industry in Devon. He is talking about job losses and I have already come across workers for pasty companies in Cornwall who live in Plymouth and who are already on a three-day week. It is already having an impact and it will get much worse.

[Stephen Gilbert]

The hon. Lady makes an accurate point. Pasty producers tell me that they are already feeling the squeeze. They are feeling the same pressures as us all through fuel costs and so on. They simply do not feel that they can reduce the net price and therefore absorb that extra 20% so there are serious concerns that it will add problems to an already damaged industry.

The Government’s change is supposed to be about simplification and replacing the subjective test of the purpose of selling the pasty under the current VAT rules with a much simpler test, but in fact we are only replacing one set of anomalies with another. VAT will be charged if the pasty is bought hot but not if it is bought cold. Will we have an army of HMRC inspectors going around with their standard issue thermometers and testing pasties?

[Nadhim Zahawi]

In my constituency, the Subway franchisee sells cold sandwiches without VAT and must charge VAT when the sandwiches are heated. Spudulike has to charge VAT. The idea that when one serves hot food one has to charge VAT—even in the chip shop in Stratford—is only about levelling the playing field—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. That is not brief enough and interventions should ask a question.

[Stephen Gilbert]

I understand the point that my hon. Friend is trying to make, but there is a big difference between eating cold fish and chips, which would not be very pleasant, and eating a cold pasty, which, when it is a good pasty, can be enjoyable. My hon. Friend will also see in the amendment paper that I have not tried to oppose any simplification in this area. I have tried to be helpful to the Government by suggesting that no VAT should be charged on products when no effort is made to keep the product warm. By phrasing it in that way, my intention was to encourage the Government to think again about whether we can achieve the aim of hitting the sale of rotisserie chickens while keeping an exemption for baked products. Perhaps when he sums up, the Minister will be able to tell me that he has considered my suggestion and that there are some good reasons why he would agree with me, but I doubt it.

This unfair tax unfortunately plays to the perception that some Government Members do not understand what day-to-day life is like for millions of people in our country. It plays to the perception that an attack is being made on quite an iconic Cornish dish. This is not just about the Cornish pasty, but about the meat and potato pie of my hon. Friends in the north and, as we heard from the Opposition spokesperson, the Scottish bridie. I simply think that the Government do not understand that millions of people eat those every day as part of their routine. We need to reconsider whether we have the balance right.

When my right hon. Friend the Chancellor visited Cornwall in 2008, he said:

“Cornwall is having a tough time with the economy and businesses are finding it hard. There are things that the Conservatives can do.”

I am desperately proud to be part of a coalition Government who have introduced a local enterprise partnership in Cornwall, produced an enterprise zone in Newquay, taken 19,000 Cornish people out of income tax, delivered a council tax freeze and made sure that Cornwall is the first part of the country to have access along its entire length to superfast broadband, but, when my right hon. Friend the Chancellor says that there are things that the Conservatives can do, I ask, please, that this is one thing that the coalition Government do not do. I shall request a separate Division on new clause 5.

Amendment of the Law

Stephen Gilbert Excerpts

Thursday 22nd March 2012 Commons Chamber

[Stephen Gilbert (St Austell and Newquay) (LD)]

I welcome a Budget which shows that the coalition Government remain determined to tackle the deficit and to drive growth and job creation throughout the country, and that we will deliver tax cuts for millions of hard-working people and demand from the wealthiest in our society that they pay their fair share. This really is a Budget for millions of ordinary families throughout the country who are struggling to make ends meet, not a Budget for millionaires.

I welcome in particular, of course, the increase in the personal income tax threshold, the largest increase for a generation and a thoroughly progressive policy. It has gone from the front page of the Liberal Democrat manifesto and been turned into action under the coalition Government, and both parties deserve credit for introducing it. In terms of helping the families whom I represent in Cornwall, the measure sits alongside a freeze in council tax and the Government’s determination to tackle the injustice of water bills throughout the duchy. Some 19,300 people in Cornwall will be taken out of paying income tax, and more than 4,000 in my constituency alone will no longer pay it. I thoroughly commend the measure to the House and hope that in future years the Chancellor will be able to go further and faster.

[Angela Smith]

Will the hon. Gentleman not at least acknowledge, as my hon. Friend the Member for Glasgow North East (Mr Bain) said earlier, that the biggest beneficiaries of the increase in the tax allowance will be higher-income earners, not the lowest-income earners?

[Stephen Gilbert]

It is a bit rich when the Labour party talks about benefits to higher rate taxpayers, given that it abolished the 10p rate of tax, making 5 million of the lowest paid pay more tax. The coalition Government are taking the lowest paid out of tax, and that is a better direction of travel for the people whom I represent—and, I am sure, those whom the hon. Lady represents as well.

I am also keen to welcome the measures in the Budget to drive business growth—the cutting of red tape on small and medium-sized firms; the introduction of cash accounting; the enterprise management incentive scheme; and the fact that the Government are making available £20 billion-worth of additional funding to ensure that businesses across our country, from which will come the growth that will get us out of our financial difficulties, have the money to invest, expand and grow.

[Alex Cunningham]

The hon. Gentleman has talked about investment. If the 50p tax rate had been retained, there would be more money for investment. The Chancellor said that the rate was making little impact on the amount of money coming into the Exchequer. If it was making so little money, could he not have just done away with it altogether—or is it actually a real source of income for the Government and the Exchequer?

[Stephen Gilbert]

Again, there is an obsession for a policy that Labour implemented only during the last 37 days of its Government. If it was so keen on the 50p rate, why did that not last for 13 years under Labour, rather than 37 days? This is nonsense from the Labour party.

Some of the measures to improve finance for small and medium-sized enterprises will build on some of the other mechanisms that the Government have introduced in Cornwall to try to drive the Cornish economy. I am thinking of the enterprise zone at Newquay airport, the Cornwall and Isles of Scilly local enterprise partnership, the fact that Cornwall will be the first county—not just in the United Kingdom, but across Europe—to have access to superfast broadband across its entire length, and the commitment to renewable energy generation as a way of driving some of the job creation of the future.

I also welcome the measures on housing growth that the Chancellor announced. Government and Opposition Members recognise that there is a serious housing crisis in the country. We need to get on and build our way out of it to ensure that we meet the aspirations of those, many from my generation, who simply want to start their lives with their partners, but are unable to do so because they do not have access to stable, decent and affordable accommodation.

In my remaining time, however, I would like to put a few concerns on the record. The first is about alcohol taxation. Duty on beer has gone up by 42% in the past four years. As my hon. Friend the Member for Burton (Andrew Griffiths), who is not in his seat, said earlier, the community pub is at the heart of many areas, including many of Cornwall’s villages. Community pubs serve a useful function, employing 300,000 young people across the country. When the Government bring forward their alcohol strategy, I hope to see some redress from the burden that beer taxation has taken on in recent years.

I am also concerned that air passenger duty has gone up by 360% over seven years. When I talk to the manager of Newquay airport, he tells me that that is having an impact on its ability to continue to drive custom.

I share the concern of my hon. Friend the Member for Stone (Mr Cash) about fuel taxation in rural areas. An innovative scheme is being trialled in the Isles of Scilly and other places, but the Government need to consider again whether the balance is right.

I have two final points. I disagree with my hon. Friend the Member for Sevenoaks (Michael Fallon), who thinks that the introduction of regional pay will be a welcome move. Far from it—it runs the risk of institutionalising some of the inequalities in regions, such as Cornwall, with above-average housing costs and below-average wages. I have deep concerns about this proposal, as do my hon. Friends on the Liberal Democrat Benches.

Finally, I turn to an issue that is exercising my countrymen in Cornwall. There is some ambiguity about whether the increase to 20% in VAT on hot food will include pasties that are served from bakeries. The Minister will no doubt be aware that the pasty is not only a staple, hearty meal but, in effect, employs thousands of people and brings millions of pounds into the Cornish economy. Will he give some clarity on whether we can avoid a pasty tax?

Pay and Consultants (Public Sector)

Stephen Gilbert Excerpts

Tuesday 13th March 2012 Westminster Hall

[Mr Slaughter]

My earlier pleas clearly fell on deaf ears. If the hon. Gentleman wants to have a debate on that subject, he is entitled to request one. This debate is not on that subject. It is about people who are employed by the public sector—they are actually employees—who are receiving, in many cases, high remuneration, but who are falsifying their employment status not only to make more money for themselves and possibly for the organisation for which they work, but effectively to defraud the taxman. None of those points applies in the hon. Gentleman’s case, and if we go down those avenues, we will not get far with this debate. I hope that he has not come here today to score points—or to fail to score points.

Let me return to the urgent question on 2 February. I think that it is fair to say that the Chief Secretary was struggling that day. I think that he was trying to come to terms with what had effectively been exposed in the media a couple of days before. Hon. Members from all parts of the House raised other examples. The hon. Member for South Norfolk (Mr Bacon) raised the case of the chief operating officer of rural payments. The innovation director of the Technology Strategy Board has been referred to subsequently, as have at least 25 senior officials at the Department of Health and employees of health trusts.

[Stephen Gilbert (St Austell and Newquay) (LD)]

I am sure that the hon. Gentleman welcomes the review that my right hon. Friend the Chief Secretary announced. Is it not quite extensive in its scope, taking on board more than 4,000 contracts across Whitehall? Moreover, it is already having the effect of terminating some of the arrangements that the hon. Gentleman is talking about. It is, therefore, a review that he should welcome.

[Mr Slaughter]

Oh, I do welcome the review. I think that the hon. Gentleman may be quoting from The Guardian article in the debate pack. It said:

“Treasury review of the extent to which civil servants channel salaries into tax-efficient private firms is to look at more than 4,000 postings across Whitehall and its quangos—and is expected to conclude that such schemes must end for full-time permanent staff, even if the arrangement led to a net financial gain for government departments.

The Department of Health is deciding whether to cancel contracts paid to at least 25 staff via private firms worth over £4m… The Guardian has been alerted to similar schemes operating in NHS trusts and primary care trusts. In one recent case, the Milton Keynes Hospital paid its acting chief executive Mark Millar via a partnership called Millar Management Associates. There is nothing illegal in staff being employed as consultants, especially if they are temporary.”

--- Later in debate ---

[Mr Slaughter]

My hon. Friend is right. If I have time, I will comment on the wider trend towards the involvement of such private sector companies in the public sector, which seems to be something that the Government intend to encourage.

I have calculated, from documents supplied to me, the sum that Mr Johnson has been paid so far since 2007. As a consultant—as a PSC—to the London borough of Hammersmith and Fulham and its daughter organisations, he has been paid £957,481, just shy of £1 million. That was for a series of contracts, but principally for being chief executive of the arm’s length management organisation running the council’s public housing in the borough, and subsequently as the council’s director of housing and regeneration. To my mind, that is a post of employment, not a post as a consultant.

Following that letter 15 months ago in December 2010, the matter was not allowed to rest there, despite the fact that the local authority wished that it would. Eventually, audit reports were commissioned to look not only at Mr Johnson and DaviesJohnson, but at the wider trend for Hammersmith and Fulham council to employ consultants. I want to put on record the shocking findings about how that local authority conducted itself. If this practice is common in other local authorities, I urge the Minister to consider that this needs to be looked at as surely as Government Departments are.

Following the complaints made by the leader of the opposition, a report from Deloitte was commissioned to undertake an internal audit of the use of personal service companies across the council and in Hammersmith and Fulham Homes, and in particular the contracts between DaviesJohnson and Hammersmith and Fulham Homes and the council. In summary, the findings were:

“There is currently no corporate policy covering the use of consultants appointed to interim positions or as temporary staff, regardless if they are self employed consultants or operating as Personal Service Companies (PSCs);

We were unable to obtain evidence of any formal, documented selection and recruitment process being followed for the appointment of any of the PSCs within our sample;

For the seven appointments examined that were procured by the Council, we were only able to obtain one agreement;

For the four PSC appointments within H&F Homes we identified a number of issues including agreements not being available for the entire period of engagement; the absence of signed original agreements; an agreement with a dissolved company and an agreement between the ALMO and the individual rather than the company;

PSC invoices tested were found to be authorised in all instances tested;

Departments are required to submit returns detailing all consultancies appointed; however this does not include individuals covering posts as interims. Therefore there is no complete, centralised listing of all PSCs currently in use by the Council; and

We were unable to obtain evidence of formal performance monitoring of PSCs.

2.2 These findings have led to a ‘nil assurance’ in this area and seven recommendations have been made that are currently being implemented. All the recommendations have been accepted by the council. Timeframes for implementation are given in the report and range through to September 2011 for all recommendations to have been implemented.

2.3 The internal audit identified three individuals in particular where the auditors thought that professional advice on tax status should be sought, including the contracts in relation to Davies Johnson Ltd that the Audit and Pensions Committee had asked to be reviewed.”

It separately looked at the issue of DaviesJohnson. Although the view of Deloitte is not necessarily that Mr Johnson was an employee, in words that may come back to haunt the local authority, it states:

“the application of the tax and NIC regulations in such situations is not clear cut and HMRC may form a different view. Therefore, to this end, we would strongly recommend that, if not done so already, H&F Homes Ltd documents the services provided by Davies Johnson Ltd during this period, which will support the tax/NIC application by H&F Homes Ltd and help counter any potential challenge from HMRC should it consider there might be a case to form a view that NJ was an officer holder and an element of the payments made were solely linked to that of NJ holding the office of Chief Executive.”

He held that post for more than three years on a remuneration of approximately £1,000 a day.

My next point deals with where the investigations are going now. I urge the Minister to consider how unlikely it is that organisations such as Hammersmith and Fulham will put their house in order. I am sorry to single out Hammersmith and Fulham, because it is my local authority. I am sure that the same malpractices occur elsewhere. I pay tribute to local media—the Hammersmith & Fulham Chronicle, the Shepherd’s Bush blog and the Hammersmith Today website—which have highlighted these issues constantly and have been the driving force, along with the opposition on the council, in getting any movement on the issues. The council remains stubbornly of the view that it will not investigate these matters. It has now instructed PricewaterhouseCoopers, following the Deloitte report, to look at whether it is or is not complying with the law—in other words, whether it has or has not broken tax law.

Deloitte has revealed that, on June 30 last year, there were 69 consultants working at Hammersmith and Fulham council, 17 of them working via personal service limited liability companies. It found that Hammersmith and Fulham council had broken all its own rules for hiring consultants. There was no evidence of a formal documented selection recruitment process and no evidence of formal performance monitoring. The council had potentially wasted up to £12 million in this way, potentially operating outside UK tax laws with a possible £15 million in back taxes, fines and other sanctions that could hit the borough’s finances. That was the reason for bringing in PricewaterhouseCoopers at the end of last year, but—this is an important “but”— PricewaterhouseCoopers’ remit is simply to look at the future. It is to look at whether— this is in the response from the director of finance to a member of the audit committee—contracts in Hammersmith and Fulham will comply with tax legislation in future. What it should be looking at is whether it has done that in the past. If it will not do that, HMRC should.

There was a council meeting on 29 February. The motion put by the opposition stated:

“This council is committed to full cost transparency wherever possible to enable tax payers to hold us to account. This council notes that it has employed 540 agency workers over the past year—20% of the directly employed workforce.

This council has also employed sixty-nine consultants, with almost twenty of those employees working via service limited companies. The Local Government Pension Scheme forbids retired local government employees from being re-employed in local government. However, a personal service limited company allows this rule to be side-stepped.

However, there are clear rules laid down by Her Majesty’s Revenue and Customs about what defines a consultant and there is a likelihood that the London Borough of Hammersmith and Fulham may have breached those rules in directly employing people to work in its management structure as “consultants” via personal service companies.

This Council therefore resolves:

1. To inform HMRC of all cases where it has employed individuals via personal service companies and ensure its tax obligations are met and up to date

2. To report to Cabinet and the Audit and Pensions Committee full details of any back-taxes and fines issues by HMRC on IR35

3. To review its use of agency workers looking for more cost effective means of employing individuals and to publish all details of agency workers employed by LBHF and/or its subsidiaries and details the salaries of all of those over £100,000 per year.”

That was proposed by the opposition and voted down by the administration.

The final and perhaps the most shocking matter is this. I have dealt in some detail with the DaviesJohnson contract, as it is such a significant contract—more than £1 million was paid to a private company—and because it opened the door to the other abuses occurring in the authority. However, when an opposition member of the audit committee asked whether the council should report the DaviesJohnson contract to HMRC, the director of finance said that

“given the high profile of the situation in the media, HMRC would be aware of the situation, and had not approached the Council. If the Council approached them directly, a further inquiry would take place, with further impact on officer time and resources. Given the PWC findings, she did not propose to refer the matter to HMRC.”

The opposition councillor

“then proposed that the decision to refer or not to refer the matter to HMRC be put to the vote. The vote having been tied 2-2, it was agreed, on the Chairman’s casting vote, that the committee should not refer the matter to HMRC.”

[Stephen Gilbert]

The hon. Gentleman has rightly given many examples of indefensible salaries and egregious working arrangements, but does he accept that there are 1.6 million freelancers throughout the country who contribute £21 billion? Is there not a danger of tarring the entire sector with the same brush?

[Mr Slaughter]

I do not disagree with that point, but the hon. Gentleman seems to be somewhat in opposition to his colleague sitting next to him, the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), who was tut-tutting earlier about a small business run by the former Mayor of London. I hope that they get their ducks in a row.

However, I have moved on from that point; I will draw my remarks to a close in a moment. I am now dealing with a different point: public authorities had it drawn to their attention, if they did not know it at the time, that they might be in breach of UK tax law, and are covering it up, refusing to engage with HMRC and making every attempt to suppress that information. That must be wrong, and it must be a matter for the Government, and above all for the Treasury and HMRC.

I do not have time, although I wish I did, to discuss A4e and the role that it is playing in the public sector. That organisation has multi-million-pound contracts in the public sector. It is taking huge sums of money and paying its chief executive huge sums of money, and it is now under investigation on five separate counts of fraudulent activity. McKinsey, too, was exposed three or four weeks ago in The Mail on Sunday for the role that it is playing in promoting the private health care industry. Again, to use an example from my own backyard, the Association Of British Insurers and the insurance industry have been pushing their own agenda with the Ministry of Justice in the drafting of the legal aid Bill. Those are all more than warning signs; they are indications that something is seriously wrong in public procurement, and the Treasury above all must handle it.

The two most infamous names in local government in my lifetime were probably Poulson and Porter. What is happening in my local authority has overtones of both. First, it involves a cabal of people who seem intent on feathering their own nests and earning huge sums of money from the public sector. Secondly, the project in which Mr Johnson is engaged involves the sale of two council estates for £100 million to a private developer so that they can be demolished to make way for luxury homes. The project will benefit the developer and Mr Johnson, but not the thousands of my constituents, mainly low-income, who live on those estates. Whether or not it is legal is not the point, although I do hope that there will be a proper investigation into the issue of tax law by HMRC, to which I have written; it is clearly quite wrong.

I pay tribute to the media. For every issue that I have introduced in my speech, I have referred to a media article. The campaign has been driven by papers from The Guardian to local newspapers, by blogs and by the BBC. They have done the job that the Government should be doing. I thank all those in the media who have taken the trouble to investigate the matter, and I urge people to listen to “File on 4” this evening.

I also pay particular tribute to the councillors in my borough—I am pleased to see that one of them has attended this debate—including the leader of the opposition, Councillor Cowan, whom I have quoted extensively. However, we cannot rely on volunteers and newspapers alone to ensure probity, fairness and economy in the public sector. I hope that the examples that I have given today are sufficient to show that something is seriously wrong, not just in the one or two examples that have been debated previously in the House and not just in central Government Departments and quangos but throughout the public sector. I hope to hear from the Minister that she is serious about tackling it and will talk to the Chief Secretary to the Treasury about extending the remit of the review to cover the matters that I have mentioned.

Financial Services Bill

Stephen Gilbert Excerpts

Monday 6th February 2012 Commons Chamber

[Mr Osborne]

My right hon. Friend makes a very good point about the international nature of this business. We must try to design a regulatory system that protects the British taxpayer from rogue traders and illegal activity in individual firms that might create broader systemic risks. We must also be alert to broader risks building up in the system—for example, when trying to moderate the impact of a credit boom. This is not just a question of dealing with individual risks and individual firms; it is also a question of dealing with risks across the financial system.

My right hon. Friend is completely right to draw our attention to the need for regulators to work together better internationally. The least well-developed piece of the financial regulatory system, post-crash—the one lesson that has not yet been taken far enough—involves the way in which we can better protect the world from large international businesses that live internationally but die nationally, such as Lehman Brothers. Co-ordinating resolution regimes across the different jurisdictions will be the work of international bodies such as the G20 and the Financial Stability Board in the year ahead.

[Stephen Gilbert (St Austell and Newquay) (LD)]

My right hon. Friend has talked about the macro-prudential powers that the Bank of England will have, beyond its monetary policy powers, to step in and help to cool down the economy. Those powers will include setting the ratio for the multiples of earnings that can be borrowed to secure a mortgage, which could have serious consequences across the country. However, those regimes have not yet been published or discussed. Can he give me an assurance that, when those macro-prudential powers are published, the House will have a debate on them?

[Mr Osborne]

Yes, I can give that assurance. This is an important point that I want to flag up so that the House understands what we are collectively embarking on. We are seeking to give the Financial Policy Committee the tools to help to dampen down a credit boom or to help in a credit crunch. As my hon. Friend has said, it will be able to alter the maximum loan-to-value ratios in mortgage lending in order to curb an unsustainable rise in house prices. It will also be able to do the reverse, should we face unwanted house price deflation. It will also, potentially, be able to alter capital requirements for banks, in a counter-cyclical way. I should say that these are just possibilities; they are potential tools that the committee might want to use.

One key feature is that the measures will be independently applied, so there will be no political pressure to, say, keep a housing boom stoked up as an election approaches. Another key feature is that the Financial Policy Committee should act symmetrically—that is the intention of Parliament. Its job will be to act not just to moderate a credit boom but to try to alleviate a credit bust. The precise tools that we give the FPC have yet to be determined, as my hon. Friend has just said. We have sought the advice of the interim organisation that we have created, and it will come to us with proposals for the kind of tools that the permanent body will need. We will then seek the approval of both houses of Parliament through the affirmative resolution procedure—which will of course involve a debate—before we pass those tools over.

I freely accept that we are in largely uncharted policy- making territory, here or anywhere in the world. Many other jurisdictions are considering such measures, but we are ahead of most of them. Surely the experiment of making no attempt to moderate the credit cycle—letting the bubbles grow and burst, then cleaning up afterwards—has been an unmitigated disaster, and we would be failing if we did not look for an alternative approach.

--- Later in debate ---

[Stephen Gilbert (St Austell and Newquay) (LD)]

It is a pleasure to follow the eloquent contribution of the hon. Member for Leeds East (Mr Mudie). He declared to the House that he had dropped his speech, but I do not think that anyone noticed. I intend, for all our sakes, to hold on to my own speech.

I want to raise three issues. First, I want to speak about the enhancement of consumer protection that the Bill provides, and I hope that my comments about that will be echoed by the hon. Member for Walthamstow (Stella Creasy). Secondly, I want to discuss the relationship between the FCA and the PRA. Thirdly, I want to develop a theme introduced by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley): the representation of British interests overseas.

Let me say in passing, however, that I share the concerns of other hon. Members about the oversight of the new macro-prudential powers which may need to be handed to the Bank of England, and which I believe could fundamentally alter vast swathes of the UK economy. It has already been mentioned that the ratio of mortgage lending may be one of the macro-prudential powers that the Bank of England wants to take on. It may be necessary to regulate an individual’s debt levels, and to regulate the debt exposure of small and medium-sized enterprises. All that needs proper parliamentary scrutiny, and I was pleased with the Chancellor’s response to my intervention on that point.

Let me begin with consumer protection. As we know, the Bill will establish a new code of conduct business regulator, the Financial Conduct Authority, which aims to protect consumers, promote, competition, and ensure that there is integrity in markets. Many consumer groups, including Citizens Advice and Shelter, have welcomed the FCA’s proposed objective of promoting competition in the interests of consumers. It is welcome that the FCA will have additional tools to deal with business conduct that is causing, or is likely to cause, consumer harm, to take action on products, to promote greater regulatory transparency, to tackle misleading financial promotions and to enforce the requirement to satisfy the regulator that a business model is suitable.

[Lorely Burt (Solihull) (LD)]

Does my hon. Friend agree that short-term consumer credit, payday lenders and the managing of consumer debt companies will now be much more strongly regulated, as has been called for by Members on both sides of the House?

[Stephen Gilbert]

My hon. Friend is quite right; that is a welcome step forward, although there are some bits that still need to be tidied up. I shall come to those later.

It is particularly welcome that the FCA will have a super-complaint power. This will allow Citizens Advice and other consumer bodies to use their evidence of widespread consumer harm to make complaints on behalf of all consumers, including those who might not know how to complain, and those who do not understand that their rights have been infringed. To make this new era of consumer protection effective, however, the Bill should require the FCA to respond quickly and effectively to super-complaints concerning widespread consumer harm, and I ask the Minister to consider what improvements could be made to the Bill in that regard when it goes into Committee.

As we know, the Bill sets out a framework for moving the regulation of consumer credit lending to the FCA. That, too, is welcome. But it is vital that not only lenders but debt collectors, brokers, debt managers and retail lenders that sell insurance products are regulated by a single, strong regulator. I believe that the responsibility for all that regulation should go to the FCA. In recent years, we have seen a succession of widespread consumer problems with financial products and services, including the mis-selling of payment protection insurance, poor lending and arrears collection practices in sub-prime mortgage markets, unacceptable debt collection practices by major credit providers, irresponsible lending of unsecured credit, and the ongoing saga of bank charges. It is clear that a change in the way in which consumer credit is regulated is necessary to protect consumers better in the future. I am looking at the hon. Member for Walthamstow as I say that.

Under the Consumer Credit Act 2006, the Office of Fair Trading has too little power or policy autonomy to respond quickly to emerging consumer harm, particularly when it concerns new products, services and business practices. That makes it easy for firms engaged in bad practices to target vulnerable consumers. It also undermines attempts by the sector to police itself, and makes the task of regulatory enforcement much harder. The level of financial penalties is also too low to act as a deterrent.

The OFT does not have the power or resources proactively to supervise regulated firms, or to identify and stop bad practice at an early stage. OFT guidance does not have the quality of rules, the breach of which could lead to a sanction, so enforcement is also slow. In respect of payday lending problems, for example, the OFT appears unable to make a specific rule limiting the number of times a loan is rolled over, or binding provisions on how a payday loan firm should ensure that it is lending responsibly, or to require a firm to deal with borrowers in financial difficulty in a specific way.

The Consumer Credit Act conduct regime is highly enforcement focused. There are few powers to pre-empt causes of consumer harm, or even to require firms to compensate consumers who have suffered harm. I think that all Members would agree that the consumer credit market needs a regulator that can regulate products and prevent consumer harm before it becomes widespread.

[Stephen Lloyd (Eastbourne) (LD)]

I strongly agree with the direction of travel that my hon. Friend is taking, but does he acknowledge that there is a slightly slanted argument on this matter, because the APR on bank overdrafts that have not been arranged is often far higher than that charged by the better known and perhaps more reputable payday loan companies?

[Stephen Gilbert]

I am grateful to my hon. Friend for making that point. I believe that all financial services should be underpinned by two principles: one is transparency, in that the consumer needs to know what they are getting; the other is that interest needs to be proportional to the length of time and the amount borrowed. I am sure that the record will reflect what my hon. Friend has added to the debate.

Transferring responsibility for consumer credit regulation to the FCA will also have the advantage of providing one umbrella regulator for credit, insurance, broking and debt management. It is vital that we do not allow a two-tier system to develop, with mainstream credit being regulated through the FCA and a reduced number of licensable firms being regulated under the CCA by a small successor to the OFT with lesser powers and diminishing resources. I am therefore pleased to see the direction of travel that the Government are taking on this matter.

My second point relates to the Prudential Regulatory Authority and the FCA. It seems anomalous to give the PRA a veto over the FCA. This could have the effect of putting the prudential strength of banks above consumer protection. The Bill might allow the PRA to veto the FCA taking action against a party for market abuse. If the PRA were to veto the FCA’s taking action to protect consumers, it would have to tell the Treasury that it had done so, but it could also prevent the Treasury from informing Parliament. In my view, that provision needs to be reversed.

Turning to the need for the United Kingdom to maintain effective representation abroad, it is clear that the proposed new supervisory bodies will need to co-ordinate in order effectively to represent our national interests at European and international levels, including with the new European supervisory authorities. The financial services industry, the Government and the UK regulatory authorities all have an important role to play in representing the UK in international discussions on financial regulation.

The Financial Services Authority and other UK regulatory bodies have a strong record of constructive engagement with, and influence in, European and other international bodies. Indeed, to give the House just two examples, the former head of the FSA’s international division now leads the European Securities and Markets Authority, and the Governor of the Bank of England has a leading role on the European Systemic Risk Board and on the governing committees of the Bank for International Settlements. The International Monetary Fund’s recent report on the future of regulation in the UK has also said that the effective international co-ordination of the UK’s position is important.

I therefore welcome the Government’s recent statement that they accept the case for a committee on international co-ordination, and I want to underline to the Minister the need to get that right. There will not be a perfect match between the scope of the responsibilities of the new UK bodies and those of European and other international groups, so there is a requirement for co-ordination between different UK bodies to represent the British interest effectively. The proposed measures in the Bill will oblige the new UK regulatory bodies—Her Majesty’s Treasury, the Bank of England, the PRA and the FCA—to sign a statutory memorandum of understanding and to work together.

I believe that TheCityUK was right to say that effective international co-ordination is so important to the broader UK economy, as well as to the financial sector, that a dedicated group or committee should be appointed to give sufficient priority, resources and responsibility to mobilising the UK’s European and international representation. It proposes the formation of an international co-ordination committee with specific responsibility for leading the UK’s representation on European and international committees. I commend that approach to the House.

I welcome the Bill, but I ask Ministers to look again at the balance of power between the FCA and the PRA, at the inclusion of all CCA activities within the remit of the FCA, and, above all, at the need to ensure that the United Kingdom retains a strong and coherent voice externally.

Communities and Local Government

Stephen Gilbert Excerpts

Tuesday 20th December 2011 Commons Chamber

[Stephen Gilbert (St Austell and Newquay) (LD)]

May I start by thanking the many Members from all parts of the House who have paid tribute to the way in which the Backbench Business Committee handles these debates? As Forrest Gump put it, these pre-recess Adjournment debates are a bit like a box of chocolates:

“You never know what you’re gonna get.”

I just hope that my contribution does not stick in people’s throats.

All the Members and staff in this House will be looking forward to spending Christmas with their family and friends. We are looking forward to a traditional Christmas dinner and, if we are lucky, to a warm log fire. However, not all our country-folk are as fortunate. I would like to spend some time remembering the hundreds of people around the country who will not spend Christmas with their friends and family, and who will not enjoy gift giving and festive celebrations, but who will instead spend it on the streets, desperately hoping for passers-by to give them a few pennies or pounds.

Homelessness can have dire consequences. Just last month, I was saddened to hear about the death of two of my constituents who had been sleeping rough on the streets of Newquay. If we are to tackle the crisis of homelessness in our communities, we first need to understand better the causes. A recent report by the charity St Mungo’s highlighted the role that relationship breakdown, domestic violence and mental health problems can play in leading people to sleep rough on our streets. Indeed, relationship breakdown is the largest single trigger of rough sleeping cited by outreach workers. It is the reason for just under a half of all male rough sleepers. Almost a third of female rough sleepers have left home to escape domestic violence. The St Mungo’s study also found that just under half of rough sleepers have one or more mental health problems. Indeed, people who have slept rough are more than 15 times more likely to have a diagnosis of schizophrenia than the general population.

At this time of year, it is important that we recognise the work of charities such as St Mungo’s in helping people in desperate need. I hope that in his response the Minister will join me in paying tribute to the great work that such charities do in caring for rough sleepers and giving people a second chance. In particular, I would like to recognise the work of Cosgarne hall in St Austell in my constituency in helping local people.

[Jeremy Corbyn (Islington North) (Lab)]

The hon. Gentleman is making an excellent speech on the problems of homelessness. I join him in paying tribute to the work of St Mungo’s and many other charities. Does he acknowledge that one problem for such charities is that when they house people in hostels or relatively short-stay accommodation, they have enormous difficulties in finding move-on accommodation? It ends up with a blockage in the system because local authorities cannot cope with the numbers that charities refer to them. The Government must address that issue.

[Stephen Gilbert]

I agree entirely with the hon. Gentleman. We need to make the journey from presentation at the local authority through to hostel accommodation and supported accommodation much more seamless. I endorse entirely his recommendation.

St Petroc’s is another homelessness charity in Cornwall. It helps to provide food and shelter to the more than 100 rough sleepers across Cornwall. That will be particularly important in the cold days and months ahead. I have visited the St Mungo’s shelter in Brent, as I am sure has the hon. Member for Islington North (Jeremy Corbyn), and seen the work it does with homeless people. I was also lucky enough to visit the Outpost housing project in Newcastle recently, which works with young lesbian, gay and bisexual people who get kicked out of home after coming out. Like many hon. Members, I have also been to Centrepoint here in London.

From all those visits, one thing is clear: we are all just a few steps from being homeless, whether through losing our job or losing our partner. There is no typical homeless person and homelessness can and does affect people from all walks of life. That is why I am calling on the Government to consider the introduction of a right to shelter—a fundamental statement of principle that the Government will do more to help those who find themselves homeless, often through no fault of their own. It is simply not right that many people can go to their local authority for help and be turned away to sleep on the streets in the sixth largest economy in the world. As well as a right to shelter, there needs to be more recognition by drug, mental health and other service providers that they have a role to play in preventing homelessness. We need a more flexible, personal service that reflects the complexity of an individual’s life so that we can achieve the vital ambition of ending rough sleeping.

Over the past year, 102,000 people approached their local council and declared themselves homeless, an increase of 15% on the previous year. Tackling homelessness must remain a Government priority, so I welcome the fact that the spending review protected the £400 million of homelessness grant to local authorities and the voluntary sector, and the fact that the Government have prioritised help for single homeless people, providing £10 million to the charity Crisis to help in its good work. I also understand that a cross-departmental ministerial working group has been set up to address some of the complex causes of homelessness. However, much more can be done, and I reiterate my call for a basic right to shelter and sufficient funding to ensure that no individual is left with no option but to sleep rough.

I hope that my contribution today, though limited, will serve as a wake-up call to the Government to do more in the years that remain to them, so that in future we can all enjoy our Christmas holidays knowing that nobody will be spending them out in the cold.

[Jeremy Corbyn (Islington North) (Lab)]

I wish you a merry Christmas and a good new year, Madam Deputy Speaker.

I absolutely concur with what the hon. Member for St Austell and Newquay (Stephen Gilbert) has just said about homelessness. He put the case very well. Despite various changes in homelessness legislation over the years, I find that in London a depressingly large number of people are denied access to housing because they are single, because they are concealed homeless or because they do not have an identifiable physical condition or mental illness. They end up sleeping rough, sleeping in cars or in some cases just endlessly sofa-surfing among friends’ homes.

It is quite surprising that if we go down to “Occupy London Stock Exchange” outside St Paul’s, we find quite a lot of people living there who work, and for whom it is a place to live and survive. That is the reality of homelessness in this country. It is probably slightly worse in London than the rest of the country, although I acknowledge everything that the hon. Gentleman said about Cornwall and the south-west also having a considerable problem.

I wish to draw attention to a number of matters in this short contribution. I am proud to represent an inner-London constituency, and housing is the biggest issue that my constituents face by a long chalk. The borough as a whole has 13,000 families on the register of those who need somewhere much bigger to live, and we have a very large number of young people and children growing up in grossly overcrowded accommodation. In such accommodation it is impossible for all the children to maintain good health, do their homework and achieve anything at school. It is hardly surprising that there is so much family breakdown and underachievement in school.

I have people in my advice bureau in tears because they have three teenage siblings, sometimes of widely differing ages, sharing a bedroom and they are unable to study or do any homework, with all the obvious consequences. That leads to underachievement in school and to consequences for the rest of our society, as those young people feel excluded from the education system and end up in the criminal justice system because of what they get into.

We have to recognise that the overall rate of private renting in Britain is growing at the expense of owner-occupation. That gap is growing much faster in London, to the extent that in my constituency, privately rented accommodation now accounts for well over 30% of all households, owner-occupation is below 30% and the rest is made up of council and housing association accommodation and a very small number of co-operatives. Almost a third of my constituents live in private rented accommodation.

For young people who are in work—perhaps a young couple earning reasonable salaries—it is impossible to raise the deposit for a mortgage even if they can afford one. Their only chance of buying is if their parents are well-off enough and prepared to remortgage their own property to provide them with a deposit. The average age of first-time purchasers in London is now in the late 30s, if not the 40s. The choice between private rented, council rented and purchased accommodation that the Government talk about so blithely simply does not exist.

Even in my borough, which is doing its very best on housing matters, it is impossible to buy somewhere under a part-rent, part-purchase shared ownership scheme. A key worker needs to be on more than double the average London income to get anywhere near buying somewhere under shared ownership. That is a major problem.

The situation has very serious consequences for London. Where are the skilled workers of tomorrow whom we need in the public service? Where are the service workers of tomorrow? Where will such people come from unless we seriously address the need to examine all sectors of housing difficulties?

[Stephen Gilbert]

The hon. Gentleman makes an eloquent case, and I agree with much of it. Does he agree that one concern is that a pernicious generational divide might be emerging, broadly between the baby boomers—the housing “haves”—and generation X, for which, as he rightly says, home ownership is an aspiration that many will never be able to meet?

[Jeremy Corbyn]

Absolutely. Those who own and occupy their own homes in my constituency tend increasingly to be much older people. If they pass on or decide to sell their property, it is nearly always sold to a speculative owner who then rents it out privately. The rental income from those properties is absolutely enormous. There is therefore a very strong case for seriously increasing the powers, facilities, opportunities and abilities of local government, and for intervening in the question of housing markets as a whole.

I turn very briefly, because the debate is short, to the case of my own borough council. It is doing its best to address the borough’s housing issues, and it is building about 100 new council homes a year, largely on local authority housing land, disused garages, car parks and difficult places on estates. In some cases it has made agreements with preferred partners through housing associations, which are building on former industrial land, although there is not much of that, or on other sites. The council’s condition for joint participation with a housing association is that it maintains the existing tenure system—a tenancy for life—and rent structure. That means that the rents are not market-related but economically related, and are those that the local authority charges. That is having a good effect, and the council is doing its best, but unless we can address issues on a wider basis, with much greater Government investment in council housing for rent, the needs of my borough will not be met any more than those of any other borough.

I have two points to make in the last 42 seconds that I have. The first is about housing benefit. Will the Government raise the cap on housing benefit, so that the new rent levels that are imposed on people do not force them out of their homes? I have lost count of the number of people who have come to my advice bureau about to lose their home because of the housing benefit cuts and rent increases.

Finally, the Labour mayoral candidate Ken Livingstone has proposed the concept of a London living rent. We have had a London living wage, and it is time to have a London living rent to be fair to people who are forced to live in privately rented accommodation by making it affordable, long-term and permanent.

Comprehensive Spending Review

Stephen Gilbert Excerpts

Thursday 28th October 2010 Commons Chamber

[Ms Eagle]

I am certainly more than happy to pay tribute to British business, but I do not connect the first part of the hon. Gentleman’s question with the second.

Last week two more myths were added to the Chancellor’s own special edition of Grimm’s fairy tales. He now claims that the measures in the spending review are fair, and even that the scale of the cuts would have been greater under Labour. Let us start with fairness. Last Wednesday, the Chancellor told us that fairness was

“one of the guiding principles of this spending review”.—[Official Report, 20 October 2010; Vol. 516, c. 955.]

Not for the first time, this spin lasted barely 24 hours, before the Institute for Fiscal Studies comprehensively rejected it, proving that, far from the poorest being protected, it is the poorest who will bear the brunt of the cuts. It is families with children who will pay the most. We should not be surprised at that, because the Institute for Fiscal Studies was scathing of the Treasury’s analysis of who loses what.

[Stephen Gilbert (St Austell and Newquay) (LD)]

How is it fair that in the time that the hon. Lady has been on her feet at the Dispatch Box, we as a country have spent almost £2 million servicing the interest on the debt that has been created? That is £5 million an hour and £120 million a day. What plans do the Opposition have to bring that under control?

[Ms Eagle]

I have talked about the importance of getting the deficit down, but the hon. Gentleman is falling for the idea that the coalition have perpetrated that it is somehow not viable to have a bill that needs to be paid. People who have mortgages have to pay them off over time, and they have to pay interest on them. However, it is not sensible for anyone to deal with their mortgage by paying it off so early that they cannot afford to feed their kids in the meantime.

--- Later in debate ---

[Joan Ruddock (Lewisham, Deptford) (Lab)]

I appreciate the opportunity to make a brief contribution, which I shall limit to my constituency, and to housing benefit in particular. Lewisham is a relatively poor borough, where wages are around £26,500 per annum on average and where the mean house price in sales last year was £240,000. In common with most London boroughs, we are an area of extreme housing stress, brought about primarily by population growth and the fragmentation of households. Changes in housing benefit will have a devastating effect on people who seek to be decently housed in Lewisham.

Ministers have sought to present their cuts and their new proposals in the light of a few absolutely extortionate rents. They have spoken continuously about the cap and the fact that people should not be able to claim benefits to live in what they deem to be luxury accommodation. That is not something that affects the majority of housing benefit claimants in this country. When he sums up, will the Minister, who is not paying attention—[Interruption] I am glad to see that he now is paying attention. Will he tell us what proportion of all housing benefit claimants in the UK are affected by the cap? In Lewisham, fewer than one in 1,000 people will be affected. Our people are not living in luxury, but let me tell him that this change will be a tragedy for the biggest families, living in the biggest properties—often in quite squalid conditions—and they will be evicted.

The fact is that a conservative estimate made by my local authority finds that 9,050 households are affected by the generality of changes that are proposed by this Government. I further tell the Minister, to nail another myth perpetrated by this Government, that 5,000 of those are people in work.

[Stephen Gilbert]

rose—

[Joan Ruddock]

I am advised not to allow interventions, as it will take up other Members’ time.

The loss for a one-bedroom property is about £11 a week; for a three-bedroom property, £34 a week; and for a four-bedroom property, £57 a week. People cannot make up this difference from their low wages—very low in Lewisham, as I have said—and they could not make it up if they were in receipt of benefit because of unemployment. There is no way these people can make it up, so they will be evicted. What will happen then? There are 17,000 people waiting for council housing in Lewisham; there are 50 families already in bed and breakfast; there are 1,000 households in temporary accommodation. There are no alternatives for the people I am concerned about. They will not be able to rent and they will not be able to find cheaper accommodation because of the huge pressure on housing—pressure that will come from richer boroughs that try to put people out of their own area and into areas like Lewisham.

The Government argue that rents will fall. They will not. We have so many young professionals who cannot purchase property because of the prices and because they cannot get loans—and they are taking up any slack. The Government argue that this is an incentive to work—a terrible insult to those who are unemployed. When Labour were in government, unemployment fell by 50% in my constituency. We halved unemployment and the fact is that it has risen only because of the recession. People want to work and people will work.

I am absolutely sickened when I hear the Government speak about fairness. There is nothing fair about these measures—nothing fair whatever—and they are going to hurt the most vulnerable most. They are absolutely sickening. They will not drive people into work; they will not lower the prices; there is nothing fair about the housing benefit changes and nothing more punitive. This is a catastrophe in the making—a catastrophe for my people in Lewisham, for London as a whole and for this great capital city. I remember when people slept in cardboard boxes on the South Bank. This Government are planning to bring back those conditions.

--- Later in debate ---

[Stephen Gilbert (St Austell and Newquay) (LD)]

Let me begin by reminding the House why the country is in its present position, and why the spending review has had to be so tough. We are in this position because the last Labour Government left the largest deficit in our peacetime history, and the largest structural deficit in Europe.

What does that mean? I will tell hon. Members what it means. This year, we will spend £43 billion on debt interest alone. That is £120 million every single day. For that money, we could build a new primary school every hour. We could triple the number of doctors in our hospitals. We could spend twice as much on education every year. I therefore do not see how it is tenable for Opposition Members to ignore the astronomical waste of money that those interest payments are leaving with us, and the unfairness of suggesting that we pass it to future generations.

Labour Members claim that they planned £48 billion of public spending cuts when they were still in government, but they forgot to tell us where those cuts would fall. Throughout the debate, I have been enlightened no further on what they would cut and how they would address the problem. I hope that, in the hours that remain, some Labour Members may come up with some ideas of their own.

The Government’s comprehensive spending review sets out £1 billion less of cuts in Government Departments. The remaining plan focuses on long overdue reform of a complex and byzantine welfare system that delivers unintended effects to people throughout the country—and, of course, tax rises. The important point, however, is that the spending review is also fair. The banking levy will raise £2.5 billion a year. The last Government did not do that, and they had 13 years in which to do it. Indeed, under the last Government bankers and lawyers often paid lower taxes than those who cleaned their offices. That is something else that was left to this Government to sort out.

[Mary Macleod]

Does my hon. Friend agree with the leaders of 35 of the biggest companies around, including Marks & Spencer, Microsoft, Diageo and Next? They say that they believe that

“Addressing the debt problem in a decisive way will improve business and consumer confidence”

and that

“The cost of delay…would result in almost £100 billion of additional national debt”.

[Stephen Gilbert]

I thank the hon. Lady for her intervention. Not only do I agree with those companies; I also agree with the CBI and the International Monetary Fund, which have commended these plans as the best way both to ensure growth and to deal with the deficit.

Let me be clear. The Opposition have every right to challenge and to resist the measures that the coalition Government are implementing. That is of course the Opposition’s job, but they need to come clean with the British public and tell this House and the public at large what their alternative is. They will not be taken seriously until we hear different ideas from them. Today so far we have heard special pleading on transport, child benefits, housing and myriad other topics, but we have not heard anything about the measures that they would put in place to address the significant problems that we face.

The spending review has had to be tough, and of course we and our constituents will feel it, but there are many positive policies that will help create a fairer, freer and more responsible country over the next few years. One crucial area is the fairness premium that was announced by my right hon. Friend the Deputy Prime Minister.

The fairness premium involves extending 15 hours per week of free education and care to all disadvantaged two-year-olds, and a £2.5 billion pupil premium, with extra money attached to the children who need it most. Like my hon. Friend the Member for Bristol West (Stephen Williams), who has left his place, when I was at school, I was eligible for free school meals, and I know what a difference extra money going to the pupils who need it most can make. The funding will not just benefit them. By driving up standards across our schools, it will benefit every child in every school. It could be used to cut class sizes, provide one-to-one tuition and catch-up classes, or used in any way the school sees fit, ensuring that every child gets the individual attention that they need and deserve.

As everyone in the House knows, performance at school is tightly linked to future outcomes. That is where fairness can start: the funding can make a difference in the early years. Giving this country’s poorest children the best possible start in life is the most effective way to lift them out of poverty and to help them to achieve their full potential. The fairness premium is therefore one of the most important policies of the spending review and I hope that it will be welcomed by Members on both sides of the House.

There is no doubt that the spending review is full of difficult decisions, but these are decisions that Labour Members shirked for the 13 years that they were in government. These are decisions that two parties coming together and acting in the national interest will be taking.

Economic Affairs and Work and Pensions

Stephen Gilbert Excerpts

Tuesday 8th June 2010 Commons Chamber

[Stephen Gilbert (St Austell and Newquay) (LD)]

Thank you, Mr. Deputy Speaker, for allowing me to speak here today for the first time. I am delighted to follow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), and I share his determination to secure a Robin Hood tax on international financial transactions. As it happens, I had the pleasure of knowing his predecessor from my time studying in Aberystwyth, and I am sure he will be a worthy successor.

St Austell and Newquay is a new seat that stretches from coast to coast across the heart of Cornwall; it is a unique constituency. It includes many places that hon. Members will have visited. St Austell and Newquay are Cornwall’s largest towns, but they are sharply contrasting, and the villages at the heart of my constituency could not be more different from those along the coast. It is a diverse seat: rural, urban, coastal, industrial and agricultural. I was born and bred in the constituency and I am proud to call it home.

Yesterday, my right hon. Friend the Deputy Prime Minister announced a boundary review. It seems that as well as being the first Member of Parliament for St Austell and Newquay, I may also be the last. In the context of today’s debate—I say this tongue in cheek to the Conservative Whips—perhaps it is only the sizes of our constituencies that will be increased by the Government rather than cut. However long I am in this place, it will be the privilege of my life to represent the people with whom I went to school and grew up, and with whom I live and work.

Members will be familiar with the picture postcard image of Cornwall, but they may be less aware of what lies behind that. We have by far the highest water bills in the country, yet some of the very lowest incomes. We do not have enough jobs, and those we have tend to be low- paid and seasonal. Thousands of people cannot afford a place to live in the communities in which they grew up. Indeed, I may be the only Member who was still living with his parents when he was elected.

Those are the challenges that face the people whom I represent, and my predecessors—Matthew Taylor, Colin Breed and my hon. Friend the Member for North Cornwall (Dan Rogerson)—made a huge effort to tackle them. Matthew Taylor’s review of affordable housing is the best route map out of the housing crisis that we face in rural areas; my hon. Friend’s work to secure the Walker review on water charges has led to a real-terms cut in water bills in Cornwall; and Colin Breed helped to develop the tax policy that will be implemented by this Government and will lift millions out of poverty. All three of my predecessors have shown a record of action in the best tradition of the first Liberal MP for Truro and St Austell, David Penhaligon. If anyone in this place doubts the impact we can have, they should knock on doors in my constituency and hear people talk about Mr Penhaligon almost 25 years after his untimely passing.

I do not mind admitting that that is a lot to live up to—as with other hon. Members, the bar in my seat is very high—but I welcome the opportunity to continue to tackle the problems we face in Cornwall from the Government side of the House and with the principles that underpin the Government’s agenda: freedom, fairness and responsibility. People who are trapped in poverty cannot be free. The need to work day in, day out just to make ends meet erodes the freedom to have a quality of life to which we should all be able to aspire.

I therefore welcome the Government’s commitment to raising the threshold at which people pay tax to £10,000 over the course of this Parliament. That will take many thousands of my constituents out of tax entirely and give hard-earned money back to everybody else. It will increase the freedom of those I represent, and by spreading the tax burden more evenly across our society, it will be fairer. I also welcome the re-establishment of the link between pensions and national average earnings. That is the fair thing to do and it is a step towards ending the pensioner poverty that blights Cornish communities.

The first step towards people being able to lead a responsible life is for them to have a place of their own in which to live, so I welcome the moves the Government will be making to bring empty homes back into use. There are 8,000 empty homes across Cornwall, and 1,400 in St Austell and Newquay alone. These homes should not be standing empty while so many people are in housing need.

I welcome the scrapping of the absurd regional spatial strategy, which would have led to so much of Cornwall’s countryside being concreted over with little gain for those in real housing need. Other measures, such as the promotion of shared ownership and community trusts, will do much to ease the housing crisis in Cornwall. I would like this Government to go further, however, by allowing local authorities to set a limit on the number of second homes in a community. Local needs should come first. Following recent announcements, councils now urgently require clarity about the criteria they will use to determine future housing provision.

I was the first person in my family to go to university. In fact, I enjoyed it so much I went twice. Statistically, I should not be here. My grandfather was a clay worker, my parents are separated and my secondary school was in the state sector. I am a gay man from an average working-class Cornish family. Access to education changed my life chances, and I have come to this place to extend to others the social mobility and opportunities that have so benefited me. If we are to tackle the poverty that bedevils parts of Cornwall, we have to give people the chance to make the very best of themselves. We cannot have a fair society if people do not have the chance to make the most of their talents, and it will not be a free society if people cannot use their abilities to achieve their dreams.

The community I grew up in and now represent understands the values this Government are promoting; indeed, they are summed up in Cornwall’s motto “One and all”. However, the people who sent me here will be keen to make sure that the burden of addressing the problems facing Britain, which were caused by the Labour party, falls on those most capable of carrying it.

This debate has highlighted some of the difficult choices we face. We in Cornwall have been let down by successive Governments, and in playing my part in making those difficult choices I will never forget that we need a fairer funding deal for Cornwall. I hope that now my party sits on the Government Benches, the issues I have touched upon this afternoon, and that my predecessors have campaigned on for decades, can finally be addressed, not “drekley”, as we say in Cornwall, but today.