Finance Bill

Stewart Hosie Excerpts

Monday 1st July 2013 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

Before the hon. Lady comes to that principle, she will be aware that the 2012 Red Book confirmed that, according to the Government’s own figures, the change would cost £450 million. At the most basic level, whether we agree with that number or think it is too low, if there is £450 million going spare, it would be better to do something socially productive with it than to give it back to people who are already wealthy.

[Cathy Jamieson]

I thank the hon. Gentleman. He and I do not always agree on every matter that is discussed in the Chamber, but on this occasion I accept what he says.

We have heard disagreement on the Government Benches with the point that I was making, but the reality is that as of this April, 13,000 people earning more than £1 million a year are receiving a tax cut equivalent to £100,000. Another 254,000 people earning more than £150,000 a year are also seeing their income tax bills go down. At the same time, if we take into account the changes that the Tory-led Government have made to tax, tax credits and benefits, households in the UK will be an average of £891 a year worse off. That is the reality that people face. As I have said in a number of previous debates, that may not seem a lot of money to the millionaires who are getting a tax cut from the Government, or to those on the highest wages, but it is a lot of money for my constituents and, I am sure, for the constituents of other hon. Members. I see some heads nodding on the Government Benches. It is a huge amount for constituents throughout the country, who are being ruthlessly squeezed to pay for the Chancellor’s economic failure.

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[Mr Gauke]

There is a long-standing and widespread approach that tax is a matter of confidentiality between taxpayers and the tax authorities. I say that the approach is long standing; it is the approach we have had in the UK for time immemorial.



It is also the position that applies in pretty well all major economies, and if we were to change that approach, it would be sensible to do so multilaterally. If we introduced a requirement that multinationals based in the UK had to publish information in a way that would not apply if they were based elsewhere, that would raise questions about the attractiveness of the UK as a place in which to do business.

On how to move forward in this area, I would make the wider point that we work multilaterally. That approach was endorsed by Tony Blair, who, in a recent interview, said that if countries move unilaterally, others will eat your lunch, to put it bluntly. I think that was the phrase he used. It is right that we work with other countries to ensure that we have an effective tax system, but I would not favour measures that left the UK isolated in such a way.

[Stewart Hosie]

I am genuinely confused. The Minister said that the measure would go wider than the GAAR as intended, because it covered all a business’s corporation tax, but part 5 of volume II of the Bill states at clause 203(3):

“The general anti-abuse rule applies to…corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax”.

The idea that the proposal would widen the measure beyond the scope of the Bill does not appear to be correct.

[Mr Gauke]

I hope I can clear up the hon. Gentleman’s confusion. The GAAR applies to corporation tax—I am not arguing for a moment that it does not—but the point is that lumping in the new clause, which is based on the GAAR, and moving from the GAAR being quite carefully targeted at abusive tax avoidance to essentially saying that everything needs to be published under the GAAR as part of a general anti-avoidance or anti-abuse rule would rather confuse things. It is a pity to muddle the two. There is an argument for greater transparency and for publishing things, and there is an argument for a GAAR, but to bring the two together as the Opposition have done—perhaps that is partly due to parliamentary constraints and so on—sends out an unfortunate message. The two should be kept apart. I hope that has made things clearer for the hon. Gentleman.

[Stewart Hosie]

Well, not particularly, because the other argument that the Minister used is that the proposal might put us at a competitive disadvantage. However, the Bill is clear: one of the priority rules is the double taxation agreements that are already in place, so nothing could be done that impacted on the amount of tax a corporation paid in relation to its tax in the UK and elsewhere, because the double taxation agreements would have priority in any event. The Minister is trying hard to explain why he does not like the proposal, but he is not really succeeding.

[Mr Gauke]

The double taxation agreements are part of the international structure, but that is not the only element that determines whether the UK tax system is competitive. The point I am arguing is that our engagement and the leadership shown by the Prime Minister and the Chancellor represent the right way to go about changing how multinationals are taxed. I would consider, for example, what came out of the Lough Erne summit and, more broadly, measures to ensure that people pay the right amount of tax, as well as the dramatic progress that has been made including, on tax evasion, the exchange of information between Crown dependencies and overseas territories, and indeed the creation of a new international norm based on the American Foreign Account Tax Compliance Act, or FATCA. That is a big step forward, and we continue to take steps, leading the way in this multinational effort to give tax authorities new tools to deal with tax avoidance by providing more information about beneficial ownership. All those are steps that can help us to deal with tax avoidance and tax evasion. I hope they will be welcomed by all Members of the House.

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Another concern expressed about the GAAR is that it is too narrow and cannot really be described as “general” at all. Indeed, the Government’s new clauses seem to demonstrate that. The GAAR applies to corporation tax, yet the Government are still having to introduce targeted anti-abuse rules to deal with loss buying undertaken to avoid or reduce corporation tax liability. It would be helpful if the Minister outlined how the GAAR is intended to operate. What corporation tax activity would be sufficiently egregious or abusive for it to be covered by the GAAR without the Government having to introduce separate targeted anti-abuse rules to deal with it? Does this mean that they need to introduce a targeted rule to deal with every specific loophole that is not covered by the GAAR because otherwise they run the risk of tacitly legitimising any activity that is not covered?

[Stewart Hosie]

The hon. Lady is asking whether the GAAR is too narrow. It is designed to squeeze out tax advantage through abusive means. The advantages include

“relief or increased relief from tax…repayment or increased repayment of tax…avoidance or reduction of a charge to tax or an assessment…avoidance of a possible assessment…deferral of a payment of tax or advancement of a repayment”

and

“avoidance of an obligation to deduct or account for tax.”

What else could she add to widen that if she thinks it is too narrow?

[Catherine McKinnell]

The hon. Gentleman makes a helpful point. One would question to what extent the Government can rely on their general anti-abuse rule when they still have to invoke targeted anti-abuse rules, many of which we debated in Committee. Yet the GAAR is supposed to provide reassurance in relation to these matters. Will the Minister clarify exactly how it will work? As the hon. Gentleman says, there is much debate about whether it is too general or too narrow—too general to be effective or too focused on what could be deemed by a reasonable person to be egregious behaviour, and therefore arguably too narrow. I would be interested to hear the Minister explain exactly how the GAAR will work in reality.

The Minister will be aware of the concerns raised in Committee about how the GAAR’s effectiveness will be reviewed. Our amendment calling for an evaluation to be held two years post-implementation was dismissed on the grounds that it would be impractical. At what stage does the Minister think it would be practical to conduct a post-implementation review, given that this is one of the Government’s main tools to tackle tax avoidance? At what point does he think it would be appropriate to consider whether the GAAR needs to be strengthened by, for example, a penalty regime? He has said that it will be kept under review, so it would be extremely helpful if he could provide details of the time scales involved.

One of the most widely held concerns about the GAAR is that it simply does not deal with many of the issues about which members of the public in particular are understandably angry with regard to corporation tax avoidance. The Minister has said that the Government have never sought to give the impression that they will deal with these issues, but many people feel that when they raise concerns about corporate tax avoidance the Government give the impression that their general anti-abuse rule will somehow deal with them.

We believe that the Government could and should use this Finance Bill to go much further on tax avoidance and on increasing tax transparency in particular. We have presented the Government with many opportunities to put their money where their mouth is and to take action now.

I was pleasantly surprised to read in The Guardian on Friday that the Minister voiced his intention to take firm action on this issue—the Minister is looking at me blankly; I am not sure whether he reads The Guardian—during last week’s Back-Bench business debate on multinational companies and UK corporation tax avoidance. I usually pay attention to everything the Minister says, but I confess that Friday’s revelation passed me by. Given his reported new-found enthusiasm for tackling the issue head on, the Opposition would like to take this final opportunity, through new clause 12, to persuade the Minister and Government Members to use this year’s Finance Bill to demonstrate a commitment to increasing tax transparency and to cracking down on tax avoidance both here and abroad. It is unfortunate that the Liberal Democrat Benches are devoid of Liberal Democrat Members, because this is their opportunity finally to walk the walk on this issue, given that they have been very good at talking the talk on it for so many years.

The nub of the issue is this: there has been a monumental breakdown in public confidence in the corporation taxation system and it is clear that the era of tax secrecy should end. At a time of austerity around the world, when people have lost or are losing their jobs and are seeing their services cut and the cost of living rising while the value of their wages does not, they are rightly angry when they see the complex and extraordinary lengths to which multinational companies may go in order to avoid paying their fair share of tax in the countries where their profits are actually being generated. People, including more than 1 million supporters of the IF campaign, are equally furious that aggressive tax avoidance activity is reducing the ability of developing countries to tackle the issue effectively and contributing to their failure to combat hunger and invest in the vital infrastructure that we take for granted. As the OECD estimates, these countries lose three times more through tax avoidance than they receive in aid every year.

The Opposition believe that rather than simply calling on the OECD

“to develop a common template for country-by-country reporting”,

which the G8 has said it will do, we should actively work with our G8 partners to ensure that all multinationals, regardless of sector, are required to publish a single, easily comparable statement on the amount of tax that they pay in each country in which they operate. That needs to be introduced as a matter of urgency.

Spending Review

Stewart Hosie Excerpts

Wednesday 26th June 2013 Commons Chamber

[Mr Osborne]

The Education Secretary and the Minister for Schools, the right hon. Member for Yeovil (Mr Laws), will set out details of how the formula will work. It is certainly our intention to introduce it in this Parliament, but we shall consult on it. Obviously it is a complex reform, but we have set out the ambition and the principles today, and the Department for Education will now take it forward.

[Stewart Hosie (Dundee East) (SNP)]

The Budget previously told us that discretionary consolidation for 2015-16 would be £130 billion rising to £155 billion. The Chancellor announced another £11.5 billion today and the pace of the cuts will go on until 2018. That still represents stripping consumption out of the economy equivalent to 8% of GDP, so why does he think that will deliver growth? He has told us previously that the ratio of cuts to tax rises would be 4:1, and nothing today changes that. He is still planning to balance the books on the back of the poor.

On the funding for Departments and, in this case, for Scotland, we face another £40 million revenue cut, on top of the £103 million revenue cut announced in the Budget and the 6.5% cut in the last comprehensive spending review, combined with a 25% cut to capital in the last CSR. This plan A has failed. What makes the Chancellor think that making the same mistakes all over again will deliver a different result this time around?

[Mr Osborne]

First, all parts of the United Kingdom have to make savings, but because of the application of the Barnett formula the savings in Scotland are 2%. I am not saying that will be easy, but it is not as difficult as the tasks that some English Departments face. We are also providing more borrowing powers for the Scottish Parliament to make its own decisions. We believe that is the right approach—devolution, with Scotland not only having the benefit of being in the United Kingdom and able to make its own decisions about the investments it makes, but benefiting from the very low interest rates that our credible fiscal policy delivers for all parts of the Union. It is pretty clear that if Scotland were independent, borrowing would be more expensive for the Scottish people.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 25th June 2013 Commons Chamber

[Mr Osborne]

The arrangements for quantitative easing are well established, and the decisions on whether to increase asset purchases are within the envelope that I set for the independent Monetary Policy Committee. I think that an active monetary policy has helped sustain demand over the past few years. It is anchored in a credible fiscal policy, the next stage of which we will set out tomorrow.

[Stewart Hosie (Dundee East) (SNP)]

It is six months since the Banking Commission’s first report warned against a delay in ring-fencing, so it is disappointing that the ring-fencing of the banks might not be fully implemented until 2019. Can the Chancellor give one guarantee today—that the markets division of RBS, and comparable departments in other large banks, will be outside the retail ring fence and not liable to taxpayer assistance when the new rules are in place?

[Mr Osborne]

First, the timetable is one that John Vickers and his commission themselves proposed. Secondly, it is not for me to make individual decisions about individual banks; that is for the boards of those banks and, of course, the regulator. But the whole purpose is to insulate the retail bank from things that go wrong in the investment bank and, above all, to make it possible for the person doing my job to be able to resolve the retail bank and keep the retail operations going without having to bail out the investment banking arm. Indeed, that whole problem of “too big to fail” is something we need to deal with.

Royal Bank of Scotland

Stewart Hosie Excerpts

Thursday 13th June 2013 Commons Chamber

[Sajid Javid]

My hon. Friend is right to emphasise the absolute importance of getting the best value for the taxpayer when RBS is eventually returned to the private sector. There are many ways of doing that, and there is an open public debate on the ideas. At this point, however, it is right for me to say that while I welcome open debate, the Government are looking at the options very carefully, and we will set out a way forward after the Parliamentary Commission on Banking Standards has issued its final report.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Minister for his statement and for early sight of it, and add my thanks to those of others for what Stephen Hester has done so far for the bank. RBS is planning a £175 million investment in the retail bank in Scotland and it also plans to maintain it as a global centre for mobile banking and a global payments hub. When Stephen Hester is replaced and the bank is finally returned to the private sector, will the Minister use whatever influence the Government have to ensure that those investments and those plans are maintained for the sake of jobs both in the bank and in those businesses that depend on the bank for support?

Economic Growth

Stewart Hosie Excerpts

Wednesday 15th May 2013 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to take part in the debate. This Queen’s Speech is important, sandwiched as it is between the Budget and Red Book, which we already have, and the forthcoming spending review, the details of which we do not have but which still casts a shadow over the potential for growth and recovery in the UK. The Prime Minister mentioned growth in his speech on the opening day of the debate, stating that the measures in the Gracious Speech would “grow the economy”. He also said that they would

“deliver a better future for our children…win the global race”—[Official Report, 8 May 2013; Vol. 563, c. 28.]

and “cut the deficit”. Given the austerity programme so far, it looks like it will lead to 300,000 more children being in poverty by the end of next year, and the forecasts are that there will be up to 4 million children in poverty in a few years’ time. It is difficult to see how any of the measures in the Queen’s Speech can possibly live up to the billing that the Prime Minister gave them.

Given that the balance of trade has been in deficit to the tune of more than £100 billion for the past two years, and that the gap in the total balance of trade has risen by more than £10 billion in the past year, it is difficult to see how anything in the Queen’s Speech can live up to the Prime Minister’s description and do anything to allow us to “win the global race”, whatever that means.

Bringing the deficit down was another of the Prime Minister’s claims, but as the right hon. Member for Coatbridge, Chryston and Bellshill (Mr Clarke) said, net borrowing was forecast at £92 billion but ended up being £121 billion. The cumulative deficit—the net debt—was forecast to rise to about 92% of GDP in a couple of years, but it is now forecast to hit more than 100% of GDP and about £1.6 trillion. There is a great deal of Government rhetoric about what the measures in the Queen’s Speech are supposed to do, but very little real evidence.

However, it is not as though the Queen’s Speech contained no growth measures. There was one potentially significant one—the national insurance employment allowance—but that was not altogether new. It was in the Red Book and budgeted to cost the Government £1.3 billion next year. It is welcome, but because the impact of the Budget policy decisions is to be fiscally neutral over the five years from 2013-14, the overall impact on economic growth of that one meaningful measure will be muted to say the least. It is worse than that, because any beneficial effect on growth of that sensible policy will be wiped out entirely by the additional cuts to expenditure that are anticipated in the forthcoming spending review.

[Charlie Elphicke]

If Scotland became independent, which currency would it use?

[Stewart Hosie]

It would use sterling. We have answered that question many times. We are speaking about the UK Government’s Queen’s Speech and how their programme for the Session will fail to deliver growth not just for Scotland but for everybody throughout the UK.

Let us be clear that the impact of the one good thing in the Queen’s Speech, the employment allowance, will be wiped out entirely if the economy is supposed to absorb the anticipated £11.5 billion of new cuts. That is the figure most commonly used for what is likely to be in the spending review. That will take the UK to discretionary consolidation—tax rises and cuts—somewhere in excess of £155 billion a year, every year, from 2015-16 onwards. Indeed, the Institute for Fiscal Studies has helpfully provided some information stating that it believes the real level of discretionary consolidation could reach £172 billion a year by 2017-18.

The Government plan to cut £11.5 billion, in addition to the cuts so far. To return to the point made by the hon. Member for Dover (Charlie Elphicke), that will be added to the 8.7% real-terms departmental expenditure limit cuts and 25% capital DEL cuts in Scotland. It seems extraordinary that when we are looking for real growth, the Government seriously propose stripping consumption out of the economy to the extent of about 8% of GDP and putting an additional £11.5 billion on top of the £140 billion or so of discretionary consolidation that is already planned, and replacing it with only a single sensible measure, the employment allowance.

What the Government are trying to do is not doable. They are trying to cut their way to growth, which cannot be done. They are ignoring all the evidence that austerity is hurting across the board, and I urge them even at this late stage to think again about their plan. They should rethink not just the contents of the Queen’s Speech or what we are likely to see in the spending review in June but the measures that we have already had in this and previous Budgets. Those measures will lead, as Olivier Blanchard from the International Monetary Fund has said, to the Government “playing with fire” if they allow the economic stagnation to continue.

Finance (No. 2) Bill

Stewart Hosie Excerpts

Thursday 18th April 2013 Commons Chamber

[Catherine McKinnell]

HMRC’s report, “The Exchequer effect of the 50 per cent additional rate of income tax”, but I will go into that in more detail in due course.

The Prime Minister went on record and said in this Chamber that the 50p tax rate was cut because it did not raise any money—the Minister seems to have just made the same assertion—but page 39 of HMRC’s report makes it clear that it resulted in a yield of about £1.1 billion, which is hardly a sum to ignore in these straitened financial times. However, what stands out most from HMRC’s assessment—this point was also raised when we debated last year’s Finance Bill—is the number of times that the words “uncertain” and “uncertainty” appear; I nearly lost count, but it is a staggering 30 times. The Chancellor decided to give a tax cut to his millionaire pals before we had a clear picture of the impact of the 50p rate.

That is not just the view of the Opposition. Robert Chote, chairman of the Office for Budget Responsibility, stated:

“This is a judgement based on not even a full year’s data, based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”

The Institute for Fiscal Studies said:

“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”

In its report on the 2012 Budget, the Treasury Committee concluded:

“The costs and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget. We recommend that HMRC publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate.”

We agree. We need a full and proper assessment of what effect the top rate tax cut has had on tax receipts and we need to be sure that the Government continue to estimate what the gain would be if the additional rate were returned to 50%. We need, as the IFS has previously suggested, to get a clear understanding of whether the short-run response to this tax cut has been symmetric to the introduction of the 50p rate. Will people continue to use the avoidance techniques that the Government clearly believe they employed to avoid the 50p rate, or will some or all of that activity come to an end as a result of the new 45p rate? The Government should commit to our amendment’s request for such a review, if they genuinely seek to maximise revenue to the Exchequer and not to give a tax break to their millionaire friends.

[Stewart Hosie (Dundee East) (SNP)]

The hon. Lady is making a good case, particularly on the uncertainty about the reduced revenue yield, but even if the Government and the Red Book are correct and the loss of yield will be only £540 million over the next five years, I am sure she will agree that if £540 million is going spare it would be better to invest it in productive capacity for the future, rather than simply give it away in a tax cut that proves that we are not all in this together.

[Catherine McKinnell]

The hon. Gentleman makes an extremely strong point, and one that I have made repeatedly. This might seem like small change to the Chancellor, but it could make a very big difference to some of the people affected by his failing economic plan.

I am sure, given the concerns recently expressed by apparently senior Liberal Democrats, that Lib Dem Members will join us in calling for a commitment from their Conservative colleagues in the Government. Indeed, only last month a member of the Liberal Democrat tax working group stated:

“While the Treasury’s own figures about the 50p are highly questionable, the politics of cutting tax for the very rich make no sense; there is no reason why a 50p rate shouldn’t be part of a solution for tough times.”

--- Later in debate ---

[Stewart Hosie]

I am broadly sympathetic to the proposal, which could stimulate the economy significantly, but VAT brings in about £100 billion a year, so the question the right hon. Member for Wokingham (Mr Redwood) asks is valid. Does “strong growth” mean consistently positive growth and, if so, at what level and for how long, or would it require a return to trend growth of about 2.5% and, if so, for how long, or would it require above-trend growth and, if so, for how long? To have an open-ended commitment to lose potentially £10 million a year for some years would be quite a serious and significant thing, irrespective of the positive impact it might have.

[The Temporary Chair (Mr Jim Hood)]

Order. I say to the hon. Gentleman, in case he is going to make any further interventions, that he should make them a bit shorter and get straight to the point.

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[Albert Owen]

I hear what the hon. Gentleman is saying, but he referred to a figure of £100 billion, which is the total VAT take. We will not lose all of it: there will be a 2.5% reduction.

[Stewart Hosie]

A 10% reduction.

[Albert Owen]

Yes, a 10% reduction. The hon. Gentleman is talking about losing that, but unemployment is going up—these are the factors—and we will be paying more out of the Treasury for those things. We are talking about stimulating the economy, which I understand is difficult to quantify, but it would be positive.

--- Later in debate ---

[Mr Robin Walker]

It is a pleasure to take part in this debate and to speak about one of the most important and beneficial changes announced in the Budget. In dealing with the clause stand part element of the debate, I intend to talk about the level of the basic rate of income tax and, more importantly, the increase in the threshold, which, as the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, are directly linked.

I would first like to clarify one point, having been contacted by a very concerned constituent who had heard that the basic rate for the top level of tax was being reduced to £32,000 and, as she earns £35,000, was worried that she will suddenly become a 40% taxpayer. It is important to clarify that the basic rate thresholds are set on top of the threshold for paying income tax and that no one is being asked to pay the 40p higher rate until they earn £41,450.

[Stewart Hosie]

Of course, that is only part of the story, because the threshold before one pays 40% has gone down from £37,500 to £32,000, a reduction of over £5,000, while the 20% threshold has gone from £6,500 to £10,000, which is an increase of only £3,500. In fact, 670,000 more people are now paying the 40p rate than were doing so three years ago, so many more people now fall within a tax band that used to be only for the rich.

[Mr Walker]

I take the hon. Gentleman’s point. I had thought that his party was in favour of progressive taxation. Certainly, I believe that raising the income tax threshold and taking many people out of tax is one of the coalition Government’s great achievements. It was a Liberal Democrat policy at the general election, and on this occasion I will admit that they had an excellent idea.

The coalition Government are right to recognise that it is vital to make work pay and that that cannot be done through welfare reforms alone. By also ensuring that people can keep more of the money they earn, we will stimulate the economy, reward work and alter the balance between dependency and opportunity.

I am delighted that Ministers have been able to bring forward planned changes to the income tax threshold by a year so that workers at the lower end of the wage spectrum will not have to wait until 2015 to pay less tax. As a result of the changes announced in the Budget, more than 34,000 people in Worcester will receive a tax cut and 3,370 people who would have been paying income tax in 2010 will pay none at all. That will not only reward those people, but directly stimulate our local economy—we have heard from Labour Members about the importance of people having money in their pockets to spend in the shops. In four years, the threshold at which people have to pay tax will have been raised by 50%, which is good news for millions of part-time workers who have been taken out of the tax system altogether and full-time workers on average earnings who benefit from a reduced burden of income tax.

The Opposition have downplayed those changes and focused on changes to tax credits to argue that some working families will be worse off. In doing so, they show a profound misunderstanding of the pride people take in the money they earn and their desire to support themselves. It is far better for the individual and their family to earn their money, keep the fruits of their labour and be able to spend it as they see fit than for it to be taken away and for the individual to be dependent on the faceless benignity of an all-knowing state that might choose to hand a proportion of it back—might—but that, if Labour ever gets control of the Treasury again, might find itself without the means to do so.

To listen to some of the speeches we have heard from the Opposition over the past few weeks, one might be forgiven for believing that the tax credits system, as it currently stands, was a vital part of Attlee’s welfare state and a bastion of the post-war consensus; it is not and it was not. In its current form, it is the creation not of a Beveridge or a Bevan, but of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who so rarely graces the House with his presence. I am glad that that complex system, which takes money away from working people to feed it through the Government sausage machine and re-allocate some of it, is to be rolled into universal credit and reformed to ensure that work will always pay.

It is far better to remove the tax from thousands of hard-working people in my constituency, and millions across the country, so that they can keep the money they have earned for their needs, their homes and their families. If we are to support families, it is far better, as the right hon. Member for Birkenhead (Mr Field) has argued, to use public money to invest in early intervention than to use it to prop up a complex system of credits that fails properly to support work and has always failed to reach millions of the people who, in theory, are eligible for it.

The fact that the Government are increasing the tax threshold shows that we are rewarding work at the same time as simplifying the tax system. The fact that we have been able to bring forward those changes shows that there is a sense of urgency about delivering an unalloyed public benefit, which many Labour Members have supported today.

I would argue that the same sense of urgency should be brought to the issue of child care support for working families. The Prime Minister set out exciting policies on that before the Budget but my constituents are being asked to wait until 2015 for the support. I have heard from many constituents who are delighted to hear that it will be available through the tax system but are then devastated to realise that by the time it is implemented, their children will have grown out of the eligibility criteria.

If a thing is worth doing, it is worth doing now. I urge the bright and brilliant men and women of the Treasury to bend their backs to the task of bringing those valuable initiatives forward in the shortest possible time. While they are at it, I urge them to consider a proper transferable married person’s tax allowance to support the family.

I welcome many initiatives in the Budget and I hope that the Chair will not rule me out of order if I touch briefly on a few of the others that will make a real difference to people in Worcester. Freezing once again the duty on fuel is more than welcome and much appreciated. Removing the much loathed beer duty escalator will raise a toast in many of Worcester’s pubs. The employment allowance will help more small businesses to create vitally needed jobs.

Returning to my opening remarks and the matter under consideration, I make one suggestion for the future, and I sincerely hope that Treasury Ministers can take it on board. Raising the income tax threshold is and has been the right thing to do, and it remains so. It is wonderful that we have brought forward to 2014 the date at which the threshold will reach the magic number of £10,000. However, today we should open a debate about that number. The figure of £10,000 was not worked out by economists or in careful consultation with employers and workers, nor was it based on any reflection of financial reality; it was drawn up as a manifesto promise in a party conference on the eve of an election.

In my view, the Conservative party missed out by not making that promise ourselves. Today we should start to consider the level at which the threshold for income tax should be set in the future. I believe that it should be the same as the earnings of a full-time worker on the minimum wage.

Finance (No. 2) Bill

Stewart Hosie Excerpts

Wednesday 17th April 2013 Commons Chamber

[Stephen Williams]

The Chief Secretary to the Treasury is indeed a Liberal Democrat. I am sure my right hon. Friend has given this policy issue a great deal of careful thought with his advisers and I am sure that if he were standing where I am standing today, he would be making similar points to those that I am making.

There are two parts to new clause 5. As well as calling for a study of—we now know—how to raise £2 billion through a mansion tax, however ill defined the composition of that tax would be, it is also meant to fund a tax cut for millions of people on middle and low incomes, as part of a fair tax system. Again, that is simply not specific enough. We do not know what it means. I am guessing—I can guess, but it would not be fair for those in the Treasury to have to guess how they would have to do such a study—that the purpose is to fund the reintroduction of a 10p rate of income tax. That is my guess, but it is a well informed guess, because the Opposition’s amendment 4 to clause 3, which we will come to tomorrow, suggests that they want to reintroduce a 10p rate of income tax. Again, however, neither that amendment nor new clause 5 gives us any detail for how that would work or, for instance, to what income band it would apply.

Perhaps that it is because the history of the 10p rate is such a miserable memory for Labour Members. I remember the 2007 Budget, which was the last one the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) introduced, when he scrapped the 10p rate of income tax specifically to fund a reduction of the rate of income tax from 22% to 20%. However, the coalition Government have made the principle of the 10p rate of income tax completely redundant, because we have introduced not a 10p rate on people with very low incomes, but a zero rate. I am sure that most of our constituents, whether in Chorley or Bristol West, would much prefer to pay a round tax rate of zero on their low earnings than 10%, which appears to be—although we are not sure—what the Labour party is proposing.

I will therefore not be supporting new clause 5 in the Division Lobby and I would invite all my Liberal Democrat colleagues not to support it either. We are completely clear as a party. We support the introduction of a mansion tax. We are clear about how it should be contrived, on whom it should be levied and how the proceeds from it should be spent. We do not need anybody else to do a study for us—whether the Labour party or the Treasury—to tell us how it might work. It is a great shame that after three years in opposition, at the first opportunity that Labour has taken to say, just tentatively, what it is in favour of—rather than talking about the long list of things that this Government have done that it is against—and just a few weeks after converting to a mansion tax, the Opposition need somebody else to tell them how it will work.

[Stewart Hosie (Dundee East) (SNP)]

That was an interesting half hour. It has changed entirely what I had planned to say, such is the power of the hon. Member for Bristol West (Stephen Williams), although I suspect not necessarily in a way he would like.

A review of the workings of the support given to the housing market, which new clause 1 would provide, is necessary to ensure that there are no abuses, but perhaps also to make it clear to all sides that the support being provided is not necessarily for affordable homes, but for the building sector—although it would be better if it were primarily for affordable homes. I think it would be quite useful to have a report on that.

On new clause 5, I was initially intending to ask the hon. Member for Nottingham East (Chris Leslie) to provide a little more detail, in the way that the hon. Member for Bristol West did. There are a number of reasons for that, but mainly it is because it might direct the Treasury towards where it might want to look. If, for example, the mansion tax were to be based on council tax banding, then, as we saw in Cardiff where a re-banding took place, it was not necessarily the wealthiest who ended up paying more; 64% of households ended up paying more, which was not a very good outcome. Secondly, if it is paid on the basis of stamp duty land tax, as currently configured, the Exchequer yield would be received only on the sale of the property. Quite clearly, it would not capture all the excess wealth from every property valued at over £2 million. If the mansion tax is to be a new tax, duty or levy, it would have been useful to have it explained.

There may well be a perfectly sensible case to make for a mansion tax, and I thought that that was what the hon. Member for Bristol West was trying to do at the beginning of his speech. As he went on, however, things became rather more confused. I paraphrase, but I think quite accurately, that the hon. Gentleman said that the mansion tax would apply only to a mansion or big house where a person or people lived. If this mansion or big house has one or two rooms that are put out to let, but perhaps not advertised particularly well, it could become a bed and breakfast or a hotel—no longer necessarily remaining a residential property where a person lives.

A number of interventions and discussions took place about farm houses or estates that might breach the threshold. Again, a house where people lived seemed to be the criterion, but one could easily imagine an associated outbuilding converted to house a few chickens, which could change the building from being a residential property. It was interesting to hear that. The hon. Member for Bristol West also referred to the building being the key, even within the curtilage of land on which crops were grown. If an ornamental garden with fruit trees that could be harvested lies inside the curtilage of land but the property is worth £3 million or £4 million, it could, according to the hon. Gentleman, be exempt.

[Stephen Williams]

rose—

[Stewart Hosie]

Before I go on, I will happily take the hon. Gentleman’s intervention.

[Stephen Williams]

I am glad that the hon. Member for Dundee East (Stewart Hosie) is phrasing his questions in this way, but I suggest that he direct them to Labour Front Benchers, as it is, after all, their new clause and they have failed to provide the detail. I provided more detail in my speech in order to be helpful. I can answer all the hon. Gentleman’s questions, but I think he should wait for my pamphlet, which I can assure him will knock on the head all those anti-avoidance issues that he raises.

[Stewart Hosie]

I am almost at a loss for words at the suggestion that anyone could imagine that the world will hold its breath waiting on a Liberal Democrat pamphlet! [Interruption.] I do not want to digress, Mr Hoyle, but that is a mind-boggling proposition.

The confusion in the hon. Gentleman’s contribution was far from saying that new clause 5 does not make sense; rather, it confirmed why the new clause was necessary. There are so many flaws, omissions and potential avoidance mechanisms in the Liberal Democrats’ proposals—and we had all assumed that they were worked up to some extent when they went into this miserable Government—that it makes perfect sense for the Treasury to investigate them with all their flaws to determine whether they, or another version of them, are even workable. If the hon. Member for Nottingham East chooses to press new clause 5 to a vote, we will be happy to support it.

[Sammy Wilson (East Antrim) (DUP)]

One of the common themes that has emerged on the Opposition Benches throughout the debates on the Budget is that the Government can and should do something to stimulate the economy by means of additional capital spending. One way of doing that—and one way of rapidly stimulating the construction industry—is to build houses; and, of course, many other social benefits arise from house building.

The Government have chosen a particular path towards the stimulation of house building, and I am not sure whether they have chosen it simply in order to avoid the registration of additional borrowing as part of Government debt. The means by which they have decided to stimulate the housing market—this is significant, because it is stated in the Red Book—will have no implications for central Government public sector net borrowing; it will have an impact only on the central Government net cash requirement. It seems that the Government may be engaging in the contortions described by the hon. Member for Nottingham East (Chris Leslie) in order to avoid certain Treasury accounting arrangements, rather than considering what policy will prove effective.

That is the first thing that we should consider. The second was alluded to by the hon. Member for Dundee East (Stewart Hosie). If the sole intention is to stimulate the housing market and the construction industry and it does not really matter who buys the houses or benefits from the policies, the Government ought to make that clear. Such a move would have various side effects, perhaps benefiting people who, in the opinion of many Members, do not need help with housing. If the policy is to provide a general stimulus across the board which is not relevant to the size of people’s incomes, to whether they are first-time or second-time buyers or to whether they are buying to let or buying to live in their houses, that should be made clear to us.

I do not think that the Government should be afraid of new clause 1. One of its two policy schemes, the guarantee scheme, does not involve any expenditure, because it will come into operation only if a house has to be sold at less than the price that was paid for it. There is evidence that such schemes work. In the Irish Republic, the National Asset Management Agency introduced its 80-20 scheme in an attempt to stimulate demand for some of the properties that it had taken over, and I hope that it will introduce the scheme in Northern Ireland as well. It owns property there, and is currently putting it on the market. There is evidence that the guarantee enabled people to secure loans that would not normally have been available to them, because the lenders had been relieved of some of the risk.

The right hon. Member for Delyn (Mr Hanson) asked whether such schemes would apply throughout the United Kingdom and in all the devolved Administrations. He mentioned the potential for distortion in the housing market, suggesting that people might move from one country in the UK to another in order to take advantage of them. I understand that the guarantee scheme will apply throughout the United Kingdom.

The second scheme involves equity loans. I do not think that the Government should be worried about scrutiny of its likely effectiveness. For some time, Northern Ireland has operated a co-ownership scheme which enables people to rent half a property and buy the other half. We were able to negotiate that with the banks because all the risk was being taken by Co-ownership Housing and the public purse, which would be responsible for the first 50% of any loss. The banks have actually dropped the requirement for a 20% deposit. The good thing is that there has been no cost to the public purse; it has simply been borne by the banks not requiring the deposit, because the risk has been taken out of the house purchase.

--- Later in debate ---

[Sammy Wilson]

That is the next point I want to make—

[Stewart Hosie]

Before the hon. Gentleman moves on, he is making a number of very serious points about the financial transaction part of housing support, but I hope he agrees that the one downside is that it does not allow that cash—such as it is—to be used for capital spending in any way apart from housing, and that it is being paid for by a real-terms cut in the Revenue departmental expenditure limit over the next two years.

[Sammy Wilson]

rose—

--- Later in debate ---

[Sajid Javid]

The hon. Gentleman raises a good point, which is that it is the Government’s duty to carefully consider what is meant by a second home. He has given as an example the situation in which someone has no intention of owning two homes, but is in the process of moving home. Let me share another example. There are couples who unfortunately get divorced, and there may be a need for another home as the family splits. The question then arises, is that a second home or not? It is sensible for the Government to examine such issues carefully as we flesh out the details.

[Stewart Hosie]

rose—

[Sajid Javid]

In the interests of time, I must press on and answer some of the questions that were raised, including by the hon. Gentleman.

The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) and others asked about the devolved authorities, in particular Scotland. The mortgage guarantee scheme is a UK-wide scheme and will be available to all UK residents, including of course those in Scotland and other devolved areas. The mortgage equity scheme is an England-only scheme as housing is a reserved issue among the devolved authorities.

Finance (No. 2) Bill

Stewart Hosie Excerpts

Monday 15th April 2013 Commons Chamber

[Mark Field]

rose—

[Stewart Hosie (Dundee East) (SNP)]

rose—

[Mr Gauke]

I will give way first to my hon. Friend the Member for Cities of London and Westminster (Mark Field).

[Mr Gauke]

My hon. Friend makes an important point. The Government recognise that capital and investment can be very mobile, and that they are more mobile in some sectors than others. We have demonstrated a willingness to listen in this regard. Our principal policy in this area has been to adopt a lower rate, but we have recognised that in certain areas of considerable mobility, we need to respond to what is happening. We have done so through the measures in the Bill, and through the patent box in last year’s Finance Act, which was important in further ensuring that the UK is an attractive location for investment. I shall now give way to another Member of Parliament with a constituency interest in the video games industry.

[Stewart Hosie]

I welcome some of these targeted measures, particularly those relating to video games. I think that they are sensible. I also welcome the tenfold increase in the annual investment allowance, but does the Minister not think it odd that that increase will last for only two years? Given that certain capital investments will take some time, is it not ludicrous that in two years’ time, the general annual investment allowance will revert to £25,000 a year? Might not that create uncertainty? Would it not be better to maintain the general annual investment allowance rate at a higher level, to encourage medium-term investments not only for two years but for three, four and five years?

[Mr Gauke]

There is a balance to be struck, and we have rightly focused on bringing down the rate of corporation tax, not only for larger businesses but for smaller ones as well. Let us remember that the small profits rate was set to go to 22% when we came into office, and that it is now 20%. We have increased the annual investment allowance for that two-year period to try to stimulate investment at a time that is not necessarily the easiest for many businesses. That is part of what we have done to help small businesses during this difficult period. Taking steps to bring the rate down is important; it is a tradition, if you like. It has been our direction of travel in the UK over many years, and I think that we have now got the balance about right.

--- Later in debate ---

[Mr Gauke]

I am grateful to the hon. Lady for putting on the record her opposition to the increase in the personal allowance. I am sure that is something that will be read with interest by her constituents.

[Stewart Hosie]

rose—

[Mr Gauke]

Because he is insistent, I shall give way to the hon. Gentleman.

[Stewart Hosie]

The Minister is keen to discuss the change in the basic rate allowance, but he is rather less keen to discuss the 40% threshold, which has gone from £37,000 to £34,000, then to £32,000. The Government have dragged an extra 670,000 people into the 40p tax rate, which used to be for the rich, and that is before this year’s changes. He is rather less keen to discuss that. I wonder why.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

May I start by making two observations? This ought to be the keynote debate on the Government’s annual flagship Finance Bill, but there are only five Government Members in the Chamber—two Ministers, a Whip, a Parliamentary Private Secretary and one solitary Liberal, who I suspect will leave at the earliest possible opportunity—none of whom is now standing to speak. It is a terrible indictment of the Government that even the normal cheerleaders are not here to back the Chancellor. That probably indicates that many Government Members consider the Budget to be as miserable as we do.

I was struck by the fact that the hon. Member for Redcar (Ian Swales) chose to defend the millionaire tax cut. One reason he gave rather explodes the “we’re all in it together” myth, which, as someone else has said, is rarely used by Government Members these days. Even if this year’s Red Book is right and the cost of the millionaires’ tax cut is only £500 million in the next five years, I think we would all argue that if £500 million is going spare it would be better to spend it on direct capital investment, capacity for the future, and job and GDP creation, rather than give it to people who are already wealthy.

The Finance Bill is a consequence of the March Budget. Apart from some measures I welcomed relating mainly to business tax, it was a pretty miserable Budget. It was miserable because, by and large, it merely continued with the Government’s failed policies. We know they have failed because the Chancellor told us that they have failed—they failed by every measure he set. The net borrowing requirement, which was due to fall to £92 billion, has gone up to £121 billion. The national debt, which was due to peak at 92.7% of GDP—£1.36 trillion—in 2014-15 on the treaty calculation, is now expected to peak, on the same calculation, at more than 100% of GDP. National debt on the treaty calculation is due to reach 100.8% of GDP, or £1.58 trillion, by 2016-17. Therefore, when we hear that the deficit is lower and debt will fall, it does not really bear any scrutiny, even by the Chancellor’s and the OBR’s own numbers. The Chancellor has failed to meet his own targets on his original time scale for his own fiscal rules: that the structural current deficit should be in balance in the final year of the five-year rolling programme, and that debt should fall as a share of GDP. Of course, according to the OBR those objectives were highly dependent on GDP growth, which, as we have seen in previous Red Books, was based on incredible, unbelievable, unmet and frankly unmeetable rates of business investment growth.

Let us remind ourselves that in 2010 the Government suggested that business investment had to grow by between 8.1% and 10.9% a year for five years. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had actually turned negative, which was extraordinary, and so it went on year after year after year. They were at it again this year, forecasting future business investment rates of between 6.4% to 10.2% from 2013 onwards. I suspect that nobody, even in Government, believes that those targets will be met. The Chancellor, or some other poor Minister, will be back at the Dispatch Box at some point in the near future explaining why this was all somebody else’s fault.

The Chancellor also failed because the Budget and the Bill continue down the path of deep cuts and tax rises. I am sorry that the hon. Member for Cities of London and Westminster (Mark Field) is no longer in his place. He gave a customary thoughtful speech, in which he suggested that perhaps we had all not been honest and that the cuts should be deeper. However, last year’s Red Book told us that the total cost of fiscal consolidation—discretionary consolidation; that is, tax rises and cuts—would be £155 billion a year from 2016-17 onwards. As I pointed out on Budget day, that 2016-17 figure of £155 billion of discretionary consolidation, tax rises and cuts had somehow been deleted from the Red Book, and there was no forecast for 2017-18.

It is fair to say that the Government have made a U-turn and that the fiscal tightening will continue to be the equivalent of approximately 7.5% to 8% of GDP stripped out of the economy in tax rises and cuts. It is extraordinary that they think they can cut their way to growth at the best of times, but that they think they can do so while pursuing a policy which, according to their own numbers, will see fiscal consolidation, discretionary tax rises and cuts of the equivalent of between 7.5% and 8% of GDP in demand stripped out of the economy. If they can cut their way to growth on the back of that, they should be given a Nobel prize. The problem is that none of us believes it will happen. Of course, the overall impact of 4:1 cuts to tax rises tells us exactly who will bear the brunt of these austerity measures.

I said at the beginning that I do not want to be wholly negative—there were some measures to be welcomed. Earlier, we discussed briefly one of the most potentially significant measures, which is the tenfold increase in the annual investment allowance to £250,000. That is for two years only, however, and the Government need to understand that even at this level investment decisions may take some time to be agreed before businesses are able to use the benefit. I therefore ask the Government to look again at the temporary nature of the increase. While we would certainly argue that it makes sense to have targeted tax allowances such as this—it makes sense for businesses to be allowed to keep more of their own money to invest, particularly when banks are still refusing to take the full share of the risk they should take—the real problem with the Budget, the Red Book and the Bill is that the Government continue to set themselves against direct capital investment when the economy needs it most, which is right now.

To understand just how damaging that is, let me give one example: the UK Government argue that they have given Scotland an additional £279 million in capital over the next two years. It is debateable whether that is true, as I will come to, but even if it is, it would still imply a 20% real-terms cut to the Scottish capital budget over the four-year spending review period. But it is not real capital expenditure: £266.5 million is classified as a financial transaction, meaning that it can be used only to fund loans or equity investments. That is a straitjacket. It is accompanied by £103.5 million cut in hard cash from the resource budget, half of which— £56 million—will be cut this year from already agreed budgets. This is not just daft; it is economically really, really silly. I despair that the Government think it makes sense to be putting administrations—public bodies of one sort or another—into a straitjacket, while removing hard cash and discretionary spending.

[Pamela Nash (Airdrie and Shotts) (Lab)]

Before the hon. Gentleman moves too far on from capital spending, will he say why his party in Scotland is imposing even more draconian cuts on local government than the parties in government here, cutting public sector construction projects in Scotland and contributing to the 40,000 construction jobs lost in Scotland since his party took power?

--- Later in debate ---

[Stewart Hosie]

The problem with that question is that it comes straight from the Labour party central office briefing note. The Scottish Government quite rightly re-profiled revenue spending into capital to make up for the capital cuts from the UK Government. We did that because we recognised that—I think there is unanimity on this—direct capital investment had a 1:1 impact multiplier in terms of GDP growth. That is extremely important, because the problem is that we do not have enough economic growth, so the Scottish Government were right to re-profile revenue into capital spending.

As I said earlier, the 4:1 ratio of cuts to tax rises under this Government, plus their smoke-and-mirrors approach to direct capital investment, shows just where their priorities lie, and it is not with people, jobs or growth. We can all probably agree that plan A has failed, and with the UK still teetering on the brink of a triple-dip recession the Chancellor seems to want to continue to do the impossible, which is to cut his way to growth. It has not worked and it will not work; and this Finance Bill will not help.

The Bill does, however, make provision for personal tax changes, and the increase in the basic rate threshold to £9,440 is welcome. The Government are right to try to take as many people as possible on low and modest incomes out of tax, and the savings from that increase, added to the £326 of savings from basic rate taxpayers, whose personal allowance has risen from £6,475 in 2010 to £8,105 last year, makes sense, but that is only part of the personal tax story. As I have said, the Government are also foolishly ploughing on with a tax cut for millionaires, which at their own conservative estimate will cost £500 million.

It is those in the middle who are really being squeezed. The tax relief in terms of the 40% band used to be £37,400, but that was decreased to £34,300 last year, so for every £326 changed up in the Budget, at 20p in the pound, people have had to shell out an extra £560 at the 40p rate, before this year’s changes. So although the change in this year’s basic threshold is welcome, we must recognise that the Chancellor pulled the same trick in the middle again by pre-announcing another cut to the 40% threshold down to £32,010 last year. That means that in three years the Government have taken the proportion of taxpayers paying the 40% rate from 10% to 13% of the total taxpaying public—up 670,000 in three years. Over 25 years, the proportion has doubled to 2.1 million extra people now paying a tax rate that was previously only for the rich. With hundreds of thousands of people now paying a 40p tax rate that was never designed for low and middle incomes, it is safe to say that the middle is not so much being squeezed by the Government as garrotted.

[Ian Swales]

Does the hon. Gentleman recognise that the first two changes in the 40p band were to ensure that 40% taxpayers only got the same amount out of the threshold increase as a basic rate taxpayer? In other words, it was a measure of fairness across the spectrum.

[Stewart Hosie]

I recognise that an increase in the basic threshold from £6,400 to £9,400, which is a £3,000 rise, implies a saving of about £600, but a fall in the 40% threshold from £37,400 to £32,100, which is £5,000, implies a cost of £2,000. If one was paying 40% before, they still will be, while many hundreds of thousands more who were not, and who ought not to be, now will be. I do not see the fairness that the hon. Gentleman speaks of. I suspect that when we get to the next election, that might be part of the Liberal party’s campaign against their current Tory friends.

I want to turn to one of the most damaging small parts of the Finance Bill, which is the planned increase in air passenger duty. APD has become increasingly unpopular in the aviation industry and is now the most expensive in Europe. We know that standard rates vary from £13 for a short-haul flight to £94 for a long-haul flight. The rates were increased by RPI on 1 April this year, as announced in the 2012 Budget, and will be subject to a further increase by RPI next April, as announced in this Budget. We have consistently made the case for devolution as a means to improve connectivity and to give the aviation sector a competitive edge.

As the Minister will know, the Scottish Government Deputy First Minister wrote to the main airports in 2012 reaffirming our intention to press the UK Government to devolve APD as soon as possible. We do so because it makes economic sense. The study “The economic impact of Air Passenger Duty”, published only this February, confirmed that. It suggested that abolishing APD entirely could boost GDP by 0.46% in the first year, with benefits continuing to 2020, and that the GDP boost to the UK economy would amount to at least £16 billion in the first three years and result in almost 60,000 extra jobs over the longer term. We would argue, therefore, that the time for continually increasing APD has gone and that the time to devolve it is now.

We also welcome the support of Scotland’s four main airports for the devolution of APD. It is safe to say, however, that we have become increasingly frustrated with the UK Government’s continuing prevarication and the impact on Scotland and Wales of the further increases in rates from April this year and April 2014. To be fair, the Government have recognised, in devolving APD to Northern Ireland, that a one-size-fits-all policy might not be appropriate, but increasing APD throughout the rest of the UK and not devolving it demonstrates that the Government do not understand the differences in the UK aviation sector, the connectivity challenges faced by Scotland or the needs of passengers. This is a matter that we hope to return to in the Committee of the whole House.

The Finance Bill is utterly inadequate and ignores the pressing need for investment and growth. I am happy to say that the Scottish National party and Plaid Cymru will oppose it tonight.

Tax Fairness

Stewart Hosie Excerpts

Tuesday 12th March 2013 Commons Chamber

[Mr Gauke]

In the last Budget package we increased taxes on the wealthy—higher rates of stamp duty, closing loopholes and putting a cap on reliefs. That is getting far more money from the wealthiest than a 50p rate that failed to do what income tax is supposed to do, which is raise funds to pay for public services. It did not do that.

[Stewart Hosie (Dundee East) (SNP)]

One of the reliefs that has been reduced is on 40p tax, which went down from £37,000 to £34,000 and then to £32,000 this year. The Minister has squeezed the genuine middle class—the people earning just over £40,000—not the £400,000 a year middle class. That bit of cynicism will never be forgotten by those people.

[Mr Gauke]

I am afraid the hon. Gentleman is wrong. People earning just over £40,000 have seen tax cuts and a reduction in the total amount of income tax they pay, because the personal allowance has increased to more than compensate them. The higher-rate threshold has not increased as it might have done, because higher-rate taxpayers would gain more from the personal allowance than basic rate tax payers. Someone on between £40,000 and £44,000 a year is paying less income tax as a consequence of the Government’s policies than they would have done otherwise.

--- Later in debate ---

[Mr Brown]

My hon. Friend is correct: the figures given by the IFS are there for all to see and cannot be disputed. We are seeing real pain and suffering, hard as never before, in many communities. I am sure that constituents of hon. Members on both sides of the House are looking to their MPs for guidance and support. I fear in particular for young families. Those of us who are slightly more senior in years know what it is like to be told that we have to tighten our belts, but younger families find it difficult to cope with such comments.

Over the past two years the Government’s approach has been shown to be not working, but Labour Members know that it can never work. Prosperity will be achieved only when everyone plays their part in building the economy—a recovery made by many, not just a few at the top who believe they are aiding some recovery. That is the lesson of history. In the industrial revolution, which I know was way back, it was those who went down the mines, spun the cotton, built ships and constructed bridges who drove the economy forward. The nation is crying out for a fairer tax system, which we will put at the heart of our new priorities. As well as cancelling the millionaires’ tax cut and the changes to tax credits this April, a Labour Budget would tax houses worth more than £2 million and use the money gathered to cut taxes for working people. A fairer tax system would send a message about how Britain will succeed in the years ahead that says: “When you play your part and make your contribution to the economy, you will be rewarded.”

The Labour party would tackle vested interests. We need to act when working people are paying more than they should. We have said that we would break the stranglehold of the big six energy companies, stop the price rip-offs of the train companies on the most popular routes and cap the interest on payday loans.

Our country has to change. We must end the culture that says that university is always best and that vocational education is second class. That simply is not true. We see the need to create a new technical baccalaureate to complement A-levels. We see the need to give employers, for the first time ever, control of the money for training. We see the demand for Britain’s employers to step up and offer real apprenticeships and proper training.

Today, we are increasingly two nations with high-skilled, high-paid jobs for those at the very top, but low-skilled, low-paid jobs that involve long hours for too many people. A one nation economy needs to support businesses that create sustainable middle-income jobs by introducing a modern industrial policy.

[Stewart Hosie]

Will the hon. Gentleman give way?

[Mr Brown]

Yes.

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. I hope that the hon. Gentleman’s question will be about the mansion tax, because it seems as though the speech is going somewhat wider.

[Stewart Hosie]

I very much agree with the tenor of what the hon. Gentleman is saying, particularly in relation to fair taxation. However, I remind him that barely any of the sensible things that he wants to do were achieved in the 13 years of the Labour Government. Some of what he says is therefore rather galling to listen to.

[Mr Brown]

The hon. Gentleman and others in this House have complained long and hard over many years about the investment that was made in this country by the Labour Government and the work that they did to stabilise and take forward the economy. There is a reluctance to remember what had to be done at the time of the crisis when the banks failed. We had to support the economy of this country by supporting those banks.

To conclude, I will return to the point that I made at the beginning of my speech. All we are asking is that the Government bring forward proposals for a mansion tax at the earliest opportunity. We are not asking that a mansion tax be introduced, but we need to engage in the debate. I would go further and say that what our nation needs and deserves above all else is an open discussion about taxation and what it means to our country. What can taxation deliver for the people of our nation? Our European neighbours have such discussions.

I hear what Liberal Democrat Members say, but any sincerity that they have must be shown in the Division later this afternoon.

--- Later in debate ---

[Catherine McKinnell]

We have made Labour’s approach clear. We have said that we would like to fund a 10p tax rate for the lowest earners. We have not specified that that is what the Government should do with this; we have said that it should be used to fund a tax cut for those on low and middle incomes. So if the Liberal Democrats want to support us in the Lobby, they can then pressure the Government to use that money in any way they see fit.

So let me remind the House of the context of today’s debate. Many of our constituents are struggling to make ends meet, due to a combination of under-employment, stagnating wages, rising food, fuel and child care costs, and of course the Government’s hike on VAT. Our constituents will be further hit by a £6.7 billion cut in working-age benefits and tax credits over the next four years. [Interruption.] The Under-Secretary of State for Communities and Local Government, the right hon. Member for Bath (Mr Foster)—the Liberal Democrat Minister—is groaning but that is the reality for many families up and down the country. At the same time, we read of hundreds of bankers at different financial institutions, including one owned by the state, earning more than £1 million per year. We have a Chancellor seeking but failing to use his ever-diminishing influence in Europe to fight against proposals to limit bankers’ bonuses to “just a year’s salary”. We have a coalition Government who will give the 13,000 people in this country earning more than £1 million a year a tax cut of £100,000 next month. No wonder people are angry and no wonder our economy is not growing when ordinary people cannot afford to spend and invest. We—or, more accurately, the Prime Minister—heard only last week from the OBR that fiscal consolidation measures have reduced economic growth over the past couple of years.

[Stewart Hosie]

The hon. Lady is absolutely right that the tax cut for millionaires is dreadfully unfair, but can she explain why, when the Labour party had the chance, it failed to oppose the tax cut for millionaires?

[Catherine McKinnell]

These arguments have been rehearsed many times and we have made clear our absolute opposition to cutting the top rate of tax at this time while slapping charges on the poorest in society. No wonder the hon. Member for Harlow (Robert Halfon) has spoken of the Government’s need to neutralise claims that they cut taxes for the rich.

Let us look at the Opposition motion, because I think the Liberal Democrats are dancing on the head of a pin when they say that they cannot support it. It calls for the introduction of a charge on properties worth more than £2 million, a mansion tax that the Liberal Democrats have estimated would raise £2 billion. We say that it could be used to fund a 10p tax band of up to £1,000, benefiting 25 million basic rate taxpayers to the tune of £100. We believe that Liberal Democrat Members should put aside their loyalty to the Conservatives and vote in favour of a principle—the principle of tax fairness at a time when so little of it is in evidence from this Government.

How could the Liberal Democrats do otherwise? Only last month, they made the introduction of a mansion tax the centrepiece of their Eastleigh by-election campaign. Recent media appearances have certainly suggested that they will support the principle, with the Business Secretary declaring that if the Opposition motion

“is purely a statement of support for the principle of a mansion tax I’m sure my colleagues would want to support it.”

Asked again at the weekend which part of the Opposition motion he disagreed with, the Liberal Democrat president, the hon. Member for Westmorland and Lonsdale (Tim Farron), replied, “None of it.” The former leader, the right hon. Lord Ashdown, declared that it would be “weird” if the Liberal Democrats voted against it. He is not the first person to call Liberal Democrats weird, but they have the opportunity to put that right today and to get on the road to normality by supporting their own policy.

Only yesterday, the hon. Member for Bristol West—I shall mention him one last time—said of the Opposition motion,

“I could have written it myself”,

yet today he complains that we have stolen his party’s policy. If such childishness gets in the way of the Liberal Democrats supporting their own policy in the Lobby, members of the public will be baffled and extremely disappointed.

Financial Services (Banking Reform) Bill

Stewart Hosie Excerpts

Monday 11th March 2013 Commons Chamber

[Greg Clark]

I will deal with the important recommendation made by my hon. Friend’s commission very shortly.

For the sake of completeness, let me summarise the Bill’s other main provisions.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said that electrification would work because the regulator—the PRA or the FCA where a financial institution is not PRA-regulated—will be given the power to ensure core services. Does he see any issues arising if the PRA and the FCA perhaps take a different approach to what they might do to the same institution? Is there a concern about two different regulators looking at different institutions on the same matter?

[Greg Clark]

The hon. Gentleman makes an important point, which we considered in drafting the Bill. We would expect all of these activities and institutions to be regulated by the PRA. The FCA was included in the Bill as a means of ensuring that if some other activities were to take place in the future—although we do not envisage that happening—it would not be necessary to come back to the House. That is our clear intention.

Let me summarise what the Bill does include before I go on to talk about what it does not. As proposed by the independent commission, the Bill provides that deposits protected by the Financial Services Compensation Scheme—the deposits of individuals and small businesses up to £85,000—will be preferential debts in insolvency. The Bill provides the regulator with the power to require ring-fenced banks to maintain a buffer of at least 17% of what is referred to as the primary loss absorbing capacity—that is, equity, other non-equity capital instruments, and debt that can be written down or converted into equity in the event that a bank fails. This allows losses to fall on the bank’s wholesale creditors—sophisticated financial investors—rather than on ordinary taxpayers, as was the case with RBS.

A legitimate question arises as to whether additional loss absorbency requirements should apply, in an international financial centre such as the United Kingdom, to the overseas operations of UK-based global banks. This has been much debated in the House, both before the parliamentary commission and elsewhere. It is obviously right that where the overseas businesses of a UK-based bank could pose a threat to UK financial stability, or to the British taxpayer, that bank should issue loss-absorbing debt against the entirety of its group operations. Equally, where overseas units do not pose such a threat they should be exempt from loss-absorbing debt requirements, not least to avoid creating a false impression that the UK somehow stands behind those overseas businesses.

The question that has exercised the commission is this: who should decide? The Government have listened to the Financial Services Authority and the parliamentary commission on how that should work. We agree that the requirement should follow the strategy for managing the failure of each group, known as the resolution strategy. Where a UK parent company will provide support to resolve failing overseas operations, the regulator must ensure that the parent company issues loss-absorbing debt against the entire group. However, where a bank’s overseas subsidiaries would be resolved locally by overseas regulators without reliance on the UK parent, the parent company should not be required to issue loss-absorbing debt against those overseas subsidiaries. Crucially, it will not be the bank’s call but the decision of the regulator and the Treasury as to whether group primary loss-absorbing capacity—PLAC—should be held.

--- Later in debate ---

[Greg Clark]

The resolution plans have to be agreed between the regulator and the Treasury, so both will have that responsibility.

[Stewart Hosie]

Just to get some clarity on the previous point about the relationship with overseas regulators, if both the Treasury and the regulator are required to be convinced of the plan, how will that work in the relationship with, say, the single supervisory mechanism in Europe? Will it, too, not be required to be convinced, or at least will discussions not have to take place, to determine first where liability might lie and then whether the resolution plans are adequate?

[Greg Clark]

The reason for arranging this through the resolution plans is that they should be agreed in advance and everyone should be clear who will be responsible. It is no good the Treasury or the regulator in this country thinking that an overseas jurisdiction will pick up the bill if they were actually blissfully ignorant of it, so the hon. Gentleman is absolutely right that there has to be that clarity.

As I promised on 4 February, I have provided Parliament with drafts of the principal statutory instruments so that the House, while scrutinising the Bill in detail, can understand more clearly how the powers that the Bill grants are intended to be used. As a further aid to scrutiny, I will also make available to the House, in advance of consideration in Committee, a so-called Keeling schedule giving a consolidated text of those parts of the Financial Services and Markets Act 2000 that will be amended by the Bill, including the amendments the Bill will make.

Let me turn to some of the relatively few recommendations of either the Independent Commission on Banking or the parliamentary commission on which the Government have not been persuaded. There are four main areas to consider. The first is the timing of scrutiny, which the hon. Member for Nottingham East (Chris Leslie) mentioned. I hope that hon. Members will accept, from the process I described earlier, that these proposals have already benefitted from an exceptional degree of consideration, both in the amount and, if I may say so, in the august quality of its scrutineers. It will soon be three years since the Vickers commission began its work, and it is less than two years until all the secondary legislation must be enacted if this work is to be completed in this Parliament, as I think we all hope it will be. The Bill is comparatively short—20 clauses— and the time envisaged for its Committee stage is not unreasonable for consideration of all the amendments proposed by the parliamentary commission in its report published today.

However, I know that the parliamentary commission has other advice to give, and I welcome its commitment to produce its final report by the middle of May. Once we have received the commission’s advice, we will of course want the chance to be able to take it. I therefore give this commitment: subject to the usual channels, I will make sure that this House has enough opportunity to consider and debate whatever further recommendations the commission makes in its final report.

--- Later in debate ---

[Chris Leslie]

We will see what happens under the new Financial Conduct Authority, the Prudential Regulation Authority, the Bank of the England and the Chancellor. It is important that Conservative Members realise that self-regulation failed and that not having that statutory arrangement was no great thing. Eddie George was the Governor who said, “Let’s just trust the chaps at the desks to deal with these issues.” That was how banking reform was regarded during their tenure in office. But this is turning into a history lesson.

[Stewart Hosie]

rose—

[Chris Leslie]

Speaking of history.

[Stewart Hosie]

Ten minutes ago, before the hon. Gentleman got dragged into a debate about how rubbish the tripartite system was—and it was—he was making a good point about the lack of time for scrutiny of the Bill. Not least, issues such as the one referred to some time ago—capital requirements for small building societies—took some time to emerge. Will he perhaps get away from the history of how rubbish the tripartite system was and continue to make the case for more time for proper scrutiny, so that those in the industry can tell us what they think of the final shape of the Bill?

[Chris Leslie]

For once, I am grateful to the hon. Gentleman for wanting to focus on the issues; it is important that we have enough time to look at the detail. It is also important to commend the work of the banking standards commission, which has done a phenomenal job so far. I will find today’s report of great use in the short Committee stage, because at least it has taken the rather helpful step of drafting suggested amendments that no doubt the Minister, I and others will be discussing in due course.

The banks have not changed sufficiently. The LIBOR scandal shifted the agenda away from the discussion about excessive risk taking in the financial services sector so that we are now talking almost about anti-corruption measures that need to be put in place. We have had the mis-selling of personal protection insurance and the fleecing of business customers with mis-sold hedging interest rate swap products, while the high-reward bonus season continues to roll on and on, with £600 million of bonuses at RBS sanctioned by the Government, despite a £5 billion loss, to take just one example, so why are they dragging their feet on reform?

--- Later in debate ---

[Mr McFadden]

If the hon. Gentleman believes that the tools were in place, I must refer him to the Chancellor, who is constantly saying that his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), had no alternative when the crisis hit in 2008.

Let me turn to the Bill and some of the issues before us today. There is broad agreement on the need for some kind of structural separation between retail and investment banking. It is important to understand that the point of ring-fencing, as recommended by the Vickers commission, is not to ensure that no retail bank can ever fail—that is impossible—but to make failure, if it does occur, more manageable by insulating the risks and focusing the resolution effort on the essential services that the Government judge it in the public interest to protect: people’s savings, the payments service and simple consumer and SME lending. It would be going too far, and it would be far too rash, to say that that solves the “too big to fail” problem. However, ring-fencing ought to reduce the risks of future failure to taxpayers and the wider economy.

As the hon. Member for Chichester (Mr Tyrie) has said, the parliamentary commission, on which I serve, made two proposals in relation to structural separation. The first was the reserve power to separate individual banks should they try to burrow under, climb over, erode or get through—or any other metaphor that has been used—the fence, and the Government have accepted that recommendation. The second was to have a wider power to enforce separation on the sector as a whole. That second power would be needed precisely because problems in the sector do not come in the neatly wrapped form of one institution. As we saw in 2007-08, contagion is a fact of life in banking; the weakness of one can quickly affect others. Cultural problems in one part of the sector also spread quickly. It is precisely because problems in the industry are often widespread that there is a strong case for taking a reserve power to enforce separation on the sector as a whole, in the event that the sector tries to get around the intention of the Bill.

[Stewart Hosie]

I am not yet convinced about the reserve power and have many questions. The three banks that actually collapsed were Northern Rock, Bradford & Bingley and Dunfermline, all narrow mortgage banks. How would the ability to separate investment from retail banking have helped in those circumstances?

[Mr McFadden]

The hon. Gentleman neglects to mention RBS, a universal bank, which needed major intervention to bail it out.

The Minister has said that he does not want wider separation because the Bank of England does not want it. It is true that the Bank of England has expressed some reservations about the power if it were to be wielded by the regulator. I took the opportunity to ask the Governor about it last week when he appeared before the commission. He replied that

“a provision so important that it affects the entire sector is one that both de facto and de jure will and should be taken by Parliament.”

When I explained to him that it had never been the commission’s recommendation that this be a policy decision taken purely by the regulator, and that all along we had been clear that it was a decision for Government, he said:

“As long as the decision is taken by Government, we would have no objection to that.”

I hope that we will no longer hear Ministers saying that they are rejecting this power because the Bank of England is opposed to it. This should of course be a decision taken by Government. As for the Chancellor’s point that it would be “undemocratic”, what is undemocratic about holding a proper review into legislation passed by this House as the Banking Commission suggests, or about taking a reserve power the exercise of which would involve the parliamentary process of debate and approval? The truth is that it would not be undemocratic at all.