Regulatory and Banking Reform
Thomas Docherty Excerpts(13 years, 2 months ago)
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Mr Hoban
My hon. Friend makes an important point. The Chancellor was very clear last night. Yes, we do want the banks to deleverage, but one way of doing that is to reduce their exposure to other banks and to the financial sector. That will give them the capacity within their capital, as they build up their capital levels, to continue to lend to small and medium-sized enterprises and larger corporates. That is one of the reasons why we set out to establish a commitment from the banks to lend up to £190 billion this year to businesses of all sizes, including £76 billion to SMEs. I think we have the right approach. We want a stronger, more sustainable banking system but we need one that will lend to small and larger businesses. Project Merlin helps us to achieve the right balance. We need the banks to deliver on that commitment.
Thomas Docherty (Dunfermline and West Fife) (Lab)
Does the Minister now regret having voted against the saving of Northern Rock?
Mr Hoban
The challenge is to make sure that we tackle the legacy that we have been left and that we get the banking system back on a firm footing. What we have announced today is a process in which the Government will cease to be a long-term investor in the banking system. We would all agree that that is the right approach.
Common Consolidated Corporate Tax Base
Thomas Docherty Excerpts(13 years, 3 months ago)
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Mr Redwood
My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.
The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.
Thomas Docherty (Dunfermline and West Fife) (Lab)
The right hon. Gentleman has mentioned several tragedies and I note with some interest that the Treasury team includes this Minister, the Economic Secretary, whose views on Europe are well known, the Chancellor, whose views are very well known, and the hon. Member for Chelsea and Fulham (Greg Hands), whose views are also very well known. Perhaps the real tragedy is that the Liberal Democrats in the Treasury team, who are not even here tonight, have forced this policy on the Government.
Mr Redwood
I am not sure I believe that. We have heard from the Minister that they are a happy and united team and that she is proud of the work she has brought to us. I am saying that I would like her to improve the work and to go back and make that happy team one that can perhaps make us happier. The simple answer is veto. She should say, “No, this cannot work. It is a dreadful constitutional intrusion on a country that desperately needs its own economic recovery to accelerate, that needs lower tax rates and greater tax simplification and that needs to promote economic growth.” My right hon. Friend the Chancellor is beginning to do that, but I think more measures are needed to secure the deal and make sure it works.
I am quite sure that this huge deal—the 102-page draft law—is not the way forward. My hon. Friend the Minister says that there is no proposal, but I regard a 102-page draft law as a very serious proposal. Experience has taught me never to underestimate the power and persuasion of the European Union when it wants to do something. I think that it is now on a great push to establish all the central powers it needs for the economic governance of a single-economy, single-country model, and that this is part of it along with the economic six-pack. My strong advice to my hon. Friend is that Britain can do better, Britain needs to say no and Britain needs to exempt herself from all this, as we are entitled to do, so that we keep a sovereign Parliament and a growing economy.
Finance (No. 3) Bill
Thomas Docherty Excerpts(13 years, 4 months ago)
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Anne Marie Morris (Newton Abbot) (Con)
I welcome the Finance Bill, which will reform the economy, deliver real growth for business and create jobs. One of the very special parts of the Bill is what it does for the very smallest businesses, as they are going to be the key to re-growth in our economy. I am sure that the House is well aware that two thirds of our businesses are so small that they have fewer than five employees and a turnover of less than £250,000. They may represent only 15% of our economy but they are vital because, first, all our successful businesses have to start somewhere, and it must be there, and, secondly, without those very small businesses—whether it is the plumber or the electrician—some of our rural communities and some deprived urban communities would find it difficult to keep economically active. For these very small businesses, I am pleased to see a mandate for growth.
I shall elaborate on some of the provisions mentioned by my right hon. Friend the Chief Secretary and look at what they deliver and how they might be developed in future. Businesses rates are, for me, one of the most important issues and the subject of many complaints from small businesses in my constituency. I am delighted that the small business rate relief has been extended for a further year, and pleased that half a million businesses will benefit. In the south-west, which is my part of the country, 68% of businesses will see some economic benefit from that relief.
Will my right hon. Friends and the Treasury team look carefully at business rates in future? An awful lot more needs to be done. Issues such as turnover are relevant criteria. It is not uncommon for me to walk into a pub and to be told by the publican that the way in which the business rates have been calculated is biased against small pubs. It is not uncommon for me to walk into a small retail business and to be told, “This used to be the high street but it’s not any longer, and I feel that my business rates are disproportionate and inappropriate.” A shake-up of business rates is needed.
I welcome the reduction of fuel duty by 1p and the removal of the escalator. Without that, the projection from the Federation of Small Businesses that all small businesses would find their bills going up by £2,000 in six months would have become a reality. To me, that reduction is crucial. I am sure that those on the Opposition Benches would be the first to say, “But at the pump, prices don’t seem to have come down.” My response is that they would have been an awful lot higher but for these changes. We need to consider how to ensure that those who are delivering petrol at the retail end are passing on those reductions to the customer. A number of people have expressed concern that the help that we as a Government are giving has not been passed on to the consumer.
Thomas Docherty (Dunfermline and West Fife) (Lab)
If I follow the hon. Lady’s logic correctly, she welcomes a policy, the results of which, she admits, have not been passed on to the customer, so what benefit have most of her constituents received from the fuel duty cuts?
Anne Marie Morris
They are 6p a litre better off than they might otherwise have been. The challenge that we face is the retailer, but I do not believe that the Opposition would have been able to do anything different. That is another aspect that needs to be looked at going forward. But we digress. Let us move on to some of the other issues facing small businesses, such as income tax and national insurance.
For many small businesses, national insurance is a headache and it is one of the key reasons why they will not take on new employees. We have the largest tax code in the world. One of the things that I am pleased to see predicted for the future, though not in the Bill, is a move to simplify tax and to consider combining income tax and national insurance. That would be a great step forward and a huge saving in administrative time and burden for very small businesses. I was sad to see that the NI holiday was not extended further for existing businesses, a matter that I have raised with the Treasury team on a number of occasions. If in future we could find a way of combining income tax and national insurance, that would be a good step forward.
I am pleased that corporation tax is coming down to 26%, and I am pleased to see a move to deliver the lowest corporation tax in the G7. That is extremely good news. Given that my mandate is to shout loud for the very smallest businesses, it would have been even better for the small companies rate to have come down further. I appreciate that it has already come down to 20%, which is a good move, but anything further that can be done going forward would be welcomed. The special provision to increase the SME rate of research and development tax credit to 200% is extremely welcome. I thank the Treasury team very much for that as it will make a significant difference.
The crucial challenge for many small businesses is finding investment, so I am particularly pleased to see entrepreneur relief changes which will increase the capital gains tax lifetime limit to £10 million. That is a hugely welcome step. I am pleased that the enterprise investment scheme has been also been developed so that the income tax relief has moved from 20% to 30%, and the eligibility criteria have changed so that larger businesses will be included in EIS. However, I would be grateful if the ministerial team would look at how we can extend EIS so that it attracts investment for the very smallest businesses. At present it is much more geared towards a small or medium-sized business and corporations. It is not intended for a sole trader or a partnership. If we could come up with EIS-lite in some form, that would be extraordinarily helpful.
In summary, I am delighted to see the focus on the smallest of businesses. I sincerely hope that that will be a trend to be welcomed for the future. One thought I have for the Treasury team is that, going forward, we might look more closely at a specific definition of a micro-business, a small business and a medium-sized business. If we did that, as happens in other countries, we might find that the Treasury team had a little more flexibility to give particular help to the very smallest businesses, from which growth will ultimately stem.
European Summit
Thomas Docherty Excerpts(13 years, 5 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr Hoban
I do not know whether my hon. Friend was present for the debate in the House on 16 March when we discussed the ESM, but let me remind him of what my right hon. Friend the Minister for Europe said:
“Should there be any suggestion of amending the draft decision at the European Council—there is no such suggestion from any quarter at present—the Prime Minister could not legally agree to it at the European Council without first coming back to this House and the other place for additional approval after a further debate.”—[Official Report, 16 March 2011; Vol. 525, c. 424.]
Of course, there can be no change to the treaty unless primary legislation passes through both this place and the other place.
Thomas Docherty (Dunfermline and West Fife) (Lab)
Will the Minister confirm that had we joined the euro, we would have been expected beyond 2013 to make a significant contribution? Has he had a chance to ask the Chief Secretary to the Treasury whether he has abandoned his policy of joining the euro at the earliest possible date?
Budget Responsibility and National Audit Bill [Lords]
Thomas Docherty Excerpts(13 years, 5 months ago)
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Chris Leslie
It is a one-way journey, unfortunately. The OBR started with high expectations of growth soon after the general election, and at every stage at which it has made adjustments, the spiral of the economy’s growth prospects has descended.
Chris Leslie
Possibly, but in a more tragic and important way that affects real lives and real people. It does not really matter what happens to the Liberal Democrat poll rating, but growth falling behind and diminishing as unemployment rises is a really important issue in the real world.
Ian Murray
I am grateful to my hon. Friend; I get on very well with the hon. Gentleman, so I consider him to be my hon. Friend—
Ian Murray
That may not please every Labour Member, but nobody is objecting to the setting up of the OBR. My point is about the previous Government’s record: in only two years did the growth forecast fall below the range that the Treasury had published. I am not claiming that the OBR does not do sterling work.
That last intervention brings me neatly to my point about what the OBR has been able to do. It serves as a strong antidote to the propaganda about the figures that we have been hearing from the Government. The OBR said that because of the actions of the Labour Government, the deficit in 2009-10 was more than £20 billion less than had been expected. It also said that under the Tory-led Government’s plans there would be 110,000 more people on the dole by the end of this Parliament than would have been the case under Labour’s plans. Those are the OBR’s figures, which is why I am so delighted that it was set up—the hon. Member for Bristol West (Stephen Williams) can check the figures if he wishes. The OBR forecasts based on Labour’s plans until the election were that the economy would grow by 2.6% in 2011, whereas the figure under this Government spirals down to 2.1%—and even that may be reduced when the Chancellor speaks at the Dispatch Box tomorrow. So the OBR has been a good antidote to the propaganda that we have heard from those on the Government Benches.
Savings Accounts and Health in Pregnancy Grant Bill
Thomas Docherty Excerpts(13 years, 10 months ago)
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Thomas Docherty (Dunfermline and West Fife) (Lab)
Does my hon. Friend agree that one of the crucial reasons the child trust fund is so important is that if a parent can save the maximum amount, the £18,000 or so would probably pay for one year’s tuition fees under the Liberal Democrats’ new plans?
Catherine McKinnell
I am grateful for all these interventions, but we had a discussion earlier about the benefits of the child trust fund scheme as opposed to the establishment of a potential ISA scheme. We dealt at length with the arguments in favour of the current scheme, which is targeted at everyone, including the most vulnerable and disadvantaged. The ISA scheme would not necessarily achieve that. However, I fear that we are becoming lost in figures.
The point that I am trying to make concerns the real-life cost of the decision to remove the health in pregnancy grant, to freeze child benefit and to cut the child trust fund, tax credits and the Sure Start maternity grant. It is clear that, as a result of those and other cuts, low-income families will bear the greatest cost of many of the Government’s policies. The average household income in the north-east is £12,543 a year. According to a recent report by Citizens Advice, the combination of the Government’s proposed cuts could cause a low-income family with a new baby to lose up to £1,235 a year—10% of the average household income of someone in the north-east. Is it really fair that children should be paying this price, rather than bankers?
Because of the establishment of the child trust fund, both my young children have bank accounts, and that is the start of saving for their future. I know of lots of families who are saving through child trust funds, regularly topping them up with birthday and Christmas gifts. Many people have admitted to me that they would not have started saving without the impetus to set up the account. We have discussed at length the benefits of the trust fund in encouraging a savings culture in this country; I think Members on both sides of the House agree that that is a positive development.
Since the child trust funds were introduced in 2005 there has been steady growth in the opening of new accounts, from 3 million in 2007 to 4 million in 2009. The current number is about 5 million—that is 5 million families saving up for their children’s futures.
The child trust fund was a universal and progressive policy that recognised the importance of children. It allowed families to open an account, but it gave greater assistance to those on lower incomes through additional payments from the Government. Abolishing child trust funds will lead to the next generation paying for the mistakes of the City bankers and financiers who caused the global economic crisis.
I beg the Government seriously to review this decision, and to accept the analysis of the independent Institute for Fiscal Studies that the spending review is regressive and that families with children will lose out the most. I also ask the Minister to consider some of the suggestions that have come out of the debate—such as keeping the savings mechanism in place while, perhaps, reducing the amount being put in, or means-testing if necessary—in order to hold on to this credit saving system that has already been so heavily invested in.
The Government are taking a terrible risk—reversing so much work that has been done to remove so many of our children from poverty. The Government have chosen to pursue this policy, and in my view and that of all Labour Members it is the wrong choice for our future generations.
Comprehensive Spending Review
Thomas Docherty Excerpts(13 years, 10 months ago)
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Mr Osborne
The housing benefit budget has been rising at a very rapid pace and, frankly, anyone doing my job would have to address that bill. We have sought to do that in a way that is fair and that balances the needs of the taxpayer with the needs of those in receipt of housing benefit. There has been a lot of speculation about social tenants, but we are not changing the social tenancy agreements of people in existing social tenancies—[Hon. Members: “Yes you are!”] That is what we are not doing. We are saying that for new tenants we will have to have something more like the market rent. I have to say that that was the policy of the previous Government—
Mr Osborne
But it was the stated policy of the previous Government to increase social rents over time to approach the level of market rents—[Interruption.] That was the policy of the previous Government. As I have said, we have tried to do this in a way that protects existing social tenants. It will help to build more social housing, and in the end the Opposition have to ask themselves why they failed so miserably on building social housing.
Finance Bill
Thomas Docherty Excerpts(14 years, 1 month ago)
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Thomas Docherty (Dunfermline and West Fife) (Lab)
The hon. Gentleman has criticised the previous Government time and time again. However, does he think fundamentally that the strategy taken by my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) to intervene when the wheels were coming off the wagon was the wrong thing or the right thing for us to have done—yes or no?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I remind Members that we have to stick to the Bill. We are being dragged off in different directions, so please stick to the Bill. That is what we are debating.
Finance Bill
Thomas Docherty Excerpts(14 years, 1 month ago)
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Mr Bone
I agree entirely with my right hon. Friend’s point, but I want to draw a distinction between amendments 18 and 19. Amendment 18 addresses health insurance premiums, and the fact is that if someone does not take out health insurance, the state picks up the bill, because they will go to the NHS. When someone does not take out motor insurance, the responsible citizen picks up the bill through the Motor Insurers Bureau, but that is not quite the same as the position for health. It is clear that if someone might have paid for insurance so that they could go to an independent sector hospital but does not do so, they will be in the NHS and the state will have to pay. I argue that we could send a signal today to the citizens of this country, as part of the big society, that we want them to be responsible and to take out insurance, especially health insurance, which would save the Government money.
Thomas Docherty (Dunfermline and West Fife) (Lab)
Labour Members do not have a philosophical objection to private health care, but does the hon. Gentleman accept that many people cannot afford such coverage? It is wrong to say that taking out private health care is a responsible option because that portrays those who cannot afford it as somehow irresponsible.
Chris Leslie
That particularly pernicious practice merits much closer scrutiny. I do not know whether it is allowed to happen because of a legal loophole. People face dangers when they sign up to unending direct debits, especially if they have been attracted to an insurance policy because of a discounted initial arrangement but then discover that the payments have been ramped up. By the time they realise, from their bank statement or whatever, that the cost is so much more, it is too late to exit from the policy. I hope that any practices that tie customers in to such policies unnecessarily can be stopped.
Insurance premium tax was, of course, a Conservative initiative, introduced back in 1993, I think. We are all concerned about the deficit and revenues, so reluctantly we all have to accept the tax as part and parcel of our general revenue stream, but it is worth pausing to reflect on the impact of the charge on the behaviour of customers who want to take out insurance. Of course, there are different effects for different types of insurance. The amendments highlight both ends of the scale.
I am not sure that I share the sympathy for amendment 18 on private health insurance, because the general public already effectively pay for health cover through the tax that they pay towards the NHS; that is far and away the best health insurance that all of us could want. If we are all part of that, and pool our resources effectively, we ensure a better quality of health care for ourselves. I hear the points made by Government Members, who say that private health insurance removes the burden from the NHS, but if we are all part of the system together, and make sure that we all take part in it, we have a better collective service.
Thomas Docherty
Does my hon. Friend agree that people who have health insurance get fast-tracked, and receive a large benefit, in that they can jump waiting lists?
Chris Leslie
Thankfully, Labour has shifted the terms of reference for this debate, and not just in this country, where the Liberals and the Conservatives—the Conservatives in particular, to be fair to the Liberals—have now accepted that the NHS is one of the jewels in the crown of our welfare system. It is respected worldwide, and there is no longer any attempt, or at least no overt attempt, by the Conservative party to unwind the change that has been made, although having listened to Government Back Benchers, there may be some straws in the wind. I agree more with the hon. Member for Christchurch (Mr Chope) on amendment 19 on motor insurance.
Mr Gauke
The central point is that the country is in a very difficult position as regards the public finances. I hope that the shadow Chief Secretary is grateful for the fact that I have got this far through a speech without once referring to his letter. With another intervention, I may be tempted to do so. We have made a series of judgments. If he thinks that cider duty is the way to reduce the deficit, I suggest that he is somewhat mistaken.
Amendment 18 would exempt personal health insurance from the increase in the standard rate of IPT, and amendment 19 would do the same in relation to motor insurance. In effect, that would mean creating a new reduced rate of IPT that applied only to private medical insurance and motor insurance. Of course, the Government recognise the value of these types of insurance and, indeed, of insurance more generally.
I assure my hon. Friend the Member for Christchurch that we do not disapprove of people taking out private medical insurance—that is not something we wish to prohibit, either in law or by imposing enormous costs on it. In health policy, our focus is of course on improving the national health service, and we have this week set out important proposals on improving the quality of the health service and reducing expenditure on bureaucracy. We are also, as a Government, protecting the NHS from spending cuts, which is not, as I understand it, a policy endorsed by Labour. The purpose behind this tax increase is clearly to raise more revenue—it is not an attempt to try to dissuade people from taking out private health insurance.
Thomas Docherty
The Minister claims that the Government are protecting the NHS. Is he aware that all the health boards in Scotland have written to their employees to inform them that following the cuts that his Government are making, the NHS in Scotland will have significant job losses?
Mr Gauke
Of course health care in Scotland is a devolved matter, and you will not want me to digress on that, Mr Hoyle, but the fact is that health care spending will go up in real terms under this Government. That is not, as I understand it, a policy that is supported by the official Opposition.
Mr Gauke
If I may, I will provide a little more information breaking down the numbers in a moment or so, and we shall see whether that is specific enough for the hon. Gentleman.
Exempting motor insurance from the IPT rise would reduce revenue by £160 million a year, and exempting medical insurance would reduce it by a further £40 million. Taken together, those figures total £200 million—nearly £1 billion over the lifetime of the Parliament. That would leave us with quite a shortfall, and a couple of options. First, we could raise £1 billion from elsewhere. We have to be open about the fact that the purpose of the IPT rise is to raise revenue, and if we were to look to raise the outstanding £1 billion through IPT, that would mean increasing very considerably the rate of tax on the remaining classes of insurance. For reasons that I will set out, we do not think that that is the right way to go. The second option is to leave ourselves with £1 billion outstanding, which would leave us further away from plugging the deficit, with all the risks that that entails. We are certain that that is not the right way to go.
It has always been a principle of IPT that the tax applies to a relatively broad base of general insurance, with few exceptions. That broad base allows us to keep the standard rate of the tax low by international standards. Even at the new rate of 6%, the UK’s standard rate of IPT is far lower than in, say, Germany, where it is 18% for property and 19% for motor insurance, or France, where it is 9% for property and 18% for motor insurance. Narrowing the base of the tax through specific exemptions of the type that my hon. Friend the Member for Christchurch suggests would put that low rate at risk.
To respond to the perfectly fair question of the shadow Chief Secretary, the fact that we have announced the increase should not be taken as a signal that we intend to harmonise tax levels with those elsewhere. To quote what the shadow Chancellor used to say, we always keep taxes under review and it would be daft to rule things out, but this increase should not be taken as a signal of an ongoing programme of further increases.
We do not take any pleasure in introducing this tax rise, even though the reasons for it are clear. However, by keeping a broad base of tax within general insurance, we are able to raise revenue so as to cut the deficit, while keeping the increases at a level that will not have any significant impact on the number of people buying insurance.
Thomas Docherty
Has the Treasury done any work to enable it to hazard a guess as to how many people will not now take out motor or health insurance as a result of the rise?
Mr Gauke
We do not believe the rise will have a noticeable effect on the number of people taking out insurance, but I know that hon. Members are concerned about the impact of the IPT rises on households. I have already set out the average impact on households. Specifically in the case of the insurance covered by amendments 18 and 19, the IPT rate increase will add only about £6 a year to the average motor insurance premium, and for those who buy private medical insurance the rise will cost less than £10 a year on average. Consequently, it is difficult to make the case that the increase will prove much of a deterrent to people taking out motor insurance or private medical insurance. Consumers are well used to insurance premiums fluctuating, and the modest effects of the rise will not act as any significant deterrent.
Mr Chope
The answer is yes; I would wish to extend my argument. However, I tabled two specific amendments so that we could have a focused debate. It has become apparent in the course of the debate—I did not know this before—that about half the yield from the IPT increase will be from motor and health insurance premiums, and about half from other insurance, such as household insurance.
I am concerned that in my constituency, particularly as a result of the rather reckless behaviour of the Environment Agency, there is a blight on a number of houses, whose owners find either that they cannot access flood risk insurance or that that insurance is much more expensive than it used to be. Because of how IPT works, the state benefits from the latter outcome through extra income, and there is an extra burden on householders. Some very important points were made by Members who are concerned about household insurance. It was open to anybody to table similar amendments, but I tabled two to focus the debate. The hon. Member for Dundee East (Stewart Hosie) did the House a service by tabling an amendment that calls for a proper analysis so that the House can know the full implications of the proposals before we are asked whether we support them.
We have spent two hours discussing this matter, but we have still not really heard from the Government about the direction of travel. We certainly have not heard whether the principles so articulately described by my right hon. Friend the Transport Secretary—he spoke of people who can afford to pay their fare using free bus passes—apply throughout the coalition Government, and to those who take responsibility for their health care, education or other aspects of their lives.
Thomas Docherty
On private health care, does the hon. Gentleman accept that people receive a premium service, and that it is therefore only right that they pay a premium tax? Does he also accept that health care provides only 10% of the total IPT raised?
Mr Chope
People take out private health insurance, which might be through a scheme in their firm, because they want access to health care that is currently not available. I gave some examples in my opening remarks of people in my constituency choosing to take out health insurance. A very large number of my constituents pay for various procedures and operations. They insure themselves because they believe that they can access those procedures when they need them rather than when the state tells them they can have them.
The essence of the argument is that countries with the highest standards of health care are the ones that encourage higher non-taxpayer funded input into health care. That is what I am trying to get across. I might be unable to persuade the hon. Gentleman, but I hope that I might start to persuade members of the coalition Government on the virtues of people taking responsibility for their health care, thereby relieving the burden on the NHS.
Thomas Docherty
My hon. Friend is probably aware of many people’s anger at the size of the pension pots of bankers such as Sir Fred Goodwin. Does she agree that when many people are struggling as a result of the bankers’ decisions, it is outrageous that the Government wish to reward those very bankers by giving them such big pension breaks?
Ms Eagle
I certainly understand that anger, and I suspect that there will be even more anger if the Government do not address the unfair way in which the distribution of the pension tax relief has developed, especially since the simplification from A-day in 2006. We tried to address the problem by targeting the people at the very top who had benefited the most from the relief in particular.
We received representations from stakeholders who called for a simpler system, and it would be wrong of me to try to claim that the system for which we legislated was simple—it was clearly complex. However, when dealing with people on very high earnings who use complex financial arrangements, we often find that that complexity must be matched to ensure that a fair amount of tax is taken from them. In tax and benefit law, as the Economic Secretary will know—she probably struggles with this every day—there is always a trade-off between simplification and fairness, as well as yield. We took the view that despite the complexities of the system that we were introducing, it was right to target very high earners in particular. I state the distributional analysis again: the top 300,000 people receive 25% of £18.9 billion. No right-thinking person in this country with any kind of understanding of what the term “fairness” means would want us to tolerate that kind of distribution.
Simplification is always a popular cry, but there are trade-offs, and it causes different problems if we create a simpler system. We did consider other options, but the trade-offs are inescapable. We want to explore in debate today how the Government are working their way through the trade-offs, so that we can try to assess whether the solution that the Government have hinted at, but have not put before us, is fair, or whether its outcome is less fair than the outcome of the system that we decided on.
Mr Jones
I entirely agree with the hon. Gentleman. There seems to have been confusion from the Minister in the sense that she is saying, “Nudge nudge, wink wink, say no more”—in other words, that the Government might not actually introduce this measure. If this change is to be made, we need to know who it will affect lower down the income chain. If the top 2% are not going to carry their share of the burden, people lower down the tax scale will be affected, such as pensioners, who are already being hit by VAT and other implications of this Budget.
This proposal affects 300,000 people—2% of pension savers and 1% of working age taxpayers. We are being told that it is fair, just and progressive to abolish what was put forward by the previous Labour Government, which would have raised £3.6 billion to help to reduce the deficit that was created because of the lending we had to provide following the economic crisis. I am sorry, but I do not accept that that is fair, and I think that if this were explained to most members of the public, they would agree. Currently, no one who earned under £130,000 a year would be affected by this measure. If someone is in a Cabinet packed full of millionaires, that perhaps skews their perspective on what poverty is and what income buys. However, the average member of the public, certainly in North Durham, would be appalled by the fact that we are going to let off people who are earning what is not just a good wage but, for most of my constituents, a fantastic, unimaginable wage.
Thomas Docherty
My hon. Friend is obviously very much in touch with the north-east of England. Would he care to speculate as to whether, among the 2% of the population who will benefit, there will be an equitable distribution across the UK, or whether the vast majority who will benefit will be located in certain parts of the country not too near his constituency or mine?
Mr Jones
My hon. Friend raises a good point. Clearly the net beneficiaries will not be in the north-east of England, Northern Ireland or Scotland. They will be those in the south-east of England. The disposable income of those individuals will be a lot greater than that of a lot of our constituents, who will be hit by the VAT increase.
We have seen that give-away, but there is something else in the Budget that I find absolutely amazing. We heard the other night that under the corporation tax proposals, the banks will be given a cash-back of £400 million. The same individuals will no doubt benefit from the proposals that we are currently discussing. We have been hearing the mantras in the past few weeks that there is no alternative and that Labour left the economy in the mess.
Thomas Docherty
I shall be relatively brief. It is perhaps worth noting that since my hon. Friend the Member for North Durham (Mr Jones) first commented on the lack of interest from those on the Government Benches, there has been a flurry of—I suspect—BlackBerry messages going out, so that we are now being treated to no fewer than five Conservative Back Benchers. They have joined us for the afternoon, yet not a single Liberal Democrat has arrived in the Chamber.
It would be wrong of me to suggest that the Liberal Democrats are simply uninterested in the Budget, so could it be that the Chancellor, having been thwarted in his plans for a millionaire’s inheritance tax break, came up with a new wheeze after the coalition deal? How could he help his friends in the City? Unsurprisingly, the Chancellor’s new wheeze is to reverse the previous Government’s policy of trying to find a more equitable approach to pensions. That, I suggest, is the reason why our Liberal Democrat colleagues have not been advised of the importance of this debate. For if they saw the skilful manoeuvre that the Economic Secretary is trying to perform on the Committee today, they would surely rush to the Chamber to show their outrage at this terrible scheme.
It is a slightly unusual situation when a Minister as artful and articulate as the Economic Secretary tells us this afternoon that the current system is terrible—that it does not work; that it is unfair and unclear—yet has not been able to articulate what would replace it. It strikes me, as a perhaps naive and innocent new Member, that the starting point for any Government—particularly a Government who are so terribly keen to reduce regulation and bureaucracy—should be as follows: rather than introducing legislation that has no purpose except to give them some wriggle room, the Government would have been better off spending their time coming up with an alternative proposal for the Committee to examine, instead of giving the Minister the opportunity to spend her summer and that of her civil servants coming up with a new scheme.
To conclude, although I look forward to the Minister’s reply, I suspect that we will hear no detail whatever about what the Government plan to replace the current system with, and that in six months’ time she will not have been able to find a suitable replacement.
Justine Greening
May I start by saying what a pleasure it is to serve under your chairmanship, Mr Amess?
We have had a wide-ranging debate today and I will do my best to answer a number of the issues that Opposition Members have raised. However, it would perhaps be best for me first to set out the background to this debate, as the shadow Minister did. This issue was first looked at by the previous Government, and we have returned to it as a new Government. The coalition Government inherited from their predecessor the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four that we spend is borrowed. The gap stands at £149 billion for this financial year alone.
The previous Government had planned to raise extra revenue through the restriction of pensions relief for higher-rate earners. As we have heard, that approach was due to raise £4 billion to £5 billion a year by 2014-15. Given the appalling state of the public finances that we have been left as a new Government, it is something that we cannot ignore.
On Second Reading, my right hon. Friend the Chief Secretary set out our commitment to fairness. This is a progressive Budget that ensures that every part of society makes a contribution to deficit reduction, while protecting the most vulnerable, especially children in poverty and pensioners. The Budget has a number of measures to support pensioners, not least the triple lock guaranteeing an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the higher.
Justine Greening
It seems that I’m damned if I give information and damned if I don’t. I was asked to provide some facts, and I made sure that I gave some facts and figures. Now that I have provided some to the Committee, apparently that is a bad thing to do too. I think the problem is that the figures I have just provided are not ones that Opposition Members want to confront. They are about to go through the Lobby and vote on people who can afford to put a couple of hundred thousand pounds into their pension pot paying more tax net of pension relief than less.
Thomas Docherty
I am grateful to the Minister for helping us to understand how much the Chancellor can afford to put into his pension fund. How can we confront figures that we do not get to see?
Justine Greening
I was asked for some figures and what the impact would be on the very richest. We can probably find in Hansard tomorrow that I have just provided the Committee with that information. That is probably the way in which debates are meant to work. Ministers have questions put to them and if they can answer them in some detail, they do. That is what I have done. I have set out in some detail why we are pursuing the clause. I hope that everyone realises that it is sensible and a pragmatic way to address the industry’s concerns. The industry faced a £1 billion bill for implementing excessively complicated and unfair tax changes on pensions tax relief. We hope that we can reach a conclusion with the industry and all stakeholders, but the key issue is to address the fiscal deficit, so any solution will have to bring in no less money than the mechanism intended by the previous Government.
Oral Answers to Questions
Thomas Docherty Excerpts(14 years, 1 month ago)
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Mr Gauke
I cannot give a precise timetable, but as I said, that is our long-term objective. I know that the right hon. Gentleman has a long and distinguished record in campaigning for that policy. I am sure that he will be pleased with the steps that we have taken so far, and I hope that others will follow.
Thomas Docherty (Dunfermline and West Fife) (Lab)
When Ministers are thinking about the future planning for local income tax, do they not understand the concern on the Opposition Benches and in the country that this afternoon the chief lobbyist for the banking industry has been introduced as a Member of the other place, meaning that the interests of the banking industry will come before those of low-income families?
Mr Gauke
I am not quite sure that I necessarily follow what the hon. Gentleman has said, but what I would say is that we announced the introduction of a bank levy in the Budget and we have taken a lot of poorer households out of income tax. That shows the Government’s values.