Amendment of the Law

Debate between Vince Cable and Ed Balls

Thursday 19th March 2015 Commons Chamber

[Vince Cable]

The hon. Gentleman is absolutely right. I thought it might be useful to take one element of the Opposition’s policies to see how utterly incoherent it is. I want to home in on the particular issue of how they would fund a reduction in tuition fees. To be frank, this is a tricky subject for all parties. All parties, including the Labour party, have gone back on their commitments. My party has done so, and I know that the Conservatives had some embarrassment in 2005. I would have thought that common sense suggested we ought to draw a line under this episode. I know from the feedback I get from the shadow Cabinet that the shadow Chancellor has been a voice of sanity in this debate, but his leader has not listened to him. Clearly, I am parti pris on this matter, but let me read a comment made yesterday by a man who describes himself as having been

“responsible for delivery in Downing Street under Tony Blair”.

I am not sure that I would want that on my CV, but he is very happy about it. Referring specifically to this proposal, he said:

“The result would be to spend almost £3bn to subsidise high earners of the future. The present system is attracting more students than ever, especially from low-income families. In 2004, before fees were introduced”—

by the previous Government—

“14 per cent of the lowest socio-economic fifth…went to university; last year 21 per cent did. Labour’s proposal therefore offers not ‘more for less’ but ‘less for more’.”

The position is actually worse than that, because we do not understand how it will all be paid for. A £2.6 billion gap needs to be filled to pay for the cap. The original idea was that there would be some kind of granny tax, with grannies paying extra into their pensions. That comes down to the proposal about the pension pot. The proposals that the Chancellor made yesterday diminished considerably the resource available from that source, so where will the money come from? Even if the Labour party can identify where the money will come from, how can it guarantee to universities that the money will get from the grannies to the Treasury to the universities? How exactly will that be sustained in the years ahead?

This is not just a debating point; these issues really matter. The feedback that we are getting from universities is that they have stopped investing because there is a political risk—although it may not be high—of a Labour Government. Universities have stopped investing and are having to fall back on their reserves. Some universities, such as Cambridge, have said that if this policy were to happen, they would drastically reduce the number of students they admitted and cut back on their supervision. The quality of education would suffer.

It requires a particular kind of genius to dream up a proposal of such transcendental stupidity. I was going to ask the person responsible to stand up and tell us what it is all about, but the shadow universities Minister is not here. He is the same guy who left the note saying that there was no money left. What he is now proposing is that universities should experience precisely the same treatment.

[Ed Balls]

The Business Secretary fought the last election on a promise to stop the Tory VAT bombshell and a promise to abolish tuition fees. Which does he think was the bigger mistake of the two?

[Vince Cable]

We did not promise to abolish the VAT bombshell. We did make the promise on tuition fees and that was a mistake. We have regretted it and apologised for it.

I just wish that the Labour party would have the same wisdom, because if it ever gets into office, it will go down this road and it will do severe damage to the budget and to universities. The worst thing about this policy is that the primary beneficiaries will be the investment bankers of the future. The shadow Chancellor has been going around complaining about millionaires’ tax cuts. What he is now advocating is a millionaires’ debt-relief scheme.

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[Vince Cable]

I was hoping that we would have an intervention from the Scottish nationalists, because they illustrate better than anybody else the stupidity of this policy. There have not been tuition fees in Scotland and the quality of university education is declining because there is less resource. The worst thing of all in Scotland is that in order to maintain this policy, they have raided the budgets of further education colleges, taking money from working-class children in Scotland to finance middle-class undergraduates. That is a very retrograde policy. If anybody wants to see where Labour’s policy will lead, they should indeed go to Scotland.

Let me turn to the bigger question of inequality, because many of the accusations that are made by the Opposition relate to the question of whether we have become a more unequal society. It is certainly true that if we talk about the top 1%, there is extreme wealth. Some of it—that created by entrepreneurs and risk takers—is totally understandable in a free-enterprise society, but much of it is not. That problem is shared across the world. It is true of the top 1% in social democratic Scandinavia and in communist China. These people can move, and they can move in and out of our country. It is to the credit of the Chancellor that he was able to say yesterday that the share of income tax that is paid by the top 1% has risen under this Government from 25% to 27%.

Of course, there is one way in which the ultra-rich in society can be made to pay that they cannot run away from, and that is by targeting high-value property. That is one area where my party has common ground with the Labour party.

If we take the wider issue of income distribution and the effects of austerity, the evidence is clear. People in the top 10% or 20% have contributed more than average in cash or percentage terms to the austerity programme and deficit reduction. For an objective measure of inequality, we should look to bodies such as the Institute for Fiscal Studies, which is totally independent and has been a thorn in the side of successive Governments. It has done an analysis of income inequality before and after this Government, looking at the basic Gini coefficient, and found that inequality in income is lower today than in 2007-08. If one digs into the figures a little further, one finds that the numbers depend on which consumer index is applied. However, even if one applies different consumer indices, the IFS analysis shows that, at the very worst, income inequality is no worse under this Government than it was under the Labour Government. I hope that when we hear the righteous indignation in future, the basic facts about this matter will be properly understood.

[Ed Balls]

Will the Business Secretary confirm that because of measures such as the bedroom tax and what has happened to tax credits—things that have happened only because of Liberal Democrat votes—the quintile that has made the second biggest contribution is the poorest 20% of families in our country? Does he feel proud of that?

[Vince Cable]

It depends entirely on how we look at the combination of tax and tax credit. The simple point is that the top quintile—the top 20%—has paid four times as much in deficit reduction as the group to which the right hon. Gentleman referred.

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[Vince Cable]

As I said, the whole of society was hit by the economic crisis, but it is clear that the poorest in society have not been proportionately badly hit, and the people at the top have paid proportionately more. I remind the hon. Lady of what the IFS data said, which was that if we take into account inequality in all its aspects—that includes tax, tax credits and earnings—in income terms Britain is more equal, or as equal now as it was under a Labour Government. Labour Members may need to explain why the economy got into that position when they were in office, but that is what the independent sources tell us.

In addition to the tax allowance, the other key step has been protection of the minimum wage and the Low Pay Commission. I was alarmed by comments made yesterday by the Leader of the Opposition about the minimum wage. I am not one of the people who wants to trash everything that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) did when in office. There were some mistakes but also some good things, not least making the setting of interest rates independent through the central Bank—a very positive step. Supporting science was another positive step, as was the establishment of the Low Pay Commission as a mechanism for deciding what is in the national interest as far as the minimum wage is concerned, and how we balance the perfectly natural wish of working people to see their wages rise with the overall interests of the economy and employment.

What was alarming about the comments of the Leader of the Opposition yesterday was that he now wishes to turn that valuable inheritance into a political football. I think he originally said that he would determine politically that there should be an £8 minimum wage, regardless of the conditions of the economy. Yesterday it was “at least £8”, but why not £8.50, £9 or £10? We could all bid in a Dutch auction on the minimum wage, but it would be ruinous for the economy.

[Ed Balls]

So when a year ago the Chancellor of the Exchequer announced his goal of a £7 minimum wage, did the Business Secretary think that was equally an error?

[Vince Cable]

The Chancellor did not announce that as a goal; he made a projection about what, under certain assumptions, the minimum wage would be. He has agreed with me and we have a combined view that we should accept the advice of the Low Pay Commission, which is what we have done. We have maintained a valuable institution, and I am seriously worried about the irresponsibility that has crept in as a result of that simple populist gesture by the Leader of the Opposition. That is not just damaging to the economy in the future, but it undermines a valuable institution that his predecessor brought in.

Budget Resolutions and Economic Situation

Debate between Vince Cable and Ed Balls

Thursday 21st March 2013 Commons Chamber

[Vince Cable]

As I said a few moments ago, there are two schemes. The first, which is the development of a scheme that is already operating, most emphatically does not apply to second homes. The major mortgage guarantee scheme is complex and the Chancellor will consult on how to draw the boundaries around eligible mortgages.

[Ed Balls]

Will the right hon. Gentleman give way?

[Vince Cable]

Let me just finish this point.

[Ed Balls]

Will he give way?

[Vince Cable]

I will in a moment. Let me just deal with the question of the millionaires who benefit. I remember the 13 years that I spent on the Opposition Benches, asking about taxes. Let us remember the situation. We had a 40p top tax rate, we had an 18% capital gains tax, which was widely used for tax avoidance in the private equity industry and elsewhere, and non-dom tax reliefs were completely uncapped. When we challenged that situation, we were told repeatedly by this shadow Chancellor and others, “No, you can’t do that. You’ll frighten away all the bankers who are generating wealth in the City of London.”

Of course we need a more equitable tax system. That is why the Liberal Democrats continue to argue for a mansion tax. But we have a higher rate of income tax at the top than prevailed in any year of the Labour Government.

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[Ed Balls]

The Business Secretary is a member of the Cabinet and a student of these matters, and he cares a lot about how the economy works. Can he tell us, because he will have been part of the discussions, whether the new mortgage scheme applies to second homes and buy-to-let. Yes or no? He is the Business Secretary; can he answer the question?

[Vince Cable]

The scheme has not yet been designed in detail. It was typical of the Labour party that it frequently launched into half-baked schemes without thinking about the detail. This is a major change and it will be planned carefully.

[Ed Balls]

To be absolutely clear, in two weeks’ time millionaires are getting an income tax cut and the new scheme that was introduced yesterday could allow them to use that tax cut to get a taxpayer subsidy for a second home or a buy-to-let, but the Business Secretary cannot tell us—yes or no—whether that will be the case. Is that not an absolute shambles? Is it not set to be totally unfair? It is a spare home subsidy.

[Vince Cable]

The right hon. Gentleman does not know, and I do not yet know, what the final outcome of this massive scheme will be. To be lectured with righteous indignation by the people who created a massive property bubble that destroyed this country’s economy and wiped out enormous gains in people’s living standards is the most gross hypocrisy.

Let me turn to some of the other issues that the shadow Chancellor raised.

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[Vince Cable]

I do not understand why the Opposition should be hostile to work experience. All our evidence suggests that people who enjoy work experience go on to stable employment. It is an extraordinary state of denial when we have a successful process of job creation that the Opposition do not want to acknowledge exists.

[Ed Balls]

To clear up the Business Secretary’s confusion a few moments ago—I am not sure whether he or the Chancellor have seen this document, but it might be helpful to them—the Treasury has published a document, “Help to Buy: mortgage guarantee”, which makes it clear that the scheme does not apply to buy-to-let properties. A person cannot take out a mortgage for a buy-to-let property; it must be residential. As far as we can see from the document, however, the scheme absolutely does allow second homes. It is a spare homes subsidy. I do not know whether the Business Secretary has seen the document, but perhaps he would like to comment.

[Vince Cable]

I am glad the right hon. Gentleman felt able to withdraw his earlier allegation that this was about buy-to-let mortgages.

[Ed Balls]

For absolute clarity, I asked the Chancellor and the Business Secretary whether the scheme applied to buy-to-let properties, and whether it would allow second homes. Neither of them knew. The Business Secretary said that it had not been decided, but in fact the document has been published and states that the scheme does not apply to buy-to-let properties, but it does allow second homes. The accusation stands. Is that true? It is not in the document; are they going to amend it?

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[Ed Balls]

The document is very clear. Buy-to-let is ruled out but second homes are allowed. That is a fact.

[Vince Cable]

I think the shadow Chancellor is digging himself into a certain amount of trouble. He refers to a document as fact, but it is actually a consultation document. Rather more sensibly, the shadow Business Secretary yesterday applauded the new housing initiatives. We will proceed with the consultation, and if the shadow Chancellor has any technical criticisms of the tenure arrangements, he can make them in the consultation process and we will listen constructively.

Amendment of the Law

Debate between Vince Cable and Ed Balls

Thursday 22nd March 2012 Commons Chamber

[Ed Balls]

The HMRC report states that, in 2013-14, the static cost—that is, the cost to existing top rate taxpayers—will be £3 billion, rising to £3.35 billion, then £3.7 billion and £4.2 billion. It then states that that will be offset by a behavioural impact of £2.9 billion, £3.2 billion, £3.6 billion and £4 billion, which I think is heroic. The document states that behavioural responses are often “highly uncertain”, and the Business Secretary himself said that such assumptions were utter nonsense. He said, “Pull the other one!” Is he now saying, “Mea culpa—I got it totally wrong”?

[Vince Cable]

I am just trying to deal with the facts. I believe in evidence-based decision making. The information in the Budget document, which has been validated as the best central estimate by Robert Chote of the OBR, suggests that we are talking about a revenue loss of £100 million. I think that the right hon. Gentleman is fundamentally underestimating the financial significance of something that happened on an epic scale when his Government moved on the top rate, which involved simply switching from one year to another. The underlying impact on revenue has been independently estimated at £100 million.

[Ed Balls]

The document from HMRC makes it absolutely clear in section A.19 that that is not HMRC’s view but the Government’s view. It was a ministerial decision on those estimates. But that does not take away from the fact that a £3 billion cost—£10,000 on average for top rate taxpayers—will be offset by a behavioural impact that is huge and, in the Business Secretary’s own words, absolute nonsense. Let us deal in the complexity of the facts, not the simplistic nonsense that the Chancellor told the House yesterday. Does the Business Secretary, with his integrity, look at those numbers—£2.9 billion, £3.2 billion, £3.6 billion and £4 billion—and say, “Yup, I agree”?

[Vince Cable]

I think we are talking about integrity and statistics. Of course there has been a big change under this Government, compared with their predecessor. The numbers that the shadow Chancellor used to use were his own numbers. The numbers we are quoting here are independently verified by the Office for Budget Responsibility. We will analyse the underlying assumptions in those figures. The figures in the Budget document are absolutely unambiguous and they have been endorsed by an independent assessor—something that the right hon. Gentleman was never used to when he was in government—which confirms the value of the numbers that we have described.

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[Vince Cable]

I do not know where the hon. Lady has been for the past 24 hours. The central feature of the Budget was a very large tax cut for exactly the group of people she describes, and it will have exactly the consequences that she describes.

Let me get back to the core issue, which exercises me and the shadow Chancellor. The basic economic strategy of the Government is to get back to a stable, sustainable form of economic growth. I want to address head-on his central criticism, which he has made many times. It can be summarised in the phrase “too much, too fast”. This Government have a deficit reduction programme that was developed following the autumn statement, and it involves removing the structural deficit over a period of six years.

The Darling plan, which the last Government set out, involved a deficit elimination programme of seven years. What I am not clear about, particularly in view of the stridency of the shadow Chancellor’s views, is: what is the Balls plan? Is it for seven years, eight, 10, 20 or never? What is the alternative speed of deficit reduction that the Opposition are urging on us?

We are acting, successfully, on good advice. A few weeks ago, the head of the International Monetary Fund, Christine Lagarde said:

“Those countries that have fiscal space, and that can slow down their fiscal consolidation efforts are very few, and I’m afraid Britain is not in that particular group.”

That is because of the sheer scale of the structural deficit that we inherited.

[Ed Balls]

rose—

[Vince Cable]

I will give way in a moment.

The CBI, quoted in evidence by the Opposition, was equally clear, as reflected in its view that we cannot afford to slow down the austerity programme. That is what authoritative people have to say about “too much, too fast”.

[Ed Balls]

The Business Secretary is a former chief economist. He read out a quote from the head of the International Monetary Fund. On the previous day, the chief economist of the IMF said exactly the opposite—that if growth was “undershooting”, a country like Britain should

“slow the pace of deficit reduction”.

Is the Business Secretary really saying that he is ignoring the advice of Olivier Blanchard, the chief economist of the IMF? I would have thought that the right hon. Gentleman would have recognised Mr Blanchard’s economic credentials.

Amendment of the Law

Debate between Vince Cable and Ed Balls

Thursday 24th March 2011 Commons Chamber

[Vince Cable]

We are sticking very firmly with plan A, because plan A is right. The hon. Gentleman will know that flexibility is built into economic management, primarily through monetary policy, and that is the mix that we will continue.

The shadow Chancellor is right. There is of course concern about a squeeze on people’s living standards, and we are concerned about that no less than he is. The Chancellor has tried to alleviate the problem through action on fuel duty and by lifting the income tax threshold. I would like to spend a few moments looking at the two proposals that the shadow Chancellor has made—he has repeated them today—to deal with the problem. The first proposal turned out to be illegal under European Union law. Like me, he is a good European—we would both like to observe European Union law—and to change that law would have taken roughly five years, which will not provide much relief.

After the fiasco of the shadow Chancellor’s “VAT relief on petrol” idea, his other big idea, which he elaborated on today, was to finance jobs through the tax on bank bonuses. I remind him that he and I have some form on this issue. When the last Government were in power, I was critical of the idea of taxing bank bonuses as I did not think it would work. It is to the credit of the former Chancellor that, through his ingenuity, he made it work. In the year in which the measure operated, he raised £2.5 billion—not the £3.5 billion that is often cited, because that takes no account of the offset in corporation tax. Because of his skill in making the bonus tax work, we have to listen to his advice when he says:

“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…find all sorts of imaginative ways of avoiding it in…future”.

He has counselled very strongly against a repeat of the bonus tax. He was—to use the word—wise.

There is another reason why I am surprised that the shadow Chancellor has returned to the bonus tax issue. He may remember that back in 2006, when he was the City Minister, a big debate opened in the Labour party when Bob Diamond was having one of his early years of extremely generous bonuses. The deputy leader of the Labour party declared “war” on “fat City bonuses”. She was promptly slapped down by the then City Minister, who reminded us that such pay-outs were good for tax revenues and for job creation. In that particular Labour party debate, I was very much on the side of the deputy leader.

If the previous Government are serious about taxing banks, why did they allow a situation to arise in which only two of the 15 major banks had in place an agreement to stop large-scale tax avoidance? We have now stopped it. Every single bank is now covered by the HMRC code on tax avoidance. Additionally, we have put in place the levy on banks’ balance sheets, raising £10 billion, which is four times as much as the one-off bonus tax would have raised.

[Ed Balls]

I am concerned by that comment, and I am not sure whether the Chancellor would agree with it. The fact is that hundreds of thousands of people in our country work in financial services, often on low or average earnings of around £20,000 to £25,000 a year. Is the Business Secretary really saying that those jobs are not important, and that job creation in financial services can be dismissed? He is not one of those people who says, “Let the financial sector go to Switzerland”, is he? He is supposed to be the Business Secretary.

[Vince Cable]

I really do not know what the right hon. Gentleman is talking about. We started by talking about excessive bonuses in one very large investment bank, and he has now extended that to the whole of the financial services sector. Of course that sector is valuable. Of course the jobs and the tax revenue are valuable, but that is not what he was talking about in his ideological dispute with his deputy leader.

Let me return to the right hon. Gentleman’s central message that the Government should abandon, or substantially modify, their fiscal strategy. I shared a platform last week at the London School of Economics with Angel Gurría of the OECD. He was asked what the Government should do. He had a simple message, which was that we should “stick with it”. He is not some pro-coalition politician or right-wing ideologue; he is the head of an organisation representing 25 Governments. Opposition Members should ask themselves—the shadow Chancellor was asked this but he neatly evaded the question—why all the major international institutions, including the International Monetary Fund, the European Commission and the G20, support the strategy that we have adopted. The reason is that they are all painfully aware that we are in an economically dangerous world in which crises of sovereign debt are not very far away.