22:46 - The House having divided: - Ayes: 23 / Noes: 473 - Question accordingly negatived.
01:22 - The House divided: - Ayes: 10 / Noes: 293 - Question accordingly negatived.
13:34 - The House divided: - Ayes: 159 / Noes: 295 - Question accordingly negatived.
Kerry McCarthy
The Government are here to answer for the activities for which they are responsible in the English health service—it is one of those things that goes with devolution. We have heard from Government Members in this debate that the Government are increasing spending on the NHS. They have trumpeted that over and over again—it was meant to be a platform on which the Conservatives sought election—but the truth is that there is not a real-terms increase in spending on the NHS. When inflation is taken into account, there is actually a cut in NHS spending, and it is time that the Government owned up to that.
I am under pressure to finish my speech and allow those on the Government Front Bench to come in. [Interruption.] As hon. Members can see from the fact that not one but two Opposition Whips are sitting behind me, shouting at me to hurry up, I am indeed under pressure.
How can Conservative MPs tell the hundreds of thousands of people who have signed up to the “Save our NHS” campaign that a spending commitment priority for this Government should be subsidies for private medical insurance? The coalition has tried to deny that it is creating a market in the NHS, but now Conservative MPs do not even want it to be a fair one, by creating incentives for the private sector. If the Treasury thinks it wise to spend such considerable sums, I hope that it is clear by now that they could be much more wisely and fairly spent on the NHS for the benefit of everyone, not the few who need it least. Why not invest in the NHS as a universal service of which we should all be proud, rather than sending the clear message to patients and enormously dedicated NHS staff that private health care is better? Is the coalition planning to run down the NHS to such an extent that people will need to resort to private insurance?
As my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) knew when the relief was withdrawn in 1997, not only could those funds be of great value to the NHS, but ending the relief could fund a reduction in the VAT charged on domestic energy supplies to 5%—a rate that the Conservative Government had increased to 8%, and which they would have increased still further to 17.5%, had they not been defeated by Opposition MPs. The Labour Government at the time made clear their priorities. Rather than giving a tax break to older people who could already afford health insurance, they chose a tax cut that benefited everyone, but made the most significant difference to older people on low incomes who were struggling to heat their homes.
It is worth reminding the House that the Conservatives wanted to reverse that policy and reinstate the relief in 2001. Now, 10 years later, they still have the wrong priorities —priorities that will quite simply be incomprehensible to the average person feeling the effects of this Government’s reckless spending cuts. It is estimated that 4.5 million families in the UK are living in fuel poverty, while people are facing 10% increases in their electricity bills, which are likely to increase still further as a result of the coalition’s poorly thought out plans for a carbon floor price, which we will debate perhaps in the early hours of tomorrow morning or next week. Moreover, this Government have decided to cut the winter fuel payment for pensioners.
Faced with individuals and families who will struggle to heat their homes this winter, are the Government taking positive, responsible action to help them? No; instead, they have already hiked up the VAT bills of a couple with children by £450, and those of a pensioner couple by £275, and their Back Benchers think that it is more important to reverse a decision taken to help with fuel costs and instead give tax relief to the minority who can already afford the luxury of private health insurance.
The Labour Government lifted 1.1 million pensioners out of poverty, but there is a continuing need to support those on the lowest incomes. I fear that these proposals betray how some Conservative Members neglect the needs of the poorest pensioners. With the new clauses, they want to add insult to injury by giving tax breaks to the richest to buy private medical insurance, while poorer pensioners have no option but to rely on the NHS—a service that the coalition seems determined to decimate. New clause 1 explains that the relief would apply to people over 65 but, as we all know, the coalition is planning rapidly to increase the state pension age, which will affect the associated support for older people. Does the hon. Member for Mole Valley therefore envisage the age limit increasing with the state pension age, or does he disagree with the Government’s timetable?
In 2006, 10.6% of the population were covered by private medical insurance, and only 3% by personal private medical insurance. The latest figures that I have seen indicate that just 7% of people over 65 have private medical insurance, so the clear motivation behind new clause 1 is the choice to prioritise a very small percentage of the population at a time when the country and the NHS cannot afford it. Inflation is running at more than double the target rate thanks to the Chancellor’s decision to increase VAT, growth is flat-lining, the jobseeker’s allowance claimant count is increasing and more than 80 claimants are applying for each vacancy in some areas. That all means that the Government will have borrow £46 billion more than they planned last autumn, so how on earth can this measure be a priority?
I urge the Government to reject these new clauses, to consider how the money could be much better spent and to secure the future of the NHS as a high-quality service that everyone can access and trust. Instead of an unfair income tax cut for the few, we need a temporary emergency VAT cut that will benefit everyone, particularly those on low and middle incomes, and that will give a much-needed boost to the economy to reduce the deficit over the long term in a fair and balanced way. I conclude by asking the hon. Members who tabled the new clause what their priority is. Is it a tax cut for the minority who can afford private health insurance, which would undermine and undervalue the NHS, or a tax cut that would help everyone at a time when the economy needs it most?
The Financial Secretary to the Treasury (Mr Mark Hoban)
New clauses 1 to 4 seek to provide for tax relief on medical insurance premiums for individuals above the age of 65. I understand that the argument for introducing such relief is that it would encourage individuals above that age to take up private medical insurance and therefore reduce pressure on NHS resources, and that this would result in a net saving for the Exchequer in the medium to long term.
The Government introduce new tax reliefs only when there is a compelling case that to do so would represent a good use of public money. Turning first to cost, we estimate that this relief would have a direct and immediate cost to the Exchequer of at least £135 million pounds a year—a significant amount, especially given the fiscal climate in which we are now operating. That would reflect the cost of restricting relief to the basic rate of tax.
Mr Kevan Jones
I am interested to find out where the Minister got his figure from, because the figure in 1997 was £135 million. Has it not changed since then?
Mr Hoban
That is the Treasury’s latest estimate, and it is a number that we are going to stand by.
In his opening speech, my hon. Friend the Member for Mole Valley (Sir Paul Beresford) said that he wanted to restrict the tax relief to the basic rate, but subsection (3) of new clause 1 would not have that effect. It suggests that the relief could be obtained at the highest marginal rate that a person paid. He has used the 1990 legislation, whereas in the 1994 legislation the relief was restricted to the basic rate.
Mr Leigh
Why does my hon. Friend think that the social insurance systems on the continent, where there is much more blurring between the public and private sectors, produce much better health outcomes? Also, why does he think that the Major Government followed this policy, which we all supported at the time? Why is this proposal different from the policy of the Major Government, which we all—or some of us—supported?
Mr Hoban
I am pleased that my hon. Friend added that qualification. I entered the House only in 2001, so I was not in a position to support the Major Government or to disagree with them. We need to look at this measure on its own merits.
I would say to my hon. Friend the Member for Mole Valley that the way in which his new clause has been drafted means that tax relief could be gained at someone’s highest marginal rate, which could mean relief of up to 50%.
Sir Paul Beresford
Of course, if that were the result, I would be prepared to make some little adjustments to the new clause as the Bill progressed through the House.
Mr Hoban
My hon. Friend is an experienced Member of the House, and he will know that this is the final stage of the Bill, so it would not be possible to amend his proposal in that way. I note, however, that he has introduced a ten-minute rule Bill on a related subject, so we shall see what progress that makes through the House.
Mr Hoban
I want to make some progress. I appreciate that my hon. Friend the Member for Wellingborough (Mr Bone) has said that the debate may go on until any hour, but I do not want to be the cause of delaying the House’s tackling subsequent new clauses.
The vast majority of the cost of providing the proposed tax relief would go to those who already have private medical insurance, and there is therefore no obvious need for a new incentive. The case for introducing tax relief rests on the proposition that it would encourage significant new take-up of private medical insurance and ultimately be self-financing. However, at this stage we do not have any strong evidence to show how much additional take-up of private medical insurance a tax relief would generate, or how much pressure on NHS resources would be relieved as a result.
Indeed, when a similar relief existed between 1990 and 1997, it had little apparent effect. It is estimated that take-up of medical insurance increased only from 500,000 to 550,000 individuals over that period. The hon. Member for Bristol East (Kerry McCarthy) said that that increase was a demonstration of people’s lack of confidence in the NHS under the previous Conservative Government, but she ought to be aware that the take-up of private medical insurance under the Labour Government of whom she was a member went up from 550,000 to 1.7 million, so I do not think that her argument is particularly strong.
Frank Dobson
I congratulate the Minister on at least producing an estimate of the cost of the proposed measure. When the original scheme was first introduced, neither the Treasury nor the Department of Health made any estimate whatever; they were flying blind.
Mr Hoban
I thank the right hon. Gentleman; there are times when I am happy to accept congratulations from the other side of the House. We want to ensure, especially given the constraints that we are working under in these times of fiscal austerity, that measures can be well justified.
An Institute for Fiscal Studies report published in 2001 questioned how far the take-up of private medical insurance would ever respond to tax relief. It also suggested that the dead-weight cost would make it unlikely that tax relief could be self-financing.
Mr Chope
My hon. Friend was not in the House in 1989, but is he saying that my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), who was Secretary of State for Health at the time, was wrong to say that introducing this self-same measure would
“reduce the pressure on the NHS from the very age group most likely to require elective surgery, freeing resources for those who need it most”?—[Official Report, 31 January 1989; Vol. 146, c. 169.]
Mr Hoban
Loth as I am to suggest that my right hon. and learned Friend could ever be wrong on any measure, I want to make a point about the chances of a reduction of pressure on the NHS exceeding the cost of the tax relief. There is no evidence that there would be a net positive outcome for the Exchequer. When a similar relief existed in the 1990s, it had little apparent effect, and the IFS report from 2001 concluded that it was unlikely that such a subsidy for private medical insurance would ever be self-financing.
I appreciate the passion with which my hon. Friend the Member for Mole Valley has put forward his argument for the new clause, but I do not think that there is sufficient evidence at this point to justify the relief. There is no evidence that it would represent good value for money for the taxpayer, particularly at a time when our efforts should be focused on reducing the deficit and tackling the problems left by the previous Government.
Oliver Heald
Assuming that the new clause does not result in making a change in the law tonight, would my hon. Friend be prepared to look into the effects of longevity and the effect of having a more substantial private sector available to undertake operations and procedures on behalf of the national health service, as this is partly about capacity and what the future holds, not just about the numbers today?
Mr Hoban
My hon. Friend makes an important point about the impact of longevity on the public finances; the Office for Budget Responsibility is working on that at the moment, and we await its report. At the moment, however, given the fiscal situation and the need to tackle the deficit we inherited from the Labour party, I do not believe that the costs entailed by the new clause would represent good value for money, so I ask my hon. Friend the Member for Mole Valley to withdraw the motion.
Sir Paul Beresford
It is traditional to say that we have had a good debate, but we really have had a good one today; it has been stunning in a way. Most importantly, I do not think there is any Member who does not support the national health service. We are very much behind the national health service, and it is true of me even more than most Members of all parties, because I have worked in it, as well as working in the private sector and in a combination of the two. I am emphatically behind it, and I back the hospitals in my constituency.
The approach has, of course, been different. If the right hon. Member for Holborn and St Pancras (Frank Dobson) had not joined the debate, I would have felt that I had failed because we would otherwise not have heard a good red-blooded, left-wing socialist viewpoint. The difference, of course, is that Conservative Members support the national health service, but we also support the possibility of looking for alternatives or different ways of helping the NHS. That was my aim tonight.
I question the figures that the Minister provided, as we need to recognise that over a seven-year period from 1990, with the over-60s—not just the over-65s—having a full swathe of tax deducted, not just the basic rate, the relief was costing about £80 million. If the proposal in the new clause went through, there would be a progressive growth in the number of people claiming as time went on. I do not think it would be logarithmic, but it would certainly make a difference to hospitals in my constituency and others, particularly those down south. There would be a relief of the strain on those hospitals and an opportunity to redistribute the money.
I was putting my toe in the water this evening, trying to get some thinking going on the proposal, and that has happened. I will discuss the issues further with the Minister before the Budget and next year’s Bill, but in the meantime, I wish to withdraw the clause.
Clause, by leave, withdrawn.
Chris Leslie
The hon. Gentleman could have speeded that up by not intervening.
I shall finish by saying that, clearly, there are major problems with the transferable allowance. It is costly and not targeted, and it is unfair to those without a marriage certificate, whether they are divorced, widowed, single or in a couple. There are a host of anomalies and unintended consequences, as several of my hon. Friends have said. For instance, if a husband is killed in a tragic road accident, his widow and children will be left without support, and so on. The proposal undermines the principle of independent taxation, but most of all, we should focus our tax and benefits system on need and on the alleviation of poverty. I sincerely hope that the House will reject new clause 5.
The Exchequer Secretary to the Treasury (Mr David Gauke)
As we have heard, new clause 5 would introduce transferable personal allowances for married couples, allowing one spouse in all married couples to transfer unused personal allowance to the other. I am very grateful to my hon. Friend the Member for Congleton (Fiona Bruce) for tabling the new clause. It highlights an important point: that marriage is a positive institution, and one that the Government are committed to support.
We are keen to send a clear message that family and marriage matters, and that strong and healthy families help to create a strong and healthy society. In little more than a year, this Government have proved our determination to tackle the wider issues that can affect family stability.
Fiona O'Donnell
What message would the measure send to the woman who came my surgery on Friday, fleeing an abusive relationship to keep herself and her children safe?
Mr Gauke
It is of course important that we, as a society, do everything that we can for a woman in the circumstances that the hon. Lady describes. However, the Government also believe that the institution of marriage provides something to society that should be recognised. That is the thinking behind our policy. Of course we must help those in abusive relationships and do all we can to support them, but that does not preclude taking steps to support the institution of marriage. The Government recognise that.
Thomas Docherty
Like the Minister, I am a fan of the institution of marriage, but what does it say about the institution that the Government feel that they need to support it like this?
Mr Gauke
If the hon. Gentleman is prepared to be patient, I will set out the Government’s position.
If we are to address poverty, it is important that we address not just poverty but the causes of poverty—to coin a phrase—and ensure that work pays, and that is what our welfare reform programme is designed to do. It is also important that we take steps to ensure that the family and marriage are recognised, and that we do what we can to support stable relationships.
Ian Austin (Dudley North) (Lab)
Under the Minister’s proposals, if a man abandoned his wife and children and got remarried, would he continue to receive the tax allowance? If a woman were widowed, would she lose it?
Mr Gauke
Let me set out—[Hon. Members: “Ah!”] Let me set out the point. As has been said many times during this debate, marriage is recognised in the vast majority of countries. The previous Government introduced the transferable nil-rate band for inheritance, which was specifically designed to assist married couples and civil partnerships. If the Labour party is against any kind of recognition of marriage within the tax system—
Ian Austin
Would a woman whose husband was killed in Afghanistan lose this benefit?
Mr Gauke
As I sat down to give way to the hon. Member for Dudley North (Ian Austin), the shadow Chancellor said, “You don’t have to be married to benefit from the transferable nil-rate band.” He is absolutely right. As I said, it applies to married couples and those in a civil partnership. That is exactly what I said earlier. As the hon. Member for Dudley North pointed out, it is important that we support widows in the circumstances he mentioned. Does that mean, though, that we should never do anything for married couples? It does not necessarily follow.
I want to put this in the wider context of what we are doing to help strong and stable families. For example, the Department for Education has announced plans to spend £30 million on relationship support to deliver better support for couples in relationship distress. However, as hon. Members will be aware, the Government have made it clear that we intend to introduce proposals to recognise marriage and civil partnerships in the tax system. As the Prime Minister said recently, this will show that as a country we value commitment. I certainly agree, therefore, with the intentions behind the new clause.
Although the Government support the principle behind the new clause, now is not the appropriate time to bring forward such a measure. It would entail significant and immediate costs to the Exchequer, its scope is wider than the Conservative party manifesto pledge and the cost, we estimate, would be more than £4 billion. It would also necessitate substantial implementation costs.
Clive Efford
Will the Minister comment on what message this sends to teachers planning to strike on Thursday? On the day when the Secretary of State for Education was dragged to the House to explain what he was doing to avoid the strike, the priority of Back-Bench Conservative MPs is to propose a motion that would cost more than £4 billion a year, yet teachers are being told that the Government will not negotiate over increases in their pension fund contributions. What message does that send to those teachers?
Mr Gauke
We have heard a lot in this debate about single parents. One group that will be affected if teachers go on strike and schools close on Thursday will be single working parents, who will face substantial disruption in dealing with child care. I hope that Members in all parts of the House will strongly urge teachers to go to work on Thursday.
Mr Leigh
I am quite prepared to accept that we are only Back Benchers and that the new clause may be defective, but I would be prepared not to force it to a vote if my hon. Friend now gives a firm and solemn pledge that during this Parliament the Government will honour our manifesto pledge to recognise marriage in the tax system. If my hon. Friend gives me that pledge, I will not force the new clause to a vote; if he does not give that pledge now, I will force it to a vote.
Mr Gauke
I am going to make some progress.
Clearly, £4 billion is a significant amount of money. Any decision to introduce a mechanism to recognise marriage in the tax system will need to be taken in the context of the wider public finances, so whatever proposals the Government make will balance the benefit to society with the cost to the Exchequer. We will consider a range of options.
There are also some issues with the drafting of new clause 5. Some seemingly minor elements, such as the lack of a commencement date, make the new clause administratively difficult for two reasons. First, lead-in times for an effectively implemented mechanism will be lengthy because HMRC will need to design and put in place new processes—a point that a number of hon. Members have recognised. We will factor that into our thinking. The Government and HMRC understand the need for a workable way of delivering this, and we are actively engaged in that process. Secondly, the lack of a commencement date means that those who qualify could, technically, claim for at least the last four years, which could substantially increase the cost.
As we have heard, the new clause also makes no mention of civil partnerships, which we believe must be included. There is much that HMRC will need to prepare before the Government are able to meet their commitment, but hon. Members can rest assured that the Government are considering all those points. Let me say to my hon. Friend the Member for Gainsborough (Mr Leigh) that the Government remain committed to exactly what we said in the coalition agreement. I support the principle behind the new clause.
Labour introduced a mechanism in the tax system to recognise the advantages of cycling to work, and although I have nothing against cycling to work, it seems to me that marriage is more important to society, so the idea that the proposal before us would somehow represent a strange or unusual element in the tax system is, I am afraid, wrong. However, it is not practical to implement it at this time, and such changes need to be made within the boundaries of improved fiscal stability. Therefore, although I will reluctantly ask my hon. Friend to withdraw new clause 5, I can assure my hon. Friends that this is not an issue that we have forgotten about; rather, it is a commitment that we will keep.
Mr Hanson
I remember the hon. Member for Redcar standing with the Deputy Prime Minister in front of a poster that said “Tory tax bombshell”. I find it amazing to hear the hon. Gentleman speak this evening as an apologist for the Conservative Government’s imposition of VAT on people in Britain.
New clause 10 calls for a review of the assessment of the impact of VAT on UK economic growth over the next three months. As Members know, last Tuesday we voted on a Labour motion, which was opposed by the Liberal Democrats, to cut VAT on a temporary basis to 17.5% while economic growth is restored. The Conservative party voted against that motion, which would have ensured that we had the VAT cut proposed today.
Mr Gauke
The right hon. Gentleman will be aware that tax law is made in Finance Bills. Given that we are debating such a Bill, will he explain why the official Opposition have not brought forward their own proposals, in a form that could be selected, to cut VAT on a temporary basis, or have they abandoned that policy?
Mr Hanson
When the Conservative party, supported by Liberals who at the general election opposed VAT increases, imposes VAT increases, it does so on businesses and on jobs and hardest on the poorest people in our society. I will now give way to the Minister so that he can explain that.
Mr Gauke
The right hon. Gentleman says that every Labour Member opposes the increase in VAT. Will he explain, first, why so few of them voted against it last year and, secondly, why the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), according to Peter Mandelson’s memoirs, was in favour of raising VAT to 19%?
Mr Hanson
I have great respect for my right hon. Friend the Member for Edinburgh South West (Mr Darling), and he is a very good friend of mine, but the issue tonight is that no Labour Government increased VAT above 17.5%. Indeed, the same Chancellor of the Exchequer, my right hon. Friend, in similar circumstances to those that we face now, when there is pressure on jobs, on businesses and on incomes, temporarily reduced VAT to help hard-working families to cope.
Mr Hanson
The hon. Member for Caernarfon has not moved a new clause—the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) moved it. However, we will not be supporting it because it does not give an end date for the potential VAT reduction. It would be a permanent reduction. We want a review of the impact of VAT on business, jobs and living standards.
Mr Gauke
I am trying to understand the Labour party’s position. If it believed in the policy announced by the shadow Chancellor a week or so ago, it would want first to reduce VAT, and then to make a decision on when to increase it. I do not understand, therefore, why it is not supporting the new clause, which takes that first step—it does what the Labour party want to do.
Mr Hanson
I will try again, slowly. The new clause calls for a permanent cut in VAT to 17.5%. It does not do what my right hon. Friend the Member for Morley and Outwood wishes to do—what we voted on last Tuesday—which is to implement a temporary cut in VAT until we secure strong growth.
Kate Green
It is a pleasure to follow my hon. Friend the Member for Chesterfield (Toby Perkins) and to echo many of his remarks.
I appreciate that it is late, and I will keep my remarks brief, but it would be remiss of me not to speak up on behalf of my constituents to express the genuine concerns about the impact on businesses and families of the Government’s fiscal policies, including, in particular, their policy on VAT.
The impact on families, especially the poorest families, of the Government’s fiscal measures is a cause of considerable concern. The other day, the Institute for Fiscal Studies told us that inflation is having a 60% greater impact on poorer families than on better-off households. The poorest fifth of families now face an inflation rate of 4.3%, compared with the richest fifth, for whom it is only 2.7%, and the higher rate is hitting pensioners especially harshly. I suspect that we all know this from standing on the doorsteps in our constituencies and listening to families talk about the pressures they are facing in managing the rising cost of living and the difficulties they are experiencing in making ends meet. Families across the piece are beginning to feel the squeeze that is resulting from the Government’s policies, and there is no doubt that the VAT increase is a significant element in that.
I am sorry that the hon. Member for Redcar (Ian Swales) is not in the Chamber, because there are one or two important points about VAT that we need to ensure that Conservative Members understand. First, VAT is a regressive tax because it hits the lowest income deciles disproportionately harshly. That is because it is a flat-rate tax that it is taken away from the poorest families at the same rate as from the better-off. All the sleight of hand that looks at expenditure deciles misses the point that families with lower disposable incomes are seeing more of their income eaten up on non-discretionary spend, where costs are rising.
My hon. Friend the Member for Llanelli (Nia Griffith) rightly pointed out that we are talking about spend not on luxuries but on household basics. We recognise that food and children’s clothes are exempt from VAT, but let us remember all the other household basics that families will still have to go out and buy: soap powder, washing-up liquid, shampoo, shoe repairs. These are not items of frivolous luxury but everyday expenditures that families have to meet. In addition, as families rightly seek to enter or stay in the labour market, there are the costs for adults of buying clothes and equipment for work. VAT is a regressive tax that harshly hits ordinary families on tight budgets, and that is an important first consideration for Conservative Members to bear in mind.
Secondly, as many of my hon. Friends have said, we need to think about the impact that the VAT rise is having on the economy as a whole. That is the thrust of new clause 10. Here again, there is a basic lesson in economics that my hon. Friends have been trying to get across. Some Government Members have said that businesses can reclaim VAT. That neglects the fact that VAT, wherever it is applied in the product chain, ends up being charged somewhere. It ends up being charged when the consumer goes out and buys the goods. It does not somehow disappear in the course of VAT recovery, but is charged ultimately to the customer, who is now faced with spending more on essential items and having less to spend on additional items. That is having a damaging effect on business, manufacturing, retail and jobs. That is the point that I and my hon. Friends have been trying to get across.
It is a pity that the hon. Member for Redcar has only just arrived as I finish this helpful, if rather basic lesson in elementary economics. You will not want me to repeat it all at this time of night, Mr Speaker, so perhaps the hon. Gentleman can read the Official Report tomorrow to gain the benefit of what I and my hon. Friends have been trying to get across.
As I said, I want to make a few remarks about the impact that this policy is having in my constituency. I have talked about the impact that it is having on families in my constituency. Hon. Members have alluded to the impact that it has had on HomeForm, which is a substantial business based in Old Trafford in my constituency. It has been forced into financial difficulties, and I am very concerned about that. I am also concerned about an exceptionally important and large retail centre in my constituency, the Trafford centre, with which hon. Members may be familiar. I am concerned about jobs at the Trafford centre, particularly because of the nature of those jobs. They are exactly the kind of jobs that low-income families and those who can manage only a few hours of work are reliant on: part-time jobs, shift jobs and low-skilled jobs. Those are the jobs that are being put at risk and those are the jobs that do something—not very much, but something—to keep families on modest incomes afloat.
I am concerned that there is an impact on families, an impact on industry, an impact on retail and an impact on jobs. As my colleagues have said, that translates into a fall in consumer confidence and a fall in retail growth. We are concerned therefore about the damaging effect on the economy overall.
As the House is aware, we are asking simply for an assessment of the economic impact of the Government’s VAT rise. I think that that is a reasonable thing to ask for, particularly given the Chancellor’s apparent greater open-mindedness towards the economic impact of the 50% income tax rate introduced by the last Labour Government for those with incomes of more than £150,000. It was interesting to hear him say explicitly in his Budget statement in March this year that he regards that as “a temporary measure” and that he is concerned about what its broader impact may be. We are asking simply that VAT—a tax that affects all families, all households, all businesses and our economy as a whole—be subject to the same degree of scrutiny and review. I am at a loss to understand why a responsible Government would not want to take on board new clause 10 and support us in the Lobby this evening.
Mr Gauke
We have had an interesting debate. I must admit that I am surprised that on the subject of VAT cuts I am responding principally to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) and that it is he who tabled the new clause calling for a VAT cut. After all, it was only on 16 June that, with much fanfare, the shadow Chancellor announced the Opposition’s flagship policy of a cut in VAT—the first paragraph to appear on the blank sheet that is Labour policy. Yet with an opportunity to legislate for that very policy today, the official Opposition failed to get around to tabling their new clause until the day before the debate—too late for selection.
Mr Gauke
The fact is, the economy grew in the first quarter of this year, after the VAT increase, unemployment fell this year at the fastest rate since 2000, and borrowing is falling. The plan is working. I am afraid that Opposition attempts to talk the economy down are not working. In difficult international conditions, the economy is growing.
Raising the rate of VAT was a difficult decision to take, but it was the right decision, and the responsible thing to do. The Opposition proposal is reckless: an unfunded VAT cut to the tune of £12 billion a year, and £51 billion over the Parliament. How do the Opposition propose to fill that gap? Would they revert to their tax on jobs? Do they think that that would stimulate growth?
Deficit reduction, in which the VAT increase plays an important role, is a prerequisite for sustained economic growth. At the June Budget and in the spending review, the Chancellor set out a credible plan to reduce the deficit. According the OBR, the plan is consistent with medium-term growth, achieving the mandate in 2014-15, a year earlier than required. The International Monetary Fund continues to back the Government’s consolidation plans, and to advise against changing course. It considered whether it is time to adjust macro-economic policy, and its conclusion is that the answer is no.
Events in Europe and around the world in the past few weeks have shown how important it is for countries with large deficits, such as the UK, to have a credible plan to deal with their debts. The Government have a credible plan. The British economy is recovering, output is growing and new private sector jobs are being created. We have set out why we have made those changes and explained what is required. We are putting our economy on a path of sustainable growth. I urge hon. Members not to press the new clauses to Divisions, and to support the Government’s plans for this country.
Jonathan Edwards
We have had a very interesting debate, although I find myself somewhat confused by the voting intentions of hon. Members. We will see in a few moments.
I shall not press new clause 6 to a Division, because it proposes a permanent reduction in VAT. New clause 9, however, proposes a temporary reduction, no matter what Labour Front Benchers say, and I will press that to a Division. Those who do not join us in the Lobby for the Division on new clause 9 will not be able to say with any credibility that they oppose the January VAT increase.
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 9
Value Added Tax (Change of Rate) Order 2011
‘(1) The Chancellor of the Exchequer shall make an order under the powers conferred by sections 2(2) and 21(7) of the Value Added Tax Act 1994 that in section 2(1) of the Value Added Tax Act 1994 (rate of VAT), the rate of tax charged by virtue of that section shall be decreased by 12.5 per cent.
(2) In section 21(4) (value of imported goods) of the Value Added Tax Act 1994 for “25” substitute “28.58”.
(3) This Order shall be known as The Value Added Tax (Change of Rate) Order 2011 and shall come into force on 30 August 2011.’.—(Jonathan Edwards.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.