19:31 - The House divided: - Ayes: 228 / Noes: 273 - Question accordingly negatived.
22:00 - The House divided: - Ayes: 229 / Noes: 298 - Question accordingly negatived.
Chris Leslie
The hon. Lady makes an interesting point, because it is important that we engage with the Government properly on this agenda. We are still waiting for that report, although I hope that new clause 11 has been framed in such a way as to be pretty harmless and to command widespread support. Ultimately, all that we are looking for is a review of the circumstances; and indeed, some of the tax measures that may need to be included—although they may not—would not currently be part of the arrangements that I understand her hon. Friends are reviewing. New clause 11 is simply about ensuring the widest possible capability for those policy levers that the Government would be able to consider. There are so many measures necessary to help protect the consumer. They include not just action on payday lending or interest rates, for example, but the support needed for financial literacy education—something to which the Government have regrettably taken the axe, by terminating the £26 million financial inclusion fund. That decision is a particular regret, given that it will hit citizens advice bureaux up and down the country, along with other face-to-face advice agencies. Indeed, the financial inclusion fund was an essential bit of seedcorn funding, so I would be grateful for the Minister’s clarification about its future.
The Financial Secretary to the Treasury (Mr Mark Hoban)
There is no need for clarification: if the hon. Gentleman had done his research properly, he would know that the Government have extended the funding for debt advice for a further year, and it is the intention that the Money Advice Service—which is funded by the financial services industry—will take on that work.
Chris Leslie
I did indeed know of the hon. Gentleman’s announcement of some time ago—not quite a full year yet. We are now into July, and the funding is due to run out next April, expiring at the beginning of the financial year 2012-13. Many advice agencies are quite anxious about what will fill the gap. It is clear that he has kicked the issue to the Money Advice Service, although we do not yet know what its approach will be. One crucial point is whether it will be interested in face-to-face advocacy and supporting such activity.
Steve Rotheram
I always listen to my hon. Friend the Member for Walthamstow, as she is much more of an expert on these matters than I am. I hope that the hon. Gentleman’s intervention is not indicative of the thinking of all Government Members.
I have a particular reason for wanting to see a cap on the cost of credit. I come from a family of eight kids, and unfortunately my beloved mum was often a victim of door-to-door credit. She took it not to pay for luxury goods, but so that she could afford to buy us things like school blazers and winter coats. She would get a Provident or Sterlers cheque and pay it back on the “never-never”, as it was known colloquially. This meant paying back hundreds of per cent. of the original loan in interest charges, but like millions of others she did not really understand the rudimentary economics and looked only at how much she could afford to pay back each and every week, rather than the interest rate or the cumulative payment total. Unfortunately, she was not unique in this respect and, even four decades on, far too many people are still caught in this poverty trap.
The high cost of credit has not improved much for families at the wrong end of the socio-economic ladder. Home credit lenders often charge astronomical annual percentage rates of up to 3,000% or 4,000%. I had to check those figures, because the current bank base rate is only 0.5%, but I found that interest charges of thousands of per cent. are not uncommon. In fact, the UK’s poorest pay the highest price for credit in Europe. This is an obscene state of affairs and the Government must act. Before we hear the same old mantra from Government Members, I admit that we in the Opposition did not do enough to tackle the issue head-on when we were in power. However, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) rightly pointed out, this is an escalating problem that needs to be tackled immediately.
I urge Members on both sides of the House to support what my hon. Friend the Member for Walthamstow is trying to do to stop this most socially iniquitous of practices. Even Boris supposedly supports measures to protect the financially vulnerable, and if he can do it, there should be nothing stopping Government Members doing the same.
Members on both sides of the House have highlighted the problem and provided examples of the unfairness, but it is worth reiterating that credit lenders can charge, in real terms, £82 in interest and collection charges for every £100 lent. A gentleman came to my constituency advice surgery only last Friday and told me that his wife was suicidal because of the level of debt that they had got themselves into. I highlighted last week in a Westminster Hall debate the fact that the banks are failing to meet the Project Merlin targets for lending and the adverse effect that this is having on the construction sector. The banks are also failing ordinary families as they are refused credit from high street lenders, which often results in them taking the only option left: high-cost lending through payday and doorstep loans and hire purchase.
The rising cost of credit traps those least able to cope with the pressures of economic stagnation as they struggle to make ends meet, and believe me, the VAT increase has not helped those families. Some payday lenders are rubbing their hands at the expansion in their “target audience”, as one put it, 70% of whom have a household income below £25,000. I know that we will never completely stop this most lucrative of immoral trades, but we can certainly put a cap on lending to regulate the total amount that can be charged for supplying credit.
This is one of the occasions on which I do not understand how a proposal could not receive unequivocal support from both sides of the House. I have listened to some of arguments against taking action, such as the suggestion that it might make things worse or restrict credit to those who need it, but that is an absolute cop-out with no basis in evidence. Therefore, I ask Government Members to support the new clause to ensure that consumers are protected and simply pay a fair price for credit.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I think that the debate has demonstrated the potential for cross-party support for the analysis underpinning the discussion we have had this afternoon, but I gently point out to Opposition Members who seek to turn this into a partisan political issue that their Government had the opportunity over 13 years to tackle this. In fact, we had a debate on it while the Financial Services Act 2010 was going through Parliament, not long before the general election, during which my opposite number at the time ruled out acting on interest rate caps because of the impact of depriving the most vulnerable of credit services. It is not a new issue, or one that is fresh to this Parliament. Ministers in the previous Government were opposed to the idea of caps because, as the hon. Member for Liverpool, Walton (Steve Rotheram) indicated, it could restrict the supply of credit, forcing those who need it into the hands of illegal moneylenders, an outcome that Members on both sides would not want to see.
Let us be clear that credit can be a good and positive force that enables people to meet needs when there is a sudden shock, such as an unexpected expense or a cut in income, but it must be used sensibly and sustainably. When people decide to borrow, they must be mindful of what that means for them and realistic about their ability to repay the loan. That is true whether the loan is over 10 years, five years or a matter of days, as is the case with some instant or payday loans. However, all lenders have a responsibility in this regard. Lending more than borrowers can afford to repay does not benefit anyone. Under the recently introduced consumer credit directive, all lenders, including high-cost credit lenders, must ensure that when they decide to advance a loan they do so after making a thorough assessment of the lender’s ability to repay.
We know that consumer debt grew significantly under the previous Government, more than doubling from £620 billion in 2000 to more than £1.4 trillion by May 2010. Some of this debt is now being repaid as consumers begin to come to terms with their borrowing, with the amount of unsecured debt reducing in the past two years. Although much of this debt will be repaid without any problems, some borrowers get into difficulty. Lenders have a responsibility to help customers and treat them fairly when they get into difficulties with loans, not push them further into debt. Continuing to add excessive arrears and default charges is a lose-lose situation; the debt increases out of all proportion to the amount borrowed, the lender is less likely to be repaid and the borrower may have difficulty borrowing again. Lenders should work with borrowers, not against them.
We should all be concerned about people borrowing at high rates of interest. However, the high-cost credit market, whatever its faults, provides a service for those who cannot get credit from any other source. We should be careful about describing high-cost credit providers as legal loan sharks. We all recognise from our own communities that real loan sharks are far worse, resorting to violence and intimidation to recover their debts. High-cost lenders are licensed and operate within a regulatory framework, which provides some recourse when things go wrong.
We should be clear that action has been taken over the past year to improve consumer protection in this area. First, under the consumer credit directive, which came into force earlier this year, consumers now have a right to withdraw from any credit agreement within 14 days. If they do so, they have to pay back only the money lent and the interest accrued over that time. Secondly, consumers have a right to repay a loan early at any time, in part or in full. Thirdly, lenders now have to provide information in a standard format so that borrowers can easily compare the costs of different loans. Improving the transparency of information will help consumers. Fourthly, lenders must conduct a full credit assessment before advancing any loan. Lenders will also have to explain the key features of the credit agreement.
In addition, the Office of Fair Trading has recently published its guidance on irresponsible lending, which clearly sets out that deceitful, oppressive or otherwise unfair lending practices are not acceptable. The OFT, which is responsible for the regulation of credit—something that whoever tabled the new clause seemed to forget—has the power to remove the licence of those who breach the irresponsible lending guidance.
Much good work is going on, including the excellent work of credit unions, which many of my hon. Friends have mentioned. It is a shame that the hon. Member for Edinburgh East (Sheila Gilmore) is not in her place. My hon. Friend the Member for East Hampshire (Damian Hinds) is right that there is £73 million to help to expand and modernise credit unions. The money that the previous Government put into credit unions is diminishing, because the money that credit unions were able to earn on the debt was lower than the default rate on the loans given. I therefore welcome the money that the Department for Work and Pensions has found to strengthen credit unions.
As a number of hon. Members have said, we are reviewing the wider consumer credit landscape. At the end of last year, the Treasury and the Department for Business, Innovation and Skills published a joint call for evidence on the consumer credit and personal insolvency review, which covers all aspects of the consumer credit life cycle, including what happens when things go wrong. This is an opportunity to ensure that the regulatory framework is fair to consumers and the industry. Part of that review focuses on the high-cost credit market. Following an OFT review that took place under the previous Government, we have asked for evidence on five of its recommendations.
Mr Hoban
Let me just finish the recommendations, and then I will give way.
The first recommendation was to provide information on high-cost credit loans to consumers through price comparison websites. The second was to introduce a “wealth warning” on high-cost credit products. The third was to collect essential information on the high-cost credit sector so that the OFT can track developments. The fourth was for the Government and industry to develop a code of practice. The final recommendation was to work with credit reference agencies to explore ways in which payday lenders could provide suitable information about the payment performance of their customers. That would help those who use high-cost credit to build up a credit history that they can use to access more mainstream lenders.
Stella Creasy
I wonder whether the Minister can deal with an anomaly that has driven the new clause. I received a letter on 25 May, which set out that the high-cost credit market was not specifically included in the consumer credit review. Is the Treasury taking the lead on this and does BIS need to follow? Will the Minister clarify this matter, because the letter from the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey) said that BIS was not looking at this area per se?
Mr Hoban
Her Majesty’s Treasury and BIS have joint responsibility for this matter, which is why we issued a joint call for evidence. As I said, the consultation includes gathering further thoughts on the five areas from the OFT review.
The Government will respond to the review in the coming weeks and we are still assessing the evidence that has been provided. I can tell the House that a number of responses have been received on introducing a cap on interest rates, including from Members of this House. This is clearly an area that we will consider properly and carefully. We have been clear that we are not afraid to take action where there is evidence of consumer detriment.
I turn to the new clause that was tabled by the shadow Chancellor and a number of hon. Members. It asks the Government to review the impact of all taxation measures on lenders who are seen to engage in high-cost lending. I appreciate that this may be a probing new clause. I pointed out in Committee that the new clause as then drafted would lead to the perverse outcome of forcing up the cost of credit. The new clause before us has similar defects and unintended consequences.
I will point out the defects first. It is the Office of Fair Trading that regulates consumer credit, not the FSA. I would have thought that a Member who is so proud of her reputation for doing the homework would have got that right. It is well known that the OFT regulates high-cost credit.
Secondly, unlike the new clause tabled in Committee, which focused on the bank levy, this new clause looks at tax measures that are applicable to high-cost credit lenders. It would require each tax measure in the Budget to be assessed to see whether it is applicable. I listened carefully to the speeches of the hon. Members for Nottingham East and for Walthamstow—she is probably tweeting about this as we speak—to find out what tax measures they had in mind. I did not hear a single tax proposal being put forward by Opposition Members. [Interruption.] The hon. Gentleman says that we should propose the measures. I have been listening carefully for any sensible tax proposals from Opposition Members, but I am yet to hear one.
My concern is that there is a degree of price elasticity for those who use high-cost credit. Such people pay for high rates on their borrowing. If we increased taxes on high-cost credit, the costs would be borne by the borrowers through higher charges and the benefit would be gained by the Exchequer. That would run counter to the interests of those who use high-cost credit.
Chris Leslie
If taxes and levies are invariably passed on to the consumer, will the Minister elaborate on the banking levy? Presumably he feels that that, too, will be passed straight through to the consumer. Are there not other tax measures that disincentivise or demerit activities?
Mr Hoban
There are a number of taxes that disincentivise certain activities. We could be here all day identifying them. The challenge is to what extent an increase in tax is passed on to the consumer and to what extent it is borne by the shareholders. There is a lot of evidence that in areas where borrowers are relatively insensitive to price, such as payday lending, the additional costs of tax measures would be passed on to the consumer. I am yet to be persuaded that that would not be the case. It might help if the Opposition had some concrete proposals on tax that could be assessed, but so far they have not. Perhaps the hon. Member for Walthamstow has a proposal.
Stella Creasy
I am saddened that the Minister did not feel that any proposals were made in the debate. I thought I had caught his eye when I talked about whetting his appetite with the excess profits that companies make. I made a specific proposal on that, which I will repeat for his benefit. Provident has taken £675 million in excess profit out of low-income communities since 2005-06, according to the Competition Commission’s investigations. Perhaps he could look at taxing the excess profits that these companies are making. Does he agree with that proposal?
Mr Hoban
I listened carefully to that point, and the hon. Lady again demonstrated the problem that she is long on analysis, but short on solutions. She talked about excess profits, but of course there is a range of solutions for that, one of which is to increase competition in the market to force prices down. I am not sure that a windfall tax, which I think is what she is proposing, would have the impact that she expects.
Mark Durkan
The Financial Secretary suggests that taxation would inevitably be passed on to consumers, but Ministers insisted not so long ago that the North sea tax would not be passed on to consumers. The Chancellor himself was very clear that it would not, and that he had means and measures to ensure that it could not be. Many Government Members said that they were happy that consumers would not pay the VAT increase, because hard-pressed businesses would just have to absorb it. Why are the Government protecting the predatory credit sector?
Mr Hoban
The hon. Gentleman needs to look carefully at the impact of tax in different sectors. Just because one rule applies to one sector does not mean that it applies to others. We know that there is real concern, for example, that if we forced excise duty up too high, people would resort to smuggling to evade it. The impact varies from tax to tax and from area to area, and we need to consider which measures will be effective.
There are broader concerns about how the Opposition want to use tax. As I said, tax is used to change behaviour from time to time, but it is a blunt instrument, and if it is not properly thought through it can lead to perverse outcomes. An increased rate of tax on lenders would not have any obviously positive impact on how consumers are treated. Studies from other areas show that lenders will find ways to circumnavigate regulations and pass costs on to borrowers. A different tax rate for those businesses would be detrimental to consumers and would raise the cost of providing credit to those who may be unable to access mainstream credit.
Members have a responsibility to take seriously the potential for such measures to drive lending underground. I am sure that no one in the House would like to see a rise in illegal loan sharking, which can so devastate lives. The risks to individuals’ financial and personal well-being would be increased by loan sharks, who do not follow regulations or take legal action when debts remain unpaid. They use whatever means they can to recover their money, often forcing borrowers into more debt, or much worse. The provision of short-term credit can prevent financial exclusion, and it has allowed more consumers to access credit in a regulated market.
A number of comments have been made about an interest rate cap. There were three separate reviews under the previous Administration that considered, among other things, price controls in the high-cost credit market in the UK. They all came to a similar conclusion—that introducing price controls may lead to unintended consequences that would not be beneficial to consumers. The OFT review found that
“introducing price controls would not be an appropriate solution to the particular concerns we have identified in this market”,
and that
“developing a system to enforce and monitor price controls or interest rate caps in the UK would be complex, expensive and difficult to administer”.
In Committee, the hon. Member for Walthamstow mentioned a recent European Commission study published at the start of this year, but it found that restrictions on interest rates could deny people access to small amounts of credit, do not reduce overall average interest rates and lead to increased fees and charges being imposed by lenders. The idea of a cap on the total cost of credit sounds appealing at first, but it would have its consequences.
Oliver Heald
Does my hon. Friend agree that two initiatives that were described earlier are valuable? One is credit unions—my hon. Friend the Member for East Hampshire (Damian Hinds) chairs the all-party group that is promoting their work—and the other is financial education for young people, which my hon. Friend the Member for North Swindon (Justin Tomlinson) and his all-party group are pursuing vigorously. Are those not two positive things that the House can get behind?
Mr Hoban
Yes, my hon. Friend is absolutely right. The provision of better education, information and guidance to help people manage their money is extremely valuable. That is why we have been very supportive of the Money Advice Service in its work to help improve financial capability and capacity.
Sustainable solutions to the issues raised by the Opposition are not simple or obvious. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, an individual making the minimum repayment on their credit card could be subject to a higher total cost of credit than someone using payday lenders. The vast majority of people who borrow from payday lenders and then re-borrow pay off the amount that they borrowed by the third time. That shows that careful and considered thought needs to be given to the impact on consumers of a cap on the total cost of credit, and how it would be implemented in practice. The majority of available research focuses on interest rate restrictions rather than such a cap, but some of the same challenges apply.
We need to gather evidence before we introduce new rules, or else risk unintended consequences. That was why we launched the consumer credit and personal insolvency review, and we are considering carefully the evidence that has been provided. The Government will announce the next stage shortly, and are committed to taking action when we can be sure that it will be effective. The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), and I will continue to engage in the matter, along with the hon. Member for Walthamstow. However, I am afraid the new clause is not the right way to take things forward. It is flawed in both detail and effect. We need sensible, well-thought-through interventions to improve the functioning of high-cost credit markets and get better outcomes for consumers. The new clause would not achieve that, and I ask the Opposition to withdraw it.
I know that it cannot be easy for the Opposition to work with the Government on this issue and appear to concede on the new clause. It could seem like a climbdown for them to accept that more work is needed before action is taken, but that is the sensible, responsible approach.
Chris Leslie
I am sorry that the Financial Secretary has taken that attitude to the new clause, which is pretty innocuous in calling for a review. We have not put specific proposals in it, because we thought that in the spirit of cross-party working it would be useful to set up provisions to allow the Treasury and the OFT, working together in harmony, to work through the options and possible policy devices. Asking for a review on an extremely serious issue such as this is a bit like motherhood and apple pie; it really should not be objected to.
Mr Hanson
My hon. Friend makes a valuable point. She will know that the legislation passed by my right hon. Friend the Member for Edinburgh South West (Mr Darling) in the last Parliament allowed salaries of more than £1 million to be open to scrutiny, which would address the issue she mentions.
There is some merit in bringing this issue to the attention of the House, and I am grateful to my hon. Friend the Member for Hayes and Harlington for doing so. He will know that there are some issues to do with his amendment delaying corporation tax cuts, but I am grateful that he has addressed the issue and I hope the Minister will respond in due course.
Amendment 17 is about the enterprise investment scheme, which we support. In Committee, we asked the Minister whether he had state aid approval for the EIS and I would welcome an update on whether he has since made progress on that.
I have some sympathy with amendment 51, tabled by the right hon. Member for Gordon (Malcolm Bruce). On Second Reading and in the Committee of the whole House, we tabled amendments that mirrored his amendment in many ways, asking the Chancellor to produce before the end of September an assessment of the impact of taxation on ring-fenced profits, business investment and growth, including an assessment of the long-term sustainability of oil and gas exploration in the North sea. For the reasons mentioned by my hon. Friend the Member for Aberdeen North (Mr Doran), the way that the proposal was brought forward contained elements of surprise for the industry. There was a lack of consultation and there have been consequences. The right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) both mentioned Statoil and the great impact that the decision has had on that company’s potential $10 billion—or £6.1 billion—investment in the North sea.
It is important that the Economic Secretary has had discussions—some potentially very exciting and energetic—with oil companies on these matters as part of her initiation into her role in government. I hope that she will ensure that she reports back. I also hope that the Minister will accept amendment 51, or at least accept an amendment in principle for the future.
Finally, although my hon. Friend the Member for West Bromwich East (Mr Watson) is not present today because of other matters, I very much welcome his amendment 9, which is part of this group. We raised the issue of video games tax relief in debates on the Finance (No. 2) Bill. However, we need to look at the issue again in detail, if only because the hon. Member for Wantage (Mr Vaizey) said when in opposition:
“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”
He said that during the general election, on 13 April 2010. He is now the Under-Secretary of State for Culture, Olympics, Media and Sport, yet he has been sat on by the Chancellor of the Exchequer, who said in his Budget statement last June:
“In the current climate, with the deficit the size…all those reductions in tax must be more than paid for by other changes to business taxation, so we will not go ahead with the poorly targeted tax relief for the video games industry.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]
My hon. Friend’s amendment 9 asks the Government to look again at the issue. I simply put on record the fact that, yet again, those in government said one thing during the election and something else afterwards. We need to encourage the video games industry so that we can compete on a global scale.
In summary, there are some useful amendments in this group. I cannot accept everything that the hon. Member for Amber Valley said, but the other amendments before us have some merit. I look forward to hearing what the Minister has to say.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had an interesting and wide-ranging debate on this group of amendments, which propose a number of changes to the taxation of business. Let me start by reiterating our position on business tax. The first step in the Government’s plan for growth is a competitive UK tax system. In fact, the Government’s aim is to create the most competitive corporate tax regime in the G20, and we have been clear about how we intend to achieve that. Last November we published our corporate tax road map, setting out our plans for reform over the next five years and the principles underpinning those reforms. I am quite clear that if we are to provide business with the certainty that it needs to invest in the UK, tax reforms need to maintain stability, avoid complexity and ensure a level playing field for taxpayers.
Let me deal first with the amendments tabled by the hon. Member for Hayes and Harlington (John McDonnell), and in particular amendment 15, which deals with directors’ pay, and on which we saw an unlikely alliance between him and my hon. Friend the Member for Wycombe (Steve Baker) in defence of the interests of capital versus workers—if I can phrase it in a way that will please my hon. Friend but not the hon. Gentleman—albeit the highest paid workers. It is worth noting that both hon. Members have made many declarations of independence, and today was no exception. As I have said, a competitive tax regime is the foundation of our plan for growth, and the consequence of amendment 15 would be to delay the reduction in corporation tax.
The Government take the essence of the hon. Gentleman’s concern—directors’ remuneration—seriously; indeed, my right hon. Friend the Secretary of State for Business, Innovation and Skills raised it on 22 June in a speech to the Association of British Insurers, asking how we can ensure that directors’ remuneration is effectively linked to company performance. To help answer that question, the Government already have plans to consult in two relevant areas. In July, the Department for Business, Innovation and Skills will look at the narrative aspects of reporting directors’ remuneration, examining the provisions dealing with the disclosure of directors’ remuneration and making the link to company performance much clearer. In the autumn, the Department will explore other policy options related to the role of remuneration committees and company accountability to shareholders.
Turning directly to the proposals made by the hon. Member for Hayes and Harlington, let me first remind him that UK-quoted companies are already required to publish a directors’ remuneration report. That includes full individual details of each director’s pay, including salary and bonuses, share schemes and all other forms of remuneration. His proposal to make the remuneration vote binding in nature would raise difficulties, as such a vote would inevitably cut across contractual arrangements already entered into between the company and the director. That is why the vote is currently advisory in nature.
John McDonnell
Is this issue to be part of the consultation in the autumn? Will it be addressed at all?
Mr Gauke
As I have said, the consultations I have announced will focus on the narrative provisions, the role of remuneration committees and company accountability to shareholders. I am sure that representations could be made to the latter consultation. However, there remains a difficulty with cutting across contractual arrangements and I dare say that there might be issues with the Human Rights Act 1998 were that to happen.
John McDonnell
First, I think it would be greatly reassuring to the House overall if the issue of the binding vote was within the scope of those consultations. Secondly, the issue of contractual commitments has always been the red herring brought up on any future reform. The way around it is simply to make future contracts subject to that binding vote of shareholders.
Mr Gauke
I know that my ministerial colleagues in the Department for Business, Innovation and Skills are watching this debate very closely and will have listened to the hon. Gentleman’s representations. I noticed that when he referred to the House as a whole, he gestured to my hon. Friend the Member for Wycombe. Whether the hon. Gentleman and my hon. Friend necessarily represent the views of the House as a whole on all issues I am not sure, but the hon. Gentleman raises a fair point.
Steve Baker
May I say that I think the reason for this unlikely alliance is that the workers now are the capitalists through their pension funds and other investments? I remember a trade unionist explaining to me with some care the new movement for workers’ capital and I think we will be missing a trick as a free-market Government, if indeed we are a free-market Government, if we do not recognise that the workers now are the owners and that we need to help them take control of what they own.
Mr Gauke
I do not know whether my hon. Friend is trying to lose the support of the hon. Member for Hayes and Harlington on this, but I fully take his point on board and I shall ensure that BIS is aware of this debate. My right hon. Friend the Business Secretary has said that shareholder accountability is an area that his Department will be looking into in the autumn.
John McDonnell
This is a serious point, and I say to the Minister that this will come back time and again, because every Government structure put in place by successive Governments on this issue has been unsuccessful in controlling remuneration. There is outrage among the general public about what has been happening, not just in recent years but today with £6 billion bonuses in the City and elsewhere. I say to him in all seriousness that any Government need to address this issue, which concerns the democratic control of what are now public companies in terms of ownership.
Mr Gauke
The hon. Gentleman makes his point forcefully. It is worth pointing out that the UK leads the way internationally on the reporting of executive pay and accountability to shareholders. I hope that he will acknowledge that, just as I acknowledge the legitimate concerns he raises. It is our intention to make sure that the framework remains fit for purpose and in line with our approach to delivering long-term returns as our economy grows out of the recession.
The hon. Gentleman’s second amendment, amendment 17, would delay the introduction of clause 42 until a report on the impacts of the enterprise investment scheme had been published. In contrast with corporation tax as a whole, EIS is a focused relief with a particular purpose and is a vital component of the Government’s plan for growth. The scheme encourages investment into smaller, riskier companies by offering a tax incentive to investors. For example, it benefits new start-ups in high-tech sectors such as IT bioscience. Since 1994, about £7 billion from private investors has been contributed to qualifying companies. The Government are building on the success of the scheme with changes in this Finance Bill and in the Bill next year that will increase the incentive for people to invest in smaller companies, helping them to establish and grow.
John McDonnell
How do the Government assess value for money with regard to those schemes, if not in job creation?
Mr Gauke
There have been assessments of the enterprise investment scheme, which has been in place since 1994. We want to encourage greater investment, particularly in smaller companies. We recognise that sometimes there is market failure in that area, which is why tax incentives are justifiable. We have set out as much information as we can, but it is not something on which we can provide precise numbers. That is not the nature of the economy, but the scheme will encourage greater investment and that should be welcomed.
I thank my hon. Friend the Member for Amber Valley (Nigel Mills) for his remarks on my award as tax personality of the year. Some may think it a somewhat oxymoronic award, but I can tell the House that it has changed my life considerably.
My hon. Friend brings much greater expertise to these matters than I do. I welcome the fact that he seeks simplicity, which is not always the case with new clauses and amendments to Finance Bills. I want to make a couple of points that relate to both his new clauses.
First, we do not see it as our role to direct the Office of Tax Simplification. The office has done a lot of good work, but it is important that its independence is respected. Secondly, in its broad work the OTS has looked at the various allowances and reliefs in the tax system and has concluded that they are not areas where it wants to devote its efforts. None the less, I know that the OTS will closely read my hon. Friend’s speech. We are always keen to look at areas where we can improve the administration of the tax system, including his proposals in new clause 14 on consolidated filing.
On new clause 12, the OTS has given initial consideration to capital allowances as part of its review of tax reliefs and its ongoing review of small business taxation. The Government have set out their approach to capital allowances in the corporate tax road map. Allowing each business asset to be written off for tax purposes in line with its own depreciation rates would not necessarily bring the benefits to businesses that the new clause anticipates. Some business assets would depreciate more slowly than they currently do under the capital allowances regime, and it should be noted that the annual investment allowance gives immediate write-off for the plant and machinery expenditure of 95% of UK businesses. There is thus a danger that the new clause could increase business tax complexity.
I know that my hon. Friend tabled his new clauses as probing provisions. I may not have entirely satisfied him, but he has put his case on record and the OTS will of course look carefully at what he says.
I turn finally to amendment 51, tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce), who has played a constructive role on the issue in the three months since the Budget announcement on oil and gas. He made an important contribution when the House debated clause 7 in the Committee of the whole House. He has stressed the importance of working closely with the industry in the months ahead, which the Government committed to do at the time of the Budget. We announced then that we would work with the industry in three key areas: setting the right trigger price for the fair fuel stabiliser; looking at whether we can find a way to provide long-term certainty on decommissioning relief; and looking at the case for new categories of field qualifying for the field allowance. I am pleased to tell the House that we are making good progress in these discussions. My hon. Friend the Economic Secretary, who is here this evening, will update the House on progress on those discussions as soon as is appropriate. I hope and expect that she will be able to do so in the very near future. I thank my right hon. Friend for tabling his amendment. Although I have been unable to respond in full detail, I hope that the Government will be in a position to do so shortly.
In conclusion, I remind the House that it is the Government’s aim to create the most competitive corporate tax regime in the G20. We have set out our plans for reform over the next five years in the corporate tax road map, which was published last November. In order to provide businesses with the certainty they need to invest in the UK, tax reforms need to maintain stability, avoid complexity and ensure a level playing field for taxpayers. Therefore, although we have had a good debate, I invite my hon. Friend the Member for Amber Valley to withdraw the motion.
Nigel Mills
My purpose in moving the new clause was to encourage the Government down the route of tax simplification, which I hope I have achieved tonight. Therefore, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Clause 1
Charge and main rates for 2011-12
Mr Love
I associate myself with the speech made by my hon. Friend the Member for Hayes and Harlington (John McDonnell) and its focus on inequality. I want to pick up on that focus, and on the discussion we had a few moments ago about the Government’s claim that we are all in this together. I shall subject that to scrutiny through amendment 13, which was tabled by my right hon. Friend the Member for Birkenhead (Mr Field). As my right hon. Friend said, and as has been said by those on our Front Bench, the Conservative manifesto at the 2010 general election included a commitment to
“freeze public sector pay for one year in 2011, excluding the one million lowest paid workers”.
It was announced in the 2010 Budget that there would be a two-year pay freeze, except for those earning £21,000 or less, who would receive an increase of at least £250 a year. In his statement, the Chancellor went on to say that 1.7 million public servants would benefit from that and receive the £250 for two years.
In the Budget statement this year, the Chancellor had changed his tune somewhat. He said:
“I can confirm today that in the coming year all workers in the armed forces, the prison service and the NHS, and teachers and civil servants, earning £21,000 a year or less will receive a pay uplift of £250.”—[Official Report, 23 March 2011; Vol. 508, c. 963.]
That is considerably less than the commitment given in the 2010 Budget, and it is different from—and, in a sense, considerably less than—the commitment given in the Conservative manifesto. Some work has been done that shows that if the measures include only public sector workers who are under ministerial control and subject to pay review bodies—that is in essence what the Chancellor is saying—that commitment is very considerably less. As I understand it, it equates to less than half the original number affected.
In supporting amendment 30, I want to ask the Minister directly whether he accepts that the Conservative manifesto misled the people of this country. Does he accept that, in his Budget statement in 2010, the Chancellor misled the House and the people of this country? Does he also accept that the present number of people who will benefit from the £250 uplift is considerably lower than the number originally envisaged? In those circumstances, and given the difficulties that we face in a debate of this nature on taxation, will he accept the thrust of the amendment? Will the Government recommit to doing something to address low pay for those earning less than £21,000 a year? Will the Minister also ensure that everyone earning under that amount will receive the £250, given that only some are doing so at present?
Mr Gauke
It is a pleasure to respond to the debate. Amendment 10 would require the Office for Budget Responsibility to report on the revenue raised by the additional rate of income tax. Amendment 14, meanwhile, seeks a report on the impact on inequality of all taxes, and amendment 30 seeks to provide a £250 reduction in the tax liability of all public sector workers earning less than £21,000.
I deal first with amendment 10. At the Budget, my right hon. Friend the Chancellor asked HMRC to assess the revenue raised by the additional rate. As I explained during the extensive debate on this clause in Committee, which the right hon. Member for Delyn (Mr Hanson) will well recall, HMRC will consider all the available evidence on the impact of the additional rate, including data from the 2010-11 self-assessment returns, which will become available next year. Data from tax returns are clearly essential in any assessment of the revenue raised, but of course they contain confidential taxpayer information and are best reviewed by HMRC. It already has the expertise in monitoring and evaluating tax measures and is resourced to do so in future. The Office for Budget Responsibility has a different remit in producing independent economic and fiscal forecasts, judging policy against the fiscal mandate and analysing the sustainability of the public finances.
Kate Green
I understand what the Minister says, but does that not suggest that one useful role that the Office for Budget Responsibility could fulfil would be to take a dynamic look at the effect of the 50% tax rates on, for example, the propensity of people to remain in the country and pay that tax and the longer-term impact on the economy?
Mr Gauke
I would not necessarily have put the hon. Lady down as an advocate of a more dynamic assessment of the tax measures, but perhaps I was mistaken in my understanding of her views. The purpose of the review that my right hon. Friend the Chancellor has announced will be to enable HMRC to see what has happened in the first year. It is right to say that there are long-term effects that will not necessarily be incorporated in that first year’s data, and I think anyone with an understanding of these matters would acknowledge that.
It is perfectly reasonable to make the point that if the 50p rate were to become a permanent feature of our tax system, it could damage the UK’s competitiveness. That is a point that the noble Lord Mandelson appears to support and I believe that the right hon. Member for Edinburgh South West (Mr Darling), who introduced the 50p rate as Chancellor, saw it as a temporary measure, while Tony Blair has made it clear that he thinks the 50p rate is a mistaken policy—full stop. Our view, however, is that at this time, because of the sacrifices we are asking people to make, the 50p rate does play a role, but we want to analyse what revenue it brings in the short term and to gain an understanding of its long-term effects.
As the additional rate was introduced by the previous Government, I can perfectly understand why the right hon. Member for Delyn is so interested in establishing whether it was a successful policy, but when he talks about public scrutiny of Budget measures I must ask him what public scrutiny was there when the 50p rate was introduced? To what extent was the analysis published then, and to what extent was it published when the 10p rate of income tax was doubled? What information was put into the public domain at that point? As a Government, we have done much more on putting information into the public domain by publishing our analysis. Announcements in this area will be made by the Chancellor at the appropriate time. It is peculiar, however, to hear the Opposition proposing more evidence-based policy making only to reject the notion, it seems to me, that this Government should consider the evidence before making any further commitments.
I turn now to amendment 14, which deals with the impact of tax on inequality. I realise that the hon. Member for Hayes and Harlington (John McDonnell) has his own views on inequality, some of which may not necessarily be shared by his Front-Bench team. I thank him for tabling this amendment, however, as it provides me with an opportunity to highlight the significant steps that the Government have taken in 13 months to address inequality through the tax system.
First and foremost, the Government are committed to ensuring that the income tax system gives more support to those on low to middle incomes, and rewards the efforts of those who choose to work. That is why the June 2010 Budget announced a £1,000 increase in the income tax personal allowance for those aged under 65. A further £630 increase was announced in Budget 2011. That will make the personal allowance £8,105 from next year. Together, those increases will benefit 25 million individuals, and take 1.1 million low-income individuals out of income tax—an important point that my hon. Friend the Member for Bristol West (Stephen Williams) highlighted. Basic rate taxpayers will gain by £210 per year on average. That is part of our stated objective to increase the personal allowance to £10,000, with real terms steps in that direction every year.
Income tax is not the only area in which the Government are tackling inequality. All local authorities in England have voluntarily frozen or reduced their council tax in 2011-12 and as a result have qualified to receive additional Government grant equivalent to a 2.5% increase in their band D council tax. We have committed £1.9 billion to ease the burden on motorists, including the 1p cut in fuel duty as opposed to the 6p increase under the plans of the previous Government. We are supporting pensioners through the triple guarantee of state pensions being uprated by earnings, prices or 2.5%, whichever is highest. The television licence will be frozen for the next six years.
Clearly, the Government have taken great strides to tackle inequality in this country.
Kate Green
What steps have the Government taken to reduce inequality by concentrating on taxation not at the bottom of the income spectrum but at the top?
Mr Gauke
As was mentioned earlier, we have increased capital gains tax rates from those that we inherited, and our income tax decreases have been focused on the low paid. That is an example of what we are trying to do. The point is how to ensure that we have a competitive tax system so that we have the growth that the economy needs and that benefits all our constituents.
Let me turn to the report requested by the hon. Member for Hayes and Harlington.
I draw his attention to the detailed analysis that the Government have published on the impact of direct tax, indirect tax, tax credits and benefit reforms, which can be found in annexe A to “Budget 2011”. The Government have gone further than any previous Government in presenting distributional analysis of how changes to taxes, tax credits and benefits affect households. We have published detailed analysis at Budget 2011, the spending review and the June Budget 2010. That analysis shows that the top decile sees the largest losses from the cumulative impact of tax, tax credit and benefit reforms introduced at Budget 2011 and previous fiscal events. In cash terms, the top decile loses more than twice as much as the ninth decile, and 10 times as much as the bottom decile. That is the case if one looks at the overall impact or in cash terms, as a percentage of net income, or across income or expenditure deciles.
John McDonnell
Will the Government publish anything with regard to the distribution of wealth—for example, the impact of such policies on the Gini co-efficient?
Mr Gauke
We will make further announcements as and when necessary, but we are publishing much more information on distributional analysis than any previous Government have. It is right to do so, and to take steps to ensure that the House and the whole country can debate such matters with as much information presented in future. A striking contrast can be drawn with regard to one policy—the doubling of the 10p rate—about which the hon. Gentleman and the right hon. Member for Birkenhead (Mr Field) had concerns. It was difficult to obtain any information on that policy’s impact, although we have learned in recent weeks that much of the information about that was available to Ministers at the time.
Amendment 30 seeks to provide a one-off £250 reduction in the tax liability of all public sector employees earning less than £21,000. In the June 2010 Budget, we announced a two-year pay freeze for public sector workers earning a full-time equivalent of £21,000. That is one of the many difficult choices that we have had to make to help put the UK’s public finances back on track, and it does not mean that we do not value the work done throughout the public sector. All Members know that those in the public sector work hard for the benefit of society. However, pay freezes of this sort save jobs. Given that we are having to constrain public spending and given that the fiscal deficit requires cuts, a pay freeze will help to mitigate the effect of those cuts. Because we recognise that the freeze will be hardest on the lowest-paid public sector workers, it was announced in the June Budget that those earning a full-time equivalent of £21,000 or less would receive an uplift of at least £250 in both years of the freeze.
Both the Labour party’s manifesto at the time of the last general election and the 2009 pre-Budget report announced a 1% increase for public sector workers across the board, apart from the armed services. No distinction was made between the low paid and the high paid. Under a Labour Government, none of those earning less than £21,000 a year—including nurses, teaching assistants, police community support officers and hospital porters—would be receiving a £250 increase.
Mr Frank Field
What we said at the last general election is not very relevant, because we lost. The other side won, and made a commitment in the Budget. The Chancellor stood at the Dispatch Box where the Minister is standing tonight, and said that 1.7 million low-paid workers in the public sector would receive an increase of £250. What we now want to know is how many are being paid the £250, and, if 1.7 million are not being paid that sum, what steps the Government will take to ensure that they are paid it.
Mr Gauke
The policy advocated by the Labour party when they were in government would have resulted in none of these public sector workers receiving £250.
We will ensure that the policy on pay increases for low-paid local government workers is applied across the civil service and to work forces with pay review bodies. That will include civil servants, NHS staff, teachers, members of the armed forces and those working in prisons. Many civil servants, nurses and prison officers, and the armed forces, have already received the £250 increase this year and can expect a further £250 increase next year, but other work forces have responsibility for negotiating their own pay deals. Decisions on the pay of local government work forces are for local government employers, rather than central Government, to negotiate. Provision was made in the local government settlement for local authorities to pay the £250 increase, but the fact remains that the decisions are made by local authorities. We gave them the opportunity to pursue the policy that we are pursuing at national level, but it is ultimately for them to decide how to pay their employees.
Mr Field
At the Dispatch Box, the Chancellor said that 1.7 million low-paid workers in the public sector would receive increases of £250 this year and next year. Will the Minister please tell the House how many of those 1.7 million have received the promised sum—promised by the Chancellor, not by me?
Mr Gauke
Where it is within the Chancellor’s control because the money is paid through central Government, those low-paid public sector workers will receive the £250. For those who work in local government, which is not within the control of central Government, we have provided local authorities with the funding to be able to meet that policy objective.
Mrs Mary Glindon (North Tyneside) (Lab)
My own Tory council totally ignored the Chancellor’s directive to give that money, and in the debate on the budget refused to give the £250 to our low-paid workers and said it had put in place a balanced budget that was in line with the Chancellor’s requests. What does the Minister think of that?
Mr Gauke
It is for local authorities to determine what they pay their employees, but we have given them the extra money to fund this, and we would like local authorities to fulfil the objective that we are achieving at national level. We do not control local authorities, but we can provide them with the funding, and we did that. Our intention was that all low-paid workers would receive the £250, but we do not—and should not—have the ability to mandate local authorities to pay their workers, and that is currently up to them.
John McDonnell
When the Chancellor made his statement, there were no caveats; it was a straightforward commitment to pay 1.7 million workers the £250. The Chancellor gave a moral commitment; it therefore behoves the Government to intervene to ensure the Chancellor’s pledge is fulfilled to all 1.7 million workers, without any caveats.
Kate Hoey (Vauxhall) (Lab)
The Minister said earlier that the Government had specifically given this money to local authorities. If we are now hearing that authorities—of all political persuasions, perhaps—such as that of my hon. Friend the Member for North Tyneside (Mrs Glindon) have not been paying it as they should, will the Government take that money back?
Mr Gauke
No. The funding settlement with local authorities was made on the basis that the money would be available for them to pay to low-paid public sector workers, but it is ultimately their decision.
Returning to the amendment of the right hon. Member for Birkenhead, I understand that it is intended to help enforce the Government’s policies, and I am sure he intends to be helpful. However, we do not believe that using the tax system is the right way to address this; we do not think that will be practical. It would add complexity to the tax system, and I therefore urge him to withdraw the amendment, especially as I know he will return to this subject at a later date.
Mr Gauke
I have given way to the right hon. Gentleman on a number of occasions, and I think it is time to conclude.
I have explained why the assessment of the additional rate of income tax requested by my right hon. Friend the Chancellor must be prepared by Her Majesty’s Revenue and Customs. I have explained that the analysis the hon. Member for Hayes and Harlington seeks already exists, and I have explained why the Government’s approach to assisting the lowest-paid public workers is the right one. There is no need for these amendments, so I ask for them to be withdrawn.
Mr Hanson
What is clear is that my right hon. Friend the Member for Birkenhead (Mr Field) has exposed completely the fact that the Chancellor of the Exchequer promised one thing at the election and one thing in his Budget, and has not delivered on that promise completely. I know that we will return to that issue during the next few weeks and months.
On the issue of the Office for Budget Responsibility, I wish to press amendment 10 to a Division and I urge my right hon. and hon. Friends to support me in the Lobby.
Question put, That the amendment be made.